Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
Posted: Thu May 10, 2007 11:40 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
Can you point out a point in the money cycle where, if the money were physicalized in banknotes, one would require the money to be burnt? If not, you have failed to prove that the money would 'disappear'.
Not talking about "physical" money. When you pay your loan payment, the principal amount is subtracted from a ledger entry and is no longer in existance.
Loaned money only exists while it is owed. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu May 10, 2007 11:55 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
Joe0Bloggs wrote:
Can you point out a point in the money cycle where, if the money were physicalized in banknotes, one would require the money to be burnt? If not, you have failed to prove that the money would 'disappear'.
Not talking about "physical" money. When you pay your loan payment, the principal amount is subtracted from a ledger entry and is no longer in existance.
What, and the bank's reserve does not increase as a result of the payback?
Quote:
Loaned money only exists while it is owed.
Why do you insist on talking about non-physical money, when the electronic banking systems may well collapse post-peak?
Joined: May 22, 2004 Posts: 1401 Location: Ottawa, Ontario
Posted: Fri May 11, 2007 8:25 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe,
When MQ talks about the hypothetical case where all the loans are repaid. That includes all the government debt held by the central bank. If the government bought back the ir security with cash the cash would return to the central bank at which point it is no longer in circulation and would not be considered money. The central bank might indeed burn the cash if they wanted to.
Of course there is no reason on God's green earth why the government would ever completely pay off their debts held by the central bank. _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Posted: Fri May 11, 2007 9:35 am Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Joe0Bloggs wrote:
MonteQuest wrote:
Joe0Bloggs wrote:
Can you point out a point in the money cycle where, if the money were physicalized in banknotes, one would require the money to be burnt? If not, you have failed to prove that the money would 'disappear'.
Not talking about "physical" money. When you pay your loan payment, the principal amount is subtracted from a ledger entry and is no longer in existance.
What, and the bank's reserve does not increase as a result of the payback?
Joe, even banks can’t be allowed to create money out of thin air and then simply keep it.
As loan principal is paid off, that money disappears from circulation.
To put that amount of money back into circulation, a new loan must be taken out.
As the interest paid comes from money already in circulation, this means that the economy has to grow if the ratio of the money supply to the volume of exchange is to stay constant. The required increase in sales value can come about in either, or both, of two ways: inflation and expansion.
Since, in a post-peakoil world, the economy may not expand, it will have to inflate as nero points out.
This analysis means that, due to the way money is put into circulation, we have an economic system that needs to grow or inflate constantly.
As Hubbert noted:
Quote:
Finally, the maintenance of a constant price level in a non-growing industrial system implies either an interest rate of zero or continuous inflation.
This is the fundamental reason why a debt-based money system is incompatible with hydrocarbon depletion.
The economic growth required for a stable debt-based money system will not be achievable, while the demand for repayment of trillions of dollars of already incurred debt will not cease. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: May 22, 2004 Posts: 1401 Location: Ottawa, Ontario
Posted: Fri May 11, 2007 3:26 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MQ wrote:
Not talking about "physical" money. When you pay your loan payment, the principal amount is subtracted from a ledger entry and is no longer in existance.
Joe0Bloggs wrote:
What, and the bank's reserve does not increase as a result of the payback?
JB's question brought up a good point. The banking definition of money (m1) doesn't count the reserves held in banks. In other words when you do pay off your loan in cash, you are indeed destroying money, because when the cash reenters the bank's vault it is no longer considered money!
The Fed wrote:
M1 consists of currency in circulation outside of the Treasury, Federal Reserve
Banks, and depository institutions; travelers checks; demand deposits at all
commercial banks other than those due to depository institutions, the U.S.
government, and foreign banks and official institutions, less cash items in the
process of collection and Federal Reserve float; other checkable deposits (OCD),
including negotiable order of withdrawal (NOW) and automatic transfer service
(ATS) accounts at depository institutions; credit union share draft accounts; and
demand deposits at thrift institutions.
The layman's definition of money is much closer to the monetary base. The monetary base does count the currency held in the bank vault as well as that held by individuals but it doesn't count demand deposits in banks. You have to count one or the other but not both. _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Posted: Fri May 11, 2007 4:23 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Nero, I think you just contradicted yourself. Earlier you said:
Quote:
The deposits of an individual bank do not limit their lending power. their lending power is limited by their excess reserves. For a $10,000 deposit assuming 10% reserve requirement $9000 is excess reserves that may be lent out. when it is lent out, more likely than not the borrower does not take it in cash. if he did there would be no net creation of money. Instead the borrower has it credited to his account in the bank increasing the amount of deposits in the bank.
Your last post said:
Quote:
In other words when you do pay off your loan in cash, you are indeed destroying money, because when the cash reenters the bank's vault it is no longer considered money!
The contradictory implication being that if you take a loan in cash form, you are not creating money, but that when you repay a loan with cash, you are destroying money. Both cannot be true.
Posted: Fri May 11, 2007 4:29 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
If I take a loan out in cash form, money is being created.
If X deposits $1000 with Bank A, $100 are kept as reserve, $900 are considered excess loanable reserves.
I then borrow $900 from Bank A, and ask for it in cash.
I now have $900 in cash to spend. X still has a bank deposit of $1000.
M1 has increased by $900.
This resolves the seeming contradiction. It is irrelevant that Bank A has just lost $900 of reserves. As Nero pointed out, bank reserves are not considered part of M1, because to do so would be to double count a bank asset (reserve) and a bank liability (the deposit backed by this reserve).
Posted: Fri May 11, 2007 9:16 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
CrudeAwakening wrote:
If I take a loan out in cash form, money is being created.
You are confusing the "medium" of exchange with the creation of money.
When you take out a loan, new money (dollar bills) that already exist, are put into circulation.
New money is created whether it sits in the bank or you take it out in cash. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Fri May 11, 2007 10:23 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
MonteQuest wrote:
CrudeAwakening wrote:
If I take a loan out in cash form, money is being created.
You are confusing the "medium" of exchange with the creation of money.
Maybe I'm being sloppy with my language. I didn't mean that new dollar bills were created, rather that the money supply (as defined by M1) is increasing.
Quote:
New money is created whether it sits in the bank or you take it out in cash.
Posted: Sat May 12, 2007 9:40 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
An article for thought quite relevant to this thread and recent debate.
Monetary Reform and How a National Monetary System Should Work
Quote:
When a loan is made it is issued as a liability on the bank’s ledger. When it is repaid, the liability is canceled. With today’s computer systems, all transactions are digitized, of course. The bank keeps the interest on the loan as its combined administrative fee and profit. The money that is lent had no prior existence.
The most important thing to realize about the banking system is that the money which enters into circulation as purchasing power must eventually be returned in the repayment of loans. This is why the Federal Reserve’s monetary measures—M1, M2, and M3—are meaningless, because so much of it has liens against it.
Link _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Thu Oct 18, 2007 7:36 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
This is a painfully muddled conversation. Go read Rothbard's "What has government done to our money?", and then maybe "Mystery of Banking", and then maybe De Soto's "Money Bank Credit and Economic Cycles", and then Mises "Theory of Money and Credit", and then maybe "Human Action". But at least start with "What has Government Done to our Money?" Here, I'll even give you a link to the free PDF document.
Posted: Fri Nov 16, 2007 3:37 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Quote:
As loan principal is paid off, that money disappears from circulation.
To put that amount of money back into circulation, a new loan must be taken out.
This is absolutely not true. If a bank finds itself holding large sums of cash that it cannot not loan out then it will be forced to cut the interest rate paid to depositors, some of which will decide to spend their money today rather than let it sit idle, so they will withdraw it from the bank and spend it back into circulation.
But what kind of bank has difficulty making loans? If the bank has a fixed amount on deposit, say $1 billion, then it should keep loaning out the money whenever it is repaid.
Oh, that's right, someone is caught up on the interest paid. Well, some of it goes to depositors as interest, the rest is declared as profit by the bankers and used to build large mansions, putting it back into circulation.
Banks do not literally create money. For every dollar they take in, they can send out one dollar to someone, no more. They have no printing press in the basement and no sane banker would put more into his computer that he does not actually have. Banks are said to create money in the sense that they are able to make two separate people believe they are both able to spend the same money at the same time. This is because when a depositor deposits $1 into a bank he still fells he has the right to spend it with either his checkbook or stopping by the bank on his way, even though that $1 was already loaned out as cash to someone else to spend.
As such, it is untrue to suggest banks create money when all they do is make people act as if they create money.
Posted: Fri Nov 16, 2007 3:40 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Quote:
As loan principal is paid off, that money disappears from circulation.
To put that amount of money back into circulation, a new loan must be taken out.
This is absolutely not true. If a bank finds itself holding large sums of cash that it cannot not loan out then it will be forced to cut the interest rate paid to depositors, some of which will decide to spend their money today rather than let it sit idle, so they will withdraw it from the bank and spend it back into circulation.
But what kind of bank has difficulty making loans? If the bank has a fixed amount on deposit, say $1 billion, then it should keep loaning out the money whenever it is repaid.
Oh, that's right, someone is caught up on the interest paid. Well, some of it goes to depositors as interest, the rest is declared as profit by the bankers and used to build large mansions, putting it back into circulation.
Banks do not literally create money. For every dollar they take in, they can send out one dollar to someone, no more. They have no printing press in the basement and no sane banker would put more into his computer that he does not actually have. Banks are said to create money in the sense that they are able to make two separate people believe they are both able to spend the same money at the same time. This is because when a depositor deposits $1 into a bank he still fells he has the right to spend it with either his checkbook or stopping by the bank on his way, even though that $1 was already loaned out as cash to someone else to spend.
As such, it is untrue to suggest banks create money when all they do is make people act as if they create money.
Joined: May 22, 2004 Posts: 1401 Location: Ottawa, Ontario
Posted: Sat Nov 17, 2007 10:20 pm Post subject: Re: Our Money System and Oil Depletion; Are they Compatible?
Hi LoneSnark,
You're right, you don't really have to worry about loans being repaid, while theoretically the bank could keep a pile of cash in a vault, in practice somehow that money leaks back into circulation. What is more likely in the event of a contracting economy is that loans default leaving the bank undercapitalized.
Just thought I'd say welcome, this thread is pretty old so I'm not sure if you'll get many replies. _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
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