[Conversation starter] Where do banks get the money they lend to people in the private sector?

[Econ4Every1]

What are you after? What Greedhead oinkonomics do you want us to submit ourselves to? You seem to be condemning the banks' accounting practices and leading up to suggesting some self-serving alternative.

I'm not "after" anything. I enjoy conversations on the topic. If I'm "after" anything it's sharing what I know and learning what other people believe. If someone disagrees then I hope for a good debate where, either I learn something or I share what I know.

For one thing, "fiat" is a dishonest word sneaked into econobabble so that some snake-oil speculator can scare suckers into paying ever higher prices for his urine-colored rocks. Gold itself is a fiat currency, but scam artists know how to monopolize a term in order to give it the meaning most profitable to themseves.

While I agree with you that gold is really, when you stop and think about it, a "fiat" currency. What makes gold unique is the number of people that agree it has value across almost every country on earth (if not all of them). No one has to enforce golds value, people just accept it.

Now the term fiat simply means that its value is determined by proclamation. In the case of gold, people proclaim to themselves that gold is valuable (which is why people hoard it because they know others find value in it), but in the case of a paper dollar, its value has to be enforced.

Of course, there are soooo many goods and services that can be purchased with a dollar we don't generally think of it like this. Many users of the dollar don't even think about the kinds of conversations we're having here. They simply take it for granted that dollars have value. How do they know? because then they go in Walmart there is $20 million dollars worth of crap they can trade their dollars for.

At the end of the day, the dollars are fiat because of the creator of those dollars, the US government no longer promises to trade those dollars for anything (other than perhaps to make change) or top satisfy your payments in the taxes it imposes on you.

I think the value of the dollar is derived extrinsically. Its value comes from what can be obtained with it, not in the thing itself (though too many people treat the dollar as intrinsically valuable).

For example, what is the value of a key? Let's say the key is actually a plastic card. If you had 1 ton of those cards it would cost you money to dispose of them. But what if that card was the key to a lock and you needed it to get out of a room. A room you could never escape from without that card?

The value of that key, at least for you, would be equal to how much you value your life.

So what about the dollar? (here is how dollar fiat differs from gold fiat)

The US government imposes taxes. If the dollar didn't buy anything, what would the value of the dollar be then?

If the government could still enforce a tax and the penalty for non-payment was a loss of dollars, a loss of property or a loss of freedom, you would value the dollar equal to your desire to avoid punishment (implicit in that statemnt is a belief that you could not stop the government from carrying out it's punishment).

Thus if the government made jobs available so that you could earn dollars to pay your tax, you would work for those dollars relative to your desire to avoid punishment. Now you might decide not to earn the dollars and fight the government, but that just means that you no longer see the governments threat of force as capable of enforcing the value of the dollar.

Make sense?

"Free Market" Means That Those Who Control a Market Are Free to Do Whatever They Want

You're preaching still more Lizardtarian dogma when you claim that people make an independent judgment that gold has more value than government-fiat currency. The private-sector oligarchy creates that delusion. The thought-control artists rely on the psychology that people don't want to admit that they are suckers.

The tamed masses are even manipulated into looking down on those who admit they've been deceived. For example, Mitt Romney's Daddy lost his own chance at the Presidency when he said he had been brainwashed about Vietnam.

With respect, what does this have to do with my response?

I say this with no false-politeness respect for you because you are too shallow and negligent to deserve any. It is dishonest to refuse a challenge to the existence of your ideology's "self-determining" market because you can't handle it and claim it's because it's off topic. Lame. But it's your own fault you let yourself get crippled by plutocratic parasites.

It's off topic. You'd like to start a new thread, please, I'd be happy to comment.

 

[Econ4Every1]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

 

[Toddsterpatriot]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

 

[Econ4Every1]

Does that mean the bank is more likely to give a motgage to someone whose homebuilder or original owner also has an account at that bank?

Not at all, though, if the borrower and the seller have accounts at the same bank, that's definitely good for the bank, but given the on-demand nature of bank accounts, the bank has little incentive to favor this arrangement.

You constantly take the part for the whole. The account, as a lump sum, is rarely on demand. The bank can make profitable use of most of it for a significant amount of time. The bank is in effect a co-depositor.

It really depends on what you're talking about.

Again, the point that most Austrians seem to be making is that savings are "good" for the economy as it increases the supply of lendable funds.

I'd maintain it's bad for the economy as savings does not increase the lendability of funds, regardless of whether or not individual banks can lend reserves. Savings slows the overall economy as the amount of money circulating decreases. Savings is a "demand leakagle".

The level of reserves in the system as a whole regardless of savings levels say virtually the same.

That is the argument, thus any talk of what individual banks can do is just arguing to be right and avoiding the entire point of this debate.

The banks circulate the savings, changing potential productivity into actual activity. Also, the saver himself does that, because he is working more than he absolutely needs to.

Explain to me how banks do that.

 

[Econ4Every1]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

 

[Toddsterpatriot]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

 

[Econ4Every1]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

 

[Toddsterpatriot]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Does all money need to circulate 24/7?

Nope.

Not for people who demand savings.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

 

[Econ4Every1]

Yep, unless you think the sellers are putting the money they earn under their mattresses. What would change is the velocity of money and who possessed it.

Nope.

How does that invalidate what I said?

People who demand savings must acquire it. If everyone is saving, then how can anyone acquire money to save?

The Paradox of Thrift.

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

 

[EdwardBaiamonte]

reserves don't come from customers? If a bank takes in $100 from a customer that would in effect create a $10 reserve. If bank takes in deposits from Fed that in effect creates a higher reserve requirement for bank. If bank takes in deposit from Fed for simultaneous lending then you might say, owing the fungibility of money , reserves come Fed deposits to customers.

When a customer deposits $100, that creates $100 in reserves because banks don't lend reserves to customers. Any reserves a bank holds are either required, in that the bank has made loans of some amount against which it must keep 10% reserves on deposit at the Fed, or excess reserves in that excess reserves aren't required to keep them on hand. Banks can lend excess reserves to other banks in the federal reserve system that find themselves at a deficit of reserves.

Since loans create deposits, the act of lending creates reserves.

money is fungible so thats nonsense. The real issue does standard monetary policy work, does QE work. It might be cute to point that in one sense reserves are not lent out but that avoids the important issue.

 

[BuckToothMoron]

It all works fine with growth and dutiful lending by banks. Money is, or should be created thru growth. Unfortunately we have a central bank, the Feral Reserve, who believes they can reverse prime the economy by printing money, QE, to encourage growth. Instead they created asset inflation. Witness the stock market at an all time high even though we have had very slow growth since the 2008 recession. QE has also created high housing cost and made the wealth gap even worse.

Not that I'm defending QE as a policy (because I'm not), but people who bash it forget that the world economy was on the brink of disaster. Would you have let banks fail and the economy to implode, or would you have done something different? If so, what?

You talk as if the bailout worked and diverted disaster. The reality is we don't know how it will eventually unfold. Adding trillions of dollars into the economy and making too big to fail banks even bigger, driving asset prices thru the roof while creating less 2% growth will have consequences.
What those consequences are and the ultimate severity of pain caused is still in question.

I think what you're saying is that the bailout averted the disaster in 2008, but may have caused another, potentially larger problem long term.

However, none of the money created via QE has circulated in the economy. What QE did was drive down the price of borrowing such that it has enticed the wealthy to borrow money at one rate, let's just say 2% and turn around and invest in markets. The thought is that if they can earn a return higher than 2% then basically it's free money.

I agree that this policy has driven the demand for assets, perhaps we might say artificially.

However, the real question is, are the loans made adequately capitalized?

If so, as loans fail bank investors (that that invest via investor capital common and preferred stock) will lose value.

If there is enough capital, the system will self-adjust, though it will have the effect of transferring wealth from investors to those that took and defaulted on those loans which present another issue altogether.

The other possibility is that as interest rates rise, investors will slowly withdraw their capital and repay their loans. The stock market will fall and companies will have to go back to "old fasioned" methods of capitilization and value, things like;

Investing in labor plant and equipment

Stop utilizing buy backs as a way to increase value.....

If this is done slowly markets will adjust.

The question is, is there adaquate incentive for the wealthy to repay the loans they took, or should they just default?

That is the real underlying problem. We saw what happens in 2008 when a market isn't adaquatly capitlized and the incentive of default outweighs the incentive to repay.

The Big Bank Bailout
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.

After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money - the banks could use it for any purpose.

Few thoughts....

First, it's really hard for me to comment on the entirety of the claims here. I will agree with this article in Forbes that I found when I Googled "The Big Bank Bailout" which says some of the same things you are saying.

There is undoubtedly financial corruption and the result is massive wealth transfers. IMO, much of it is the result of the speed of markets made possible by computer technologies. It also affords too much anonymity IMO...

That said, taxpayers aren't really funding this stuff...At least not directly. The explanation for that is long and requires that I go into a lot of underlying detail I'm going to skip here...For now unless you insist I explain.

The Fed is independently audited every year.

The problem isn't the Fed, or even the government, though they are FAR from perfect and need many changes. The Forbes article identified the problem, wholesale banking corruption and a lack of accountability.

The Fed to my knowledge has no enforcement arm, that is left to the Federal government and this is where the Federal government fails and must be reformed.

But again, the general population doesn't understand how the system we have works and as a result vote people into Congress to do things like "audit the Fed" (which, btw has nothing to do with auditing the Fed, it's about taking control of monetary policy) and running "balanced budgets", not doing things like removing the influence of money from government and getting rid of things like Citizens United and the idea that money is speach.

It's guys like Todd who promote ideas like banks lending customer deposits to other customers and the idea that the supply of savings affects in the interest rate that is so wrong he doesn't even understand the question, never mind the answer (and I say that with all the respect I can). Something I'll continue to debate with him you can make up your own mind about the strength of that argument.

In the end, the problem, IMO, is there are people making money hand over fist, who can use that idle money to influence policy. Things won't change until we can separate the influence of money on our government officials. I try not to mix policy decisions and fiscal reality because it often confuses people, but this thread is really a mix of policy and fiscal reality.

Politics and money is like peanut butter and jelly. Good luck separating the two.

Ultimately, economics has a natural ebb and flow. If the Fed or any other central bank thinks they can divert down times and maintain a consistent growth in the economy, we will suffer. Our founders warned us against a central bank- Our founding fathers were against the federal reserve and central banking system..

The Fed exist at the pleasure of our government, and the Fed allows our government to borrow without consequences, but for how long?

 

[Toddsterpatriot]

If all current savings were "spent into the economy", would new savings be zero?

Yep, unless you think the sellers are putting the money they earn under their mattresses.

You want to restate your answer?

If savings in the economy are $1000 and the depositors withdraw $1000 and spend it, savings in the economy are now zero? Unless they put the money under their mattress?

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

You think saving harms the economy, it's a "demand leakage".
But if all current savings were spent, total savings would remain unchanged.

 

[Toddsterpatriot]

It all works fine with growth and dutiful lending by banks. Money is, or should be created thru growth. Unfortunately we have a central bank, the Feral Reserve, who believes they can reverse prime the economy by printing money, QE, to encourage growth. Instead they created asset inflation. Witness the stock market at an all time high even though we have had very slow growth since the 2008 recession. QE has also created high housing cost and made the wealth gap even worse.

Not that I'm defending QE as a policy (because I'm not), but people who bash it forget that the world economy was on the brink of disaster. Would you have let banks fail and the economy to implode, or would you have done something different? If so, what?

You talk as if the bailout worked and diverted disaster. The reality is we don't know how it will eventually unfold. Adding trillions of dollars into the economy and making too big to fail banks even bigger, driving asset prices thru the roof while creating less 2% growth will have consequences.
What those consequences are and the ultimate severity of pain caused is still in question.

I think what you're saying is that the bailout averted the disaster in 2008, but may have caused another, potentially larger problem long term.

However, none of the money created via QE has circulated in the economy. What QE did was drive down the price of borrowing such that it has enticed the wealthy to borrow money at one rate, let's just say 2% and turn around and invest in markets. The thought is that if they can earn a return higher than 2% then basically it's free money.

I agree that this policy has driven the demand for assets, perhaps we might say artificially.

However, the real question is, are the loans made adequately capitalized?

If so, as loans fail bank investors (that that invest via investor capital common and preferred stock) will lose value.

If there is enough capital, the system will self-adjust, though it will have the effect of transferring wealth from investors to those that took and defaulted on those loans which present another issue altogether.

The other possibility is that as interest rates rise, investors will slowly withdraw their capital and repay their loans. The stock market will fall and companies will have to go back to "old fasioned" methods of capitilization and value, things like;

Investing in labor plant and equipment

Stop utilizing buy backs as a way to increase value.....

If this is done slowly markets will adjust.

The question is, is there adaquate incentive for the wealthy to repay the loans they took, or should they just default?

That is the real underlying problem. We saw what happens in 2008 when a market isn't adaquatly capitlized and the incentive of default outweighs the incentive to repay.

The Big Bank Bailout
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.

After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money - the banks could use it for any purpose.

Few thoughts....

First, it's really hard for me to comment on the entirety of the claims here. I will agree with this article in Forbes that I found when I Googled "The Big Bank Bailout" which says some of the same things you are saying.

There is undoubtedly financial corruption and the result is massive wealth transfers. IMO, much of it is the result of the speed of markets made possible by computer technologies. It also affords too much anonymity IMO...

That said, taxpayers aren't really funding this stuff...At least not directly. The explanation for that is long and requires that I go into a lot of underlying detail I'm going to skip here...For now unless you insist I explain.

The Fed is independently audited every year.

The problem isn't the Fed, or even the government, though they are FAR from perfect and need many changes. The Forbes article identified the problem, wholesale banking corruption and a lack of accountability.

The Fed to my knowledge has no enforcement arm, that is left to the Federal government and this is where the Federal government fails and must be reformed.

But again, the general population doesn't understand how the system we have works and as a result vote people into Congress to do things like "audit the Fed" (which, btw has nothing to do with auditing the Fed, it's about taking control of monetary policy) and running "balanced budgets", not doing things like removing the influence of money from government and getting rid of things like Citizens United and the idea that money is speach.

It's guys like Todd who promote ideas like banks lending customer deposits to other customers and the idea that the supply of savings affects in the interest rate that is so wrong he doesn't even understand the question, never mind the answer (and I say that with all the respect I can). Something I'll continue to debate with him you can make up your own mind about the strength of that argument.

In the end, the problem, IMO, is there are people making money hand over fist, who can use that idle money to influence policy. Things won't change until we can separate the influence of money on our government officials. I try not to mix policy decisions and fiscal reality because it often confuses people, but this thread is really a mix of policy and fiscal reality.

Politics and money is like peanut butter and jelly. Good luck separating the two.

Ultimately, economics has a natural ebb and flow. If the Fed or any other central bank thinks they can divert down times and maintain a consistent growth in the economy, we will suffer. Our founders warned us against a central bank- Our founding fathers were against the federal reserve and central banking system..

The Fed exist at the pleasure of our government, and the Fed allows our government to borrow without consequences, but for how long?

Our founders warned us against a central bank

Is that why they created one in 1791?

The Fed exist at the pleasure of our government

Created by Act of Congress, can be dissolved by Act of Congress.

the Fed allows our government to borrow without consequences,

Not sure what you mean here.

 

[Econ4Every1]

reserves don't come from customers? If a bank takes in $100 from a customer that would in effect create a $10 reserve. If bank takes in deposits from Fed that in effect creates a higher reserve requirement for bank. If bank takes in deposit from Fed for simultaneous lending then you might say, owing the fungibility of money , reserves come Fed deposits to customers.

When a customer deposits $100, that creates $100 in reserves because banks don't lend reserves to customers. Any reserves a bank holds are either required, in that the bank has made loans of some amount against which it must keep 10% reserves on deposit at the Fed, or excess reserves in that excess reserves aren't required to keep them on hand. Banks can lend excess reserves to other banks in the federal reserve system that find themselves at a deficit of reserves.

Since loans create deposits, the act of lending creates reserves.

money is fungible so thats nonsense. The real issue does standard monetary policy work, does QE work. It might be cute to point that in one sense reserves are not lent out but that avoids the important issue.

Yes, money is fungible.

And please, what is the more important issue?

 

[Econ4Every1]

Apologies, I thought you meant the net difference in savings.

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

You think saving harms the economy, it's a "demand leakage".
But if all current savings were spent, total savings would remain unchanged.

I think when people save that (can) harm an economy (with spare capacity and labor).

 

[Toddsterpatriot]

So the net difference is zero?

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

You think saving harms the economy, it's a "demand leakage".
But if all current savings were spent, total savings would remain unchanged.

I think when people save that (can) harm an economy (with spare capacity and labor).

Absolutely! The need to use up those savings....for the economy.

Wait.....after they use them up, the amount remains the same?

 

[Econ4Every1]

What I'm saying is that most of the money that in circulation in this country is already saved. When people save rather than spend, doesn't increase or decrease the level of savings. It simply shifts who holds that savings.

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

You think saving harms the economy, it's a "demand leakage".
But if all current savings were spent, total savings would remain unchanged.

I think when people save that (can) harm an economy (with spare capacity and labor).

Absolutely! The need to use up those savings....for the economy.

Wait.....after they use them up, the amount remains the same?

Just imagine the game of Monopoly. If everyone saved the money they earned by passing go, no properties would be bought and the game would go nowhere. But when players spend their savings, the amount of savings doesn't change between the players, only who holds it.

Savings in the game increases or decreases only then the game adds money via passing go (or certain cards) or leaves the game via initial purchases of property or penalties.

Now, this has been fun. I'm happy to let my argument rust here.

-Cheers

 

[Toddsterpatriot]

When people save rather than spend, doesn't increase or decrease the level of savings.

When people spend rather than save, doesn't increase or decrease the level of savings.

So then you'd agree that savings (or not saving) don't increase or decrease the availability of lendable funds?

You think saving harms the economy, it's a "demand leakage".
But if all current savings were spent, total savings would remain unchanged.

I think when people save that (can) harm an economy (with spare capacity and labor).

Absolutely! The need to use up those savings....for the economy.

Wait.....after they use them up, the amount remains the same?

Just imagine the game of Monopoly. If everyone saved the money they earned by passing go, no properties would be bought and the game would go nowhere. But when players spend their savings, the amount of savings doesn't change between the players, only who holds it.

Savings in the game increases or decreases only then the game adds money via passing go (or certain cards) or leaves the game via initial purchases of property or penalties.

Now, this has been fun. I'm happy to let my argument rust here.

-Cheers

But when players spend their savings, the amount of savings doesn't change between the players, only who holds it.

Complaining about savings harming the economy is silly, you admit that spending it doesn't use it up.
It has to land somewhere.

 

[BuckToothMoron]

It all works fine with growth and dutiful lending by banks. Money is, or should be created thru growth. Unfortunately we have a central bank, the Feral Reserve, who believes they can reverse prime the economy by printing money, QE, to encourage growth. Instead they created asset inflation. Witness the stock market at an all time high even though we have had very slow growth since the 2008 recession. QE has also created high housing cost and made the wealth gap even worse.

Not that I'm defending QE as a policy (because I'm not), but people who bash it forget that the world economy was on the brink of disaster. Would you have let banks fail and the economy to implode, or would you have done something different? If so, what?

You talk as if the bailout worked and diverted disaster. The reality is we don't know how it will eventually unfold. Adding trillions of dollars into the economy and making too big to fail banks even bigger, driving asset prices thru the roof while creating less 2% growth will have consequences.
What those consequences are and the ultimate severity of pain caused is still in question.

I think what you're saying is that the bailout averted the disaster in 2008, but may have caused another, potentially larger problem long term.

However, none of the money created via QE has circulated in the economy. What QE did was drive down the price of borrowing such that it has enticed the wealthy to borrow money at one rate, let's just say 2% and turn around and invest in markets. The thought is that if they can earn a return higher than 2% then basically it's free money.

I agree that this policy has driven the demand for assets, perhaps we might say artificially.

However, the real question is, are the loans made adequately capitalized?

If so, as loans fail bank investors (that that invest via investor capital common and preferred stock) will lose value.

If there is enough capital, the system will self-adjust, though it will have the effect of transferring wealth from investors to those that took and defaulted on those loans which present another issue altogether.

The other possibility is that as interest rates rise, investors will slowly withdraw their capital and repay their loans. The stock market will fall and companies will have to go back to "old fasioned" methods of capitilization and value, things like;

Investing in labor plant and equipment

Stop utilizing buy backs as a way to increase value.....

If this is done slowly markets will adjust.

The question is, is there adaquate incentive for the wealthy to repay the loans they took, or should they just default?

That is the real underlying problem. We saw what happens in 2008 when a market isn't adaquatly capitlized and the incentive of default outweighs the incentive to repay.

The Big Bank Bailout
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.

After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money - the banks could use it for any purpose.

Few thoughts....

First, it's really hard for me to comment on the entirety of the claims here. I will agree with this article in Forbes that I found when I Googled "The Big Bank Bailout" which says some of the same things you are saying.

There is undoubtedly financial corruption and the result is massive wealth transfers. IMO, much of it is the result of the speed of markets made possible by computer technologies. It also affords too much anonymity IMO...

That said, taxpayers aren't really funding this stuff...At least not directly. The explanation for that is long and requires that I go into a lot of underlying detail I'm going to skip here...For now unless you insist I explain.

The Fed is independently audited every year.

The problem isn't the Fed, or even the government, though they are FAR from perfect and need many changes. The Forbes article identified the problem, wholesale banking corruption and a lack of accountability.

The Fed to my knowledge has no enforcement arm, that is left to the Federal government and this is where the Federal government fails and must be reformed.

But again, the general population doesn't understand how the system we have works and as a result vote people into Congress to do things like "audit the Fed" (which, btw has nothing to do with auditing the Fed, it's about taking control of monetary policy) and running "balanced budgets", not doing things like removing the influence of money from government and getting rid of things like Citizens United and the idea that money is speach.

It's guys like Todd who promote ideas like banks lending customer deposits to other customers and the idea that the supply of savings affects in the interest rate that is so wrong he doesn't even understand the question, never mind the answer (and I say that with all the respect I can). Something I'll continue to debate with him you can make up your own mind about the strength of that argument.

In the end, the problem, IMO, is there are people making money hand over fist, who can use that idle money to influence policy. Things won't change until we can separate the influence of money on our government officials. I try not to mix policy decisions and fiscal reality because it often confuses people, but this thread is really a mix of policy and fiscal reality.

Politics and money is like peanut butter and jelly. Good luck separating the two.

Ultimately, economics has a natural ebb and flow. If the Fed or any other central bank thinks they can divert down times and maintain a consistent growth in the economy, we will suffer. Our founders warned us against a central bank- Our founding fathers were against the federal reserve and central banking system..

The Fed exist at the pleasure of our government, and the Fed allows our government to borrow without consequences, but for how long?

Our founders warned us against a central bank

Is that why they created one in 1791?

The Fed exist at the pleasure of our government

Created by Act of Congress, can be dissolved by Act of Congress.

the Fed allows our government to borrow without consequences,

Not sure what you mean here.

No,,it is why they never renewed its 20 year charter and it died after 2 decades.

Congress has no reason or incentive to dissolve the FR. I'm actually shocked you don't know this, but you are fortunate I am here to educate you. No thanks necessary. Monetizing the debt -

Why the Nation's Central Bank Is Making the Government Debt Worse

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When the Fed buys U.S. Treasuries, it allows the government to borrow more while keeping interest rates low. Photo: Katrina Charmatz/Getty Images
By Kimberly Amadeo
Updated July 14, 2017
A nation monetizes its debt when it converts debt to credit or cash. It frees up capital that's locked in the debt and puts it into circulation. The only way it can do this is with its central bank. The central bank purchases the government debt and replaces it with credit. The bank puts the debt on its balance sheet. It creates the credit out of thin air. A central bank is the only bank that can legally do this.

The Federal Reserve monetizes the U.S. debt when it buys U.S. Treasury bills, bonds and notes. When the Federal Reserve purchases these Treasurys, it doesn't have to print money to do so. It issues credit to the Federal Reserve member banks that hold the Treasurys. It then puts the Treasurys on its own balance sheet. It does this through an office at the Federal Reserve Bank of New York. Everyone treats the credit just like money, even though the Fed doesn't print cold hard cash.

 

[Toddsterpatriot]

It all works fine with growth and dutiful lending by banks. Money is, or should be created thru growth. Unfortunately we have a central bank, the Feral Reserve, who believes they can reverse prime the economy by printing money, QE, to encourage growth. Instead they created asset inflation. Witness the stock market at an all time high even though we have had very slow growth since the 2008 recession. QE has also created high housing cost and made the wealth gap even worse.

Not that I'm defending QE as a policy (because I'm not), but people who bash it forget that the world economy was on the brink of disaster. Would you have let banks fail and the economy to implode, or would you have done something different? If so, what?

You talk as if the bailout worked and diverted disaster. The reality is we don't know how it will eventually unfold. Adding trillions of dollars into the economy and making too big to fail banks even bigger, driving asset prices thru the roof while creating less 2% growth will have consequences.
What those consequences are and the ultimate severity of pain caused is still in question.

I think what you're saying is that the bailout averted the disaster in 2008, but may have caused another, potentially larger problem long term.

However, none of the money created via QE has circulated in the economy. What QE did was drive down the price of borrowing such that it has enticed the wealthy to borrow money at one rate, let's just say 2% and turn around and invest in markets. The thought is that if they can earn a return higher than 2% then basically it's free money.

I agree that this policy has driven the demand for assets, perhaps we might say artificially.

However, the real question is, are the loans made adequately capitalized?

If so, as loans fail bank investors (that that invest via investor capital common and preferred stock) will lose value.

If there is enough capital, the system will self-adjust, though it will have the effect of transferring wealth from investors to those that took and defaulted on those loans which present another issue altogether.

The other possibility is that as interest rates rise, investors will slowly withdraw their capital and repay their loans. The stock market will fall and companies will have to go back to "old fasioned" methods of capitilization and value, things like;

Investing in labor plant and equipment

Stop utilizing buy backs as a way to increase value.....

If this is done slowly markets will adjust.

The question is, is there adaquate incentive for the wealthy to repay the loans they took, or should they just default?

That is the real underlying problem. We saw what happens in 2008 when a market isn't adaquatly capitlized and the incentive of default outweighs the incentive to repay.

The Big Bank Bailout
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.

After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money - the banks could use it for any purpose.

Few thoughts....

First, it's really hard for me to comment on the entirety of the claims here. I will agree with this article in Forbes that I found when I Googled "The Big Bank Bailout" which says some of the same things you are saying.

There is undoubtedly financial corruption and the result is massive wealth transfers. IMO, much of it is the result of the speed of markets made possible by computer technologies. It also affords too much anonymity IMO...

That said, taxpayers aren't really funding this stuff...At least not directly. The explanation for that is long and requires that I go into a lot of underlying detail I'm going to skip here...For now unless you insist I explain.

The Fed is independently audited every year.

The problem isn't the Fed, or even the government, though they are FAR from perfect and need many changes. The Forbes article identified the problem, wholesale banking corruption and a lack of accountability.

The Fed to my knowledge has no enforcement arm, that is left to the Federal government and this is where the Federal government fails and must be reformed.

But again, the general population doesn't understand how the system we have works and as a result vote people into Congress to do things like "audit the Fed" (which, btw has nothing to do with auditing the Fed, it's about taking control of monetary policy) and running "balanced budgets", not doing things like removing the influence of money from government and getting rid of things like Citizens United and the idea that money is speach.

It's guys like Todd who promote ideas like banks lending customer deposits to other customers and the idea that the supply of savings affects in the interest rate that is so wrong he doesn't even understand the question, never mind the answer (and I say that with all the respect I can). Something I'll continue to debate with him you can make up your own mind about the strength of that argument.

In the end, the problem, IMO, is there are people making money hand over fist, who can use that idle money to influence policy. Things won't change until we can separate the influence of money on our government officials. I try not to mix policy decisions and fiscal reality because it often confuses people, but this thread is really a mix of policy and fiscal reality.

Politics and money is like peanut butter and jelly. Good luck separating the two.

Ultimately, economics has a natural ebb and flow. If the Fed or any other central bank thinks they can divert down times and maintain a consistent growth in the economy, we will suffer. Our founders warned us against a central bank- Our founding fathers were against the federal reserve and central banking system..

The Fed exist at the pleasure of our government, and the Fed allows our government to borrow without consequences, but for how long?

Our founders warned us against a central bank

Is that why they created one in 1791?

The Fed exist at the pleasure of our government

Created by Act of Congress, can be dissolved by Act of Congress.

the Fed allows our government to borrow without consequences,

Not sure what you mean here.

No,,it is why they never renewed its 20 year charter and it died after 2 decades.

Congress has no reason or incentive to dissolve the FR. I'm actually shocked you don't know this, but you are fortunate I am here to educate you. No thanks necessary. Monetizing the debt -

Why the Nation's Central Bank Is Making the Government Debt Worse

• Share
• Flip
• Pin
• Email

When the Fed buys U.S. Treasuries, it allows the government to borrow more while keeping interest rates low. Photo: Katrina Charmatz/Getty Images
By Kimberly Amadeo
Updated July 14, 2017
A nation monetizes its debt when it converts debt to credit or cash. It frees up capital that's locked in the debt and puts it into circulation. The only way it can do this is with its central bank. The central bank purchases the government debt and replaces it with credit. The bank puts the debt on its balance sheet. It creates the credit out of thin air. A central bank is the only bank that can legally do this.

The Federal Reserve monetizes the U.S. debt when it buys U.S. Treasury bills, bonds and notes. When the Federal Reserve purchases these Treasurys, it doesn't have to print money to do so. It issues credit to the Federal Reserve member banks that hold the Treasurys. It then puts the Treasurys on its own balance sheet. It does this through an office at the Federal Reserve Bank of New York. Everyone treats the credit just like money, even though the Fed doesn't print cold hard cash.

No,,it is why they never renewed its 20 year charter

Right. They were against a central bank, but they created one in 1791.

And still against it when they created a new one in 1816.

Glad they were so loud in their warnings against a central bank.

I am here to educate you.

Gee, thanks. When are you going to start? I'm always happy to learn something new.