# Money is not debt.

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

1. ### desiValued Senior Member

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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.

3. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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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.

5. ### dsdsdsValued Senior Member

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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")

7. ### NasorValued Senior Member

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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. ### dsdsdsValued Senior Member

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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

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

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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. ### NasorValued Senior Member

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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. ### ashurathe Old RightRegistered Senior Member

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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 TUse Sugar Cane Alcohol car FuelValued Senior Member

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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."

14. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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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.
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*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. ### desiValued Senior Member

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Allen Greenspan.

16. ### desiValued Senior Member

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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%.

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18. ### desiValued Senior Member

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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. ### desiValued Senior Member

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Billy, does Brazil have a central bank which prints debt money?

20. ### Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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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)

22. ### desiValued Senior Member

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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 TUse Sugar Cane Alcohol car FuelValued Senior Member

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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