Help: How do we use money?

[jortiz3]

Hi, I am someone who joined this forum to have some important questions I have been wondering about since I watched Zeitgeist Addendum. I am not interested in attacks on the credibility of this film or its makers. Attacks of this sort are only attacks, and have no logical connection to the real-world validity of what is said in the film: only measurement can support a theory. In the physical sciences, we (I'm a physics student) take this of utmost importance as we attempt to accurately and precisely describe reality as it is, even when it goes against our personal biases (and thus why measurement is so powerful). When I say measurement, I mean any interaction with the physical world that is objectively recorded, so data and experience are both equally valuable as long as they are objective.

Please help answer any of these questions you are familiar with that have been burning in my head about the use of money. Note that answers that are disconnected from reality by the author not being familiar with the subject matter will only detract from the quality of this thread.

To what extent is the interest generated by lending newly-created money that the Federal Reserve has ordered to create owned by private banks?

To what extent is it in the interests of the Federal Reserve to inflate currency?

To what extent have we, or will we, as a country, own so much debt that to pay it off we will have cut or abandon our most important social and environmental endeavors?

What are the chances that the current debt will expand faster than our commitment to pay it? What are the consequences if it is becomes absurdly obvious that the debt will grow faster than ability to pay it? I am familiar with debt-forgiveness programs in other countries: what would the United States do if it was to negotiate debt-forgiveness with its own banks, foreign banks, and the IMF? Would we sell mineral rights, water programs, and development projects to multinational corporations as has occurred in 3rd world countries?

Why doesn't the United States, in the interests to generate funds for its endeavors, as well as to increase the savings of its citizens and support low-income financial independence, make better incentives for its citizens to loan the government money (perhaps by having special higher-interest bonds for lower-income citizens to purchase)?

Thank you for your thoughtful feedback, hopefully we can piece together something of logical quality from the responses. This may be the most important subject of the United States in the 21st Century.

 

[expat_panama]

... To what extent is the interest generated by lending newly-created money that the Federal Reserve has ordered to create owned by private banks? ...

Whoa, we need to clarify right there which kind of money creation are we talking about.

The Fed creates money more than one way. Directly it can simply issue dollars and buy treasuries --like it did in the end of '08. That's rare though. Most money is created directly buy private banks every time they loan out depositor's cash for debt that's backed by collateral. This money is indirectly created sort of by the Fed when it lowers interest rates. If that's the kind of money creation you mean then the banks pocket the interest.

We together on this or are we missing something?

 

[EdwardBaiamonte]

This may be the most important subject of the United States in the 21st Century.

too perfectly stupid!!!! The most important subject is whether it is smarter to pull the Republican or Democrat lever in the voting booth. That is the subject that determines the direction of civilization on earth.


You should get yourself organized and learn the essential differences bewteeen the two parties. Please don't try to think for yourself anymore. Thanks


Also, don't think about money at all. You will only confuse yourself still more. Just remember that we got from the stone age to here because people invented things like shoes and electricity. The way we move forward from his is with more new inventions and improvements on old ones. It is Republicans who understand this basic concept. Are you intelligent enough to understand it too?

 

[jortiz3]

This may be the most important subject of the United States in the 21st Century.

too perfectly stupid!!!! The most important subject is whether it is smarter to pull the Republican or Democrat lever in the voting booth. That is the subject that determines the direction of civilization on earth.


You should get yourself organized and learn the essential differences bewteeen the two parties. Please don't try to think for yourself anymore. Thanks


Also, don't think about money at all. You will only confuse yourself still more. Just remember that we got from the stone age to here because people invented things like shoes and electricity. The way we move forward from his is with more new inventions and improvements on old ones. It is Republicans who understand this basic concept. Are you intelligent enough to understand it too?

Thanks for very little, Edward. I must disagree with your assumption that the way that we generate funds has little importance - on hopefully obvious grounds. I do agree that the "lever" question is very important, but more importantly I need to understand the system of money so I can figure out what happens when funds are generated for financially ambitious projects - like war, energy infrastructure, and economic support. Quite frankly, neither party is collectively qualified to make any economic, scientific, or social decision, as politics tends to the popular opinion rather than the researched one, of course.

... To what extent is the interest generated by lending newly-created money that the Federal Reserve has ordered to create owned by private banks? ...

Whoa, we need to clarify right there which kind of money creation are we talking about.

The Fed creates money more than one way. Directly it can simply issue dollars and buy treasuries --like it did in the end of '08. That's rare though. Most money is created directly buy private banks every time they loan out depositor's cash for debt that's backed by collateral. This money is indirectly created sort of by the Fed when it lowers interest rates. If that's the kind of money creation you mean then the banks pocket the interest.

We together on this or are we missing something?

thank you for this information. So when a bank loans out the cash people have deposited into it in exchange for a promise to pay it back with the penalty of collateral, um, i'm lost how this creates new money, could you care to explain?

 

[expat_panama]

...when a bank loans out the cash people have deposited into it in exchange for a promise to pay it back with the penalty of collateral, um, i'm lost how this creates new money, could you care to explain?

Economists have different definitions of money (from Financial Times Lexicon):

M0, M1, M2, M3, M4
Different measures of money supply. Not all of them are widely used and the exact classifications depend on the country. M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash. M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country. M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.​

--so lets say we start with the only guy in town with money is someone with a thousand bucks that he sticks in the bank. Money supply = $1,000. Some farmer in town wants to borrow a hundred bucks from the bank so he turns over title to his tractor. The bank creates $100 bucks out of thin air, loans it out, and the money supply is now $1,100. The system works because the odds are the depositor isn't going to want his entire $1,000 any time soon, and even if he does the bank can float an emergency overnight loan from the Fed until either the farmer pays off the loan (with interest) or they foreclose.

It's been a great system for hundreds, maybe thousands of years and it's the same with the gold standard as well as with today's Federal Reserve notes.

 

[EdwardBaiamonte]

Thanks for very little, Edward. I must disagree with your assumption that the way that we generate funds has little importance - on hopefully obvious grounds.

dear, its a very very trivial issue compared to the voting booth issue: Democratic v Rebublican!!! Is that really over your head????????????

I do agree that the "lever" question is very important, but more importantly I need to understand the system of money so I can figure out what happens when funds are generated for financially ambitious projects - like war,

again you're being purposely stupid. The money is borrowed and paid back or it is printed and inflates the currency. They won't ask you about it in the voting booth so why worry about it when you seem 100% confused on the voting booth basics?

politics tends to the popular opinion rather than the researched one, of course.

again you're been purposely slow. Republicans represent Friedman and Democrats represent Keynes. Case closed my child

i'm lost how this creates new money, could you care to explain?

If the quantity in circulation goes up because the Fed buys stuff with money this is new money; if the Fed sells stuff the money supply goes back down.

Now, are you Democrat or Republican and why exactly.
If neither you really don't participate.

 

[jortiz3]

Thanks for very little, Edward. I must disagree with your assumption that the way that we generate funds has little importance - on hopefully obvious grounds.

dear, its a very very trivial issue compared to the voting booth issue: Democratic v Rebublican!!! Is that really over your head????????????

I do agree that the "lever" question is very important, but more importantly I need to understand the system of money so I can figure out what happens when funds are generated for financially ambitious projects - like war,

again you're being purposely stupid. The money is borrowed and paid back or it is printed and inflates the currency. They won't ask you about it in the voting booth so why worry about it when you seem 100% confused on the voting booth basics?

politics tends to the popular opinion rather than the researched one, of course.

again you're been purposely slow. Republicans represent Friedman and Democrats represent Keynes. Case closed my child

i'm lost how this creates new money, could you care to explain?

If the quantity in circulation goes up because the Fed buys stuff with money this is new money; if the Fed sells stuff the money supply goes back down.

Now, are you Democrat or Republican and why exactly.
If neither you really don't participate.

Look, you need to stop calling me "dear," "my child," "slow," and "stupid." Saying these things does not give you any authority over me, and you are not entitled to ANY authority until you say something smart and insightful. So far, you have not contributed to understanding the flow of money in the least bit.

I will draw out the importance of this for you: If the government wants to invest in something of great importance, lets say a non-carbon energy infrastructure, where that money comes from is of great importance, not trivial importance. If the United States owes 2 trillion dollars to BANKS from the purchasing of such infrastructure, the interest on the 2 trillion dollars, probably of the order of 1 trillion dollars, is absorbed by banks and re-lended, and apparently from the other contribution on this thread we can see that the re-lending of this money (2 trillion + interest) by the banks adds to the total money supply, thus inflating the currency and reducing the value of every dollar in the United States. In total, taxpayers paid 3 trillion over the 15 years or so of this loan, and the interest generated not only was given to banking companies, but inflated the currency at the same time because it was re-lended.

Now on the other hand, if the 2 trillion dollar loan is owed to smart members of the general public who saved money and purchased bonds, securities, or similar debt-promises, the interest on the 2 trillion dollars is owed to those citizens. This is a very different situation from the bank-owned debt scenario because all the interest is owned in a decentralized and diverse manner, rather than just to banks. When the interest is paid by taxpayers, those who previously saved and purchased bonds have their extra cash, and in essence a 1 trillion dollar stimulus was sent into the national economy at little more cost to taxpayers than it was to give that 1 trillion dollars to the banks. In order to raise such ginormous funds, the interest rate on the publicly purchased bonds would need to be higher than the interest on the bonds that the Federal Reserve purchases, since its harder for most people to part ways with their money than it is for banks. But once they have done so, they are entitled to their future returns on the investment they just made in themselves and the country.

Later, if they choose to invest this money like the banks did, they will spend and invest this money themselves, or put it in the banks. When they deposit it into their interest-bearing bank accounts, the banks may lend money on top of this money and inflate the currency like last time, but that money that was originally placed into the bank is still owned by that financially-savvy citizen, rather than owned by the banks that purchased bonds or promissory notes in the last case. Who are these citizens who would own this national debt, the taxpayer-generated-interest of this debt, and the assets purchased with the repayment of this debt or the money in the accounts at the bank? If the interest rate is increased for lower-income bond buyers, then these citizens who own this stimulus are as diverse as the country. Clearly, the interest has gone somewhere different than before, and it did quite a different thing for the economy.

And so I demonstrate how the generation of funds by the government through borrowing can generate interest in the hands of the banks, or interest in the hands of the public bond-purchasers, and also demonstrate that depending on who owns this interest, different benefits and cons come from the re-use of this interest.

This analysis is only describes reality IF if I have been given CORRECT information, so please help me obtain good information.

 

[EdwardBaiamonte]

Look, you need to stop calling me "dear," "my child," "slow," and "stupid." Saying these things does not give you any authority over me, and you are not entitled to ANY authority until you say something smart and insightful. So far, you have not contributed to understanding the flow of money in the least bit.

DEAR, THIS WAS ALL WORKED OUT BY fRIEDMAN LONG AGO!!

Why do you need to reinvent the wheel??????

I will draw out the importance of this for you:

the importance of the voting booth is important, your subject is trivial!!

If the government wants to invest in something of great importance, lets say a non-carbon energy infrastructure, where that money comes from is of great importance, not trivial importance. If the United States owes 2 trillion dollars to BANKS from the purchasing of such infrastructure, the interest on the 2 trillion dollars, probably of the order of 1 trillion dollars, is absorbed by banks and re-lended, and apparently from the other contribution on this thread we can see that the re-lending of this money (2 trillion + interest) by the banks adds to the total money supply,

wroong wrong wrong!! Are you being a good reader??? whether it adds to money supply depends on what Fed is doing.

And so I demonstrate how the generation of funds by the government through borrowing can generate interest in the hands of the banks, or interest in the hands of the public bond-purchasers, and also demonstrate that depending on who owns this interest, different benefits and cons come from the re-use of this interest.

This analysis is only describes reality IF if I have been given CORRECT information, so please help me obtain good information.

yes there is a difference between banks and people, but so what??

It hardly seems like an important issue?? This is especially true when government has no plans to borrow trillions to build a new energy infrastrusture. Are you playing pretend, dear???

Why not just tell us if you are lib or con and why????

 

[California Girl]

Hi, I am someone who joined this forum to have some important questions I have been wondering about since I watched Zeitgeist Addendum. I am not interested in attacks on the credibility of this film or its makers. Attacks of this sort are only attacks, and have no logical connection to the real-world validity of what is said in the film: only measurement can support a theory. In the physical sciences, we (I'm a physics student) take this of utmost importance as we attempt to accurately and precisely describe reality as it is, even when it goes against our personal biases (and thus why measurement is so powerful). When I say measurement, I mean any interaction with the physical world that is objectively recorded, so data and experience are both equally valuable as long as they are objective.

Please help answer any of these questions you are familiar with that have been burning in my head about the use of money. Note that answers that are disconnected from reality by the author not being familiar with the subject matter will only detract from the quality of this thread.

To what extent is the interest generated by lending newly-created money that the Federal Reserve has ordered to create owned by private banks?

To what extent is it in the interests of the Federal Reserve to inflate currency?

To what extent have we, or will we, as a country, own so much debt that to pay it off we will have cut or abandon our most important social and environmental endeavors?

What are the chances that the current debt will expand faster than our commitment to pay it? What are the consequences if it is becomes absurdly obvious that the debt will grow faster than ability to pay it? I am familiar with debt-forgiveness programs in other countries: what would the United States do if it was to negotiate debt-forgiveness with its own banks, foreign banks, and the IMF? Would we sell mineral rights, water programs, and development projects to multinational corporations as has occurred in 3rd world countries?

Why doesn't the United States, in the interests to generate funds for its endeavors, as well as to increase the savings of its citizens and support low-income financial independence, make better incentives for its citizens to loan the government money (perhaps by having special higher-interest bonds for lower-income citizens to purchase)?

Thank you for your thoughtful feedback, hopefully we can piece together something of logical quality from the responses. This may be the most important subject of the United States in the 21st Century.

This is not a homework club.

 

[Norman]

To what extent is the interest generated by lending newly-created money that the Federal Reserve has ordered to create owned by private banks?

None. Profits of fed are passed to government. They were like 80 billion last year. Zeitgeist is stupid.

To what extent is it in the interests of the Federal Reserve to inflate currency?

Depends how you look at it. Fed has 2 mandates monetary stability and employment. But central banks are always political and will almost certainly fail and be inflationary due to political pressures / popularity. (Like ECB, which only mandate is price stability, and yet it lowers rates during inflation)

BTW, inflating the currency is pretty much the same as "loaning" to the government. Though fed does loan to banks and buy other stuff as well.

To what extent have we, or will we, as a country, own so much debt that to pay it off we will have cut or abandon our most important social and environmental endeavors?

Yes, benefits will be cut, or taxes raised by a huge deal. It could be greece style scenario...

What are the chances that the current debt will expand faster than our commitment to pay it? What are the consequences if it is becomes absurdly obvious that the debt will grow faster than ability to pay it? I am familiar with debt-forgiveness programs in other countries: what would the United States do if it was to negotiate debt-forgiveness with its own banks, foreign banks, and the IMF? Would we sell mineral rights, water programs, and development projects to multinational corporations as has occurred in 3rd world countries?

The debt is expanding much faster than the means to pay it currently. SEE: USgovernmentspending.com

Why doesn't the United States, in the interests to generate funds for its endeavors, as well as to increase the savings of its citizens and support low-income financial independence, make better incentives for its citizens to loan the government money (perhaps by having special higher-interest bonds for lower-income citizens to purchase)?

Why don't cows fly?

Thank you for your thoughtful feedback, hopefully we can piece together something of logical quality from the responses. This may be the most important subject of the United States in the 21st Century.

Take up basic econ, and ditch the zeitgeist crap. The documentary is completely misleading and flat out lying on many key concept of economics.

This is not a homework club.

Hahah. True. But zeitgeist is dumb, so do you really want to pass the opportunity? Heck, this maybe the only thing that is agreed by both the left and right here.

 

[Mad Scientist]

ZeitGeist was a great eye-opener for me and I'd recommend it to everyone. Yeah, some people worship at the altar of Zeitgeist but I saw it as a "stepping off" point.

Anyway, back to the OP's original question; "How do we use money?"

As long as we agree on the value of something, we can use THAT as money, it doesn't have to be paper money.

We could use Gold or Silver coins but Banks don't like it as they can't "print" as many gold or silver coins as they need.