Air-money

[SnickerSnack]

Air-money

This is an off-shoot from this thread: http://diablo.incgamers.com/forums/showthread.php?t=707343&page=18

The contents of this first post are in response to post number 178 of the thread linked above.

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How about instead of dismissing me as ignorant, try answering my questions.

The seller then deposits this newly created $10,000 at his bank. Unlike the high-powered government money deposited at the central bank, this newly created credit money cannot be multiplied by the reserve ratio. Instead it is divided by the reserve ratio. At a ratio of 9:1, a new loan of $9,000 can be created on the basis of the $10,000 deposit.

I do not see how 10000 divided by 9 equals 9000. Please explain.

And, actually, I do know the solution to f'=af very well. Far better than most people in fact.

The idea that "the borrower is slave to the lender" is a very old idea (sez teh bible). Going into debt when you have no way to repay is "bad," but that isn't the same as a short term loan that you know can be repaid or borrowing to help complete an investment. No one denies (as you say) that borrowing when you can't repay sets you up to make small payments for the rest of your life (barring bankruptcy).

This air-money makes the economy fluid and is just fine as long as people don't lend out air-money that will never be repaid. The big problem is that some people are stupid (or short-sighted) enough to borrow money to buy things that they don't need and that don't help them make more money, and there are other people with air-money who are stupid (or short-sighted) enough to lend it to them. It is you who deny this much more obvious explanation that doesn't require secret societies and super secret handshakes.

You say that this whole system of "air-money" has enslaved us all. In what way exactly? And who are the slave owners? So the "big" secrets are widely known, but perhaps you could summarize? What are the small secrets? Or is it just that there must be something that explains all the rest of it?

 

[Dirty_Zulu]

Re: Air-money

I am contemplating buying a big screen TV for the superbowl weekend. There's a 0% interest rate for 36 months deal.

I am going to use my air money but it's not going toward making more money. Just more enjoyment. According to you it's a bad thing?

 

[SnickerSnack]

Re: Air-money

I am contemplating buying a big screen TV for the superbowl weekend. There's a 0% interest rate for 36 months deal.

I am going to use my air money but it's not going toward making more money. Just more enjoyment. According to you it's a bad thing?

You're going to repay that, right? Please read my post again; you've clearly responded to a single sentence, not the whole post.

Please read the last few posts in the thread I linked to before responding to the first post in this thread.

 

[Module88]

Re: Air-money

I do not see how 10000 divided by 9 equals 9000. Please explain.

English is not V's language, IIRC. That part of his explanation is quite bad. First of all, it helps to know how the process works, and I think he did a decent job of that, so I'll skip that.

Personally, I think the 9:1 thing is a confusing way of saying that the reserve ratio is 10%, or, that a bank has to keep 10% of the debt based money in reserve, while it can loan out the rest of the "money." So, from the top:

My new bank deposits $1000 to the central bank, and with a money multiplier of 10 (which is equivalent to a reserve requirement of 10%, as the money multiplier is simply the inverse of the reserve requirement), the banking system can create $9,000 worth of loans, for a total of $10,000 worth of deposits.

With my $1,000, and a reserve ratio of 10%, I can only loan out $900. Let's say someone borrows this amount and spends the money. This money is deposited in his bank (which could be the same bank, but for simplicity's sake, let's assume it's a different bank), which now has $900 of commercial bank money. This commercial bank money, however, unlike central bank money, can't be multiplied by the money multiplier to create a new "set" of commercial bank money. Instead, only $810 can be lent out because of the reserve requirement of 10%. So, this bank loans out the $810 to someone else, who deposits it in his bank, which can then lend out $729), and so on. As you go on, you'll begin to notice that the aggregate of the reserves plus the last deposit (or loan) will equal the initial $1000.

You should also notice that the aggregate of the loans will equal $9,000 as your approach the asymptote. Even though no new money was physically created, $9,000 worth of loans was created with only $1000 of physical currency. Now, I don't want to get into a long discussion about money supply (or the consequences in changes thereof), exchange rates, the business cycle, or economic stability, but you can intuitively see that there's a problem here. If there are only $1000 of physical currency running around, but there's $9,000 of debt (and we'll stay out of interest rate discussions here), someone is going to have to be in debt. The only way for him to get out of debt is if more money is created, which is going to put someone else in debt. The expansion of debt is a consequence of fractional reserve banking, but like many things, that can't last forever.

The idea that "the borrower is slave to the lender" is a very old idea (sez teh bible). Going into debt when you have no way to repay is "bad," but that isn't the same as a short term loan that you know can be repaid or borrowing to help complete an investment. No one denies (as you say) that borrowing when you can't repay sets you up to make small payments for the rest of your life (barring bankruptcy).

Someone's going to be unable to repay by the very nature of the system.

This air-money makes the economy fluid and is just fine as long as people don't lend out air-money that will never be repaid.

"Air-money" by it's very nature can't be repaid. It was created out of nothing.

The big problem is that some people are stupid (or short-sighted) enough to borrow money to buy things that they don't need and that don't help them make more money, and there are other people with air-money who are stupid (or short-sighted) enough to lend it to them. It is you who deny this much more obvious explanation that doesn't require secret societies and super secret handshakes.

Bankers might make mistakes, but they aren't entirely stupid. After all, look at what's happened. The banks that were "too big to fail" just got billions of dollars out of our pocket, and only God knows where that's going to (probably sitting there, is my guess). They've gotten cheap loans from the Fed, emergency funding, among another things, and managed to buy out all the smaller banks to consolidate into even bigger banks with all that extra money. If you thought these banks were too big to fail before, what do you think of them now?

You say that this whole system of "air-money" has enslaved us all. In what way exactly? And who are the slave owners? So the "big" secrets are widely known, but perhaps you could summarize? What are the small secrets? Or is it just that there must be something that explains all the rest of it?

Well, I think it's stretching it to say that the entire system has enslaved us all, even though it definitely affects all of us. Not everyone is in debt, and not everyone who is in debt is in debt that they cannot repay. But a natural consequence of the system is that someone is in debt they can't repay. In addition, bankers have a stranglehold over the rest of us. You know what happens when banks get into trouble and screw the economy because the entire financial and monetary system is inherently unsound? They go to Washington, plead their case and scare people about how important they are to the economy, they get their free money, their CEO's get rich, and everyone else suffers. Not to mention the expanding government spending that could only happen under this kind of system and the messes that has gotten us into.

Those banks that were too big to fail got a nice bonus on our dime. The people that were to small to save? Well, better luck next time. Good times.

 

[SnickerSnack]

Re: Air-money

Okay, I understand now. But, it seems like you're pointing at a big number (Total Commercial Bank Money Created) and you say that it's bad without saying why. If I have $10,000, and I loan you $8,000, and you loan your friend $6,000, then there's $14,000 in debt! How will we ever pay it all back?!? Well, your friend pays you back and you pay me back. Central Bank Money can be used to repay Commercial Bank Money more than once, so the fact that 14000>10000 is irrelevant.

A problem can occur if your friend squanders the money and can't pay you back, so you can't pay me back. As long as you get paid back and I get paid back, there isn't a problem.

I inserted some questions into your post:

English is not V's language, IIRC. That part of his explanation is quite bad. First of all, it helps to know how the process works, and I think he did a decent job of that, so I'll skip that.

Personally, I think the 9:1 thing is a confusing way of saying that the reserve ratio is 10%, or, that a bank has to keep 10% of the debt based money in reserve, while it can loan out the rest of the "money." So, from the top:

My new bank deposits $1000 to the central bank, and with a money multiplier of 10 (which is equivalent to a reserve requirement of 10%, as the money multiplier is simply the inverse of the reserve requirement), the banking system can create $9,000 worth of loans, for a total of $10,000 worth of deposits.

With my $1,000, and a reserve ratio of 10%, I can only loan out $900. Let's say someone borrows this amount and spends the money. This money is deposited in his bank (which could be the same bank, but for simplicity's sake, let's assume it's a different bank), which now has $900 of commercial bank money. This commercial bank money, however, unlike central bank money, can't be multiplied by the money multiplier to create a new "set" of commercial bank money. Instead, only $810 can be lent out because of the reserve requirement of 10%. So, this bank loans out the $810 to someone else, who deposits it in his bank, which can then lend out $729), and so on. As you go on, you'll begin to notice that the aggregate of the reserves plus the last deposit (or loan) will equal the initial $1000.

You should also notice that the aggregate of the loans will equal $9,000 as your approach the asymptote. Even though no new money was physically created, $9,000 worth of loans was created with only $1000 of physical currency. Now, I don't want to get into a long discussion about money supply (or the consequences in changes thereof), exchange rates, the business cycle, or economic stability, but you can intuitively see that there's a problem here. If there are only $1000 of physical currency running around, but there's $9,000 of debt (and we'll stay out of interest rate discussions here), someone is going to have to be in debt. The only way for him to get out of debt is if more money is created, which is going to put someone else in debt.

The people who are in debt are those that choose to borrow money. Why can't he earn money to repay the debt?

The expansion of debt is a consequence of fractional reserve banking, but like many things, that can't last forever.



Someone's going to be unable to repay by the very nature of the system.

That has not been established. Please explain it why that is so.

"Air-money" by it's very nature can't be repaid. It was created out of nothing.

Sure it can. Commercial Bank Money is destroyed when it is repaid with Central Bank Money.

Bankers might make mistakes, but they aren't entirely stupid. After all, look at what's happened. The banks that were "too big to fail" just got billions of dollars out of our pocket, and only God knows where that's going to (probably sitting there, is my guess). They've gotten cheap loans from the Fed, emergency funding, among another things, and managed to buy out all the smaller banks to consolidate into even bigger banks with all that extra money. If you thought these banks were too big to fail before, what do you think of them now?

What are you talking about? I never espoused any opinion on the bailout. I'm not interested in a discussion about that. I don't think that government bailouts are an inherent part of the fractional reserve system.

Well, I think it's stretching it to say that the entire system has enslaved us all, even though it definitely affects all of us. Not everyone is in debt, and not everyone who is in debt is in debt that they cannot repay. But a natural consequence of the system is that someone is in debt they can't repay. In addition, bankers have a stranglehold over the rest of us. You know what happens when banks get into trouble and screw the economy because the entire financial and monetary system is inherently unsound? They go to Washington, plead their case and scare people about how important they are to the economy, they get their free money, their CEO's get rich, and everyone else suffers. Not to mention the expanding government spending that could only happen under this kind of system and the messes that has gotten us into.

Those banks that were too big to fail got a nice bonus on our dime. The people that were to small to save? Well, better luck next time. Good times.

Also, may I remind you that the alternative to a fractional reserve banking system is that you must pay the bank to hold your money. Reserve banking allows them to make money by reinvesting some of their deposits.

 

[Module88]

Re: Air-money

Okay, I understand now. But, it seems like you're pointing at a big number (Total Commercial Bank Money Created) and you say that it's bad without saying why. If I have $10,000, and I loan you $8,000, and you loan your friend $6,000, then there's $14,000 in debt! How will we ever pay it all back?!? Well, your friend pays you back and you pay me back. Central Bank Money can be used to repay Commercial Bank Money more than once, so the fact that 14000>10000 is irrelevant.

It’s irrelevant if there’s no interest rate on the loan. Of course, once we factor interest into the mix, well, how do we pay that back? More on consequences, semi-briefly, below.

A problem can occur if your friend squanders the money and can't pay you back, so you can't pay me back. As long as you get paid back and I get paid back, there isn't a problem.

Or there’s interest on the loans. Because you see, while central bank money can be used to repay commercial bank money several times, it will not pay for the interest on these loans. Where does that money come from?

The people who are in debt are those that choose to borrow money. Why can't he earn money to repay the debt?

That has not been established. Please explain it why that is so.

Some people can earn money through work and eventually pay off their loans (where does the money come from, by the way?). But someone is always going to be in debt because while there is only X amount of physical currency that can be used to pay debt back, there is X + Y amount of debt because of interest on loans.

Sure it can. Commercial Bank Money is destroyed when it is repaid with Central Bank Money.

Think I’ve mentioned interest enough times. You can go up and down the scale between central and commercial bank money, but you can never account for interest without expanding the money supply, which has consequences as well.

What are you talking about? I never espoused any opinion on the bailout. I'm not interested in a discussion about that. I don't think that government bailouts are an inherent part of the fractional reserve system.

I'm talking about the consequences of an unstable and unsound monetary and financial system and its relationship with our political system. How can you responsibly argue for or against a policy without its consequences?

The financial, political, and monetary systems are intricately twined together. Fractional reserve banking is inherently unstable, which is why central banks were developed in the first place (in part, anyway). These central banks control monetary policy, which in turn, affects fiscal policy (among other things), which affects pretty much everything else. Loose monetary policy has enabled politicians to spend money they don’t have by deficit spending and debt based financing. And usually, they spend it unwisely anyway. But as the money supply grows to make up for this deficit spending, the value of the currency will fall with time, and wealth will shift to those who get to use the money first. Of course, since the world has established Bretton Woods II and operates on a fiat currency system, these fiat currencies can be kept stable relative to one another. Compare them with a commodity like gold, however, which the market has chosen over the millennia as a currency and measure of wealth, and you’ll see that all of these fiat currencies have fallen over time with respect to gold, even though they are relatively stable with respect to each other because of actions taken by central banks around the world.

You might think that government bailouts and problems aren’t an inherent part of fractional reserve banking, but what did you expect? Actions have consequences. Policies have consequences. You may not be interested in it, you may not want it to happen, but it does. Having a fractional reserve banking system has far reaching consequences, and if you aren't interested in these consequences, why are you interested at all? What happens when people are in trouble because the financial and monetary system is inherently unsound and unstable, and you have things like bank runs and the evaporation of credit in an “economy” that depends on credit for survival? What happens when government can expand money indefinitely to finance things it probably shouldn't even be financing in the first place? Government graciously volunteers to step in to “fix” the problem. And when governments step in, things almost always go south for the people, even if it might not be immediately apparent. Not too surprisingly, those in government, or in positions of power, usually benefit from these conditions.

There are long-term consequences to policies both foreign and domestic, and no one is smart enough to be making those kinds of decisions for all of us. But politicians, enabled in a variety of ways, do. But what else did you expect from a system created by bankers, for bankers? The bankers help the politicians out, the politicians help the bankers out, and everyone is happy except the people. I’d expect nothing less.

There are a whole lot of other problems fractional reserve banking significantly contributes to, ranging from malinvestment because of excess credit to the loss of civil liberties as problems emerge from the unstable system and politicians rush to fix it (not to mention the financial costs to the people), but I’m not going to get into all of them. That would take ages because everything that has to do with money is affected by monetary policy, and, well, that’s quite a few things. But you can't responsibly discuss the cons of this system (as you asked in the beginning of your post) without, well, discussing the cons. You asked me to talk about why this system is bad, and I talk about it, and now you're not interested. Which is it?

Also, may I remind you that the alternative to a fractional reserve banking system is that you must pay the bank to hold your money. Reserve banking allows them to make money by reinvesting some of their deposits.

Fractional reserve banking was created by bankers and for bankers. Full reserve banking existed before that, and it worked just fine. Fees for storage, transactions, and the use of banking services was more than enough to offset costs, and banks could still make a profit- just not as much as they can make now with the mutual support of government and central bankers.

 

[BobCox2]

Re: Air-money

Dude - everyone else quit arguing a long time ago, did no one admit your were right?
Sorry - you totally were.
Cool?

 

[SnickerSnack]

Re: Air-money

Answer me this: who is in debt? Is it some innocent bystander?

I'll admit that a fractional reserve system makes it possible for there to be a run on the bank. But, as I said, I am not interested in that. I am interested in the original claim that we are "enslaved." How is it that anyone is forced go into debt and stay in debt?

Please explain this:

Someone's going to be unable to repay by the very nature of the system.

But someone is always going to be in debt because while there is only X amount of physical currency that can be used to pay debt back, there is X + Y amount of debt because of interest on loans.

How is it that someone, who took on debt responsibly, cannot repay "by the very nature of the system?"

You asked me to talk about why this system is bad, and I talk about it, and now you're not interested. Which is it?

Please quote the part where I asked for that. I don't remember, nor can I locate, it.

Also, if new money can't be created, then where did we get the money we have now?

 

[Module88]

Re: Air-money

Answer me this: who is in debt? Is it some innocent bystander?

Who is in debt. A lot of people are in debt…? Sure, they might have chosen, with or without ignorance, to go into debt, but the very financial, political, and monetary system encourages, promotes, and defends it. Somebody spikes the punch bowl and everyone goes nuts, I blame the guy who spiked the punch bowl.

I am not interested in that. I am interested in the original claim that we are "enslaved." How is it that anyone is forced go into debt and stay in debt?

I don’t claim to know how V sees things, but to me, that’s not that big of a deal compared with the policies of politicians enabled by loose monetary policy. So, if you want V’s take on enslavement, you should ask, well, him.

How is it that someone, who took on debt responsibly, cannot repay "by the very nature of the system?"

I never made such a claim, so there’s no point to answering the question. The fact is, the debt, which is only growing, is perpetual as an aggregate. Perhaps I shouldn’t have used “someone,” as technically, any single person in debt could get themselves out of debt. But there is a limit, a point where the debt is unsustainable. As a country, my feeling is the United States has already passed that point, and it’s only going to get worse.

Please quote the part where I asked for that. I don't remember, nor can I locate, it.

“But, it seems like you're pointing at a big number (Total Commercial Bank Money Created) and you say that it's bad without saying why.”

Why is it bad? Well, what kind of consequences does this kind of system have?

Also, if new money can't be created, then where did we get the money we have now?

Who said new money can’t be created? I’m arguing that the fact that new money can be created out of thin air (or printing presses, as it were) is the problem here. You were doing well, but things are starting to go south awfully fast, as you're now construing my position to be the exact opposite of what it actually is (or at least, asking questions that portray your position as such). Ugh.

 

[The Sandcat]

Re: Air-money

Scary stuff. But what is even scarier is the stockmarket, where Billions can disappear into the void in a single day,just because of some rumour or panic ,whatever.

 

[SnickerSnack]

Re: Air-money

Responses in bold:

Who is in debt. A lot of people are in debt…? Sure, they might have chosen, with or without ignorance, to go into debt, but the very financial, political, and monetary system encourages, promotes, and defends it. Somebody spikes the punch bowl and everyone goes nuts, I blame the guy who spiked the punch bowl.

Of course the people who stand to profit from people being in debt tell you that it's good. That is a symptom of lending, not fractional reserve banking. I think that everyone knows that it is a bad idea to take on debt that you cannot repay. I blame the debtors and the creditors. I blame the politicians too, but only because they get blamed for everything.

I don’t claim to know how V sees things, but to me, that’s not that big of a deal compared with the policies of politicians enabled by loose monetary policy. So, if you want V’s take on enslavement, you should ask, well, him.

I did ask him, and you responded to my question on that. If you're not interested in that point, that's okay.

I never made such a claim, so there’s no point to answering the question. The fact is, the debt, which is only growing, is perpetual as an aggregate. Perhaps I shouldn’t have used “someone,†as technically, any single person in debt could get themselves out of debt. But there is a limit, a point where the debt is unsustainable. As a country, my feeling is the United States has already passed that point, and it’s only going to get worse.

Okay, what is being said here :

Someone's going to be unable to repay by the very nature of the system.

Are you now saying that you didn't mean this sentence [the way I have taken it] at all? "Unable to repay" implies that someone stays in debt. Is there any other way to interpret that? I guess you're referring to those people who took on debt they couldn't manage? And this "unrepayable" debt has to be absorbed by the rest of us? I would agree that that happens, but this is a problem with lending in general, not fractional reserve banking.

You said that in response to this:

The idea that "the borrower is slave to the lender" is a very old idea (sez teh bible). Going into debt when you have no way to repay is "bad," but that isn't the same as a short term loan that you know can be repaid or borrowing to help complete an investment. No one denies (as you [vdzele] say) that borrowing when you can't repay sets you up to make small payments for the rest of your life (barring bankruptcy).

“But, it seems like you're pointing at a big number (Total Commercial Bank Money Created) and you say that it's bad without saying why.â€

Why is it bad? Well, what kind of consequences does this kind of system have?

I had a feeling that you would point to that. I am not asking for the harms of the system in general, I am asking what is so ominous about the "big number." You treat this number as something to be feared without saying why.

Who said new money can’t be created? I’m arguing that the fact that new money can be created out of thin air (or printing presses, as it were) is the problem here. You were doing well, but things are starting to go south awfully fast, as you're now construing my position to be the exact opposite of what it actually is (or at least, asking questions that portray your position as such). Ugh.

Phrasing things poorly is what I'm doing. I mean real new money. New wealth. New wealth that can be used to repay (or delete) interest from debt.

It's now obvious that fractional reserve banking introduces the possibility for instability, but I am not convinced that there are any other problems with it.

 

[Module88]

Re: Air-money

Of course the people who stand to profit from people being in debt tell you that it's good. That is a symptom of lending, not fractional reserve banking. I think that everyone knows that it is a bad idea to take on debt that you cannot repay. I blame the debtors and the creditors. I blame the politicians too, but only because they get blamed for everything.

Politicians deserve a lot of blame, and not for no reason. When the political system attempts to stabilize an inherently unstable, but profitable (for a small group of people) system, what can you do about it? They don't know what's going on at the Fed. The Fed doesn't know what's going on. And yet, these small group of men control the value and supply of the dollar, among a host of other things. Ever see Ben talk and how Wall Street reacts afterwards?

I did ask him, and you responded to my question on that. If you're not interested in that point, that's okay.

I'm just guessing, and usually I'm right about this kind of guessing, but the details are up to him.

Are you now saying that you didn't mean this sentence [the way I have taken it] at all? "Unable to repay" implies that someone stays in debt. Is there any other way to interpret that? I guess you're referring to those people who took on debt they couldn't manage? And this "unrepayable" debt has to be absorbed by the rest of us? I would agree that that happens, but this is a problem with lending in general, not fractional reserve banking.

You said that in response to this:

You sort of have it. I did not mean that any individual person cannot repay their debt. However, I also mean to say that someone stays in debt. And as an aggregate, this will also be the case. And that "unrepayable" (interesting things about that, by the way) debt IS going to be absorbed the rest of us. Who's going to pay for all of this government spending over the last several decades? It's going to be us, and our kids, and their kids, except we're going to get the short end of the stick when other countries realize that there's no way we can meet out obligations without resorting to the destruction of the dollar.

I had a feeling that you would point to that. I am not asking for the harms of the system in general, I am asking what is so ominous about the "big number." You treat this number as something to be feared without saying why.

Well, as that big number gets bigger (what, we're at 65 or so trillion with SS and medicare "obligations"?), it's going to be increasingly obvious that we aren't going to be able to pay people back in dollars that have any value. Seeing as how everything is imported from China (an exaggeration, but not by much) these days, what do you think the destruction of the dollar is going to have on an "economy" that primarily depends on consumer spending to grow? And the GDP, by the way, is going to be the least of our problems when we get to that point. Just going big picture here.

Phrasing things poorly is what I'm doing. I mean real new money. New wealth. New wealth that can be used to repay (or delete) interest from debt.

No such thing. This is the attitude politicians and bankers have that's going to mess us up. Spend money without consequence, print money without consequence. Yes, new money can be made out of a printing machine. But it's not new wealth in the long run or in real terms. As I said, the entire system depends on the expansion of credit to run. But this cycle will have to end- as new money is printed up to pay for old debts, new debts accumulate (and let's assume paper money is immune to the laws of supply and demand for a second here, even though, contrary to what an economist will tell you, that's not the case), and more "new money" needs to roll out of the printing presses. But, at some point, this debt is going to peak, and when it does, we're going to have a problem (if that's not immediately obvious). A pretty damn big one.

It's now obvious that fractional reserve banking introduces the possibility for instability, but I am not convinced that there are any other problems with it.

Well, that's a pretty damn big problem when you consider all of the consequences of that instability, ranging from the terrorism we see today (the consequence of a foreign policy enabled only through a loose monetary policy) to the screw ups the politicians have made for all of us in every field from education to health care, and the artificial shifting of wealth from the many to the few, among a billion other things.

 

[vdzele]

Re: Air-money

"There are two ways to conquer and enslave a nation. One is by the sword, the other is by debt."

John Adams.

This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that.
When the National Security Agency recruited me, they put me through a day of lie detector tests. They found out all my weaknesses and immediately seduced me. They used the strongest drugs in our culture, sex, power and money, to win me over.

Basically, what Economic Hit Men are trained to do is to build up the American empire. To create situations where as many resources as possible flow into this country, to our corporations, and our government, and in fact we've been very successful.

I was initially recruited while I was in business school back in the late sixties by the National Security Agency, the nation's largest and least understood spy organization; but ultimately I worked for private corporations.

So we make this big loan, most of it comes back to the United States, the country is left with the debt plus lots of interest, and they basically become our servants, our slaves. It's an empire. There's no two ways about it. It's a huge empire. It's been extremely successful.

The Treasury Department would use the interest from these securities to hire U.S. companies to build Saudi Arabia - new cities, new infrastructure - which we've done.

These were big ones. Those companies would then go in and build an electrical system or ports or highways, and these would basically serve just a few of the very wealthiest families in those countries.

We've built the largest empire in the history of the world. It's been done over the last 50 years since World War II with very little military might, actually. It's only in rare instances like Iraq where the military comes in as a last resort.

And in Iraq we tried to implement the same policy that was so successful in Saudi Arabia, but Saddam Hussein didn't buy. When the economic hit men fail in this scenario, the next step is what we call the jackals.

I felt guilty throughout the whole time, but I was seduced. The power of these drugs, sex, power, and money, was extremely strong for me.

And that's why I wrote the book, because our country really needs to understand, if people in this nation understood what our foreign policy is really about, what foreign aid is about, how our corporations work, where our tax money goes, I know we will demand change.

John Perkins - Confessions of an Economic Hit Man

 

[Dondrei]

Re: Air-money

Well, that's a pretty damn big problem when you consider all of the consequences of that instability, ranging from the terrorism we see today (the consequence of a foreign policy enabled only through a loose monetary policy)

I just decided to take a glance at a random paragraph in Mod's spamwall, and this is what I saw.

 

[SnickerSnack]

Re: Air-money

Politicians deserve a lot of blame, and not for no reason. When the political system attempts to stabilize an inherently unstable, but profitable (for a small group of people) system, what can you do about it? They don't know what's going on at the Fed. The Fed doesn't know what's going on. And yet, these small group of men control the value and supply of the dollar, among a host of other things. Ever see Ben talk and how Wall Street reacts afterwards?

What does this have to do with individuals being in debt?

I'm just guessing, and usually I'm right about this kind of guessing, but the details are up to him.

Okay :thumbup:

You sort of have it. I did not mean that any individual person cannot repay their debt. However, I also mean to say that someone stays in debt. And as an aggregate, this will also be the case.

Yes, you did say that. And I said, why? And now you just repeat the same mantra: someone stays in debt. Again I ask, by what mechanism?

And that "unrepayable" (interesting things about that, by the way) debt IS going to be absorbed the rest of us. Who's going to pay for all of this government spending over the last several decades? It's going to be us, and our kids, and their kids, except we're going to get the short end of the stick when other countries realize that there's no way we can meet out obligations without resorting to the destruction of the dollar.

We'll address the problems with "unrepayable" debt when I'm convinced that it is inherent and particular to a fractional reserve system. Government spending? Obfuscate much?

Well, as that big number gets bigger (what, we're at 65 or so trillion with SS and medicare "obligations"?), it's going to be increasingly obvious that we aren't going to be able to pay people back in dollars that have any value. Seeing as how everything is imported from China (an exaggeration, but not by much) these days, what do you think the destruction of the dollar is going to have on an "economy" that primarily depends on consumer spending to grow? And the GDP, by the way, is going to be the least of our problems when we get to that point. Just going big picture here.

Obfuscate much? This is more related to the problem of instability, the one I'm not interested in.

No such thing. This is the attitude politicians and bankers have that's going to mess us up. Spend money without consequence, print money without consequence. Yes, new money can be made out of a printing machine. But it's not new wealth in the long run or in real terms. As I said, the entire system depends on the expansion of credit to run. But this cycle will have to end- as new money is printed up to pay for old debts, new debts accumulate (and let's assume paper money is immune to the laws of supply and demand for a second here, even though, contrary to what an economist will tell you, that's not the case), and more "new money" needs to roll out of the printing presses. But, at some point, this debt is going to peak, and when it does, we're going to have a problem (if that's not immediately obvious). A pretty damn big one.

Uh-huh. No Such Thing. It's hard to know if we're on the same page, but: I ask you, if no new wealth can be made, then where did we get the wealth we have now?

Well, that's a pretty damn big problem when you consider all of the consequences of that instability, ranging from the terrorism we see today (the consequence of a foreign policy enabled only through a loose monetary policy) to the screw ups the politicians have made for all of us in every field from education to health care, and the artificial shifting of wealth from the many to the few, among a billion other things.

The size of the problem is irrelevant when it is not central to the discussion.

John Adams.



John Perkins - Confessions of an Economic Hit Man

I didn't read the quotations you gave. If you have something to say, please say it in your own words.

 

[Module88]

Re: Air-money

What does this have to do with individuals being in debt?

The artificial manipulation of interest rates affects the decision making process. When you have low interest rates and government policies that encourage buying houses and subsidizing industries, you might get, say, a situation where people buy houses they can't afford (taking advantage of artificially low interest rates) in the hopes of making a profit through perhaps renting and appreciation. Hell, government policies affect decision making all the time. That's why more and more people are going to college (if you don't get this, I encourage you think about Claiborne Pell and inflation).

Yes, you did say that. And I said, why? And now you just repeat the same mantra: someone stays in debt. Again I ask, by what mechanism?

Through loans responsibly and credit cards irresponsibly. Even responsible people generally have thinks like mortgages, or student loans, or car payments, or perhaps hospital bills. These are all debt, and I don't know about you, but I don't know a whole lot of people who can pay things like mortgages off very quickly. This says nothing of credit card or government debt, either.

We'll address the problems with "unrepayable" debt when I'm convinced that it is inherent and particular to a fractional reserve system. Government spending? Obfuscate much?

Obfuscate? Ha! Who do you think is going to pay for all of it?

Even you seem to have the wrong attitude. The attitude that excess government spending is not an issue and will not have any detrimental effect on you because you're not personally spending it, when in fact, the people are the ones who will be hurt the most.

Government debt is debt, and it's debt we collectively owe. All of us are in debt right now even if we have no mortgage or car payments, no extra credit card payments, and no loans from anyone because of this. And all of us will pay a price when this system fails, even if we weren't responsible for it to begin with. And all of this debt that we owe is enabled by a fractional reserve banking system and a central bank that is inevitably necessary to protect the economy from the natural instability of a fractional reserve system and the debilitating effects that can have (they don't do a good job, but that's beside the point).

Obfuscate much? This is more related to the problem of instability, the one I'm not interested in.

Again, if you're not interested in why all of this is bad, why ask? And why keep asking?

Uh-huh. No Such Thing. It's hard to know if we're on the same page, but: I ask you, if no new wealth can be made, then where did we get the wealth we have now?

I never said no new wealth can be made. You might notice that that part of my post is within the context of your statement, namely, "Phrasing things poorly is what I'm doing. I mean real new money. New wealth. New wealth that can be used to repay (or delete) interest from debt."

No REAL wealth, particularly that which can be used to repay interest from debt (ie. money) can be created by simply printing more money. Remember, with a fixed supply of dollars, you can always strip a tree down and make a canoe or something. But unless your bank accepts canoes as payment for your debt, there is still not enough physical currency for everyone to pay off their debt (at least, simultaneously), again, because of interest. Someone is always going to be in some kind of debt.

Real wealth is the result of production, not simply printing more money or expanding credit to fuel spending (unless that spending is going to be productive by providing a good or service that can be traded in the market). And even then, the wealth comes from production, not printing more dollars.

The size of the problem is irrelevant when it is not central to the discussion.

So again, if you're not interested in the problem, or its scope, why do you care at all?

 

[SnickerSnack]

Re: Air-money

I started making some comments (in bold), but decided that we are going in circles and the discussion is quite fragmented (like my hard drive). So, go ahead and read them, but don't necessarily respond to them now. See below.

The artificial manipulation of interest rates affects the decision making process. When you have low interest rates and government policies that encourage buying houses and subsidizing industries, you might get, say, a situation where people buy houses they can't afford (taking advantage of artificially low interest rates) in the hopes of making a profit through perhaps renting and appreciation. Hell, government policies affect decision making all the time. That's why more and more people are going to college (if you don't get this, I encourage you think about Claiborne Pell and inflation).



Through loans responsibly and credit cards irresponsibly. Even responsible people generally have thinks like mortgages, or student loans, or car payments, or perhaps hospital bills. These are all debt, and I don't know about you, but I don't know a whole lot of people who can pay things like mortgages off very quickly. This says nothing of credit card or government debt, either.



Obfuscate? Ha! Who do you think is going to pay for all of it?

Even you seem to have the wrong attitude. The attitude that excess government spending is not an issue and will not have any detrimental effect on you because you're not personally spending it, when in fact, the people are the ones who will be hurt the most.

Government debt is debt, and it's debt we collectively owe. All of us are in debt right now even if we have no mortgage or car payments, no extra credit card payments, and no loans from anyone because of this. And all of us will pay a price when this system fails, even if we weren't responsible for it to begin with. And all of this debt that we owe is enabled by a fractional reserve banking system and a central bank that is inevitably necessary to protect the economy from the natural instability of a fractional reserve system and the debilitating effects that can have (they don't do a good job, but that's beside the point).

Yes, obfuscate. This is not what you were claiming before, but you are presenting it as though it is. This "collective debt" is not the same as credit card (etc) debt. We were discussing that.

Again, if you're not interested in why all of this is bad, why ask? And why keep asking?

I don't think that I did. Please quote the part of my last post (#15) where I did.

I never said no new wealth can be made. You might notice that that part of my post is within the context of your statement, namely, "Phrasing things poorly is what I'm doing. I mean real new money. New wealth. New wealth that can be used to repay (or delete) interest from debt."

No REAL wealth, particularly that which can be used to repay interest from debt (ie. money) can be created by simply printing more money. Remember, with a fixed supply of dollars, you can always strip a tree down and make a canoe or something. But unless your bank accepts canoes as payment for your debt, there is still not enough physical currency for everyone to pay off their debt (at least, simultaneously), again, because of interest. Someone is always going to be in some kind of debt.

If you print more dollars (dilute) AND build canoes (concentrate), then you have new real wealth. You treated each in a vacuum, but neglected to consider them together. Why?



Real wealth is the result of production, not simply printing more money or expanding credit to fuel spending (unless that spending is going to be productive by providing a good or service that can be traded in the market). And even then, the wealth comes from production, not printing more dollars.

Okay! I agree, and that is the response that I was looking for. So, why can't the new wealth repair the old debt? I would agree that the US doesn't produce real goods anymore. Maybe the problems caused by fractional reserve lending make it a bad financial model to use now that we don't produce.

So again, if you're not interested in the problem, or its scope, why do you care at all?

I don't. You say that is important to the question that I am asking, but you haven't convinced me that it is.

Okay, I think we should start over.

I agree: FR (fractional reserve) introduces a measure of instability.
Real wealth can be made, but (perhaps, I really don't know) we are not making it the way we should be.

I do not yet buy: FR creates debt that cannot be repaid (it just gets passed around). [On this point, I do agree that {if we assume such debt is made} at some point, some of this unrepayable debt has to get absorbed by the group as a whole, and this piles up]

I am not concerned with discussing problems with instability because I admit it is there. We don't disagree that a risk is taken. You're trying to link instability with "unrepayable" debt*, but you haven't successfully done so yet. I have a feeling that all the pieces are here, but they need to be put in the right order. I'll put some thought into it, and maybe you can spell it out in one long rant. If you do, try to be very clear on what I do not agree with yet. If I don't agree with it, then using it to support something else doesn't do any good.

We have several ideas going, and it seems like you are using contentious idea A to explain contentious idea B and also idea B to explain idea A. I'm sure you know what a circular argument is, but you seem to be doing that inadvertently.




*To be honest, you seemed to abandon individual unrepayable debt and substitute collective unrepayable debt into the discussion without explaining why you can do that. I think you did when we talked about the collective absorbing the debt of the individual, but you need to say you are doing that when you do it. Our discussion is multi-threaded and fragmented, so it can be confusing when you skip steps in your explanation.

 

[Module88]

Re: Air-money

I started making some comments (in bold), but decided that we are going in circles and the discussion is quite fragmented (like my hard drive). So, go ahead and read them, but don't necessarily respond to them now. See below.

Agreed.

Yes, obfuscate. This is not what you were claiming before, but you are presenting it as though it is. This "collective debt" is not the same as credit card (etc) debt. We were discussing that.

Collective debt is just another aspect of personal debt. Credit card debt, as an aggregate, is the inevitable consequence of the availability of credit just like a bunch of hungry people eating free food is an inevitable consequence. Yeah, the hungry people could just decide to starve to death, but it’s not happening. Likewise, with the availability of cheap credit and profits/an increased standard of living to be made, people will go in to debt simply because they can (and there are perceived benefits of doing so). Sure, any individual could theoretically get out of this personal debt, but as a whole, it’s not happening. The mere availability of credit encourages people to spend recklessly and irresponsibly.

Now, while I firmly believe that they are responsible for their debt, I also believe that the system encourages it and treats it like it’s no big deal. There’s plenty of blame to go around.

I don't think that I did. Please quote the part of my last post (#15) where I did.

I don’t believe you said it in post 15. You did say it where I pointed it out earlier and haven’t retracted it, so I assume it still stands.

If you print more dollars (dilute) AND build canoes (concentrate), then you have new real wealth. You treated each in a vacuum, but neglected to consider them together. Why?

But that wealth comes from building the canoes, NOT printing more dollars. When you consider both together, cheap credit and easy money looks like it’s doing the trick- it’s not. That’s why our GDP today is completely non-sensical. We consider the expansion of consumer and government spending (among other things) our economy, and in order to grow that economy, we just have to expand spending year after year. The only way to do this is to print more dollars, diluting the value of the currency with respect to a commodity like gold.

But since our spending is now increasing much faster than the spending of other countries, the dollar, in the long term, will begin to fall in value with respect to other currencies. At some point, other nations are going to realize this, and realize that the current Bretton Woods system doesn’t work in their favor. And when they decide to leave, we’re going to be in for a world of hurt.

And of course, the reality is, since the availability of cheap credit, we haven’t been inclined to produce canoes. Why work when you can just buy whatever you want on credit and pay a low minimum balance each month? Spend and spend, and the economy will grow, and you’ll be “richer†with all your TV’s and new stuff. Right?

You can start to see the consequences of fractional reserve banking here, I hope.

Okay! I agree, and that is the response that I was looking for. So, why can't the new wealth repair the old debt? I would agree that the US doesn't produce real goods anymore. Maybe the problems caused by fractional reserve lending make it a bad financial model to use now that we don't produce.

Well, I submit that the fractional reserve banking, unstable by design, calls for a central bank, which in turn, influences economic decisions. We produced less and less as we realized we could buy more and more with the dollar acting as the reserve currency of the world. With cheap credit, and not a whole lot of incentive to work because you can buy a lot of things on credit, we stopped making stuff. Consumption however, should be the reward for production. The only reason we can consume without producing is because we can print dollars, but this too, has consequences.

As far as your question goes, I already answered that- unless your bank accepts canoes as payment, old debt can’t be “repaired†by new wealth, perse.

You say that is important to the question that I am asking, but you haven't convinced me that it is.

Consequences are not important?

I do not yet buy: FR creates debt that cannot be repaid (it just gets passed around). [On this point, I do agree that {if we assume such debt is made} at some point, some of this unrepayable debt has to get absorbed by the group as a whole, and this piles up]

I had thought we already settled this. Central bank money can repay commercial bank money several times, so if you go the opposite direction, you can eliminate the extra commercial bank money that was made. This is all well and good, until you account for the fact that all of these loans have interest. Without new money, how can the fixed supply of central bank money account for the extra interest being accumulated as an aggregate every month?

Sure, any given individual could theoretically pay off his debt. A lot of individuals can. But at some point, you’re going run into that interest money, and those people are going to be stuck, because there isn’t going to be enough physical money going around to pay for that debt. The only way these indebted people could pay is if someone else were to go into debt, and the currently indebted used that money to pay off their debts. Someone is always going to be in debt (as an aggregate, this debt will only grow).

If there’s any more confusion about this, please let me know. My one question up there, by the way, is pretty important. In fact, it’s probably the key to this entire discussion.

I am not concerned with discussing problems with instability because I admit it is there. We don't disagree that a risk is taken. You're trying to link instability with "unrepayable" debt*, but you haven't successfully done so yet. I have a feeling that all the pieces are here, but they need to be put in the right order. I'll put some thought into it, and maybe you can spell it out in one long rant. If you do, try to be very clear on what I do not agree with yet. If I don't agree with it, then using it to support something else doesn't do any good.

Not quite. Instability and unrepayable debt are two different things, related, but very distinct. The instability comes from low reserve rates (that not too coincidentally, maximize bank profits). Both concepts, however, are inherent qualities of fractional reserve banking.

We have several ideas going, and it seems like you are using contentious idea A to explain contentious idea B and also idea B to explain idea A. I'm sure you know what a circular argument is, but you seem to be doing that inadvertently.

There’s clearly some confusion going on here, that’s for certain. I’ve just been moving on because I thought some things had been settled when they apparently haven’t been.

*To be honest, you seemed to abandon individual unrepayable debt and substitute collective unrepayable debt into the discussion without explaining why you can do that. I think you did when we talked about the collective absorbing the debt of the individual, but you need to say you are doing that when you do it. Our discussion is multi-threaded and fragmented, so it can be confusing when you skip steps in your explanation.

I just thought the matter had been settled, so I was moving on. You merely said that new wealth could repay old debts, and that would be true if banks accepted payment in something other than dollars or another currency. But that’s not the case (I can’t pay my bank in corn or wood sculptures I make or the like), so you’re still unable to answer my question. How does the interest get paid off? If you can’t account for that, then the conclusion that there isn’t enough money for everyone to pay off all debts because of interest stand, and thus, someone is going to always be in debt.

Collective debt is just another thing going against you. Central banks really aren’t designed for individual cases as opposed to general monetary policy and stability. Using a loose monetary policy, a central bank enables politicians to spend all of us into debt collectively. It’s debt we all owe, and we’re all going to pay for one way or another (not evenly, but that’s beside the point).

 

[AeroJonesy]

Re: Air-money

After a cursory review of Mod's first post, I should point out that he forgot new wealth is created by labor. So this "someone's always going to be holding the short end of the stick" attitude isn't correct. It's just a gamble that in the future, people will create enough wealth to pay down the original fractional reserve debt.

 

[vdzele]

Re: Air-money

AJ – people will create wealth, but that wealth will never cover up the debt that is growing around the wealth. Debt will always overwhelm the wealth, that’s why this system is called fractional reserve (wealth) system. This is the foundation of the system. But if you do somehow payout the whole debt there will no money in the circulation.

Just sum up all the money in the circulation and the total global debt 700 trillion. You can cover up this debt only by printing out money, which is what they are doing right now, but this will ruin your real economy with hyper inflation. This will cause the fall of the west and rise of the east where world’s true wealth is creating right now. They don’t owe much money; they have the resources, cheap work labor in billions and factory lines.

Your Usury Lords deliberately moved western production lines to east and created an enormous trade unbalance which debased your economy and created western bubble. You lived in a Ponzi Scheme bubble where you borrowed money from the east just keep up the pyramid of not collapsing. But it did. And now your saviors will propose you New World Order, like Master Henry Kissinger suggests.

NWO is a global society where all of us will be brainwashed consumers (zombies) with no background of any kind that will serve to our master’s through implanted RFID chips.