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$338 billion is almost the same as $2 trillion? Thems some fuzzy sums there. No idea what the rest of that link was about. I stopped there. I was really only interested in who thought deficits were irrelevant, but that wasn't readily apparent.
Imagine you (the banker) "create" $100 and loan $100 to me under a "small" stipulation - me paying you $105 back, if payments can't be done I promise the banker to give up agreed upon fruits of my labor and/or property. Where would I get extra $5 if I have no authority (under penalty of death) to create new money?
You are ignoring the velocity of money and your example is distorted to try to justify something you already want to believe. Firstly, banks need reserves or deposits to create money, they can't create money from nothing.Secondly, simply add another person the fallacy in your example becomes obvious...
So Economics 101 as you see it, but not Economics 101 as it exists in reality.....
You are ignoring the velocity of money and your example is distorted to try to justify something you already want to believe. Firstly, banks need reserves or deposits to create money, they can't create money from nothing.Secondly, simply add another person the fallacy in your example becomes obvious...
So Economics 101 as you see it, but not Economics 101 as it exists in reality.....
Ok, so if by the reserve capacity of 3 to $10 of some sort of paper allows the bank to create $100 of debt -- that makes any difference?
And if you have several banks doing this to 300 million folks (in the US, alone) then you would be happy with the model?
Still comes back to more money + interest than there ever was money, so someone must forever be in debt.
Ok, so if by the reserve capacity of 3 to $10 of some sort of paper allows the bank to create $100 of debt -- that makes any difference?
And if you have several banks doing this to 300 million folks (in the US, alone) then you would be happy with the model?
Still comes back to more money + interest than there ever was money, so someone must forever be in debt.
More like someone will always be willing to be in debt. Debt is generally a good thing. It allows you to leverage to create opportunities you could most likely never accomplish buying out right. As can any tool, it can be used for good or bad. If you're using it to buy designer clothes and frequent pricey night clubs, most people are going to question whether that is really worthwhile. On the other hand, I took out $25,000 to go to college and another $15,000 to start my business. I couldn't have done either without boring money.
Ok, so if by the reserve capacity of 3 to $10 of some sort of paper allows the bank to create $100 of debt -- that makes any difference?
Banks don't "create" money in the manner suggested in the OP, they can't go from having nothing to loaning $100. After all, if this was the true picture why would banks bother with deposits?
Anyhow, banks cannot grow the monetary base, they don't create money. Instead, through their operations, they are able to grow non-base "money" up to the multiplier allowed by the fed (their reserve requirements). For example, the central bank creates $100 and gives it to Jim, Jim deposits it with the bank and then the bank loans $90 to Bob which in turn deposits it in some bank. There is still only $100 in base money, but you now have $190 in M1 (or perhaps M2 depending on the account types).
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Originally Posted by Philip T
Still comes back to more money + interest than there ever was money, so someone must forever be in debt.
No it doesn't, again, this "problem" is created by ignoring the velocity of money and distorting the way banks actually operate. You can't explain the current monetary system with just a single bank and a single person, trying to do so results in the fallacy seen in the OP.
Take a bank, Jim and Bob. Suppose there is $100 in base money and as above Jim as it. Jim deposits it with the bank and the bank again loans Bob $90 and 5%. Where does Jim get the $4.50 for the interest? Well, he can wash Bob's car for $4.50. Bob withdraws $4.50 from his account and pays Jim and Jim deposits it at the bank. Problem solved...Jim now has the $90 and $4.50 for interest and Bob now has $95.50. No new debt was created. Of course, there is one issue here, the bank would go below its reserve requirements when Bob withdrew $4.50, but it would be fine once Jim deposited the $4.50. And this also illustrates the real threat to the banking system, runs on the bank and not some erroneous notion of a "debt spiral".
Anyhow, the US appears to be doomed, but not because it has a fiat monetary system, instead a complete a total failure of democracy. The American public is just no match for modern propaganda, but whatever, they will rightly experience a worsening standard of living and be turned into slaves by superior minds.... One should never have expected the plebes to self-govern, the plebs are always dominated sooner or later.
It took me years to sort through needless&verbose economic mambo jumbo (explaining little or nothing conceptually to boot) to come up with a condensed essence (as I see it) of credit based capitalist economies, monetary systems & banking. Here is a very simplistic "no population/economy growth" sketch of "how monetary system works".
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Let's imagine a closed society consisting of you (the banker), state (the enforcer) and me (a generic wage slave). You (the banker) are granted exclusive rights by the hidden powers of Universe to create new money for our mini economy, an enforcer (state) makes sure that me (a generic wage slave) have to work to get the money in order to keep myself alive & fed ("how to" is not important in this sketch).
Imagine you (the banker) "create" $100 and loan $100 to me under a "small" stipulation - me paying you $105 back, if payments can't be done I promise the banker to give up agreed upon fruits of my labor and/or property. Where would I get extra $5 if I have no authority (under penalty of death) to create new money? Yup, you (a banker) would loan me another freshly minted $100 bill at 5% interest, I will pay you $105 of the old debt and I would owe you another $105 (while having only $95 on me), as we can see, a snow ball of debt is getting bigger and bigger with every "loan cycle". But simple paper/money debt is of no value to anyone (including bankers). Paper money debt got to be exchangeable for the real goods & services. In order to "encourage" me to be "productive" (a.k.a. to feed a banker&enforcer) I have to be forced to work for money, again, details of "How to" are unimportant here, we all know it can be done
What is the point of the debt pyramid if it never can be repaid? It's just common sense, the point of the credit driven economies is not for the bankers to accomplish impossible (i.e. to get all their money+interest back), the point of it all ... is to keep you working and producing on the behalf of the ones in charge of money creation and enforcement.
In absence of revolution, world war, pandemic, etc. debt pile can only mushroom to infinity and beyond, debtless capitalist economy is an oxymoron, it can't be. It takes more and more of new debt to pay off old debts and there is no way around that. Economy (i.e. debt) either grows exponentially or economy (and debt obligations) collapses into mayhem, there is no middle ground. BTW, bankers have a small trick in their sleeve, out of sudden they can freeze or slow down new money/debt creation to collect real physical assets like land, homes, plants, metals etc. debtors use as a collateral.
In the light of Economics 101 I come up with, debt ceiling squabble can be interpreted as a strong push (by some unknown forces) to shrink new money/debt creation so that certain group of "debt holders" could exchange debt obligations for some tangible physical assets & titles. On the other hand, the rest of elected folks (lead by Marx incarnate - Obama) believe that the party is not over yet and debt can be snowballed for little bit longer. Whatever course of action you prefer, the big arse correction is near. I have a hunch that people that matters are afraid that further debt snowballing may inadvertently expose the true nature of the monetary system and the people behind the debt ball. Money it's not only debt, it's also "faith" and you cannot keep that faith alive without periodic man made disasters.
This is the driving force behind inflation, which is another tax on the working people.
Without the Fed you had nearly no inflation for the first 150 years of the countries existence.
With the Fed, you have a continuous spiral of ever-increasing prices leading to increased borrowing in the attempt to keep up with inflation.
This results in ever-increasing profits for the banking establishment while at the same time creating a wage slave environment for the working class.
I like this quote. “The hollow words “deficits don’t matter” echo through my mind. They are spoken in the arrogant tone of supposedly educated people who continue to spread their debt backed manure. Of course they spread this manure knowing that it fertilizes their returns.”
It doesn't quite follow the marble. We are not getting scammed significantly at this level. The interest to the debt is paid back to the treasury from the FED. Only the real bond holders stand to gain a nominal sum that does not keep up with inflation. Those who defend the system leap for joy to defuse this claim. The debt is the money. A government bond is as good as money. The scam is the money loaned out privately by commercial banks. Most money is privately created debt. We collectively pay interest on all money, but the value is created by taxing power, not the "reserves" of a bank.
If, if the banking system did anything useful in this regard, such as creating sound loans at personal risk(after deferring their own consumption through saving, aka real reserves), it might be worth something. However they don't take any risk so they don't provide any valuable resource allocation; they are bailed out when they fail. So all they do is collect the bulk of the inflation tax. Where did the banking system turn the might of the US economy? They had it build empty houses for a decade. Business is typically funded by equity and bond markets so no credit goes to the banking system.
What is so confusing to me is how this fact gets it right without realizing the true implications.
Of course the supply of money would fall! Do you see the dilemma that is created when you back your money with debt? We can’t pay back our debts without decreasing the supply of debt backed money, and if we do that, then the economy will suffer. But if we continue to pile on debt, then more and more of our money will go to pay interest and our economy will suffer. Those are the choices we are presented with in our current Federal Reserve Debt based system.
We the public cannot pay back bank debt with out massive "guberment debt". However the press continues to say how bad it is to increase the national debt so we all need to go into more debt. Someone has to keep going into debt to avert a depression. This is by design. Who is it gonna be? So if the only choice is to reduce "da guberment debt but no one else does, then we will collapse the money supply into a depression . And it is sustainable BTW, after everyone is relieved of their assets, they can start over loaning people money to create new assets that will be used as more security.
The federal debt is the real red herring. The reason why the public debt is exploding is because private debt has stalled, and in this system the money supply must increase and since money is debt, and debt must increase, always. Otherwise, you get a depression. That interest phase of the game is over. Now the game is to stay solvent with bailouts while the rest implode, still shifting wealth to the finance industry, not by the expansion of the money supply that draws them interest, but by the relative deflationary pressure on the rest of us. If I have $1 and you have $1 and I print $1, I just stole about a 6th of your wealth. However I can also stay even and shrink your dollar by a 6th and do the same.
The finance industry wins in two ways.
Interest.
default.
The only danger in a secured loan is the default, if the asset isn't worth the the principle. With guberment loan guarantees or bailouts, there is no risk or value , so they just collect interest and scoop up the security at the rate they charge on 40 trillion. Why are people worried about the interest on 10 trillion some of which builds bridges and national parks? Why don't they care about the interest on 40 trillion that buys them nothing?
This is the driving force behind inflation, which is another tax on the working people.
Inflation is not a "tax on the working people", it is a tax on capital owners which the "working people" own very little of.
Capital owners, including banks, don't want inflation. Inflation erodes the value of their capital and reduces the real about of interest they receive. On the other hand, debtors (the working people) are benefited by reduced real interest rates.
There is a reason why "inflation" is a dirty world in this country right now and its not because it hurts the working people....
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Originally Posted by jimhcom
With the Fed, you have a continuous spiral of ever-increasing prices leading to increased borrowing in the attempt to keep up with inflation.
There is no reason why you'd need "increased borrowing" in real terms to keep up with inflation.
Inflation is not a "tax on the working people", it is a tax on capital owners which the "working people" own very little of.
user_id,
Inflation is a tax on people who hold the currency being inflated. I'd say that the net worth of the typical worker has a much higher percentage in cash and assets in M1 and M2.
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Capital owners, including banks, don't want inflation. Inflation erodes the value of their capital and reduces the real about of interest they receive. On the other hand, debtors (the working people) are benefited by reduced real interest rates.
Banks typically love inflationary periods because its a side effect of a big bing on loans. I suppose yeast doesn't like rising alcohol levels either, but that's because they are partying hard. What do they like? deflation? When did banks have sky high levels of equity? Why that was when inflation was high. Now they are tanking but for guberment bailout during disinflation.
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There is a reason why "inflation" is a dirty world in this country right now and its not because it hurts the working people....
Cept for the rising food and oil prices that is a side effect of trying to rescue the real estate security behind all those loans. Pretty sure regular people have food and gas in their budgets.
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There is no reason why you'd need "increased borrowing" in real terms to keep up with inflation.
Ah, yeah, I don't know what he is talking about here. Da guberment, as I said, is increasing debt because its the only money supply in town. There are no more mortgages pumping money into the economy. Credit lines for business has been shrunk. Only gubernment can go into debt to increase the money supply and prevent deflation.
Last edited by gwynedd1; 08-04-2011 at 12:29 PM..
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