The Biggest Threat to National Security is the Debt

[TheCount]

the Fed print banknotes

No.

http://www.moneyfactory.gov/uscurrency.html

But the question really is who has the power to credit the private sector with currency

Money that previously did not exist?

The Fed.

When the Treasury pays for expenditures, it credits currency, adding income to the private sector. The opposite is true when it takes in taxation.

What you're saying is vaguely true but no money is created in this process. Money is moved. The money that the Treasury spends is money that it has been loaned through the sale of bonds. (Also taxes, but that's not enough.) The money comes from the private sector, to the government, and then back to the private sector when the government spends it.

Saying that the Treasury prints and unprints money through spending and taxing is exactly the same as saying that Walmart prints and unprints money by buying and selling. Neither entity adds to or subtracts from the money supply.

In regards to your last point, the Federal Reserve manages the money supply through OMO and QE. And yes, it can create money.

Yep.

But it is the treasury sector that adds net financial assets to the private sector, and it is the private banking sector, through loan creation, that sets the effective money supply (credit level)

No to both of these.

There is no functional difference between the Treasury issuing a bond and Walmart issuing a bond. Both have created a financial instrument from 'nothing' but no money has been created.

Although the private banking sector actually uses the money provided by the Fed and expands the money supply via the money multiplier effect, the entire process is controlled by the Fed controls the effect through regulation of the banks and management of the money supply.

You are mistaking the way the system works.

No.

Your example is too simplistic. Not all accounts have "funds"/reserves to back them. When Chase bank creates a loan, they create it out of thin air. Just electronic digits. The liability is the deposit that the loan creates (for example, a mortgage loan of 100K will get deposited in someone's account, this creates a liability of the bank of 100K). The asset against that liability is the loan. The value of the loan is the asset the bank holds.

Let's follow your line of thinking:
Chase Bank creates 100K and gives it to Person X as a loan. Person X immediately spends every cent of the money, giving it to Person Y who deposits all of it in Wells Fargo Bank.

Please balance both banks' books for me. What are the matching credits and debits for each bank? What are the assets and liabilities for each?

Why would it add to the money supply? Under normal operations, it hasn't changed the net financial position of the banks. They are not wealthier or poorer...why would they suddenly engage in more lending, therefore growing the money supply? They lost an interest-bearing asset and gained a non-interest-bearing asset of the same value.

It adds to the money supply because money is created from nothing, as shown in my example. By purchasing a bond with heretofore nonexistent money, the Fed has grown the quantity of money in the economy. The supply of money has already grown before the banks lend it. Once they lend it, then the supply will grow beyond the amount of the purchased bonds according to the money multiplier.

As with any other commodity, when you increase the supply you lower the price. Price, in this case, is the interest rate. As price goes down, the quantity demanded in the market goes up. Therefore, more lending occurs.

[Dr.No.]

No.

http://www.moneyfactory.gov/uscurrency.html

You have out-technicalied me.

What you're saying is vaguely true but no money is created in this process. Money is moved. The money that the Treasury spends is money that it has been loaned through the sale of bonds. (Also taxes, but that's not enough.) The money comes from the private sector, to the government, and then back to the private sector when the government spends it.

As I have described, the money comes from the government to the private sector.

Saying that the Treasury prints and unprints money through spending and taxing is exactly the same as saying that Walmart prints and unprints money by buying and selling. Neither entity adds to or subtracts from the money supply.

The Treasury is the issuer of the currency. When they spend money and tax money, they are influencing the monetary base. Walmart doesn't have that ability.

What Walmart could do is take out a lot of loans, increasing the money supply, and then engage in a lot of purchasing. They could also cut back on their spending and cause credit destruction, subtracting from the money supply. But they cannot add net financial assets to the economy. They cannot influence the monetary base.

Although the private banking sector actually uses the money provided by the Fed and expands the money supply via the money multiplier effect, the entire process is controlled by the Fed controls the effect through regulation of the banks and management of the money supply.

Urgh, the silly money multiplier myth. Completely debunked: http://www.pragcap.com/the-money-mul...just-wont-die/
One cannot even find a consistent "money multiplier" through historical ratios.

Let's follow your line of thinking:
Chase Bank creates 100K and gives it to Person X as a loan. Person X immediately spends every cent of the money, giving it to Person Y who deposits all of it in Wells Fargo Bank.

Please balance both banks' books for me. What are the matching credits and debits for each bank? What are the assets and liabilities for each?

Chase would have an asset of the loan. They would need to find 100K in reserves to transfer to Wells Fargo. They could do this by taking out a loan from the Fed, selling assets to another bank, or selling to the Fed. Ultimately, they would lose an asset worth 100K in reserves. They have no obligation changes.

Wells Fargo would have an asset of the 100K in reserves given to them by Chase. And, they would have a new obligation of 100K to Person Y. Wells Fargo would then use the 100K to buy assets from other banks, make intra-bank loans, or just buy treasury securities from the Fed. Ultimately, the vast majority of that 100K will end up exchanged for treasury bonds. The Fed will do this so that they can maintain the reserve level, so that they can maintain their interest rate target.

One exception I should bring up, is that in this current environment, the Fed might choose not to buy the reserves, and they'd remain as reserves earning a .25% interest rate. Moreover, in the current system, banks are flush with reserves (why interest rates are so low), so Chase wouldn't really have to "find" reserves to transfer. Historically, Chase has maintained a buffer of <500 million reserves in excess of reserve requirements.

As with any other commodity, when you increase the supply you lower the price. Price, in this case, is the interest rate. As price goes down, the quantity demanded in the market goes up. Therefore, more lending occurs.

Except that this has not happened. If what you were saying is true, as interest rates go down, loans and the money supply should go up, while if interest rates go up, loans and the money supply should go down. Instead, the interest rate fluctuates and the money supply is always going up. Even the rate of growth doesn't follow this trend:

[Zippyjuan]

As I have described, the money comes from the government to the private sector.

And where did the government get the money? From the private sector. Either from taxes or from the Treasuries they bought.

[Zippyjuan]

As I have described, the money comes from the government to the private sector.

And where did the government get the money? From the private sector. Either from taxes or from the Treasuries they bought.

When they spend money and tax money, they are influencing the monetary base. Walmart doesn't have that ability.

The monetary base has not changed significantly prior to the Great Recession. If government spending has this effect on the Monetary Base you claim it does it should be higher and changing more often. Its effect on the base is minimal at best.

[Dr.No.]

And where did the government get the money? From the private sector. Either from taxes or from the Treasuries they bought.

From treasuries they bought? I think you meant sell. In any case, it comes from nothing. The federal government just creates the money.

Think about it this way. Let us say there is no money in the economy. Zero. The government wants to spend money. According to you, they need to tax or borrow. But how would they do this? There is no money in the economy to borrow or tax.

No, the government spends the money and then "borrows" it. I put borrows in quotations because the government doesn't need to borrow to spend, it just borrows (after spending) to suppress reserves.

The monetary base has not changed significantly prior to the Great Recession. If government spending has this effect on the Monetary Base you claim it does it should be higher and changing more often. Its effect on the base is minimal at best.

*Sigh*. Because the government soaks up the reserves. Like I said, the treasury issues debt securities, which removes the money from the monetary base. That is the only way the Federal Reserve could maintain its interest rate targets in the past. That is why, with such large levels of reserves, the federal funds rate has gone down (as intended), and why the Federal Reserve started IOR to maintain a floor to the rate.

[Zippyjuan]

From treasuries they bought? I think you meant sell. In any case, it comes from nothing.It comes from nothing. The government just creates the money.

The government get money from taxes and borrowing. "Treasuries they bought" - they meaning the public- investors, individuals, financial institutions, etc. The government took money from the public by selling them Treasuries or by taking it via taxation. They don't "create it out of thin air whenever they feel like it".

No, the government spends the money and then "borrows" it. I put borrows in quotations because the government doesn't need to borrow to spend,

If they can create as much money as they want to, why not get rid of taxes (everybody would be happy!) and stop selling US Treasuries? Why even have a budget since they could spend as much as they wanted to on anything and it wouldn't matter? I don't know where you come up with this stuff. Any links to describe how it works?

The Federal Reserve can create money- but the Treasury and the rest of the government can't. They have to get it from somebody else before they can spend it.

[Zippyjuan]

What Walmart could do is take out a lot of loans, increasing the money supply, and then engage in a lot of purchasing. They could also cut back on their spending and cause credit destruction, subtracting from the money supply. But they cannot add net financial assets to the economy. They cannot influence the monetary base.

When WalMart borrows money, it has zero effect on the money supply. They got the money from somebody else. They increase the money THEY have, but the moneysupply in the overall economy is unchanged. If I borrow $20 from you, has the supply of money grown by $20? No. You have $20 less and I have $20 more. Same is true on government borrowing.

This is written for kids so maybe you can understand it:

https://www.treasurydirect.gov/kids/...hat_borrow.htm

How does the U.S. Government borrow money?

Here’s where the Government is different from individual people and businesses. When the Government borrows money, it doesn’t go to the bank and apply for a loan. It "issues debt." This means the Government sells Treasury marketable securities such as Treasury bills, notes, bonds and Treasury inflation-protected securities (TIPS) to other federal government agencies, individuals, businesses, state and local governments, as well as people, businesses and governments from other countries. Savings bonds are sold to individuals, corporations, associations, public and private organizations, fiduciaries, and other entities.

Here is how Treasury securities - such as savings bonds - generally work. People lend money to the Government so it can pay its bills. Over time, the Government gives that money, plus a bit extra, back to those people as payment for using the borrowed money. That extra money is "interest."

This is how the U.S. system of debt works:

The U.S. Treasury issues or creates the debt.

The Bureau of the Fiscal Service manages the Government’s debt. That means it keeps records, takes care of selling the debt, and handles paying back people who loaned the Government money.

The U.S. Treasury and the Bureau of the Fiscal Service do not decide how the money is spent. The legislative branch of Government (Congress) decides how the money is spent.

There is a maximum amount of debt the Government can have. This is known as the “debt ceiling.” To raise that amount, the U.S. Treasury must get Congress to approve a new and higher limit.

https://www.treasurydirect.gov/kids/what/what_govt.htm

Why does the U.S. Government have debt?

The U.S. Government is just like a business. The Government has to provide services for the people of the United States such as military protection, education and health programs, the space program, and social services programs. It also needs money to buy supplies and equipment.

The Government's main source of money is the taxes it collects from individuals and businesses. There are different kinds of taxes. Here are some examples:

Income tax (money people pay to the Government based on how much they earn from their jobs)

Sales and excise tax (money people pay to the Government when they buy things)

Corporate tax (money businesses pay to the Government based on their earnings)

However, the amount of money the Government spends to pay for the services it provides is often more than the taxes it collects. To make up the difference, the Government borrows money – in other words, it goes into "debt."

[Dr.No.]

If they can create as much money as they want to, why not get rid of taxes (everybody would be happy!) and stop selling US Treasuries? Why even have a budget since they could spend as much as they wanted to on anything and it wouldn't matter? I don't know where you come up with this stuff. Any links to describe how it works?

The Federal Reserve can create money- but the Treasury and the rest of the government can't. They have to get it from somebody else before they can spend it.

Man, if you would just read what I wrote!

There are two reasons they don't just print money, and collect taxes and sell treasuries:

1) Inflation. When the government spends money, it is utilizing the capacity of the private sector. To some extent, the private sector has idle resources; during a depression especially, there is a large number of idle resources. But to some extent, government and the private sector fight over external resources (labor, factories, materials, etc.). As the government spends more and more, there will be more competition, and you will get inflation as the economy cannot produce more goods as more money is now fighting for it. The government taxes to remove the ability of the private sector to compete for resources. That way, the government can spend more without having to worry about inflation.

2) Interest rates. As I have repeated a dozen times, the Federal Reserve, and the Federal government, needs to control the short-term interest rate. When the government runs a deficit, it adds reserves to the monetary base, putting downward pressure on the interest rate. When it runs a surplus, it takes reserves out of the monetary base, putting upward pressure on the interest rate. To maintain the interest rate target, this action has to be countered. That is why even when Bill Clinton's government ran balanced budgets for a few years, the overall debt continued to rise as the Federal Reserve injected reserves into the economy to maintain lower pressure on the rate. That is also why when the government runs deficits, bonds are sold so that reserves are soaked from the system, removing downward pressure on the interest rate.

Now, to be fair, the treasury is legally required to sell securities after they have spent the money (unlike the Federal Reserve, which has no obligation to buy or sell treasuries). But the security-selling is only necessary to balance out reserve levels, not to "fund" the government.

Here is a paper that describes the situation:https://papers.ssrn.com/sol3/papers....act_id=1905625. I know you struggle with reading, so maybe you won't be able to understand it. After all, it involves math and numbers and figures, which you seem immune to. BTW, I'm being snarky because you started it.

When WalMart borrows money, it has zero effect on the money supply. They got the money from somebody else. They increase the money THEY have, but the money in the overall economy is unchanged.

Again, you and the Count might be using different versions of the money supply, because Count defined it as the total supply of money. When Walmart borrows money, it has practically zero effect on the monetary base. But it does effect the total money level. The bank will create a loan out of thin air to give to Walmart. The bank has the asset of the loan, and the obligation of the deposit. Walmart has the asset of the money, and the obligation of the interest payments. The money supply, that is, the total money level, has increased.

If I borrow $20 from you, has the supply of money grown by $20? No. You have $20 less and I have $20 more.

The mistake you make here is that you confuse lending and borrowing between individuals versus lending and borrowing between individuals and banks. You and I do not have the ability to create credit out of thin air. Banks do. As a result, as long as banks have healthy balance sheets, banks will endogenously expand the money supply to the extent that they can find credit-worthy customers.

This is written for kids so maybe you can understand it:

https://www.treasurydirect.gov/kids/...hat_borrow.htm

The reason such nonsense exists is the same reason why the vast majority of people do not understand how the modern money system works. It is the same reason why many politicians do not understand how the system works. It is the same reason they talk about insolvency, about how there is going to be super-high inflation, how interest rates would skyrocket due to crowding out, etc. Yet none of those things happened...huh. It is the same reason why people like Thomas Sowell and Milton Friedman insist(ed) that when rates are low, inflation is up even though all the evidence points to the opposite being true. It is the same reason why QE has really only had a moderate effect on the economy, not the strong positive effect neo-keynesians claimed it would have or the disastrous effects classical and Austrian economists said that it would have.

[Zippyjuan]

This is pointless. Banks and governments can't create as much money as they want to. (the Fed, being part of the government can, but the rest can't)

Have you read the paper?

But the US Treasury can only settle funds in its reserve account by
first procuring funds from the private sector (taxing) in the form of inside money (the US
Treasury cannot legally run an overdraft in its Fed account). It is best to think of this process
whereby the government can only spend from its account at the Fed if it has already obtained
credits via inside money transactions involving taxes or bond sales.

This contradicts your claim that they spend first, collect bonds later. (see page #21 on the PDF)

In the present era the US federal government must collect and draw on fiscal receipts before and
in order to spend. The Treasury, as a user of bank money, must always obtain deposits before it
can spend. But we should be careful about confusing the Treasury’s reality as a bank money user
with that of a household or business. Households and businesses are always constrained in their
ability to obtain funds so they have a real solvency constraint. The US Treasury, however, is
always able to procure funding by harnessing its banking system or even its central bank in a
worst case scenario. Therefore, the commonly held beliefs about the USA going bankrupt are
largely misunderstood.

See page #26.

[Dr.No.]

This is pointless. Banks and governments can't create as much money as they want to. (the Fed, being part of the government can, but the rest can't)

Have you read the paper?



This contradicts your claim that they spend first, collect bonds later. (see page #21 on the PDF)



See page #26.

Yeah

Yeah, he's talking about the legal requirements, while pointing out that structurally there is no necessity....read the entire paper.

I mean, look at the daily treasury statements:
https://www.fms.treas.gov/dts/index.html

And look at the auction results:
https://www.treasurydirect.gov/insti...t.htm?upcoming

The treasury literally is overdraft for several days; they literally just print the money without bond issuance (albeit in tiny, sub-10-billion-dollar amounts). Then, on certain dates, they run bond auctions and rebalance their account. That's a legal requirement to do so, but no practical requirement, since the government is the issuer of currency.

[Zippyjuan]

Currency. Meaning coins and paper. Less than ten percent of what is considered "money" today. (and wouldn't you know, until the crisis, 99% of the Monetary Base!)

[Dr.No.]

Currency. Meaning coins and paper. Less than ten percent of what is considered "money" today. (and wouldn't you know, until the crisis, 99% of the Monetary Base!)

The total credit level of the economy is 66 trillion (all of which is considered "money"). There is about 1.2 trillion in paper currency/coins. And no, prior to the crises it was not 99% of the monetary base. It has varied between ~85-95% of the monetary base in the past 30 years.

[NorthCarolinaLiberty]

Reading a conversation between Dr No, TheCount, and ZippyJuan is like watching The Three Stooges.

[Zippyjuan]

The total credit level of the economy is 66 trillion (all of which is considered "money"). There is about 1.2 trillion in paper currency/coins. And no, prior to the crises it was not 99% of the monetary base. It has varied between ~85-95% of the monetary base in the past 30 years.

Let's pick a year before the economic crisis when bank reserves started to soar. Say 2005. Nice round number before the recession.

Cash- January 10, 2005: $697.9 billion

https://fred.stlouisfed.org/series/CURRENCY

Monetary Base: $785 billion

Cash as a percent of the Monetary Base: 89%. Ok- not 99% but still practically all of it meaning excess bank reserves were an insignificant amount. Only $87 billion at that point in time.

https://fred.stlouisfed.org/series/BASE

[Dr.No.]

Let's pick a year before the economic crisis when bank reserves started to soar. Say 2005. Nice round number before the recession.

Cash- January 10, 2005: $697.9 billion

https://fred.stlouisfed.org/series/CURRENCY

Monetary Base: $785 billion

Cash as a percent of the Monetary Base: 89%. Ok- not 99% but still practically all of it meaning excess bank reserves were an insignificant amount. Only $87 billion at that point in time.

https://fred.stlouisfed.org/series/BASE

First, did you read my post after the bolding part? I said between 85 and 95%. 89% is in that range (I know, math is hard). Secondly, that 87 billion is not excess reserves, it is simply reserves.

What is your point, in any case? You think the Treasury can only issue physical currency, and not electronic currency?

In fact, think about why reserves are so small. Because regulatory requirements are very tiny, and after regulatory requirements, banks don't seem to need a lot of cash/reserves on hand to meet their own liquidity requirements.

[H. E. Panqui]

There is good debt and bad debt. Good debt is borrowing to pay for your education so you can get a better job or buying a home. Bad debt is using your credit card to buy lunch at Taco Bell and not paying it off at the end of the month.

As a country, borrowing to get through an emergency can be a good thing but the borrowing for the Federal government is getting to be too easy and too often. States go into debt during crises but are required to get back into balance.

...zippy, it seems to me IT'S ALL 'BAD DEBT' WHEN THE DEBTOR$ ARE BEHOLDEN TO PRIVATE, SECRET-SQUIRREL BANKSTERS WHO HAVE A MONOPOLY PRIVILEGE TO CREATE/COUNTERFEIT THE MONEY/'DOLLARS' THEY LEND AT INTERE$T...

...discuss among yourselves...

[Dr.No.]

...zippy, it seems to me IT'S ALL 'BAD DEBT' WHEN THE DEBTOR$ ARE BEHOLDEN TO PRIVATE, SECRET-SQUIRREL BANKSTERS WHO HAVE A MONOPOLY PRIVILEGE TO CREATE/COUNTERFEIT THE MONEY/'DOLLARS' THEY LEND AT INTERE$T...

...discuss among yourselves...

I know that hating the banks is all the rage right now. And yes, we've given bankers the ability to create money at will, and lend it at interest.

But the banks are also liable for those loans. They have to meet their obligations. That is the major check that keeps them from handing out loans willy-nilly. They perform that service for the economy, they ensure that only worthy ideas get funded. Would you want government in charge of that?

In fact, when you look at banks profits over the long haul, they pretty much just make the cost of money...that is, the federal funds rate, that is, the cost that the government imposes on the banks in order to drive down lending.

[H. E. Panqui]

dr. no writes: "I know that hating the banks is all the rage right now. And yes, we've given bankers the ability to create money at will, and lend it at interest.

But the banks are also liable for those loans. They have to meet their obligations. That is the major check that keeps them from handing out loans willy-nilly. They perform that service for the economy, they ensure that only worthy ideas get funded. Would you want government in charge of that?"




...not only have 'WE' [leave me out of these republicrat morons] 'given the bankers the ability to create money at will [or DESTROY money at will] and lend it at interest [to whomever they want and at what price (interest rate) they want] BUT THEY ALSO HAVE FORE-KNOWLEDGE OF FUTURE MONETARY CONDITIONS WHICH GIVES THEM ONE HUGE ADVANTAGE IN 'DERIVATIVE$' MARKETS (legalized, rigged gambling scheme...and the hou$e takes a big 'cut'!!]...

...AND NO!!!...I DON'T WANT 'THE GOVERNMENT' 'MAKING LOANS'....i believe 'the government' should be involved in THE INITIAL/ORIGINAL CREATION, etc., OF MONEY...I BELIEVE WE SHOULD ALL BE TREATED EQUALLY AS TO THE ORIGINAL CREATION [and DESTRUCTION] OF ANY MONEY I/WE MUST: PAY TAXES WITH, USE IN COURTS AT LAW, BE FORCED/COERCED TO USE AS 'LEGAL TENDER' ETC...

...ALLOWING SOME PRIVATE, SECRET-SQUIRREL BANKSTERS A 'CARTEL MONOPOLY' ON MONEY CREATION/ISSUANCE [methinks you and zippy need to learn about the thousands of 'commercial member bank$' in relation to 'the federal reserve system'] HAS MADE YOU/US AN ECONOMIC SLAVE TO SOME PRIVATE, SECRET-SQUIRREL BANKSTERS!! ...[insight hint for newbies to 'monetary realism': ...the $coreboard has been rigged in favor of the $ecret $quirrels and their favorites for a long looooooooooooong time..and it is they who will out-bid you in the 'free marketplace' of goods (and bads and near-everything else!) every time..]

...sorry for yelling...but sheesh!...and thanks, rpf!..[you satisfy my urge to unburden...relieving those close to me of 'the event'..now, i make them beg for an event...

[Dr.No.]

dr. no writes: "I know that hating the banks is all the rage right now. And yes, we've given bankers the ability to create money at will, and lend it at interest.

But the banks are also liable for those loans. They have to meet their obligations. That is the major check that keeps them from handing out loans willy-nilly. They perform that service for the economy, they ensure that only worthy ideas get funded. Would you want government in charge of that?"




...not only have 'WE' [leave me out of these republicrat morons] 'given the bankers the ability to create money at will [or DESTROY money at will] and lend it at interest [to whomever they want and at what price (interest rate) they want] BUT THEY ALSO HAVE FORE-KNOWLEDGE OF FUTURE MONETARY CONDITIONS WHICH GIVES THEM ONE HUGE ADVANTAGE IN 'DERIVATIVE$' MARKETS (legalized, rigged gambling scheme...and the hou$e takes a big 'cut'!!]...

...AND NO!!!...I DON'T WANT 'THE GOVERNMENT' 'MAKING LOANS'....i believe 'the government' should be involved in THE INITIAL/ORIGINAL CREATION, etc., OF MONEY...I BELIEVE WE SHOULD ALL BE TREATED EQUALLY AS TO THE ORIGINAL CREATION [and DESTRUCTION] OF ANY MONEY I/WE MUST: PAY TAXES WITH, USE IN COURTS AT LAW, BE FORCED/COERCED TO USE AS 'LEGAL TENDER' ETC...

...ALLOWING SOME PRIVATE, SECRET-SQUIRREL BANKSTERS A 'CARTEL MONOPOLY' ON MONEY CREATION/ISSUANCE [methinks you and zippy need to learn about the thousands of 'commercial member bank$' in relation to 'the federal reserve system'] HAS MADE YOU/US AN ECONOMIC SLAVE TO SOME PRIVATE, SECRET-SQUIRREL BANKSTERS!! ...[insight hint for newbies to 'monetary realism': ...the $coreboard has been rigged in favor of the $ecret $quirrels and their favorites for a long looooooooooooong time..and it is they who will out-bid you in the 'free marketplace' of goods (and bads and near-everything else!) every time..]

...sorry for yelling...but sheesh!...and thanks, rpf!..[you satisfy my urge to unburden...relieving those close to me of 'the event'..now, i make them beg for an event...

So these secret bankers who command the Fed have basically forced the Fed to tax all their assets at 3-4%?

I mean, that was what QE was. The Fed replaced their interest-bearing assets with non-interest-bearing assets, ultimately paying .25% on reserves.

So you don't want government involved in loan creation. You don't want private banks to do it. So who part of the economy should deal with loans and credit creation?

[H. E. Panqui]

dr no writes: "So you don't want government involved in loan creation. You don't want private banks to do it. So who part of the economy should deal with loans and credit creation?"



...of course!! i believe bankers should be able to honestly lend through some honest savings and loan association, etc....operating within an honest, sane 100% reserve ratio ..BUT CERTAINLY NOT THE WAY THEY "LOAN" TODAY: ...i.e. within a 'fraudulent fractional reserve ratio system' which in effect gives these private, unelected banksters control over the volume of the public's money and fore-knowledge of future monetary/economic condition$, etc..!!!

...do you dig yet??!

[Zippyjuan]

dr no writes: "So you don't want government involved in loan creation. You don't want private banks to do it. So who part of the economy should deal with loans and credit creation?"



...of course!! i believe bankers should be able to honestly lend through some honest savings and loan association, etc....operating within an honest, sane 100% reserve ratio ..BUT CERTAINLY NOT THE WAY THEY "LOAN" TODAY: ...i.e. within a 'fraudulent fractional reserve ratio system' which in effect gives these private, unelected banksters control over the volume of the public's money and fore-knowledge of future monetary/economic condition$, etc..!!!

...do you dig yet??!

A 100% reserve requirement means that a bank must keep 100% of they money they get (all deposits) on hand- in reserve. No loaning.

A "fractional reserve" means that a minimal fraction must be kept in reserve. A "no reserve" bank could set their own desired reserves (even if that was zero money kept in reserve and all funds lent out).

[Krugminator2]

It is the same reason why people like Thomas Sowell and Milton Friedman insist(ed) that when rates are low, inflation is up even though all the evidence points to the opposite being true. It is the same reason why QE has really only had a moderate effect on the economy, not the strong positive effect neo-keynesians claimed it would have or the disastrous effects classical and Austrian economists said that it would have.

Milton Friedman said completely the opposite. In fact, Milton Friedman was THE person who popularized the idea that low rates are indicative of overly tight monetary policy and low inflation , contrary to standard Keynesianism. I won't link to it again because I have done it before.

In fact just rereading that statement, does anyone think low interest rates mean there is high inflation? I have read Human Action. Mises sure didn't. He would say part of interest rates are inflation expectations, which would mean low interest rates would correspond with low inflation.

[Dr.No.]

dr no writes: "So you don't want government involved in loan creation. You don't want private banks to do it. So who part of the economy should deal with loans and credit creation?"



...of course!! i believe bankers should be able to honestly lend through some honest savings and loan association, etc....operating within an honest, sane 100% reserve ratio ..BUT CERTAINLY NOT THE WAY THEY "LOAN" TODAY: ...i.e. within a 'fraudulent fractional reserve ratio system' which in effect gives these private, unelected banksters control over the volume of the public's money and fore-knowledge of future monetary/economic condition$, etc..!!!

...do you dig yet??!

Why is it fraudulent? The banks do not owe you keeping 100% of your money on hand. The owe you the ability the meet their obligation to, whether in physical cash or via a bank transfer. That is what they owe you. As long as they meet that promise, no fraud has been committed.

A 100% reserve requirement means that a bank must keep 100% of they money they get (all deposits) on hand- in reserve. No loaning.

A "fractional reserve" means that a minimal fraction must be kept in reserve. A "no reserve" bank could set their own desired reserves (even if that was zero money kept in reserve and all funds lent out).

A 100% reserve requirement would mean that banks couldn't buy any assets with their reserves. They would be able to create loans as they always had, but the Federal Reserve would have to inject reserves for all the loans created (over 60 trillion) in order to maintain its interest rate target.

Milton Friedman said completely the opposite. In fact, Milton Friedman was THE person who popularized the idea that low rates are indicative of overly tight monetary policy and low inflation , contrary to standard Keynesianism. I won't link to it again because I have done it before.

In fact just rereading that statement, does anyone think low interest rates mean there is high inflation? I have read Human Action. Mises sure didn't. He would say part of interest rates are inflation expectations, which would mean low interest rates would correspond with low inflation.

Sumner popularized that idea. It was Sumner who made the point that low effective interest rates and low effective NGDP are signs of tight policy, and that high rates and high NGDP are signs of loose policy. How? The expectations fairy.

Friedman would have said that growth in the monetary base is the sign of loose policy. Except that QE would indicate we have very loose policy; interest rates and growth have remained moderate, so the numbers are at a conflict. Sumner resolved the conflict by saying that rates are low due to expectations the Fed set. However, Friedman would not make that claim; he would argue that an expanding monetary base would lead to higher inflation and thus higher interest rates, and that we would have high interest rates now, with the monetary base so large (MV = PT, with the emphasis on M. Higher M = higher P and T, which leads to higher interest rates). He was lost in the idea that growth in the monetary base equals growth in the effective money supply.

Mises and Rothbard both argued that an expanse in the money supply would lead to lower interest rates and high inflation. However, over longer periods of time, you would have the expectations effect which would result in creditors charging and inflation premium and causing higher interest rates. So the effect of an expansive money supply could cause higher interest rates or lower interest rates depending on whether the monetary pull or expectations pull is stronger.

[Krugminator2]

Sumner popularized that idea.

Friedman would have said that growth in the monetary base is the sign of loose policy. Except that QE would indicate we have very loose policy; interest rates and growth have remained moderate, so the numbers are at a conflict. Sumner resolved the conflict by saying that rates are low due to expectations the Fed set. However, Friedman would not make that claim; he would argue that an expanding monetary base would lead to higher inflation and thus higher interest rates, and that we would have high interest rates now, with the monetary base so large (MV = PT, with the emphasis on M. Higher M = higher P and T, which leads to higher interest rates). He was lost in the idea that growth in the monetary base equals growth in the effective money supply.

Sumner got the idea from Friedman and credits Friedman for the idea in like every post. For instance, Friedman wrote the above article in 1998, long before anyone had heard of Scott Sumner.
"The Interest Rate Fallacy
Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." http://www.hoover.org/research/reviving-japan


Hard to find anything to disagree with here. Also, I think there is a good chance Friedman would have argued for negative interest rates and said policy was too tight in 2009.
"The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia."


Loose monetary policy ultimately leads to expansion and thus higher interest rates. No credible economist on the planet disagrees. That is how the business cycle works. I don't know anything about Rothbard, but I am 100% certain Mises would agree with my statement.

[Dr.No.]

Sumner got the idea from Friedman and credits Friedman for the idea in like every post. For instance, Friedman wrote the above article in 1998, long before anyone had heard of Scott Sumner.
"The Interest Rate Fallacy
Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." http://www.hoover.org/research/reviving-japan

Emphasis mine. Friedman mostly wanted to look at growth in the monetary base as indicative of tight or loose fed policy. Sumner looks at at the effects (inflation/interest rates) as indicative of tight or loose policy. But, as I have complained before, he does this in a cyclical fashion: fed policy must be tight because inflation and interest rates are low, because fed policy must be tight. When pressed on it, he's said that expectations (expectations fairy) is how the fed implements policy, and it is that policy that equals tight policy, which explains why inflation and interest rates are low.

"The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia."


Loose monetary policy ultimately leads to expansion and thus higher interest rates. No credible economist on the planet disagrees. That is how the business cycle works. I don't know anything about Rothbard, but I am 100% certain Mises would agree with my statement.

On a somewhat separate point, this is what QE essentially is. The Federal Reserve bought MBS and government bonds on the open market, paying for them with currency and deposits, what economists call high-powered money. Most of the proceeds ended up with commercial banks, adding to their reserves. And they have expanded their loans and purchases. But the purported economic recovery, the increase in inflation, the level of loan creation has not near-materialized. Sumner sees this and switched from using monetary growth as the basis to NGDP.

What is your explanation as to why Friedman was wrong?

[H. E. Panqui]

....as one monetary realist puts it: '...if the monetary ignoramus republicrats paid me to truly educate them what they paid their gd fool government-schooled economic professors to confu$e them, i'd be rolling in federal reserve token$'...

http://fisher-100money.blogspot.com/

..and, “A chief loose screw in our present American money and banking system is the requirement of only fractional reserves behind demand deposits. Fractional reserves give our thousands of commercial banks power to increase or decrease the volume of our circulating medium by increasing or decreasing bank loans and investments. The banks thus exercise what has always, and justly, been considered a prerogative of sovereign power.....“Since the fractional reserve system hampers effective control by the Monetary Authority over the volume of our circulating medium it is desirable that any bank or other agency holding deposits subject to check (demand deposits) be required to keep on hand a dollar of reserve for every dollar of such deposit, so that, in effect, deposits subject to check actually represent money held by the bank in trust for the depositor.”

...remember, ludwig gold-bug theorists, we're talking about DEMAND DEPOSITS...whether or not YOU choose to 'invest' in any 'investment banks,' 'investment accounts,' etc.. is YOUR BUSINESS...YOUR RESPONSIBILITY...

[H. E. Panqui]

dr no. strikes out: "The[y] owe you the ability the meet their obligation to, whether in physical cash or via a bank transfer. That is what they owe you. As long as they meet that promise, no fraud has been committed."



...PLEASE LEARN ABOUT THE FRAUDULENT BANKSTER PRIVILEGE OF 'DEPOSIT CREATION'...(Hint for republicrat monetary newbies: ANY 'PROMISES' THE BANKSTER$ KEEP ARE ENABLED BY THE MONETARY PRIVILEGE/FRAUD THEY HAVE ENJOYED FOR EON$...KNOWN BY MONETARY REALISTS AS 'DEPOSIT CREATION'....sorry for yelling but sheesh...


"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits." (widely attributed to Sir Josiah Stamp)

[Dr.No.]

dr no. strikes out: "The[y] owe you the ability the meet their obligation to, whether in physical cash or via a bank transfer. That is what they owe you. As long as they meet that promise, no fraud has been committed."



...PLEASE LEARN ABOUT THE FRAUDULENT BANKSTER PRIVILEGE OF 'DEPOSIT CREATION'...(Hint for republicrat monetary newbies: ANY 'PROMISES' THE BANKSTER$ KEEP ARE ENABLED BY THE MONETARY PRIVILEGE/FRAUD THEY HAVE ENJOYED FOR EON$...KNOWN BY MONETARY REALISTS AS 'DEPOSIT CREATION'....sorry for yelling but sheesh...


"Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits." (widely attributed to Sir Josiah Stamp)

You can call it loan creation, or you could call it obligation creation. Make no mistake about it....when banks create deposits, they are creating obligations. That's money they owe to the deposit-holders. That obligation is balanced out by the value of the loan they created, which is the bank's asset.

[H. E. Panqui]

You can call it loan creation, or you could call it obligation creation. Make no mistake about it....when banks create deposits, they are creating obligations. That's money they owe to the deposit-holders. That obligation is balanced out by the value of the loan they created, which is the bank's asset.

...make no mistake about it, dr no., when banks create deposits, THEY ARE CREATING MONEY!!!...the same money that is used to bid in 'the marketplace'...you obviously care nothing about promoting an 'egalitarian' society...preferring a bankster plutocracy instead...seems twisted to me, dr. no...

“I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.” Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924.

[Dr.No.]

...make no mistake about it, dr no., when banks create deposits, THEY ARE CREATING MONEY!!!...the same money that is used to bid in 'the marketplace'...you obviously care nothing about promoting an 'egalitarian' society...preferring a bankster plutocracy instead...seems twisted to me, dr. no...

“I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.” Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924.

Yes, of course, the banks are the ones that control the effective money supply. Sure, they can increase the money supply, but without access to that money, the private sector's ability to produce would be greatly reduced. Banks tend to endogenously increase the money supply to the extent that they can find credit-worthy customers, that. That will generally lead to money being lent out to productive enterprises, leading in low/no inflation.

Plus, the banks have all the incentive not to give out bad loans, since they are obligated to pay off the deposits that are created when they issue loans.