The Myth of Money as the Mere Concept of an IOU

johnyj

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Quote from: mirelo on September 24, 2013, 09:37:07 PM

Quote from: herzmeister on September 24, 2013, 05:54:52 PM

Quote from: murraypaul on September 24, 2013, 12:01:52 PM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

Oil does not "back" the dollar: instead, by requiring oil buying with dollars, the US forces countries to use the dollar. It is rather a form of blackmail: either you use the dollar or will end up without oil.

Power companies should advocate that all the electricity bill to be paid with bitcoin Grin

mirelo

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Quote from: herzmeister on September 24, 2013, 05:54:52 PM

Quote from: murraypaul on September 24, 2013, 12:01:52 PM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

Oil does not "back" the dollar: instead, by requiring oil buying with dollars, the US forces countries to use the dollar. It is rather a form of blackmail: either you use the dollar or will end up without oil.

mirelo

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Quote from: johnyj on September 24, 2013, 06:45:17 PM

Quote from: mirelo on September 24, 2013, 01:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

In our present monetary system the money supply constantly expands.

Quote from: johnyj on September 24, 2013, 06:45:17 PM

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

On the contrary: money that circulates faster loses in value.

Adrian-x

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Quote from: johnyj on September 24, 2013, 06:45:17 PM

Quote from: mirelo on September 24, 2013, 01:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

In FRB a run on a bank is the moment you realise there is more money in circulation than there is.
The purpose of a Central Bank is to be the lender of last resort, in order to prevent a liquidity problem created by a run on the bank. As long as the money velocity is high no one will notice.

There should be no doubt that Banks increase the money supply, the 10-1 FR ratio is the legal limit because it can be managed effectively.

johnyj

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Quote from: mirelo on September 24, 2013, 01:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

herzmeister

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Quote from: murraypaul on September 24, 2013, 12:01:52 PM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

mirelo

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Quote from: johnyj on September 24, 2013, 11:35:48 AM

Banks always try to disguise the truth with FRB, in fact FRB has nothing to do with money supply, it is just an accounting term (checkbook money), it is the same money deposited again and again and be counted again and again (M1). FRB created lots of fictive deposits that in fact does not exist

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

murraypaul

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Quote from: johnyj on September 24, 2013, 11:35:48 AM

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

The dollar is not asset backed.
Even if it were asset backed, the assets would have stayed the same, and more dollars would exist, so each dollar would be worth less. That is what inflation is.
QE == increasing total money supply == reducing value of each unit of money == inflation

johnyj

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Banks always try to disguise the truth with FRB, in fact FRB has nothing to do with money supply, it is just an accounting term (checkbook money), it is the same money deposited again and again and be counted again and again (M1). FRB created lots of fictive deposits that in fact does not exist

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

mirelo

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Quote from: murraypaul on September 24, 2013, 06:36:51 AM

Quote from: mirelo on September 24, 2013, 06:32:18 AM

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then it value increases in $100.00. It is not the trust itself, but rather the trusted value: before people can trust any value, there must be a value to trust.

With many securities, and money, the ideal value is fixed.
A $10 dollar note is worth a fixed amount of $10 dollars, if it is redeemed.
What changes is peoples' trust that the security will be redeemed for that fixed value.
As the risk of default increases, the value people are prepared to pay decreases, and that is because they have less trust in the issuer than they did before.
You can see this with company bonds and government debts, they each trade a different discount to face value, because of the different level of trust people have that they will be redeemed, and not defaulted on.
Trust (risk of default) determines the price that a fixed-value asset trades at.

You must tell people behind the CPI they are wasting their time in measuring inflation as the "ideal value" of money "is fixed." Why bother with the buying power of $10.00? It is just... $10.00! We can all stop filling our tanks with gas and start filling them with dollars!

murraypaul

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Quote from: mirelo on September 24, 2013, 06:32:18 AM

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then it value increases in $100.00. It is not the trust itself, but rather the trusted value: before people can trust any value, there must be a value to trust.

With many securities, and money, the ideal value is fixed.
A $10 dollar note is worth a fixed amount of $10 dollars, if it is redeemed.
What changes is peoples' trust that the security will be redeemed for that fixed value.
As the risk of default increases, the value people are prepared to pay decreases, and that is because they have less trust in the issuer than they did before.
You can see this with company bonds and government debts, they each trade a different discount to face value, because of the different level of trust people have that they will be redeemed, and not defaulted on.
Trust (risk of default) determines the price that a fixed-value asset trades at.

mirelo

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Quote from: murraypaul on September 23, 2013, 03:47:55 PM

Quote from: mirelo on September 23, 2013, 02:32:56 PM

Quote from: murraypaul on September 23, 2013, 02:21:07 PM

Quote from: mirelo on September 23, 2013, 01:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

I didn't say anything about trusting each other.
It is about both trusting the money itself, which means trusting the IOU issuer.
And yes, when that trust increases or decreases, the value of money (relative to other currencies) does change.

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then its value increases in $100.00. It is not the trust itself that changes, but rather the trusted value.

Adrian-x

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And then I thought string theory was complicated to reconcile with reality.

murraypaul

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Quote from: mirelo on September 23, 2013, 02:32:56 PM

Quote from: murraypaul on September 23, 2013, 02:21:07 PM

Quote from: mirelo on September 23, 2013, 01:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

I didn't say anything about trusting each other.
It is about both trusting the money itself, which means trusting the IOU issuer.
And yes, when that trust increases or decreases, the value of money (relative to other currencies) does change.

murraypaul

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Quote from: mirelo on September 23, 2013, 02:56:48 PM

He's talking about how money devaluation over time affects chains of transactions: even if the money received for selling something were then worth it, what matters is how much it will be worth when it buys something else. During that time, the money supply will expand, transferring the resulting devaluation amount to whoever controls its emission.

Which over the time period of a standard retail transaction is irrelevant.
At the time of purchase, we both agree that X amount of money is fair value for the goods.
We both have the same information available, so those effects should be priced in on both sides.

mirelo

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Quote from: murraypaul on September 23, 2013, 02:19:40 PM

Quote from: Adrian-x on September 23, 2013, 01:56:24 PM

Quote from: murraypaul on September 23, 2013, 12:48:05 PM

Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

He's talking about how money devaluation over time affects chains of transactions: even if the money received for selling something were then worth it, what matters is how much it will be worth when it buys something else. During that time, the money supply will expand, transferring the resulting devaluation amount to whoever controls its emission.

Adrian-x

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Quote from: murraypaul on September 23, 2013, 02:19:40 PM

Quote from: Adrian-x on September 23, 2013, 01:56:24 PM

Quote from: murraypaul on September 23, 2013, 12:48:05 PM

Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

I'm implying the money used as a medium of exchange is in general use in the economy.

It just so happens when a transaction occur it typically involves agreeing on a price, then delivering the goods, and then paying for the goods.

This, even affects micro transactions you make in a supermarket, you have the goods before the supermarket pays the vender.
You don't need to interact with the CB, you just need a time delay between both sides of the transaction using Fiat backed by IOU's.

mirelo

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Quote from: murraypaul on September 23, 2013, 02:21:07 PM

Quote from: mirelo on September 23, 2013, 01:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

My opening post is not a mere assertion: it is a reasoning, so it is not enough for you to contradict it with a mere assertion: you must say on exactly which point of that reasoning you see a flaw and why.

Regarding your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

murraypaul

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Quote from: mirelo on September 23, 2013, 01:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

murraypaul

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Quote from: Adrian-x on September 23, 2013, 01:56:24 PM

Quote from: murraypaul on September 23, 2013, 12:48:05 PM

Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

Adrian-x

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Quote from: murraypaul on September 23, 2013, 12:48:05 PM

Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

It is akin to a builder changing the units of measure so he can reduce his building expenses and claim he has done a good by coming in under budget.

* edit
The money meme can only work effectively for all participants in the economy if the unit of measure is fixed, or if it is an actual commodity that is readily exchanged, then the unit of measure must be fixed to the commodity. It should be fraud to create a mechanism that allows banks to increase the unit of measure but not the represented time value commodity. FRB is thus the mechanism behind the business cycle, allowing Malinvestment in economic activities and unfairly distributing the risk.

mirelo

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Quote from: murraypaul on September 23, 2013, 12:48:05 PM

Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

murraypaul

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Quote from: mirelo on September 23, 2013, 12:14:48 PM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

mirelo

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Quote from: murraypaul on September 23, 2013, 12:00:24 PM

Quote from: mirelo on September 23, 2013, 11:26:23 AM

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

It works, for the most part, just fine.

It does for the banks, not for the rest of us - and soon it will not even do for the banks.

The purpose of money is as a general purpose IOU or instrument of barter, which is trusted enough that people accept it.

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

mirelo

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Quote from: murraypaul on September 23, 2013, 11:57:32 AM

Quote from: mirelo on September 23, 2013, 11:26:23 AM

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

Only the central bank can 'create' money.
Normal retail banks cannot just print more money.

Commercial banks create money just as the central bank does.

No, only the central bank can 'create' money, that is increase the total amount of X currency in existence.

So when commercial banks make a reserve of $1,000.00 become $10,000.00 by loaning it, they are not creating money?

murraypaul

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Quote from: mirelo on September 23, 2013, 11:26:23 AM

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

It works, for the most part, just fine.

It does for the banks, not for the rest of us - and soon it will not even do for the banks.

The purpose of money is as a general purpose IOU or instrument of barter, which is trusted enough that people accept it.
It works fine for that.
People get paid, they pay rent, they buy gas and groceries.
That is what money is for, in everyday use.

murraypaul

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Quote from: mirelo on September 23, 2013, 11:26:23 AM

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

Only the central bank can 'create' money.
Normal retail banks cannot just print more money.

Commercial banks create money just as the central bank does.

No, only the central bank can 'create' money, that is increase the total amount of X currency in existence.

mirelo

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Quote from: johnyj on September 23, 2013, 11:41:07 AM

Quote from: mirelo on September 23, 2013, 11:02:02 AM

You said yourself that 81.5% of QE money are sitting on bank reserves at the FED. What about the other 18.5%? Remember: it is 18.5% of some trillions (more money than the amount Apple is hoarding, which you were so worried about). There is inflation already: the government cannot stop changing the way of calculating its index in an increasingly desperate attempt to hide it. What the current situation "negates" is neither the "multiplier effect" itself nor hence whichever inflation, but rather just hyperinflation.

Yes the government part is more difficult to deal with, as I understand, they will keep raising the debt ceiling no matter what. But eventually they will be forced into default, or central banks write off their bond holdings (more likely)

http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-quantitative-easing-is-sitting-there-gathering-dust-instead-of-helping-the-economy.html

It is amazing to see how people still assume this money finding its way into the market would "help the economy": what a huge disappointment is "in reserve" for them.

johnyj

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Quote from: mirelo on September 23, 2013, 11:02:02 AM

You said yourself that 81.5% of QE money are sitting on bank reserves at the FED. What about the other 18.5%? Remember: it is 18.5% of some trillions (more money than the amount Apple is hoarding, which you were so worried about). There is inflation already: the government cannot stop changing the way of calculating its index in an increasingly desperate attempt to hide it. What the current situation "negates" is neither the "multiplier effect" itself nor hence whichever inflation, but rather just hyperinflation.

Yes the government part is more difficult to deal with, as I understand, they will keep raising the debt ceiling no matter what. But eventually they will be forced into default, or central banks write off their bond holdings (more likely)

http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-quantitative-easing-is-sitting-there-gathering-dust-instead-of-helping-the-economy.html

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Quote from: murraypaul on September 23, 2013, 11:07:26 AM

Only the central bank can 'create' money.
Normal retail banks cannot just print more money.

Commercial banks create money just as the central bank does. The differences are:

1. The central bank loans money to the government while commercial banks loan it to private entities.

2. Commercial banks have reserve requirements, which the central bank does not.

Despite those differences, the two processes are essentially the same: historically, the first originates from the second.

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

Quote

but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

And yet, money has survived in its current form for hundreds of years.

The current monetary system (with money not backed by any gold) now has 42 years.

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

People know how money works.

Most of them do not even bother to think about it, which is the stage just before not having a clue about it.

Quote from: murraypaul on September 23, 2013, 11:07:26 AM

It works, for the most part, just fine.

It does for the banks, not for the rest of us - and soon it will not even do for the banks.

murraypaul

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Quote from: johnyj on September 21, 2013, 11:18:08 PM

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured

No it doesn't.
You have completely misunderstood what the words capital and insurance mean.

Quote

, it only works psychologically. Of course the banks can always print more money to reduce the risk

No they can't.
Only the central bank can 'create' money.
Normal retail banks cannot just print more money.

Quote

but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

And yet, money has survived in its current form for hundreds of years.
People know how money works.
It works, for the most part, just fine.

mirelo

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Quote from: johnyj on September 23, 2013, 10:43:23 AM

Quote from: mirelo on September 23, 2013, 09:33:16 AM

Quote from: johnyj on September 23, 2013, 08:24:28 AM

Quote from: mirelo on September 23, 2013, 02:07:42 AM

Quote from: johnyj on September 22, 2013, 07:28:06 PM

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

This is not quite so: the reason all this new money has not yet hit the market is because the FED is paying banks interest for them to park their new reserves with itself instead of loaning them to (purely) private entities. For this to work, the FED is paying those banks an interest rate above the market, which it can only afford as long as interest rates remain at record-low levels. When interest rates finally rise, it will no longer be able to pay those above-market rates on bank reserves: banks will again prefer to loan those reserves to (purely) private entities. Then, all that money will finally do what many analysts naively regret it not yet did - hit the market.

True, I read somewhere that more than 81.5% of those QE money are sitting in the bank reserve and collect interest from FED. But as long as FED keep the interest rate extremely low for a foreseeable future, those money will not be released. But the threat comes from those highly profitable businesses like APPLE, they have already stashed huge amount of cash reserve. And it is possible there are other savings that is hidden during these years

Apple is hoarding cash on the order of magnitude of the hundreds of billions while the banks' reserves are in the order of magnitude of the trillions. Additionally, when banks finally start reusing those reserves in fractional-reserve loaning, the "multiplier effect" will turn trillions into tens of trillions (assuming an already old-fashioned reserve requirement of 1/10).

As long as FED is paying interest on those reserves, the multiplier effect is negated, there will not be inflation, but there will be high unemployment

You said yourself that 81.5% of QE money are sitting on bank reserves at the FED. What about the other 18.5%? Remember: it is 18.5% of some trillions (more money than the amount Apple is hoarding, which you were so worried about). There is inflation already: the government cannot stop changing the way of calculating its index in an increasingly desperate attempt to hide it. What the current situation "negates" is neither the "multiplier effect" itself nor hence whichever inflation, but rather just hyperinflation.

johnyj

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Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 23, 2013, 09:33:16 AM

Quote from: johnyj on September 23, 2013, 08:24:28 AM

Quote from: mirelo on September 23, 2013, 02:07:42 AM

Quote from: johnyj on September 22, 2013, 07:28:06 PM

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

This is not quite so: the reason all this new money has not yet hit the market is because the FED is paying banks interest for them to park their new reserves with itself instead of loaning them to (purely) private entities. For this to work, the FED is paying those banks an interest rate above the market, which it can only afford as long as interest rates remain at record-low levels. When interest rates finally rise, it will no longer be able to pay those above-market rates on bank reserves: banks will again prefer to loan those reserves to (purely) private entities. Then, all that money will finally do what many analysts naively regret it not yet did - hit the market.

True, I read somewhere that more than 81.5% of those QE money are sitting in the bank reserve and collect interest from FED. But as long as FED keep the interest rate extremely low for a foreseeable future, those money will not be released. But the threat comes from those highly profitable businesses like APPLE, they have already stashed huge amount of cash reserve. And it is possible there are other savings that is hidden during these years

Apple is hoarding cash on the order of magnitude of the hundreds of billions while the banks' reserves are in the order of magnitude of the trillions. Additionally, when banks finally start reusing those reserves in fractional-reserve loaning, the "multiplier effect" will turn trillions into tens of trillions (assuming an already old-fashioned reserve requirement of 1/10).

As long as FED is paying interest on those reserves, the multiplier effect is negated, there will not be inflation, but there will be high unemployment

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 23, 2013, 08:24:28 AM

Quote from: mirelo on September 23, 2013, 02:07:42 AM

Quote from: johnyj on September 22, 2013, 07:28:06 PM

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

This is not quite so: the reason all this new money has not yet hit the market is because the FED is paying banks interest for them to park their new reserves with itself instead of loaning them to (purely) private entities. For this to work, the FED is paying those banks an interest rate above the market, which it can only afford as long as interest rates remain at record-low levels. When interest rates finally rise, it will no longer be able to pay those above-market rates on bank reserves: banks will again prefer to loan those reserves to (purely) private entities. Then, all that money will finally do what many analysts naively regret it not yet did - hit the market.

True, I read somewhere that more than 81.5% of those QE money are sitting in the bank reserve and collect interest from FED. But as long as FED keep the interest rate extremely low for a foreseeable future, those money will not be released. But the threat comes from those highly profitable businesses like APPLE, they have already stashed huge amount of cash reserve. And it is possible there are other savings that is hidden during these years

Apple is hoarding cash on the order of magnitude of the hundreds of billions while the banks' reserves are in the order of magnitude of the trillions. Additionally, when banks finally start reusing those reserves in fractional-reserve loaning, the "multiplier effect" will turn trillions into tens of trillions (assuming an already old-fashioned reserve requirement of 1/10).

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 23, 2013, 02:07:42 AM

Quote from: johnyj on September 22, 2013, 07:28:06 PM

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

This is not quite so: the reason all this new money has not yet hit the market is because the FED is paying banks interest for them to park their new reserves with itself instead of loaning them to (purely) private entities. For this to work, the FED is paying those banks an interest rate above the market, which it can only afford as long as interest rates remain at record-low levels. When interest rates finally rise, it will no longer be able to pay those above-market rates on bank reserves: banks will again prefer to loan those reserves to (purely) private entities. Then, all that money will finally do what many analysts naively regret it not yet did - hit the market.

True, I read somewhere that more than 81.5% of those QE money are sitting in the bank reserve and collect interest from FED. But as long as FED keep the interest rate extremely low for a foreseeable future, those money will not be released. But the threat comes from those highly profitable businesses like APPLE, they have already stashed huge amount of cash reserve. And it is possible there are other savings that is hidden during these years

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 22, 2013, 07:28:06 PM

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

This is not quite so: the reason all this new money has not yet hit the market is because the FED is paying banks interest for them to park their new reserves with itself instead of loaning them to (purely) private entities. For this to work, the FED is paying those banks an interest rate above the market, which it can only afford as long as interest rates remain at record-low levels. When interest rates finally rise, it will no longer be able to pay those above-market rates on bank reserves: banks will again prefer to loan those reserves to (purely) private entities. Then, all that money will finally do what many analysts naively regret it not yet did - hit the market.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

FED is playing with fire now, they have printed so much money and most of these money were hoarded (in bank accounts) when people were facing uncertain future

But when economy recovered and the future perspective improved, people will spend those stashed money and accelerate inflation. Then the only thing FED can do is to tighten the money supply by selling assets at hand. But this operation will reduce the liquidity for banks, so people will find out that they can not spend their saved money since banks have ran out of money

In a loan driven economy, this is not a problem, since most of the spending coming from the loan, when FED tightens, they reduce the spending by reducing the available loan. But after financial crisis, people are returning to "Save first, spend later" type of consumption style

Adrian-x

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Activity: 1372

Merit: 1000

Quote from: grue on September 22, 2013, 02:27:57 PM

Really? So you believe that most people are unaware that banks operate on a fractional reserve system? I would argue that anyone coming out of highschool would know:

banks lend/invest depositor's money*

as corollary, banks do not have enough "cash" on hand to cover every depositor's deposits (aka fractional reserve)**

in the case of bank failure, part or all their deposits may be lost***

You over estimate 99% of high-school graduates. Even studying business economics I am lumped in with the 99%
* Agreed this is understood most believed banks "lend/invest depositor's money" but @ 1:1, FRB is not understood.

** "Not having enough "cash" on hand" didn't defalt to FRB, it is understood that not all money is in cash (notes and coin) and it is never all stored at the bank.

*** Not so your deposit is understood to be insured by the government.

My money in the Bank is understood to be "my money"

When the Bank uses FRB the problem is understood if you imagine money as a commodity everyone uses, like wheat, it is a problem when the economy shrinks and you draw on your reserves only to find they are imaginary. Now using FRB and dealing in the opposite of a commodity I.e. an IOU for a commodity or time value equivalent, just results in printing more IOU's. The net effect is way worse than a run on the Bank. It is immoral and results in the 99% partaking in voluntary slavery.

grue

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Activity: 2058

Merit: 1431

Quote from: johnyj on September 21, 2013, 11:18:08 PM

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured, it only works psychologically. Of course the banks can always print more money to reduce the risk, but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

Suppose that fiat money start to lose its purchase power 20% per year, and people start to withdraw all their savings to purchase value holding assets like gold and bitcoin, what can FDIC help?

Really? So you believe that most people are unaware that banks operate on a fractional reserve system? I would argue that anyone coming out of highschool would know:

banks lend/invest depositor's money
as corollary, banks do not have enough "cash" on hand to cover every depositor's deposits (aka fractional reserve)
in the case of bank failure, part or all their deposits may be lost

Quote from: benjamindees on September 22, 2013, 07:46:41 AM

Bitcointalk: the forum of a revolutionary new cryptocurrency, where the moderators don't understand the downsides of fiat and fractional reserve, and argue that government regulation is a good thing.

I could've sworn this place was populated by relatively intelligent people at one point, but that memory is getting pretty fuzzy.

Ad hominem
For the record, I am aware of the downsides of fiat currency and fractional reserve banking. Also, I never argued that "government regulation is a good thing". That is a strawman.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: benjamindees on September 22, 2013, 07:46:41 AM

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

Bitcointalk: the forum of a revolutionary new cryptocurrency, where the moderators don't understand the downsides of fiat and fractional reserve, and argue that government regulation is a good thing.

I could've sworn this place was populated by relatively intelligent people at one point, but that memory is getting pretty fuzzy.

Government regulation is a good thing: no cartel survives much without it.

benjamindees

legendary

Activity: 1330

Merit: 1000

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

Bitcointalk: the forum of a revolutionary new cryptocurrency, where the moderators don't understand the downsides of fiat and fractional reserve, and argue that government regulation is a good thing.

I could've sworn this place was populated by relatively intelligent people at one point, but that memory is getting pretty fuzzy.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 21, 2013, 11:18:08 PM

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured, it only works psychologically. Of course the banks can always print more money to reduce the risk, but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

Suppose that fiat money start to lose its purchase power 20% per year, and people start to withdraw all their savings to purchase value holding assets like gold and bitcoin, what can FDIC help?

Banks being too big to fail is one step in the direction of their being too big to give you money back, but even if you do get it back (less taxes), don't worry as it will not have all the buying power it had when you deposited it: no matter what, you lose ownership of at least part of your money (less taxes).

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

Also,

Quote from: mirelo on September 20, 2013, 03:30:57 PM

For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner

No, that's not true. In this case, the bank has a IOU to the depositor, and the lender has a IOU to the bank. The money belongs to one person only: the lender. The bank has a fraction of the deposits in cash for customer withdraws, hence why the bank can also fulfill the depositor's withdraw request at any time (to an extent).

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

Why would I need all that, if I am asking you not just to trust your money to me, but rather to give its ownership to me? Do you know the meaning of the word "ownership"? If you don't: it means your being the owner of something. I am asking you to give me your money for good since you told me you wouldn't mind losing its ownership.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured, it only works psychologically. Of course the banks can always print more money to reduce the risk, but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

Suppose that fiat money start to lose its purchase power 20% per year, and people start to withdraw all their savings to purchase value holding assets like gold and bitcoin, what can FDIC help?

grue

legendary

Activity: 2058

Merit: 1431

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

Also,

Quote from: mirelo on September 20, 2013, 03:30:57 PM

For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner

No, that's not true. In this case, the bank has a IOU to the depositor, and the lender has a IOU to the bank. The money belongs to one person only: the lender. The bank has a fraction of the deposits in cash for customer withdraws, hence why the bank can also fulfill the depositor's withdraw request at any time (to an extent).

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 21, 2013, 11:20:19 AM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Deposit_Insurance_Fund

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 21, 2013, 11:20:19 AM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

grue

legendary

Activity: 2058

Merit: 1431

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: Adrian-x on September 21, 2013, 12:46:17 AM

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

It is much worse than that: inflated debt in this case is identical to inflated exchange value, so what you are getting here is a partially false monetary value. You may be lucky and get your promise, but many will not.

Adrian-x

legendary

Activity: 1372

Merit: 1000

Quote from: mirelo on September 20, 2013, 10:54:34 PM

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

Bang on.

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 11:38:40 PM

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

Commercial banks do not have the right to create money, they can only borrow money from central bank. Central bank is the lender of the last resort, they can't borrow from anyone else, they must create money

http://en.wikipedia.org/wiki/Money_creation

mirelo

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Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 11:32:38 PM

Quote from: mirelo on September 20, 2013, 11:09:35 PM

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 11:09:35 PM

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

Just like FRB, IOU is checkbook money, not real money, it is just an accounting term, same money can be counted multiple times, thus create a illusion of lots of money, when in reality the real money is much less

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

grue

legendary

Activity: 2058

Merit: 1431

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 10:17:06 PM

IOU is a trick to mislead people, after several times of IOU, people don't know the original ownership, what should belongs to them now belongs to banks Cheesy

Unfortunately, the trick is not the IOU itself. It is not even its mistaking for money. The trick is using this confusion between debt and money to control other people.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

IOU is a trick to mislead people, after several times of IOU, people don't know the original ownership, what should belongs to them now belongs to banks Cheesy

Adrian-x

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Activity: 1372

Merit: 1000

Not only does everyone learn this at school Undecided

, they also intuitively understand it and conduct their lives accordingly. Never questioning and assuming just the opposite that IOU's are in fact representative of a commodity and and/or time value, forgetting the IOU's loosely regresses back, are in fact a promissory note for an IOU of a common commodity utilised as a medium of exchange.

If you think that is crazy you should try fractional reserve banking with wheat.

mirelo

sr. member

Activity: 242

Merit: 250

A representation of debt is an object representing "I owe (money to) you": an IOU.

Money can itself be an IOU. For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner. Then:

1. To the borrower, an IOU becomes the loaner's money.

2. To the loaner, the borrower's money becomes an IOU.

This way, whether loaner and borrower are aware of that or not, their money has become an IOU. Thus, if I am the borrower and you are the loaner, this IOU is an object representing "I owe you" that money. So even as an IOU, our money remains what IOU.

Then, "I owe you" an... IOU: as long as we mistake debt for money, I owe you... the circumstance that I owe you... the circumstance that I owe you...

Topic: The Myth of Money as the Mere Concept of an IOU (Read 5132 times)