QE or Quantitative Easing: Is it the Quantity only, which has gone wrong that we need to fix … or?

Banks don't really lend real money; but paper money.

All the gold reserves and assets that America; Europe; Russia; Japan; and China put together couldn't come near to covering the amount of paper money flowing through the system at today's gold prices.

Ergo what is being traded is a form of trust which we call credit. If I believe your business can be a success; I trust you by extending some credit which someone else trusted to me. That is how the banks lend; on trust, not actual value of gold or solid material asset.

If you lend a person credit viz a lone agreement such as a mortgage; what happens if they can't generate enough credit to cover the loan repayments?

Well banks lend money to other banks based upon how much credit they expect to generate from mortgage payments. As banks sometimes lend large amounts promised in advance (such as block grants for hugh projects); banks are really dependent upon the flow of credit from their mortgages and other income streams to maintain their ability to lend to others and make money from the interest generated.

The whole banking system requires banks to have credit in order to lend out credit to make more credit on interest paid on loans. Once a large section of the banks credit flow dries up; all of a sudden the bank cannot sustain promises its already made...Of course if you've already made promise of credit to someone; and you can't even cover that, you will also stop looking to lend to other people.

The result of a large number of home owners in the US failing to pay the interest upon their mortgages is that the banks whom were relying upon that interest to fund their other loans can now not get enough credit to operate normally.

This is why governments are finding ways to give the banks credit; so that banks will be able to start lending to each other again, and so in turn banks might start lending to business too.

The system of banking has relied upon accurately assessing the risks involved in lending. If you lend to a person who has not got a steady job or does not have a congenial credit history, then the risks are high that they may not be able to sustain a mortgage payment. What has caused this credit crisis is that the people who's job it is to assess the credit worthiness of mortgage seekers have failed to do their job.

Some unscrupulous lending companies were able to sell mortgages to banks because somehow they managed to convince the system that these mortgages were lent to people with a high credit rating; when in actual fact those people who took out the mortgages had really bad credit histories or unreliable income.

Banks who initially brought these mortgages did so because they wanted to make money from the interest payments. When they realized that these mortgage agreements were failing; they sold off the mortgages to other banks, using the same lie that the credit rating of the householders were good.

Because of this; banks all over the world brought dodgy mortgages. From this point on; all the worlds major banks had ticking time bombs in their possession, and it was only a matter of time before the credit stream across the world began to fail as unreliable borrowers stopped paying their loans off...

Financially this is analogous to the human body suffering a heart attack. When credit stops flowing in the main arteries; the capillaries stop functioning as well as the major organs (like the stock markets).

Quantitative easing is bit like having a blood transfusion during the operation to fix the heart or arteries that have become furred up.

Recessions have always occurred as a result of some cause which stops credit flow. There are numerous ways in which unscrupulous people can devise to make money from the system quickly; whilst risking the whole collapse of the system.

What usually happens in the financial markets is that regulation is kept to a bare minimum in order to encourage a broad range of business transaction, to maximize profits. In other words; banks have risky portfolio's as well as stable portfolio's. Too much regulation; and the banks feel unable to take risks. Risks often pay off big, and that's why technology and medicines have improved so much in the last 30 years.

In a system where the weather changes from sunny to stormy; one must accept that you can't have the rough without the smooth and vice versa.

In a perfect system; nobody would lie thus credit would always flow. Humans aren't' perfect; so recessions will always happen periodically. If we introduce massively complex regulations to try and prevent these things from happening; there will be a big slowing the pace of development to the extent that nobody will want to take any risks. The markets will sleep in such conditions; with very few business proposals succeeding to prove themselves as risk-less.

In many ways you can't stop this sort of thing from happening. After the fact; loopholes are closed up, and so won't

i'm especially particular he shouldn't point out the quantitive easing. he will say its through spending cuts in charge the Tea occasion. people who do no longer comprehend something in any respect approximately economics won't understand the version. Krugman will arise with some b/s to help out.

Printing more money is absurd- we're already over burdened with debt and more money in the economy will only encourage people to run up more debt.

I worships moneys