Debt, interest and velocity of money

[jueco2005]

Fractional Reserve lending people.

That is the 800 pds gorilla in the room that everyone ignores.

 

[SNBthetrue]

Quote from Eliot Hosewater:

Try this thought experiment:
...

My experiment :

At the end of the first year I would reimburse $50 to the bank and pay $10 for the interest and ask a new loan of $160 ( bank now has $20 in reserve = $200; -$40 that I already have^^ ) and do it every year exponentially ^^

mouahahah

A symbiotic relationship with the bank making the payements higher and higher ^^ my banker gets exponential reserve everyone is happy

Rational, right ?

 

[dandxg]

Let focus on the simple. In an economy with a 70% of GDP is consumer spending and there is no money velocity, no credit expansion what do you think we have? A deflation, currently, what was the Depression? Anyone? What's U6 unemployment at? 18% or if you believe shadow stats 22% What was the Great Depression unemployment? 22-23% last time I checked.

http://research.stlouisfed.org/fred2/series/M1V?cid=32242

 

[dandxg]

Quote from psytrade:

The post-keynesian, economist Steve Keen of Australia's area of research is specifically these type of situations.

http://www.debtdeflation.com/blogs/


Watch - Keen Talk: Why Credit Money Crashes

Thanks for posting, its good to hear different points of view.

 

[Code7]

Quote from Eliot Hosewater:

Try this thought experiment:

A system with one bank and one customer. The bank has $10 on deposit (don't worry about where it came from). It makes a loan of $100 to the customer at 10% by creating it out of thin air. After a year the customer owes $110 back to the bank. Where does the $10 in interest come from?

Here is the solution:

The customer takes his $100 and pays back $90 principal and $10 interest. So the bank made $10 off interest and can spend that money into the economy. Now the customer, a respected plumber, performs services for the bank worth $10. So the costumer can pay back the outstanding $10 of his loan. All balance sheets are now what they were before the loan.