[MonteQuest]

Bank money is zero sum. All the loans, all the deposits cancel.
What is leftover is a little capital.
In FRNs

$60 trillion dollars of wealth is wiped out and $1.34 trillion is left in nickels dimes and FRN's. A little capital and a whole lot of utter chaos. I rest my case.



Notice the size of the money supplies' effect.

[Pops]

Why can't they? The Fed just bought up 3 trillion in bad debt

I explained that earlier. That was a liquidity swap. Bad debt for cash reserves. Not worthless debt. In a no-growth environment post-peak bank bonds will be worthless. No growth; no return on investment. The important concept here is that every time the Fed creates money in this way, that money does not increase the total money supply in the economy, it increases the size of the Fed's balance sheet.

When the Fed engages in QE, it is taking bonds (low liquidity instruments which reside in the blue area of this graph) and it is exchanging them for cash reserves, which can be lent and/or used to purchase assets. Cash reserves are part of the yellow area (high liquidity). This means that the high liquidity component of the money supply is growing in relation to the low liquidity portion, but the total money supply does not grow. The way the total money supply in the economy grows is through bank lending - a function of our fractional reserve banking system.



So, I ask again, how you increase the money supply when you can't loan it out or spend it into existence?

And I'll say it again, in a smaller economy you do not want an increase in money.

[Pops]

LOL, got a few more pictures?

It shows that the govt doesn't control the value of money.

Actually most hyperinflations were the fault of the government printing to increase spending. Sometimes because their economy broke and sometimes because they were corrupt.

But to the extent money itself acts like a commodity, supply and demand affects it's value.

Which again, is why fiat money and a market based system of banks is a good thing - as long as the bankers are regulated. The problem is the bankers have the upper hand, the "revolving door" to the regulatory agencies is the defacto bribe.

Can't fix anything without fixing that.

[Pops]

Bank money is zero sum. All the loans, all the deposits cancel.
What is leftover is a little capital.
In FRNs

$60 trillion dollars of wealth is wiped out and $1.34 trillion is left in nickels dimes and FRN's. A little capital and a whole lot of utter chaos. I rest my case.

What case?

That the economy would shrink post peak?

Do you think I've been arguing it won't?

I said money only gets in loaned or spent.
I said the economy will shrink and the money supply should also shrink.

And you keep asking me how I think the money supply is supposed to grow if it can't be loaned or spent in...

LOL

[ralfy]

"Real money" functions in the same was as "non-real money," and money in the same way as credit in general: a medium of exchange, and not a commodity.

Likely one of the reasons why "real money" in the form of paper was used is because as the amount of transactions grew it became more impractical to bring large bags of "real money" in the form of gold or silver around: merchants found it more practical to buy and sell to each other using bank notes, especially when they had their gold and silver stored safely in banks. And since there were hardly any regulatory groups for banks, merchants were not inclined to disclose how much gold and silver they had, and the level of money use kept growing, then creating more money than there was gold became inevitable. Again, it's a feature of capitalist systems that require continuous growth due to profit reinvested and more borrowing. From a small economy we have a growing economy due to more people, more ways of earning, more demand to ensure basic needs and even middle class conveniences are met.

Similarly, more of "real money" in the form of paper was replaced by numbers in hard drives as it was impractical to drive around armored trucks of paper money and coins around to buy things worth hundreds of millions or billions of dollars. That's why much of money supply worldwide consists of numbers in accounts, and often stored digitally.

Meanwhile, businesses found ways of borrowing more money, seeking investors for partnerships, etc., without having to go through banks. Not surprisingly, so did governments, especially given the increase in government services, military costs, and more regulation needed to support a huge global economy with all sorts of businesses, competitors, and investors hammering out agreements, etc.

Given the global population that is served by that global economy, i.e., with rising population, more people wanting to have healthier children and longer lives, and more middle class conveniences ranging from passenger vehicles to houses to professional work that did not involve manual labor in factories and farms, there was no going back to a smaller economy. And with that came problems such as peak oil, global warming, and rising debt leading to one financial crash after another.

At some point, all these crises will lead to a return to small economies and localization, and similar to those faced by the majority of the world's population, i.e., earning only three dollars a day, using scrap and locally available materials to build houses by hand, hardly any access to paved roads, health clinics, medicine, electricity, potable water, and more, etc.

[Quinny]

AS ralfy said there is no real distinction between outside and inside, real 'notes' and digitised 1's & 0's.

For all intents and purposes. Money = Debt.

If the cards stop working the lack of distinction will become even clearer!

[JV153]

Bank money is zero sum. All the loans, all the deposits cancel.
What is leftover is a little capital.

No, all major banks operate on a fractional reserve system. They lend out more than they have in deposits. This is basic to understanding the modern financial system (not that such systems weren't used thousands of years ago).

[vtsnowedin]

Bank money is zero sum. All the loans, all the deposits cancel.
What is leftover is a little capital.

No, all major banks operate on a fractional reserve system. They lend out more than they have in deposits. This is basic to understanding the modern financial system (not that such systems weren't used thousands of years ago).

I think you are wrong there. When they loan it out for say a car loan it soon comes back into the bank as a deposit from the car dealer. It is 90 % of that deposit that can be reloaned out to somebody else which will also come back to the bank as yet another deposit. So at all times they have deposits equal to 110% of the amount loaned out and reserves of 10 percent (or whatever the law requires today)

[Quinny]

There seems to be a general reluctance to accept the way the banking system works. I understand that because it just doesn't seem right and it took me some time to accept it. I think I only really accepted the situation when it was confirmed by the Bank of England.

This is not some conspiracy theory it's just the way it is!

Please follow the links that Davep provided, it might start to help understanding.

[evilgenius]

All of this talk about "equity money" sounds like a gold standard by another name to me. When people can't understand abstraction they cling to substance. They want something they can hold in their hands.

Fiat money is highly evolved. The mechanisms controlling it have gone through many iterations. Like freedom, though, eternal vigilance is essential if the purpose(as a monetary instrument for all that is a going concern) is to be maintained. The insidious nature of evil guarantees that. Corruption and politically one-sided policy implementation, over decades in some instances, must be guarded against in order for fiat money to continue to work for us.

I would suggest that in this time of Amazon and Ebay that the localization intuitively presented by our minds in response to the increasing complexity will not be a panacea. I think, therefore, that an adjustment of the structure of how negative interest rates work is a better solution. Why would anyone want to keep their savings in a financial institution if their principal will erode before their eyes? It doesn't matter if deflation is actually valuing money at a rate faster than the banking system can cut their money. People cling to substance once it becomes too abstract. Negative rates could be the gateway to that level of abstraction. Don't tempt people to stuff their mattresses. They will, even if it is in the form of deceptive and parlor trick instruments like bit coins.

I would much rather see the government subsidize people's property loans, paying a portion of them for the people. That way the actual debt that the system is based upon would not go down. Only those who still can't pay their portion would default, instead of the masses. The people who are at the level of importance within the local economies that borrowers who buy property enjoy across the country would then have that much extra money per month to spend as they chose, locally or on Amazon. It seems a much better way to spend government stimulus money to me than on road and bridge projects that are essentially make work. That kind of money winds up in liquor store profits and transfer payments to Mexico, as well as into local economies in better ways. The 80/20 rule still applies in this day and age, but which 80 and which 20?

[MonteQuest]

I said the economy will shrink and the money supply should also shrink.

The money supply will shrink if the economy stops growing. My question is how you keep the money supply from shrinking to zero? Both inflation and deflation have the same end results. The currency becomes worthless. Only new bank loans can change that and that won't be possible for the reasons I have explained before.

When borrowers begin defaulting, the “multiplier effect” of the money creation will go into reverse. Add to that, people running for the hills and buying anything tangible before their "cash" becomes worthless. Imagine that exodus from the markets.

[MonteQuest]

I think you are wrong there. When they loan it out for say a car loan it soon comes back into the bank as a deposit from the car dealer. It is 90 % of that deposit that can be reloaned out to somebody else which will also come back to the bank as yet another deposit. So at all times they have deposits equal to 110% of the amount loaned out and reserves of 10 percent (or whatever the law requires today)

No....If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000).

[MonteQuest]

AS ralfy said there is no real distinction between outside and inside, real 'notes' and digitised 1's & 0's.

For all intents and purposes. Money = Debt.

If the cards stop working the lack of distinction will become even clearer!

Perhaps my lengthy explanations are too complex. Let's try something simple.

All fiat money is debt. Borrowed at interest.

If the economy cannot grow and no new loans are made, all debt will default or be paid back. Either way, the money is destroyed.

When all debt defaults or is paid back, there is no longer any money, as all debt is money.

[Pops]

My question is how you keep the money supply from shrinking to zero? Both inflation and deflation have the same end results. The currency becomes worthless.

Why isn't currency worthless today?

Because people have a need for money.

People used currency since way back, they will long after us.

You have this idea that you will see the end.

You won't.

[Pops]

They lend out more than they have in deposits. This is basic to understanding the modern financial system (not that such systems weren't used thousands of years ago).

Basic to understanding banking is understanding balance sheets.

assets balance liabilities



If you loan more than deposits you have 0 equity

.

[MonteQuest]

My question is how you keep the money supply from shrinking to zero? Both inflation and deflation have the same end results. The currency becomes worthless.

Why isn't currency worthless today?

Because people have a need for money.

People used currency since way back, they will long after us.

You have this idea that you will see the end.

You won't.

None of what you said makes any sense whatsoever in regard to my question.

When deflation and inflation run their course without the ability to intervene, people use the worthless currency to burn to stay warm. They have been doing this "since way back."

[Subjectivist]

My question is how you keep the money supply from shrinking to zero? Both inflation and deflation have the same end results. The currency becomes worthless.

Why isn't currency worthless today?

Because people have a need for money.

People used currency since way back, they will long after us.

You have this idea that you will see the end.

You won't.

Agreed, some means of exchange that supplants barter as the method of trade is very useful. That is why it was invented at least 6000 years ago and continues today, but it doesn't have to be fiat currency.

[MonteQuest]

Basic to understanding banking is understanding balance sheets.

Which you don't, Pops. This is because when a bank creates a new loan, it also creates a new balancing deposit.

The books balance, but new money above existing deposits is created.

[Pops]

AS ralfy said there is no real distinction between outside and inside, real 'notes'

Ever had a check refused?
When was the last time you had your FRNs refused?

--
How good was the "money" on deposit with Lehman Brothers?

Not too good. See the little chart above.
Each "deposit" (bank liability) has an offsetting entry in the "asset" column...
An asset to a bank is an outstanding loan or bond primarily.

So no, not "money" just deposits.

---
Your FRN is a liability to the US government alone. The gov has debt but also real assets, not loans.

The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP)[a] as of Q1 2014.

Pretty sure that buck is different than the ledger entry at your bank
.

[MonteQuest]

Agreed, some means of exchange that supplants barter as the method of trade is very useful.

We aren't talking about the medium of exchange, the physical currency. Cash. Dollar bills.

Some "medium of exchange" will always exist.

We are talking about how you increase the "money supply" that those bills represent.

Dollar bills in circulation only represent a small portion of the "money supply."