Yabby, you and I both know a $1000. deposit in a cash account isn't going to get 2%. In fact, in many cases the bank will charge you for the right to turn your $1000, into $12,500, (BIS 8% requirement) which they can lend out at up to 19%. What's wrong with this?
Currently money outstanding on American bank accounts is now estimated at a breathtaking $180 trillion. The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined.
This is a debt our children and our children's children will have to pay; not as an inherited mortgage, or car loan, but in taxes and prices.
The houses we bought for $50k in the seventies are now worth around $450k. In another 40 years, 4 million and 50k.
For every $1 in aid a developing country receives, over $25 is spent on debt repayment. Children are dying, to pay off debt.
For a more mundane example that I have used before, my Westpac Ignite card is a totally free service -provided I can afford to pay it out every month. Need I point out how the bank can afford to be so magnanimous?
A basic fridge you or I could buy for $1000. could cost any of the 50% of Australians on less than $35k a year more than $1300. on a master or visa card purchase.
This isn't a system that is just uncaring, or indifferent to the poor. This is a system which deliberately fleeces the poor, to benefit the rich.
And making unborn children pay for our excesses, is even better than fleecing the poor.
They have no voice at all, apparently.

Grim, I just checked the Westpac website and if you have 5k plus and
commit to lending for 5 years plus, they will pay you 6%! My E-saver
account right now pays 3%, one deposit which has just run out from
earlier, was paying 8%. I've reinvested it short term at 4%. For
I think that once inflation kicks in, rates will rise.

NAB recently took out a huge overseas loan at 5.76%, St George
borrowed from overseas last year at 8.5%, again for a number of
years. So you have to average out all these sources to know what
money actually costs banks. Yes, on what is in my cheque account,
they don't pay anything, so I have have much in there :)

What money costs banks, is revealed in their annual report and what
they call their spread, ie the difference between what they charge
and what they pay. Currently its about 2.5%. Take out costs of
running the show, they are left with 1%.

Yes, cost of credit card loans is much much higher, for there is
no security on those cards, so defaulting individuals who don't
pay, go bankrupt etc, is quite high. My question is, why would
anyone use their credit card to borrow money? I've never paid
a cent in Visa card interest, I simply did without. When I moved
into my house, it had concrete floors, the sink was on 4 posts
that I welded up, the kitchen was much the same. I finished it
as I could afford it. Most consumers don't do that, they want
things now, they spend more then they earn. That is their choice.
Do it by Visa card and it cost a fortune, but that is only a small
% of money which banks lend out. Their main loans are housing
loans and business loans.

Your 180 trillion seems to be confusing bank loans with derivatives.
Derivatives are quite useful in many ways, like for hedging grain
prices.

Pericles,

A variation of the first method is one I have described at http://stableproductivemoney.wordpress.com/2009/06/12/submission-to-national-broadband-network-greenfields/

The critical factor in making this work is spending the money wisely.

The other method is Sharia banking. You say the money has to be sourced from somewhere but you have been saying that banks create bank money that has to be repaid. I am agreeing with you and using exactly the same approach. The "money" that is lent is backed by the original amount that is put on deposit at zero interest. The bank money is deposited at zero interest and its expenditure is tightly controlled.

The scheme I envisage is that this bank money has to be spent on "approved" investments that are highly probable to generate wealth. The system I am talking about will keep track of every dollar individually and where it is spent and will keep track of the returns the dollars generate and "automatically" take some back to repay the loan.

To give you an idea of what can be done I also claim that I can save the government more than $400 million dollars on its proposed health information system. You can view the key idea behind that proposal at http://www.slideshare.net/cscoxk/identity-by-presence-take-2. The identification part of that system is built and is available today at http://greenid.com.au. The government can use it today and use phones for id rather than use printed id cards and in the process save $400M. The actual savings will be at least a billion per year because electronic health ids done this way enable other savings - like a cheaper alternative to health insurance - but that is another story.

What I am suggesting for the finance industry does not change the current banking system. The current banking system can remain exactly as it is which is why I think we will be able to make it happen.

I'm not sure you have grasped the essemtials yet, Grim.

>>in many cases the bank will charge you for the right to turn your $1000, into $12,500, (BIS 8% requirement) which they can lend out at up to 19%.<<

The $1,000 doesn't "turn into" $12,500.

If there is a sufficient quality asset base, the Bank is able to support that amount of lending. But in order to do so, it still must go to the market, and borrow.

Perhaps instead of using the term "fractional banking" and loan multipliers, you might think of the assets as "prudential reserves".

Which is in fact what they are there for. And why the central Banks around the world insist on their amount, and their quality.

But the important part is that the money to lend isn't conjured from thin air. It is usually borrowed.

And so the equation, as once again Yabby is trying patiently to explain to you, is not earning "19%" on unencumbered, newly-minted money. But the difference between the cost of the money you borrow, and the rate you charge your borrowers.

"Capital adequacy" is merely the security blanket.

http://www.investopedia.com/terms/c/capitaladequacyratio.asp

Fickle Pickle, the one thing that your NBN piece doesn't address - and I think it is a reasonably important component - is exactly where the initial investment comes from.

Your "third way" posits that "Government money is provided on condition that the funds are spent building fibre to the home (FTTH) infrastructure or equivalent"

But isn't this exactly the same as the "first way" you describe, as "One way to achieve this is for the Government to fully fund the NBN"?

What is the difference between your proposal and a taxpayer-funded NBN?

"The system would be relatively simple to implement as the government only has to provide the rules, the funds and ensure that private companies deliver and deploy the system according to the rules."

Government provides the rules, the funds, and the governance.

It sounds like a fully taxpayer-funded roll-out?

And if it isn't, where does the money come from, if not through debt instruments?

Pericles wrote, "How about where they, too, have created it from the sweat of their brow? What about the millions of wage-earners, going about their business, paying for goods and services from after-tax income?"

Pericles, once again:

All the money in circulation (or, if we consider Australia and not the US, the 97% of the money in circulation that is not created as notes and coins) originates as debt. It is beside the point that some wage earners may have earned the money and not be in debt. For the money to have been created, someone, somewhere had to go into debt to a bank.

Pericles wrote, "There is no inevitability about debt. ..."

Yes there is. Our whole stupid financial system depends on some hapless mug going into debt that he/she canot repay. If some of us manage to avoid debt, that is only because someone else has gone into debt, instead.

Pericles wrote, "And once and for all, people, there is no such thing as imaginary money. "

In fact all money is imaginary. It is merely a token to represent real wealth.

And bank's also conjure up money out of nothing as was admitted by a banker in that 1969 US court case involving Jerome Daly, referred to above. The mechanism whereby $1,000 of deposited money can be conjured by banks up into loans worth $10,000 is explained on pages 163-167 of "The Web of Debt" (2008 edition).

In order to run any economy that is not just based on bartering, there are too alternatives:

1. Give sovereign governments acting on behalf of the people the right to create those tokens in quantities sufficient to enable the exchange of the goods and services created within the economy of that country; or

2. Hand that right across to a private banking cartel and allow them to gouge the rest of us with compounding interest and inflect almost perpetual economic mayhem upon society.

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As I have shown, there are many examples of the first system having worked very well before, so there is no reason why it could not work just as well again.

The latter system leads to what is effectively slavery. And don't just take my word for it. Listen yourself to the words of the bankers themselves in 1862, during the American Civil War in the infamous Hazard Circular cited on page 90 of "The Web of Debt":

"Slavery is likely to be abolished by the war power and chattel slavery destroyed. This, I and my European friends are glad of, for slavery is the owning of labour and carries with it the care of the labourers, while the European plan, led by England, is that capital shall control labour by controlling wages. This can be done by controlling the money, The great debt that capitalists will see to it is made out of the war, must be used to control the volume of money. To accomplish this, the bonds must be used as the banking basis. ... It will not do to allow the greenback to circulate as money any length of time, as we cannot control that."

(The 'greenback' referred to was money directly printed by the US Government to pay for the war and to expand infrastructure. Because of this the Union won the Civil War and without incurring the crippling debts contrary to what the author of the Hazard Circular had hoped.)

Today, many people I come across, whether they are paying rent or mortgages, describe their circumstances as 'slavery'. It is clearly no accident.