Prof. Werner brilliantly explains how the banking system and financial sector really work. There is also a longer talk he did in Dublin for the Public Banking Forum of Ireland below...really explains how the system works, what's broken with it and solutions too...
A quick google search and Werner's most interesting contribution to economics seems to be his postulation that financial transactions are a zero-sum game ie if you gain through a financial transaction, someone else loses. No value has been added. Now I'm with him on the level that credit provided for productive improvements are good in the sense that productivity enhances wealth, whilst credit provided for consumption is bad in the sense that consumption destroys wealth, but can you explain why credit provided for financial transactions (and he mentions the housing market as an example) does not lead to an enhancement in wealth? As far as I see it, when someone takes out a loan for a piece of property, they are exchanging say $500 000 for a property that they value at more than $500 000. After all if they didnn't value it at more than the amount of the loan then they would not take that debt on in the first place. To my way of thinking, that financial transaction has enhanced the wealth of both the lender and the borrower.
My take on it is that the "loan" for the property doesn't result in any "real" increase insofar as the same property is in play only it's "perceived" value has increased (maybe?), and that financial transaction is the same zero-sum game as 1 party gains (picks up "credit") while the other loses (gets saddled with a debt)...but if the "loan" was taken out to fund the building of a new property then there is a productivity increase...
What are thoughts on this quote: "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power of money should be taken away from the banks and restored to the people to whom it properly belongs." - Thomas Jefferson
Very interesting. It gets good about half way through, but I was floored by the claim near the end that the city of London is outside the UK and doesn't have democracy. Whats that about? Did he just go full conspiritard?
I actually thought it started pretty well too 00:20 – 01:20 How different would GDP figures look with Financial Sector "costs" subtracted
I would add that debt creation from banks has created high property prices. Rental yields haven't provided support to property prices as rents have risen at a much slower pace than property prices. If bank lending wasn't sufficiently available long term, then buyers overall would lack the spending power to offer to buy at such high prices.
Interesting points that appear to be missed... Banks don’t take deposits and banks don’t lend money Banks borrow money from the public – they purchase securities/promissory notes What we call deposits is the banks record of its debt to the public We are the banks creditors – not debtors
Yes, that was the bit that really perked my interest. I'll take a much closer look at the fine print if I ever take out another loan.
