How the banks create money

[Sceptic-PK]

2. Since the interest is contractually owed but is not ever created (or for that matter ever destroyed) FRB is very much like a Ponzi scheme. New loans have to get created just to cover previous ones in an ever spiralling amount of debt. Money comes from debt (read my signature).

Nonsense.

 

[tensordyne]

Horse meet water.

I’ll try and spell it out a little simpler for you since you obviously don’t get it.

Oh yes, please do, my feeble mind can only understand so many things at once, so be gentle.

As I pay back my loan the interest that I pay goes to the bank. The bank then pays a portion of my interest payments to the janitor. The janitor then pays me rent for the house he is renting from me, which I in turn pay back to the bank. The money required for interest doesn’t disappear into the ether never to be seen again. It circulates just like any other money, and doesn’t need to be “created”.

You make no distinction between interest and principal in the above, which shows you either do not know what they mean and how they are treated in FRB, or you are simply talking out of your ...

FYI Not all money in any economic system is created via loans or FRB. Any government can print new money if it sees fit and pay itself the interest.

Any government could, but most do not. The US for instance borrows it's money from the Fed at interest and then prints up the equivalent amount (and bonds too in the same amount). This then leads to the requirement of taxes to be collected to repay the loan (Read about the Grace Commission, do it even in wikipedia in case you are worried about crazy conspiracy theorists and it should still blow your socks off). The IRS interestingly was also created at the same time as the Fed was. I guess that was just an accident though.

I am unclear why misguided fools keep repeating complete falsehoods when accurate information is so easy to obtain and relatively simple to understand.

Please then, since you are privy to this knowledge, throw up a link or two. I did tell you who I think you should read, if for nothing else then for you to hear some alternative to what you might believe. I am always willing to test my beliefs. Show me the links or shut up about this supposed knowledge on the web that shows you are correct and I am wrong, because all I see is most everyone saying the same things I am about how banks work.

In case you think I am not willing to provide information, here is a link.

http://money.howstuffworks.com/personal-finance/banking/bank4.htm

I can give plenty more, but the ball is really in your court to show me an economist or banker that says what you have to say about how banks work. Here is a hint, you are not going to find them, because, shock and surprise, you do not know what you are talking about.

I don’t need to read more BS from other idiots on a subject I am very well aware of. If anybody is telling you that we have to continually create more money to pay the interest due to FRB, then they’re flat out wrong and a monkey economist. My own country paid off its entire national debt, mostly just by cutting spending and possibly a tax increase or two. According to you this is impossible without borrowing more money, lol!

Yes, the wilfully ignorant never need to read books that might contradict their own preconceived notions. Which country? I am in the US myself. My country also paid off its entire national debt once. It was Andrew Jackson who did it, and he certainly did not do it by getting a loan from another bank. All the same, if I know your country, I might be able to see what circumstances lead to this supposed complete repayment.

You are right though, according to me if you keep FRB around and just cut spending and increase taxes it will never pay off the total debt, or maybe you are referring to Government Debt, which is not the same as Total Debt, which mathematically can never be paid off.

Being an encyclopaedia of nonsense doesn’t mean you any more knowledgeable, it just makes you look immature.

If you say so, but an unwillingness to look at alternative points of view on a subject is the worse form of immaturity. I can at least forgive teenagers for being annoyingly immature because their hormones are pumping and they are going through a turbulent time in their lives, but as an adult, such as I presume you are, who argues in contradistinction to everything most other people who have looked into the subject of banking have to say about it, and calling their thoughts BS before even looking at them, well, that is pretty asinine and immature it seems to me. Unfortunately, it was not unexpected.

Whatever though, the information is out there. Your the horse and over their is some water. Go take a drink for goodness sakes.

 

[tensordyne]

nice simple statement.

Nonsense.

prove it.

 

[psionl0]

The US for instance borrows it's money from the Fed at interest and then prints up the equivalent amount (and bonds too in the same amount).

It is a popular misconception that the US govt funds its entire deficit by borrowing from the (privately owned) Fed. If they did this then there is no way that this country would have single digit inflation. The amount of money created by the Fed would eventually be multiplied by the banks by the inverse of the fractional reserve ratio resulting in a flood of worthless dollars.

It is because of fractional reserve banking that governments can't fund their own deficit - they have to borrow the money instead and saddle future taxpayers with a never-ending interest bill. Of course, the money that the government takes out of the money market needs to be replaced for normal investment to continue. So the Fed buys up about 10% (the fractional reserve ratio) of the bonds the government sells to the market.

BTW it was the Australian government lead by John Howard that paid off the government debt around the turn of the century (give or take a decade ). Although Australian government debt was much less of a problem than it is in the US, the Australian government had to sell off just about everything that makes money for the government (airports, telecommunications etc) to do it. The main stream media at the time described it most often as "selling off the family silver".

 

[Sceptic-PK]

You make no distinction between interest and principal in the above, which shows you either do not know what they mean and how they are treated in FRB, or you are simply talking out of your ...

I was talking about the INTEREST. The principal was not relevant to my example.

The US for instance borrows it's money from the Fed at interest and then prints up the equivalent amount (and bonds too in the same amount).

Any interest charged by the Fed in this process is returned to the Treasury (minus expenses).

Please then, since you are privy to this knowledge, throw up a link or two. I did tell you who I think you should read, if for nothing else then for you to hear some alternative to what you might believe. I am always willing to test my beliefs. Show me the links or shut up about this supposed knowledge on the web that shows you are correct and I am wrong, because all I see is most everyone saying the same things I am about how banks work.

The basics are available in Modern Money Mechanics:

http://www.archive.org/details/ModernMoneyMechanics

In case you think I am not willing to provide information, here is a link.

http://money.howstuffworks.com/personal-finance/banking/bank4.htm

Where in that groups of pages does it claim that the only way to pay back the interest charged is by borrowing more money?

I can give plenty more, but the ball is really in your court to show me an economist or banker that says what you have to say about how banks work. Here is a hint, you are not going to find them, because, shock and surprise, you do not know what you are talking about.

Dude, you're the one claiming that interest payments are somehow magically vaporised by the bank once it receives it, and cannot be considered as money within the economy.

Yes, the wilfully ignorant never need to read books that might contradict their own preconceived notions.

No, I simply don't waste time with stuff I know is nonsense. I am always happy to be challenged by new and compelling viewpoints, but this is neither new nor compelling. It's slightly better worded than the original nonsense expressed in the OP.

Which country? I am in the US myself. My country also paid off its entire national debt once. It was Andrew Jackson who did it, and he certainly did not do it by getting a loan from another bank. All the same, if I know your country, I might be able to see what circumstances lead to this supposed complete repayment.

Australia. The Howard Government paid off the national debt in around 2005. The primary solution was a drastic cut in government spending, particularly welfare programs. Lower spending = more money left to pay off debt = debt paid off.

You are right though, according to me if you keep FRB around and just cut spending and increase taxes it will never pay off the total debt, or maybe you are referring to Government Debt, which is not the same as Total Debt, which mathematically can never be paid off.

I am talking about national debt. The accumulation of money owed via continued deficit spending by the Federal Government.

If you say so, but an unwillingness to look at alternative points of view on a subject is the worse form of immaturity.

I don't need to read Irving to know his Holocaust denial is nonsense. I don't need to read Gage to know his 911 conspiracy stuff is nonsense. I don't need to read Wakefield to know his vaccine-autism stuff is nonsense.

The only way for your assertions to be true was if the interest charged by the banks disappears out of the economy whenever it is paid.

I can at least forgive teenagers for being annoyingly immature because their hormones are pumping and they are going through a turbulent time in their lives, but as an adult, such as I presume you are, who argues in contradistinction to everything most other people who have looked into the subject of banking have to say about it, and calling their thoughts BS before even looking at them, well, that is pretty asinine and immature it seems to me.

I've been dealing with banking conspiracy theorists for years. It's actually what drove me to join JREF in the end. You are under the incorrect assumption I haven't heard your brand of nonsense before. Which is strange considering we've already dealt with it multiple times in this thread alone.

prove it.

I already did by pointing out that the interest charged by banks is used to pay their employees, rent their premises, advertise, pay shareholders, lend to new borrowers etc etc etc. The interest paid by borrowers does not disappear from the economy, hence it is beyond silly to claim that there can never be enough money in circulation to pay the debt off.

 

[Sceptic-PK]

BTW it was the Australian government lead by John Howard that paid off the government debt around the turn of the century (give or take a decade ). Although Australian government debt was much less of a problem than it is in the US, the Australian government had to sell off just about everything that makes money for the government (airports, telecommunications etc) to do it. The main stream media at the time described it most often as "selling off the family silver".

Ahh yes, I did forget to include the sale of assets as part of the process, thanks. You though are forgetting to include the huge cuts in spending by Johnny the Scrooge

 

[psionl0]

Ahh yes, I did forget to include the sale of assets as part of the process, thanks. You though are forgetting to include the huge cuts in spending by Johnny the Scrooge

If you have the correct figures you can correct me but I'm not convinced that there were any real "huge cuts" made by the government. Politicians tend to believe that cutting spending means taking staff away from front line services and employing more bureaucrats behind the scenes.

Don't forget that Johnny Howard's biggest reform (the GST) was about collecting more tax - not spending less money. As a matter of fact, the Howard government was frequently referred in the media as the "highest taxing - highest spending" government in Australia's history (although I bet that Julia now holds that record by a country mile).

 

[Sceptic-PK]

If you have the correct figures you can correct me but I'm not convinced that there were any real "huge cuts" made by the government.

Unfortunately I don't have exact figures, I just remember the outcry from Australia's Left and charity organisations at the time. The wiki site makes mention of "large funding cuts" and Keating's $7.6B deficit "black hole" and the privatisation of Telstra, but doesn't get into specifics.

Don't forget that Johnny Howard's biggest reform (the GST) was about collecting more tax - not spending less money.

For sure, and I have made reference to tax (and our GST) previously in this thread. Of course, the specifics of the GST aren't too relevant to Webb's or tensordyne's assertion that interest can never be repaid without more debt being issued.

As a matter of fact, the Howard government was frequently referred in the media as the "highest taxing - highest spending" government in Australia's history (although I bet that Julia now holds that record by a country mile).

Well, Costello did deliver a bunch of successive income tax cuts, and the GST replaced a bunch of other taxes (especially if the states had followed through more completely on their side of the bargain) but I do agree that once the debt had been paid off the government did loosen the purse strings somewhat. However as far as I know they still delivered budget surpluses each year after 05 until they lost the election. I think spending within means is the most basic metric re fiscal responsibility.

 

[Skeptic]

It must really be an "open secret", considering the fact that every accounting major in the entire world knows about it.

It is an "open secret" in the same way the fact that we are not actually descendants of the gorilla (but rather its cousins), or that there are gaps in the fossil records, are "open secrets" about "Darwinism".

That is, it's something that anybody who actually knows anything about the field in question has long known, but amateurs with no knowledge of the field who see it for the first time think it "proves" everything about modern accounting (or biology) must be wrong.

 

[psionl0]

It must really be an "open secret", considering the fact that every accounting major in the entire world knows about it.

What do you mean by "It"?
fractional reserve banking?
the way the Fed works?
that the Australian government paid off its debt?
information technology?
a Stephen King novel?

 

[tensordyne]

next response. 1 per day.

I was talking about the INTEREST. The principal was not relevant to my example.

The relevance is that it is a response to a response started by me that brought up both interest AND principal, of which the principal part was never responded to or was responded to in a confusing way by possibly conflating interest with principal + interest, or something (Australians speak English so a language barrier should not be a problem, the terms are defined in any dictionary if you care to look).

Let me make a few things clear. Principal is the "main" part of the loan. Interest is the part that is charged as a percentage (albeit that there are more complicated forms of interest mainly used) on top of the principal. If I loan you $100 at 2% the $100 is the principal and 2% is the interest of $2.

Any interest charged by the Fed in this process is returned to the Treasury (minus expenses).

Not talking about that for now. Since you do not have a clear grasp of FRB (imho), talking about how FRB interacts with Central Banking would just confuse the issues. Plus, it might make your head explode, so I am looking out for you.

The basics are available in Modern Money Mechanics:

http://www.archive.org/details/ModernMoneyMechanics

Lovely, my signature is from that very same document. Have a look at it again about the money expansion process. Money expansion means money creation, what else could it mean? If I gain weight and expand, more of me is getting created. The reverse process should be obvious as well. Pretty basic really.

Where in that groups of pages does it claim that the only way to pay back the interest charged is by borrowing more money?

Nowhere. The problem is I NEVER said the interest gets extinguished. I have ALWAYS said the principal does.

Dude, you're the one claiming that interest payments are somehow magically vaporised by the bank once it receives it, and cannot be considered as money within the economy.

Wrong.

Again, I argue that the principal for the loan gets created and extinguished in FRB (assuming the loan is repaid) but the interest accrued on a loan is not created or destroyed in a loan operation, even though it is still contractually owed. I have been very consistent on this.

No, I simply don't waste time with stuff I know is nonsense. I am always happy to be challenged by new and compelling viewpoints, but this is neither new nor compelling. It's slightly better worded than the original nonsense expressed in the OP.

Well, this one I have a little sympathy for. Looking into a topic to figure things out is best approached as like a Calculus of Doubt. All the same, it is good practice as a sceptic to look into alternative claims and try and pick them apart by looking at original sources, primary arguments, etc...

On the other hand, you claim you know that what the authors I have listed have to say is BS without even trying to look into it? That is pretty arrogant. Dr. Michael Hudson is an Economist at an accredited University. Do you have a Doctorate in Economics? Have you, like Stephen Zarlenga, looked into the history of money for over 30 something years and have your own organisation dedicated to debating topics surrounding monetary issues and policy? Heck, have you ever worked in banking where you could see how the money flows first hand (if you have I might believe what you have to say)? Or is it just that you think you gosh darned it know because it is common sense that the way you think banking works is the same as the way it does in actuality? Sorry, if that is the case, then that is pretty lame reasoning.

My guess is the answer to all but the last question is no.

Australia. The Howard Government paid off the national debt in around 2005. The primary solution was a drastic cut in government spending, particularly welfare programs. Lower spending = more money left to pay off debt = debt paid off.

Wow, sounds like an ass to me. So he could have tried to make his country financially sovereign by changing the banking and economic rules, but instead he sold off public infrastructure paid for at public expense to pay off a fictitious debt incurred through the use of modern banking practices, all the while instituting austerity on the public. IMF rings a bell.

I am talking about national debt. The accumulation of money owed via continued deficit spending by the Federal Government.

OK then, not total public debt. Doesn't matter much. I would rather stick with just debating how FRB works before moving onto bigger topics. All the same, I find it funny that the current system keeps periodically breaking down and yet people keep defending it's viability. The current economic model is a lemon, turn it in for a better model already.

I don't need to read Irving to know his Holocaust denial is nonsense. I don't need to read Gage to know his 911 conspiracy stuff is nonsense. I don't need to read Wakefield to know his vaccine-autism stuff is nonsense.

Already covered this, read above.

The only way for your assertions to be true was if the interest charged by the banks disappears out of the economy whenever it is paid.

Covered this too. The principal gets created and extinguished. This shows you did not understand my original assertions because you are drawing conclusions from them about claims I NEVER made.

I've been dealing with banking conspiracy theorists for years. It's actually what drove me to join JREF in the end. You are under the incorrect assumption I haven't heard your brand of nonsense before. Which is strange considering we've already dealt with it multiple times in this thread alone.

I could care less if you have heard it or not before. Seems you have a hard time faithfully reproducing the scenario I am claiming probably exists, so who knows, maybe you haven't.

I already did by pointing out that the interest charged by banks is used to pay their employees, rent their premises, advertise, pay shareholders, lend to new borrowers etc etc etc. The interest paid by borrowers does not disappear from the economy, hence it is beyond silly to claim that there can never be enough money in circulation to pay the debt off.

Yep, again, the interest, as I have consistently argued for, does not get extinguished or created when a loan is made, the principal gets created and destroyed once the loan is made and subsequently repaid. Now that I have repeated how I think the way the system works at least three times I hope it might finally settle into your brain.

You may ask though (or not), why do I think this? Did I just make that up (as supposed conspiracy theorists do), or is it at least based on at least something. Well, here are a few of the reasons why I think banks work and why.

I think that ...

a. the principal gets created when the loan is made because of the quote in my signature and the many other references on the Internet about the very same thing.

b. interests on loans exist as a general feature of loans because of common sense and experience with loans.

c. the principal that gets created is subsequently destroyed (once the loan is repaid) because of double-entry book-keeping as explained for instance in Modern Money Mechanics.

d. the interest is contractually owed but never created to fulfil the contract because in double-entry book-keeping there is not another set of columns for interest payments. I also think this is true because the amount of money in the system keeps increasing year after year. I also think the interest does not get destroyed because of the one thing you have said in all these exchanges that I also think is true, and that is that FRB banks make their money on the interest charged for making loans (actually, the difference in interest to depositors called the spread).

e. one should put more stock in the words of the authors I quoted with various high-level degrees then some random person on the Internet like yourself.

Tell me your model and why you think it is correct Sceptic-PK. I warn you though, if you do not have any kind of evidence you will look like a fool. Who knows, if you have good enough evidence you might change my mind.

Oh yeah, one final note. Since you are in Australia you might want to look up Steve Keen (he being from Down Under). He is a heterodox economist and one of the 12 economists that predicted the Economic Housing Crisis. I have been meaning to read his book on why Neoclassical economics is a bunch of bunk for some time now.

Have a nice day.

 

[Sceptic-PK]

The relevance is that it is a response to a response started by me that brought up both interest AND principal, of which the principal part was never responded to or was responded to in a confusing way by possibly conflating interest with principal + interest, or something (Australians speak English so a language barrier should not be a problem, the terms are defined in any dictionary if you care to look).

Let me make a few things clear. Principal is the "main" part of the loan. Interest is the part that is charged as a percentage (albeit that there are more complicated forms of interest mainly used) on top of the principal. If I loan you $100 at 2% the $100 is the principal and 2% is the interest of $2.

Mate I have a number of substantial loans, I don't need an explanation of what the principal is.

Not talking about that for now. Since you do not have a clear grasp of FRB (imho), talking about how FRB interacts with Central Banking would just confuse the issues. Plus, it might make your head explode, so I am looking out for you.

You said the Fed charges the government interest. Whilst this of course is technically true, the fact that the Fed pays this money back makes your comment irrelevant.

Lovely, my signature is from that very same document. Have a look at it again about the money expansion process. Money expansion means money creation, what else could it mean? If I gain weight and expand, more of me is getting created. The reverse process should be obvious as well. Pretty basic really.

Yep, the monetary expansion process. And nowhere in that document is it claimed that debt can never be repaid.

Again, I argue that the principal for the loan gets created and extinguished in FRB (assuming the loan is repaid) but the interest accrued on a loan is not created or destroyed in a loan operation, even though it is still contractually owed. I have been very consistent on this.

Yes you have been consistent on this, but you're repeatedly ignoring the fact that the interest accrued does not need to be created in order for debts to be paid.

Well, this one I have a little sympathy for. Looking into a topic to figure things out is best approached as like a Calculus of Doubt. All the same, it is good practice as a sceptic to look into alternative claims and try and pick them apart by looking at original sources, primary arguments, etc...

Which I would have done, had your nonsense been new to me. Read the damn thread.

On the other hand, you claim you know that what the authors I have listed have to say is BS without even trying to look into it? That is pretty arrogant. Dr. Michael Hudson is an Economist at an accredited University. Do you have a Doctorate in Economics? Have you, like Stephen Zarlenga, looked into the history of money for over 30 something years and have your own organisation dedicated to debating topics surrounding monetary issues and policy? Heck, have you ever worked in banking where you could see how the money flows first hand (if you have I might believe what you have to say)? Or is it just that you think you gosh darned it know because it is common sense that the way you think banking works is the same as the way it does in actuality? Sorry, if that is the case, then that is pretty lame reasoning.

My guess is the answer to all but the last question is no.

I know that the claim that debts with interest can never be repaid without further loans being issued is incorrect, that's all this discussion is about.

Wow, sounds like an ass to me. So he could have tried to make his country financially sovereign by changing the banking and economic rules, but instead he sold off public infrastructure paid for at public expense to pay off a fictitious debt incurred through the use of modern banking practices, all the while instituting austerity on the public. IMF rings a bell.

You could say the same about every single leader in the last 100 years. Not sure I see the relevance. And your use of "fictitious" is laughable.

Covered this too. The principal gets created and extinguished. This shows you did not understand my original assertions because you are drawing conclusions from them about claims I NEVER made.

Again, it is you who doesn't understand the natural progression of your (incorrect) theory. Yes, the principal gets created and extinguished over time.

But what you're not grasping is that your idea requires that

a) 100% of the money supply is created by lending
b) Interest paid as part of these loans is prevented from circulating in the money supply.

Neither of which are true.

I could care less if you have heard it or not before. Seems you have a hard time faithfully reproducing the scenario I am claiming probably exists, so who knows, maybe you haven't.

It's "couldn't" care less. Not a big deal, but a pet peeve of mine. As for the rest, read the damn thread. We've dealt with this nonsense over dozens of pages already.

Yep, again, the interest, as I have consistently argued for, does not get extinguished or created when a loan is made, the principal gets created and destroyed once the loan is made and subsequently repaid. Now that I have repeated how I think the way the system works at least three times I hope it might finally settle into your brain.

As above. The principal is immaterial, we're not disagreeing on the creation or extinguishing of the principal. Your claim however relies on the interest.

You may ask though (or not), why do I think this? Did I just make that up (as supposed conspiracy theorists do), or is it at least based on at least something. Well, here are a few of the reasons why I think banks work and why.

I think that ...

a. the principal gets created when the loan is made because of the quote in my signature and the many other references on the Internet about the very same thing.

b. interests on loans exist as a general feature of loans because of common sense and experience with loans.

c. the principal that gets created is subsequently destroyed (once the loan is repaid) because of double-entry book-keeping as explained for instance in Modern Money Mechanics.

d. the interest is contractually owed but never created to fulfil the contract because in double-entry book-keeping there is not another set of columns for interest payments. I also think this is true because the amount of money in the system keeps increasing year after year. I also think the interest does not get destroyed because of the one thing you have said in all these exchanges that I also think is true, and that is that FRB banks make their money on the interest charged for making loans (actually, the difference in interest to depositors called the spread).

Funnily enough I agree with all of this.

Tell me your model and why you think it is correct Sceptic-PK. I warn you though, if you do not have any kind of evidence you will look like a fool. Who knows, if you have good enough evidence you might change my mind.

I agree with everything you've written, except your erroneous conclusion that loans cannot be repaid without more loans being issued, as I noted with my points a) and b) above.

Oh yeah, one final note. Since you are in Australia you might want to look up Steve Keen (he being from Down Under). He is a heterodox economist and one of the 12 economists that predicted the Economic Housing Crisis. I have been meaning to read his book on why Neoclassical economics is a bunch of bunk for some time now.

Have a nice day.

What's interesting about these claims ("I predicted the financial crisis!") is that nobody actually did. There were a number of key causes of the GFC that all came together in a "perfect storm" and yes, several people did recognise 1 or 2 of those causes prior to the collapse. But nobody ever identified or predicted them all.

 

[tensordyne]

good, glad at least one other person knows banks make money.

Mate I have a number of substantial loans, I don't need an explanation of what the principal is.

Should be: "Mate, ...", don't really care and is not a pet peeve of mine, but if you want to get me on some silly punctuation, I thought I might as well do the same (I love it, I think I am getting a bit under your skin because I think Aussies have a way of saying mate when they are either pissed off or really happy, but that is just a guess. Actually, thank you for noting that, I try to do the best I can with spelling and punctuation as I am not an English major for sure). Fantastic that you know the difference between principal and interest, because honestly, the way you were writing before, it was very much sounding like you didn't.

You said the Fed charges the government interest. Whilst this of course is technically true, the fact that the Fed pays this money back makes your comment irrelevant.

Don't want to get into that for now. I would still rather concentrate on FRB. I do know that there are a ton of other economic systems out there where you would not even have to collect taxes at all and everything would still work just fine, most likely be even better (and I am not referring to Anarchy here). I think though, that is a topic for another time.

Yep, the monetary expansion process. And nowhere in that document is it claimed that debt can never be repaid.

And why would they? It would mean realising the current system is a Ponzi scheme, and who has the time for that? Christmas bonuses are what matters!

Yes you have been consistent on this, but you're repeatedly ignoring the fact that the interest accrued does not need to be created in order for debts to be paid.

The fact? That is what is boiling up to be the main topic for this whole sub-thread, and yet you say fact as if that makes it instantly true. Alright, if it is a fact, can you give supporting evidence? We both agree about the principal getting created and destroyed. So are you claiming the accrued interest gets created and destroyed, merely created, that it does not matter if it gets created (or destroyed or whatever the case may be) and yet somehow things magically even out? Specifics might help.

What scenario do you suggest explains how the interest on loans comes from? So far you just seem to be saying it comes from some pool or something. What is this pool? How does it work, and is it only in your own head??

Thank you by the way for recognising the consistency of my position so far.

If you are referring to individuals being able to pay off loans, yep, most can continue the system going forward, but there will be a percentage (roughly equal to whatever the going interest rate is) that will go bankrupt. It does not matter though.

The main point I advocate is that it is an impossible contract for society as a whole, leading to new loans just to cover the interest on previous ones, leading to ... ad infinitum, or until like every other Ponzi scheme, it crashes. We are all going through such a crash right now by the way. Peak Credit is how Max Keiser describes it.

Which I would have done, had your nonsense been new to me. Read the damn thread.

OK, unlike you (from what I can tell), when someone gives me an information source to cover, I try to do my homework. Does that mean you will in turn read any of the authors I have provided, or at least even have a cursory look at what they have to say. I doubt it. Your steadfast resolve in the face of opposing evidence is all that matters!

I know that the claim that debts with interest can never be repaid without further loans being issued is incorrect, that's all this discussion is about.

Well, you said look over the thread, maybe especially with your entries to be read the most for this claimed for proof, so I will. Since I have not read all such posts I can not say for certain if you, or some other individuals, provided the needed evidence to show that such a claim is false. I can say with some certainty that so far you have not given anything but special claims to knowledge. Pretty sure that is some kind of logical fallacy of some kind.

You could say the same about every single leader in the last 100 years. Not sure I see the relevance. And your use of "fictitious" is laughable.

No relevance, just a side-swipe and a bit of commentary and opinion. Pay it no heed if you want to continue discussing FRB and the main issues we have been discussing so far, which I hope you do.

Again, it is you who doesn't understand the natural progression of your (incorrect) theory. Yes, the principal gets created and extinguished over time.

But what you're not grasping is that your idea requires that

a) 100% of the money supply is created by lending
b) Interest paid as part of these loans is prevented from circulating in the money supply.

Neither of which are true.

a.
You are correct, 100% of the money supply is not created through loans either to governments or non-government entities. It is something like 99.9% or something. There is a small fraction of coinage that does not get created through loans from what I understand. Does that change anything about loans in FRB in the current system being an impossible contract for society as a whole to fulfil. No, not really.

b. That is not the point, or better yet, I made no such claim because it does not even make sense. Money can circulate perfectly and yet it will not change a thing. And how can interest contractually owed circulate? You can circulate the contract (and this is done quite a bit), but it is a logically bizarre to think like the above is all I can say.

I loan you 10 dingbats and charge you 10%. If I am the only one who is allowed to create and destroy dingbats, where are you going to get the 1 dingbat to cover the loan? In this scenario I am the banks as a whole in some country, dingbats are whatever form of money that is used in that country and you are the whole of the lenders. You probably will still not get this, but I try.

The point is that the loan principal is created and destroyed (something we both seem to agree on), but the interest for the loan is not created when the loan is made. The simple mathematics of the situation is that if only one kind of entity can create the loan but never creates the loan interest, and yet still wants it back, well, that is unbalanced pure and simple. A formula might help.

a != a * (1 + x) if x > 0. The != means "not equal" in case you didn't already know.

Unless Australia works differently then the US as far as central banking and FRB is concerned and that is what you are referring to (which I doubt very seriously), how is it possible for everyone to pay off all loans given whatever money is out there already and if no new loans are made? If you can show me that, I will happily concede I was wrong. As it is, the mathematics simply does not add up.

Oh, and I did kindly ask for your explanation on what happens when a loan is made. Let's call it your model. I guess you consider it to be self-evident or something but I would really appreciate it if you did write down something. At the very least so I can know how you think on the matter.

It's "couldn't" care less. Not a big deal, but a pet peeve of mine. As for the rest, read the damn thread. We've dealt with this nonsense over dozens of pages already.

OK, for now.

As above. The principal is immaterial, we're not disagreeing on the creation or extinguishing of the principal. Your claim however relies on the interest.

OK, the principal is immaterial (not so for a lot of people on this forum, lomiller and quite a few others have argued vociferously against this very point). So yeah, it seems the main point of contention is about how the interest charging effects things in FRB. I think we can agree about that too. So, after I peruse the thread for a while, let's start up again about just that point, that is, if you still want to.

Funnily enough I agree with all of this.

Then you should also agree that the interest leads to an ever spiralling amount of new loans. Maybe it was because I did not add in that pretty much all money comes from loans? Or, what is your answer to why there is an ever increasing amount of money out there? According to you it should all be able to be paid off, so isn't most of it being paid off?

Knowing that you seem to be conservatively aligned, I bet you base it on all those lazy welfare people or something. The system itself could never be rigged or badly designed, shudder the thought! No right-minded conservative would ever even consider such a possibility after all. It is anathema.

I agree with everything you've written, except your erroneous conclusion that loans cannot be repaid without more loans being issued, as I noted with my points a) and b) above.

a) Is correct but essentially pointless because pretty much all money comes from loans

and b) is demonstrably, I don't know, confused or something.

What's interesting about these claims ("I predicted the financial crisis!") is that nobody actually did. There were a number of key causes of the GFC that all came together in a "perfect storm" and yes, several people did recognise 1 or 2 of those causes prior to the collapse. But nobody ever identified or predicted them all.

Hmmm, GFC I will have to look up to be honest (which I strive to be...). Here is another bit of commentary you can ignore if you choose. Your perfect storms seem to happen about once every 18 years or so. I guess those who do not learn from history are doomed to repeat it. This time the crooks in high places have definitely made things worse then is average for these kinds of events.

 

[tensordyne]

Oh yeah, screw your Queen, the whole Monarchy, the recent wedding and all of that. Just wanted to put that in there. It is nice being a citizen of a country that does not believe in magical people.

I must say though that Australia probably is much much better then the US right now about keeping civil liberties for which I am envious. Screw the Bank of England too and its take over of the world through the US. Screw the US media for covering the wedding in such fawning terms.

Just had to get that off my chest.

 

[psionl0]

I loan you 10 dingbats and charge you 10%. If I am the only one who is allowed to create and destroy dingbats, where are you going to get the 1 dingbat to cover the loan?

Presumably you would have spent the dingbat back into the economy already. Of course, if you are greedy, you could create and lend out the dingbat as well.

 

[tensordyne]

If you look carefully, Sceptic-PK IS the economy in the example (well, the non-banking part that has to pay back to the banking part which is Me).

 

[psionl0]

If you look carefully, Sceptic-PK IS the economy in the example (well, the non-banking part that has to pay back to the banking part which is Me).

In that case, Skeptic-PK would have to work 10% harder so that he could sell you one dingbat's worth of stuff each year to meet his interest bill. If he could work 20% harder, he could pay you 2 dingbats each year and pay off his loan within 8 years. Then he would own those 10 dingbats outright.

If you would rather destroy Skeptic-PK instead of milk him you could refuse to buy anything from him. Either he would get severely depressed as the dingbats get transferred back from him to you or (if you are prepared to lend him the dingbats he needs to pay the interest) his debt to you would rise exponentially until it was so great that you could foreclose on him.

 

[tensordyne]

Sweet, you get it psionl0.

 

[psionl0]

Sweet, you get it psionl0.

True but all this example proves is that if you can afford your interest bill then interest is just a part of the cost of doing business. It's when you can't pay your interest that things become messy.

Of course, in this example it is assumed that Skeptic-PK is dumb enough to borrow "dingbats". I'm sure he would much rather borrow SDRs or $US or some other currency that could easily be used overseas. Then, if you refused to play ball, he could simply export something to meet his interest payment.

 

[webb5]

Oh yeah, screw your Queen, the whole Monarchy, the recent wedding and all of that. Just wanted to put that in there. It is nice being a citizen of a country that does not believe in magical people.

I must say though that Australia probably is much much better then the US right now about keeping civil liberties for which I am envious. Screw the Bank of England too and its take over of the world through the US. Screw the US media for covering the wedding in such fawning terms.

Just had to get that off my chest.

That wasn’t a very nice thing to say about the Monarchy! I know how you feel though Hollywood is full of them. But the Monarchy is a bit more than a bunch of Royals doing their thing. It is an institution that has protected the rights of so many people throughout the world. Freedom, Liberty and Justice which we now take for granted, was fought for with blood, sweat and tears and we must never forget this. It can be lost so easily. The link below is something I have written many years ago which concerns this.

http://bleedingindebt.com/images/files/FREEDOMS At Stake 2(1).pdf

I would like to thank your input in this forum as well as others like psion 10. Your comments have contributed well in educating the people in this forum. Maybe we should start another thread on monetary reform?