Topic: Economic Devastation - page 44. (Read 504811 times)

Money is defined to be something that can pay off debt.

Debt is not money.

Having more treasuries (debt) does not mean money is created.

Example from EU: only ECB EURO banknotes are money. I have checked from ECB.

Bank accounts are not money. This is the definition, and it is quite logical: Bank account is bank's debt to you. When you take a mortgage, you exchange your obligation to pay for bank's obligation to pay (the "money" in bank account).

It is possible to create fiat money out of thin air (inflationary printing of money). It is also possible to create debt/credit out of thin air. Both processes are fraudulent, but the latter is which is being practiced now - it is even more insidious as not only it devalues the savers, it also has the "financial neutron bomb" of debt deleveraging, which the controllers can detonate at will, but it may even happen without them.

Nobody has yet submitted to my prize offer: $1,000 for designing an overall worse monetary system than the one in use by IMF/BIS. If somebody wants to try his imagination, the criteria for "worse" include:
- quicker and more secret consolidation of power of all the people's life and resources to an even smaller group of controllers
- more levers to do immense damage, wholesale or targeted, to countries and individuals
- morally more degrading, leading the development of the planet to a worse direction
- causes more deaths from its operation, directly and indirectly
- achieves the enslavement of all participants who also pay the cost of it.
 

All you need to do is to satisfy the regulatory hurtles required to access interbank lending at the federal funds rate. It is true that this typically, but not always, requires you to be a depository institution.

You asked for a link showing that it is possible to to leverage as a bank without accepting deposits. Banking is shrouded in secrecy and such information is deliberately hidden from the public but here you go.


http://www.bloomberg.com/news/articles/2011-07-06/goldman-took-biggest-loan-in-fed-program

It is important, however, to keep the charade going. It would not do to have people question why banks can access funds at an artificially low cost. So with some reluctance Goldman later decided that they are in fact going to offer some token banking services.


http://www.fool.com/investing/general/2012/07/20/goldman-sachs-returns-to-classic-boring-banking-so.aspx

I personally think you need to deposit to be able to leverage as a bank, and paying off a loan is different.. Any link to show this is not the case?

Anyways as you can see M2 hasnt actually been following the rate drop as if should, since velocity hasnt been rising deflation is set up in an economy which expects it to move afted stimilus. When it does start bonds will heavily skew and rates will have to rise fast because inflation will be rising too fast. Not sure at what point the pain threshold of the system is breached.

Example
Greek banks do not accept partial or full debt repayments under capital controls, unless the money comes outside the banking system
They do that because repaying debt will unwind their assets, that have been placed as collateral on ECB for liquidity, in short debt repayment directly removes liquidity from Greek banking system. So deflation is the result and ECB will do nothing. - Yourope

I agree that paying off debt potentially removes some purchasing power from the economy. The amount removed is the amount of debt paid off minus the increased reserves automatically reinserted back into the economy by the FED via their manipulation of the federal funds rate.  However, paying off debt in no way constrains banks from simply making more loans and adding that purchasing power back into the economy as new debt.

McLeay M, Radia A, Thomas R. Money creation in the modern economy. Bank of England Monetary Analysis Directorate Quarterly Bulletin 2014 Q3

Deflation ensues not from the removal of purchasing power as that can easily be resupplied at will by the banks. Deflation instead is the natural result of massive malinvestment induced by artificially low interest rates.

When interest rates are kept artificially low, entrepreneurs are led to believe the income they will receive in the future is sufficient to cover their near term investment costs. In an environment where the money supply is continually expanding via debt, entrepreneurs mistakenly conclude that investments are really available for long term projects when in fact the pool of available funds has come solely from artificial credit creation. Entrepreneurs see spending in the economy and assume consumer demand exists for their projects when in fact consumer demand is artificially and unsustainably elevated.

Artificially low rates produce a period of wasteful malinvestment, a "false boom" where the investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to waste, overcapacity, and eventually insolvency.

I dont get how we can say this when large amounts of government treasuries came into existence from large deficits run by many governments.   This debt is then bought and stored by the central banks in majority, isnt this an expansion of those monetary base.   All that debt pays out dollars and the rates are variable

Well now interest causes a whole nother dilemma because to service the debt the government accrues which tax money cannot cover they must run into more debt to pay for the interest, so it is exponential hence the hockey stick curve we are on. This has nothing to do with what I was talking about though.

What you do not understand is that every expansion of debt without expanding the monetary base (monetary base in fiat system is almost zero,  consisting of banknotes and sometimes even they are debt) causes the total debt in the economy to grow faster vs. the monetary base.

This is quite mind-blowing so stydy it from some other source, I am out of time to explain. Money does not come into existence except by creating more debt, and debt accrues interest. The interest can only be served from taking more debt so the pyramid is negative equity and unsustainable. qed.

Sidhujag, I would challenge both your first and third "facts" above as both appear to be false.

1) You state that paying a loan removes money from circulation but while this may have been true under a historical gold standard it is not really true today. Your first "fact" follows from the concept of money multiplier. If bank lending is constrained by reserves then paying down debt would remove some multiple of that debt from circulation unless the paid funds were immediately reissued as new debt. This conceptualization of the money multiplier is an inaccurate model of our current system.


The reality is that under the modern system the amount of bank reserves do not constrain lending. Paying down debt does not lead to a sustained decrease in circulating currency. Instead as debt is paid down there is a transient dip in circulating currency and some banks may find themselves short on reserves. To replenish these reserves these banks simply borrow the needed reserved from other banks. This rate of interbank lending is called the federal funds rate. If enough debt is paid off the demand for reserves may cause the federal funds rate to climb via simple supply and demand. However the federal funds rate strictly controlled by the FED which sets a target for what this rate should be. If the federal funds rate starts to climb the FED simply drives it down to its artificial target again via open market operations. Thus the currency that was removed by paying down debt is simply reinjected back into the economy by the FED. The end effect of paying down debt is not a change in circulating currency but an increase in the central banks balance sheet. I wrote the following post exploring this in more depth and it's ultimate instability. Finance Part I: Understanding the Parasite

3) In your third "fact" you state "payment of all loans does not equal leverage of new loan entitlements" You seem to be saying that debt can be paid off without more debt being taken out elsewhere in the economy. I would challenge this as also false. The only real method of getting rid of debt in our current system on a macro level is some form default with subsequent seizure of the collateral underlying the loan. Simplistic flow scenarios such as Sally owes John $100 who owes Tom $100 who in turn owes Sally $100 represent a very small portion of total debt. The article linked below does a nice job of explaining why it is mathematically impossible to pay off the national debt.

http://www.zerohedge.com/news/2015-05-22/it-mathematically-impossible-pay-all-our-debt

my understanding is that when I withdraw 100 from the bank with 10% fractional reservers, between us we have created an extra $90 into the economy.   When I put that 100 back into the bank, the inflationary effect is reversed.  My 100 deposited pays back the banks core $10 and that $90 leaves the economy though the bank may release it elsewhere, but for that moment.    Its rare that I can borrow money for no charge but sometimes it happens short term so in theory there is no gain or loss with this.  
  The other option is the bank goes bankrupt, in sum total all that credit is lost from somewhere; bond holders maybe even other account holders.  

Well I think productive business uses debt very well and repays it.   That leverage allows them to grow far quicker then merely waiting for profits, in some cases the business cannot exist at all without the debt as other market parties have too much advantage without scale afforded by debt.      An example maybe would be the setup of Dyson which are no doubt useful unique products which save time and wear in use, they are highly profitable but the inventor could not raise capital or gain backing at least at first.  Its revenue is 1.3bn and profit 300m which I think we can call the correct use of money creation for productivity and society is richer overall for being to do more with less work needed, hence its justifiable growth without just money inflationary
https://en.wikipedia.org/wiki/Dyson_(company)

So Dyson took out 100, profited 120 in his business from larger scale operation of good products.  Paid back 110, kept 10 and hence the economy grew bigger and bank itself can potentially lend 200 instead of 100.   This last part is where we have to be very careful on accounting as that is exponential almost explosive growth in theory.
   The relevance to the OP is correct usage of this money expansion is not being done properly, in banking or government so we have giant explosive potential in money creation used wrongly and its going to damage us and our economies.
 The relevance to bitcoin or gold or alternatives to dollar is they do not allow excessive political bias into money creation, hence we have a productive benefit and we presume these alternative economies will rise greatly as dollar spins its wheels in the mess of previous years

This is the original post realbitcoin, maybe you didnt catch the subtlety of what I was saying about the fact that not enough work is being done to account for the extra debt being added back on.

There are two ways to fix the system as is, by exploring new ways to become more efficient when it comes to work output, so that 1 hour of man work equates to more than yesterdays 1 hour of man work, which effectively starts to diminish yesterdays debt to an extent. This means a technological break through of some kind usually and is prbably what those in power are banking on. The other way is to find a closer ideal money candidate which is asymptotically closer to the perfect money, one which ties inflation to a real global metric and not just a resource based token but based on a leading health indicator such as gdp... If btc pow can be considered efficiency in energy output then perhaps it can be used, but bitcoin has a problem in that its inflation tends to 0 regardless of an economic health indicator so its a toss up on if it really is an effective ideal money candidate.

Empty post, instead of addressing my points you just talk empty things in the air.

Where exactly is my explanation faulty? Do you deny the fact that money is double accounted in the current system? The fact that money is in circulation and everytime a bill hits a bank node it gets multiplied like bacteria when hitting sugar?

Please be more specific or dont post, because saying that I`m wrong without telling where am I wrong is nonsense

You are wrong my first fact is indeed correct.

Any proof of your wild claims or just magic internet knowledge? Depositing money and paying back debt are different things and classified under different regulations. Paying back a loan is called deleveraging on a system whole.

I dont think you fully understand how money works in todays world. Best for you to step back and reassess your situation here, or read my initial post.

Yeap that's the plan I read last week, there are so many business that can benefit off of this technology the Old World Order are not fit to run this new world and the 1% of the 1% know this.

You are wrong on the first fact.


How is paying a loan remove money from circulation? It creates money not remove it.

BANK  loans 1000$ to Alice from 100$ reserves. 900$ is created out of thin air. If alice defaults on the loan then the money is destroyed since it never materializes it.

If Alice pays it back , then the bank can further loan those out and create again 90% out of thin air (or whatever the reserve rate is). Furthermore now the paid back (printed) money is accounted as the bank's capital + profits, the bank pays taxes on that, and slowly the printed money circulates into the entire economy. And that money is loaned out again and whatever reserve rate.


Your facts are bullshit, no wonder keynesianists ruined the entire world, you don't even understand your own theory

Dont think you answered the question, please reread and answer carefully. Read my post earlier to understand context because it still applies.

Fact: paying a loan removes money from circulation. Thats common sense.

Fact: a new loan entitles the certified borrower of a state to further leverage that loan with a new one to a certain percentage. This is based on the fact that not everyone will go bankrupt or claim their stake all at once.

Fact: payment of all loans does not equal leverage of new loan entitlements, resulting in a net debt service environment. This is a delicate balance based on supply and demand with interest rates globally. This is why nash said fed controlled rates are the best we got right now until we reach asymptotically ideal money.

Not really because that money is loaned out again and the ponzi scheme grows, because each loan payment multiplies the amount loaned out again by x10 in a 10% reserve system, or even more in western countries where they usuall have lower than 5%.