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Old 08-01-2012, 04:49 PM
 
19,337 posts, read 16,938,002 times
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* Can't just keep printing money...
* printing money = bad
* printing money causes inflation"

All the above, complete junk economics.

When gold was all the rage I wonder if faux "Austrian" economists tried to dynamite newly discovered gold mines seeing as more gold must mean it will destroy us all.(actually it was more gold that finally cured us of the catastrophic silver demonetization).

Banks create bank credit to, say , allow someone to buy a car which is supposed to be credit added to the system to represent the new product, the car. Otherwise double the cars means half the credit circulation. So its rather curious people believe this sort of thing when the entire banking system is predicated on creating credit on the spot for productive loans(problem is we have unproductive loans).

If I printed a "counterfeit" $100 bill and handed it to someone who would create 1000 widgets when the going rate of widgets was $100 a piece , is that supposed to cause inflation? Worse is I would be doing everyone more good than the average bank has been doing this decade Err, uh, golly gee. If the numerator is increased with the denominator, there is no inflation.

The problem is not in the amount of credit creation. The problem is when credit creation does jack squat, like say printing money when unemployment is at 0. However if unemployment is a 100% and you print up a note and hand it to someone who will actually do some work....people think THIS causes inflation?

Now I am all for the expectation that public credit is more likely to introduce credit in the system hardly distinguished from land fill , but given that banks are making similar loans, how are we going to finally give credit to a producer?

But I have had enough of junky, crappy, Australoidiotic economics.
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Old 08-01-2012, 05:38 PM
 
Location: The Triad (NC)
31,343 posts, read 69,533,811 times
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Quote:
Originally Posted by gwynedd1 View Post
Banks create bank credit to allow someone to buy a car
which is supposed to be credit added to the system to represent the new product, the car.
But it doesn't.
It represents about 10,000 already existing products and already existing debts.
At *best* it's a consolidation and securitizing of those smaller debts (sorta how mortgages get bundled).

Banks SEEK OUT people to take over (bookies would call it laying off) the debt (bet) they are already carrying from the dealer floorplan and all the way back up the food chain through all the manufacturers and the assemblers and so on to the raw material producers... who are all leveraged to their eyeballs waiting for some idiot to decide he'd rather have the Buick than the Pontiac.
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Old 08-01-2012, 05:38 PM
 
Location: Vallejo
16,256 posts, read 18,201,870 times
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It's one part of the formula.

Bank borrows $1 and turns around and lends out $9. Problem is they're sitting on a bunch of worthless paper assets and as they realize they need to replenish their equity to maintain debt/equity ratio. Write off bad debt? Less money in circulation. Lots of bad debts being written off = lots of need to "print money" to maintain the current money supply. Without printing piles of money, money supply basically dries up as the banks horde everything they get their paws on and start calling in loans.

The other half of the equation is velocity. Less velocity means the money isn't changing hands as fast.
Velocity of M2 Money Stock (M2V) - FRED - St. Louis Fed
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Old 08-02-2012, 02:05 AM
 
19,337 posts, read 16,938,002 times
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Quote:
Originally Posted by MrRational View Post
But it doesn't.
It represents about 10,000 already existing products and already existing debts.
At *best* it's a consolidation and securitizing of those smaller debts (sorta how mortgages get bundled).
That is only true at a very low level that statistically at the macro level is true.

Quote:
Banks SEEK OUT people to take over (bookies would call it laying off) the debt (bet) they are already carrying from the dealer floorplan and all the way back up the food chain through all the manufacturers and the assemblers and so on to the raw material producers... who are all leveraged to their eyeballs waiting for some idiot to decide he'd rather have the Buick than the Pontiac.
I don't think that is quite a description of and actual product. A level of speculation always exists. That is why its called entrepreneurial. The difference is that there is a reasonable expectation that it is a useful product unlike finance for ponzi schemes or loans for lobbying political favors .
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Old 08-02-2012, 09:50 AM
 
Location: 3rd Rock fts
749 posts, read 1,004,932 times
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Quote:
Originally Posted by gwynedd1
Banks create bank credit to, say , allow someone to buy a car which is supposed to be credit added to the system to represent the new product, the car. Otherwise double the cars means half the credit circulation. So its rather curious people believe this sort of thing when the entire banking system is predicated on creating credit on the spot for productive loans(problem is we have unproductive loans).
Maybe if the new car didn’t depreciate so fast, the loan could be considered productive?
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Old 08-02-2012, 10:47 AM
 
19,337 posts, read 16,938,002 times
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Quote:
Originally Posted by DSOs View Post
Maybe if the new car didn’t depreciate so fast, the loan could be considered productive?

People don't drive to work?

We can debate that all we like but the text book design was to add credit to the production of widgets, and I believe a car being a manufactured product applies.


Now we can certainly debate whether a banker is fit to make these speculations since I think they do it poorly myself.


Either way, adding new credit to the system is not much of a problem at all when it adds to production. What is a credit system supposed to do but give credit for an accomplished task ? thus we can define a credit system as broke when we give credit to people who accomplish nothing, not credit creation per se.
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Old 08-02-2012, 03:53 PM
 
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Credit is a reflection of future production. Either the borrower has the ability to service the loan or not. Notice paying off the loan isnt always important. This point always seems to get lost. I had an elder person in my building say he had to pay off all his debts, doesnt the government realize they have to pay back the $15B in debt someday. He totally missed the truth, he had to pay it back because eventually he would not be able to work to service the debts so he better pay them off. The government is not going to retire so as long as the interest bill is within the ability to pay then debt in theory never needs to be paid off whethere you are a governemnet or a corporation.

So getting back to what causes inflation, credit is not really the cause. Velocity of money and money supply is what causes inflation. Fed actions at this time are aimed at increasing velocity of money which is down because of develeraging within the private sector. Some of this has been a choice, some has been forced through tighter standards and capital requirements. Until velocity of money recovers much of what it has lost inflation is not a threat. If velocity recovers and credit expands then the Fed has to take countermeasures which would include unwinding QE measures and increasing target interest rates.
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Old 08-02-2012, 06:01 PM
 
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Lol yea just keep printing money nothing bad can ever happen
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Old 08-02-2012, 09:21 PM
 
29,986 posts, read 39,298,625 times
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Congressman Ron Paul's Final Domestic Monetary Policy Subcommittee Hearing - YouTube
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Old 08-02-2012, 09:35 PM
 
29,986 posts, read 39,298,625 times
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Quote:
Originally Posted by Willy702 View Post
.......... The government is not going to retire so as long as the interest bill is within the ability to pay then debt in theory never needs to be paid off whethere you are a governemnet or a corporation.

So getting back to what causes inflation, credit is not really the cause. Velocity of money and money supply is what causes inflation. Fed actions at this time are aimed at increasing velocity of money which is down because of develeraging within the private sector. Some of this has been a choice, some has been forced through tighter standards and capital requirements. Until velocity of money recovers much of what it has lost inflation is not a threat. If velocity recovers and credit expands then the Fed has to take countermeasures which would include unwinding QE measures and increasing target interest rates.

1) By 2015 the interest on the debt will be larger than the entire military budget. How much longer do you really think this country can rack up larger amounts of debt and service the interest? Furthermore, why should taxpayers be saddled with higher taxes because the government mismanages that which it receives from the taxpayers? The government may get a pink slip when the taxpayers say NO MORE!

2) Fed actions also create a false sense of security for value seeking investors. In turn, when too much money runs to a sector in hopes of safety bubbles are created. When economic bubbles burst the wealth of individuals disappears like dust in the wind.

It is a huge ponsi scheme. It has worked well to allow Americans a higher standard of living and consumerism than most countries but it is about to come to an end. The other countries in the would have had enough and are rejecting the US dollar as the defacto petro dollar.

As the use of the US dollar contracts (velocity) then the ability to service the interest on the debt also shrinks, no?

As the US taxpayer experiences a downward shift in standard of living the ability of the governement to collect a greater percentage of their income in taxes meets significant resistance (we see that now in robbing Peter to pay Paul for Paul's vote).

Meanwhile, QE enriches the banks and the hedge funds while decreasing the purchasing power of the average American.
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