Pete thought he had Pops on the ropes so he wrote:that is our fiat-fractional reserve system money creation is dependent on bank loans ie GROWTH.
My assertion is growth only happens in the rare case where population and surplus energy meet. Let me try another experiment.
Lets say I borrow $100 to start a flint knapping business at $10 interest
The bank creates $100 out of thin air, Mr GrenEyeShade adds it to their asset column and debits me some paper
I buy 100 bucks worth of flint with the paper and go to knapping and sell out for $120 creating enough value to pay back the loan and $10 interest and still have $10 profit
The bank adds it to the debit column and subtracts the loan from the asset column - poof, the hundred bucks is gone - didn't exist before, doesn't exist again.
Where did my profit come from?
From the value of my labor (resource+labor).
And what happened to the flint/arrowheads?
The flint/arrowheads are consumed: lost, broken, dulled, discarded
And what happened to my profit?
Consumed or used for the next flint boulder
But where did the $20 come from - HaHA!
It's just paper, just an abstract representation of value, it was there all along, Pops just didn't have none.
No new $20 bill was created to give me, the arrowhead buyer received it for some value he created and passed it along to me. I just passed along half to the banker and half to the bartender. The banker passed off his $10 to pay for his Cadillac and the bartender did the same... The $20 was there all along by common consent, it is just a facility to represent value as a convenience. We don't all want what the other has to trade and certainly not at the same time and definitely not in appropriate amounts so we use a representation of value.
But why doesn't the economy grow? It might in the short term, while everything - $20 bill, the loan, the flint, the arrowheads, the cadillac, still has value but in the long run it is all consumed. Obviously the money, just an abstract symbol of value that was creates off screen - stage left, passes through all our hands and exits stage right. It was just a symbol of convenience, an abstraction. And further, it is self regulating in value. One only has to look at the current value of the dollar, which, if you are to believe a gold bug, is as debased as a Weimar Mark, to realize that try as they might, the Fed just can't control it.
Obviously that leaves out the whole bit about productive assets, return on capital, etc, but you get that.
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I'm reading a book about the collapse of fiat money called, imaginatively enough, "paper money collapse." It is all about how great gold is and how terrible paper is. Obviously it is not meant to be objective, to say the least. The book is not in any fashion about Limits, end of capitalism, etc, it is straight ahead conservative (nominally "liberal") economics. And of course like has been happening since '71, it predicts the collapse of debt, fiat money and whatnot just because it ain't conservative.
But one point the author makes fairly well is that the value of money is self regulating. He emphasizes it emphatically because it is his main argument agains soft money. Essentially he says if there is a high demand for money, its value rises (and asset values fall - deflation) and of course if there is too much money in circulation for the demand the value of money falls (of course asset values rise - inflation) and that explains away the whole Keynesian argument that governments should hold the levers on the money supply and decrease the value of money (increase the supply) to ease recessions.
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So, what happens if everything unwinds this afternoon and all those bank entries turn to pumpkins?
It's all imaginary, it all just goes poof.
Unless the government tries to make everyone whole the columns just cancel out and those with clear title to physical assets (including gold, btw) have something and those with clear title to entries in a column have, well, nothing.