Fractional-reserve lending vs. Creating money to purchase bonds

FireWalker said:
FYI, when a fractional-reserve loan is paid back, that money is destroyed.
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What are you, a freaking comedian? :mad:

That money is NOT destroyed, that's a big fat lie, especially when you consider that 97% of the US money exists in digital form, not real banknotes and coins.

When people get a fractional reserve loan from a bank, they usually deposit that money in another bank, so the whole freaking process starts all over again, almost to infinity. New money created out of thin air.



FireWalker said:
So there is an equal amount created and destroyed.
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Another big fat lie.

It this was true we would have zero inflation. A beer at the local bar in 1913 would virtually cost the same price in 2014, end of story.

Now here are the facts, and the facts only:
https://www.youtube.com/watch?v=iFDe5kUUyT0&feature=kp
 
xelite777 said:
What are you, a freaking comedian? :mad:

That money is NOT destroyed, that's a big fat lie, especially when you consider that 97% of the US money exists in digital form, not real banknotes and coins.

When people get a fractional reserve loan from a bank, they usually deposit that money in another bank, so the whole freaking process starts all over again, almost to infinity. New money created out of thin air.





Another big fat lie.

It this was true we would have zero inflation. A beer at the local bar in 1913 would virtually cost the same price in 2014, end of story.

Now here are the facts, and the facts only:
https://www.youtube.com/watch?v=iFDe5kUUyT0&feature=kp
More...


Money is destroyed when it is paid back. You are assuming the loan is rolled over.

In practice loans are rolled over. What is the root of the rollover? Answer: bond purchases by the Fed.
 
A little bit of inflation I would say is a good thing for economy.

Here is the question I have for folks:
How does the government stimulate real growth in the economy without deficit spending?

Economic growth with a balanced budget seems the only way to break the cycle and avoid a bust at some point.
 
panzerman said:
A little bit of inflation I would say is a good thing for economy.

Here is the question I have for folks:
How does the government stimulate real growth in the economy without deficit spending?

Economic growth with a balanced budget seems the only way to break the cycle and avoid a bust at some point.
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.... and here is a question I have for you. Why is the government needed to stimulate growth (real or not) at all? Government is like cancer, it grows larger until the society body dies of starvation. Socialism borrows everyone else's money until the system collapses. Capitalism is supposed to be working hard and enjoying the fruits of one's labors.
 
StarDust9182 said:
.... and here is a question I have for you. Why is the government needed to stimulate growth (real or not) at all?
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I was thinking the same thing, I just didn't post it. I suppose an answer could be that the private sector are penny pinching tight wads (or just fiscally responsible) and would never spend the kind of money or take the risks needed to juice up an economy.

Fractional reserve banking definitely juices the economy, but also makes bust cycles much worse.
 
Expanding M3 - inflation destroying the standard of living of the middle class.

I found Bernanke's response... to be interesting and honest.
In other words, you are correct Sen. Paul but until you pull our charter we get to print our asses off as long as we can manipulate the cpi to low levels.


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panzerman said:
I was thinking the same thing, I just didn't post it. I suppose an answer could be that the private sector are penny pinching tight wads (or just fiscally responsible) and would never spend the kind of money or take the risks needed to juice up an economy.

Fractional reserve banking definitely juices the economy, but also makes bust cycles much worse.
More...

A clue may lie in this question: what economic value does government actually produce for society? (Cost/benefit analysis)

So if you grow oranges, then orange eaters buy your oranges and you feed your family. If you produced nothing at all of "economic" value then the lazy orange farmers would go hungry and the producers of "economic value" would not. With government the tables turn as your oranges are deemed bad and government inspected ones (AKA the orange cartel - conspiracy bad, cartel good) are allowed etc.

If you say they produce national defense, then against whom? Other governments in the same business? Do you seriously believe the media stories that say ISIS is going to hit the US homeland hard? Seriously? With what - a camel and pickup truck rowboat invasion? All governments are far more worried about internal overthrow than a camel attack from several thousand miles away. So could government be issuing fear to encourage a demand for the government to do something more? Fear is what they sell. They need to grow or die as do all living things. Industries shrink and old ones can die, but when do fears and resulting governments shrink?

If you say income re-distribution, then are you certain all of the income re-distribution makes it into the hands of those that need it? Have you ever stopped to wonder how much goes MIA? Is the government providing value to you?

10000 years ago, when one-on-one hunter/gathering changed to farming and community, there was a need for someone to protect the excess harvest and distribute it fairly to the community (or citizens). "Brokers" were not needed in hunter/gatherer because production was matched to results directly. They arose as non-productive entities not involved in direct farming. We used to choose the strong, brave and good. Now we sometimes choose the biggest liars. Unfortunately, we soon discovered that four-legged rats were not the only problems in the grain silos. We have a shortage of leaders motivated by altruism and not money. We have a shortage of people that can think for themselves. We have a shortage of people that care for others at least equal to themselves.

Greatly simplified comment but just my two cents worth. I wish it were different, but it's not.
 
When the fed creates money to purchase bonds, the treasury spends it. Where does that newly created money get spent? Government contracts. While it does provide some jobs, it is in sectors defined by congress. Usually defense related. That is not an economy. That is a military.

Since the fed is legally responsible for managing the economy and it is officially considered part of government, fixing that journal entry is possible. An accounting rule or legislation to ensure the fed cannot create money to lend to the treasury.

The above would not immediately balance the budget, but would place the fed on the side of fiscal responsibility.
 
Money has been sea shells, atoms of gold or electronic bits at one time or another.
It did not stop politicians from spending other peoples money.
Keynes is a dream come true for those feeding at the spending trough
and a nightmare from hell for those bearing the debasement burden.
In truth Keynes argued that in good times a surplus
should be used to pay down debt. Don't hold your breath on that.
No rule or regulation will prevent the strong from preying on the weak.
It is the way of the world. Can a hungry lion sit next to a gazelle and chew grass?
 
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