Kucinich And Stephen Zarlenga Anti-Gold Drive

[S.Shorland]

http://www.youtube.com/watch?v=1l3OxMAF7Rk&list=UU_lvvd3d3K7NgLtWstl6YNg&index=30&feature=plpp_video


http://www.youtube.com/watch?v=h_2Wo0RRkQU&feature=relmfu

[cubical]

Quite long... cliffs?

[matt0611]

Quite long... cliffs?

This.

[Roy L]

Quite long... cliffs?
If you read Zarlenga's book (the first 3/4 is highly recommended, the last 1/4 not so much), he makes a strong case that the total supply of gold is too small relative to the total economy, making it too easy for a small number of very wealthy people to gain control of enough gold to manipulate prices, interest rates, the directions of markets, etc. for their own profit, and to the detriment not only of other market players but the broader economy.

[cubical]

If you read Zarlenga's book (the first 3/4 is highly recommended, the last 1/4 not so much), he makes a strong case that the total supply of gold is too small relative to the total economy, making it too easy for a small number of very wealthy people to gain control of enough gold to manipulate prices, interest rates, the directions of markets, etc. for their own profit, and to the detriment not only of other market players but the broader economy.

This might make sense if the price of gold was static. As some major player tries to hoard the gold, it will skyrocket in value beyond its "true" value. The powers who try to buy up all the gold will in essence be selling off other at assets dirt cheap prices. When someone is hoarding money, it is good for everyone else, assuming he gets the money in an honest way(ie selling a product rather than theft or counterfeit).

[Roy L]

This might make sense if the price of gold was static.
No, it makes sense because it isn't.

As some major player tries to hoard the gold, it will skyrocket in value beyond its "true" value. The powers who try to buy up all the gold will in essence be selling off other at assets dirt cheap prices.
Nope. Buy on margin, kite the price, sell at a profit. You seem to have a remarkably naive view of how financial markets work.

When someone is hoarding money, it is good for everyone else, assuming he gets the money in an honest way(ie selling a product rather than theft or counterfeit).
Nope. Deflation is NOT good for everyone else.

[Lafayette]

If you read Zarlenga's book (the first 3/4 is highly recommended, the last 1/4 not so much), he makes a strong case that the total supply of gold is too small relative to the total economy, making it too easy for a small number of very wealthy people to gain control of enough gold to manipulate prices, interest rates, the directions of markets, etc. for their own profit, and to the detriment not only of other market players but the broader economy.

Question...

How is everything you just said in the above paragraph not all ready what we have under the fiat/central bank system?

[mczerone]

No, it makes sense because it isn't.

Nope. Buy on margin, kite the price, sell at a profit. You seem to have a remarkably naive view of how financial markets work.

Nope. Deflation is NOT good for everyone else.

Great arguments. I really see where cubical was wrong, and why you must be right.

I hope you enlighten us more with your impeccable reasoning and analysis.

[cubical]

No, it makes sense because it isn't.

Nope. Buy on margin, kite the price, sell at a profit. You seem to have a remarkably naive view of how financial markets work.

Nope. Deflation is NOT good for everyone else.

How would it make sense? As gold moves higher, the buyer(manipulator if you want to call him that) will have to give up more and more assets to keep finding new sellers.

If you are the only major buyer, you can't prop up the price, certainly not long enough to unload your position. Besides, you could attempt this with any asset, not just gold. It really has nothing to do with gold.

Wrong. Let's say Steve Jobs had become so rich that he owned 50% of the money in the United States. Then right before he passed away he said he was burning all his cash. You really believe this would not increase the purchasing power, thus be good, for EVERYONE else who held dollars?

[Roy L]

How is everything you just said in the above paragraph not all ready what we have under the fiat/central bank system?
The current system is a debt money system, not a fiat money system. A fiat money system is under the control of the money issuer, basically the government. The debt money system is under the control of bankers, who issue money by lending it. Much as I distrust government, I trust it more than I trust bankers.

[Roy L]

How would it make sense? As gold moves higher, the buyer(manipulator if you want to call him that) will have to give up more and more assets to keep finding new sellers.
He doesn't have to give up any assets. He borrows against the rising price of his gold.

If you are the only major buyer, you can't prop up the price, certainly not long enough to unload your position.
LOL! I have worked with market makers and stock promoters. You are simply wrong.

Besides, you could attempt this with any asset, not just gold. It really has nothing to do with gold.
It's true that people do it with other assets, typically stocks and debt instruments. But if gold is money, the manipulation affects everything else throughout the economy.

Wrong.
Every economist agrees with me.

Let's say Steve Jobs had become so rich that he owned 50% of the money in the United States. Then right before he passed away he said he was burning all his cash. You really believe this would not increase the purchasing power, thus be good, for EVERYONE else who held dollars?
It would certainly be good in the short run for everyone else who held or was owed more dollars than he owed or wanted to spend, but it would be bad for debtors, and bad for the economy.

[smokemonsc]

Any amount of gold (or anything else for that matter) is enough to represent any size economy. To say otherwise is an absurdity. If I have to divide a kilometer of gold in enough pieces so that all people on the planet have a piece, and all of their pieces were given 1-1 ratio for their dollars, how small would you like me to go until I've proven you wrong?

Meters?
Centimeter?
Millimeter?
Micrometer?
Nanometer?
Picometer?
Femtometer? one quadrillionth (millionth of a billionth) of a meter, or 0.000000000000001m.

Surely that's enough to cover all currency units of the world combined. Again - any size of anything is large enough to represent any size economy. To say otherwise is an absurdity and ignores the above example. Anyone who claims that gold is not plentiful enough to represent any sized economy is proposing a childish argument and shows a complete lack of understanding of what money is.

[smokemonsc]

We experienced deflation in the US for 150 years of our history until 1913. During that time we went from being a third world country to the leading manufacturing power in the world. By World War I we had surpassed the UK as the leading industrial power in the world. All while on a gold standard and without a central bank.

Deflation is the reward for a healthy economy. Deflation is the result of improved productivity and leads to an improvement of living conditions for the average man.

[cubical]

He doesn't have to give up any assets. He borrows against the rising price of his gold.

LOL! I have worked with market makers and stock promoters. You are simply wrong.

It's true that people do it with other assets, typically stocks and debt instruments. But if gold is money, the manipulation affects everything else throughout the economy.

Every economist agrees with me.

It would certainly be good in the short run for everyone else who held or was owed more dollars than he owed or wanted to spend, but it would be bad for debtors, and bad for the economy.

You don't see the whole picture. Whoever is giving him money would be giving up assets. If a bank is giving him money to be buy my gold at 50k an ounce, fine, I will take the banks money and go pay off my house or buy a car or start a company. Regardless of who is paying, they would have to be paying a lot.

No you don't because this doesn't happen on the scale you are purposing. Think Hunt Brothers. You are speaking of every day market manipulation.

If the fact that it is currency was important, then people could just manipulate the dollar there is no difference. And before you speak on size, remember price is relative. This is a pretty weak argument.

Don't show your ignorance so strongly.

It would be good in the long run. Some creditors would have to refinance, but everyone's purchasing power and standard of living would rise. You add to the economy why you collect money and you take from it when you spend(consume). Imagine rather than dollars, he had goods. He dies and gives them to everyone. Its the same idea.

[cubical]

We experienced deflation in the US for 150 years of our history until 1913. During that time we went from being a third world country to the leading manufacturing power in the world. By World War I we had surpassed the UK as the leading industrial power in the world. All while on a gold standard and without a central bank.

Deflation is the reward for a healthy economy. Deflation is the result of improved productivity and leads to an improvement of living conditions for the average man.

Yes, deflation is the big scary monster Keynesians will want you to fear. My costs of living steadily going down? Bring it on.

[Black Flag]

If you read Zarlenga's book (the first 3/4 is highly recommended, the last 1/4 not so much), he makes a strong case that the total supply of gold is too small relative to the total economy, making it too easy for a small number of very wealthy people to gain control of enough gold to manipulate prices, interest rates, the directions of markets, etc. for their own profit, and to the detriment not only of other market players but the broader economy.

Utter nonsense.

The particular unit of currency per good is infinitely flexible.

You have heard of "1c" piece right?

[Black Flag]

Every economist agrees with me.

Ahhh...no.

[Black Flag]

The ability to manipulate gold long term and systemically does not exist.

The gold market trade is the largest trade on earth ... its size eventually and shortly overwhelms anyone too stupid or too slow.

[Black Flag]

The current system is a debt money system
Nonsense.

Roy believes if a dog barks, there must be two dogs.



not a fiat money system. A fiat money system is under the control of the money issuer, basically the government.

Fiat system is what we have. It is under the control of the money issuer.

Because you hold some crack pot theory of "Debt" money - you are so twisted around, you think banks make money out of thin air - yet! when any one tries to collect this thin air money ... it evaporates!

You live in leprechaun land... as long as no one finds the gold at the end of the rainbow, it must be there!

[Roy L]

The particular unit of currency per good is infinitely flexible.
Not when the currency IS a good. When its value gets too far from its production cost, the system becomes unstable.

[Roy L]

Roy believes if a dog barks, there must be two dogs.
Whereas BF believes the presence of a dog does not imply that at least two other dogs existed....

Fiat system is what we have. It is under the control of the money issuer.
No. The current system is not a fiat money system, as the great majority of our money is issued by private banks as debt.

Because you hold some crack pot theory of "Debt" money - you are so twisted around, you think banks make money out of thin air
They make it out of borrowers' legal obligations to repay their debts.

- yet! when any one tries to collect this thin air money ... it evaporates!
Nonsense. It is when debts are repaid that debt money disappears. I have already explained this to you.

[Roy L]

The ability to manipulate gold long term and systemically does not exist.

The gold market trade is the largest trade on earth ... its size eventually and shortly overwhelms anyone too stupid or too slow.
Look at the gold price chart for the last 30 years and tell me the market has not been manipulated. It was OBVIOUSLY kept in a narrow trading range in the 1990s.

[S.Shorland]

http://www.monetary.org/ As this is where the statists will come from after the collapse,They get 33% of their support from sales of his book so on second thoughts,don't buy it.Watch the videos here and on youtube and his website.

http://www.monetary.org/the-1930s-chicago-plan-vs-the-american-monetary-act/2009/08

[dancjm]

My understanding is that:

Fiat money is money which is not backed by a physical asset, but circulated and used on the basis of legal tender laws.

The definition of fiat being: A formal authorization or proposition; a decree.

Debt money is "money" which is in fact not money at all, but debt. In fact if I understand correctly, it is not just that a bank creates a debt from the borrower to the bank, but also that the bank creates a debt from the bank to the borrower. So the bank promises to pay the borrower what the borrower promises to pay back to the bank. In effect there is no money, just a whole load of promises to pay (I promise to pay the bearer on demand the sum of XXX)

http://www.hitxp.com/pics/will-pay-to-bearer.jpg

http://newsimg.bbc.co.uk/media/images/45399000/jpg/_45399009_notebearer.jpg

So if I understand correctly, we have a fiat-debt money system.

[S.Shorland]

Grignon's 'money as debt' and 'money as debt II : promises unleashed' seem to be along the same lines.In his second part,grignon hides (intentionally I expect) Hoover's ignoring of Mellon's advice to let 'em go bust and all Hoover's big programs and paints a rosey picture of FDR. From the video they are trying to create a meme and seemingly being very successfull at it.They know as well as we that something is coming down the track and they are making their plans to be the inheritors.Know your enemy.

Zerlanger is a sociologist.A mind-bender.I'd be very interested to discover his associations.A smiling face on the iron fist.

[S.Shorland]

..

[LibForestPaul]

No, it makes sense because it isn't.

Nope. Buy on margin, kite the price, sell at a profit. You seem to have a remarkably naive view of how financial markets work.

Nope. Deflation is NOT good for everyone else.

Unless someone is pointing a gun at a group, free market will intervene and a new medium and commodity for exchanging goods will be sought and agreed upon VOLUNTARILY.

[cubical]

Look at the gold price chart for the last 30 years and tell me the market has not been manipulated. It was OBVIOUSLY kept in a narrow trading range in the 1990s.

What is so manipulated about it? Just because you don't think a price should be where it is, means nothing. The market is greater than you.

Your "debt money" talk would make sense if you truly believe the fed will call in this debt money and eliminate it. Debt money has done and will cause inflation just as physical money.

[smokemonsc]

Not when the currency IS a good. When its value gets too far from its production cost, the system becomes unstable.

Actually if that occurs than the production of said good decreases until the equilibrium is found again. Is it coincidence that a set of fine dress clothes has cost about an ounce of gold going all the way back to Ancient Rome?

I wonder how that happened.

[Lafayette]

The current system is a debt money system, not a fiat money system. A fiat money system is under the control of the money issuer, basically the government. The debt money system is under the control of bankers, who issue money by lending it. Much as I distrust government, I trust it more than I trust bankers.

Oh... i see. So for the sake of argument lets just forget for a second that the bankers and all the other special interests and complexes don't infest and control government. We just put the printing press into the hands of guys who bring us such wonderful things as the patriot act, NDDA, assassinations of US citizens, TSA, the war on drugs, endless foreign wars and 10s of trillions in debt and unfunded liabilities and things will be sooooooo much better....:rolleyes:

[Black Flag]

Fiat money is money which is not backed by a physical asset, but circulated and used on the basis of legal tender laws.

Money is physical.

Just look into your wallet and see it.

Gold is not backed by anything other than itself, too.



The definition of fiat being: A formal authorization or proposition; a decree.

True, but it is still money.



Debt money is "money" which is in fact not money at all, but debt.

Correct, which is why it is a grave error to treat it as money, establish monetary policy as if it was money and to make cause/effect calculations of money as if it was money. You will get the wrong answers.



In fact if I understand correctly, it is not just that a bank creates a debt from the borrower to the bank, but also that the bank creates a debt from the bank to the borrower.

Correction.... bank to depositor



So the bank promises to pay the borrower what the borrower promises to pay back to the bank. In effect there is no money, just a whole load of promises to pay (I promise to pay the bearer on demand the sum of XXX)

Other than depositor/borrower misnaming... it is not money, but a whole lot of promises to pay that must -one day- be reconciled with money.

As long as the borrower/depositors are matched, eventually everything works out.

If depositors withdraw or borrowers renege, serious issues occur.



So if I understand correctly, we have a fiat-debt money system.

No, we just have fiat money and a fractional reserve system.

It is important to understand that it is not the fiat nature of modern money that is (necessarily) a problem.

It is the fractional reserve system that is the significant problem.

It is a fraudulent system based on deception of the bank upon the depositor. As will all immoral operations, it tends to end badly.

[JBSay]

It is important to understand that it is not the fiat nature of modern money that is (necessarily) a problem.

It is the fractional reserve system that is the significant problem.

It is a fraudulent system based on deception of the bank upon the depositor. As will all immoral operations, it tends to end badly.
There is nothing fraudulent about a fractional reserve system as long as you are aware that the money you have deposited has been lent out. If you don't want it lent out then put it in a safe deposit box and pay storage cost instead of earning interest. This is a choice you have to make and it has nothing to do with fraud.

[GeorgiaAvenger]

There is nothing fraudulent about a fractional reserve system as long as you are aware that the money you have deposited has been lent out. If you don't want it lent out then put it in a safe deposit box and pay storage cost instead of earning interest. This is a choice you have to make and it has nothing to do with fraud.

I would agree with this. The main problem is our current central banking system.

In a free banking system, banks should still be required to be clear on how the system works.

[Black Flag]

There is nothing fraudulent about a fractional reserve system as long as you are aware that the money you have deposited has been lent out. If you don't want it lent out then put it in a safe deposit box and pay storage cost instead of earning interest. This is a choice you have to make and it has nothing to do with fraud.

No, the fraud is the promise you can get your money upon demand, and that promise has been made 9 times over per dollar...so, 8 of "you" are going to lose one day.

[JBSay]

No, the fraud is the promise you can get your money upon demand, and that promise has been made 9 times over per dollar...so, 8 of "you" are going to lose one day.
You have a promise you can get access to your money upon demand so long as the bank is solvent and in the case of the US the FDIC is solvent. Depositing money in a bank is akin to buying a rollover bond with instantaneous maturity. Upon maturity you can choose not to roll over your bond and receive payment of the principal. However if in the mean time your debtor becomes insolvent then like any bond holder you will likely suffer a loss.

If you are not willing to take that risk you have an easy way out : don't buy the "bond". No one is deceiving you.

[Roy L]

What is so manipulated about it? Just because you don't think a price should be where it is, means nothing. The market is greater than you.
Google "GATA" and start reading.

Your "debt money" talk would make sense if you truly believe the fed will call in this debt money and eliminate it.
?? HUH? It can't do any such thing, as that would cause a deflationary collapse.

Debt money has done and will cause inflation just as physical money.
Yes, debt money is inherently inflationary as the creation of the money as debt does not create the money to pay the interest on the debt. More debt is automatically needed.

[Roy L]

There is nothing fraudulent about a fractional reserve system as long as you are aware that the money you have deposited has been lent out.
The fraud is precisely that money lent out has not been deposited by anyone but the bank itself, which creates the deposit by lending it. Money deposited by customers is used as reserves, not lent out.

[JBSay]

The fraud is precisely that money lent out has not been deposited by anyone but the bank itself, which creates the deposit by lending it. Money deposited by customers is used as reserves, not lent out.
If I deposit $100 the bank owes me $100. If the reserve requirement is 10% the bank can lend out $90 and keep $10 as reserve. Where is the fraud?

[Black Flag]

You have a promise you can get access to your money upon demand so long as the bank is solvent and in the case of the US the FDIC is solvent. Depositing money in a bank is akin to buying a rollover bond with instantaneous maturity. Upon maturity you can choose not to roll over your bond and receive payment of the principal. However if in the mean time your debtor becomes insolvent then like any bond holder you will likely suffer a loss.

If you are not willing to take that risk you have an easy way out : don't buy the "bond". No one is deceiving you.

It is not a bond, it is a deposit. It does not "roll over" anything, nor have a maturity.
Your wishful analogy is dangerously flawed.

The deposit is based on a promise to redeem upon demand, but the money has been loaned out.

It cannot both be a loan and be ready to repay my deposit.

The bank makes a lie - a lie that threatens the banking system.

[Zippyjuan]

Let's loan $10 from my pocket to my friend Steve. Later in the day, Steve's friend John wants to borrow $5 from Steve to buy something and Steve gives it to him. Has fraud occured anywhere along the way? John owes Steve $5 and Steven owes me $10. Have we "created" $15? The actual money circulating is still $10. I don't have $10 and Steve doesn't either- he has $5 and John has $5.

Now substitute "bank" for Steve.

If I need to get my money back today, Steve (the bank) will have to get that money from somebody- either he can try to get John to pay him back or he can see if he can borrow (in the case of a bank try to attract more deposits) from somebody else.

Banks know that not everybody is going to want to be paid back their deposits today so they try to keep enough around so that those who are likely to want their money back today can get it. In the mean time, they can wait for Steve and John to pay back what they borrowed.

[Roy L]

If I deposit $100 the bank owes me $100. If the reserve requirement is 10% the bank can lend out $90 and keep $10 as reserve. Where is the fraud?
You're not paying attention. If you deposit $100, the bank uses ALL that money as reserves, and can thus lend out $1000 in brand new debt money that it creates, subject to its ability to cover checks written on those new deposits.

[Roy L]

Now substitute "bank" for Steve.
Banks can legally do what Steve legally cannot: create deposits.

[Zippyjuan]

Banks can legally do what Steve legally cannot: create deposits.

They can't do that either. A deposit is somebody putting money into the bank. Now if a bank took some of their money and put that into another bank, that would be a deposit. But then, they don't have that money- the other bank does. They can create the account the deposit goes into, but they can't create the deposit itself.

http://www.investopedia.com/terms/b/bank-deposits.asp#axzz1rV6x3R3Z

Definition of 'Bank Deposits'
Money placed into a banking institution for safekeeping. Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited.

Investopedia explains 'Bank Deposits'
When someone opens a bank account and makes a deposit of $500 cash, the account holder surrenders legal title to the $500 cash. This cash becomes an asset of the bank; the account becomes a liability. In the United States, the Federal Deposit Insurance Corporation (FDIC) provides deposit insurance that guarantees the deposits of member banks up to $250,000 per depositor, per bank. Member banks are required to place signs visible to the public stating that "deposits are backed by the full faith and credit of the United States Government."

Read more: http://www.investopedia.com/terms/b/bank-deposits.asp#ixzz1rV747yyV

Looks like Roy is on a vacation.

[Black Flag]

Banks know that not everybody is going to want to be paid back their deposits today so they try to keep enough around so that those who are likely to want their money back today can get it. In the mean time, they can wait for Steve and John to pay back what they borrowed.

It isn't that.

If you promised to pay Steve and John on demand, and then you can't - you lied to them and committed a fraud - that is, an intentional deception made for personal gain as the "Bank" is earning interest on the loans and could only do so by lying to Steve and John

[Black Flag]

You're not paying attention. If you deposit $100, the bank uses ALL that money as reserves, and can thus lend out $1000 in brand new debt money that it creates, subject to its ability to cover checks written on those new deposits.

No, it does not do that at all.

It always loans out real money it receives via deposits.

Deposit $100
$10 to FED reserve
$90 out in loan, which borrower buys something, the seller gets the cash, and deposits $90

Deposit $90
$9 to FED reserve
$81 out in loan, which borrower buys something, the seller gets the cash, and deposits $81

Deposit $81
$8.10 to FED reserve... and so on.

So do this over and over, and eventually $100 original money sits in the FED reserve.
~$900 is on the banks books as an obligation to the depositor.
~$900 is on the banks books earning interest as loans to borrowers.

[JBSay]

Black Flag is correct. I will add that if banks were doing what Roy L described then any amount of new money injected in the banking system no matter how small would infinitely increase the money supply rendering the money worthless as the series he described is not bounded.

[LibForestPaul]

No, it does not do that at all.

It always loans out real money it receives via deposits.
.
And that is why the m3 money supply never increase.

[Zippyjuan]

The Fed does not track M3 any longer because they say it gives them no more useful information than M2 and is difficult to calculate though some sites like Shadowstats attampt to calculate their own version of M3 http://www.shadowstats.com/alternate_data/money-supply-charts . It would not be true to say that M3 does not change.

What is in M3 which is not in M2?


all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

Large CDs being those over $100,000
Eurodollar deposits are bank accounts in other countries which are denominated in US Dollars.

The Money Supply measures are broken down into scales of liquidity and how easily money from them can enter the economy and be spent. M0 is cash plus accounts with the Fed that can be converted into cash. M1 is that plus money in demand accounts (like checking accounts). M2:

M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

http://en.wikipedia.org/wiki/Money_supply

[Roy L]

No, it does not do that at all.

It always loans out real money it receives via deposits.
Nope. But thanks for sharing your false opinion of how the monetary system works.

Deposit $100
$10 to FED reserve
$90 out in loan, which borrower buys something, the seller gets the cash, and deposits $90

Deposit $90
$9 to FED reserve
$81 out in loan, which borrower buys something, the seller gets the cash, and deposits $81

Deposit $81
$8.10 to FED reserve... and so on.

So do this over and over, and eventually $100 original money sits in the FED reserve.
~$900 is on the banks books as an obligation to the depositor.
~$900 is on the banks books earning interest as loans to borrowers.
Repeatedly posting this fictional account does not make it any more accurate.

[Roy L]

Black Flag is correct.
No, he is not.

I will add that if banks were doing what Roy L described then any amount of new money injected in the banking system no matter how small would infinitely increase the money supply rendering the money worthless as the series he described is not bounded.
False and absurd. It is limited by banks' ability to cover checks drawn on the deposits they create. That is why bundling and reselling mortgages enabled such a rapid increase in debt: banks were constantly getting back liquid demand deposit (debt) money in return for illiquid loans, enabling them to create even more debt money.

[Zippyjuan]

Repeatedly posting this fictional account does not make it any more accurate.
Other than the reserve portion going to the Federal Reserve (it can also be kept at the bank itself or at the Fed or some combination of both) this IS how it works.

I deposit $100. I no longer have $100- the bank does. They give me a promise to pay later which is considered a liability for the bank. With a ten percent reserve requirement, the bank can loan out up to $90 of that. Somebody will owe them the $90 so that is counted as an asset and the $10 on reserve is an asset. Now they have $10 and the borrower has $90. If that person A does not need the money at that moment, he can deposit his $90 with the bank. He no longer has $90 but a promise from the bank that they will pay him back his $90 later. On this deposit, the bank can loan out $81 and has to keep $9. Now the bank has $11 and person B has $89. Everybody else has a promise to be paid back.

Now if I want my $100 back, the bank has to get that money from someplace. They can't make it from nothing. They can get money from a new depositor or from another bank which may have more reserves on hand than required for the amount of loans outstanding or they can borrow from the Federal Reserve until they can attract or borrow more money from some place else.

What has also happend is that the bank no longer has the $100 deposit they needed to be allowed to have that $90 loan out. They have to keep $10 on hand in reserves to keep that loan out so they also have to get another $10 for reserves.

[Roy L]

They can't do that either.
They can and do.

A deposit is somebody putting money into the bank.
But that "somebody" can be the bank itself, and the money can be newly created.

They can create the account the deposit goes into, but they can't create the deposit itself.
Yes, they can. See, "Modern Money Mechanics," published by the US Federal Reserve Bank.

Definition of 'Bank Deposits'
Money placed into a banking institution for safekeeping. Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited.
That is objectively false. The money is owed to the deposit holder, not the depositor. You can deposit money into someone else's account, and the bank then owes them the money, not you. That is what banks do when they lend. If the bank is a merchant or investment bank, the money it deposits in the borrower's account is from its own cash account. But under our current monetary system, commercial banks (members of the US Federal Reserve System) usually just write a higher number in the borrower's account if they think they have enough cash and reserves to cover all the checks they expect to be written against their demand deposit liabilities.

When someone opens a bank account and makes a deposit of $500 cash, the account holder surrenders legal title to the $500 cash. This cash becomes an asset of the bank; the account becomes a liability.
And when someone takes out a loan, rather than the cash they deposit becoming the bank's asset, the loan itself does. The bank simply exercises a legal privilege of converting illiquid loan assets into liquid demand deposit (debt money) liabilities. If the bank holds the loan, its ability to create more money is limited by its ability to cover checks drawn against the newly created deposits. But if it can liquidate the loan (e.g., by bundling and reselling it), it can turn around and do the same thing again right away, as it then has the cash to cover more checks.

[Zippyjuan]

And when someone takes out a loan, rather than the cash they deposit becoming the bank's asset, the loan itself does.

Exactly what we said- a loan is an assset for the bank and a deposit a liability. If the loan gets sold that is the same as it being paid off as far as the bank is concerned- they got their money back for it and it is no longer an asset.

[Black Flag]

Roy,

You are a crackpot and do not understand fractional reserve banking whatsoever.

[Black Flag]

usually just write a higher number in the borrower's account if they think they have enough cash and reserves to cover all the checks they expect to be written against their demand deposit liabilities.

This is not true at all.

They lend only based on the ability to fund the loan with money in their excess reserves or in their capital account.

The loan functionally reduces their excess reserves or capital account - converts cash as an asset into a loan as an asset for the bank.

[Black Flag]

And when someone takes out a loan, rather than the cash they deposit becoming the bank's asset, the loan itself does. The bank simply exercises a legal privilege of converting illiquid loan assets into liquid demand deposit (debt money) liabilities. If the bank holds the loan, its ability to create more money is limited by its ability to cover checks drawn against the newly created deposits. But if it can liquidate the loan (e.g., by bundling and reselling it), it can turn around and do the same thing again right away, as it then has the cash to cover more checks.

This is where Roy confuses himself.

He is correct - a loan turns liquid cash (an asset) into a less-liquid debt (also an asset) for the bank.

He is incorrect to believe a bank has a legal privilege of doing this - anyone can do this, even Roy.

The limits on Roy is that he can only do this to the amount of cash on hand, since he normally cannot accept deposits. The banking "privilege" exists here - the accepting of money for deposits - not in the lending. Anyone can lend if you have money.

So, you can see where Roy goes off into lala land with his crackpot theory, because he does not properly understand where a bank "is a bank" - not in lending, but in the acceptance of deposits.

He is also wrong in believing a bank is unrestrained in making loans as long as it can guess right on how many repayments of deposits it will face. Nothing is further from the truth. Banks have legal limits to the amount of loans that exist and there is no guessing here.

He is correct that a bank to improve its liquidity will sell its portfolio of loans for cash in hand. But if banks create money out of thin air "debt money" as he says they can - why would this be necessary? He does not answer, because his crack pot theory cannot explain it.

[Paul Or Nothing II]

Oh... i see. So for the sake of argument lets just forget for a second that the bankers and all the other special interests and complexes don't infest and control government. We just put the printing press into the hands of guys who bring us such wonderful things as the patriot act, NDDA, assassinations of US citizens, TSA, the war on drugs, endless foreign wars and 10s of trillions in debt and unfunded liabilities and things will be sooooooo much better....:rolleyes:

+1

Zarlenga believes in central-planning & Kucinich as we know, is a socialist so they'd love government issuing money!
So we'd take the power of issuing money from bankers to politicians & bureaucrats! Great, ain't it! :rolleyes:
NOOOOOOOOOOOO!
History will repeat itself & government will overissue it because guess what, issuing monopolized money is a profitable business :D & people & their savings will get wiped out by inflation-tax

The bottomline, be it bankers or government, they're all made up of people, not angels - SELF-INTERESTED people - so they'll use their power to benefit themselves, at the expense of ignorant people who believe in freeloading & that their "leaders" will make their lives so great!

[LibForestPaul]

ten percent reserve requirement[/I], the bank can loan out up to $90 of that..

Ohh, that's so cute, a reserve requirement...based on deposits no less...very quaint... I have a Nyan cat here for you, have a rainbow pop-tart, mmm mmmm good.

[Roy L]

This is not true at all.
It is definitely true. See "Modern Money Mechanics" published by the US Federal Reserve.

They lend only based on the ability to fund the loan with money in their excess reserves or in their capital account.
As I said: contrary to your false claim, they do not transfer their own money into the borrower's account at the time the loan is made. They simply have to have enough reserves to cover all the checks drawn on that account -- and they can borrow reserves from the Fed.

The loan functionally reduces their excess reserves or capital account
It reduces reserves.

- converts cash as an asset into a loan as an asset for the bank.
Nope. Those are two totally different things. The latter is what a merchant or investment bank does: act as a financial intermediary or lender on its own account. The role of a commercial bank under the Fed or any equivalent debt money central banking system (such as the original debt money banking system, the BoE) is quite different: it creates demand deposit money by lending it into existence.

[Roy L]

He is incorrect to believe a bank has a legal privilege of doing this - anyone can do this, even Roy.
But that is not what commercial banks do.

The limits on Roy is that he can only do this to the amount of cash on hand, since he normally cannot accept deposits. The banking "privilege" exists here - the accepting of money for deposits - not in the lending. Anyone can lend if you have money.
Anyone can lend, it is only commercial banks that can create deposits.

He is also wrong in believing a bank is unrestrained in making loans as long as it can guess right on how many repayments of deposits it will face. Nothing is further from the truth. Banks have legal limits to the amount of loans that exist and there is no guessing here.

There are legal limits on both capital adequacy and reserve ratios, but they are not the major limit on lending, as the explosion of subprime loans proved.

He is correct that a bank to improve its liquidity will sell its portfolio of loans for cash in hand. But if banks create money out of thin air "debt money" as he says they can - why would this be necessary? He does not answer, because his crack pot theory cannot explain it.
Wrong again. The answer is simple: they can't create debt money out of thin air. They need a debtor, a willing borrower who agrees to repay the money they create, plus interest. That is why when firms and households don't want to go into debt, as they currently do not, the government has to step in and borrow, or the economy will collapse in deflation.

[Roy L]

Oh... i see. So for the sake of argument lets just forget for a second that the bankers and all the other special interests and complexes don't infest and control government. We just put the printing press into the hands of guys who bring us such wonderful things as the patriot act, NDDA, assassinations of US citizens, TSA, the war on drugs, endless foreign wars and 10s of trillions in debt and unfunded liabilities and things will be sooooooo much better....:rolleyes:
I didn't say that. It is not the Treasury or the Mint that does those things, but the executive and to a lesser extent the legislature. While it is true that many historical examples of hyperinflation have resulted from putting the power to create money in the same hands that spent it, that is not the proposal. The proposal is to put the power to create money in the hands of an independent Mint. Its primary legal mandate would be price stability. It would achieve this goal by printing enough money to accommodate economic growth, and delivering it to the Treasury to spend into circulation. It would be legally prohibited from printing money if the previous year's measured rate of commodity price increase was greater than some small number, say 2%. It would be legally required to print a fixed fraction of GDP in new money each month that the previous year's commodity price index declined, and deliver it to the Treasury to spend into circulation. Between those two extremes, it would have discretion to smooth anticipated price fluctuations.

[Zippyjuan]

I didn't say that. It is not the Treasury or the Mint that does those things, but the executive and to a lesser extent the legislature. While it is true that many historical examples of hyperinflation have resulted from putting the power to create money in the same hands that spent it, that is not the proposal. The proposal is to put the power to create money in the hands of an independent Mint. Its primary legal mandate would be price stability. It would achieve this goal by printing enough money to accommodate economic growth, and delivering it to the Treasury to spend into circulation.

Sounds kinda like the Federal Reserve. Except if they were truely independent you could not dictate them what actions to take.



It would be legally prohibited from printing money if the previous year's measured rate of commodity price increase was greater than some small number, say 2%. It would be legally required to print a fixed fraction of GDP in new money each month that the previous year's commodity price index declined, and deliver it to the Treasury to spend into circulation. Between those two extremes, it would have discretion to smooth anticipated price fluctuations.

[Roy L]

Sounds kinda like the Federal Reserve.
Only to someone who has no idea how the Federal Reserve works.

Except if they were truely independent you could not dictate them what actions to take.
A legal mandate to do its job is not me "dictating" what actions to take.