One man's profit is another man's debt

[Leweman]

Do people understand that under the current banking system in the United States it's impossible for some people to not be in debt? It would be impossible for the entire country to break even because of the addition of interest to all money loaned into existence. Therefore, there will always be "have nots" in this country because there is more money owed than money that exists. This is a direct result of the Federal Reserve monetary policy. Time to end the Fed.

[ame=http://www.youtube.com/watch?v=99DYh8Zpkpw]Money - How it gets created out of thin air - YouTube[/ame]

 

[martybegan]

You do realize that in a fiat money system wealth can be created and therefore money created by increases in GDP? Wealth is not a zero sum game in fiat monetary systems, as you imply in your post.

 

[Wiseacre]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

 

[Leweman]

You do realize that in a fiat money system wealth can be created and therefore money created by increases in GDP? Wealth is not a zero sum game in fiat monetary systems, as you imply in your post.

Money can be created, sure, but it is only loaned out into circulation (With interest), so there is always more money owed then there is out there no matter how much money is created.

 

[Leweman]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

http://mises.org/daily/4654

 

[The T]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

How the Stock Market and Economy Really Work - Kel Kelly - Mises Daily

The only way out of it is to get people working ...producing assets, Downsizing government and getting RID of the Federal Reserve.

 

[Wiseacre]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

http://mises.org/daily/4654

I suspect you do not have the slightest idea of what you just posted really means.

BTW, your link didn't work.

 

[Leweman]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

How the Stock Market and Economy Really Work - Kel Kelly - Mises Daily

I suspect you do not have the slightest idea of what you just posted really means.

BTW, your link didn't work.

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

 

[Wiseacre]

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

How the Stock Market and Economy Really Work - Kel Kelly - Mises Daily

I suspect you do not have the slightest idea of what you just posted really means.

BTW, your link didn't work.

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

Finally got the link to work, thanks for posting it. It's an interesting article from the Austrian School of Economics, which doesn't make it right or wrong, just a theory. Far as I can tell, it has nothing to do with what I said, you just pulled a paragraph out of this piece and did not tie it to what we were talking about. Posting clips from somebody else's writings instead of presenting your own tends to make people wonder if you know what you're talking about.

 

[Leweman]

I suspect you do not have the slightest idea of what you just posted really means.

BTW, your link didn't work.

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

Finally got the link to work, thanks for posting it. It's an interesting article from the Austrian School of Economics, which doesn't make it right or wrong, just a theory. Far as I can tell, it has nothing to do with what I said, you just pulled a paragraph out of this piece and did not tie it to what we were talking about. Posting clips from somebody else's writings instead of presenting your own tends to make people wonder if you know what you're talking about.

Glad it worked for you. Basically it has to do with the stock market being based on supply and demand. Just like anything in our economy. The more people that buy a stock the more valuable it becomes because the less available it is. A stock becomes less valuable because peoople sell it. A trillion dollars wasnt lost in the stock market it was just sold off. That trillion dollars is somewhere just not with the people that still own the stock.

 

[Wiseacre]

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

Finally got the link to work, thanks for posting it. It's an interesting article from the Austrian School of Economics, which doesn't make it right or wrong, just a theory. Far as I can tell, it has nothing to do with what I said, you just pulled a paragraph out of this piece and did not tie it to what we were talking about. Posting clips from somebody else's writings instead of presenting your own tends to make people wonder if you know what you're talking about.

Glad it worked for you. Basically it has to do with the stock market being based on supply and demand. Just like anything in our economy. The more people that buy a stock the more valuable it becomes because the less available it is. A stock becomes less valuable because peoople sell it. A trillion dollars wasnt lost in the stock market it was just sold off. That trillion dollars is somewhere just not with the people that still own the stock.

I'm having a problem with your point of view. Over the past couple of weeks, the drop in the stock market has resulted in a significant loss of wealth, perhaps a trillion dollars or more by some estimates. The value in investors' portfolios and 401ks decreased, it's not like somebody else gained that trillion or more of wealth. There was a net overall loss of money, however you want to say it or explain it.

It's not a zero sum deal, if I become wealthier tomorrow because I buy a share of stock and sell it for more than I bought it, you or anyone else are not the poorer for that transaction. The stock goes up in value and I benefit from it.

 

[dilloduck]

You do realize that in a fiat money system wealth can be created and therefore money created by increases in GDP? Wealth is not a zero sum game in fiat monetary systems, as you imply in your post.

Fiat money systems are a joke.

 

[Uncensored2008]

Money can be created, sure, but it is only loaned out into circulation (With interest), so there is always more money owed then there is out there no matter how much money is created.

Your assumption is erroneous and your conclusion is false.

 

[Uncensored2008]

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

The Mises article is reasonable enough, but doesn't support your claims.

An exercise I run my students past, to try and get them to grasp the ratio aspect of currency is this;

Suppose there are twenty apples. the farm seeks to exchange these for labor in watering and caring for the apple tree. Twenty wooden chits are created, which the farmer pays to workers for their labor. Each chit is worth one apple. The worker buys an apple, eats it and then labors again for the chit. The tree produces an apple that replaces the one eaten. All is well, it is a stable economy.

But one day, a worker plants a second tree, not only is it producing apples, but it's a better tree and produces 30 apples a day. IF the new farmer creates 30 wooden chits, then the effect on the market is zero, as the ratio of apples to chits does not change. The addition of currency did not create inflation, it merely echoed the reality of an expanding market. Adding currency into a market is neither negative nor positive, provided that fiat currency is equivalent to the value of the goods on the market. Where we get into trouble is if more currency is created than the value of the goods in the market. Then inflation occurs.

 

[Leweman]

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

The Mises article is reasonable enough, but doesn't support your claims.

An exercise I run my students past, to try and get them to grasp the ratio aspect of currency is this;

Suppose there are twenty apples. the farm seeks to exchange these for labor in watering and caring for the apple tree. Twenty wooden chits are created, which the farmer pays to workers for their labor. Each chit is worth one apple. The worker buys an apple, eats it and then labors again for the chit. The tree produces an apple that replaces the one eaten. All is well, it is a stable economy.

But one day, a worker plants a second tree, not only is it producing apples, but it's a better tree and produces 30 apples a day. IF the new farmer creates 30 wooden chits, then the effect on the market is zero, as the ratio of apples to chits does not change. The addition of currency did not create inflation, it merely echoed the reality of an expanding market. Adding currency into a market is neither negative nor positive, provided that fiat currency is equivalent to the value of the goods on the market. Where we get into trouble is if more currency is created than the value of the goods in the market. Then inflation occurs.

Where did these chits come from and how much interest did this person pay to get them?

 

[Toro]

Do people understand that under the current banking system in the United States it's impossible for some people to not be in debt? It would be impossible for the entire country to break even because of the addition of interest to all money loaned into existence. Therefore, there will always be "have nots" in this country because there is more money owed than money that exists. This is a direct result of the Federal Reserve monetary policy. Time to end the Fed.

Money - How it gets created out of thin air - YouTube

Notwithstanding the efficacy of the Federal Reserve system and whether or not we should have it, you have made erroneous statements.

It is not impossible for the entire country to break even. In fact, I am not sure how you come to that conclusion. The rate of interest paid on debt is a function of the rate of economic growth. If you believe in free markets, then the cost of capital must equal the return on capital over time. The return on capital is a function of economic growth. Neoclassical economic theory posits that the capital stock of an economy grows at the rate of economic growth over time. Therefore, the cost of capital must equal the return on capital because there is an opportunity cost to holding capital, which is the rate of economic growth. Debt is merely a part of the capital structure. Since debt sits higher in the capital stack than forms of equity, debt will by definition have a lower cost than the rate of economic growth while equity will have a higher return than the rate of economic growth. Since returns on capital equal the rate of growth on the capital stock of the economy which equals economic growth over time, and since the costs of debt are less than economic growth, then profits will always be sufficient to pay off the cost of debt over time. That may not be true in the near term, or for economies that have taken on excessive debt, but if you believe that the free market works, this must be true.

 

[Toro]

You do realize that in a fiat money system wealth can be created and therefore money created by increases in GDP? Wealth is not a zero sum game in fiat monetary systems, as you imply in your post.

Money can be created, sure, but it is only loaned out into circulation (With interest), so there is always more money owed then there is out there no matter how much money is created.

Money is not only loaned out in circulation. This is the problem today. The Fed has created massive amounts of reserves, but they sit at the Fed as banks refuse to lend the reserves out. This is a liquidity trap, and banks are not lending the money that has been created in the system.

 

[Toro]

Look dude, when the market crashes 500 points there is maybe a trillion dollars or so of wealth that goes up in smoke. Almost all of it is the rich guys losing electronic money in the value of their portfolios. It's not as though a buncha middle class or lower income people get that money, it's just poof, gone. And there is nobody at the fed or anywhere else actually burning a trillion dollars of paper money either.

And the reverse is true too. Since about 1980 the stock market has gone up from around 800 points to over 12,000 before the latest pullback. That's a lot of wealth, and despite what liberal pundits may say, it didn't come to the rich guys who had investments in the market from everyone else. As Marty says, it ain't a zero sum game.

"If it were not for the elasticity of bank credit … a boom in security values could not last for any length of time. In the absence of inflationary credit the funds available for lending to the public for security purchases would soon be exhausted, since even a large supply is ultimately limited. The supply of funds derived solely from current new savings and current amortization allowances is fairly inelastic.… Only if the credit organization of the banks (by means of inflationary credit) or large-scale dishoarding by the public make the supply of loanable funds highly elastic, can a lasting boom develop.… A rise on the securities market cannot last any length of time unless the public is both willing and able to make increased purchases."

How the Stock Market and Economy Really Work - Kel Kelly - Mises Daily

There is a great deal of truth to this. Bubbles cannot happen without the excess creation of money.

This is the argument for the gold standard. But the problem with this argument is that it assumes that the stock of money will always be sufficient to meet the demand for money balances. The Austrians assume that the market will always respond adequately enough to meet the demand for money.

When the economy grows, the demand for money grows. The cost of money is the rate of interest. So if the supply of money is static and demand is growing, real interest rates will rise. If real interest rates stay elevated for an extended period of time, this will stunt economic growth as marginal projects at the trend rate of economic growth will not be financed and economic growth will be permanently impaired without a new injection of money into the economy.

The purist argument is that if the demand for money rises while supply stays constant, the cost of money rises. In a gold system, this means that the price of gold will rise, which creates incentives for miners to find more gold, which increases the supply of gold. Thus, the cost of money falls as the supply of money rises.

This sounds all well and good in theory, and where we can draw nice neat lines on a piece of paper, but it doesn't always work that way in the real world. For example, the supply of gold pulled out of the ground even though the price of gold has increased sixfold. From 2000 when gold was less than $300 to the end of 2009 when gold went over $1250, the supply of mined and processed gold fell. The supply of gold fell by 0.5%-1% a year until last year when it grew ~4%. In the Austrian world, that shouldn't happen. But in the real world, there are many other factors influencing supply rather than price.

 

[Toro]

hmmmmmmm ... I'm pretty sure you don't have the slightest. And the link works fine

Finally got the link to work, thanks for posting it. It's an interesting article from the Austrian School of Economics, which doesn't make it right or wrong, just a theory. Far as I can tell, it has nothing to do with what I said, you just pulled a paragraph out of this piece and did not tie it to what we were talking about. Posting clips from somebody else's writings instead of presenting your own tends to make people wonder if you know what you're talking about.

Glad it worked for you. Basically it has to do with the stock market being based on supply and demand. Just like anything in our economy. The more people that buy a stock the more valuable it becomes because the less available it is. A stock becomes less valuable because peoople sell it. A trillion dollars wasnt lost in the stock market it was just sold off. That trillion dollars is somewhere just not with the people that still own the stock.

A trillion dollars was lost when it sold off. It did disappear.

Stock prices are a function of earnings and the multiple investors pay for earnings. If a stock has $1 in earnings and is priced at $20, it has a price/earnings multiple of 20x. If the company still earns $1 and the multiple falls to 15x for whatever reason - and there are many reasons why this happens - the price of the stock is now $15. That $5 loss in the price of a stock is wealth that has disappeared. Nobody else has it. It is gone.

 

[Toro]

Finally got the link to work, thanks for posting it. It's an interesting article from the Austrian School of Economics, which doesn't make it right or wrong, just a theory. Far as I can tell, it has nothing to do with what I said, you just pulled a paragraph out of this piece and did not tie it to what we were talking about. Posting clips from somebody else's writings instead of presenting your own tends to make people wonder if you know what you're talking about.

Glad it worked for you. Basically it has to do with the stock market being based on supply and demand. Just like anything in our economy. The more people that buy a stock the more valuable it becomes because the less available it is. A stock becomes less valuable because peoople sell it. A trillion dollars wasnt lost in the stock market it was just sold off. That trillion dollars is somewhere just not with the people that still own the stock.

I'm having a problem with your point of view. Over the past couple of weeks, the drop in the stock market has resulted in a significant loss of wealth, perhaps a trillion dollars or more by some estimates. The value in investors' portfolios and 401ks decreased, it's not like somebody else gained that trillion or more of wealth. There was a net overall loss of money, however you want to say it or explain it.

It's not a zero sum deal, if I become wealthier tomorrow because I buy a share of stock and sell it for more than I bought it, you or anyone else are not the poorer for that transaction. The stock goes up in value and I benefit from it.

It is not a zero sum game. Over long periods of time, the stock of wealth will rise as the economy grows. This will cause most if not all asset prices to rise, such as stocks, real estate and even debt.