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SO WHAT DO WE DO

For discussions of events and conditions not necessarily related to Peak Oil.

Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 16:14:52

Pops wrote: If I remember my original comment, as the economy cools post peak, the supply of bank deposits will shrink as bank loans are paid or defaulted on, effectively reducing the "money supply."


Pops, I have been struggling to see your point.

Are you trying to say that when all the debts are either defaulted or are paid back, that there will be some money left over? Is this your point that all money isn't debt? If so, where did this money come from, if not through debt?
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Re: SO WHAT DO WE DO

Unread postby evilgenius » Sat 16 Jan 2016, 17:25:18

MonteQuest wrote:
evilgenius wrote:
MonteQuest wrote:My question no one answers is, if all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?


I used to ask myself that same question. Then I realized that the government, not unlike many businesses, borrows not just to cover long-term spending, but short-term as well. Because both business and government do this what you are asking has such a low probability of happening that you could say it won't.

I'm assuming when you say zero, btw, that you mean it would fall to the level of all cash.


Borrow? From whom? Sell bonds? To who?

Who would buy govt bonds with no prospect of a return in a no growth environment?

Cash $1.34 trillion is only a tiny segment of the "money supply." $15 trillion. And an even smaller segment of the debt at $60 trillion. If the "money supply" goes to zero cash is worthless,


I thought you might say that. But think about it, cash wouldn't be worthless. Cash would be king.

The trouble lies in not realizing that the value of money comes essentially from the faith of the people, not from debt(except for the already discussed caveats) or any other thing. The faith of the people is what allows us to follow the debt trail and keep on believing in, and giving value to, money under the changing circumstances of supply and demand that come with a change in the money supply or in demand relevant to it. Under a cash, or cash equivalent economy, the greatly reduced supply of exchangeable script or coin(having ditched the virtual kind) would render them very valuable indeed, so long as the people kept believing that form of exchange was the way to go. It's just the logical conclusion to the argument you are having with Pops.

Hyperinflation is what makes money worth nothing. Or, really, is a symptom of when it has become so. That is when the people lose their faith in a currency. In order for it to tempt them at all into believing in it a huge amount of that currency has to come on offer.

Think of the faith of the people like this; I once knew this dog that I used to play fetch with. She was an amazing dog that I could really launch sticks in the air for, like a QB throwing deep balls all day. The trouble with her was that she often refused to give me the stick back when she had fetched it. I soon learned to get around this by picking up another stick. Instantly she would want that one. She believed me that the new stick had value and the other one didn't. As long as I had two sticks I could play with her all day. Money is like that too. If we begin to take in our own complaints too well it is possible to lose faith in it. Whatever looks promising would then become the new standard. Most of the same rules would apply, though.
Last edited by evilgenius on Sat 16 Jan 2016, 18:08:35, edited 1 time in total.
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Re: SO WHAT DO WE DO

Unread postby JV153 » Sat 16 Jan 2016, 17:50:10

MonteQuest wrote:
Pops wrote:
MQ wrote:To use your terms, "inside" money is the money supply.

No, it isn't.


Yes, it is. You disagree with this?

[i]Inside money is created inside the private sector.

Outside money is money created outside of the private sector.

Still looking for an answer to my question: If all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?


If you mean outside money as capital raised by issuing stock then that would correspond your term outside money. Debt defaults and margin calls do reduce M3, and that would lead to expansion of M1 (retirement savings evaporate due to mutual funds losing value, companies go bankrupt due to stockholder selling, etc.)

.. however in any case in order to repay those loans (if they are to be repaid, in general) requires an expansion of total M3 money supply. In the case of post-WWI the opposite occurred with depression due to a shortage of all types of money while WWII had saw high inflation in Germany. However the current central bank policy is to inflate the money supply and they have a strict stated goal of doing this within a narrow band. Apparently they don't want what happened in the 1920's to happen again.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:10:41

evilgenius wrote:I thought you might say that. But think about it, cash wouldn't be worthless. Cash would be king.


In a normal deflationary cycle yes. Deflation raises the value of money. We are not talking about that.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:19:42

JV153 wrote:If you mean outside money as capital raised by issuing stock then that would correspond your term outside money.


No, raising capital by issuing stock would be purchased with inside money. Outside money refers to cash.
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Re: SO WHAT DO WE DO

Unread postby evilgenius » Sat 16 Jan 2016, 18:25:06

MonteQuest wrote:
evilgenius wrote:I thought you might say that. But think about it, cash wouldn't be worthless. Cash would be king.


In a normal deflationary cycle yes. Deflation raises the value of money. We are not talking about that.


Yes, we are. You are just trying to become a central planner for a moment and put together a means for which the borrowing for short-term spending would occur. Capitalism isn't about central planning. Those that need the thing would find a way.
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Re: SO WHAT DO WE DO

Unread postby JV153 » Sat 16 Jan 2016, 18:25:36

MonteQuest wrote:
JV153 wrote:If you mean outside money as capital raised by issuing stock then that would correspond your term outside money.


No, raising capital by issuing stock would be purchased with inside money. Outside money refers to cash.


.. or backed up by foreign debt including stocks and bonds ? :)
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:29:06

JV153 wrote: however in any case in order to repay those loans (if they are to be repaid, in general) requires an expansion of total M3 money supply. In the case of post-WWI the opposite occurred with depression due to a shortage of all types of money while WWII had saw high inflation in Germany. However the current central bank policy is to inflate the money supply and they have a strict stated goal of doing this within a narrow band. Apparently they don't want what happened in the 1920's to happen again.


But that is just the point. How do you inflate the money supply in a no-growth environment? Who could get a loan with little or no ability to repay? Who would make such a loan? The banks will go under by the defaults alone.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:31:25

JV153 wrote:.. or backed up by foreign debt including stocks and bonds ? :)


All worthless.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:34:25

evilgenius wrote:Yes, we are. You are just trying to become a central planner for a moment and put together a means for which the borrowing for short-term spending would occur. Capitalism isn't about central planning. Those that need the thing would find a way.


No, I am saying that with a debt-based monetary system when growth ends so does the "money supply" system.
Last edited by MonteQuest on Sat 16 Jan 2016, 18:41:58, edited 1 time in total.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:38:12

evilgenius wrote:Under a cash, or cash equivalent economy, the greatly reduced supply of exchangeable script or coin(having ditched the virtual kind) would render them very valuable indeed, so long as the people kept believing that form of exchange was the way to go. It's just the logical conclusion to the argument you are having with Pops.


All of that cash is gone, used to pay back debts. $1.34 trillion in cash vs $60 trillion in debt.

Forget cash. Not relevant to the conversation. In the US, only 9% of "money" is cash.
Last edited by MonteQuest on Sat 16 Jan 2016, 18:45:34, edited 1 time in total.
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Re: SO WHAT DO WE DO

Unread postby JV153 » Sat 16 Jan 2016, 18:41:38

MonteQuest wrote:
evilgenius wrote:Yes, we are. You are just trying to become a central planner for a moment and put together a means for which the borrowing for short-term spending would occur. Capitalism isn't about central planning. Those that need the thing would find a way.


No, I am saying that with a debt-based currency when growth ends so does the currency.


Well, now we've rehashed the peak oil thing, because that's what makes peak oil so interesting after all, isn't it ?
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Re: SO WHAT DO WE DO

Unread postby onlooker » Sat 16 Jan 2016, 18:45:33

And that is why as Monte states Peak Oil manifests via economic processes.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 18:47:22

JV153 wrote:Well, now we've rehashed the peak oil thing, because that's what makes peak oil so interesting after all, isn't it ?


Let me restate my position: I am saying that with a debt-based monetary system when growth ends so does the "money supply" system. Loans dry up, defaults and debt repayments shrink the money supply to zero. The money created disappears back into the thin air from which it was created. Poof!

Can you imagine the rush to the exits? Look at the capital flight going on right this very minute.
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Re: SO WHAT DO WE DO

Unread postby JV153 » Sat 16 Jan 2016, 19:07:13

MonteQuest wrote:
JV153 wrote:Well, now we've rehashed the peak oil thing, because that's what makes peak oil so interesting after all, isn't it ?


Let me restate my position: I am saying that with a debt-based monetary system when growth ends so does the "money supply" system. Loans dry up, defaults and debt repayments shrink the money supply to zero. The money created disappears back into the thin air from which it was created. Poof!

Can you imagine the rush to the exits? Look at the capital flight going on right this very minute.


Yeah, but I could have told you that in 2 seconds (the connection between post peak oil and the financial system). .. and yet the dow soars to 14000 and it was like 9000 6 years ago.. so what is with all the irrational exuberance ?
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 19:07:42

Using the term cash or dollar clouds this discussion. Why?

Consider that all new money is created as a digital entry into the bank account of the person taking out the loan.

New money is not created in the form of dollar bills. The amount of dollar bills in circulation varies according to the needs of society to perform physical transactions, as determined by the FED. It is just a way to carry an electronic deposit on your person. In the future, physical money "cash" may disappear altogether, and be replaced with electronic devices--just like they are being done right now with debit cards.
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Re: SO WHAT DO WE DO

Unread postby MonteQuest » Sat 16 Jan 2016, 19:09:48

JV153 wrote:Yeah, but I could have told you that in 2 seconds (the connection between post peak oil and the financial system). .. and yet the dow soars to 14000 and it was like 9000 6 years ago.. so what is with all the irrational exuberance ?


Cheap money, debt and greed.
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Re: SO WHAT DO WE DO

Unread postby Pops » Sat 16 Jan 2016, 19:27:11

MonteQuest wrote:
Pops wrote:I meant the government could simply spend it into existence.


You mean just print dollars and spend them? Sorry. The federal government cannot spend money without first taking that money from someone at interest via a bond or govt security.

Exactly!
FRNs are backed by the government.

Congress has specified that a Federal Reserve Bank must hold collateral equal in value to the Federal Reserve notes that the Bank receives. This collateral is chiefly gold certificates and United States securities. This provides backing for the note issue. The idea was that if the Congress dissolved the Federal Reserve System, the United States would take over the notes (liabilities). This would meet the requirements of Section 411, but the government would also take over the assets, which would be of equal value.

https://www.treasury.gov/resource-cente ... ender.aspx

The government essentially owns both the asset and the liability - that is fiat money.

But what makes government paper better than any other and allows them to pull it off?

The ability to collect tax.
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Re: SO WHAT DO WE DO

Unread postby Pops » Sat 16 Jan 2016, 19:46:39

MonteQuest wrote:
Pops wrote: If I remember my original comment, as the economy cools post peak, the supply of bank deposits will shrink as bank loans are paid or defaulted on, effectively reducing the "money supply."


Pops, I have been struggling to see your point.

Are you trying to say that when all the debts are either defaulted or are paid back, that there will be some money left over? Is this your point that all money isn't debt? If so, where did this money come from, if not through debt?


FRNs are government obligations backed by the government. As I said, they will be good as long as the government stands (or until it comes up with something new).

All the old stock certs, corp bonds etc will long since be used as TP. All the bits will have gone to nil. But trade will continue.
Barter is great but once beyond a few individuals some currency is invaluable. Currency as FRNs will remain or maybe something new invented, maybe locally. If a Gov exists at all, one of it's main duties would be to enable trade [and of course collect tax]. A single national currency is beneficial if for no other reason than standardization and convertibility. Because the government can create currency by decree ("loaning" itself the money if need be) then I think that will happen.

Regardless of what a federal gov does there will be currency.
iPhones maybe, limited supply, not making any more...
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Re: SO WHAT DO WE DO

Unread postby Pops » Sat 16 Jan 2016, 20:03:13

MonteQuest wrote:$1.34 trillion in cash vs $60 trillion in debt.


$40T or so of "unfunded obligations" will not only remain unfunded but the laws creating them will simply be repealed. The publically held debt is something like $13T currently and half of that is held by furiners.

Forget cash. Not relevant to the conversation. In the US, only 9% of "money" is cash.


10% of current money in an environment where all banks have gone broke seems like quite a bit.

I'd think the biggest problem will come from the bankers inside the government trying to bail their bros. Before the banks disappear my guess is they would be nationalized.
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