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2 Feb 2013

How banks print money for themselves

Last year I posted a piece about how you could solve the UK's national debt problem in five easy stages. All you need is to have a bank with a bit of capital that used the fractional reserve banking scam to create money that it then lent to a customer that then lends to a second customer who then reinvests in the bank, allowing the bank to create yet more money.

By starting with an investment of £30,000 and doing the same trick 5 times, you can generate enough "money" to pay off the entire national debt. Magic!

At the time I thought that it was a bit of a long shot. Surely, nobody would be able to pull off such a trick?

Well, the Financial Times had a report yesterday called "Barclays in Qatar Loan Probe" in which they state that "UK authorities are probing an allegation that Barclays loaned Qatar money to invest in the bank as part of its cash call at the height of the financial crisis in 2008, which enabled the bank to avoid a UK government bailout."

The article goes on to say "If confirmed, such an arrangement could contravene market regulations if it was not properly disclosed at the time, legal and industry experts warned. “The concept of lending money to any investor to purchase your own shares raises a series of immediate questions about disclosure and other regulatory issues,” said Peter Hahn, a former banker at Citi now at Cass Business School."

The Guardian also took up the story in a report that "The Qataris were the main contributors to a £7.3bn lifeline to Barclays that allowed it to avoid a taxpayer bailout. The Financial Times reported that the Serious Fraud Office and the Financial Services Authority are investigating whether Barclays lent Qatar funds to buy shares in the bank."

Well, all I can say is that the people at Barclays should read my proposal, in which I carefully point out that you have to at least cover the traces by using intermediates in the Cayman Islands. If you just create a whole pile of money that you lend to the Qataris who then invest directly in your own bank, isn't it just a bit too obvious? That really does look like printing your own money. No different really to having a printing press in the basement.

Come on Barclays! Use a bit more skill for heaven's sake. Lend the money to some obscure group based in the Caymans before they pass it on the Qataris to invest back in the bank. I would have thought that it was simple....

2 comments:

  1. “…solve the UK's national debt problem in five easy stages…”???
    But we’ve been solving it big time in just ONE STAGE over the last two years: print money and buy back the debt. It’s called quantitative easing.
    There is nothing in principle to prevent us taking that a lot further and printing further tens of billions and buying back the whole lot – though obviously doing that in just two or three years would be too dislocatory. Moreover, given that the real or inflation adjusted rate of interest on the debt is about zero, I don't see a huge urgency in cutting the debt.
    As to any excess inflationary effect caused by excessive QE, that can be dealt with by a countervailing DEFLATIONIONARY measure: raising taxes.
    Now what have I missed?

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  2. Hi Ralph,

    Did you see my proposition in one of my Youtube presenations in which I propose that central banks could actually generate almost unlimited amounts of money that could be spent into the economy by financing projects that receive overwhelming public support, and that any excess money in the economy could simply be mopped up by using a continuously varying FTT that would take just enough money out to prevent inflation. Here's the link http://www.youtube.com/watch?v=DthcVZsFKmo

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