Money is not debt.

Discussion in 'Business & Economics' started by desi, Oct 25, 2008.

  1. desi Valued Senior Member

    Messages:
    1,616
    Money is a value marker used to simplify trade between people.

    A certain group of people have monopolized the printing of money and used it as a way to live off of the rest of us like parasites via the 'money is debt' myth.
     
  2. Google AdSense Guest Advertisement



    to hide all adverts.
  3. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    If true, then you should be able to name at least one of these people. I will wait for you to do so before more comment.
     
  4. Google AdSense Guest Advertisement



    to hide all adverts.
  5. dsdsds Valued Senior Member

    Messages:
    1,678
    Do you know what you're talking about? The "Certain group" you refer to does not want the "rest of us" to know that money is debt.

    and btw, money IS debt. (google "fractional reserve banking")
     
  6. Google AdSense Guest Advertisement



    to hide all adverts.
  7. Nasor Valued Senior Member

    Messages:
    6,226
    Which is why they hid the knowledge away in about a thousand different textbooks: http://www.amazon.com/Modern-Banking-Shelagh-Heffernan/dp/0470095008/ref=sip_rech_dp_7

    But of course those sorts of books don't have many pretty pictures, so maybe the information is safe there after all...
     
  8. dsdsds Valued Senior Member

    Messages:
    1,678
    The problem is that even most textbooks are misleading on how money is created. For example, the Federal Reserve (private company that prints or actually legally counterfeits money)http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html:

    Can you see how that paragraph is misleading or not clear? If banks would be allowed to lend 90% of the actual deposits why would they need to create any new money? The fact is that ALL money that is lent is NEW MONEY -- created out of thin air by the FED. Money = Debt = Inflation.

    The US government didn't only inject 700B of new money into the economy. That 700B has the potential to create a total of ~ 9x that much === ~6.3 Trillion

    Please Register or Log in to view the hidden image!



    It's simply a pyramid scheme because there will never be enough money to pay back the debt (not to mention the interest).
     
  9. moementum7 ~^~You First~^~ Registered Senior Member

    Messages:
    1,598
    Good to see more people catching onto this...even a few years ago this topic would not come up so much...too bad the corruption has gotten as far as it has.
     
  10. Nasor Valued Senior Member

    Messages:
    6,226
    This has already been debunked at some length in the "money as debt" thread. The bank isn't just creating money out of thin air, because if (looking at the $100 deposit/$90 loan example from your post) the person who deposited the $100 comes to the bank and asks to withdraw $50, the bank will be $40 short since they only actually have $10 in their reserve. The result is that the bank has to borrow $40 from the Fed to give their depositor his money, and they have to pay the Fed back $40 plus interest. If the banks were really "creating new money" it wouldn't be necessary for them to borrow money from someone else to pay their depositors when the depositors want to withdraw unexpectedly large amounts of money. If you still aren't clear on this, I would suggest looking at the discussion in that thread. If the bank loans out money and it isn't paid back, they lose that money.

    Also, it's misleading to say that the Fed is a private corporation. The Fed is financed by private companies, but the U.S. Federal Government controls the Federal Reserve; they appoint the Fed board of governors (the people who make the actual decisions) and the Chairman (the guy who's in charge of it all). If the Fed ever did anything that the government really didn't like, they could replace the people in charge of it at any time.

    Also, I would submit to you that most textbooks are pretty clear about how money is created; it's the nutty internet conspiracy pages that you have clearly been reading that are misleading.
     
  11. ashura the Old Right Registered Senior Member

    Messages:
    3,611
    Either I'm reading something wrong here or dsdsds pretty much agrees with you for most of your post. According to him, the creation of new money is occurring at the Fed, not at individual banks. Otherwise, your point from the money as debt thread, that if banks could create new money they wouldn't have to worry about borrowers making payments, would undoubtedly apply.
     
  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    FYI In addition to having the basic interest rate set by Brazil's central bank at 13.75% currently (very serious about inflation control here even if US is guaranteeing it will surge with new money flooding out) Brazil has a 52% compulsary deposit requirement - the money in circulation can not even double! Without the Central bank making more.

    To stimualte the local ecxonomy, should that ever be necessary, they could reduce the basic interest rate to be "only" ten times greater than the US's 1%(I am assuming that the FED lowers the 1.5% in a hour or so from now.)

    As some of the smaller banks in Brazil have no "Fanny May" etc to sell their mortgages to now there is a small liquidity problem here too and even the big banks are evaluating the loans they make more carefully. Thus, the central bank has recently allowed that part (or all? I am not sure which) of the compulsary to be high quality loans the banks have made, instead of cash. Sort of the Brazilain version of "Fanny & Freddy."

    There has for years been a type of savings account (Poupança) that escapes many taxes on its interest which can only be used by the banks to make loans for modest priced homes. This is sort of like the US's saving and loan associations but done by the banks. If you deposit money into any other type of bank saving account and then take it out again in less thant 30 days, there is a special tax on it. This, along with other tax structures favoring the Poupança account, makes it the main source of home loan money for the middle classes. (Government also builds low-income housing for the poor whcih has low rent, but they can not own it.) The un-employed, chronically poor, build their own side-by-side out of stolen boards and card board etc. or those too lazy for this just sleep under bridges etc. or on the side walks. Banks also offer a higher interest rate account (CDI) that pays a rate set every day as a percent ot the government bond's rate (about 10,000 US will get 95% of the bond rate and you can take out some any time you like but the minimum take out is about $200 US dollars. - I use it and get 0.98 of the bond rate.)

    Banks have a monoply on making loans - In Brazil, it is illegal for me to do what I have done in the US when selling some property. - I.e. lend the buyer part of the purchase money, secured by having the property return to me if loan is not paid regularly etc.

    Banks in Brazil are very modern and sound. You pay your bills there also or transfer money to others there - No one likes to carry much cash - might be robbed. If robbed, help the robber and he will not hurt you. The danger is from the poorly trained police - they shoot and often kill the victim of the robbery.

    Few years ago when three people being robbed in RIO were killed by police in one week there was a cartoon in the newspaper. It showed a robbery in progress on street corner with two policmen approaching on the street the victim could see along but not the robber: Victim says to the Robber:

    "For god's sake be quick - the police are coming!"

    Another funny "police cartoon" appeared in the newspaper last week related to fact one group of police was on strike and trying to invade the mayor's office, but they were being blocked by another type of police (In Sao Paulo the are about 10 different types: everything from park, metro, riot, city, state, federal , military, civil guard and few more types of police.)

    These two police forces were shooting rubber bullets at each other and throwing tear gas, rocks etc. About 10 on each side were significantly injured but no one was killed.

    The cartoon shows the explosion and flames of this war in the background (on other side of a river) with with smoke rising up among the city buildings. In the foreground side of the river, are some drug dealers watching with AK 47s etc. and one says to the other:

    "Let's go over there. - Someone should protect our customers."
     
    Last edited by a moderator: Oct 29, 2008
  13. DubStyle I may be wrong, but I doubt it Registered Senior Member

    Messages:
    214
    I assume you heard, Billy, that the Fed has extended up to $30 billion in financing to Brazil through currecy swaps. What do you think of that?
     
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    2inqusitive and I have a friendly disagreement on the cause of the current strengthing of the dollar in thread "unwinding the dollar credit trade" See post 6 of it at:

    http://www.sciforums.com/showpost.php?p=2073645&postcount=6

    Here is most of the end of my post 6 in that thread as it answers your question:

    Brazil had already announced about a week prior that it was going to use 30 million dollars of it’s >200 million dollars in reserves to buy Real with dollars. Brazil's central bank has been buying* dollars for several years (Why the reserves went from 30 to >200 billion dollars) and still was not able to keep the Real from growing stronger during this period. A slightly less valuable Real now is a blessing for Brazil's exporters, just when it is needed, as the trade surplus was reducing.

    As all of Brazil's governmental debt to foreigners has been paid off, the only interest cost is on the local Real debt. Expressed in dollars, that has dropped dramatically as fewer dollars are required to pay it off (and the interest on it). This combined with* has cut total government (all levels) debt down to only 38.3% of GDP.
    ------------------
    *Actually the government mainly made "swaps," which required future delivery of the dollars. Thus the Central Bank has made a profit as it paid fewer Real for the promise of later delivery of X dollars than it would need to pay now for X dollars. I think that until the dollars were delivered the government also collected interest as the dollars due, but not yet collected, were effectively a loan by the government. If I am correct, the US govenment will also make a nice profit on the current 30billion dollar swap (I.e. the Real it now gets from Brazil will increase in value and the dollars Brazil MAY get will be worth less when this swap is "unwound.") "May" because that probably will never happen as this swap is more a "line of mutual credit." Not need, as Brazil already has lots more than 30 billion dollars. The local financial press is stating that the line of credit will never be used. I.e. they agree with me- it is only a good deal for the US, not Brazil. If only the US draws on their side of the mutual line of credit, effectively Brazil is lending Real to the hard pressed US. That is why I speculated GWB was trying to borrow from Brazil. The US needs to borrow from anyone it can now that there is approximately 2 trillion more to finance in the next year. Treasury is expected to issue new three year bonds for first time ever in a few days. US is world's greatest debtor. Brazil is already a "creditor nation."
     
    Last edited by a moderator: Nov 1, 2008
  15. desi Valued Senior Member

    Messages:
    1,616
    Allen Greenspan.
     
  16. desi Valued Senior Member

    Messages:
    1,616
    It is debt only if you go by their paradigm. It would be like if I said work is debt so every time you earn money you have to pay me 7%.
     
  17. desi Valued Senior Member

    Messages:
    1,616
  18. desi Valued Senior Member

    Messages:
    1,616
    They lend out more money than they have all the time. That is why they have to borrow money from each other to cover cash withdrawals.
     
  19. desi Valued Senior Member

    Messages:
    1,616
    Billy, does Brazil have a central bank which prints debt money?
     
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    Yes, but it is the "Casa do Moedas" (literally: house of moneyS - note the plural.) that prints the money. The central bank sets the basic interest rate (currently 13.75%* to control inflation and economic expansion to a sustainable GDP growth rate ~5%.)** via a subcommittee, which meets about 6 times each year, and sets the compulsory deposits requirements of banks (52% on demand deposits and 15% on time deposits, like US's CDs) currently. These two tools are the ones mainly used to control the amount of "DEBT MONEY" in circulation (plus the "sterilization" process I describe later)

    Brazil has the most counterfeit proof currency in the world. It makes the currency of about 20 other countries, including several in Europe before the adoption of the Euro. I am not sure but perhaps even the Euro is made in Brazil (or at least part of them) Brazil even has literally "plastic money." The 10Real note has been made of tough plastic for about 5 years, but the paper version still circulates. The plastic version is a little more costly to make, but even more secure and much longer lasting. They stay new looking instead of slowly get dirty and torn etc. All the notes greater than 5 R$ in Brazil have about 20 security measures. Micro printing that changes appearance with angle sort of like a hologram, front to back see thru precise registration*** that makes a completed picture, metal and magnetic stripes, to mention just a few. The one Real coin's center is silver looking metal pressed into an annulus of bronze like metal (yet despite the press fit, both parts have very sharp detailed engraving - I do not understand how they can do it).

    -------------------
    *As inflation is approximately now 5.75% this is a real interest rate of 7% - by far the world's highest. The cost of loans is also among the world's highest as the bank must make them and their profits without using 52% that they must deposit with the central bank. Thus the "fractional banking system" which in the US can expand the money in circulation 10 fold, cannot even double it in Brazil. Because Brazil had high inflation for decades, the people do not tend to save much (thought patterns are hard to change rapidly). This is part of why interest rates are so high in Brazil. Now Brazil's government has no foreign debt and about 200 billion dollars in foreign currency reserves (mainly dollars). This strong reserve and debt free position was costly to achieve as the dollars etc that paid off the debt and built the reserve position were obtained by buying them in the open market with Brazilian Real. These Real were just printed mainly as taxes collected were not adequate for both that and for social needs, development projects etc. If the Real paid for the dollars were allowed to remain in circulation that would have made it impossible to control inflation. (Brazil has kept inflation within the target range for a decade now. -Target is currently 4.5+or- 2%. Given its history it is not surprising that Brazil is very serious about control of inflation. All, even the extreme left winger understand the damage inflation does, especially to the poor, who cannot seek safety in foreign investments etc.)

    The process of removing excess currency from circulation is called "sterilization." It is normally done by offering bonds for sale. Thus, Brazil's central bank and/ or treasury effectively borrowed local at high interest rates to have dollars applied in US treasury bonds at low interest rates - why I said it was "costly."

    **The purchasing power of the lower economic classes has expanded rapidly in last 8 years - very different for what has happened under GWB. This was achieved by doing the opposite of "Trickle Down" grants to the rich and corporations. ("Bolsa Familar" grants money monthly to the poor families who make their kids stay in school and get their vaccinations. ALL economists who have studied this program credit it with the surge in prosperity now enjoyed by the previously poor and many other countries are copying it to also grow the GDP from the bottom up demand, not the failed "trickle down.") Many previously poor are now buying electrical appliances, and motor cycles if not their first car. The gap between rich and poor is becoming narrower. The rich are prospering also and the public debt as a percent of GDP is falling - it was about 55% before Bolas Familia and now is only 38%! The 13.75% basic interest rate is needed to contain the success.

    The US is trapped in stupid ideology that does not work. - Note how McCain is jumping all over Obama's remark to "Joe the plumber" about spreading the wealth.**** - I think 80+% of the US population have been brain washed into thinking that is evil - straight from the devil economics, not the success it has usually been if not done to excess - In US this is done mainly by the progressive income tax. Obama is smart enough to know that is the only way this success can be achieved with such a brain washed population - hence his tax plan is basically to make a more progressive tax structure.

    ***This micro registration of an image made with part on both sides of the bill is impossible to achieve if you print each side separately. The Casa do Moedas is perhaps the world's most advanced mint technically.

    ****Without some form of wealth redistribution in ANY society in which money can earn money the society is doomed to social instability as in the French revolution. I.e. the masses of the population which must grow steadly more poor eventually rise up and cut the heads off of the tiny few who have used their wealth to gain an every larger fraction of the society's total wealth. Compond interest is a wonderous thing, but without some form of wealth redistribution it will literally kill the wealthy. Only words like "LET THEM EAT CAKE." alone will not do. The wealthy must at least provide free bread and circus to the masses.

    PS - I forgot to tell why the Central bank was buying all those dollars, and first paying off the debt with them: As Brazil enjoyed huge trade surpluses with the surge in commodity prices, there was a flood of dollars coming into Brazil (also many by foreign investor FDI) this made the Real excessively valuable and killed many high labor cost producers like makers of shoes etc. who previously mainly exported. That put voters out of work. That makes the government try to keep the Real from becoming too strong (but only slowed the rate at which it did so. In about 5 years the value of the Real more than doubled vs. the dollar anyway. It would have been worse if the government did not buy the dollars that no one wanted.) Thus the current reversal with dollar growing about 30% stronger is a blessing in disguise. - What the government tried to achieve, but failed. I fear it will not last once the businesses needing a loan can get it from their bank in the US instead of selling assets in the BRICs.
     
    Last edited by a moderator: Nov 3, 2008
  21. Nasor Valued Senior Member

    Messages:
    6,226
    False. If a bank has $100 in deposits, they can only lend out $90. They do often have to borrow money to pay depositors, but that's because once they lend out the $90 they won't be able to give the depositor more than $10 if he wants to make a withdraw. If banks weren't constrained by the amount that they had on deposit, why would they ever bother having depositors at all?
     
  22. desi Valued Senior Member

    Messages:
    1,616
    The interest rate the Fed sets is the rate banks charge each other. They borrow from each other/regional Federal Reserve banks often enough that it is a necessity to have them.
     
  23. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    No, rarely do banks borrow at the FED's discount window anymore. They prefer to pay slightly higher "over night" rates to another bank, which has more than the reserve requirements instead of let their tight money condition be publicly known.

    There are many loans tied to the FED's rate, but more tied to London Inter Bank Overnite Rate. I think the rate one US bank charges to another is essentailly the LIBOR, which is set every business day before the US banks even open.

    Because few banks use the discount window now, it is sometimes said that the FED is "pushing on a string" when it lowers the basic interest rate in the US - That once was important in real transaction but now it has mainly psychological effect as it does indicate the FED's POV and the FED does have other real powers that it can use.

    You seem to think the banks borrow to meet a surge in deposit withdrawls. That is not fully correct. They are required to maintain a fraction of the demand deposits in cash in their vault for that, but they try to keep just what is required at the end of the day for obvious reasons that it is not earning anything. Somedays when widthdrawls are heavier than usual, they find they do not have the required amount at CoB, so they call some others banks and ask if they have more than the requirements and borrow privately from one. In principle they should actually go get the cash, but I do not think that is common. Why it is called an "overnite loan" probably the next day the surge is over and they rebuild the requirement. Perhaps delay making a big loan.
     
    Last edited by a moderator: Nov 4, 2008

Share This Page