THE Federal Reserve Thread pt 1 (merged)

[spot5050]

Blind ambition, Greed and lust-for-power is noted amongst both the clever and the stupid.

The clever have the disadvatage of having to think about things. Either before or after they do it.

The stupid, au contraire, are particularly gifted to suit today's society - they do not think about long-term consequences, because they cannot think.

You have nailed it ubercynicmeister!

Greed is the central force that got us into this mess. Greediness seems to be equally represented by the stupid and the clever. This whole monetary construct looks like the work of the devil, metaphorically speaking.

For goodness sake, listen to yourselves. This is doomer mutual masturbation.

[ubercynicmeister]

Hi Tapas...we're not supposed to agree with each other, presumably. Disagreement is the ONLY form of communication, these days, and those who agree will be insulted & belittled.

Blind ambition, Greed and lust-for-power is noted amongst both the clever and the stupid.

The clever have the disadvatage of having to think about things. Either before or after they do it.

The stupid, au contraire, are particularly gifted to suit today's society - they do not think about long-term consequences, because they cannot think.

You have nailed it ubercynicmeister!

[/quote]

Thank you thank you, but don't clap...throw coins, LOL!

Greed is the central force that got us into this mess. Greediness seems to be equally represented by the stupid and the clever. This whole monetary construct looks like the work of the devil, metaphorically speaking. The temptation of acquiring something before actually earning it is too strong for feeble humans to resist. Credit is the magic that lets a human enjoy more than what he rightfully deserves.

Why save your earnings for three years, when you can swipe that magic piece of plastic and enjoy that Plasma HDTV right away?

YUP, the must-have-it-now Generations have had it all, and now the bills are due.

Money, in the form it is practiced today under Capitalism, has opened the doors for unbridled growth. The idea of being able to purchase a chunk of 'energy' on credit without actually working for it thanks to the magic of 'loan' money has made us into voracious consumers.

It's a bit more than that - the modern system works only by having stuff made to such shoddy standards that it will fall apart in as short a time as possible, with NO user-fixable parts. For example, I obtain mince (well, it's all I can afford, unlike some) in packets that are wrpped in plastic and "contained" in these odd-looking polystyrene foam packaging.

Such packaging has only one use, then one (usually) has to throw it away. The bags I bring the shopping home in, are plastic, again with only one use.

Years ago, I could buy milk in bottles that were washed & returned to the milk "factory" and they'd be steam-cleaned & used again. But such processing interfered with "the bottom line", and - in spite of the milk tasting a whole lot better, and people still wanting to BUY it in bottles - they closed that down to force everyone to buy either plastic-coated milk cartons, ostensibly made from cardboard, or straight plastic "bottles".

At NO point was the end-consumer consulted about the changes, so the usual excuse of "the consumers wanted it" is rot.

Now, plastic is made from Oil...so what the heck - even if we magically find another easy-to-uuse concentrated enegry source to magically replace oil - what the heck are we gunna package foodstuffs in?

I'm assuming we will HAVE foodstuffs that will need packaging, that is.

My point? We have a system that now demands built-in "planned" obsolesence. Everything must be made so that it falls apart, requires expensive maintenance or wears out within as short a possible time to keep up "turn over".

Increasing "Turn over" = growth. Grow or die is now the motto.

Under a strict barter system, where you had to produce something tangible first to get something else, such speculative spending and consumption would never have been possible. Even a currency system back by precious metals, would have had checks to prevent runaway growth.

No, Arthur C Clarke (someone else we're not supposed to agree with, I presume) suggested the best of all alternatives, and that was not barter (here, Spot, here Spot, I'm disagreeing with Tapas! Is that OK by you, Spot?). The barter system, while keeping the greedy slobs from wrecking the place, is too cumbersome for us modern dopes to use again, in spite of it's obvious advantages.

Arthur C Clarke suggested, instead that the Unit Of International Currency & Exchange be the Megawatt Hour, instead of the "mess" we currently have.

For those who don't know, Arthur C Clarke wrote "2001 - A Space Odyssey".

Which means we're not supposed to agree with him, or each other, I presume.

I agree with you, the "fractional reserve + fiat currency" grow-or-die system we have had foisted on us is a mess and is the primary reason for Peak Oil.

Correct. Fiat currency plus Fractional Reserve as you mentioned has done us in for good.

Mankind will pay the price. It matters little what we end up owing to the bankers, a piece of paper, compared to the actual interest we have to pay to mother nature - real human lives that must be sacrificed in a die-off when she balances her check book.

Perhaps then we would agree to barter an ounce of greed for an ounce of wisdom.

I'm not so sure the massive die-off will happen, myself - sure those who rely on oil, like what we in the West do, sure, we're for it, we're finished.

BUT, after the Boxing Day Tsunami hit Sri Lanka, and the supplies of Oil were cut off completely (the same stands for the affected parts of Indonesia, and India and the other countries hit by the wave), the locals just dusted off their ox-carts (or cleared the wreckage from them) and went about their daily business.

Oil is not "vital" to them. It's at best a minor convenience.

I agree (Oh, I shouldn't do that, should I ?), China is ramping up, the same as the West to make Oil a vital commodity, without which the community (not just the economy) dies.

But it has not yet made the transition completely.

Now, Indonesia, India and China are where the "Third World" (can we call China a Third World Nation? I suspect not) has the Big Population - Indonesia has something like 255 million people (????).

MOST of them do not have direct (or even indirect) contact with Oil-as-a-vital-substance, like what we do in the West.

So, what they don't have, they won't miss when it's gone.

When Oil's gone, it's the West that's "for it", not the Third World.

I'm afraid the Meek really will inheret the Earth.

OOOPS, hey Tapas, we disagreed!

Goodness! D'you think we'll be insulted for that?

Oh, if we were insulted for agreeing, imagine the consternation caused by us DISAGREEING!

Head fer the hills!

Big John (erm, Spot 5050) is a-comin'!

[CrudeAwakening]

Contrary to what you've been told in economics 101, banks don't actually create money. They circulate money, pass it on from savers to borrowers. The 'money' you have in your checking account is not actually money, it is a debt the bank owes you. If you issue a check, then the bank has to call back some of its assets (loans made out) to redeem the check to the receiving party

Hmm, banks don't create money? They don't create the M0 monetary base, but they absolutely DO create M1 money.

Suppose I have $1000 cash which I deposit with a bank. It credits my account by $1000. I have $1000 of spending power (money). The bank can then lend $900 (assuming 10% reserves) to Person X, who now has $900 of spending power (he can write a cheque for $900 that the bank will honour). However, I STILL have $1000 of spending power, as evidenced by the fact that my account balance remains $1000 despite the $900 loan.

Thus, total spending power in the economy has increased by $1900 - $1000 = $900. i.e, $900 of spending power has been created. The money supply has increased, using the broader definition of the money supply.

This process of expansion can continue until $10,000 has created, if people continue to redeposit with the banking system. Conversely, the money supply contracts as people repay loans.

Sorry if I'm stating the obvious here.

[ubercynicmeister]

Hi CrudeAwakening, I'd agree with you, but I get hauled over the coals for doing so...so just between you & me , I think you;re right, BUT DON'T TELL ANYONE!!!

Contrary to what you've been told in economics 101, banks don't actually create money. They circulate money, pass it on from savers to borrowers. The 'money' you have in your checking account is not actually money, it is a debt the bank owes you. If you issue a check, then the bank has to call back some of its assets (loans made out) to redeem the check to the receiving party

Hmm, banks don't create money? They don't create the M0 monetary base, but they absolutely DO create M1 money.

Suppose I have $1000 cash which I deposit with a bank. It credits my account by $1000. I have $1000 of spending power (money). The bank can then lend $900 (assuming 10% reserves) to Person X, who now has $900 of spending power (he can write a cheque for $900 that the bank will honour). However, I STILL have $1000 of spending power, as evidenced by the fact that my account balance remains $1000 despite the $900 loan.

Thus, total spending power in the economy has increased by $1900 - $1000 = $900. i.e, $900 of spending power has been created. The money supply has increased, using the broader definition of the money supply.

This process of expansion can continue until $10,000 has created, if people continue to redeposit with the banking system. Conversely, the money supply contracts as people repay loans.

Sorry if I'm stating the obvious here.

You're missing something, too - it also works in "reverse".

Let's say that you, the original dpeoitor wants to take all of his money out, in a blind panic, because you're facing imminent ruin (for whatever reason).

Thus the banks have to call in all of the loans they madde with your money.

BUT, that means, especially if the lonees have depositied THEIR money into other bank's accounts, then the OTHER banks have to "call in their loans (I'm simplifing things, here, assuming there's only one depositior for each bank, whichj is not usually the case).

Thus one gets what is known as a "run on the banks."

If the credit "Ponzi" or "Pyramid scheme" the banks run ever has just a slight interuption to "supply", then the whole lot starts to totter.

It is said that when Berings bank collpased thanks to the supposed "rogue trader", it damn near brought down quite a few other big transnational finance companies, including the Bank Of International Settlements.

It was only the emergency actions of the UK , French, German, and above all, US central bank(s) that stopped the catastrophic slide towards instant world-wide economic ruin.

Now, with peak oil right around the corner, if it isn't with us already, then the banks (ALL of 'em) will suddenly discover just how dependant they are on increasing the supposed "money" supply (or, actualkly, the CREDIT supply which would be more acurate).

As the squeeze starts, (yup, via increased price of fuel, but that's just the start), those who are still able to borrow money will not want to.

Those who HAVE borrowed money will (start to) be unable to re-pay the loans.

That means the banks have to "absorb" more and more "bad debt".

With Fractional Reserve, the bank will still have to live up to it's financial obligations and pay back the depositor's money, if and when demanded.

BUT, if the bank has too many bad debts, as is starting to happen, it will be unable to do so.

Thus the BANK will go BANK-RUPT.

And with fractional reserve, the process happens in a very fast, very compounded, very overwhelming way.

That's the nub of the pronblem, the heart of the matter. Sure, Fractional Reserve allows for a vast increase in the supply of credit. BUT, if at any time that credit is even slightly "interupted" in any significant way, then the Fractional Reserve is the FASTEST way to ensure complete financial collapse.

And money, as we know ehere at the Peak Oil forum, is actually based on the amount of cheap energy we can obtain & easily use.

And that's EXACTLY what we're running out of.

[MonteQuest]

Thus the banks have to call in all of the loans they madde with your money.

BUT, that means, especially if the lonees have depositied THEIR money into other bank's accounts, then the OTHER banks have to "call in their loans (I'm simplifing things, here, assuming there's only one depositior for each bank, whichj is not usually the case).

Thus one gets what is known as a "run on the banks."

No, the banks must borrow to increase their reserves. They don't "call" in their loans. It's not like buying stocks on margin.

This borrowing rate is what the FED regulates, known as the prime rate or inter-bank rate. Loans are not made based upon depositor funds, but from the banks "reserves."

[CrudeAwakening]

If there is a run on the banks, I guess the Fed would print more money to pay people out, which under a fractional reserve system would then be loaned out and mutiplied up, resulting in hyperinflation? Is this right?

Sorry if this is basic stuff, I'm no economist...

[MonteQuest]

If there is a run on the banks, I guess the Fed would print more money to pay people out, which under a fractional reserve system would then be loaned out and mutiplied up, resulting in hyperinflation? Is this right?

Sorry if this is basic stuff, I'm no economist...

The FDIC insurance covers deposits up to $100,000. If there is a shortage in the money supply, the US Treasury prints more money, not the FED. This new money is still backed by a bond or security "asset". Only the FED fractionalizes this money out of thin air, the Treasury does not.

Too much money in circulation causes inflation, yes. It can lead to hyperinflation.

[nero]

The FDIC insurance covers deposits up to $100,000. If there is a shortage in the money supply, the US Treasury prints more money, not the FED. This new money is still backed by a bond or security "asset". Only the FED fractionalizes this money out of thin air, the Treasury does not.

Too much money in circulation causes inflation, yes. It can lead to hyperinflation.

I'm not sure what you mean by "fractionalize out of thin air" but the Fed isn't involved in the fractional reserve process. It directly controls M0, the monetary base not M1, M2 or M3.

No, the banks must borrow to increase their reserves. They don't "call" in their loans. It's not like buying stocks on margin.

This borrowing rate is what the FED regulates, known as the prime rate or inter-bank rate. Loans are not made based upon depositor funds, but from the banks "reserves."

They could call in their loans to decrease their requirement for reserves, to try and correct the situation but MQ is right, it is simpler for them to just borrow the money from the Fed. Note this borrowing money from the Fed is not the primary way they acquire reserves because it is rather expensive. The banks would much rather get their reserves from depositors who demand a pitance in interest, they usually can borrow money in the open market at less onerous terms than the discount window of the Fed offers (source). But they CAN borrow money from the Fed and this is one of the essential reasons for the Fed's existence, to serve as a lender of last resort.

[MonteQuest]

I'm not sure what you mean by "fractionalize out of thin air" but the Fed isn't involved in the fractional reserve process. It directly controls M0, the monetary base not M1, M2 or M3.

While they aren't the initiators of the actual fractionalization, they do control it at all levels of it's implementation through policy and guidelines.

I see the big problem coming when the FED absorbs/buys the US debt and in effect monetizes the debt creating hyperinflation.

To understand the mechanics of inflation, the difference between transfer credit and credit expansion must be explained. Transfer credit is extended when a borrower borrows money that someone saved. When a bank is involved in this type of transaction, the bank brokers the exchange and takes on some of the risk. The bank locates borrowers and savers who wish to participate but might not otherwise know each other. The bank first borrows from the saver and then loans the money to the creditor.

Credit expansion is an entirely different type of transaction. When banks expand credit there is no saver anywhere involved. For a bank to expand credit, it creates new paper claims to money -- bank notes or fractional reserve checking deposits -- out of nothing at all and loans them as if they were money.

Link
When the FED gets involved in expanding credit without selling US securities as backing, then watch out.

[nero]

When the FED gets involved in expanding credit without selling US securities as backing, then watch out.

The Fed expands credit without selling US securities all the time. The normal open market operation to expand monetary supply is for the Fed to BUY a security on the open market. The security (ie. bond) it then holds is in essence "backing" the money they put into circulation because someone in theory could redeem their currency for the underlying security (a treasury bond) held by the Fed.

[MonteQuest]

When the FED gets involved in expanding credit without selling US securities as backing, then watch out.

The Fed expands credit without selling US securities all the time. The normal open market operation to expand monetary supply is for the Fed to BUY a security on the open market. The security (ie. bond) it then holds is in essence "backing" the money they put into circulation because someone in theory could redeem their currency for the underlying security (a treasury bond) held by the Fed.

Yes, they do but...

Federal Deficit Reality: An Update

There is and will be too much debt from the U.S. government for the financial markets to absorb and remain stable.

The burgeoning deficit means the U.S. government will be increasing its debt level significantly for years to come. Near term, the amount borrowed will increase more rapidly than the markets are expecting, with the economy slowing down and entering recession. The ultimate question is who will lend the money to the U.S. Treasury? The answer is not U.S. investors.

With new debt continually hitting the market, eventually the Fed will have to step in to buy the Treasuries -- as lender of last resort -- effectively monetizing the debt. The more the Fed monetizes, the greater will be the growth in the money supply, the greater will be the weakness in the dollar, the greater will be the rate of inflation.

Link

[spot5050]

Hi Tapas...we're not supposed to agree with each other, presumably.

Great, you agree with each other. But go somewhere else to slime all over each other like that.

Have you ever felt uncomfortable next to a couple in a restaurant with their tongues down each other's throats, or not known where to look if you go to a wedding and the couple suck each others faces for too long? That's all I'm saying.

Disagreement is the ONLY form of communication, these days, and those who agree will be insulted & belittled.

When Oil's gone, it's the West that's "for it", not the Third World.

I'm afraid the Meek really will inheret the Earth.

OOOPS, hey Tapas, we disagreed!

Goodness! D'you think we'll be insulted for that?

Oh, if we were insulted for agreeing, imagine the consternation caused by us DISAGREEING!

Head fer the hills!

Big John (erm, Spot 5050) is a-comin'!

Have a great chat and enjoy yourselves, but mutual peak-oil masturbation makes me want to be sick.

[ubercynicmeister]

Hi Tapas...we're not supposed to agree with each other, presumably.

Great, you agree with each other. But go somewhere else to slime all over each other like that.

Have you ever felt uncomfortable next to a couple in a restaurant with their tongues down each other's throats,

No, i don't frequent restaurants, sorry. I iz too broke.

or not known where to look if you go to a wedding and the couple suck each others faces for too long? That's all I'm saying.

HEY Tapas, did you know we wuz MARRIED? Gosh, and it all passed me by!

Remind me - where did we have our honeymoon, again? I keep forgetting.

Disagreement is the ONLY form of communication, these days, and those who agree will be insulted & belittled.

When Oil's gone, it's the West that's "for it", not the Third World.

I'm afraid the Meek really will inheret the Earth.

OOOPS, hey Tapas, we disagreed!

Goodness! D'you think we'll be insulted for that?

Oh, if we were insulted for agreeing, imagine the consternation caused by us DISAGREEING!

Head fer the hills!

Big John (erm, Spot 5050) is a-comin'!

Have a great chat and enjoy yourselves, but mutual peak-oil masturbation makes me want to be sick.

Yawhol, Mein Fuhrer!

Hey, sorry, Tapas, but me agreeing with you wuz BAD ENOUGH, but it's really upset poor Spotty, here, now that we're disagreeing.

Y'see, poor Spot ("out, damned Spot," as Lady MacBeth said) is allergic to all shows of public disaffection. Or was it public affection?

But, anyway, what would he know about affection, anyway?

[spot5050]

[smilie=icon_salut.gif] Yawhol, Mein Fuhrer!

Godwin's law is an adage in Internet culture that was originated by Mike Godwin in 1990. The law states that:

As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches one.

Once such a comparison is made, the thread is over and whoever mentioned the Nazis has automatically lost whatever argument was in progress.

http://en.wikipedia.org/wiki/Godwin's_law

http://www.killfile.org/faqs/godwin.html

http://members.tripod.com/~goodwin_2/law.html

[EnergySpin]

It appears that the Fed will try to defuse the bubble before the Japs/Chinese/Europeans detonate the bomb that will sink the dollar so they can afford oil (as long as oil is priced in dollars).
BBC News

Rock-bottom interest rates have helped drive a boom in house prices as homeowners remortgage their properties, and sometimes increase their borrowing to fund consumer spending or home improvements.

Fed chairman Alan Greenspan has denied there is a nationwide housing bubble but acknowledged that some locations may be at risk.

[Eli]

I do not think the bankers are going to comply with a planed slow down.

Home loans to illegal aliens

What could possibly go wrong?

The bankers have to keep selling loans so now they are giving loans to people who do not have a ss# or legal status in the US. Man if I was an illegal I would rush out and buy a house. If you couldn't make a payment just pack your stuff and head for the boarder. No fuss no muss.

[EnergySpin]

I do not think the bankers are going to comply with a planed slow down.

Home loans to illegal aliens

What could possibly go wrong?

The bankers have to keep selling loans so now they are giving loans to people who do not have a ss# or legal status in the US. Man if I was an illegal I would rush out and buy a house. If you couldn't make a payment just pack your stuff and head for the boarder. No fuss no muss.

First of all ... is this legal? I mean how can one get a loan without a SSN?
How about the IRS? (silly question,. do not shoot me)
In any case ... I was referring to the role of the Central Bank. I just finished reading the article by William Clark
and if the scenario he describes is plausible (I think it is), the bubble will be burst by the action of Central Banks around the globe. Surely AG understands that. Maybe a controlled detonation (ie. sacrificing a few states) will take place to avoid a global "hit" on the dollar.
In anycase ... people with no debt will find themselves in the top 5% of the population ... even if they live on the streets

[emersonbiggins]

I do not think the bankers are going to comply with a planed slow down.

Home loans to illegal aliens

What could possibly go wrong?

The bankers have to keep selling loans so now they are giving loans to people who do not have a ss# or legal status in the US. Man if I was an illegal I would rush out and buy a house. If you couldn't make a payment just pack your stuff and head for the boarder. No fuss no muss.

OMFG, who authorized this?

The banks must be scraping the bottom in order to keep these housing markets afloat.

[Eli]

I think it was authorized by the invisible hand of the market.

The need for new streams of revenue drove the banks to do this and competition with one another.

The unfortunate thing is that invisible hand of the market is about to ram rod us all. Yeah, the housing market deserves to fall and all the bank executives will cashout and walk away.

I assume that as an illegal alien they do not get SS# remember most of them can't even get a drivers license in most States. But they can own a home .

[Kooka]

I mean how can one get a loan without a SSN?

There isn't a law in the U.S. that says a person has to have a S.S.N. It's just that most institutions require one for "bookkeeping" purposes.

As far as the illegals getting loans - another issue. Hell, why not advertise a come-n-get-it on the BBC.