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Issues in banking detrimental to the economy
a simplified synopsis of a complicated business
Interest to Profit
Bank profits require housing costs to increase above average earnings and income levels. The prices of housing and accomodation in ratio to average income must increase to ensure banks maintain profits via ever increasing interest payments. Housing and residency costs have too great an effect upon the economy for it to be beneficial to pay ever increasing interest charges. The banks control money supply via mortgages to purchase houses. The economy is forced to pay continual increases in interest payments toward bank profits ultimately causing the economy to eventually fail.
House prices are not a reflection of the natural economic market forces and associated available salaries to service loans and mortgages. House prices are the balance of market forces controlled by the banking mortgage market manipulated to maximise interest payments servicing profits. House prices need to reflect economic activity within a nation, this solution to be achieved by controlling banks to only offer mortgages on a property to within a measured limited increase in prices. Banks to not offer mortgages that increase housing costs beyond what the economy can afford, this will associate housing costs with the level of activity in the economy. The number of mortgage offers can be increased to maintain buoyancy in the housing market, whilst not over inflating property prices.
Financial business drive combined with the human survival instinct pushes bank directors to twist this situation in their favour. These aspects must be controlled with rules to prevent extreme imbalances. This present continuing situation is maintained and not changed or corrected to benefit customers because those in control of reviewing and reforming it benefit from the present system. Banks control the system and do not want change.
Fractional Banking
Banks create their wealth by charging interest on loans and mortgages when they introduce new money to the economy using fractional banking methods. The technique of fractional banking is that of financial organisations lending money to each other referred to as interbank lending. This borrowed money is then used as capital to secure more borrowings from investment companies, pension trusts and the nations central bank. The money borrowed from other banks, which is then used as security capital, is a fraction of further money borrowed from the central bank and financial institutions and then lent out to customers increasing the size of the total loan book. Security capital held is a fraction of the total money lent to customers.
This borrowed money is repeatedly lent out at greater interest rates than the interest that is paid to borrow it. This borrowing to raise capital which is then used to borrow more capital as a fraction of total lending is cyclical. Bank lending and borrowing increases until banks collapse. The government then steps in to save the financial system, at the detriment of the people of the nation. The organisations that benefit from fractional banking are in control of this economic strategy, using money supply to benefit their own profit margins with fractional banking techniques. The solution is to review and modernise this present system by educating more people who will then have the knowledge to debate the changes required.
Financial rules and banking laws cause recession times and profitable times. People on a lower income are worse off and less likely to understand the financial system they are monopolised by. The people that understand and use and benefit from the present financial system are presently likely to receive higher levels of income and do not want any change as they risk having a lower income because of it. The introduction of new rules and laws will push this toward excessive controls as in a facism.
These pages are a synopsis of banking deficiences detrimental to the economy of the nation with solutions to benefit customers. The aim is that these pages will show a concise, accurate and informative readable summary of the financial system, with solutions to help the reader acknowledge and understand how and why we are where we are. Repetition unavoidable. More to follow. Thank you.
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