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Old 23rd August 2011, 03:36 AM   #1
webb5
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Can we remove world debt?

The short answer to this is yes but we need to fully understand the main reason why we have so much debt in the first place. There has been an enormous amount of wast full spending by many governments of the world but it pales in significance to the main reason of why there is so much debt. The bulk of all this debt comes from the mechanism of fractional reserve banking.

Basically the majority of all new money is created as debt by commercial banks from the process of fractional reserve banking. All money created by this system is fiat money meaning this money is created out of nothing. Most people, who are first told about this, often have great trouble believing it and it is very understandable. The majority of the world’s population are very ignorant on the practices of money creation by the banks, and the banks intend to keep it that way.

There is no way on earth, that we will ever be able to remove world debt of our shoulders, if we continue to use fractional reserve banking as our primary source, to supply us with our medium of exchange (money). Money should never be created as debt, with or with out interest, as it has such very negative affects on our economies. From time to time we will have shortages of resources, lack of man power, lack of skills, droughts, floods and all sorts of things that can affect our mining, manufacturing and agricultural industries but we usually always find a way to supply the populations with the goods and this is by far the hardest part. But supplying our money supply should be the easy part, it should be created in correct amounts to facilitate trade and there should never ever be a shortage of it. This shortage of money we are seeing right around the world at the moment is man made and is completely unnecessary.

An economy will grind to a halt when there is a shortage of money. All sectors of the economy will begin to shut down, causing massive unemployment. As a consequence government revenue is decreased as a result from fewer taxes received. Taxes are raised and government spending reduced with public services drastically cut. Social security payments made by the government soon runs out, leaving many without a roof over their heads and nothing to pay for the basics. Soon there are riots in the streets. The remaining assets left are sold to help service these debts, but the battle is lost, we cannot continue to run our economies further without increasing our debts more. But this money must be made available, so we go begging to the banks again.

The banking system has artificially created a shortage of money. Fractional reserve banking is an evil that must be removed. The problem the world is facing at the moment is not necessary a shortage of resources but rather a shortage of money that has been artificially created and manipulated by the banks. The banks make huge profits for themselves by basically creating money from nothing. What the banks are doing is far worse than counterfeiting.


How we can remove Debt
As I have already said, the majority of all world debt has been created from commercial banks using fractional reserve banking. This money has been created out of nothing and does not represent anything of value, it truly is fiat money. Any value it does have comes from the faith of the people using it. This fictional debt the banks have created is paid for in real wealth from the actions of society. Fiat debt can be very easily removed as it did not exist in the beginning. To avoid any major impact to the economies of the world, new fiat money (as in quantitative easing) could be used to remove this debt completely and should be done with little or no effect. Currently it is only done in a limited form to service debts or finance government spending when interest rates are low as a lost resort. A few countries around the world are presently using quantitative easing to prevent a default. If your country is experiencing these problems in the Euro Zone then you are out of luck as this is not allowed. Countries facing default here must rely on the European Central Bank to set monetary policy.

G20 Summit
The next G20 Summit will be discussing a Bretton Woods style agreement to monetary reform. A single one world currency issued by a global central bank is planed for in the future. The G20 world leaders will also be pushing for even greater powers for the IMF. Soon the world will be denied the use of quantitative easing and tough austerity measures by the IMF will automatically be applied. The deepening financial crisis will give the input needed to put it into place. Strangely our great leaders have nothing to say about FRB. We need to send them a message!
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Old 23rd August 2011, 03:48 AM   #2
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slowly, very slowly i get convinced that something like the gold standard should come back.
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Old 23rd August 2011, 04:04 AM   #3
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Quote:
Basically the majority of all new money is created as debt by commercial banks from the process of fractional reserve banking.

But isn't the "extra" money created by fractional reserve banking just an illusion?

You put $1000 into a bank account, and the bank lends out $900. Now it looks like you have $1000 in the bank, and the borrower has $900, so at first glance you seem to have $1900 where you only had $1000 to start with.

But this extra money doesn't exist. The $1900 is an illusion.

In reality, the borrower has $900, the bank has $100 in reserve, and you have nothing. It's still only $1000.

Of course the bank owes you $1000, and will repay this amount from their pool of reserved money on demand, but no new money has been created.

ETA:

Quote:
This shortage of money we are seeing right around the world at the moment is man made and is completely unnecessary.
If we were experiencing a shortage of money, shouldn't we be experiencing deflation? But according to the table on this site, the 80 economies listed haven't experienced any deflation this year, and no deflation last year except in Quatar.
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Old 23rd August 2011, 04:04 AM   #4
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Old 23rd August 2011, 04:38 AM   #5
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Originally Posted by webb5 View Post
This shortage of money we are seeing right around the world at the moment is man made and is completely unnecessary.
I don't want to be snarky, but as opposed to what ? economy is 100% man made. The only influence are supply (to a great extent barring natural resource shortage : man made) demand (man made).

What the heck could it be other than man made ?
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Old 23rd August 2011, 06:58 AM   #6
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Originally Posted by webb5 View Post
The short answer to this is yes
No, the short answer is "Why would anyone want to ?".

You have a fundamentally distorted view of debt. Debt occurs when one entity has accrued some capital (savings) and some other entity can make productive use of capital. They reach an agreement for terms of repayment and interest for use of the capital. The borrower is motivated to offer the lowest interest and the lender motivated to get the highest interest.. So there is a market that seeks the highest risk adjusted returns - the very projects that will increase productivity most.

Without capital formation these productive capital projects cannot be funded - we remain dirt-poor with low productivity. If the capital uses are directed by a central government, then we can only get one-size-fits-all projects. You might have have roads and water, but you won't have iPhones and Google.

It's a nonsense idea driven by paranoiac thinking about money.
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Old 23rd August 2011, 07:02 AM   #7
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Originally Posted by stevea View Post
No, the short answer is "Why would anyone want to ?".

You have a fundamentally distorted view of debt. Debt occurs when one entity has accrued some capital (savings) and some other entity can make productive use of capital. They reach an agreement for terms of repayment and interest for use of the capital. The borrower is motivated to offer the lowest interest and the lender motivated to get the highest interest.. So there is a market that seeks the highest risk adjusted returns - the very projects that will increase productivity most.

Without capital formation these productive capital projects cannot be funded - we remain dirt-poor with low productivity. If the capital uses are directed by a central government, then we can only get one-size-fits-all projects. You might have have roads and water, but you won't have iPhones and Google.

It's a nonsense idea driven by paranoiac thinking about money.
and when was this the case? 100 years ago?
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Old 23rd August 2011, 11:01 AM   #8
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Originally Posted by webb5 View Post
A single one world currency issued by a global central bank is planed for in the future.
Highly unlikely. Witness the failure of a single currency in Europe.
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Old 23rd August 2011, 11:50 AM   #9
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Originally Posted by DC View Post
slowly, very slowly i get convinced that something like the gold standard should come back.
But it won't help. Currency wasn't more stable when we were on the Gold Standard. Worse, its fluctuations were at the whim of the supply of gold, which isn't controllable the same way the supply of fiat money is.
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Old 23rd August 2011, 01:54 PM   #10
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Here is a great article that talks about debt not being the problem but instead the way we treat debtors.
http://blogs.wsj.com/speakeasy/2011/...human-history/

It also touches on the gold standard, which apparently hasn't been so universally used as gold bugs like to think.

In fact, contrary to popular belief, credit has been the predominant form of money in world history. In ancient Mesopotamia, elaborate credit systems predated coinage by thousands of years. Periods in which people assume that money really “is” gold and silver, let alone use cash in most everyday transactions, are more the exception than the rule.
...
This provides a hint of why we have been experiencing such a succession of debt crises. In this new phase of credit money that we’ve entered since 1971, we did exactly the opposite. Instead of setting up great overarching institutions designed to protect debtors, we created institutions like the S&P or IMF, essentially, designed instead to protect creditors.

I myself think that it would be better to let creditors take the hit for bad loans they make. This would probably also bring some sense into the creditors decisions and lessen risk taking. Now it really is like the old saying goes "privatize the profits, socialize the risks"
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Old 23rd August 2011, 02:46 PM   #11
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Originally Posted by KTB View Post
I myself think that it would be better to let creditors take the hit for bad loans they make. This would probably also bring some sense into the creditors decisions and lessen risk taking. Now it really is like the old saying goes "privatize the profits, socialize the risks"
A good idea, I think. But then you should also have regulations that prevent companies from growing "too big to fail", as well as prevent domino effects that can bring the whole system down. Once you let everything get out of hand, failure is no longer an option.
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Old 23rd August 2011, 03:08 PM   #12
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Originally Posted by DC View Post
slowly, very slowly i get convinced that something like the gold standard should come back.
I think you are not the only one going through that process.
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Old 23rd August 2011, 08:24 PM   #13
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Originally Posted by Brian-M View Post
But isn't the "extra" money created by fractional reserve banking just an illusion?
No, bank account balances are no more illusory than notes and coins.

Debts can be settled by directly transferring money from one bank account to another. As a matter of fact, whenever I make payments to individuals nowadays, this is the method I use more often than not. It is safer than carrying large sums of cash around and is the most convenient way to make payments to distant creditors.

When somebody asks me to put $100 into their bank account, they don't care if I go to the bank and deposit cash into their account or if I transfer the money directly from my account to theirs. All they care about is the bottom line.
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Old 27th August 2011, 08:05 PM   #14
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Originally Posted by Brian-M View Post
But isn't the "extra" money created by fractional reserve banking just an illusion?

You put $1000 into a bank account, and the bank lends out $900. Now it looks like you have $1000 in the bank, and the borrower has $900, so at first glance you seem to have $1900 where you only had $1000 to start with.

But this extra money doesn't exist. The $1900 is an illusion.

In reality, the borrower has $900, the bank has $100 in reserve, and you have nothing. It's still only $1000.

Of course the bank owes you $1000, and will repay this amount from their pool of reserved money on demand, but no new money has been created.

ETA:



If we were experiencing a shortage of money, shouldn't we be experiencing deflation? But according to the table on this site, the 80 economies listed haven't experienced any deflation this year, and no deflation last year except in Quatar.

So according to you,the expanding money supply is an illusion? If we were running full reserve banking you would be part right but this is not the case. You have got your facts mixed up.

If there was no shortage of money, the world would not need to borrow further. World debt is getting bigger not smaller. The money supply must expand to cover the cost of borrrowing and to maintain the money supply an economy needs to function. This debt based sytem provided by the banks forces the world into a cycle of debt.
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Old 27th August 2011, 08:15 PM   #15
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Originally Posted by Aepervius View Post
I don't want to be snarky, but as opposed to what ? economy is 100% man made. The only influence are supply (to a great extent barring natural resource shortage : man made) demand (man made).

What the heck could it be other than man made ?
The shortage of money has been artificially created by the banking system through FRB. The economy requires a medium of exchange to function, if this is not a reliable source it will affect the economy with or without shortages.
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Old 27th August 2011, 08:40 PM   #16
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Originally Posted by stevea View Post
No, the short answer is "Why would anyone want to ?". Have you been living under a rock lately, what a strange thing to say?

You have a fundamentally distorted view of debt. Debt occurs when one entity has accrued some capital (savings) and some other entity can make productive use of capital. They reach an agreement for terms of repayment and interest for use of the capital. The borrower is motivated to offer the lowest interest and the lender motivated to get the highest interest.. So there is a market that seeks the highest risk adjusted returns - the very projects that will increase productivity most.
You are talking about full reserve banking here not FRB, you are very nieve to think that all debt comes from people's savings. 90% of the money supply is created as debt. Get your facts straght! Productivity only increases if there is a need for it. Debt on the other hand has a very negative affect on production

Without capital formation these productive capital projects cannot be funded - we remain dirt-poor with low productivity. If the capital uses are directed by a central government, then we can only get one-size-fits-all projects. You might have have roads and water, but you won't have iPhones and Google.

It's a nonsense idea to believe that the banks are the best to supply us with all the money needed. In fact the reverse is more factual, profits are their agenda and nothing else matters. If we lived in a communist system like a one world government you would be correct to think this way
I think you need to re evaluate every thing you have been told about banking
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Old 27th August 2011, 08:42 PM   #17
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Originally Posted by falkowsi View Post
Highly unlikely. Witness the failure of a single currency in Europe.
And the rest of the worlds economies. This is the very thing that will give the G20 the impus to bring it in. The world will be screaming for monetary reform and a solution to fix the world economies. The single world currency issued by a global central bank will be delivered as a solution to the worlds problems. The trojan horse will be delivered.

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Old 27th August 2011, 08:54 PM   #18
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Originally Posted by webb5 View Post
So according to you,the expanding money supply is an illusion?
Thinking it over, it depends on exactly how money is defined. If you define it as physical currency, borrowing/lending doesn't change the amount. If your definition includes abstract value (numbers in a ledger or computer) then it does. Although, if you think of debt as negative money, then the average amount of money doesn't increase, but the absolute amount of money does.

Originally Posted by webb5 View Post
If there was no shortage of money, the world would not need to borrow further.
I borrowed money in New South Wales to buy my house in Victoria. Not because there wasn't enough money in the entire state of Victoria to pay for the house, but because there wasn't enough money in my bank account to make the purchase. (Borrowing it in NSW was simply a convenience, because that's where was living before I moved to Victoria).

The "world" does not borrow money. People, businesses and governments do. They don't borrow money because there isn't enough money in their country, or because there isn't enough money in the world. They borrow money because there isn't enough money in their direct possession to make the purchases they need at a given point of time.

Increase the money supply, and you devalue money (inflation). By increasing the supply of money, everything becomes more expensive, and people will need to borrow even larger sums of money.

You can increase the money supply all you want, it's been done before (Germany tried that after WWI), but that won't do didley-squat to reduce debt and the need to borrow money.
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Old 27th August 2011, 08:54 PM   #19
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Originally Posted by falkowsi View Post
A good idea, I think. But then you should also have regulations that prevent companies from growing "too big to fail", as well as prevent domino effects that can bring the whole system down. Once you let everything get out of hand, failure is no longer an option.
Failure is the only option with FRB
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Old 27th August 2011, 09:43 PM   #20
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Originally Posted by Brian-M View Post
Thinking it over, it depends on exactly how money is defined. If you define it as physical currency, borrowing/lending doesn't change the amount. If your definition includes abstract value (numbers in a ledger or computer) then it does. Although, if you think of debt as negative money, then the average amount of money doesn't increase, but the absolute amount of money does.

You can define it any way you like but the increase in the money supply is definitely not an illusion


I borrowed money in New South Wales to buy my house in Victoria. Not because there wasn't enough money in the entire state of Victoria to pay for the house, but because there wasn't enough money in my bank account to make the purchase. (Borrowing it in NSW was simply a convenience, because that's where was living before I moved to Victoria).
Your action of borrowing money from the bank (it does not matter which part of the world you get it from) allowed the bank to create additional money to the money supply. This is where the majority of the world’s money supply is created subject to reserve requirements.

The "world" does not borrow money. People, businesses and governments do. They don't borrow money because there isn't enough money in their country, or because there isn't enough money in the world. They borrow money because there isn't enough money in their direct possession to make the purchases they need at a given point of time.
On individual circumstances this may be true, but as a whole this is not true. A government borrows because there simply have no other way of getting this money except by further taxation, there is only so much tax they can throw on the poor tax payers. The economy will drastically slow down if the money supply is allowed to dwindle from servicing debts.

Increase the money supply, and you devalue money (inflation). By increasing the supply of money, everything becomes more expensive, and people will need to borrow even larger sums of money.You can increase the money supply all you want, it's been done before (Germany tried that after WWI), but that won't do didley-squat to reduce debt and the need to borrow money.
Nothing new here, the money supply must be kept in check. What you can’t accept is that the money supply can be created without debt and this money can be created responsibly with no ill affects to the economy. FRB on the other hand has very negative affect to the world’s economies.
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Old 27th August 2011, 11:13 PM   #21
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Originally Posted by webb5 View Post
Failure is the only option with FRB
FRB is the worst system, except for all the other ones.
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Old 27th August 2011, 11:28 PM   #22
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If not FRB then what? What kind of banking system do you suggest we have? I'm honestly curious.
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Old 27th August 2011, 11:38 PM   #23
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So what are you saying, that governments should just print more money instead of borrowing money from other nations?

ETA:

Or are you saying that lending should be prohibited, and more money should be printed to make up for it?

Or are you saying something else altogether?
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Old 27th August 2011, 11:53 PM   #24
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Originally Posted by webb5 View Post
The single world currency issued by a global central bank will be delivered as a solution to the worlds problems. The trojan horse will be delivered.
No, because nobody wants a single currency, especially not after seeing its failure in Europe. On a global scale, with bigger differences in countries, a global currency would fail even harder.

Economies need the flexibility of currency adjustments to balance out their differences in productivity.
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Old 27th August 2011, 11:54 PM   #25
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Re-reading the OP, in this context you seem to be talking about forbidding banks from lending. Or at least, from lending in the way they currently do.

So what alternative do you offer? Where would the money that people borrow to buy houses and cars, etc, come from?

Are you saying that financial institutions should be forbidden to lend money (and that people should have to to save up and pay cash)? Or are you saying something else altogether?

Please, make yourself clear. As far as I can tell, all you're doing is babbling about debt being bad, but failing to suggest any alternative.

ETA:

I'm also stumped trying to figure out what you mean by a "shortage of money" on a global scale. You clearly don't mean a shortage of currency, because fractional reserve banking doesn't create that.

I'm actually stumped by what you mean by "shortage of money" in this context. Money is just a marker, an abstract representation of a proportion of available wealth.

The less money available, the larger the proportion of available wealth it represents.

If there was a "shortage of money" in this context, we would be suffering huge amounts of deflation. But we're experiencing inflation, the product of an "excess of money".

So you can't be talking about a shortage of money in this context.

So what do you mean? You don't seem to be making any sense.
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Old 28th August 2011, 12:03 AM   #26
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Originally Posted by Brian-M View Post
So what alternative do you offer? Where would the money that people borrow to buy houses and cars, etc, come from?
An even bigger issue: where would the money come from that entrepreneurs need to set up a new business, or expand an existing one ?

The beauty of the FRB system is that it's a very efficient way to increase the money supply exactly at the point where extra economic growth is made by business expansion. In addition, the decisions are made by two opposing parties based on risk, reward, and interest rates, which naturally leads to a reasonable deal.
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Old 28th August 2011, 12:42 AM   #27
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Originally Posted by falkowsi View Post
The beauty of the FRB system is that it's a very efficient way to increase the money supply exactly at the point where extra economic growth is made by business expansion. In addition, the decisions are made by two opposing parties based on risk, reward, and interest rates, which naturally leads to a reasonable deal.
Where is the "beauty" in a system that creates a need for exponentially increasing levels of debt in order to maintain the money supply?
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Old 28th August 2011, 12:45 AM   #28
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Originally Posted by psionl0 View Post
Where is the "beauty" in a system that creates a need for exponentially increasing levels of debt in order to maintain the money supply?
There is no such need. If people don't borrow any more money, the money supply stops growing.
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Old 28th August 2011, 02:20 AM   #29
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Originally Posted by falkowsi View Post
There is no such need. If people don't borrow any more money, the money supply stops growing.
Think again.

If people don't borrow any more money then the money supply shrinks - and that is without any principal repayments being made (or do you think that interest payments are a zero sum gain?)

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Old 28th August 2011, 02:45 AM   #30
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Originally Posted by psionl0 View Post
If people don't borrow any more money then the money supply shrinks
Okay, after thinking about it some more, I think I see your point.

So, any idea on how to prevent the money supply from shrinking at this point ?
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Old 28th August 2011, 03:41 AM   #31
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I love it when people start thinking this. I've got a box full of gold scrap waiting until enough people have convinced themselves that gold is magic. Once the speculators drive the price high enough, that little box of metal is going to buy me something nice, like maybe some land, a house, or at least pay off the last of my loans from college. I just wish I had some of the ounces back that I spent when I thought that no one would ever be crazy enough to pay more than 300 an ounce for it.
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Old 28th August 2011, 03:41 AM   #32
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Originally Posted by falkowsi View Post
So, any idea on how to prevent the money supply from shrinking at this point ?
Identifying the problem is the first step. In this case, the problem is that most of the money in our money supply is owned by the banks who are charging interest on it. Since the money to pay the interest has to be borrowed (or the money supply shrinks) the system is unsustainable.

As for a possible solution, I have made a number of posts on this matter in another thread.
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Old 28th August 2011, 04:02 AM   #33
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Originally Posted by psionl0 View Post
Identifying the problem is the first step. In this case, the problem is that most of the money in our money supply is owned by the banks who are charging interest on it. Since the money to pay the interest has to be borrowed (or the money supply shrinks) the system is unsustainable.
I wouldn't say the banks are owning the money. The reserves mostly belong to the people depositing savings. The bank only has a claim on the interest.

At this point, assuming that the economic output stays flat, the money supply should be kept stable by replacing M3 by M0 supply. Of course, the trick is to do that without redistribution of wealth.
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Old 28th August 2011, 04:17 AM   #34
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Gold is mostly worthless. Debt is just numbers on a paper and is not a problem in itself. People focusing on debt or gold are just completely misguided.

Instead of focusing on things that are not important, look at things like power and the allocation of actual tangible resources. That's what matters, not how the money machinery works.

Yes, there's a problem that the financial sector has grown out of control for the last 30 years or so. It doesn't need to be this big, it doesn't actually benefit society more than it used to, and it threatens the overall economy because resources are sucked out of more productive sectors. But this doesn't mean debt is bad or that the stock market is fundamentally evil. It's just grown too big, that's all.
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Old 28th August 2011, 04:18 AM   #35
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Originally Posted by falkowsi View Post
I wouldn't say the banks are owning the money.
Banks don't own base money. That was created "debt free" by the government. However, the money supply is primarily "M1" money and other than the notes and coins in circulation plus bank reserves, this money is stored in bank accounts. That money was created by banks in exchange for promissory notes issued by the borrowers.

Part of the problem is that most people don't believe that bank account balances have anything to do with the money supply.
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Old 28th August 2011, 04:27 AM   #36
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Originally Posted by Merko View Post
Debt is just numbers on a paper and is not a problem in itself.
When people borrow money without any reasonable expectation of being able to service the debt, the problem is anything but academic. When governments do the same (eg PIIGS) then these "numbers on a paper" threaten the sovereignty of entire nations.

Properly applied, debt can be a good thing. Just don't expect politicians to bother about how they will service the debts they constantly create.
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Old 28th August 2011, 04:30 AM   #37
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Originally Posted by falkowsi View Post
No, because nobody wants a single currency, especially not after seeing its failure in Europe. On a global scale, with bigger differences in countries, a global currency would fail even harder.

Economies need the flexibility of currency adjustments to balance out their differences in productivity.
I don't think the suggestion is a single currency that everybody uses to buy stuff in their own countries which replaces national currencies. I think the suggestion is an international currency that people can use alongside national currencies, but mainly for trading internationally.

The Euro has failed because you cannot have full monetary integration without full political integration. Clearly we are not going to have full international political integration, but that need not be a barrier to having an internationalised reserve currency which is not the national currency of any particular country.
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Old 28th August 2011, 04:35 AM   #38
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Originally Posted by psionl0 View Post
That money was created by banks in exchange for promissory notes issued by the borrowers.
The money was created not just by the banks, but by the system consisting of 3 agents: the bank, the person depositing some savings, and the person taking a loan. Even without a bank, you could still create money by loaning it directly to your neighbor. The bank just makes it easier, and makes it more likely that the loaned money will come back so it can be loaned again.

In any case, the depositors own all the money. The bank just manages it.
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Old 28th August 2011, 04:41 AM   #39
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Originally Posted by UndercoverElephant View Post
The Euro has failed because you cannot have full monetary integration without full political integration. Clearly we are not going to have full international political integration, but that need not be a barrier to having an internationalised reserve currency which is not the national currency of any particular country.
OK, that's something different.

However, I don't see how that would work in practice. More likely scenario in my mind is that the next strongest economy takes over the role of the US as the new reserve currency.
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Old 28th August 2011, 04:45 AM   #40
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Originally Posted by Merko View Post
Gold is mostly worthless.
An increasing number of people do not agree with you. It is going to be fascinating to listen to the naysayers as gold busts through $5000 per ounce in a couple of years. "You can't eat gold!", they'll say. The goldbugs will just smile back.
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