How the banks create money

[respect]

If my source is incorrect then show us your source.

Your own source says that you are incorrect. What do you think it means by intragovernmental holdings?

 

[Sceptic-PK]

And in the same post too. I think the drkitten school of sarcasm isn't helping you at all.

Well, the banks can’t lend the money that’s paid back to them on present loans, because some wonder-dummy has instituted a 100% reserve requirement. So a vast majority of the money returned to it now has to sit there in case every single one of their customers wants to withdraw $10 from their account. Sure, there may be some excesses available for loan, but far FAR less than is available now.

But nice attempt at a dodge. It’s really not my fault you are unable to follow your thoughts through to their logical conclusion(s).

 

[Sceptic-PK]

This is complete nonsense. Governments spend on many more programs than they used to, often with built in funding increases that exceed reasonable expectations of economic growth. That is where deficits come from, not fractional reserve lending.

The merits of any given program are up for debate but that is a different topic. What is relevant here is that fractional reserve lending does not force governments to increase spending on welfare, education, health services, public pension plans etc. To blame fractional reserve lending for rising government debts completely ignores the massive increase in programs that governments fund. Doing so is utterly absurd.

Yeah, Webb's views are pretty special, even by the standards of other special posters on this topic.

 

[webb5]

This is complete nonsense. Governments spend on many more programs than they used to, often with built in funding increases that exceed reasonable expectations of economic growth. That is where deficits come from, not fractional reserve lending.

The merits of any given program are up for debate but that is a different topic. What is relevant here is that fractional reserve lending does not force governments to increase spending on welfare, education, health services, public pension plans etc. To blame fractional reserve lending for rising government debts completely ignores the massive increase in programs that governments fund. Doing so is utterly absurd.

Sure some governments do spend on more programs, but they also spend less on other things that they no longer contol due to foreignisation sell offs such as water, electricity, telecomunications, much of infrastructure. The tax payer now pays directly to the supplier instead. Its absurd to think fractional reserve banking does not contibute to these deficits

 

[webb5]

Using Zimbabwe as a reference against governments creating their own money instead of the banks is ridiculous. As psion10 correctly wrote “unbridled money printing will cause hyper inflation” This can happen with or without fractional reserve banking. Governments around the world can use this ability to create their own money supply without causing hyper inflation. Money created by Social Credit is not fiat money as it is created on the basis of true wealth the county has in its resources.

 

[respect]

Sure some governments do spend on more programs, but they also spend less on other things that they no longer contol due to foreignisation sell offs such as water, electricity, telecomunications, much of infrastructure. The tax payer now pays directly to the supplier instead. Its absurd to think fractional reserve banking does not contibute to these deficits

You haven't provided any reason to think that it does.

 

[respect]

Your own source says that you are incorrect. What do you think it means by intragovernmental holdings?

But if you have decided to reject your own source now, here is another, the Fed's balance sheet also says that you are wrong, link. Although I wish you were right since it would mean that the US debt is only a little over $2 trillion.

 

[respect]

Yeah, Webb's views are pretty special, even by the standards of other special posters on this topic.

I have noticed that.

 

[webb5]

You haven't provided any reason to think that it does.

I have already given you real reasons. Its not my fault that you refuse to acknowledge them.

 

[psionl0]

Well, the banks can’t lend the money that’s paid back to them on present loans, because some wonder-dummy has instituted a 100% reserve requirement.

You need to think for yourself and not just barrack for drkitten. Who's bank account is the repaid loans supposed to go into if the bank can't lend the money again?

 

[Sceptic-PK]

You need to think for yourself and not just barrack for drkitten. Who's bank account is the repaid loans supposed to go into if the bank can't lend the money again?

I was all over the anti central banking/Fed/FRB/fiat nonsense well before I ever joined JREF. Indeed, from memory it was a stupid thread on this exact topic that prompted me to join in the first place.

With that said, the repaid money we’re talking about has to account for the 90% extra in reserves a bank is forced to hold. As people pay back their loans, there would be a modest amount in excess of the reserve requirement, yes. But it will be far short of what is available now with 10% reserve requirements. You deposit $100 in your account, and they lend $90 to me. Lunatics change the monetary system in the mean time and I start paying the $90 back at 10%, so now the bank has $109 (your $100 plus the $9 interest I paid). The bank can now lend $9 rather than the $90 I borrowed originally. For some reason you think the bank won’t "destroy" the money that is repaid, but it has to, in order to ensure it can cover your $100.

 

[psionl0]

the repaid money we’re talking about has to account for the 90% extra in reserves a bank is forced to hold.

So when you made the "you’re in favour of a one-off, massive explosion in the money supply" quip you obviously didn't have a clue what you were talking about. The tragic part is that you can't see any of the contradictions in your posts.

 

[Sceptic-PK]

So when you made the "you’re in favour of a one-off, massive explosion in the money supply" quip you obviously didn't have a clue what you were talking about. The tragic part is that you can't see any of the contradictions in your posts.

I was trying to understand your point actually. If your point was actually possible, it would engender a one-off massive explosion in the money supply.

 

[psionl0]

I was trying to understand your point actually. If your point was actually possible, it would engender a one-off massive explosion in the money supply.

From Post #609: "It wouldn't come to that initially because in the transition, debt based money in trading accounts would be replaced by government issued fiat money and the money on loan would not change.".

Everything you have posted since then is based on the assumption that I posted the exact opposite.

 

[Tippit]

The Fed owns almost 1/2 of US treasury securities. Source.

Actually I think it's higher than 9%, and substantially lower than the 49.37% which that chart indicates. Most of that number is actually "Intragovernmental holdings", like Social Security, et al.

 

[Tippit]

So, why did Zimbabwe reach a zillion % inflation rate but the rest of the world that prints money has not?

Because the Central Bank of Zimbabwe debased their currency at a much higher rate and at a much larger scope than other central banks, and because Zimbabwe doesn't produce much of anything, so the tax isn't very well disguised. To aid the Zimbabwe government's looting-by-inflation, Mugabe is a strong-arm dictator, and he enacted draconian legal tender laws, with severe punishments for using alternate currencies.

They must be, because the two greatest economic collapses in the time we're talking were not caused by FRB.

FRB is the primary cause of economic systemic risk. Without the recent bank bailouts lots of non-bank counterparties would have been wiped out. So the instability introduced by FRB serves as a very good excuse for why we "had" to bail out the banks that were "too big to fail". Of course, in the absence of FRB, we could simply let them fail, as they should.

Eh? How on earth would the amount of money on loan remain the same? There would be a huge drop in loans, because banks would be prevented from loaning any reserves. Even with your idealistic "investment deposit accounts", where clients can choose to invest their money in an account which is then loaned out, the amount of available loans would never be able to satisfy the demand for loans.

This is true. As the reserve requirement is increased towards 100%, it would be accompanied by a collapse in credit, which would be hyper-deflationary. This is why the Monetary Reform Act, for instance, advocates using rate policy or QE to offset this.

In essence, a 100% reserve requirement would mean banks would only lend to those of ample means (ie those guaranteed to pay everything back) and would charge a premium amount of interest due to the fact that loans would be so much harder to get.

This is also true. But considering our economic problems have been preciselytoo much credit, it is also in fact, the solution. Credit would not be non-existent, it would just be more expensive, as rates would reflect reality, not decades of Fed manipulation.

 

[psionl0]

Actually I think it's higher than 9%, and substantially lower than the 49.37% which that chart indicates. Most of that number is actually "Intragovernmental holdings", like Social Security, et al.

Interesting. Does that mean that the government raided the social security treasure chest and replaced the money with bonds? If so, I can see an upcoming generation that won't be getting any social security.

BTW how much does the Fed actually hold in government bonds?

 

[Tippit]

So are you saying that the Fed doesn’t sell bonds to fund government expenditure? Where does all the money from bond sales go then?

No, the Fed doesn't sell bonds to fund government expenditure. The money from bond sales disappears into the ether whence it came. Instead of quantitative easing, think quantitative tightening.

Haha, I love how you quote Bernanke in your sig but then ignore everything else he said in that speech.

The most important part of the speech was him admitting that the Fed caused the Great Depression, and him apologizing for it, and promising to do helicopter drops of money (to his pals, of course) in order to avert anything similar in the future. Anyway, drkitten has the honor of being in my signature now. It was a toss up whether to use that one, where he is directly contradicted by the Fed Chairman, or the quote where he claims that it would be beneficial to destroy real wealth in certain circumstances. Maybe I can fit both!

Yeah…Materials, labour, R&D etc play no part at all in the price of goods/assets or services!

They do of course, and it is reflected in the supply/demand model.

 

[Tippit]

Interesting. Does that mean that the government raided the social security treasure chest and replaced the money with bonds? If so, I can see an upcoming generation that won't be getting any social security.

BTW how much does the Fed actually hold in government bonds?

Social Security has pretty much always been a ponzi. Any surplus in the payroll tax is immediately invested in promises to tax your children (US Treasuries), and of course the government immediately spends the proceeds. So the only things in the "lock box" are IOUs. I think the systemic problems with social security will resolve themselves with vastly higher taxes, including inflation, coupled with massive benefit reduction and increases in the retirement age (which Congress has recently been mumbling about doing).

As far as how much they actually hold, I don't know as I haven't researched it in quite some time.

 

[psionl0]

This is true. As the reserve requirement is increased towards 100%, it would be accompanied by a collapse in credit, which would be hyper-deflationary. This is why the Monetary Reform Act, for instance, advocates using rate policy or QE to offset this.



This is also true. But considering our economic problems have been preciselytoo much credit, it is also in fact, the solution. Credit would not be non-existent, it would just be more expensive, as rates would reflect reality, not decades of Fed manipulation.

Skeptic-PK tried to accuse me of advocating a system where money from repaid loans is not lent out again. If you read my posts, you would know that this is totally false.

If you are not going to read my posts then at least read from your own Monetary Reform Act link:

To provide the funds for this reserve increase, the US Treasury Department would be authorized to issue new United States Notes (and/or US Note accounts) sufficient in quantity to pay off the entire national debt (and replace all Federal Reserve Notes).