thegreatdivide wrote on Sep 1^st, 2025 at 11:50am:


Very interesting!

I’m really on a learning curve so enjoying everything I can soak up.

It was explained to me that with inflation sitting around 2 to 3  and bank earnings around 4 after you pay tax on your return the only people making money are the banks and government!

Is this really true?

Daves2017 wrote on Sep 2^nd, 2025 at 8:18pm:


(google)

Banks typically profit more in a high interest rate environment because they can earn a wider net interest margin, which is the difference between the higher interest they receive on loans and the interest they pay on deposits. Conversely, in a low interest rate environment, banks' profit margins generally narrow, potentially reducing profitability. However, other factors like the volume of loans and deposits, and the rate at which banks pass on costs to customers, can also influence bank profitability.

So banks ALWAYS make money,  whereas their customers'  savings may go backwards in real terms , eg,  if term deposit rates are lower than the inflation rate.   

As for a currency-issuing government, it doesn't NEED to make money - which is the topic of this site.

See the next post re the madness of "governments making money".

And bond markets are part of the mainstream 'taxpayer money' madness:

(Reuters)

Global bond markets stabilize, for now, as fiscal storm looms

LONDON/TOKYO/NEW YORK (Reuters) -A sense of calm settled on the world's biggest bond markets on Wednesday, but concerns about the fiscal health of major economies from Japan to Britain and the United States kept long-dated borrowing costs pinned near multi-year highs.

Worries about Japan's fiscal position were revived after Prime Minister Shigeru Ishiba's close aide said he intended to resign from his post, pushing Japan's 30-year government bond yield to a record high well above 3%.

That came a day after borrowing costs, which set the tone for lending rates for corporates and consumers, rose sharply in France and Britain while sterling tumbled, too.

A reshuffle of British Prime Minister Keir Starmer's top team of advisers on Monday renewed the focus on fiscal challenges given Britain's high levels of borrowing and slow growth. In France, Prime Minister Francois Bayrou is expected to lose a September 8 confidence vote he called in an attempt to win backing for an unpopular debt-reduction plan.

"There's a lot of renewed focus globally on the fiscal outlook and this seems to happen every couple of weeks. The UK and France were in focus yesterday," said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte, North Carolina.

"But I take comfort in the fact that in the U.S., the 10-year yield is pretty stable...and that suggests to me that things aren't falling apart. In general, I think the U.S. is actually performing rather well relative to other developed bond markets, at least from the 10-year point of view."

The U.S. Treasury market, considered the bedrock of the global financial system, has also seen pressure from worries about high debt, the impact of tariffs on inflation and concern about the independence of the Federal Reserve.

U.S. 30-year Treasury yields touched the closely-watched 5% level that investors reckon hurts risk assets for the first time since mid-July.

But the long bond yield backed off to trade 7.2 basis points lower on the day at 4.898% after data showed job openings fell in July, reflecting a softening labor market that reinforced expectations of an interest rate cut by the Federal Reserve later this month.

My comment: so a "softening job market" - meaning maintenance of, or worsening of un+underemployment,  is a good thing, allowing interest rates to fall?


The benchmark U.S. 10-year had risen to a one-week peak on Tuesday, but was down 7 basis points the following day at 4.207%.

Britain's 30-year gilt yields briefly touched their highest since 1998 at around 5.75% and were last down 7 basis points on the day as some stability returned to bond markets.

Speaking to a parliamentary committee on Wednesday, Bank of England chief Andrew Bailey said it was important not to put too much emphasis on 30-year borrowing costs as such long-dated bonds are not currently being used to raise funds.

Euro-area bond yields fell too, although French 30-year borrowing costs held close to their highest levels since 2009 and German equivalents were near 14-year peaks.

"The economic reforms needed to really cover increasing debt are lacking, and the capital market sees that," Deutsche Bank CEO Christian Sewing said at a conference on Wednesday, referring to the selloff in long-dated bonds.    

PRESSURE EVERYWHERE

Rising yields are a headache for governments that face higher spending needs and already hefty debt-servicing costs, just as they prepare to issue more bonds and face political obstacles to their efforts to get budget deficits down.

Britain said on Wednesday it would deliver its budget on November 26, as investors continue to speculate about tax rises that could dampen economic growth.

Analysts said fears the U.S. government may have to give up revenue from tariffs if they are deemed illegal have added to the pressure in the Treasury market.

"The current dynamic is further evidence that investor appetite for ultra-long paper clearly waned, not only from private investors but also from institutional players who typically provide a more stable demand base for this segment," said Dario Messi, head of fixed income research at Julius Baer.

A hefty pace of bond sales this week had also pressured bond markets on Tuesday, analysts said.

Fred Repton, portfolio manager at Neuberger, said Tuesday marked a record day for European bond sales just after investors had ramped up their bets on Fed rate cuts.

In the United States, at least 27 issuers tapped the high-grade corporate bond market on Tuesday, seizing on near-record tight borrowing costs and getting ahead of any market volatility sparked by the Fed's policy meeting later this month.

While that was likely a key driver of Tuesday's selloff, "market participants are again focused on deficits and political risk, and this theme is likely to continue far into the year," Repton said.
.......

Bond traders determinng the fate of nations.

Deplorable.

Cryptocurrency we both agree is pure speculation .

But to a  much lesser degree so is the housing market and sharemarkets .

I find it all very interesting and want to understand more.

Why is Australia currency ( money) worth anything if it is just printed paper?

And gold? Why is that rock worth anything?

Does it only exist on pure speculation??

Daves2017 wrote on Sep 4^th, 2025 at 4:35pm:


Australian currency is backed by the productive capacity of the Australian economy.

Housing and share markets are said to be (in part)  'speculative' in the short term, ie their monetary value rises  and falls, as oppsed to their intrinsic -or utility - value, so  houses and listed companies (on average)  maintain value in the long term ie beyond  the usual business 'cycles', because  they maintain real utility value.

And of course investment in companies which  engender technological  advances and hence real productivity increases in the real economy can make investors very rich indeed. 

(Insanely rich; today I read  somewhere "Tesla pay package offer could make Elon Musk world's first trillionaire".  (Musk of course began the EV manufacturing revolution, necessary for global  transition to a green economy). 

Quote:


Because men have admired it forever as a sign of wealth, and hence - more recently- as a protection against government mismanagement of fiat currencies, the source of value of which the public don't understand.

eg, if the US government ended up destroying  the productive capacity of the US economy, your gold would be useless for purchasing  the necessities of life.

Quote:


Unlike crypto currencies, gold jewelry is pretty....with romantic associations, ie, it is 'valuable'.

And central bankers indoctrinated  with the mainstream 'balanced government budget' delusion are currently buying gold because Trump is making them nervous about the value of the US dollar - the world's reserve currrency after WW2.  Hence gold is currently attracting delusional central bankers as well as romantics....and speculators.   

Of course  hunter-gatherers (with only pre ore-smelting technology) who survived on nature's bounty, saw no value in gold , and ignored it. They thought those stupid  white fellas fighting over rocks were mad....

(re you "bailing out of the debate":  you, along with bobby - who HAS bailed out, ceased to comment on the several posts I subsequently posted in this thread.

I suppose coming back several days later (after a prompt) with the usual questions about the 'value' of money, is better than just being content to remain ensconced in the usual ignorance displayed by the public).   

I simply don’t have the time to view every thread particularly when I have the last post in it.

Rather than “bailing “ I simply don’t find it interesting to reply to myself as you seem to think I should?

You note gold is valuable because it’s “ pretty “.

I suggest that for myself the value I find in crypto is entertainment.

I enjoy watching the market and I think it’s worth the investment purely for the entertainment value as well as learning something completely new and different to the old world value system you are  fascinated with.
Ha

https://www.researchgate.net/publication/265909749_Can_Banks_Individually_Create...

Can Banks Individually Create Money Out of Nothing? – The Theories and the Empirical Evidence

This paper presents the first empirical evidence in the history of banking on the question whether banks can create money out of nothing. The banking crisis has revived interest in this issue, but it remains unsettled.

Three hypotheses are recognised in the literature: 
(a)According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out.
(b)According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction.
(c)A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking).

The question which of the hypotheses is correct has far-reaching implications for research and policy.*** Surprisingly, despite the longstanding controversy, until now no empirical study has attempted to do so. This is the contribution of the present paper.

An empirical test is conducted, whereby money is borrowed from a cooperating bank, while its internal records are being monitored, to establish whether in the process of making the loan available to the borrower, the bank transfers these funds from other accounts within or outside the bank, or whether they are newly created. This study establishes for the first time empirically that banks individually create money out of nothing. (my edit: when credit-worthy  customers seek and are granted loans, in line with the bank's risk- assessment rules).   

*** including the very sustainability of democracy...