Should and will the Fed be abolished?

[ShackledNation]

...that second $100 was created out of thin air. That is the whole point. You have $100 deposited, then all of a sudden there are $200...

Two hundred dollar notes. One created out of thin air and the other created out of thin paper from a fat tree that once was thin air. The reason both work is that money is not value, it's a store of value so whether we create it out of thin air directly or through a tree it can still work.

As supply increases price decreases. When money is created out of thin air it loses value. Money ceases to be a store of value if its supply can be expanded continuously. That is the whole point. That is why prices continually rise every single year, and why things no longer cost a few pennies. Money is not wealth, you are absolutely correct. You use it in exchange for wealth. Creating more of it means each unit of currency can be exchanged for less. That is why the way banks create money is fraudulent. They are intentionally loaning money they created out of thin air for their own personal gain and profits. They deceive us into believing the money is of the same value as before. Since 1990, money has lost nearly half of its value, according to CPI numbers. You can't create wealth out of thin air.

 

[Toddsterpatriot]

Ummm, taking out a loan doesn't change your net worth. The borrower gets, for instance, $1000 in cash. Cash is an ASSET! If he deposits the cash in a bank, his cash is still an asset. The deposit account is now a liability to the bank.
The loan paper he signed is his liability.
Maybe you should take an accounting class? It's obvious you're confused about balance sheets as well as assets and liabilities.

The minute you spend the loan it does. It makes your net worth negative (assuming you have no other money). But the banks create another loan with the money they just gave you, say the money they loaned you is still in your account, and the process continues. Loans are liabilities. You owe the bank the money you took out.

When I am referring to the cash as a liability, what I am saying is that it is money the debtor owes. The minute he spends a penny of it he will have negative net worth.

The minute I spend the cash it becomes a liability? Maybe an accounting class won't help you.
Spending the money makes my net worth negative?
What if I used it to buy Google shares at the IPO price. Now did my purchase make my net worth negative?
Yes, money the debtor owes is a liability, the cash he received is and always will be an asset.

 

[expat_panama]

... I never said ... ... You really don't understand... ...Answer my question.... ...Cop out. Answer the question...

I'm not very good at that stuff so maybe someone else can fill in for me. My forte is working together on problems we both equally want to fix.

...If I loan $100 to a friend, why can't I just say we both have $100? If banking practices are...

If you were absolutely 100% sure that you'd get the money paid back before you'd plan to spend it then yes, your accounts would show the same money that your friend was using.

In real life you aren't so you wouldn't. We both know that bankers don't just up and loan out $100 to their friends without ending up in trouble. We're talking collateral, loan contracts, foreclosure recourse, etc. We also know that people setting up banks get licenses, charters, permits and they do that only after going to bank school to know all about accounting and stuff reading big thick books with no pictures.

The good news is we end up with a way of doing things that's worked absolutely 100% sure since 1933.

 

[Brutus]

I think it should be abolished Wie. We shouldn't have an entity that can simply print endless amounts of money to our detriment. All of these supposed fail safes are now failing.

the Fed was created after the Panic of 1907 for a good reason( to avoid another) although at that point they understood money very little. Now conservatives understand it well enough after Depression, Carter inflation, and current housing bubble.

So now the Fed charter should be rewritten to incorporate the hard won lessons: no runs, no inflation, no bubbles, no concern with unemployment, just steady prices.

But Democrats will not allow it because to them the power to print money is the power to buy votes with promises of more and more welfare.

 

[ShackledNation]

Ummm, taking out a loan doesn't change your net worth. The borrower gets, for instance, $1000 in cash. Cash is an ASSET! If he deposits the cash in a bank, his cash is still an asset. The deposit account is now a liability to the bank.
The loan paper he signed is his liability.
Maybe you should take an accounting class? It's obvious you're confused about balance sheets as well as assets and liabilities.

The minute you spend the loan it does. It makes your net worth negative (assuming you have no other money). But the banks create another loan with the money they just gave you, say the money they loaned you is still in your account, and the process continues. Loans are liabilities. You owe the bank the money you took out.

When I am referring to the cash as a liability, what I am saying is that it is money the debtor owes. The minute he spends a penny of it he will have negative net worth.

The minute I spend the cash it becomes a liability? Maybe an accounting class won't help you.
Spending the money makes my net worth negative?

No to the first statement, yes to the second. If you have a $100 loan and no other savings, if you spend that $100 loan your net worth becomes -$100 - interest. With the loan, the net worth is $0, and actually negative if you include interest. If you had $100 saved up and no loan, your net worth would be $100. If your net worth is 0 or negative, you have no real savings. You have savings financed by debt.

What if I used it to buy Google shares at the IPO price. Now did my purchase make my net worth negative?

You still have to pay interest, so unless the shares increase right away, for a time yes.

Yes, money the debtor owes is a liability, the cash he received is and always will be an asset.

Correct. Earlier I was not clear. But what you must understand is real wealth is determined by net worth. That is how we count millionaires. You subtract liabilities from assets. When a loan is deposited, the depositor has no real wealth because their net worth is 0 (when we isolate the loan. Of course they may have other savings, but the money creation occurs when they deposit the loaned money, which does not represent wealth).

 

[ShackledNation]

... I never said ... ... You really don't understand... ...Answer my question.... ...Cop out. Answer the question...

I'm not very good at that stuff so maybe someone else can fill in for me. My forte is working together on problems we both equally want to fix.

...If I loan $100 to a friend, why can't I just say we both have $100? If banking practices are...

If you were absolutely 100% sure that you'd get the money paid back before you'd plan to spend it then yes, your accounts would show the same money that your friend was using.

In real life you aren't so you wouldn't. We both know that bankers don't just up and loan out $100 to their friends without ending up in trouble.

Actually, that is exactly what the Federal Reserve does. It loans created money to elites and political connections. Banks do the same thing. They don't end up in trouble because we bail them out if something goes wrong and the disgusting process is allowed.

We're talking collateral, loan contracts, foreclosure recourse, etc. We also know that people setting up banks get licenses, charters, permits and they do that only after going to bank school to know all about accounting and stuff reading big thick books with no pictures.

That is all irrelevant. Bankers create money with or without collateral. We are talking about money creation here, not how loans are repaid if there is a default.

The good news is we end up with a way of doing things that's worked absolutely 100% sure since 1933.

Really? I guess all of our recessions never happened and our dollar has the same value too. The system has been a complete disaster. It creates the business cycle.

 

[ShackledNation]

the Fed was created after the Panic of 1907 for a good reason( to avoid another)

They failed miserably. The business cycle has continued.

So now the Fed charter should be rewritten to incorporate the hard won lessons: no runs, no inflation, no bubbles, no concern with unemployment

So in other words, no Federal Reserve.

just steady prices.

You don't believe that the free market should set prices? You would rather have central economic control over the money supply? If prices in the economy would naturally drop due to an increase in overall production, keeping them high would have the same effect as inflation.

But Democrats will not allow it because to them the power to print money is the power to buy votes with promises of more and more welfare.

This is not just democrats. This is Democrats and Republicans both.

 

[Brutus]

the Fed was created after the Panic of 1907 for a good reason( to avoid another)

They failed miserably. The business cycle has continued.

as I said at the time they did not understand monetary policy. Now they understand runs inflation and bubbles

So in other words, no Federal Reserve.

no a Federal Reserve that understands runs inflation and bubbles

You don't believe that the free market should set prices?

I do indeed

You would rather have central economic control over the money supply?

yes to keep prices steady and so encourage economic growth

If prices in the economy would naturally drop due to an increase in overall production, keeping them high would have the same effect as inflation.

what are you trying to say?? If the Fed prints too much money that does keep prices high- so???????????


But Democrats will not allow it because to them the power to print money is the power to buy votes with promises of more and more welfare

This is not just democrats. This is Democrats and Republicans both.

of course that is not true at all. Republicans want to make debt and inflation illegal and have since Jeffefrson

 

[bigrebnc1775]

There are a lot of posts out there calling for this and I was wondering how much of the talk was simply show time and how much it was serious.

It should but there's to much power holding that piece of garbage a float.

 

[Toddsterpatriot]

When I am referring to the cash as a liability, what I am saying is that it is money the debtor owes.The minute he spends a penny of it he will have negative net worth.

The minute I spend the cash it becomes a liability? Maybe an accounting class won't help you.
Spending the money makes my net worth negative?

No to the first statement, yes to the second. If you have a $100 loan and no other savings, if you spend that $100 loan your net worth becomes -$100 - interest. With the loan, the net worth is $0, and actually negative if you include interest. If you had $100 saved up and no loan, your net worth would be $100. If your net worth is 0 or negative, you have no real savings. You have savings financed by debt.

What if I used it to buy Google shares at the IPO price. Now did my purchase make my net worth negative?

You still have to pay interest, so unless the shares increase right away, for a time yes.

Since the shares jumped immediately, that's another point to me.

Yes, money the debtor owes is a liability, the cash he received is and always will be an asset.

Correct. Earlier I was not clear.

No kidding.

but the money creation occurs when they deposit the loaned money, which does not represent wealth).

No, the money creation occurs when they take the loan, not when or if they deposit it.

 

[Jessica Blume]

Here, maybe this will help:

[ame=http://www.youtube.com/watch?v=JXt1cayx0hs]YouTube - ‪The Money Masters - Full‬‏[/ame]

Or

[ame=http://www.youtube.com/watch?v=ZPWH5TlbloU]YouTube - ‪The American Dream By The Provocateur Network‬‏[/ame]

 

[editec]

You need to read a book, Lad.

You don't understand the first thing about the way our banking system works, that's bleedin obvious.

Please explain how our banking system works.
Take a brand new bank with a single deposit of $1000.
I think they can loan $900, based on a reserve requirement of 10%.
How much do you feel they can loan. Please show all your work. Thanks!

No you need to do this reasearch, yourself, Lad.

I and others have already told you how fractal banking works.

Clearly you don't believe us.

So you go do the research yourself and then perhaps you'll believe it when you read it from a source that you trust.

 

[Toddsterpatriot]

Please explain how our banking system works.
Take a brand new bank with a single deposit of $1000.
I think they can loan $900, based on a reserve requirement of 10%.
How much do you feel they can loan. Please show all your work. Thanks!

No you need to do this reasearch, yourself, Lad.

I and others have already told you how fractal banking works.

Clearly you don't believe us.

So you go do the research yourself and then perhaps you'll believe it when you read it from a source that you trust.

Yes, I've seen the errors you posted about fractional reserve banking.
I know you are wrong because of the research I've already done.
Thanks for running away without answering my question.

 

[Toddsterpatriot]

Here, maybe this will help:

YouTube - ‪The Money Masters - Full‬‏

Or

YouTube - ‪The American Dream By The Provocateur Network‬‏

Those videos are funny. And full of errors.
Congress doesn't pay interest on printed money.

 

[Jessica Blume]

Here, maybe this will help:

YouTube - ‪The Money Masters - Full‬‏

Or

YouTube - ‪The American Dream By The Provocateur Network‬‏

Those videos are funny. And full of errors.
Congress doesn't pay interest on printed money.

That's right. The taxpayers do.

 

[Toddsterpatriot]

Here, maybe this will help:

YouTube - ‪The Money Masters - Full‬‏

Or

YouTube - ‪The American Dream By The Provocateur Network‬‏

Those videos are funny. And full of errors.
Congress doesn't pay interest on printed money.

That's right. The taxpayers do.

I don't pay interest on the printed money in my wallet.
Who do you pay? How much? Do you mail them a check?

 

[expat_panama]

...money is not value, it's a store of value...

...Money is not wealth, you are absolutely correct. You use it in exchange for wealth...

We're together because we agree that money and wealth/value are two different things. We keep wealth and we exchange money.

... You can't create wealth out of thin air...

I hope we're not confusing money with wealth again. Let's leave it with money (whether created out of thin paper from trees that were air or directly from air) is not wealth which is created differently. Wealth is something we keep for generations and money is something we exchange. Money is not value any more than tin cans are food. We take out the food and throw away the worthless tin cans.

...Since 1990, money has lost nearly half of its value, according to CPI numbers...

OK, 40% is 'nearly half'. That drop is a steady 2.6% annual inflation which means every day a dollar looses three thousandths of a penny. It's much more stable than what we had before the fractional reserve system adopted in the early 1600's. Nobody wants to go back to the devastating inflation Spain had in the 1500's that bankrupted the entire kingdom.

 

[Toro]

There are a lot of posts out there calling for this and I was wondering how much of the talk was simply show time and how much it was serious.

I can't imagine that the Fed will be abolished unless we have some cataclysmic crisis. That, however, may be on the way.

I am agnostic on the Fed's existence. At one time, I was a supporter of the Fed but I think they have so badly fucked things up that I'm not sure anymore. I believe the Fed is more a part of the problem than part of the solution these days.

However, there is empirical evidence that economies are more stable with central banks than without. I thought I created a thread about it, but I can't find it. If I do, I will post it. There is a reason why we have central banks.

... Central banks have been built on financial crises, with each major tremor expanding their role. And today's economic convulsions foreshadow more changes to come at the Fed.

If it wasn't for crises, central banks might not exist. In Britain, after years of civil war and the ouster of King James by William III in 1688, the country's public finances were in tatters, with tax collection falling short of what the government needed to pay its bills and lenders unsure about the stability of the government. The Bank of England, one of the first central banks and for centuries the most important one, was founded in 1694 to purchase government debt and curtail the funding crisis.

The establishment of the Bank of England came at the beginning of a great societal shift, when new ideas were challenging old doctrines, and rising world trade was giving new power to merchant classes. But the expansion in commerce and banking also made financial crises more prevalent. Speculative bubbles led to spectacular market crashes.

"The Bank of England received heavy criticism in many of the crises of the 19th century when it didn't act fast enough," says Rutgers University economic historian Michael Bordo. "It learned to be lender of last resort." ...

But for much of the 19th century and into the 20th, the U.S. had no central bank. Many Americans feared that nothing good could come from one bank wielding so much power. In 1816, a central bank to help fund government finances that had been badly depleted by the War of 1812 was established. In his 1832 veto of the extension of the bank's charter, President Andrew Jackson wrote that "Great evils...flow from such a concentration of power in the hands of a few men irresponsible to the people."

While financial crises in England diminished through the 19th century, they were a regular feature of American life.

"Crises are much more frequent when we don't have a central bank," says New York University Stern School economic historian Richard Sylla. With nobody willing to step into the fray when borrowers ran into trouble, small credit-market problems could easily spin into major ones.

The turning point came in 1907. The availability of credit was tight throughout the world that year, and that October, a speculative attempt to corner the stock of United Copper Co. failed. That sparked a run on the deposits of Knickerbocker Trust Co., which had helped fund the scheme, eventually leading to the firm's collapse. John Pierpont Morgan, the giant of American finance, took on the role of lender of last resort.

Struggling with a bad cold, sleep-deprived and sustaining himself with little more than cigars, Morgan put up millions of his firm's money to avert the crisis and cajoled other bankers into doing the same. In a famous incident, Morgan gathered a throng of bankers and trust executives in his library on the evening of Nov. 3, locking the doors and not opening them until 4:45 the next morning, after the men had agreed to take part in a $25 million loan.

The Panic of 1907 helped push aside longstanding worries over the economic power concentrated in an American central bank, and in 1913 the Federal Reserve Act was passed....

Central Banks Are Creatures of Financial Crises - WSJ.com
http://www.usmessageboard.com/economy/68521-why-we-have-the-fed-and-other-central-banks.html

 

[ShackledNation]

... You can't create wealth out of thin air...

I hope we're not confusing money with wealth again. Let's leave it with money (whether created out of thin paper from trees that were air or directly from air) is not wealth which is created differently. Wealth is something we keep for generations and money is something we exchange. Money is not value any more than tin cans are food. We take out the food and throw away the worthless tin cans.

I am not confusing money with wealth, it is fractional reserve banking that does so. That is the whole point. Loans should be made with money backed by wealth. Fractional reserve banking has loans made with money backed by nothing. When you create more money, you don't create wealth. Money functions just like any other good when it comes to prices. The price of money is the array of goods and services in the economy money can buy. The price of $1 may be a pack of gum, a candy bar, or 1/200th of a nintendo wii. When you increase the supply of any good, the price of it will fall. When you create more money, that money is devalued. Each dollar buys less. Now $1 is worth 1/2 a candy bar, or 1/400 of a wii or whatever lower value. The amount of wealth is the same, and each unit of money can be exchanged for less wealth as a result. In other words, it takes more money to access the same amount of wealth. Fractional reserve banking facilitates this whole process, and central banks make it worse and try to keep the system afloat. Because it takes time for inflation to spread throughout the economy, more projects are started than can be sustained. And thus you have the business cycle.

OK, 40% is 'nearly half'. That drop is a steady 2.6% annual inflation which means every day a dollar looses three thousandths of a penny.

That is like saying it is better to die slowly than right away. Rising prices caused by the expansion of the money supply is never a good thing because it devalues savings, making people poorer.

42% is nearly half. That is a huge amount. If you had 1,000 in a savings account, it would be reduced to about $578 (in terms of how much it could buy). Even if you had a great interest rate, you still lost a great deal of money you would have obtained with no devaluation.

It's much more stable than what we had before the fractional reserve system adopted in the early 1600's. Nobody wants to go back to the devastating inflation Spain had in the 1500's that bankrupted the entire kingdom.

First of all, where did you get that fractional reserve banking started in the 1600s? The early forms of the system date back to 1024 A.D. with medieval English blacksmiths. They held gold and issued more receipts than gold existed.

Second, the issue of stability has to do with the creation of money. Fractional Reserve banking creates money, but so can corrupt governments with control over the money supply. You can create more money by changing the amount of valuable metals in coins (as our government has been doing to our coin money. It aint silver anymore). The Spanish inflation was caused by a massive expansion of the money supply. At the time, the king's treasury was depleted because of wars and other problems. Between 1400 and 1500, in fact, the Castilian maravedi lost 82 percent of its value against the gold Aragonian florin. To replenish the treasury, the value of existing money had been doubled and new copper coins of less weight and without the traditional small amount of silver were issued.

Either way, no matter what caused problems in Spain, can you explain to me how fractional reserve banking would make the situation in Spain more stable? Considering you just threw out Spain as an example with absolutely no analysis or reasoning behind your claim, for all I know you haven't a clue about it at all.

 

[Brutus]

Either way, no matter what caused problems in Spain, can you explain to me how fractional reserve banking would make the situation in Spain more stable? Considering you just threw out Spain as an example with absolutely no analysis or reasoning behind your claim, for all I know you haven't a clue about it at all.

Fractional reserve or the gold standard can do anything and have any effect depending on how they are managed so the question is silly.
With the experience we have gained to date we now all there is to know about monetary policy:


1) you need a central bank

2) the purpose is to keep inflation at 0%