Is centralized banking immoral?

Before we get into the debate, let's discuss what a centralized banking system is. To make things brief it is a bank overseen by your respective nation that has control over your currency to include money supply and setting interest rates, among other things. Your central bank has created a monopoly on currency and has deemed your respective currency legal tender. I am willing to bet a lot all of us reside in a country with a central bank, with a fiat-based currency (paper money, nothing of substance backing it but intrinsic value).

That's great Mr.Madhacker14, why should I care? There is so much I could discuss to go over why you should care, but for the sake of just introducing the debate I am going to start with a couple of points.

• An increase in money supply by a central bank decreases the value of your "legal tender" every time it is created. (THINK ABOUT SAVINGS!!)

I live in the United States, so let me talk about my central bank, The Federal Reserve. Since the implementation of the Federal Reserve in 1913 the USD has been inflated to the point where $1 in 1913 is worth roughly $25 today. Originally, the USD when the Fed (Federal Reserve) was first implemented, was part of the gold standard, meaning every dollar could be cashed in for an amount of gold, it had something backing it. In the 1970's, the USD went completely off of the gold standard, making the US currency completely fiat-based, backed by nothing but intrinsic value.

Since 1971 when the US went completely off the gold standard, the USD has a large increase in inflation from an increase in money supply from the Fed. $1 in 1971 is worth approximately $6 today.

OKAY, why is it important though?

Let's think of someone who is saving money for retirement. Let's say someone saved $10,000 in the year 1971 towards their retirement in 2017. $10,000 may have had a great purchasing power in 1971, but after years of inflation and printing money $10,000 in 1971 is valued at around $60,000 in 2017. In other words their money they worked for is now worth only 1/6 of what it was. Manipulation of the money supply leads to the destruction of an individual''s savings that they earned.

• The central bank has the authority to artificially set interest rates

When a governing authority artificially sets interest rates based on their assumptions in a subjective market, they create malinvestment.

The Fed has been infamous in the past for setting very low interest rates to its borrowers, nearly to 0%. You may think "is it really that effective if the actual interest rates were around 12%?" My answer would be absolutely when you're dealing with large-cap corporations/companies. When there are low interest rates corporations begin huge investments for years and banks lend when they should not and when it becomes unsustainable because of the artificial interest rates, it comes crashing down (a recession or depression) when these corporations and individuals cannot afford an interest rate that is more towards its realistic value.

Let us use our imaginations to picture this large-cap issue on a smaller scale. Let's say you went to purchase a vehicle, and you were looking at a $30,000 vehicle. Let's say interest rates were artificially set near 0% and your lender was asking for 2% interest on the vehicle, or $600 with a 72 month payment plan at roughly $425 a month. Now let's assume interest rates were not artificially set and the lender would actually give you the loan for 15% interest, $4500 in interest, with a 72 month payment plan making it roughly $480 a month; and you can only budget for a payment under $450. With the artificial interest rates you can afford it, with actual rates you cannot, see the issue? Now imagine this with million or billion dollar companies and throw some extra 0's in those aforementioned numbers and see how big this issue can get.

There are many other things I could discuss, such as hyperinflation, but we will bring that up further in the debate.

Do you believe centralized banking is immoral? Why or why not?

 

Centralized banking is not immoral because it isn't centralised.

 

I've had a bit more time to read what you're trying to say, and I think that is immoral, it doesn't consider the essential needs of a human being as depicted by a hierarchy like Maslow's. If you can create a truly centralized system, in a truly centralised country then the discussion becomes a different story.

 

Your main point is against inflation? This isn't caused by the central bank, it's caused by economic growth and supply shocks. The central bank is there to stabilise such forces, and decrease the chance of deflationary situations, e.g the one Japan found themselves in before where the government had to implement negative interest rates (yes, you had to pay to keep money in the bank), and hyper-inflation scenarios seen in places like Africa.

Deflation/low inflation is a bad thing.

Examples:

• A fall in inflation increases real interest rates: this reduces the incentive to borrow and invest, and encourages consumers to save, limiting a countries economic growth. Japan experience deflatioj, thus had to use NEGITIVE interest rates. Yes, you had to pay to keep your money in the bank.
• Rising real value of debt
• Delay purchasing
• Low inflation is generally an indicator that the economy isn't doing well.

The government doesn't want you to save everything you earn, because then the economy wouldnt grow!

With regard to interest rates, they aim to incentivise or create a disincentive to borrow or invest (many more reasons) depending where we are in the natural business cycle.

 

If someone uses their savings account to save for retirement for 46 years, I'd call that the "stupid tax".

In a 2008-2009 situation, how would you encourage lending when there's a virtual nation-wide credit crunch?

The idea is that in a credit crunch, interest rates of 0% (from the Fed) encourage banks to lend to corporations. The corporations can then do more business, and thus become more profitable. As the economy begins to warm back up, the Fed slowly eases interest rates back up, which isn't an issue for the economy because the now-more-profitable corporations can afford it.

Loans made at near-zero interest rates are repaid at near-zero interest rates, unless the borrower agrees to a variable interest rate.

In a capitalist worldview, no. They are a stabilizing force in the economy.

 

There are good and bad things in central banking, for example constant inflation pushes people to invest their money instead of just hoarding it, but i don't feel it's right for central banks to profit out of everyones pocket

 

Interest rates are set by the market. If there is high demand for loans, for example, the interest rates have to go up to stabilize the market. The inflation won't overcome your money if you have it in a bank because inflation in the US is lower than the interest rate you get. And you get those interest because the bank is paying for using your money.
You can say the interest rate is like the price of the money.

 

Interest rates are set by the government, the fed for the USA and the Bank of England in the UK. This rate is called the "repo rate" and is what commercial banks use to set their interest rates.

Current interest rate in the UK is 0.5% and inflation is above 2%. So likely keeping money in the bank (savings) is a bad choice currently.

 

That's really bad, the cental bank is not autonomous?

 

I am from Venezuela, and the hiperinflation here is caused by the Central Bank, partly.

 

No, maybe in the future though.

I've heard you guys have started to use eggs as currency because it holds value more than cash atm. I'd reccommend not holding onto bolivares for no longer than a few minutes haha.

And the cause of hyperinflation is epic incompetence and weakness in public finance. Can be corrupt officials, excessive welfare spending or dependance on a single tax revenue stream. Then the government prints money to pay bills, causes inflation and a dangerous cycle is born.

Taxes usually are paid after the activity, and inflation erodes the value of tax receipts, thus the incompetent government prints more money to fill this gap, accelerating inflation further...

Buy eggs bro

 

I actually buy cigarrettes and change them for cash when I need some, eggs don't gain value as fast as cigarrettes... I have all my savings on USD, BTC and cigarrettes.
And the exchange rates are kind of a nightmare too, there is one for the goverment, and the black market is kind of crazy, for example, you can get USD 400% cheaper in black market if you buy with cash, and cash money is scarce and incredibly difficult to get.

 

Insane. Hope you're doing okay through it all mate!

 

I am surviving...

 

First up we need to define what sort of “Central Bank” we are talking about before we can present arguments for and against. There are two major types of “Central Banks” possible, one is the type which most countries currently have, ostensibly under the control of the Government, but in fact under the control of the Bank of International Settlements (BIS) in Switzerland. These “Central Banks” operate for the benefit of the private banking sector, based on the assumption that, “financial management is too important to be left in the hands of elected representatives.”

Everything the 55 Central Bank members of BIS do is aimed at strengthening the private bank’s hold over Governments, but it seems the real policy issues are determined by five central bankers in the inner circle that is made up from Germany, the United States, Switzerland, Italy, Japan and England.

In actual truth, there is no saving grace from any Central Bank that is a member of BIS because, “BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies.”

The reality of the financial system is supposed to work is that every nation has the power and authority to create its own supply of money. Thus, any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.”

All any monetary sovereign nation needs to do is to set up its own, publicly owed Central Bank, with the authority and responsibility to monitor the nation’s productive capacity in relation to that nation’s consumption capacity and its growing population, and create the necessary money supply to achieve a reasonable balance.

It is pointless to produce anything, anything at all, unless it is going to be consumed, hence as long as the Central Bank can strike up a balance between these two issues, inflation cannot become a problem.