The downside to deflation in a debt-based monetary system?

[thoughtomator]

That's exactly what the video does. At this point you are rapidly becoming a troll and I for one have wasted more time on you than you deserve.

[Black Flag]

You make your own personal distinction between "money" and fiduciary media created by the banks - which you don't technically consider 'money', and therefore not part of the 'money supply'.

Again, Steven, the world is a simple place.
All you have to do is use the monopoly set, create a small banking system, and move little pieces of paper around.

There is no trick up my sleeve here. You can see it for yourself. I know you cannot believe your own eyes, because your brain is so full of crackpottery, you can't make head nor tails of it any more.

But trust your eyes and not the crackpots.

And since we're being semantics sticklers, we're even using the term money very loosely, when referring to it as the reserves created by the Fed - even that's a misnomer, because it is the Treasury that actually creates money, while the Fed creates accounting entries.

That is not true at all.

The Treasury creates Treasury bills which is not money to anyone. I know of no one who has bought a house, a car or their groceries with a T-bill.

The Treasury SELLS the T-bill to the FED for MONEY, the same money that you use to pay your taxes.

Test: take a T-Bill to the IRS to pay your taxes and tell me what they will say.... (I'll help -- they will send you away and demand you bring FEDERAL RESERVE NOTES in the necessary denominations to satisfy your taxes (digital FRN will do just as well)).

Anyway, if you also notice in my chart, the green cumulative deposit entries for each bank total around $100, while the red bottom-line entry shows a boatload of claims on that same $100 in aggregate reserves - not just a case of Guy A and Guy C; that original deposit whore was had by everyone on the football team.

For simplicity, one needs only to do the roll really only once, but I did it twice to show that the result is the same after doing it only once.

You can do the roll a few dozen times if you'd like, but that won't change one darn thing in the money supply, Steven - as I have repeatedly demonstrated with the monopoly money.

And, for the sake of simplicity, we could call those two banks the entire closed loop banking system under the Fed. More than two are not required for the sake of illustration.

Well, actually only one is necessary since it is only one banking system. It does not matter how many banks exist in the banking system, the money supply does not change.

. Fiduciary media

...is not money.

It is not a semantic, but a fact.

Your need to make it money so to confirm some crackpot theory of money does not make it money.

a) They are both fictions.

False.
FRN are money. It is not a fiction.

If I sent you $1 million in FRN, you would not stand in your living room and yell "It's all fake!".
You would stand in your living room and yell "Yahoo! I'm rich!"

So don't fake out and pretend that FRN are not money. They are money. They are what you trade to get food to feed your family, to pay your rent, put gas in your car and the thousands of other things you buy with them.

You seem to have a bizarre definition of money, so allow me to help you (again):
It comes from Mises and it is:
the most desired commodity in the market place.

Now, you may judge that FRN is not a very good money for reasons such as its tendency to be manufactured without restraint, etc. But your judgement of quality does not make it not money.

Gold is not money. You cannot buy groceries with your gold coin. The retailer will send you away and you will need to sell your coin for FRN and then go and pay for your groceries. Gold is not money - though it has some good features that might make it a good money - but that does not make it money today.

Now, a debt.
It is not fictitious. Try not paying your debt and see how fictitious the courts will find your debt to be.

But a debt is not money either.


But, again, Steven - simply run the monopoly set and apply all the situations to it - from making loans out of the deposits (and you will find it follows exactly as you understand the fractional reserve, up until there is no more of the deposit to loan), and what happens when a loan is repaid, and what happens when a deposit is withdrawn and what happens when a loan defaults.

Every situation you can test with the monopoly set, and it will respond exactly the same way the banking system you live under responds because, heck, that is how it works!

[Black Flag]

That's exactly what the video does. At this point you are rapidly becoming a troll and I for one have wasted more time on you than you deserve.

All I asked of you is to prove what you say.

I did, and not one thing of my demonstration can you refute... since, darn it, that is how it works.

But you are wholly incapable of applying your crackpottery into reality - because, darn it, that is not how the world works.

..and you call me a "troll"????

[Black Flag]

That's not how it works. A bank with $100 of real money on deposit can lend out $1000. Hence Citibank's 11.6% tier 1 capital ratio, pushing within 1.6% of the limit of what the law allows.

There's nothing quite so dangerous as a person who is really truly convinced he understands something he doesn't.

No, it cannot lend out $1000 because it does not have $1000 in deposits or share capital.

Please go to this wiki
http://en.wikipedia.org/wiki/Fractional_reserve_banking

...and its table called "deposit multiplication"

You will see that it always only lends out from its deposits and nowhere else.

Go get the monopoly set and follow the wiki and using the monopoly money. Trust me, it will become very clear to you.


Again you seriously misunderstand the fractional reserve banking system and thus make irrational claims about it.

[Black Flag]

That is gibberish.

Yes, to the ignorant it may appear to be such

Maybe you meant to say, "the cash the depositor DEPOSITS is an asset in favor of the bank." But that's not what you wrote.

Oh so petty, fool.

If that is all that it takes to throw you off, I pity you.

Please explain, in your own words, what you imagine the relationship to be between paper currency, demand deposits, and the money supply. Take your time.

I guess comprehension was an option you failed to take in school.

Go to the monopoly set and follow the example - your lesson is there, sir.

You will find that the monopoly money does not change - what was placed into the system remains exactly the same no matter how many times you roll it.
You will find that the more you roll it, more of the monopoly money ends up in the Fed Reserve.
You will find that it doesn't matter if you call the monopoly money digits, currency or anything else - it is the money.
You will find that no matter what you call it, the debt is never money.
You will find that no matter what you call it, demand deposits is never money either.

[Black Flag]

Heck, that is another way to fix your confusion.

You guys think gold is money and that if it was gold, and not FRN, this fractional reserve banking wouldn't have the problems.

So go ahead and do that instead.

Write on the monopoly money "Gold Coin" and use it instead and see if the whole system does "something different".

Let me know what you guys find out....

[Steven Douglas]

Again, Steven, the world is a simple place.
All you have to do is use the monopoly set, create a small banking system, and move little pieces of paper around.

There is no trick up my sleeve here. You can see it for yourself. I know you cannot believe your own eyes, because your brain is so full of crackpottery, you can't make head nor tails of it any more.

But trust your eyes and not the crackpots.

Your little monopoly set is incapable of tracking what passes for more than 90% of money in today's debt-money economy. All you see are the little colored bills. That's the only real money, by golly, something you can hold in your hand. The banks didn't create that, and that's all you need to know. You're no rube. No siree bob, you're not gonna be fooled by no trickster's shell game. If it isn't paper, it's just an accounting entry, and that's not money.

The most important trail is not paper, as it moves from one place to another. That paper is just the carrier of something akin to a virus. Rather it is the paper that leaves the all-important accounting trail - the accounting entries that are all behaving as MONEY. $1,000 in reserves, but because those reserves got passed around, 90% at a time, and went viral, multiple parties now have $9,000 in deposits.

And it's not that there is a big fear that more than 10% will pull it all out at once. That's the lunacy of someone who forgets that for every check written against a bank's reserves (customer accounts), other checks are being written against OTHER banks reserves, for what is mostly, on average, a zero sum gain. And the bigger the bank, the more it averages out. Deposits ARE being pulled out, routinely, en masse, but very little of it as cash. Most of it is check entries against one bank that appear as deposits in other banks -- which the banks then can take to the Fed to clear. Most of it will NEVER be see as cash, and there is a velocity to all of it, as all of those "accounting entries" are behaving and circulating "as cash".

FRN are money. It is not a fiction.

If I sent you $1 million in FRN, you would not stand in your living room and yell "It's all fake!".
You would stand in your living room and yell "Yahoo! I'm rich!"

It's still a fiction, because it's propped up by a fiction. Repeal the legal tender laws and let's see how long its value lasts. How would you feel about that, by the way? Would you be opposed to a repeal of legal tender laws? Because that is the lie that covers an even bigger lie.

You seem to have a bizarre definition of money, so allow me to help you (again):
It comes from Mises and it is:
the most desired commodity in the market place.

If I have a thousand starving rats trapped in a cage, I can dump pretty much any rotten, even poisonous edible into the cage, and it will be the "most desired commodity" in their marketplace. And it will also be no less a fiction. Did you know that there are people in India who are reduced to eating their own feces? So I guess shit is the most desirable food commodity in some places, huh?

Gold is not money. You cannot buy groceries with your gold coin.

Now your normalcy bias is flowing out of your rear end. Gold and silver coins are not "commonly accepted" forms of money, not because they are not money (what a ridiculous notion!), but because it has been demonetized as official currency, and taxed as a commodity enough to prevent it from being in circulation.

Again, all because of legal fictions - having nothing to do with value, or how one currency would perform against another without those fictions in place which prop one up in favor of another.

Now, a debt.
It is not fictitious. Try not paying your debt and see how fictitious the courts will find your debt to be.

Yeah, the courts will rule in favor of the fiction just about every time. So what? We've been upside down like that for some time now.

But a debt is not money either.

Tell that to all the people who have $9,000 on deposit between them, deposited into their accounts from loans made from the same $1,000 the banks have in "real money" on deposit with the Fed. In fact, my niece just got a student loan, and is now walking around with "accounting entries" on her debit card. Whatever those entries are, it is not the reserve currency the bank has on deposit with the Fed. Furthermore, she's so stupid, she thinks it's money. And the grocer, he's so stupid, he thinks it's money too. In fact, he's so convinced that those accounting entries in her card are money, that he's willing to give her groceries AND some "cash back" -- in exchange for some of those wonderful accounting entries for the store.

[Black Flag]

Your little monopoly set is incapable of tracking what passes for more than 90% of money in today's debt-money economy.

...because it is not money! Wow! What a revelation!

All you see are the little colored bills.

You are really hung up on that, aren't you?

I already stated you can call them digital money, but it changes nothing.

The monopoly paper merely demonstrates the difference between what is money and what is not - it creates a form for you to see, with your own eyes, what the heck is really going on, and not muddled by the crackpots and their theories which seem to have totally confused you.

By removing the abstract and making it physical, clarity returns.

That's the only real money, by golly, something you can hold in your hand.

No, it could be digits in a computer - it is irrelevant.

You are so confused by demonstration - it just so knocks you on your butt because it confounds every sense of the idiocy that the crack pots have poured into your brain.

The monopoly paper is merely a means to demonstrate the difference between money and what is not money - clear as a bell.

If you want, write on the paper "This is digital money" and do the same thing again. Gee... nothing changes.
Write on the paper "This is a gold coin" and do the same thing again. Gee...nothing changes.

The exercise highlights the difference what is money and what is merely an accounting entry and recording. A recording of a transaction does not make money out of thin air.

The banks didn't create that, and that's all you need to know.

Exactly!
So know you can stop ranting about the banks "creating money" and understand where the heck the money is being created instead of chasing a red herring!

Don't you think nearly 100 years of lying about this is long enough?

the accounting entries that are all behaving as MONEY.

No it does not. It behaves nothing like money.

Go and take your debt to the grocer and see how much food he gives you for it. (Answer: nothing).

See? It behaves NOTHING LIKE MONEY - it is merely your fantasy that makes you think it does!

Not one thing about your "accounting entries" behaves like money!

It buys absolutely nothing and it must be monetized before you can use its value. Heck you use and know the term -monetize- as it applies to debt YET! you believe that debt must be money on its own -- therefore, shouldn't need to be monetized...but..it does........ Man, you must spin faster than the dry cycle of your washing machine.

$1,000 in reserves, but because those reserves got passed around, 90% at a time, and went viral, multiple parties now have $9,000 in deposits.

True, there are $9,000 worth of claims on the same $1,000 of money.
but that does not make the claims become money - and if all the claims are made at the same time, only 1 out of the 9 are going to get the money, right!? ... the rest are out of luck and gone.

A deposit is not money - it is a promise to pay money by the bank to the depositor, nothing more.

And if the bank breaks its promise, the depositor...can he go to another bank and say "Hey, here is money! Now let me spend it!"... NO! ... the other bank will say "Sorry, bud - that is a claim on that bank over there, not here. That isn't money to us, and unless you come back with money, you ain't getting in!"

So why the heck do you think such a deposit is money???? and acts like money??? when not one bit of it does!

[quote]

And the bigger the bank, the more it averages out.

Yep, that's right. It is the concurrence of the withdrawals vs. new deposits vs loan repayments that makes the thing work or break.

But remember, you made a posit that paying off debt shrinks the money supply - and no such thing is true.
Paying off the debt returns cash to the bank, who then can re-loan the money ...or pay back a depositor...(<--hint, this is where a subtraction of the money supply could occur)

Deposits ARE being pulled out, routinely, en masse, but very little of it as cash.

It's all cash - most of it digital.

Most of it is check entries against one bank that appear as deposits in other banks -- which the banks then can take to the Fed to clear. Most of it will NEVER be see as cash, and there is a velocity to all of it, as all of those "accounting entries" are behaving and circulating "as cash".

Nonsense.

It is all cash.

What in fact is happening is that the cash -digital or otherwise- is being transferred as cash -digital or otherwise- to another account as a deposit. That deposit then is placed into the bank deposit fund, where it is used to fund loans. Whether it is pieces of colored paper or digital abstractions of the same makes not one wit of difference here. Why you think it does is bizarre.

There is a difference between a record of a transaction (which is NOT money) and the exchange of money IN a transaction.

Me writing down "I gave Steven $100" does not make money.
Me writing down "Steven has a $100 in a tin can" does not make money magically appear in my tin can where I put that piece of paper saying that.
Me giving Steven $100 is $100 of money in Steven's hand (whether by digital transfer or paper).

It's still a fiction, because it's propped up by a fiction. Repeal the legal tender laws and let's see how long its value lasts.

That doesn't make it fiction at all!
Gold is not money for the Polynesians either --- they use Rai stones. So what?

FRN is money right now.
Gold is not money right now.

FRN is money today because you have to pay your taxes in FRN.
Maybe something else would become money if there was no taxes... but so what?
The fundamentals of the banking industry and the fractional reserve system remains unchanged regardless of what is money.

As I said earlier, replace the game with gold coins and run with it and see if something changes.... and as you can guess, nothing does.

If I have a thousand starving rats trapped in a cage, I can dump pretty much any rotten, even poisonous edible into the cage, and it will be the "most desired commodity" in their marketplace. And it will also be no less a fiction.

Nonsense.

It is obviously a flaw in your understanding of what is "money" that is the root of this issue.

Money is not one thing for all time - it has been many things and will be many things in all time. It is a commodity that is the most desired - whether salt to pearls to Rai stones to gold to paper with pictures of dead men to digits in a computer.

But it is not a fiction - unless of course you believe the money you spent to buy food was all fictional....(roll eyes).

Now your normalcy bias is flowing out of your rear end. Gold and silver coins are not "commonly accepted" forms of money, not because they are not money (what a ridiculous notion!), but because it has been demonetized as official currency, and taxed as a commodity enough to prevent it from being in circulation.

They are money, but are not not money even though they have been de-monetized (which means they are not money) but they are still money.... whew! What a spin cycle.

Gold is not money, and it is not necessary to be money.
You can't eat gold like you can't eat digital money either. But gold is not money (but was once money, and maybe again) and FRN are money (but maybe one day won't be). Shrug.

having nothing to do with value,

It has absolutely everything to do with value!

Like I exampled, you are the faker if you wouldn't yell "Yahoo!" if you suddenly saw $1 million of digital FRN in your bank account.... you wouldn't be chiming and saying "Nah, its fake...its not gold so it is worthless!". Bullcrap! You'd be out there trading like a mad fool for a new car, a house maybe, a nice vacation.....

...yeah, right... its not money...! hahahahahaha

Tell that to all the people who have $9,000 on deposit between them, deposited into their accounts from loans made from the same $1,000 the banks have in "real money" on deposit with the Fed. In fact, my niece just got a student loan, and is now walking around with "accounting entries" on her debit card. Whatever those entries are, it is not the reserve currency the bank has on deposit with the Fed. Furthermore, she's so stupid, she thinks it's money. And the grocer, he's so stupid, he thinks it's money too. In fact, he's so convinced that those accounting entries in her card are money, that he's willing to give her groceries AND some "cash back" -- in exchange for some of those wonderful accounting entries for the store.

So the whole world is stupid in seeing FRN is money .... except you... you know its fake but you'd have no problem spending it if you had it!

Yep, really fake that money you spent to buy food! hahahahha! whew, no wonder you're a intellectual mess regarding the banking system!

[Black Flag]

Steven,

Go to the monopoly set, and do the transaction of your niece - and see where the money goes. You will be amazed to find your accounting of transactions is not money.

Further, explain what would happen to your niece and her debit card IF the 9 other guys suddenly tried to withdraw their deposits at the same time.

Do you believe her debit card would still say "Transaction complete!"? If what you believe is true, it should ... but you know for a fact, it would not... it would say "Bank Holiday!".....

[Black Flag]

Steven,
So, let's move another step in understanding the banking system.

Why does the banking industry say "we treat the accounting of debt/deposit as if it was money" though it is never money?

Because it measures the risk of the leverage of the fractional reserve outstanding because every loan becomes a deposit somewhere else in the system, and a deposit is a serious liability to a bank.

It by the demand of redemption of a deposit that is subsequently NOT returned into the banking system that risks the fractional reserve system.

Remember our monopoly game - $100 was deposited from outside the system for the whole ball to start to roll.
It is the removal of that $100 back out of the system that stops the ball from rolling.

Again, what would happen if the $100 was taken out of the game..... it ends.

So, I go back again to where you said "debt liquidation" creates deflation. This is wrong.

Deposit redemption kept outside of the banking system creates deflation.