Simple economic question: If government is heavily in debt, but has never had trade..

[Norman]

They can create unlimited virtual assets with that 900$, but that 900$ disappears from the economy as the original loans that created it are repaid.

I didn't fully understand this...

When money is created the process goes roughly like this:

The fed R requests "money" from the Treasury but it isn't really money, it some kind of note or authority issued by the treasury. The fed and treasury trade documents back and forth and the fed eventually ends up with an asset that it can use as reserves to lend money.

So commercial banks borrow this money, only it isn't really money just data entires.

Those banks can hold that "money" they borrowed from the FR and with fractional reserve banking they can lend fictional money against the reserves.

If the reserve requirement is 5% then those banks can lend 19 times as much fictional money as the reserves they retain.

But the commercial banks still owe the federal reserve money for the original loans, so they have to repay the fed. As they do their reserves shrink and the amount they can have outstanding reduces accordingly.

Eventually the commerical banks recover everything that they lent and repay the federal reserve in full and all of that money is gone except the fictional money created via interest rate charges. Ironically the original fictional money printed wasn't enough to fully satisfy those charges so new debt must be issued meanwhile to make up for that shortage and so the cycle continues.

I dunno if that will be confusing or not.

There is some real money, but not much. About $600 billion in real money, or cash/federal reserve "notes" does exist, half of that outside the USA. Leaving a mere $1000/American to cover our transactions in cash. That is a permanent or durable money supply that doesn't need to be replenished. I suspect it is a holdover from our days on the gold standard.

But even with fractional reserve banking $600 billion is not nearly enough to serve our economy.

Ok, well this is certainly a bit hard to understand, I thought the FED or whatever, controls the money supply by buying bonds and such. Not giving money straight to banks. The surplus money the FED then makes is used by the government.

By real money I don't mean notes outstanding BTW. I mean what is called the M2 money supply (so how much people think they have in terms of their accounts). I really don't understand how notes have anything to do with this, as I thought they can be swapped to "electric money" and back.

But I mean wouldn't ALL the money disappear if the FED sold all of its assets.

Just hypothetically, if we had this universe where there was no central bank, and banks had the 100 units of currency, could they create more than 900 notes of M2 money supply (using the current Reserve ratio).

And I really don't understand how XYZ is not enough money to serve an economy.

 

[CrusaderFrank]

Uh yes, sorry I meant 900. (editing it soon).

It doesn't matter if there is one or many banks, I just want to know if it's possible for banks to ever exceed the 9x limit. Aka can they really create money out of thin air, or just rather "control" the amount of money in 0-9x ratio (aka I think 10% reserve ratio).

Not unless the bank adds capital.

Say the bank makes 9 loans of 100 each and each loan pays 10% interest per annum. At the end of year 2 bank has 190 in capital and can make 900 in additional loans.

Of course, to get it's CRA standing the bank would buy back the first 9 mortgages it made, then obtain credit enhancement from AIG then sell the loans to an offshore syndicate, or just sell them directly to Fannie and Freddie

Rinse lather repeat.

So quiet simply, the equity of bank increases (obviously), but the money in circulation can't ever exceed 900? (Again in current fractional reserva banking system and the whole earth or whatever has only 100 pieces of currency).

So banks can't create money... but can multiply the amount of base money by 9x when "needed".

Did you bother reading my post before you responded?

I said that even in the restricted system you proposed the bank would be able to lend out about another 900 in year 2.

 

[Norman]

Not unless the bank adds capital.

Say the bank makes 9 loans of 100 each and each loan pays 10% interest per annum. At the end of year 2 bank has 190 in capital and can make 900 in additional loans.

Of course, to get it's CRA standing the bank would buy back the first 9 mortgages it made, then obtain credit enhancement from AIG then sell the loans to an offshore syndicate, or just sell them directly to Fannie and Freddie

Rinse lather repeat.

So quiet simply, the equity of bank increases (obviously), but the money in circulation can't ever exceed 900? (Again in current fractional reserva banking system and the whole earth or whatever has only 100 pieces of currency).

So banks can't create money... but can multiply the amount of base money by 9x when "needed".

Did you bother reading my post before you responded?

I said that even in the restricted system you proposed the bank would be able to lend out about another 900 in year 2.

Ok ok, I get it now. I just don't really understand how the inflation and deflation then works. And if central banks loan money to banks, what do they need open market operations for? (Or I mean obviously there is use, but it only manipulates the market so...)

TBH I need to pick up a book on this (like I said I am trying to get in nomics university next summer - the test books have not yet been released) so is there something you guys would recommend?

Any of these:

Economics in One Easy Lesson: The Shortest and Surest Way to Understand Basic
Hazlitt, Henry.

Basic Economics
Thomas Sowel

I am also kind of intrested in "how an economy grows and why it crashes" by peter schiff. Just want something to explain the role of money, inflation etc really well, perhaps milton friedman(sp?) has something good?

I have hard time understanding how the central bank is the cause for inflation(or rather quantity of money), but then also banks seem to be able to cause it and... If the private banks are able to create money to reflect products, why does the central bank also need to do so for there to be enough money.......

How can Central bank define M1 money supply, if banks can create wider money base, and also thus create even much wider M2 supply.

 

[loosecannon]

I didn't fully understand this...

When money is created the process goes roughly like this:

The fed R requests "money" from the Treasury but it isn't really money, it some kind of note or authority issued by the treasury. The fed and treasury trade documents back and forth and the fed eventually ends up with an asset that it can use as reserves to lend money.

So commercial banks borrow this money, only it isn't really money just data entires.

Those banks can hold that "money" they borrowed from the FR and with fractional reserve banking they can lend fictional money against the reserves.

If the reserve requirement is 5% then those banks can lend 19 times as much fictional money as the reserves they retain.

But the commercial banks still owe the federal reserve money for the original loans, so they have to repay the fed. As they do their reserves shrink and the amount they can have outstanding reduces accordingly.

Eventually the commerical banks recover everything that they lent and repay the federal reserve in full and all of that money is gone except the fictional money created via interest rate charges. Ironically the original fictional money printed wasn't enough to fully satisfy those charges so new debt must be issued meanwhile to make up for that shortage and so the cycle continues.

I dunno if that will be confusing or not.

There is some real money, but not much. About $600 billion in real money, or cash/federal reserve "notes" does exist, half of that outside the USA. Leaving a mere $1000/American to cover our transactions in cash. That is a permanent or durable money supply that doesn't need to be replenished. I suspect it is a holdover from our days on the gold standard.

But even with fractional reserve banking $600 billion is not nearly enough to serve our economy.

Ok, well this is certainly a bit hard to understand, I thought the FED or whatever, controls the money supply by buying bonds and such. Not giving money straight to banks. The surplus money the FED then makes is used by the government.

By real money I don't mean notes outstanding BTW. I mean what is called the M2 money supply (so how much people think they have in terms of their accounts). I really don't understand how notes have anything to do with this, as I thought they can be swapped to "electric money" and back.

But I mean wouldn't ALL the money disappear if the FED sold all of its assets.

Just hypothetically, if we had this universe where there was no central bank, and banks had the 100 units of currency, could they create more than 900 notes of M2 money supply (using the current Reserve ratio).

And I really don't understand how XYZ is not enough money to serve an economy.

The fed is also responsible for introducing money into existence by lending it to banks.

Almost all of the US "money" in existence was born when the fed lent it to commercial banks, or was created as a fiction when banks created fractional reserve virtual money based on their reserves of "money" they borrowed from the Federal Reserve.

I am pretty sure the ECB uses a similar process.

XYZ has to be large enough to facilitate all transactions that occur. If the economy consists of say 1,000,000 transactions/year, each transaction in the amount of say $1, and the money supply is only $100,000, then the same money must change hands 10 times in that year on average.

If the rate at which money changes hands (velocity) x the total volume of money in circulation is less than GDP the economy will forcefully contract by virtue of a shrinking money supply.

That is the essence of deflation, a shrinking money supply. While inflation is essentially a money supply that is growing faster than the need for money to conduct the transactional work of present GDP.

Lemme know if I further confused you.

 

[Norman]

When money is created the process goes roughly like this:

The fed R requests "money" from the Treasury but it isn't really money, it some kind of note or authority issued by the treasury. The fed and treasury trade documents back and forth and the fed eventually ends up with an asset that it can use as reserves to lend money.

So commercial banks borrow this money, only it isn't really money just data entires.

Those banks can hold that "money" they borrowed from the FR and with fractional reserve banking they can lend fictional money against the reserves.

If the reserve requirement is 5% then those banks can lend 19 times as much fictional money as the reserves they retain.

But the commercial banks still owe the federal reserve money for the original loans, so they have to repay the fed. As they do their reserves shrink and the amount they can have outstanding reduces accordingly.

Eventually the commerical banks recover everything that they lent and repay the federal reserve in full and all of that money is gone except the fictional money created via interest rate charges. Ironically the original fictional money printed wasn't enough to fully satisfy those charges so new debt must be issued meanwhile to make up for that shortage and so the cycle continues.

I dunno if that will be confusing or not.

There is some real money, but not much. About $600 billion in real money, or cash/federal reserve "notes" does exist, half of that outside the USA. Leaving a mere $1000/American to cover our transactions in cash. That is a permanent or durable money supply that doesn't need to be replenished. I suspect it is a holdover from our days on the gold standard.

But even with fractional reserve banking $600 billion is not nearly enough to serve our economy.

Ok, well this is certainly a bit hard to understand, I thought the FED or whatever, controls the money supply by buying bonds and such. Not giving money straight to banks. The surplus money the FED then makes is used by the government.

By real money I don't mean notes outstanding BTW. I mean what is called the M2 money supply (so how much people think they have in terms of their accounts). I really don't understand how notes have anything to do with this, as I thought they can be swapped to "electric money" and back.

But I mean wouldn't ALL the money disappear if the FED sold all of its assets.

Just hypothetically, if we had this universe where there was no central bank, and banks had the 100 units of currency, could they create more than 900 notes of M2 money supply (using the current Reserve ratio).

And I really don't understand how XYZ is not enough money to serve an economy.

The fed is also responsible for introducing money into existence by lending it to banks.

Almost all of the US "money" in existence was born when the fed lent it to commercial banks, or was created as a fiction when banks created fractional reserve virtual money based on their reserves of "money" they borrowed from the Federal Reserve.

I am pretty sure the ECB uses a similar process.

XYZ has to be large enough to facilitate all transactions that occur. If the economy consists of say 1,000,000 transactions/year, each transaction in the amount of say $1, and the money supply is only $100,000, then the same money must change hands 10 times in that year on average.

If the rate at which money changes hands (velocity) x the total volume of money in circulation is less than GDP the economy will forcefully contract by virtue of a shrinking money supply.

That is the essence of deflation, a shrinking money supply. While inflation is essentially a money supply that is growing faster than the need for money to conduct the transactional work of present GDP.

Lemme know if I further confused you.

Yes this is a bit confusing - read my previous post =P. I think that when you are saying Central banks lend to banks you are actually referring to open market operations or?

I always thought that the banks then could create only 9x base money (central bank money) amount, but someone pointed out that they can create infinte amounts as time passes..... And even widdem the money base.

I think I need to get a book on this that explains it well...


Anyway on the GDP issue - yes that's true, but can the deflation that occurs if you don't have "enough money"actually kill an economy? I mean didn't gold standard before the FED was created work this way? And it was arguably sounder than today. But again I must be missing something... damn.

 

[william the wie]

I have a other (very) stupid question regarding banking and expansion of money.

So we have universe that has 100 units of base money, and no more is being printed out of the FED bank ever.

The money then goes to bank and the bank gets to invest 9x amount of it as result of fractional reserve banking.

The investments turn to be profitable, and interest is paid on them.

So as final result, can the money supply M2 ever exceed 900 units of money?

Obviously the bank can not create money out of thin air without real produce representing the added wealth. But can the bank really create money at all after the 900 limit?

In short, can the money in circulation ever exceed 9x of the base money supply? If reserve ratio is like it is right now.

yes, if there are more banks in the system a lot more but even with one the multiplier is just one factor, velocity how fast the stock of money turns over is another and non-bank leverage such as bonds are another.

 

[william the wie]

Ok, well this is certainly a bit hard to understand, I thought the FED or whatever, controls the money supply by buying bonds and such. Not giving money straight to banks. The surplus money the FED then makes is used by the government.

By real money I don't mean notes outstanding BTW. I mean what is called the M2 money supply (so how much people think they have in terms of their accounts). I really don't understand how notes have anything to do with this, as I thought they can be swapped to "electric money" and back.

But I mean wouldn't ALL the money disappear if the FED sold all of its assets.

Just hypothetically, if we had this universe where there was no central bank, and banks had the 100 units of currency, could they create more than 900 notes of M2 money supply (using the current Reserve ratio).

And I really don't understand how XYZ is not enough money to serve an economy.

The fed is also responsible for introducing money into existence by lending it to banks.

Almost all of the US "money" in existence was born when the fed lent it to commercial banks, or was created as a fiction when banks created fractional reserve virtual money based on their reserves of "money" they borrowed from the Federal Reserve.

I am pretty sure the ECB uses a similar process.

XYZ has to be large enough to facilitate all transactions that occur. If the economy consists of say 1,000,000 transactions/year, each transaction in the amount of say $1, and the money supply is only $100,000, then the same money must change hands 10 times in that year on average.

If the rate at which money changes hands (velocity) x the total volume of money in circulation is less than GDP the economy will forcefully contract by virtue of a shrinking money supply.

That is the essence of deflation, a shrinking money supply. While inflation is essentially a money supply that is growing faster than the need for money to conduct the transactional work of present GDP.

Lemme know if I further confused you.

Yes this is a bit confusing - read my previous post =P. I think that when you are saying Central banks lend to banks you are actually referring to open market operations or?

I always thought that the banks then could create only 9x base money (central bank money) amount, but someone pointed out that they can create infinte amounts as time passes..... And even widdem the money base.

I think I need to get a book on this that explains it well...


Anyway on the GDP issue - yes that's true, but can the deflation that occurs if you don't have "enough money"actually kill an economy? I mean didn't gold standard before the FED was created work this way? And it was arguably sounder than today. But again I must be missing something... damn.

The model used oversimplifies but yes Gold worked better because contrary to the model the big danger is inflation destroying real savings. The economic driver of real growth is real savings and two Keynesians Akerlof and Shiller in "Animal Spirits" make this argument come to life. It may take a few rereadings because we have all been mistaught how this works but it is fairly simple. A somewhat tougher read Reinhardt and Rogoff "This Time is Different" really helps shed those things that we know about economics that simply aren't so.

 

[8537]

Even if a country never earned a single US dollar they could still buy US bonds.

No, no, no. Are you really this stupid or do you just play this stupid on the messageboard, Frank

The "country" has to EARN the dollar by adding at least one dollar's value to some product and selling it.

The trade deficit/surplus has nothing to do with anyone's ability to buy US debt.

The ability to buy US debt is part of what makes countries by US debt. That ability stems from being flush with dollars and not interested in seeing those dollars decline in value.

 

[Norman]

More on this banking and money thing.

I have read more, and I really do not understand, how if there was only one bank, it could create more than 9x amount of the money. I mean if the money was (say) gold, no more than 100gp would even exist!

So I don't really see how it even COULD add capital. As there was no more money!

So in this fiat system we have there can be only 9x the amount of "central bank money (m1)" laying around. And that's the cap.

Am I correct so far?

And then the central bank has to inflate the money supply or interest can not be paid on debt?

Correct?

So saying that private banks can create money out of thin air to infinity is incorrect, they can only extend the supply by 9x.

Correct?

 

[william the wie]

More on this banking and money thing.

I have read more, and I really do not understand, how if there was only one bank, it could create more than 9x amount of the money. I mean if the money was (say) gold, no more than 100gp would even exist!

So I don't really see how it even COULD add capital. As there was no more money!

So in this fiat system we have there can be only 9x the amount of "central bank money (m1)" laying around. And that's the cap.

Am I correct so far?

And then the central bank has to inflate the money supply or interest can not be paid on debt?

Correct?

So saying that private banks can create money out of thin air to infinity is incorrect, they can only extend the supply by 9x.

Correct?

As long as the lag in lending out the retained interest and spending of profits is less than the lag of money getting back to the bank then no. The extra money is collateralized by rising asset values and the discoveries of economies of scale, scope and network in production.

What is omitted is that monetary savings is not what drives economies but the real savings of assets drives the economy. The banking system is supposed to keep track of real income flows and real asset values. Fractional reserve banking just keeps the arithmetic simple so less time is spent computing and more time is spent producing.

I don't know your currency's quirks but it takes a while for children in the US to learn that the larger Nickel ($0.05 coin) represents less money than the dime ($0.1 coin). Continuous deflation due to productivity gains diverts resources from production to accounting for differences in productivity in different sectors to avoid the nickel and dime problem.

 

[Norman]

More on this banking and money thing.

I have read more, and I really do not understand, how if there was only one bank, it could create more than 9x amount of the money. I mean if the money was (say) gold, no more than 100gp would even exist!

So I don't really see how it even COULD add capital. As there was no more money!

So in this fiat system we have there can be only 9x the amount of "central bank money (m1)" laying around. And that's the cap.

Am I correct so far?

And then the central bank has to inflate the money supply or interest can not be paid on debt?

Correct?

So saying that private banks can create money out of thin air to infinity is incorrect, they can only extend the supply by 9x.

Correct?

As long as the lag in lending out the retained interest and spending of profits is less than the lag of money getting back to the bank then no. The extra money is collateralized by rising asset values and the discoveries of economies of scale, scope and network in production.

What is omitted is that monetary savings is not what drives economies but the real savings of assets drives the economy. The banking system is supposed to keep track of real income flows and real asset values. Fractional reserve banking just keeps the arithmetic simple so less time is spent computing and more time is spent producing.

I don't know your currency's quirks but it takes a while for children in the US to learn that the larger Nickel ($0.05 coin) represents less money than the dime ($0.1 coin). Continuous deflation due to productivity gains diverts resources from production to accounting for differences in productivity in different sectors to avoid the nickel and dime problem.

Can you recommend me a good book on banking and maybe even accounting?

I ordered Peter schiff's and haziltt's book (damn, that I could have had from the internet for free - bad thing is I paid half of the cost in postage from amazon - not that they really cost anything). But they seem to be more of a general econ books (of austrian economics) - not really in depth understanding of many things, mostly entertaining reads although can help.

Like I said I am trying to get in economics university next summer and it's quiet hard to get in - basic understanding of accounting / selling for profit / banking / money is very good to have. And along with that the basic equations like, what is current ratio, how to count unemployment, supply x velocity = inflation x.... You know the basic equations of micro and macro scale along with terms of accounting (like equity + liabilities = assets etc.).

Of course I COULD get the test books of last year. But they are usually quiet crappy all rounders....

So any suggestions ?=)

 

[CrusaderFrank]

Even if a country never earned a single US dollar they could still buy US bonds.

No, no, no. Are you really this stupid or do you just play this stupid on the messageboard, Frank

The "country" has to EARN the dollar by adding at least one dollar's value to some product and selling it.

The trade deficit/surplus has nothing to do with anyone's ability to buy US debt.

The ability to buy US debt is part of what makes countries by US debt. That ability stems from being flush with dollars and not interested in seeing those dollars decline in value.

You should stop digging. Seriously. You started on a bad bet, lost and have been doubling down in post after post AND trying to insult me in the process. It's bad form on your part and I wonder why you keep betting the ranch on Red 13 time after time after time.

It's OK, if you promise to stop with the stupid insults I won't tell all the other posters you're off in the trillions column and trying to resurrect your street creds, cuz you're supposedly some kind of economic heavyweight.

Countries that earn dollars might choose to buy US bonds, or they might buy Euros, or they might buy Picassos or gold, or they might buy a book on economics, like you should.

There is no law that says a country must earn dollars to buy US bonds. Some extraterrestrials could open an account in Swaziland and own US bonds that very night having never earned a single US dollar.

Why is that so hard for you to understand?

 

[Norman]

You should stop digging. Seriously. You started on a bad bet, lost and have been doubling down in post after post AND trying to insult me in the process. It's bad form on your part and I wonder why you keep betting the ranch on Red 13 time after time after time.

It's OK, if you promise to stop with the stupid insults I won't tell all the other posters you're off in the trillions column and trying to resurrect your street creds, cuz you're supposedly some kind of economic heavyweight.

Countries that earn dollars might choose to buy US bonds, or they might buy Euros, or they might buy Picassos or gold, or they might buy a book on economics, like you should.

There is no law that says a country must earn dollars to buy US bonds. Some extraterrestrials could open an account in Swaziland and own US bonds that very night having never earned a single US dollar.

Why is that so hard for you to understand?

Well, not if no one wants to exchange the treasury for foreign alien money =P.

Anyway my point was to ask if there is a lot of debt in a country, but there is trade surplus the country is

1) Globally lender nation so it is bound to receive money Plus interest in the future (if all goes as planned).
2) The giant piles of debts are overall owned by the citizens of the country. (of course some might be owned by some other country - but that would mean someone from a other country also OWES a citizen of the first country.)

And I already got those are both true.

Anyway I do be grateful if you could recommend me some books....

 

[william the wie]

"Security Analysis" Graham and Dodd. Graham was the greatest investor of all time but had so many mistresses and girlfriends that he composed and produced a Broadway Musical in the middle of the Great Depression as a cost savings measure. (It closed quickly but that may have been because the girls started comparing notes.) His three divorce settlements also ended up in nose bleed territory but he died rich. This book is still read by everyone who is anyone in finance. Graham's "The Intelligent Investor" is considered the best book on investing ever written

"Economics" Paul Samuelson. One of the most readable textbooks ever written.

As to accounting it comes in three flavors: bad, worse and horrible.

 

[CrusaderFrank]

I recommend Getting the Berkshire Hathaway annual report and reading the Chairman's letter.

"Capitalism and Freedom" by Milton Friedman.

The Forgotten Man by Amity Shales

 

[CrusaderFrank]

The Country of Notamerica discovers they have vast gold mines and they extensively mine hundreds billions worth of gold annually.

One day the King calls the Treasurer.

King: We need to put the gold to use producing income from safe investments, what are my options?

Treasurer: Limited

King: Why? I thought you'd recommend US government debt

Treasurer: Well, you can't buy US government debt

King: Really?

Treasurer: Yes, I read some disturbing information

King: From a respected financial adviser?

Treasurer: Yeah, sure, he posts at USMB, that's respectable

King: What did the adviser say?

Treasurer: You can only buy US government debt with dollars.

King: I see. Can't we buy dollars with our gold?

Treasurer: Yeah, but those dollars aren't good for buying US debt

King: Are you sure?

Treasurer: I read it on the Internet, Sire.

King: Why are those dollars no good?

Treasurer: Well, it's complicated. It has to do with trade deficits and betting the house on Red 13

King: Why did I hire you again?

Treasurer: Because I graduated near the top of my class at business school

King: How near?

Treasurer: So long ago, who can remember?

 

[8537]

Countries that earn dollars might choose to buy US bonds, or they might buy Euros, or they might buy Picassos or gold, or they might buy a book on economics,

Indeed, they can either exchange for other currencies or by dollar-denominated assets.

About that econ text...I can send you one, you seem to need it. No money required.

There is no law that says a country must earn dollars to buy US bonds.

Well, there's not a law. There IS a rule: if you want to buy a treasury bill, you need to exchange dollars for that treasury. Any interest will also be paid in...you guessed it!....dollars!

Why is that so hard for you to understand?

Because it's wrong.

 

[CrusaderFrank]

Countries that earn dollars might choose to buy US bonds, or they might buy Euros, or they might buy Picassos or gold, or they might buy a book on economics,

Indeed, they can either exchange for other currencies or by dollar-denominated assets.

About that econ text...I can send you one, you seem to need it. No money required.

There is no law that says a country must earn dollars to buy US bonds.

Well, there's not a law. There IS a rule: if you want to buy a treasury bill, you need to exchange dollars for that treasury. Any interest will also be paid in...you guessed it!....dollars!

Why is that so hard for you to understand?

Because it's wrong.

Yes Capt Obvious, and are the dollars you get from trade radically different from the ones you buy on a currency exchange?

In your world, must you pay for a pork belly futures with pork bellies?

 

[8537]

Countries that earn dollars might choose to buy US bonds, or they might buy Euros, or they might buy Picassos or gold, or they might buy a book on economics,

Indeed, they can either exchange for other currencies or by dollar-denominated assets.

About that econ text...I can send you one, you seem to need it. No money required.



Well, there's not a law. There IS a rule: if you want to buy a treasury bill, you need to exchange dollars for that treasury. Any interest will also be paid in...you guessed it!....dollars!

Why is that so hard for you to understand?

Because it's wrong.

Yes Capt Obvious, and are the dollars you get from trade radically different from the ones you buy on a currency exchange?

No. Is trading dollars radically different than trading goods? No.

In your world, must you pay for a pork belly futures with pork bellies?

No, you must pay with the means of exchange required in that market. if that's bacon strips, you must have bacon strips - and if you don't have bacon strips, you must get bacon strips....

and if you want a whole lot of bacon strips (say, 1.7 Trillion of them), you'll pay more for them but you'll eventually be able to buy even more pork bellies with those strips.

 

[Norman]

"Security Analysis" Graham and Dodd. Graham was the greatest investor of all time but had so many mistresses and girlfriends that he composed and produced a Broadway Musical in the middle of the Great Depression as a cost savings measure. (It closed quickly but that may have been because the girls started comparing notes.) His three divorce settlements also ended up in nose bleed territory but he died rich. This book is still read by everyone who is anyone in finance. Graham's "The Intelligent Investor" is considered the best book on investing ever written

"Economics" Paul Samuelson. One of the most readable textbooks ever written.

As to accounting it comes in three flavors: bad, worse and horrible.

Ok thanks, I will definitely check those out.

As for one last thing, do you REALLY need always expanding money supply for the fiat system to work? I mean the bank's interests can be paid, because the bank obviously at some point spends the interest money back to economy. So it cancels out. Obviously if the bank increases equity and hoards dollars, there can be problems. Then again same can be said for ANY firm. Anyone can hoard dollars so someone can't pay his debt. Fact is defaults are necessary "evil". For what I comprehend, government wants inflation always to be bigger than is needed. I really don't see any economical purpose, why the FED has to create new money or the sky falls....

I still dont quiet get how private banks can create more than 9x the amount of base M1 money........ (that is OVERALL). I watched one video called "money as debt", it was pure propaganda, but I still can't believe the facts weren't right. In the video they said banks can create almost 100 000 x the amount of base money. Anyway currently the

Monetary base= 250$ billion (this is the bank accounts on the feds assets?)
M1= 1700$ billion (= All feds assets or liabilities? = Open market operation assets PLUS bank reserves)
M2= 8500$ billion (= all checking accounts in private banks))
M3= 14000$ billion (= All bank credit + hedge funds etc.)

So it seems the M3 hasn't ever exceeded the 9x M1 (= All base money). So I can't see how the private banks could ever create more. And I still don't see why FED must create inflation for other than "special" purposes.

Can't you get the ratio how leveraged the banks on average by dividing the 13 billion by 1700 ? That would mean the ratio would be quiet high 7.5 right now.

8537, thanks for your offer, but I live in Europe, and like I said the postage cost for the books I ordered from amazon was more than the books themselves (2 books).