I asked first: Does it really make sense to you that a government could just print money and spend it? Answer mine & then I’ll answer yours.
Yes. I don’t see any evidence online that it’s false. No, the reserve ratio. Although for banks the liquidity ratio is related. I think the liquidity ratio will always be higher than the reserve ratio; that is, the percentage of deposits on-hand to meet the reserve ratio is a component of the bank’s liquid assets for meeting short-term liabilities. Potential withdrawals are just one of the bank’s short-term liabilities. Please provide a link to that effect. I found only 1 reference to that, a Malaysian conspiracy theory site, and this believable exchange about it from a debunker. A country should have debt if it can make a long-term profit on it. An example of that is building a freeway system or airports. Long-term to me is several centuries at least. In the foreseeable future we’re doomed to depression and mass starvation due to overpopulation. But that’s a separate issue from debt.
The link says: First, replace “gold” with “money,” since money isn’t backed by gold. That’s a bank practicing a 20% reserve ratio as I described above. This bank is not lending more money than they have on deposit. They have $500 on deposit. $100 of those deposits is on hand (reserved) for withdrawals, and the rest is lent out. This more informative link says: I think whether money is backed by gold or “unbacked” is a silly argument. Whatever people will uphold is fine. If the people will uphold an entry in a computer database, that’s all you need to back the money. Obviously it works. Whenever arguments are illogical, you can bet there’s an ulterior motive. It seems what’s really going on here is that libertarians are vying for money & power by scaring the ignorant. They don’t have to win an election to gain, but they will have to compete with the Republicans & religions who are experts at that time-honored strategy.
You guys really need to read some economics books and stop getting your information from web pages. Let's be very clear on this: virtually all interest that the federal reserve collects on government securities is rebated to the treasury department. The federal government does not pay any appreciable interest to the federal reserve. Only a tiny fraction of the accumulated interest is paid out by the government, and it's usually only slightly more than the Fed's operating costs. Someone here suggested that the national debt is caused by the federal government borrowing money at interest from the federal reserve; this isn't correct. The federal reserve holds only about 7% of the national debt, and it doesn't charge any interest on it. There wouldn't be any point in their collecting interest on it, since it would all be rebated back to the government anyway. Stop getting your information from nut-case conspiracy websites. Let's take a look at http://www.geocities.com/northstarzone/FED.html , which someone posted earlier, as an example of how ridiculous some of these site can get. The Fed is under the complete control of the federal government. All decisions are made by the seven-member federal reserve bored and the federal reserve chairman, all of whom are appointed by the president and must be approved by congress. People who are mere shareholders in the federal reserve have zero influence on the fed's decision making; they merely provide the liquid assets that the fed needs to conduct business on a daily basis. The fed has not issued 'new' money in this manner since 1951, and there are now rules on the books to prevent it. Yes, the Fed regulates the value of money; that's what it's for, to control the available money supply and interest rates. The assertion that the Fed collects interest from the federal government, or that this is the source of the national debt, is simply a lie. Uh, no, sharholders in the federal reserve are not 'a well kept secret.' It's a matter of public record. The biggest shareholders in the federal reserve are: • Chase Manhatten Bank • Citibank • Morgan Guaranty Trust Company • Fleet Bank • Bankers Trust • Bank of New York • Marine Midland Bank, and • Summit Bank. You'll notice that all of these companies are based in the US. But it hardly matters, because like I said before, Fed shareholders don't get to make monetary policy decisions.
Thats the trouble. I have a book here, all referenced, but trying to hunt up things online to support anything is hard. [/QUOTE] No, the reserve ratio. Although for banks the liquidity ratio is related. I think the liquidity ratio will always be higher than the reserve ratio; that is, the percentage of deposits on-hand to meet the reserve ratio is a component of the bank’s liquid assets for meeting short-term liabilities. Potential withdrawals are just one of the bank’s short-term liabilities.[/QUOTE] They look effectively the same to me. You know whats funny is that you seem to see that money is created by banks, yet dont see any problem with that. What if you were to print off currency, call it the Z dollar, with parity with the dollar, and start using it instead of dollars. Sure, it would work up to a point, if others accepted it. But what it does is give you the ability to increase your purchasing power massively, and the chance to own just about everything in sight. And if you print more and more, you end up with inflation- just what has been a constant part of western economies since the banking revolution began. It is as much the banks creating money by lending as any gvt's printing money as fast as it can that is at fault for the inflation. Here in the UK, more houses have more mortgages on them. Half the money stock is created by people borrowing from banks to buy a house. The banks then get money back, and some interest. But if people were to stop borrowing, the supply of money would dry up, leading to a recession as people would pay money into the banks, but without the borrowing, there would be no new money circulating, being spent on a car or a cosnervatory or suchlike. In the UK in 1963, the money stock was about 14.1 billion pounds. By 1996 it was 680 Billion. That is a fairly large increase in the amount of money in circulation, all gleefully provided by banks. I have also only found one. I read it in a book though! There are times i wish i could afford, if it exists, stuff like the economist back catalogue. Also, I am talking about the UK here, "In 1981, the situation changed. Under new monetary arrangements, the commercial banks were required to hold 0.5% of their eligible liabilities with the Bank of England in non-interest-bearing accounts, and additionally maintain an average of 6% of their eligible liabilities as liquidity reserves in the form of short-term money market instruments. By the time the Bank of England Act was passed in June 1998 the non-interest-bearing balance had been reduced to a ratio of 0.15% (the intermediate steps being 1986: 0.45%; 1991: 0.4%; 1992: 0.35%; and April 1998: 0.25%) and the requirement for a minimum liquidity reserve had been abolished entirely. " From http://www.islamic-finance.com/indexnew.htm under the heading "dont mention the reserve ratio". Actually, I dont think that in the foreseeable future we're doomed to mass starvation due to overpopulation, I am no longer as pessimistic as when I was younger. But the point about the debt is that the country could build freeways etc anyways. The point here is that the monetary instrument used to fund them involves giving a small part of the business world great powers, ie that of creating money by lending it. This means the lenders get their hands back on money that never existed before they lent it into existence. Besides, would you say, that if petrol runs out, yet we have all these concrete freeways doing nothing, that we have made a profit on it? Another facet- apparently the percentage of business income that is required as interest on outstanding debt is increasing (in the uK). It was 7% in 1963, and 28% in 1990. This shows a continous increase in the indebtedness of business, and a continual drain on their ability to invest and grow. I think if you ask most people, theyve never been asked if they would uphold the current banking system. And obviously it works isnt quite the right idea, since clearly using gold coins "worked" at one point. Obviously, it could work better, for example by the gvt's feeding money into the system by means of simply creating it. Not printing massive amounts, but feeding money in in balance with that created by borrowing.
I don’t see any money being created by banks. They loan out a percentage of the money that came in from depositors. The profit on newly printed currency the gov’t uses to pay for things is called seigniorage. It does lead to inflation, which is effectively a tax. In a democracy that’s everyone’s fault, or rather a choice to be taxed that way. Well-managed governments limit seigniorage because too much is counterproductive as I mentioned above. For example, foreigners don’t like it because they get the inflation on the foreign money they hold but not the benefit. There are probably international agreements on the level of seigniorage allowed. Perhaps Nasor can address that. Then they use the interest from the loans to pay a lower interest to their depositors, keeping only a slice of the profit for themselves. I don’t see how it was abolished since the example’s percentage of liquidity reserves in the form of short-term money market instruments remained unchanged. If you can make a greater profit in the long run by borrowing the money rather than saving up for it, you should borrow it. The money existed before. It came from depositors. Probably not. But you haven’t shown how monetary policy leads to that. It might be a drain on future investment and growth, but presumably the loans allowed them to reach a higher point now. For example, I have a mortgage, in exchange for which I live in my home now instead of waiting 15 years saving up to buy it outright. I reached a higher point now in return for slower future growth of my money. That’s not necessarily bad; it’s just a choice. In a democracy, everything the government does is by the will of the people. The law or policy may have been created 200 years ago. If you don’t like it you can work to change it. It’s inefficient for the government to continuously get re-confirmation from the people. Yes, but which works better? Dangerous defunct mine shafts and rusty mining equipment litters the US, often in otherwise pristine areas, in large part because the people at one time chose gold as the standard. Such a physical standard seems inefficient to me when a logical standard will do. We now have no need to ruin Yellowstone National Park in search of new gold.
No. In the end, the bank only has the interest. Here's a little story to illustrate: Fred wants a million dollars to buy Sarah's yacht. He approaches FBank, and asks for a loan. "No problem" says FBank and arrange a loan of $1M, to be repaid in a single lump sum of $1.1M in a year's time. Two accounts are opened for Fred. The cheque account has $1M. The loan account has -$1.1M. Status: Fred has a liability of $1.1M (his loan) and an asset of $1M (his cheque account) FBank has an asset of $1.1M (Fred's debt), and a liability of $1M (Fred's cheque account) Sarah has an asset of $1M (the yacht) Fred writes a cheque to Sarah, in exchange for the Yacht. Status: Fred has a liability of $1.1M, and assets of $1M (the yacht) FBank has an asset of $1.1M, and a liability of $1M (the cheque) Sarah has an asset of $1M (the cheque) Sarah deposits the cheque in SBank. Status: Fred has a liability of $1.1M, and assets of $1M FBank has an asset of $1.1M, and a liability of $1M (to FBank) Sarah has an asset of $1M (her bank account) SBank has a liability of $1M (Sarah's account), and an asset of $1M (FBank's debt) Now, Fred works hard and 1 year later has $1.1 million. He repays FBank, who credits SBank. Status: Fred has an asset of $1M (the yacht) FBank has a profit of $0.1M (interest - payment for services rendered) SBank is clean Sarah has an asset of $1M (her account) So, the bank created $1M for Fred out of thin air, and ends up with $0.1M, being the interest charged. Fred ended up with a nice yacht in exchange for a year's labour. He got the yacht a year in advance, and paid 10% more for the privilege. Sarah ended up with the results of Fred's labour in exchange for her yacht. Notice that the figures at the end total up to $1.1M more than the figures at the start, due to Fred's hard work. Notice that the bank that created the $1M loan does not end up with $1M profit, because when Fred spends his loan, the bank is liable. This is a simple scenario, of course, but it gives the foundations of how the whole system works. Banks are simply money buffers that allows barters to happen more conveniently, and well in advance of when they otherwise could.
Pete is correct. In the end, banks only make money off of the interest that they charge on loans. Guthrie is correct that the banks are able to create 'phantom money' by loaning deposits out to people, but that's not a problem. The fed regulates it by controlling the reserve requirements; this is a big part of how the fed controls the money supply.
The amount of paper money on hand in a bank is largely irrelevant. The value is defined by the bank's books. In this case, the bank acquires a liability in the form of the government's spending account, and an asset in the form of the loan account. When the government acquires goods and pays from their account, the bank is liable to pay the supplier of goods. If the government withdraws some fiat money and uses it to pay an entity, then the bank is liable to that entity for the value of the fiat notes. The value is in the bank's promise to honour those notes. If the government were to issue the notes itself without going through the bank, then the government is effectively handing a liability to the bank (who is required to honour the notes) without a balancing asset. This is bad - it drives up inflation, still increases the national debt, and the end cost is more than the interest charged on an equivalent loan.
Looks like we'll have to agree to disagree. Pete, whats an antiismist? I've been wanting to ask you for a while. Zanket: "In a democracy, everything the government does is by the will of the people. The law or policy may have been created 200 years ago. If you don’t like it you can work to change it. It’s inefficient for the government to continuously get re-confirmation from the people." Well, better to say its done by the people that get elected by the populace. You see, its inefficient in that sense, but you presumably forget how much gvts do without asking people. (Hey, they even go to war.). And the inherent lag and energy needed to get things changed that need changing. You cannot simply say that everything gvts do is by the will of the people, if all the people get is a chance every 4 years to change gvt, in a time in which the gvt has done bad and good things, and has good and bad things in their manifesto, you cant say its all done by the will of the people. In the UK, it often takes many years of campainging by people to get anything changed that needs changed, such as tightening safety standards. The country is effectively an elective dictatorship, and as such I dont like it. so I'll guess I'll have to start campaigning.
It's something I made up. Please Register or Log in to view the hidden image! It's supposed to be mildly ironic. I have a minor aversion to labels. ...ism and ...ist words used to label individual people and their philosophies annoys me sometimes. I think I made an error or two in the last couple of paragraphs of my previous post... I'm still thinking.
A chance to change gov’t every 4 years is not all the people get. They also continuously get the chance to change how often they can change the gov’t. It could be every 2 weeks if the people so desired, and they could change that starting today. The people chose the amount of time in-between elections, if only by not changing what the Constitution--as originally written by its founders--says. Whatever a democratic gov’t legally does is by the power invested in them by the people; that is, by the will of the people. The people even choose to have things hidden from all but a select few of themselves for the purposes of national security. And all wars in recent memory have been by the will of the people. If the people chose to invest their power in their representatives, then the people are not absolved of responsibility when those reps start a war. After all, not only do the people have a clear method of recalling reps but also the reps closely monitor public opinion; if public opinion is 75% against something then it is highly unlikely any rep facing re-election will vote for it. So really all the people have to do to have an effect on gov’t is have an opinion on every substantive issue and then answer the questions of a poll taker should they call; they don’t necessarily need to vote. Only ten thousand people need be polled on any issue to determine within a tiny margin of error where the majority of the entire country stands on the issue. That’s why career-minded reps love polls. What’s really happening is that an overwhelming majority does not initially want the change. If they did then you can bet the law would be changed virtually overnight. Anything so obviously wanted was either implemented long ago or else it takes an awakening event, like 9/11, to instantly sway the majority opinion. Or it takes someone eloquently persuasive and ideally assassinated, like Martin Luther King, Jr., to more slowly sway public opinion. The people love to lie to themselves so they can feel better about difficult choices. They’ll saw they want something, like inside trunk/boot releases on cars so that kids don’t die there, when more so they don’t want the price of cars to increase and therefore jobs to be lost. Then they blame the reps for not implementing an improvement so “obvious.” The bottom line is, in a democracy, the people have nobody to blame or praise but themselves. Go for it! Another way to effect change is to change the opinion of those around you, including convincing them to likewise change the opinion of the people around them.
WHoa zanket, your beggining to sound like a marxist I know. "After all, not only do the people have a clear method of recalling reps but also the reps closely monitor public opinion; if public opinion is 75% against something then it is highly unlikely any rep facing re-election will vote for it." I wish. Tony Blair has done a lot that gets 60 0r more % against ratings, but it still gets done, and because hes part of a party, and has one or two good aims, people cant really decide if they want the bad and the good at the same time, there isnt any chance to separate what people want from what they dont want. Thats the problem with the party system. AS for an antiismist, pete, its probably a good label for something. And you could spoof a lot of people with it as well.
There’s a substantial difference between 60% and 75%, when 50% is a coin flip. It also matters how important the issue is to the public and whether the they are actively lying to themselves as described above. For last-term leaders the majority takes a bigger risk that the leader will usurp the public will. It’s the public’s risk to take; they are still responsible for the outcome. Yes, people cannot separate what they want & don’t want; that is, they can’t make the leader’s decisions. Yet installing the leader and abdicating day-to-day decisions to him/her & others was the people’s choice in the first place. So the people still got exactly what they chose. They can change the gov’t structure at any time.
"They can change the gov’t structure at any time." Well, see you on the streets then. Just wear a bullet proof jacket.
Well, last time ive heard of the UK gvt either repealing disliked legislation, or indeed having a severe change in gvt structure, i mean anything from widening the voting franchise to the civil war, let alone the POll tax riots in the 80's, it involved some physical unpleantness.
