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Old 18th October 2017, 09:57 AM   #121
JJM 777
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Originally Posted by Tippit View Post
Gold would simply be revalued upwards
This sounds impractical and imperfect to my layman mind, skyrocketing the value of something that people have in their rings, teeth, spoons, necklaces etc. -- and banks have them stored here and there -- and some countries have varying deposits of it underground. Who knows how much of it will become mineable in space.

How about simply agreeing a mathematical total value of a currency, without using any deposit? 0% reserve central banking. Theoretically its deposit is the value of the national (or global) economy.

But the government wants some tools to be able to cool down "overheated" economy, or accelerate depressed economy.

Originally Posted by Tippit View Post
government would be omniscient, and privy to everyone's transactions.
NSA is rather omniscient already now.

Last edited by JJM 777; 18th October 2017 at 10:17 AM.
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Old 18th October 2017, 10:27 AM   #122
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Originally Posted by JJM 777 View Post
In the OP I hoped, and still I hope, to create a fair and complete list, side by side, of all pros and cons of fractional reserve banking and 100% reserve banking.
Maybe you don't understand full reserve banking. It only applies to checkable deposits. Even then it is only about giving people a choice as to whether they want their transaction accounts to be full reserve or allow banks to use them as collateral for their lending practices.

It is not intended to restrict credit. Rather, it is about controlling the money supply so that we don't get this crazy asset inflation.

Originally Posted by JJM 777 View Post
If (for once, please notice the word "if") that enables people to have a house and car, rather than not having either of them, many (probably most) people see a plus there.
The problem is that the opposite appears to be happening. The cost of housing has risen far faster than other costs and certainly wages. This also means that rents rise faster than everything else too since the cost of servicing a debt on a house also rises.
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Old 18th October 2017, 01:54 PM   #123
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Originally Posted by Tippit View Post
Under 100% reserve banking, people would have to pay banks in order to deposit their money, and bankers would be relegated to the equivalent of public storage employees, or loan brokers, as they should be.

Given the choice of whether to have to pay for deposits in a 100% system, or to receive interest in a fractional system, the public will probably choose to receive interest every time, being completely unaware of the monumental costs of such a system, both in terms of inflation, asset price inflation, privatization of the public's money supply, and undue wealth and status afforded to bankers versus everyone else.

The ability for private banks to create new money is fraud, and it should be outlawed on that basis, if for no other reason. It remains fraud even if a portion of the loot is kicked back to the public to make it appear beneficial.
I don't think any of that meets the definition of fraud.
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Old 18th October 2017, 04:42 PM   #124
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Originally Posted by BobTheCoward View Post
I don't think any of that meets the definition of fraud.
Oh, no now you've gone and done it! - prepare for the deluge!
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Old 18th October 2017, 10:11 PM   #125
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Originally Posted by psionl0 View Post
I understand that since that time, the opposite has been happening. In spite of the Fed's QE programs since the GFC, private loans have not increased significantly. It seems that indebtedness has reached such a level that banks can't find enough customers that they can reliably lend money to.
Hmm. I wonder what's responsible for skyrocketing asset prices...
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Old 18th October 2017, 10:16 PM   #126
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Originally Posted by psionl0 View Post
The problem is that the opposite appears to be happening. The cost of housing has risen far faster than other costs and certainly wages. This also means that rents rise faster than everything else too since the cost of servicing a debt on a house also rises.
Not only that, since wealth accrues unfairly to asset holders, they double down on more real estate, and more rentals. So not only do unfortunate savers and first-time buyers get priced out of the market, but there ends up being more renters to fewer landlords with more properties (see Blackstone group, et al.)
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Old 18th October 2017, 10:45 PM   #127
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Originally Posted by Tippit View Post
Hmm. I wonder what's responsible for skyrocketing asset prices...
I haven't done any detailed research on this phenomenon since this thread is aimed at those seeking the pros and cons of fractional reserve banking.

Of course this is like trying to list the pros of coal fired generators when better sources of energy are available.
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Old 19th October 2017, 02:40 AM   #128
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Originally Posted by psionl0 View Post
Don't tell me you are going to rehash this ancient argument again? That is how I got to be a cretin in the first place.
I'm not intending to rehash the argument, am just suggesting that you be a little more forthright in discussing the topic with the uninitiated.

Originally Posted by psionl0 View Post
FYI each new deposit increases the customers' claims on the bank's reserves.
I don't need yout FYI's and you already know this.

Originally Posted by psionl0 View Post
It does not mean that the banker rushes to their vault and takes out an equivalent amount of cash.
Of course it doesn't. As per my post, it's explanatory only, with cash standing in for the 1s and 0s. You take advantage of the fact that all these transactions happen electronically to imply to people who may not know any better, that the banks invent money into existence from nothing or nowhere, and that they're not really lending their customers' money. Yet at the same time you want to eat your cake too by claiming that this process leaves banks vulnerable to runs on deposits. It's dishonest.

Originally Posted by psionl0 View Post
At worst, when the bank makes a new loan, it may have to transfer the same amount of reserves to a different bank when the borrower spends the money. This is just part of the back and forth movement of reserves between banks.
Yes, and as per the above you like to pretend these reserves transfers don't come from customer deposits...until they do, because it suits your argument.
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Old 19th October 2017, 02:53 AM   #129
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Originally Posted by JJM 777 View Post
In the OP I hoped, and still I hope, to create a fair and complete list, side by side, of all pros and cons of fractional reserve banking and 100% reserve banking. But the rule of thumb seems to be that the more a discusser knows about the topic, the more strictly he refuses to mention any other aspects than his favourite ones.
It's honestly fairly simple. Fractional lending allows for more loans to be made at lower costs to borrowers. Full reserve banking creates fewer loans, but is less susceptible to bank runs on deposits. Full reservists (can I patent the term?) that argue loans can be created by a central authority to the same or similar degree as the fractionalists, have not provided any evidence why this model achieves anything significantly different from what exists already (I refer to my unanswered question in post #8).
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Old 19th October 2017, 05:02 AM   #130
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Originally Posted by Sceptic-PK View Post
I'm not intending to rehash the argument, but . . .
Here we go again.

Originally Posted by Sceptic-PK View Post
I don't need yout FYI's and you already know this.
On the contrary. You need all the FYIs you can get.

Originally Posted by Sceptic-PK View Post
Of course it doesn't. As per my post, it's explanatory only, with cash standing in for the 1s and 0s. You take advantage of the fact that all these transactions happen electronically to imply to people who may not know any better, that the banks invent money into existence from nothing or nowhere, and that they're not really lending their customers' money. Yet at the same time you want to eat your cake too by claiming that this process leaves banks vulnerable to runs on deposits. It's dishonest.
This is just pure gobbledygook.

Originally Posted by Sceptic-PK View Post
Yes, and as per the above you like to pretend these reserves transfers don't come from customer deposits...until they do, because it suits your argument.
Banks get reserves by borrowing from other banks or from the central bank. Anybody who thinks that there is a nexus between customer deposits and reserves is seriously delusional.
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Old 19th October 2017, 05:03 AM   #131
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Originally Posted by Sceptic-PK View Post
It's honestly fairly simple. Fractional lending allows for more loans to be made at lower costs to borrowers. Full reserve banking creates fewer loans, but is less susceptible to bank runs on deposits. Full reservists (can I patent the term?) that argue loans can be created by a central authority to the same or similar degree as the fractionalists, have not provided any evidence why this model achieves anything significantly different from what exists already (I refer to my unanswered question in post #8).
Don't listen to this poster. He is fixated on a model of banking that doesn't exist in the real world.
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Old 19th October 2017, 08:42 AM   #132
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Originally Posted by Tippit View Post
not only do unfortunate savers and first-time buyers get priced out of the market, but there ends up being more renters to fewer landlords with more properties (see Blackstone group, et al.)
You were supposed to be a Capitalist, if I remember correctly. What you describe above is a basic feature of Capitalism, no matter what the banking system is: wealth gets accumulated. Someone somewhere has a way of making a large fortune, maybe they invent something and build a big factory. Then the family becomes rich, and then they find something to buy -- real estate in desirable locations for example -- and then they try to sell or rent for a higher price. Changing the banking system would not change this basic feature of Capitalism. Big buyers can create scarcity and higher prices, by buying so much that people run out of it, and then others are forced to buy from them, even if they just raised the prices. In your simplified imagination there should be no scarcity and no high prices, if the banking system were fairer. But reality is not quite such.

Originally Posted by psionl0 View Post
Maybe you don't understand full reserve banking.
I don't understand any banking at all. Not more than the average person on the street does, which is not much. That topic is not included in the curriculum of "general knowledge" provided by elementary school + high school.

Originally Posted by psionl0 View Post
this crazy asset inflation
Inflation is around 2.5%, which sounds OK for me.

Originally Posted by psionl0 View Post
The cost of housing has risen far faster than other costs and certainly wages. This also means that rents rise faster than everything else too since the cost of servicing a debt on a house also rises.
You blame the interest rates of house loans for the rising prices of housing? Where I live, the interest rate for a house loan is around 1%, hardly a reason for rising housing costs. The price of housing rises when small or big investors buy housing, and then either rent it with expectations of higher than 1% annual profit for the invested money (10% is more like it), or sell for a higher price than what they paid themselves. Banking or interest rates have little, if anything, to do with the artificially high price of housing in good locations of large cities.

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Old 19th October 2017, 10:27 AM   #133
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Originally Posted by JJM 777 View Post
Inflation is around 2.5%, which sounds OK for me.
You haven't been paying attention. Inflation may be low for consumer products but not for property. The massive increase in property prices is a direct result of banks pumping loans into the property market.

Originally Posted by JJM 777 View Post
Banking or interest rates have little, if anything, to do with the artificially high price of housing in good locations of large cities.
Do you not see how this contradicts your 2.5% inflation claim?
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Old 19th October 2017, 12:27 PM   #134
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Originally Posted by Sceptic-PK View Post
Of course it doesn't. As per my post, it's explanatory only, with cash standing in for the 1s and 0s. You take advantage of the fact that all these transactions happen electronically to imply to people who may not know any better, that the banks invent money into existence from nothing or nowhere, and that they're not really lending their customers' money. Yet at the same time you want to eat your cake too by claiming that this process leaves banks vulnerable to runs on deposits. It's dishonest.
So the banks get money from their customers. Where do the customers get that money from?
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Old 19th October 2017, 12:30 PM   #135
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Originally Posted by JJM 777 View Post
You were supposed to be a Capitalist, if I remember correctly. What you describe above is a basic feature of Capitalism, no matter what the banking system is: wealth gets accumulated. Someone somewhere has a way of making a large fortune, maybe they invent something and build a big factory. Then the family becomes rich, and then they find something to buy -- real estate in desirable locations for example -- and then they try to sell or rent for a higher price. Changing the banking system would not change this basic feature of Capitalism. Big buyers can create scarcity and higher prices, by buying so much that people run out of it, and then others are forced to buy from them, even if they just raised the prices. In your simplified imagination there should be no scarcity and no high prices, if the banking system were fairer. But reality is not quite such.
Armed robbery makes the robber wealthier at the expense of the victim. Is this capitalism?

I am a capitalist, and I'm making the claim that capitalism doesn't really exist. When you have a money system for which arbitrary and unlimited amounts of money can be created and used to take ownership of not only the means of production, but virtually everything else, there is no capitalism, and there is no free market. The corruption of money is bigger than any economic or political ideologies.

I don't have a problem with people getting wealthier. I have a problem with people getting wealthier on the basis of fraud, and without adding any value to society what-so-ever, and people engaged in pure rent-seeking and graft.

No matter what sort of abuses you can imagine in your own mind that you attribute to "capitalism", I can assure you they are primarily caused by our corrupt money system, which is the cornerstone of our corrupt economic and political system. So in the interests of not only capitalism, but basic criminal justice, I speak out on what I believe is the most important issue of all and one for which I've found that not one in a thousand people seem to understand. Keynes was right.

Quote:

Inflation is around 2.5%, which sounds OK for me.
Did you know that in a productive economy, and given a static money supply, there would be a rate of deflation (ie, things becoming cheaper for workers and savers over time), as opposed to a rate of inflation? So in reality, the actual money creation required to generate 2.5% in inflation (and I assure you that rate is understated, and manipulated) is much higher, because it has to offset the benign and natural deflation which accompanies productivity growth.

You also have repeatedly failed to grasp the distinction between consumer prices, and asset prices. I don't know how to make the difference much clearer than I already have in previous posts, and who this affects and how.

Quote:

You blame the interest rates of house loans for the rising prices of housing? Where I live, the interest rate for a house loan is around 1%, hardly a reason for rising housing costs. The price of housing rises when small or big investors buy housing, and then either rent it with expectations of higher than 1% annual profit for the invested money (10% is more like it), or sell for a higher price than what they paid themselves. Banking or interest rates have little, if anything, to do with the artificially high price of housing in good locations of large cities.
This is pure ignorance. The fractional reserve system increases the money supply by some multiple of the base money supply, up to a limit. As lupus pointed out in an earlier post, this limit isn't even close to being reached, however, central banks have been increasing base money at an extraordinary rate. For a number of reasons, this credit has made its way into financial assets, like houses, stocks, and bonds, making the pre-existing holders of these assets vastly and relatively richer than everyone else who merely works or saves.
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Old 19th October 2017, 10:50 PM   #136
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Originally Posted by psionl0
I understand that since that time, the opposite has been happening. In spite of the Fed's QE programs since the GFC, private loans have not increased significantly. It seems that indebtedness has reached such a level that banks can't find enough customers that they can reliably lend money to.
Yeah, both are inconvenient facts for any multiplier story. That's why I think the term fractional, as in fractional banking, is something of a misnomer. Banks don't lend reserves to the public. Obviously reserves become more important in a crisis when interbank lending stops, i.e., when we have a liquidity crisis.

Originally Posted by Tippit
The fractional reserve system increases the money supply by some multiple of the base money supply, up to a limit. As lupus pointed out in an earlier post, this limit isn't even close to being reached, however, central banks have been increasing base money at an extraordinary rate. For a number of reasons, this credit has made its way into financial assets, like houses, stocks, and bonds, making the pre-existing holders of these assets vastly and relatively richer than everyone else who merely works or saves.
How do you explain the two earlier extraordinary peaks in asset prices (circa 2000 and 2006) which happened during a phase when reserve balances actually declined?

Here:
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Old 19th October 2017, 11:19 PM   #137
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Originally Posted by lupus_in_fabula View Post

How do you explain the two earlier extraordinary peaks in asset prices (circa 2000 and 2006) which happened during a phase when reserve balances actually declined?
The only explanation that I would offer is that US member bank balances don't fully describe the international dollar policy of the Federal Reserve, and will vary based on foreign capital flows, whereas global asset prices will reflect more directly the global dollar policies of the Federal Reserve.

Note the unrelenting ascent of M2 here, as opposed to balances:



This doesn't correlate with the market crashes in 2000 and 2007, but it does document the liquidity required in order for prices to have been bid up to those (and current) levels.

Milton Friedman said that "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." and he was correct, and this applies to asset prices as well as any other price.

Clearly, absent monetary manipulation, asset prices could not rise to the stratospheric levels they're at now without some corresponding price drop elsewhere in the economy. Feel free to show where this is the case.

Also, if you'd like to describe how the bidding up of asset prices by debasing currency doesn't reward asset owners at the direct expense of currency savers and workers, I would be interested to hear it.
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Old 19th October 2017, 11:37 PM   #138
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Originally Posted by lupus_in_fabula View Post
Yeah, both are inconvenient facts for any multiplier story. That's why I think the term fractional, as in fractional banking, is something of a misnomer. Banks don't lend reserves to the public. Obviously reserves become more important in a crisis when interbank lending stops, i.e., when we have a liquidity crisis.
Take note Sceptic-PK.
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Old 20th October 2017, 12:52 AM   #139
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Tippit, first things first: Why do you present a graph of M2 where the components are both base money (created by the central bank) and private bank credit? Here's a chart (focus on the red line) where I subtract base money from M2, so that only the privately created component is shown. Compare that to M2 and you have a similar kind of "relentless" rise… consisting of private money creation.

Here:



Inflations is a monetary phenomenon in so far as it is measured in a monetary unit. There's no reason to suppose a particular causal direction in the sense that a rise in the money supply will lead to increasing asset prices. The causal direction can also be the opposite: increasing asset prices lead to more credit/money creation. Money in the current system is, after all, mostly private and endogenous. That is to say, money is endogenous in the sense that credit creation is a response to private demand for it.
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Old 20th October 2017, 02:53 AM   #140
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Originally Posted by Tippit View Post
Clearly, absent monetary manipulation, asset prices could not rise to the stratospheric levels they're at now without some corresponding price drop elsewhere in the economy. Feel free to show where this is the case.
Why does this only affect asset prices and not consumer prices or wages?
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Old 20th October 2017, 03:01 AM   #141
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Originally Posted by psionl0 View Post
The massive increase in property prices is a direct result of banks pumping loans into the property market.
I just said that it is a result of investors buying and then raising prices, not a result of interest rates. It is investors who artificially raise the prices, not the interest rate. With lower interest rates, we would still see the same scenario of individuals and companies buying some unnecessary extra real estate if they can afford it, and then selling or renting it for a higher price. The real remedy would be banning the reselling of real estate for profit, so there would be no professional market of buying them and selling for profit. There would only be a market of buying for necessity, and then selling out for a legally capped price when you no longer need it.

Originally Posted by psionl0 View Post
Do you not see how this contradicts your 2.5% inflation claim?
No.

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Old 20th October 2017, 03:16 AM   #142
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Originally Posted by Tippit View Post
Armed robbery makes the robber wealthier at the expense of the victim. Is this capitalism?
No, it is just collection of taxes. Rather medieval style, but theoretically a person carrying a concealed gun might still be the one who knocks your door and confiscates some valuable property from your house, if you are hopelessly late in tax payments.

Originally Posted by Tippit View Post
I have a problem with people getting wealthier (...) without adding any value to society what-so-ever, and people engaged in pure rent-seeking and graft.
Originally Posted by Tippit View Post
No matter what sort of abuses you can imagine in your own mind that you attribute to "capitalism"
The list that you just gave above is the traditional 200 years old caricature version that Marxists have portrayed the bourgeoisie with. The allegedly unproductive owner class vs. the workers class who actually do the production.

Originally Posted by Tippit View Post
not one in a thousand people seem to understand.
This observation is correct.

Originally Posted by Tippit View Post
The fractional reserve system increases the money supply by some multiple of the base money supply, up to a limit. As lupus pointed out in an earlier post, this limit isn't even close to being reached
The way how you repeatedly describe the ease at which banks create money, makes a layman wonder why the famous banking crisis existed in 2008. Just the other week I felt the effects of that very US-originated crisis, even though I am on the other side of the planet, as I walked to the bank to ask for a housing loan. The bank requires me to have 10% cash savings, because the law requires them to require that, a law that was written after the 2008 crisis in practically all western countries, designed to make a widespread crash of house loan market less likely. (The idea of this law is that if I become unemployed and they must put my home under the hammer, the bank will probably be able to sell the house for at least 90% of its sales price, and the other 10% they have in my cash, so the banks will remain stable even in case of relatively high unemployment. But the way how you describe it, the banks would simply create money out of thin air. What was the crisis then, and what are these laws for, if banks have a way of getting out of any shortage of cash?)

Originally Posted by Tippit View Post
houses, stocks, and bonds, making the pre-existing holders of these assets vastly and relatively richer than everyone else who merely works or saves.
So a solution would be legally obligatory shared ownership of stock, and legally banning reselling housing for profit.

Last edited by JJM 777; 20th October 2017 at 03:23 AM.
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Old 20th October 2017, 03:45 AM   #143
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Originally Posted by JJM 777 View Post
I just said that it is a result of investors buying and then raising prices, not a result of interest rates. It is investors who artificially raise the prices, not the interest rate. With lower interest rates, we would still see the same scenario of individuals and companies buying some unnecessary extra real estate if they can afford it, and then selling or renting it for a higher price. The real remedy would be banning the reselling of real estate for profit, so there would be no professional market of buying them and selling for profit. There would only be a market of buying for necessity, and then selling out for a legally capped price when you no longer need it.
You would have a hard time selling a socialist policy like that. The best remedy is to direct new credit into productive purposes rather than asset accumulation. This is possible if central banks create the new money rather than commercial banks.

Originally Posted by JJM 777 View Post
Originally Posted by psionl0 View Post
Do you not see how this contradicts your 2.5% inflation claim?
No.
If a massive increase in property prices equates to 2.5% inflation then I suggest that you look for a new source of data.

Originally Posted by GnaGnaMan View Post
Why does this only affect asset prices and not consumer prices or wages?
Because most bank created credit is used to fund property purchase instead of consumer products or production.
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Old 20th October 2017, 08:36 AM   #144
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Originally Posted by lupus_in_fabula View Post
Tippit, first things first: Why do you present a graph of M2 where the components are both base money (created by the central bank) and private bank credit? Here's a chart (focus on the red line) where I subtract base money from M2, so that only the privately created component is shown. Compare that to M2 and you have a similar kind of "relentless" rise… consisting of private money creation.
Why not? Both factors increase the supply of money, and thus affect asset prices. Why did you completely ignore the explanation you asked for, and two of my subsequent questions?

Why did you post a graph of US reserve bank balances to describe an apparent contradiction in the phenomenon for which global dollars are used to bid on both global and US assets?

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Inflations is a monetary phenomenon in so far as it is measured in a monetary unit. There's no reason to suppose a particular causal direction in the sense that a rise in the money supply will lead to increasing asset prices. The causal direction can also be the opposite: increasing asset prices lead to more credit/money creation. Money in the current system is, after all, mostly private and endogenous. That is to say, money is endogenous in the sense that credit creation is a response to private demand for it.
This is nonsensical. First of all, increases in the money supply necessarily result in a counterfeit bid somewhere in the economy, resulting in higher prices ceteris paribus. Since it's unlikely that the largest banks in the world with connections to the Federal Reserve are going to monetize consumer prices, then all that's left are asset prices, since these two types of prices comprise the totality of all prices. Second, the idea that asset prices can increase prior to inflating the money supply is ridiculous, absent a very large amount of pre-existing money already on the sidelines. Regardless, the monetization of even more assets in response to higher prices represents more of the problem I'm describing.

Would you care to respond directly to my two questions now?
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Old 20th October 2017, 08:52 AM   #145
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Originally Posted by GnaGnaMan View Post
Why does this only affect asset prices and not consumer prices or wages?
This is a very important question. First of all, hedonic regression is used to manipulate the consumer price index lower in order to save on entitlement costs, so inflation is understated. But consumer prices and ultimately wages must be affected by the supply of money all else being equal. Wages have some powerful suppressing factors which offset this to a large degree.

I would explain this mystery by suggesting that the beneficiaries of most of the money and credit created by central banks, are the super-rich, and that most of their exorbitant consumer needs are already met. Their standards-of-living cannot really get much higher, so any new capital they have access to is going towards the accumulation of more assets, in order to perpetuate their standards-of-living, and the accumulation of yet more assets.

It's important to realize that assets are scarce. Even financial assets, which securitize financial claims on real assets like corporations, while being theoretically infinite in supply, are still based on finite resources. So as assets are hoarded by the super-rich who have access to virtually unlimited free money, it actually has a deflationary effect as all of the interest, dividends, and rents are consolidated into fewer and fewer hands, and those cash flows are in turn used to acquire even more assets.

One factor offsetting this is the fact that the super-rich have to buy their assets from someone, typically middle or upper-middle class investors who decide to sell. These investors will undoubtedly spend a large portion of the proceeds to improve their standards-of-living, as opposed to flipping the proceeds into more assets, resulting in higher consumer prices and the (understated) inflation that we actually have.
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Old 20th October 2017, 08:58 AM   #146
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Originally Posted by JJM 777 View Post
No, it is just collection of taxes. Rather medieval style, but theoretically a person carrying a concealed gun might still be the one who knocks your door and confiscates some valuable property from your house, if you are hopelessly late in tax payments.
You equate armed robbery with tax collection? Do robbery victims owe their perpetrators anything?

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The list that you just gave above is the traditional 200 years old caricature version that Marxists have portrayed the bourgeoisie with. The allegedly unproductive owner class vs. the workers class who actually do the production.
It sounds like you're accusing me of being a Marxist. In reality, I'm making an important distinction between fraud and merit. I think the Marxist characterization is fairly accurate, but their solutions are not only nonsensical, they're tyrannical. They fundamentally misunderstand the cause of the problem which is the corruption of money, and most definitely not capitalism.

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The way how you repeatedly describe the ease at which banks create money, makes a layman wonder why the famous banking crisis existed in 2008. Just the other week I felt the effects of that very US-originated crisis, even though I am on the other side of the planet, as I walked to the bank to ask for a housing loan. The bank requires me to have 10% cash savings, because the law requires them to require that, a law that was written after the 2008 crisis in practically all western countries, designed to make a widespread crash of house loan market less likely. (The idea of this law is that if I become unemployed and they must put my home under the hammer, the bank will probably be able to sell the house for at least 90% of its sales price, and the other 10% they have in my cash, so the banks will remain stable even in case of relatively high unemployment. But the way how you describe it, the banks would simply create money out of thin air. What was the crisis then, and what are these laws for, if banks have a way of getting out of any shortage of cash?)
The answer is simple, looking back. If you were Lehman Brothers, or any of millions of underwater mortgage borrowers, there was no free money for you. If you were Goldman Sachs, JP Morgan, or AIG, there was unlimited free money for you. Understand?

Quote:

So a solution would be legally obligatory shared ownership of stock, and legally banning reselling housing for profit.
No, no it wouldn't.
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Old 20th October 2017, 10:16 AM   #147
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Originally Posted by JJM 777 View Post
But the way how you describe it, the banks would simply create money out of thin air. What was the crisis then, and what are these laws for, if banks have a way of getting out of any shortage of cash?
Since bank deposits can be directly transferred between depositors, they are often considered a form of money.

However, bank deposits are not federal reserve notes nor are they "money in the bank". They are merely a statement of what the bank owes its depositors (a form of IOU). Banks (other than the central bank) don't create reserves, they merely transfer/borrow them. If a bank can not get their hands on enough reserves to fund all the withdrawals or transactions then a crisis exists.

Originally Posted by Tippit View Post
You equate armed robbery with tax collection?
You don't?
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Old 20th October 2017, 10:57 AM   #148
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Originally Posted by Tippit View Post
Note the unrelenting ascent of M2 here, as opposed to balances:

https://fred.stlouisfed.org/graph/fredgraph.png?g=ftl7
I don’t see the problem here. Smooth growth of M2 is directly linked to smooth economic growth. Smooth economic growth is far superior to boom and bust cycles which can inflict incredible hardships.
Originally Posted by Tippit View Post
Milton Friedman said that "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."
Modest inflation is MUCH better than any level deflation. Aiming for zero inflation and missing on the down side even slightly can create economic catastrophe. This is why monetary policies that aim for small but consistent inflation are the norm. The link between money supply and inflation means you expect to see exactly the type of M2 supply chart you just linked. It’s not a problem or a negative, it’s exactly what you want for stable growth and prosperity.
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Old 20th October 2017, 11:14 AM   #149
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Originally Posted by lupus_in_fabula View Post
That's why I think the term fractional, as in fractional banking, is something of a misnomer. Banks don't lend reserves to the public. Obviously reserves become more important in a crisis when interbank lending stops, i.e., when we have a liquidity crisis.
If you want to say that banks finding themselves with excess reserves, un-reserve the money before lending it it’s perfectly accurate, but it’s not really a level of detail required to discuss psionl0’s claim that banks are fraudulently creating money from thin air. When a bank credits on account another account someplace else is simultaneously being debited that same amount. These two transactions are linked so either both happen or both get rolled back.
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Old 20th October 2017, 11:29 AM   #150
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Originally Posted by GnaGnaMan View Post
Why does this only affect asset prices and not consumer prices or wages?
It doesn’t. Too much money in the economy can result in too much many chasing too few goods (inflation) or too much money chasing too few investment opportunities (which can cause asset bubbles) or in some cases both.

The caveat here is that if you have too much money chasing too few goods there are additional investment opportunities available to supply additional goods. The limit here is finding qualified workers to produce those new goods. So under normal circumstances the system mostly balances itself.
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Old 20th October 2017, 11:36 AM   #151
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Originally Posted by lomiller View Post
... it’s not really a level of detail required to discuss psionl0’s claim that banks are fraudulently creating money from thin air.
Did you read post #69 before making up this lie?

Originally Posted by lomiller View Post
When a bank credits on account another account someplace else is simultaneously being debited that same amount. These two transactions are linked so either both happen or both get rolled back.
Which account?
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Old 20th October 2017, 01:52 PM   #152
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Originally Posted by Tippit
Why not? Both factors increase the supply of money, and thus affect asset prices. Why did you completely ignore the explanation you asked for, and two of my subsequent questions?
You need to be more specific about what you mean by "the international dollar policy of the Federal Reserve". I really don't know what you intended to imply?

Originally Posted by Tippit
Why did you post a graph of US reserve bank balances to describe an apparent contradiction in the phenomenon for which global dollars are used to bid on both global and US assets?
…because you seem to put the blame on the Fed for increasing the money supply. I showed that it's actually the private financial system which did most of that prior to the financial crisis.

Originally Posted by Tippit
This is nonsensical. First of all, increases in the money supply necessarily result in a counterfeit bid somewhere in the economy, resulting in higher prices ceteris paribus. Since it's unlikely that the largest banks in the world with connections to the Federal Reserve are going to monetize consumer prices, then all that's left are asset prices, since these two types of prices comprise the totality of all prices. Second, the idea that asset prices can increase prior to inflating the money supply is ridiculous, absent a very large amount of pre-existing money already on the sidelines. Regardless, the monetization of even more assets in response to higher prices represents more of the problem I'm describing.
No, it's certainly not nonsensical. What do you think all that business about second mortgages was about if not someone noticing prices going up on existing assets across the board and further speculation about them continuing to rise – hence making subsequent credit based on the same asset possible and even seem like a great and riskless idea both for the lenders as well as the borrowers? Prices going up created a whole new market for new credit (think about the rise of the subprime loans market for example).

Secondly, you also seem to forget the even larger "culprit" here. That is: shadow banking. Shadow banking was a far more important factor in the expansion of the whole financial system and for asset markets than traditional credit creation by banks (either public or private) – and here it's all about securitization, collateral chains and collateral leverage rather than money creation that matters.
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Old 20th October 2017, 02:10 PM   #153
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Originally Posted by lomiller
If you want to say that banks finding themselves with excess reserves, un-reserve the money before lending it it’s perfectly accurate…
I don't think there's any such thing as "un-reserving".

Originally Posted by lomiller
When a bank credits on account another account someplace else is simultaneously being debited that same amount. These two transactions are linked so either both happen or both get rolled back.
It's a + + transaction rather than a + - transaction. That’s why the bank's balance sheet expands as a consequence.
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Old 20th October 2017, 02:47 PM   #154
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Originally Posted by Tippit View Post
This is a very important question. First of all, hedonic regression is used to manipulate the consumer price index lower in order to save on entitlement costs, so inflation is understated. But consumer prices and ultimately wages must be affected by the supply of money all else being equal. Wages have some powerful suppressing factors which offset this to a large degree.

I would explain this mystery by suggesting that the beneficiaries of most of the money and credit created by central banks, are the super-rich, and that most of their exorbitant consumer needs are already met. Their standards-of-living cannot really get much higher, so any new capital they have access to is going towards the accumulation of more assets, in order to perpetuate their standards-of-living, and the accumulation of yet more assets.
I am very sympathetic to such arguments but what do you respond to those who say that a rising tide lifts all boats?
I don't quite see how money creation increases inequality though. What's the mechanism that makes the super rich the beneficiaries?

Quote:
It's important to realize that assets are scarce. Even financial assets, which securitize financial claims on real assets like corporations, while being theoretically infinite in supply, are still based on finite resources. So as assets are hoarded by the super-rich who have access to virtually unlimited free money, it actually has a deflationary effect as all of the interest, dividends, and rents are consolidated into fewer and fewer hands, and those cash flows are in turn used to acquire even more assets.
I'm not really sure I follow this. Super-rich guy buys up assets with newly created money. Where does this money end up?
If all the assets are bought with newly created money by a privileged few, then everyone else should be up to their eye-balls in money.
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Old 20th October 2017, 09:02 PM   #155
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Originally Posted by GnaGnaMan View Post
I am very sympathetic to such arguments but what do you respond to those who say that a rising tide lifts all boats?
I don't quite see how money creation increases inequality though. What's the mechanism that makes the super rich the beneficiaries?
Money creation is a zero-sum, regressive transfer of wealth. It is taxation, at best, or counterfeiting/theft, at worst. The "rising tide" analogy is similar to the "trickle down" fallacy. The mechanism is that central banks make enormous amounts of money available to a select few at little to no cost.

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I'm not really sure I follow this. Super-rich guy buys up assets with newly created money. Where does this money end up?
If all the assets are bought with newly created money by a privileged few, then everyone else should be up to their eye-balls in money.
Yes, this is true, and this is the cause of the modest (understated) inflation that we currently have. However, dividends, interest, and rents make up a huge portion of consumer spending. As the assets that throw off these cash flows get consolidated into fewer and fewer hands, it would actually have a deflationary effect on consumer prices, and that is what I contend is happening. Not actual deflation, but a rate of consumer price inflation that is vastly less than what would be indicated by the rapidly expanding money supply. As fewer and fewer people own assets, they have less passive income to spend on consumer goods.
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Old 20th October 2017, 10:37 PM   #156
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Originally Posted by Tippit View Post
Money creation is a zero-sum, regressive transfer of wealth. It is taxation, at best, or counterfeiting/theft, at worst.
How about observed phenomenon?
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Old 20th October 2017, 10:42 PM   #157
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Originally Posted by GnaGnaMan View Post
I'm not really sure I follow this. Super-rich guy buys up assets with newly created money. Where does this money end up?
With other "super-rich" guys. In the process of bidding up the price of these assets they vacuum up money from the unrich people.
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Old 21st October 2017, 05:44 AM   #158
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Originally Posted by Tippit View Post
You equate armed robbery with tax collection?
Not really, but where did this armed robbery come from anyway? Apparently you equated it with something. If not, then it is irrelevant and off topic.

Originally Posted by Tippit View Post
It sounds like you're accusing me of being a Marxist.
It is obvious that you are not a Marxist. But not what one would expect from a typical Capitalist either. In my opinion you are Center-Left, but in your own very unique way.

Originally Posted by Tippit View Post
I'm making an important distinction between fraud and merit.
But you are not making much distinction between legal secretive selfishness and illegal "fraud". Nearly every business activity in the world could be called "fraud", for example because they all use secretive pricing (the buyer knows only the asking price, but not what the price is based on, how much profit margin is included in the price). If there is a problem in the society, we need laws that prohibit the problem. Then continuing it secretly, despite it being illegal, meets the definition of "fraud". Legal secretive action is not "fraud" in a law context.

You probably think that the legal society is a lost cause, so laws are irrelevant, and you can call something "fraud" no matter if it is technically illegal or not. I will still not call you a Marxist, but a "revolutionary" you are.

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Old 21st October 2017, 05:48 AM   #159
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Originally Posted by lomiller View Post
Modest inflation is MUCH better than any level deflation. Aiming for zero inflation and missing on the down side even slightly can create economic catastrophe. This is why monetary policies that aim for small but consistent inflation are the norm.
Something like this is my vague perception, that governments want to have a constant small inflation. But I have failed to get any support for these thoughts from the anti-fractional-reserve guys. I think Tippit openly advocates zero inflation or even deflation.
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Old 21st October 2017, 05:50 AM   #160
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Originally Posted by psionl0 View Post
The best remedy is to direct new credit into productive purposes rather than asset accumulation. This is possible if central banks create the new money rather than commercial banks.
And this new money should be created "out of thin air", or based on something that "justifies" creating more money?
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