So even if the bank only captured 2% from you, in aggregate the banking system sucks double-digit percentage of word GDP into their coffers for something that history has shown they don't actually do a good job of providing, in the absence of bail-outs.
(And, fwiw, I don't know where you're getting 2% interest. Any real industrial financing would be much higher, with larger compounding effects.)
Top thousand banks make something like $1 trillion (as per http://www.businessinsider.com/r-global-bank-profits-hit-920...). I think we can safely ignore the long tail here, as it consists solely of banks making under a billion.
So, about 1% of global gdp is profit for banks.
If a bank creates the money for a loan on a house, the loan defaults, and the house is foreclosed on, does that foreclosed asset count as a profit?
If banks operate on a 10% gross profit margin, that profit number means banks are consuming 1%/10%=10% of the world GDP. If true, that would be an enormous cost, and I can easily see the opportunity for optimization that cryptocurrency advocates talk about.
The profit is the amount the banks make that isn't consumed by those costs, so that's the right number to use.
https://www.marketwatch.com/investing/stock/wfc/financials
Interest income: 53.66B Interest expense: 5.91B Net interest: 47.75B
Net income: 21.94B
so already, we're working off of closer to 40% net margin.
Now let's look at what actually causes the difference between those numbers:
>10.08B in taxes
Pretax is 32.12B, so there's about 15B left to explain
This turns out, roughly, to be the difference between Non-Interest Income and Non-Interest Expense - in other words, stuff that isn't really related to regular banking stuff.
I'm not going to repeat this analysis for another 1000 banks, but it seems like, at best, you might double that number if you decide that some of these expenses aren't needed.
Also if I pay you $50 to pay me $50, GDP rises by $100.
If I hire you to act in a TV show and then stream it to a million people, would you also say no value is created?
What is value, if not what makes people happy / gives them utility? If someone is willing to pay someone to dig a hole, then that digging gives them value (assuming no fraud/ etc).
For some people that amounts to fraud.
It used to be that savings & loan type banking couldn't mix it up with serious financial engineering. Then the rules governing these things were broken down, and retail banks started taking on more and more fancy (and risky) investments. That's the kind of stuff that eventually led to the bailouts.
But I don't think it can be stressed enough that "getting too wild" meant getting involved in a lot of capital markets that were traditionally firewalled off from savings & loan banking.
Holding up what happened to the banks during the financial crisis as an argument for savings & loan banking being riskier than investing in the open market is a lot like telling people that, if they don't like the heat in the frying pan, they'd be a lot better off in the fire.
(edit: totally mistyped in that last paragraph)
But you can swap out currencies and still have that exact same problem. In some Bitcoin-based parallel universe, you'd just have a different set of companies hiring the same lobbyists and cutting the same political contribution checks, in order to achieve the same sort of favorable regulation and risk shielding.
This is the key problem that I think Bitcoin boosters fail to grasp: the government didn't bail out the banks because they're banks. The government bailed out the banks because they got themselves into a position where they could demand a bailout and get it. There's nothing about banking qua banking that allows this; you can do it (and historically it has happened) in other industries.
Blockchains don't fix that, because it's not a technological problem. It's a political and sociological problem, not amenable to quick technical fixes.
But it very clearly isn’t. That’s an egregious abuse of the word, “fraud” by any commonly accepted definition.
Usually, when committed by the government.
Examples:
- Underfunded pension funds,
- bank bailouts with taxpayer money,
- wars with made-up reasons,
The cost of each should be in the trillions but it's not fraud. By the same reasoning, previously one could expect to get a positive real interest rate (= nominal interest rate - inflation), yet that's not the case. Legally fraud? No. Challenging the economics of the last few milleniums? Yes.
You do know the banks payed back the bailout money with interest and added fines right? Overall it was a net positive for tax payers. Not sure how that's a fraud... Your other examples are suspect as well...
If in Russian roulette you have a chance of 1 in 6 to win 1 million and 5 in 6 to die, winning the million doesn't mean you made a good decision.
What happens if they cannot sell it? They lose lots of money, equivalent to food and shelter for millions of the poor or maybe ten thousands of chemo-therapies. Government is not good with investment.
No, that's not at all what I mean. What I mean is what I said - inflation isn't just not fraud, the two terms are not even definitionally relevant to one another.
> Usually, when committed by the government.
Examples:
- Underfunded pension funds,
- bank bailouts with taxpayer money,
- wars with made-up reasons,
I'm not going to engage in a discussion about whether or not governments do things which are economically controversial or a net loss for society (nor am I going to agree or disagree that your examples are good examples of that observation in practice).
What I will say is that "bank bailouts with taxpayer money" are not fraud, even if the banks themselves were complicit in fraudulent activity, because the bailouts were a practical matter of economic preservation. The government itself did not defraud the American people in this example, and your framing here is a rearrangement of the actual facts. Using taxpayer funds (which is tantamount to the government doing nearly anything) for something which you disagree with and which is related to a financial system does not constitute fraud.
As for the other two examples: I won't comment on war, but can you clarify what you mean by "underfunded pension funds"? How does this example constitute fraud, and what exactly do you mean by these funds being underfunded? Deliberately so? By whom? To what effect?
> The cost of each should be in the trillions but it's not fraud. By the same reasoning, previously one could expect to get a positive real interest rate (= nominal interest rate - inflation), yet that's not the case. Legally fraud? No. Challenging the economics of the last few milleniums? Yes.
Fraud requires a conscientious, covert decision on the part of one party to cause, and thereby profit from, a loss for another party. You can't feasibly map fraud to inflation. It's not just that it isn't fraud (it isn't!), it's that monetary policy is so complex, and its incumbents' decisions so diverse, that it's conceptually orthogonal to fraud.
Economic control systems and their feedback mechanisms are very complex and influenced by many unrelated parties; you need not ascribe malicious motive or conspiratorial profiteering to the government to end up with characteristics you're unhappy with.
I see where you come from but there are two things you should consider:
1. Intention is really hard to prove. Just as much as you say that there was no intention I can say there was because there can be no proof and the government can (and most probably will) do everything in its power to eliminate the slightest evidence of intention, regardless of intention or not.
2. But more importantly, intention doesn't matter. If a trillion goes missing, it doesn't matter whether it was fraud or lack of oversight, the end result is the same and if the government were your employee, you'd just fire them for incompetence (again, regardless of intention).
In that sense I used fraud and I honestly wasn't aware that it might sound (and even be) hyperbolic.
The above lines should explain better the examples:
- Inflation (induced by printing money): You cannot seriously just increase a number in a computer somewhere or print a few notes and expect the economy or living standard to suddenly improve. Otherwise we could just all stop working and live of printed money.
- Underfunded pension funds: https://www.bloomberg.com/news/articles/2017-12-14/fees-rise... The problem here is not being underfunded but that promises are made to future retirees while it's obvious that these promises cant be kept. There are more examples, just google for some combination of "pension fund shortfall underfunded". Note this problem is the same in Europe.
You sure can. Mild inflation is useful on the macro scale (even though I'm a bit of a skeptic when it comes to a lot of macroeconomics). It increases aggregate demand which increases production, which improves the economy. A simple example is real-estate. There's inflation in the that market which is why it attracts investments, which increases demand with the developers, who then hire more people to build houses, etc etc.
Further more, on a currency level, devaluing your currency makes your exports cheaper. If I was exporting my product for $2 which gave me 10 Franks, and now I get 20 Franks because of my currency being devalued, that's awesome as long as the devaluation happens slower than the inflation.
Anyway, these are well established, and well understood economic concepts. Certainly, there is more nuance to them.
I know this is mainstream economics but if you're an engineer you should ask "What is mild inflation? Where is the limit? What are the forces that equilibrate mild inflation" I know the theory behind it but it just doesn't make sense. Have you ever thought about why tech hardware thrives, yet we have heavy deflation? Should we put price controls there? Do you realize that whenever a big problem is solved (via the wheel, factories, cars, ...) the stuff deflates heavily? There are other theories out there that make much more sense than what is mainstream.
> Further more, on a currency level, devaluing your currency makes your exports cheaper.
Same here, following your advice everyone should devalue his currency, trying to outcompete other devaluing currencies. So how can we explain that Germany with its strong mark was such an economic power given the absence of mild inflation and currency devaluation?
Finally and again, you think that printing a piece of paper (money) solves a problem? So we get "something for nothing"?
If you want to know an alternative (and IMO much more consistent) view, read "Economics in One Lesson" by H. Hazlitt. Yes, the one that is 60 years old.
http://lesswrong.com/lw/e95/the_noncentral_fallacy_the_worst...
It's certainly not an abuse of language, it's a fact if you don't assume ex ante that the state can do what others are forbidden.
The reasons you describe here are mixing up an "others are stupid" attitude with legitimate and consistent views of the world. It's sad to see these views derided and the child commenters applaud.
Ever heard of Ayn Rand, Ludwig von Mises or Milton Friedman? Well, guess they are stupid as well.
Let me know if you want to read something about it before deriding not-your-opinion next time.
2) You'd lose that value if you just kept it in a box.
3) You really shouldn't be keeping substantial amounts of money in bank for 10 years.