Currency used to be tied to gold as a promise to pay, but Tony Blair sold all our gold off (for a fraction of what its worth today).
Now. The old noted said I promise to pay the bearer on demand the sum of X pounds, basically for every £1 in circulation, there was the equivelent
of gold held by the bank of england. You could have for example go to the bank of england & give them the promise to pay £5 note & in exchange have £5
worth of gold (in theory - but obviously not practice).

These days teh Bank of England pretty much can print as much money as they want. However, a licence to print money would drive up inflation.

As for banks, for every £1 someone has saved, then they have about £10 out on loans. Thats how they go tits up.
anyway.. now there is no £1 = gold, the bank of england dont have to cover every £1 they have - so they can create money out of nothing,
based on the fact that on average people only access around 10% of their money at once. If someone had £100 saved, they are more likely
just to go & ask for £10 than they would the full £100 - so they would lend the other £90 out (for say 6% interest) & pay you 3% in interest.
Banks then got greedy & started to lend out money they dont really have. If you had £100 in the bank, then the banks are more likely to be lending out £1000
to other people.

Currency used to be tied to gold as a promise to pay, but Tony Blair sold all our gold off (for a fraction of what its worth today).
Now. The old noted said I promise to pay the bearer on demand the sum of X pounds, basically for every £1 in circulation, there was the equivelent
of gold held by the bank of england. You could have for example go to the bank of england & give them the promise to pay £5 note & in exchange have £5
worth of gold (in theory - but obviously not practice).

Utter crap, and the rest was worse. The gold standard hasnt been in existance since before WW2 so nothing to do with TB.

Zpyder,

Physical money is printed by the government and banks, it is handed out for services and products. In Scotland varous banks print Scottish bank notes whereas in England only the Bank of England does so. Money is paid to people for work and produce, that in turn is either used to buy new products to sell, employ workers or pay for materials. The money just circulates, one person handing it over to the next, with the government syphoning off their share. The exact amount in cirucuation doesnt matter anymore, much of it is electronic money anyway. Money is a way to measure work and profit rather than an item in itself.

Issues arise when people dont think that the money paid is enough for their goods, the result is inflation, prices move up and wages try to keep pace, then its another cycle and keeps going. It doesnt matter if the wages or the prices go up first, both cause the same effect. This is the big reason why it would be very bad if they Royal mint just printed and handed out money, it would quickly become worthless. Being a measure of product it has to be kept within reasonable amounts. If it gets out of control you end up with something like the German mark during the 1930s or the present day Zimbabwe dollar, and it costs millions or billions to buy a loaf of bread.

Interest only comes into this when someone borrows money, it is effectively an incentive for the lender to part with and possibly risk their money, although a go between like a bank will expect some of it to pay for the service they offer.

The present banking problem comes in with people borrowing large amounts for housing in the US, the banks, seeing a large potential profit loaned out huge amounts. Some of this they borrowed from other institutions, the rest was paid in by individuals. Then the crunch came, it was obvious that they had loaned all this money which suddenly became apparent that they were not going to get it all back. The institutions and individuals who had originally loaned the money to the banks wanted it back, except it is invested in houses. So the house owners dont have the money to pay the banks and the banks dont have the money to repay those who have given them loans. The result is the banks get stretched out. Technically they have the houses as colateral, but in reality they are in financial problems because they cant pay back what they owe on demand. This isnt the first time its happened either, look up the Great depression.

Thanks for the info, it was actually easy (ish) to understand, and for a change theres yet to be an (un)witty remark about someones lack of understanding in a subject! (tempting fate)

It still doesnt clear up how the money from inflation gets injected into the system though. I understand that governments cant print money as they wish, and that a country may well just get more money by providing products and services internationally that the international market wants, but overall, there is a trickle of money coming in to deal with inflation. Does the bank of England just inject it by adding it on to their own saving/loan things as interest, or do they give bonuses to certain  companies and services, and the money from there goes into the system?

Quote from: Serious

Utter crap, and the rest was worse. The gold standard hasnt been in existance since before WW2 so nothing to do with TB.

then you go on & reword everything I said?

No, the money they lent was what they had, some of it was from the public putting money in and the rest was from institutions. What happened was to do with the value of what they were lending on, not that they loandned out more money than they had. People pay money into a bank, lets say half a million. A bank lends someone £250,000 to buy a house, time passes and then the person can no longer afford to pay it back. The bank examine the value of the house and its worth only £150,000. Where has the rest of the money gone? This happened on a gargantuan scale. Remember that 125% mortgages were available. So as the bank you try to get the money back from the borrower, except the borrower goes bankrupt. Now the people who lent the bank the money want it back, but its not there anymore, its invested in the property, which isnt worth what it was. Investors panic, there is a run on the banks, they dont have the money to pay it back and they go bankrupt in turn.

While you are correct in saying that  lot of people dont use all their money there are others who live entirely on credit to balance that up. Someone who has money in the bank may also have a mortgage and credit card debt. If they didnt then the interest rate would be near zero because nobody would be borrowing, the banks wouldnt make any profit from interest and the whole system would have collapsed on day one.

That is totally different from what you said.

Basically the pound to gold phased out in 1931 - I should have said that.
Blair did sell off our gold reserves tho (well brown sold them when blair was PM)
400 tonnes for £4 billion - that was in 1999 - today its worth would be £11 billion

It was a good price at the time, that they might have got a better price later isnt part of that. Maggie sold off a load of government assets and owned companies for a fraction of their real value so I guess we can allow Brown and Blair one mistake.

I think now its tied to goverment bonds aint it?
A country cant print money if they dont have the assets to back it up.

Its not tied to anything more than a promise to pay the bearer, read it for yourself on the front of any note. And a country can print as much as they want, except the value will go down the drain.

Quote from: Serious

No, the money they lent was what they had, some of it was from the public putting money in and the rest was from institutions. What happened was to do with the value of what they were lending on, not that they loandned out more money than they had. People pay money into a bank, lets say half a million. A bank lends someone £250,000 to buy a house, time passes and then the person can no longer afford to pay it back. The bank examine the value of the house and its worth only £150,000. Where has the rest of the money gone? This happened on a gargantuan scale. Remember that 125% mortgages were available. So as the bank you try to get the money back from the borrower, except the borrower goes bankrupt. Now the people who lent the bank the money want it back, but its not there anymore, its invested in the property, which isnt worth what it was. Investors panic, there is a run on the banks, they dont have the money to pay it back and they go bankrupt in turn.

No. House prices have only rocketed over the last 5 years, there arent many people in negative equity with their homes.
Simple facts are people cant afford to pay so the house is repossed & they default on their mortgage. The Market is Flat & the Bank cant shift these homes. Its a vicious circle atm

In the UK, the US prices are different, and the prices here are going down too this year.

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While you are correct in saying that  lot of people dont use all their money there are others who live entirely on credit to balance that up. Someone who has money in the bank may also have a mortgage and credit card debt. If they didnt then the interest rate would be near zero because nobody would be borrowing, the banks wouldnt make any profit from interest and the whole system would have collapsed on day one.

The money the bank lends is its customers money. Not their own money. They do have their own money, but that is mostly created from people borrowing or bad payers who then get hit with charges, etc.
Banks affectively lend what they dont have. - Its like me borrowing £1000 of you & paying you back £1500 & lending bob £1000 & he paying me back £2000. You make, I make & everyone is happy.. except now
bob cant pay.

I was using their money to express money they had borrowed, it might not have been theirs but they did have posession of it. The fact that they owe it and cant pay back is obvious, or should be.

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Basically the pound to gold phased out in 1931 - I should have said that.
Blair did sell off our gold reserves tho (well brown sold them when blair was PM)
400 tonnes for £4 billion - that was in 1999 - today its worth would be £11 billion

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It was a good price at the time, that they might have got a better price later isnt part of that. Maggie sold off a load of government assets and owned companies for a fraction of their real value so I guess we can allow Brown and Blair one mistake.

No it wasnt. GOld prices was at a 20 year low.

Im sure you have plenty of proof, Im not going to argue about it anyway.

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I think now its tied to goverment bonds aint it?
A country cant print money if they dont have the assets to back it up.

Its not tied to anything more than a promise to pay the bearer, read it for yourself on the front of any note. And a country can print as much as they want, except the value will go down the drain.

[/quote]

Whats the promise to pay tied to? it used to be the promise to exchange for gold.[/quote]

Nothing, above the fact that the government, or rather the bank of englands Chief Cashier, says that its worth X pounds and people accept that thats what its worth. That is the whole point of I promise to pay the bearer the sum of X pounds, in this its pretty much identical to a cheque. Perhaps you should read up on fiat currency?

The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but instead from a governments order (fiat) that it must be accepted as a means of payment.

http://en.wikipedia.org/wiki/Fiat_currency

I bought £500 of  RBS shares today at 166p each

Quote from: Eggtastico

A country cant print money if they dont have the assets to back it up.

You really ought not to post when you dont know what youre talking about.

(Hint: Zimbabwae, and Serious was right).

but their exchange rates show is.