Good analysis in this thread. As I understand it, the rules of fiat money are simple. Money is created as credit. You want to buy a home. the bank creates that much money out of thin air. They give that to you. they also -- at the same time -- create the amount of money (9x's more) it will take you to pay back the interest on your loan. They dont give you this 9x time ammount. They keep it in the bank. Quoting: Anonymous Coward 27711841
The bank then decides how to inject that 9x money into the system in a way that you can theoretically "earn" it and send it back to the bank to service your debt and eventually exhaust the principle.
The problem is in this decision making process that the bank goes through. They have to decide how difficult the scavanger hunt will be for you to get the 9x money and settle up your debt.
This why they think it is okay to create bubbles. its like making the scavenger hunt really easy and short. Problem is, many people do not take the easy route. they don't quit their jobs to flip houses, day trade tech stocks, become tax attorneys for corporations, etc.
This creates an imbalance. the people who need to go on the scavenger hunt to reclaim the money the bank created for THEIR OWN loan, get out competed by sharpers. The sharpers take too much of the 9x money that would not have even existed but for the original borrower.
The sharpers consider themselves entitled to your scavenger hunt money because they are sooooo much smarter than you. A little competition is fine, and motivates people to work hard. But the system of crony capitalism we have now is not fair. You are outclassed from the day you take the loan. The sharpers are debt free, tax free, professionals. With the best lawyers and politicians already in their pockets.
Not only are they better than you at your scavenger hunt, they are so bold as to sell you tools (taken out of your 1x money) to make you think you can compete with them for any part of your 9x money.
If they fail to get any of the money out in the hunt, no worries, they wait for the next loan to be originated for somebody else. remember the debt free, tax free, politicians in their pocket status. If you fail to get 100% of the money to service your loan. you lose your collateral and your credit score.
The system is not pure evil, but it sure caters to those who are, especially considering the regulators (referees) are typically incompetent.
When people can not get their 9x money back on their own, thats where government expenditures come in. Thats where the public debt and deficits are created. If you are out on the scavenger hunt, who teaches your kids? A teacher. You need roads to get to the places the bank hid its money, the government pays for that.
So if the government owes money just like our borrower, what type of scavenger hunt does the banks set up for them to repay their 9x money? Physical hunting and violence. use a gun to collect taxes from citizens. use a gun to invade other countries and take their stuff.
This is a beautiful post, full of truth from beginning to end.
I would suggest one correction right at the beginning, so that shills cannot seize on this point to discredit the whole thing.
The fractional reserve relending multiplier (and Dodd-Frank mandated capital rules) are not necessarily equal to the repayment multiplier on a mortgage over its life. It's sort of an accident if they are close; if mortgages were 5 years rather than 30, they would not be close.
And interest rates aren't something that banks control, at least not now. They are bigger than just banks. If YOU don't go out and borrow money, you are depressing the interest rate. You have every right to do so. And so now all the Fed can do is to have a zero-interest rate policy. There will always be interest, because it's the option value of having money sooner: you can save it and have it later, or you can spend it now. Options have value. This is an economic fact that all the central banks could not change even if they wanted to. Even Islamic banks effectively charge interest, even though they pretend they don't (interest is illegal under Sharia law) and obscure it just enough that some mullahs (probably well compensated) issue the fatwa that it's not really interest.
So the scavenger hunt is required, not mainly because the bank sets it up, but because of that fundamental economic force. And given that this scavenger hunt will be going on anyway, banks go along for the ride by mandating that you use their currency, and via multiple relending they make it a system that can expand or contract to fit the economy, thus keeping themselves entrenched as the bankers and their money entrenched.