1. the people lent L850b to the bank – the bank owes them L850b
2. the gov prints L850b and gives them to the people
3. the bank still owes L850b to the people
4. the government makes a law: the bank does not owe L850b to the people
5. the bank liabilities turn into bank assets. The bank now has L850b more assets.

I call this stealing people’s money, because the bank never paid back the money to the people (instead the government gifted money to the people).
The bank just kept the deposited money to itself and got L850 richer – by not paying back to the people.

It is important part to understand in Toby’s plan.

The people are not complaining that the bank stole their money and never returned it back, because the government reimbursed them for their loss.

Toby says – it is not stealing – it is turning liability into assets – it is a swap: L850b to the people – and the L850b demand deposit are gone.

However, the proper way to close the demand deposits is for the bank to pay back the money to the people. But the people already have the money from the gov. If the bank pays them back too – the people will have double the money.

6. the bank has the extra L850b that the bank did not return to depositors – the bank gives it to the government to repay debt.

At the end the government is paying the debt with the money that the bank stole from the people having demand deposits in the bank.

The money supply before the operation: cash (means the currency in circulation – the bank’s assets are part of this cash) + L850 demand deposit

The money supply after the operation: Cash (original cash + L850b(that is no longer demand deposit, but is turned into bank assets) + L850 cash that the government printed = original cash + 2xL850b

Please, don’t dismiss my brain like I am an amoeba, because I am not an economist.

Read this again and try to understand my point. It is important – if this is a real plan – it is crookery – robbery and it is inflationary.

I hope it is just a L1000 logic exercise.

The street smarts win and get the prize!

Disclosures: Long gold, gold derivatives, and gold equities? Could it be?

I still don’t understand Toby’s plan:

The government printing approx £850 billion in cash and putting it in bank’s vault getting nothing in return for those £850 billion in cash.

Would you explain it in Layman terms so I can finally sleep.

I think Tyler’s point is that money originally came from the free market rather than govt dictats. It’s therefore not irrelevant as it shows that, should the politics allow, money could go back to being a free market.

I understand that many of the crashes were created when govt suspended the gold convertability of paper money that was supposedly backed by gold (or silver), or other govt interference (eg tariffs). There is also a difference between a “crash” – ie a recession – and a general fall in prices, for example if production increases faster than gold can be dug out of the ground.

I agree that no-one has a crystal ball, but the predictions of the Austrians were in stark contrast to the mainstream economists meaning that, really, it was only the timing that was not predicted. Here are a couple of links you may find interesting:
http://mises.org/story/3128
http://mises.org/journals/scholar/Thornton6.pdf

Cheers

Sam

Just to be clear, the Libertarian Party of the UK (http://www.lpuk.org) is nothing whatsoever to do with the US LP, although clearly you might expect some of the fundamental ideas to be similar!

We already have a Councillor and there will be some candidates standing in the 2010 general and local elections, so please check us out – we need help to get the message out there before the UK goes completely down the tubes!

Cheers

Sam

First, his story about barter is irrelevant. Economists have this version in which primitive people traded just like us, only without money, but they actually used a lot more gift exchanges and a lot less commerce.

Yes, there were crashes on the gold standard, too, so the gold standard alone is not a guarantee of stability. All it means is the money supply is controlled by a deus ex machina — the mining of gold.

You don’t need to be an Austrian to see how the combination of loose money and over-gearing of banks set the world up for a fall. Most of all, there is no crystal ball, so to say the Austrians predicted something that others could not see is far-fetched.