money as debt

[Delbert]

Im not allowed to post urls (less than 15 posts)

So go to google then videos, and search "money as debt"


video is 47min but worth the watch
explains how money is created by banks.

enjoy

 

[JeffWartman]

I'll check it out when I get a chance and get back to you...might be interesting.

 

[Delbert]

...and by the way, this is why lowering interest rates spurs the economy
much more than cutting taxes. What a scam the bankers are running.

 

[gonegolfin]

Im not allowed to post urls (less than 15 posts)

So go to google then videos, and search "money as debt"


video is 47min but worth the watch
explains how money is created by banks.

enjoy

If you liked this video and want to learn more, you will love G. Edward Griffin's - The Creature From Jekyll Island.

Brian

 

[gonegolfin]

...and by the way, this is why lowering interest rates spurs the economy
much more than cutting taxes. What a scam the bankers are running.

A scam that has been running for a few centuries now (began in London).

Yes, it is not difficult to create artificial economic growth by increasing liquidity in a fractional reserve system. And remember that lowering interest rates is just one way to bring more liquidity into the system. There are several other ways that are much less obvious ... until you see the monetary base outpacing true economic growth. Monetization of debt is one. Reserve levels is another.

Brian

 

[Toro]

A scam that has been running for a few centuries now (began in London).

The last few centuries have also seen the greatest creation of wealth and improvement in living standards in the history of mankind. So fractional banking hasn't appeared to have had an adverse effect on the economy. In fact, it has almost certainly benefited economic well-being.

 

[loosecannon]

The last few centuries have also seen the greatest creation of wealth and improvement in living standards in the history of mankind. So fractional banking hasn't appeared to have had an adverse effect on the economy. In fact, it has almost certainly benefited economic well-being.

sure anything you say.

I read an article this AM that said that the outstanding value of derivatives contracts has increased $103 trillion dollars in the last year, from $297 trillion to $400 trillion.

AND that the fed reserve money supply increased 13% in the last 12 months.

Creating liquidity to drive up the prices of existing assets is not economic growth. In this case it is bubble madness/suicide.

BTW The expansion of mainly credit swap derivatives in just the last year amounts to $16,000 for every human being alive. IOW the money supply is increasing faster than world income. MUCH faster.

Only exponentially increasing credit is keeping the worlds economy's from a collapse after bubble effect growth.

Talk about alice in wonderland.

 

[Toro]

sure anything you say.

I read an article this AM that said that the outstanding value of derivatives contracts has increased $103 trillion dollars in the last year, from $297 trillion to $400 trillion.

AND that the fed reserve money supply increased 13% in the last 12 months.

Creating liquidity to drive up the prices of existing assets is not economic growth. In this case it is bubble madness/suicide.

BTW The expansion of mainly credit swap derivatives in just the last year amounts to $16,000 for every human being alive. IOW the money supply is increasing faster than world income. MUCH faster.

Only exponentially increasing credit is keeping the worlds economy's from a collapse after bubble effect growth.

Talk about alice in wonderland.

Trust me, I see derivatives every single day - deals in structured finance, with this CDO, and that synthetic swap, etc. Its mind-boggling.

Nor do I disagree with the increase in liquidity.

Nor do I disagree with Buffett's assertion that derivatives are "weapons of financial mass destruction."

However, there have been many, many crashes in the financial system over the past 200 years. There will be many more in the future. But that doesn't mean that the financial system has been a bane to the economy. In fact, the economy could not function well and grow without a fundamentally sound financial system.

 

[loosecannon]

Trust me, I see derivatives every single day - deals in structured finance, with this CDO, and that synthetic swap, etc. Its mind-boggling.

Nor do I disagree with the increase in liquidity.

Nor do I disagree with Buffett's assertion that derivatives are "weapons of financial mass destruction."

However, there have been many, many crashes in the financial system over the past 200 years. There will be many more in the future. But that doesn't mean that the financial system has been a bane to the economy. In fact, the economy could not function well and grow without a fundamentally sound financial system.

yeah, financial collpases were quite a bit more debilitating before the central banks discovered monetarist interventionist policies.

I do not believe we have a fundamentally sound financial system. We have a fiat based credit driven system. It is inherently unsustainable.

The problem many people have is seeing the big picture. 35 years is a short cycle for a fiat currency to expand and collapse. And yet most appearances are that our financial system is a runaway train today. It seems unconceivable that it could crash at a fundamental level. Yet it appears that is exactly what we are primed for.

 

[BaronVonBigmeat]

The video in question can be found here.

The last few centuries have also seen the greatest creation of wealth and improvement in living standards in the history of mankind. So fractional banking hasn't appeared to have had an adverse effect on the economy. In fact, it has almost certainly benefited economic well-being.

The growth of the last three centuries has been despite fractional reserve lending, not because of it. The biggest improvement in living standards was probably from 1813-1913 or so, when most of the world was on the classical gold standard, when banks were more limited in the money they could create. There have also been a few brief examples of full-reserve banking, and economic growth did not suffer; in addition, banking panics did not result in economic collapse. People lined up to pull their money out, and once it became obvious that everyone would get their money out, they lost interest and things went back to normal quickly.

The important thing to remember about creating money from thin air--whether it's governments or banks--is that creating money is not creating wealth. You haven't increased the productivity of workers, you haven't increased the output of factories. All you've done is transfer purchasing power from people who hold currency, to those who are printing the money. Instead of creating money, you could get the same effect by having a flat tax and handing the proceeds over to government and banks, really. Of course, this would not be stealthy like inflation is, and people would go ape-shit bezerk. (Why this isn't a huge issue for the grassroots left, I will never understand. There are a few exceptions though).

In our current system, the beneficiary of this money creation would be the federal government, banks (who make profits from lending the newly created money), as well as people and businesses that benefit from artificially low borrowing standards and interest rates. It raises prices for ordinary people, while raising asset values for the rich, and giving them cheap credit for business plans that would otherwise not be viable.

Because of this, it distorts the economy--the most recent example being the housing boom. However, it eventually becomes apparent that this overinvestment in business expansion, housing expansion, etc. is not viable, because there is not enough customer demand to match up with the distorted signals that investors were getting, via low interest rates. When this happens, these newly over-expanded businesses begin to fail, and a recession follows, as investments are liquidated. Thus, we get an exaggerated boom/bust cycle.

 

[Toro]

The growth of the last three centuries has been despite fractional reserve lending, not because of it. The biggest improvement in living standards was probably from 1813-1913 or so, when most of the world was on the classical gold standard, when banks were more limited in the money they could create.

That is certainly not the case in the United States. On the St. Louis Fed site, they have a calculation of per capital GDP going back to 1790. From 1790 to 1900, per capita GDP grew at an annual rate of 1.1%. From 1900 onward, it has grown at 2.1% per year.

There is no evidence that growth has occurred despite fractional banking. And since the last 200 years have seen the greatest increases in standards of living in the history of humankind, the onus is on the naysayers to prove otherwise.

There have also been a few brief examples of full-reserve banking, and economic growth did not suffer; in addition, banking panics did not result in economic collapse. People lined up to pull their money out, and once it became obvious that everyone would get their money out, they lost interest and things went back to normal quickly.

The point is that there are a "few brief examples." There are a few brief examples of fiat systems where economic growth did not suffer materially as well. However, our experience with fractional banking is much more prolonged. Simply because there are a few brief examples where economic growth did not suffer does not mean there would not have over several hundred years.

Remember, the reason why the Federal Reserve System was created in the first place was because of the inherent instability of the banking system and the perceived need to have a lender of last resort after several booms, busts and Depressions in the 30 years prior to the creation of the Fed in 1913.

The important thing to remember about creating money from thin air--whether it's governments or banks--is that creating money is not creating wealth. You haven't increased the productivity of workers, you haven't increased the output of factories. All you've done is transfer purchasing power from people who hold currency, to those who are printing the money. Instead of creating money, you could get the same effect by having a flat tax and handing the proceeds over to government and banks, really. Of course, this would not be stealthy like inflation is, and people would go ape-shit bezerk. (Why this isn't a huge issue for the grassroots left, I will never understand. There are a few exceptions though).

Of course printing money does not create wealth. The problem, however, with using a hard currency standard, such as gold, is that the growth in the money supply is completely dependent on the profitability of mining companies, which I would argue, is a poor mechanism through which to conduct monetary policy, especially so when you consider the lack of managerial talent within the mining industry. Today, it takes 7-10 years to bring a new gold mine on line. Why should the real economy be held hostage to the vagaries of mining?

In an economy which is experiencing real growth, the demand for money rises. If the demand for money rises while the supply of money does not, the real interest rate will rise. If the real rate of interest rises, economic growth will slow (which is why most open market operations at the Fed window are purchases of treasury securities). It doesn't make much sense to me that we would place ephemeral factors which often have nothing to do with monetary balances, i.e. mining, as the primary determinant of monetary policy.

As for productivity, of course I have not factored it into my argument. That is my point. My point is that the fiat/fractional system has not been a detriment to economic growth in the history of the United States.

In our current system, the beneficiary of this money creation would be the federal government, banks (who make profits from lending the newly created money), as well as people and businesses that benefit from artificially low borrowing standards and interest rates. It raises prices for ordinary people, while raising asset values for the rich, and giving them cheap credit for business plans that would otherwise not be viable.

Because of this, it distorts the economy--the most recent example being the housing boom. However, it eventually becomes apparent that this overinvestment in business expansion, housing expansion, etc. is not viable, because there is not enough customer demand to match up with the distorted signals that investors were getting, via low interest rates. When this happens, these newly over-expanded businesses begin to fail, and a recession follows, as investments are liquidated. Thus, we get an exaggerated boom/bust cycle.

There is absolutely no question that distortions occur when policy mistakes are made, which I believe are occurring now. I have owned gold and silver off and on since the beginning of the decade. (I own none now.) I am massively short commercial real estate. I own a small zinc producing company. I believe gold will eventually hit $1000.

However, again, there is no evidence that the business cycle has become exaggerated. In fact, the opposite appears to have become the case. The economy has become less volatile the past 20 years.

 

[loosecannon]

However, again, there is no evidence that the business cycle has become exaggerated. In fact, the opposite appears to have become the case. The economy has become less volatile the past 20 years.

True and false the business cycle has been reined in by monetarist interventionist policies.

That much has worked, but what hasn't worked is that those policies are all about creating steady growth by priming the pump artificially, which is how we ended up with an extremely exaggerated money supply and business growth cycle.


There is a reason why what goes up must come down. You can't keep inflating the economy artificially and expect it to stay suspended.

A 20 year track record is not a conclusive record of success.