Posted: Thu May 10, 2007 10:24 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
P.S. In reviewing this thread I saw that you provided convincing arguments that in a permanent recession 'there won't be money to go around' and hence the monetary system will collapse. (I'm going by the poll title 'Is a debt-based monetary system compatible with oil depletion?' here; during the discussion, WHAT exactly is supposed to collapse or not collapse becomes less clear.)
Oh, it's quite clear. In our system, money only comes into existance through loans.
Loans are only taken out and given based upon future growth to repay those loans plus the interest.
No prospect of growth due to declining energy supply = no loans
No loans = shrinking money supply, as the existing outstanding debt principal is retired. Repaid loan money disappears upon retiring of the debt.
Other arrangements will have to be made. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:30 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
MQ also repeatedly said that in a DBMS ALL money is money owed to somebody--I find this an incredible claim and can't see how this could be so.
I don't think there is, or has ever been, a money system where ALL the money is money owed to the bank.)
All the fiat debt-based money in the world is owed to someone, save the coins in your pocket.
All fiat debt-based money comes into existance through loans.
All fiat debt-based money is an IOU.
If you have $100 in the bank, someone has a loan out on it or it wouldn't exist. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:37 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
nero wrote:
There is money that is created by commercial banks when they grant credit to an indivdual. This expands the money supply because the bank doesn't tell the depositor that their money isn't really in the bank anymore.
Not so.
FED wrote:
Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.
Posted: Thu May 10, 2007 10:39 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
nero wrote:
If you think about the way the central bank inserts money into the economy you realize that in effect they are simply giving free money to the federal government to spend. Some people advocate (I think MQ does) that the whole rigamarole of buying federal debt and then returning the interest be suspended and the central bank should just give the money directly to the federal government. If you trusted politicians to not abuse this non tax revenue stream this would be fine as well.
Yes, new money needs to be spent into existance, not loaned. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:43 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
mididoctors wrote:
Not my forte but I would have thought it is difficult to expand the money supply with low inflation without actually making stuff (using energy )?
Infinite(big/continuious) growth in the money supply without actually making things must equal hyper-inflation surely?
Surely. Too many dollars chasing too few goods = inflation
Way too many dollars chasing fewer and fewer goods = hyperinflation.
Like Hubbert opined, zero interest rates or continous inflation. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:45 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
nero wrote:
If you think about the way the central bank inserts money into the economy you realize that in effect they are simply giving free money to the federal government to spend. Some people advocate (I think MQ does) that the whole rigamarole of buying federal debt and then returning the interest be suspended and the central bank should just give the money directly to the federal government. If you trusted politicians to not abuse this non tax revenue stream this would be fine as well.
Yes, new money needs to be spent into existance, not loaned.
Wrong. It's perfectly fine to create money by issuing credit. It's the charging of interest which is the deadly sin that require infinite exponential growth.
Posted: Thu May 10, 2007 10:48 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
But there is no interest generated from this kind of IOU. I wish there were (holding a banknote and reading the '...promises to pay the bearer on demand xxx dollars' line as we speak), but no matter how long I hold on to my $100 bill, it is not going to turn into $110 when I hand it in to the bank.
Thus this kind of 'debt' is irrelevant to the Debt Virus hypothesis.
Not so. A $100 bill under your mattress is in existance because someone borrowed it.
You are using someone else's IOU as a medium of exchange. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:51 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MacG wrote:
Wrong. It's perfectly fine to create money by issuing credit. It's the charging of interest which is the deadly sin that require infinite exponential growth.
On that point, I agree. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Thu May 10, 2007 12:47 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Fed wrote:
Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.
MonteQuest,
What I described is a simplified version of what the Fed is saying. They are talking in accounting terms where a demand deposit is defined as money and where of course the deposit account doesn't change when the asset and liability are added to the books. I was trying to avoid complicating it but preserve the essence.
What I was saying isn't in conflict with what the FED is saying, I'm just talking more colloquially. _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Posted: Thu May 10, 2007 1:46 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
nero wrote:
MonteQuest,
What I described is a simplified version of what the Fed is saying. They are talking in accounting terms where a demand deposit is defined as money and where of course the deposit account doesn't change when the asset and liability are added to the books. I was trying to avoid complicating it but preserve the essence.
What I was saying isn't in conflict with what the FED is saying, I'm just talking more colloquially.
I disagree. The following paragraph leads the reader to infer that the depositor's money has been lent out in a loan.
Quote:
There is money that is created by commercial banks when they grant credit to an indivdual. This expands the money supply because the bank doesn't tell the depositor that their money isn't really in the bank anymore.
Bank loans are not the result of lending other depositor's money out. Bank deposits are only used in a loan to provide the FED reserve requirement of 10% and limit the amount of money that can be created, above and beyond the bank's actual deposits.
The depositor's money is still in the bank and is never lent out. You cannot expand the money supply if you just re-lend out money already created, as the FED notes in the paragraph I quoted.
Most people think banks lend out the money deposited therein; they do not.
They lend out money they create based upon the rules of fractional reserve banking. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Thu May 10, 2007 6:58 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
Bank loans are not the result of lending other depositor's money out. Bank deposits are only used in a loan to provide the FED reserve requirement of 10% and limit the amount of money that can be created, above and beyond the bank's actual deposits.
I'm sorry to say Montequest that this sounds like you have a profound misunderstanding of how fractional reserve banking works. The only way I can interpret the above passage is to mean that the deposits in checking accounts are equivalent to the bank's reserves. This is just not how it works.
The deposits of an individual bank do not limit their lending power. their lending power is limited by their excess reserves. For a $10,000 deposit assuming 10% reserve requirement $9000 is excess reserves that may be lent out. when it is lent out, more likely than not the borrower does not take it in cash. if he did there would be no net creation of money. Instead the borrower has it credited to his account in the bank increasing the amount of deposits in the bank. This deposit is new money created by the fractional reserve banking system.
This has been explained many times before in this thread, what is more, it is essentially what the Fed was saying in the passage that you took your excerpt from:
The Fed, Modern Money Mechanics wrote:
However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested. See illustration 2.
If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. See illustration 3.
_________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Posted: Thu May 10, 2007 9:20 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
nero wrote:
I'm sorry to say Montequest that this sounds like you have a profound misunderstanding of how fractional reserve banking works. The only way I can interpret the above passage is to mean that the deposits in checking accounts are equivalent to the bank's reserves. This is just not how it works.
No, I didn't mean that. I meant what you just wrote. The $9000 is excess reserves that sets the limit of how much new money can be created from a $10,000 deposit with 10% reserve requirement.
The $10,000 deposit stays where it is and $9000 of new money is created to loan.
As...
Quote:
Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.
_________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 10:14 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
All the fiat debt-based money in the world is owed to someone, save the coins in your pocket.
All fiat debt-based money comes into existance through loans.
All fiat debt-based money is an IOU.
If you have $100 in the bank, someone has a loan out on it or it wouldn't exist.
No loans = shrinking money supply, as the existing outstanding debt principal is retired. Repaid loan money disappears upon retiring of the debt.
If tomorrow Capitol Hill is blown up, the Internet is gone, all bank records are erased and all banks closed, the coins left in people's pockets will still allow a functioning monetary system. The only way the money supply would shrink from there is if someone burnt his banknotes.
Money printed by a previous government often continue to circulate in this way after the collapse of the government, before a new government steps in and issues an accepted new currency.
Heck, if you can imagine that every dollar in the bank is to be backed up by real banknotes, all the problems you are imagining now wouldn't exist.
The $100 I put in the bank was originally a $100 note. The bank didn't burn it.
When the bank loans $1,000,000 to somebody, it prints $1,000,000 in banknotes--even if that somebody just credits the money to a bank account.
And so on. The reality is not so different: all deposits and accounts carry with them to promise to physicalize the money in banknotes if you so desire. If you ask for a cash withdrawal from your bank account, the only two reasons the bank may not be able to give it to you are
1. it has run out of reserves
2. it has run out of banknotes (in which case it can just print more)
Can you point out a point in the money cycle where, if the money were physicalized in banknotes, one would require the money to be burnt? If not, you have failed to prove that the money would 'disappear'.
Joined: May 22, 2004 Posts: 1424 Location: Ottawa, Ontario
Posted: Thu May 10, 2007 10:32 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MQ wrote:
No, I didn't mean that. I meant what you just wrote. The $9000 is excess reserves that sets the limit of how much new money can be created from a $10,000 deposit with 10% reserve requirement.
phew, good.
Quote:
The $10,000 deposit stays where it is and $9000 of new money is created to loan.
The excess reserves stay where they are until the borrower draws on their line of credit to purchase something. When the borrower takes money out of the bank, the bank's reserves decrease. The original deposit then is just a number in a ledger that is accepted as money and is backed by a fraction of the original deposit and by the banks promise to pay the full amount back on demand. _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Posted: Thu May 10, 2007 11:32 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
If tomorrow Capitol Hill is blown up, the Internet is gone, all bank records are erased and all banks closed, the coins left in people's pockets will still allow a functioning monetary system. The only way the money supply would shrink from there is if someone burnt his banknotes.
You are showing an extreme lack of knowledge of how our money system works. As the principal on a loan is repaid, the money disappears back into the thin air from which it was created.
If everyone paid their debts, no paper fiat money would exist without new loans being made.
And if we just had coins left, the deflation would be horrendous with all those goods chasing so few dollars. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
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