Post by cye on Dec 31, 2014 13:17:46 GMT -5
Interesting article here, kindly drawn to our attention by Caveman:
www.resilience.org/stories/2014-12-18/deja-vu-all-over-again
(I posted this in the 'money' board because, whilst the oil boom economic story is the central focus of the above article, readers will be aware that the issuance of huge loans essentially involves the creation of 'new money', i.e., not money that came from somewhere else.This 'new money' was pretty much created out of nothing by the private banks and not the central bank. Oklahoma State's original attempt/strategy to contain the banks by limiting them to one branch was effectively foiled by Penn Square Bank farming out the loans to other banks and financial institutions, enabling unrestricted growth in new money issued to the oil industry. This new $ money will in turn ultimately have ended up, as the money was spent (by the oil companies who borrowed from Penn Square) across the state and the rest of the US, as a myriad of 'trickle down' deposits at other US banks. In this way the US money supply was expanded, without the involvement of the US central bank, and the resultant spending in turn boosted the figure reported as 'economic growth'. In the UK in the run-up to 2008, we saw pretty much the same thing happening except with a housing speculation bubble rather than an oil speculation bubble - E.g., Northern Rock issued massive amounts of new money to its new mortgage customers, and, as NR could not match this with its own customers depositing cash at NR branches, NR's loan book was instead farmed out to the wider UK banking market as interbank loans, with the other/bigger UK banks picking up the trickle-down £ deposits as the new £ money was spent into the economy. In this way Northern Rock and the banks who indirectly funded Northern Rock's mortgage loan book helped create what we now know was an unsubstantiated feelgood factor & a false impression of economic growth).
www.resilience.org/stories/2014-12-18/deja-vu-all-over-again
(I posted this in the 'money' board because, whilst the oil boom economic story is the central focus of the above article, readers will be aware that the issuance of huge loans essentially involves the creation of 'new money', i.e., not money that came from somewhere else.This 'new money' was pretty much created out of nothing by the private banks and not the central bank. Oklahoma State's original attempt/strategy to contain the banks by limiting them to one branch was effectively foiled by Penn Square Bank farming out the loans to other banks and financial institutions, enabling unrestricted growth in new money issued to the oil industry. This new $ money will in turn ultimately have ended up, as the money was spent (by the oil companies who borrowed from Penn Square) across the state and the rest of the US, as a myriad of 'trickle down' deposits at other US banks. In this way the US money supply was expanded, without the involvement of the US central bank, and the resultant spending in turn boosted the figure reported as 'economic growth'. In the UK in the run-up to 2008, we saw pretty much the same thing happening except with a housing speculation bubble rather than an oil speculation bubble - E.g., Northern Rock issued massive amounts of new money to its new mortgage customers, and, as NR could not match this with its own customers depositing cash at NR branches, NR's loan book was instead farmed out to the wider UK banking market as interbank loans, with the other/bigger UK banks picking up the trickle-down £ deposits as the new £ money was spent into the economy. In this way Northern Rock and the banks who indirectly funded Northern Rock's mortgage loan book helped create what we now know was an unsubstantiated feelgood factor & a false impression of economic growth).