Is Credit Card Debt an expansion of the Money Supply?

[Black Flag]

I asked you something first, and you refused to answer with anything but a modified scenario that rephrased the question as a deflection, and so that the discussion could shift to the points you wanted to make. Which I answered anyway.

You asked how many angels can dance on the head of a pin if a leprechaun sings a tune.

Explain why the banking system stops suddenly - and the reason is not because the banking system stops.

Banks might stop lending when they are no longer able to meet their obligations, become bankrupt, and no longer exist.

A banks or a few, but not the banking system.

You attribute a massive systemic event but explain it by pointing to a few banks and say "see, like that".

Well, no.

A few banks going belly up is one thing - but the whole system going belly up is wholly something else, and you cannot explain it away with the same brush.

In the case of two currencies, however, with one being phased out and another in transition, the banks which are solvent stop lending out the dying currency, and start lending out only the prevailing currency.

No, they lend in both and as the other is deposited, it is converted.

Or did I miss the utter collapse of the banking systems in Europe when they moved to the Euro?

I don't care. I'm not on a kick to quibble over how you want to define money, and I'll go with your definitions for the sake of discussion. And I said that I didn't care how or if you created the money needed to satisfy all outstanding principle plus interest debts in the scenario, as long as you showed it in the process.

I did.
You earn it.
Somebody pays you.
You take your pay and pay off your loan.

I take $100 out of my account, I lend it to you and said to you, pay me back $110, what would you do?
You take my $100 and buy a bike. The guy trades his bike for you money. He deposits the money in a bank.
You'd go and do a job with that bike, like deliver newspapers that earned you $110,
You get that money from people who take money out of their account and give it to you in trade for you newspaper.
They take a buck out of their account and give it to you for your newspaper.
You take that buck and give it to me and I deduct a buck from your debt.
I deposit that buck into my account.
You do this 110 times.
After you gave me $110, I declare you "repaid".

You have a bike, so you can earn more.
I have an IOU from the bank that says "pay $110 on demand".

Where are you lost in all of this?

The math:
$200 DD "A", $200 DD "B", $200 DD "C", $ 200 DD "D", $200 DD "BF", $0 DD Steven

$1000 in demand deposits
$100 in cash reserves

I withdraw $100 to give to you on promise you repay $110.

$200 DD "A", $200 DD "B", $200 DD "C", $ 200 DD "D", $100 DD "BF", $100 DD ($110 Loan) Steven

You buy a bike from "A"

$300 DD "A", $200 DD "B", $200 DD "C", $ 200 DD "D", $100 DD "BF", $0 DD Steven ($110 loan)

You work

Day 1:
$299 "A", $199 "B", $199 "C" , $199 "D"., $100 "BF", $4 Steven ($110 Loan)

Day 25
$275 "A", $175 "B", $175 "C", $175 "D", $100 "BF", $100 Steven ($110 Loan)

Day 28

$272, $172, $172, $172, $100 "BF", $112 Steven ($110 Loan)

You pay me back

$272, $172, $172, $172, $210 "BF", $2 Steven ($0 Loan)

Please note, the money supply has not changed - the $100 is still in the reserve, happy and just fine and so is the economy.

 

[Steven Douglas]

You moved the goalposts. In your modified scenario you increased DD by $100 and left out "outstanding loans" altogether. You wrote:

$1000 in demand deposits
$100 in cash reserves

Five parties listed, each with $200 DD, with absolutely no mention of any outstanding loans (which will not total $1,000).

The entire economy in our scenario was:

• $100 in FED reserves
• $900 in demand deposits
• $900 in outstanding loans, $2,107.02 in outstanding loans ($900 plus $1,207.02 interest).

It's funny, I am not even arguing "thin air money", or trying to quibble with you over the definition of money. I just want to explore and test the most fundamental mechanics of the aggregate system as you see it. And, as it turns out, you are the one having the source of all that profit magically appear out of thin air to pay for the previous loans, given that you don't explicitly trace it all back to its source, except to identify all of it as DD. And yet all that DD was from outstanding loans, which you incorrectly identified as principle only. The interest was never once mentioned, always conveniently omitted. Why is that, given that interest is an elementary fundamental, with a profound effect on what must happen (and indeed has happened) in the aggregate, as a requirement for the monetary regime we have now to continue to function.

So, to recap: $100 in reserves, $900 in DD, $2,107.02 in outstanding loans. To pay all that off:

a) MB Reserves are going to have to increase, AND/OR reserve requirements are going to have to decrease, AND
b) More loans are going to have to be made to so that more M1/DD can enter the economy, AND
c) The physical economy itself MUST expand accordingly.

The only way to get the $2,107.02 needed to pay off all those loans, credit/M1 MUST expand -- which in turn enlarges the entire scenario:

• The amount of reserves must increase (and/or you can decrease the reserve requirements) - to increase the
• Outstanding loans-including-interest - to increase the
• Resultant (principle only) DD increase required for everyone in the aggregate.
  
  Exponentially, indefinitely, and due to one inescapable fact: DD NEVER EQUALS OUTSTANDING LOANS, which are forever, perpetually and by design greater than DD. Whenever you create the principle required to satisfy the prior principle+interest demands, only that principle is created, along with newer, increased principle+interest demands for the future. That's called kicking the can down the road, AKA perpetual expansion required to sustain, AKA PONZI SCHEME. Those are the fundamental requirements of the monetary regime we have, which in turn places a full expectation of growth on the economy, which must grow in proportion to accommodate these expectations. These are not requirements of the free market. These are the requirements of the lending regime from whence all money enters the economy.

For an economy to expand at a "modest" 2% per year it must double in size every 35 years. That's simple but inescapable arithmetic. And there is an end game to that -- unless you happen to be one who believes that a physical economy can double in size indefinitely, or that expansion is not required for our economy to function. To me that's like someone on board the Titanic who can see clearly that we've hit an iceberg, but breathes a big sigh of relief because it's been a full half hour and the ship hasn't sunk. So obviously it's not going to.

That's where I wanted to get to with you but couldn't, as you kept omitting interest. When questioned about it repeatedly, you fully exited the Economics and Monetary Mechanics discussion altogether, and shifted condescendingly to a Business 101 for Dummies explanation instead -- as if that somehow answered it. When further pressed on the question of interest, you finally showed a single private loan between you and I with a paltry 10% (total interest paid) tacked on, as if that could explain everything, showing how we could just shift DD around to satisfy that one loan without affecting future M1 or M0 reserve requirements. Most M1 loans don't work that way and you know it, and your example didn't explore anything remotely resembling the most basic "real world" economy as it behaves in the aggregate. In fact, you left out the expansion requirement altogether. Why?

 

[seraphson]

Now you are turning into Roy!

If I don't submit to your irrational plea to believe in fairy tales, you think I am turtling.

I asked you specifically - and you refuse to comply

What event makes all banks stop lending because that is what your fairy tale requires.



Stop it, Roy.

Already presented:
Money is created by the Federal Reserve through monetizing T-bills, or purchase of assets.

It is NOT created by you getting a loan from your local bank.



That's the problem!

You have presented no experiment -a microcosm of the real world in an effort to understand the world.

You want a fantasy where the entire economy has shut down, then you want to know what happens to the money and interest!!!

Well, if the entire economy shuts down, Steve, the need for any money is zero. You are dead.

Your base premise for your experiment invokes a condition where economics no longer applies, there is no trade, there is no money, you are dead.



You believe you stop earning? and buying? and consuming?

As long as men do so, yep, the economy runs along with it.

But you are a red herring - I've already presented how this monetary system is unstable and ...

IT
HAS
NOTHING
TO
DO
WITH
YOUR
FANTASY
"THIN AIR"
MONEY

It has to do with dual claims and rights upon the same asset of money -one by the depositor and the other by the borrower.



Where did this come from?
The economy has grown -averaged- 2 to 3% a year for the last 350 years or so. Hardly exponential, but an order of magnitude better than it did for the previous 2,000 years.

Please show exponential growth.



Any man who believes there is a limit to human growth has only demonstrated the limit to his education.



I do not disagree.

But that does not make your thin-air money real.



I have no such thing.

I see reality and it tells me the truth.

You believe in an illusion because you want your fantasy to be truth. You want your thin-air money to be real so you can apply other crackpottery creating even more bizarre proclamations like:
"paying off your debt causes deflation"

Relativley speaking I have a new and probably flawed view on this but I'd like to try to answer what's highlighted in green.

From what I understand aren't other nations already in the process of slowing lending to the US? I believe I read somewhere that the Federal Reserve had to buy nearly 60% of our debt for the fiscal year 2011?

What happens when China and the other big players stop lending real production for our funny money?

 

[Black Flag]

Relativley speaking I have a new and probably flawed view on this but I'd like to try to answer what's highlighted in green.

From what I understand aren't other nations already in the process of slowing lending to the US? I believe I read somewhere that the Federal Reserve had to buy nearly 60% of our debt for the fiscal year 2011?

What happens when China and the other big players stop lending real production for our funny money?

China will fall into a massive recession ... who is going to buy their goods? A Chinese farmer who earns $400 a year? Chinese are as much Keynesian as the US is, and will fall into the same stupid traps.

US will find few will want to sell to US and few to buy US goods - a big Depression in US.

US productivity will begin to recover, as US consumers look locally for their goods.
Manufacturing will rebound, jobs will be found, economic prosperity will return.

 

[rpwi]

You earn money.
You have a decision. You spend it on your wants or you save.
That which you do not spend, you save.
To save, you either lend it to the bank as a deposit - which the banks lends, or you invest it.

This is not accurate. When I get paid from an employer, the money did not come from outside of the banking system. It came from my employer's bank. And the employer got the money from our clients' banks. In many of your examples with both Steven and myself, you make the mistake of assuming your average transaction comes from M0 (the true definition of M0 in cash/coin outside of the banking system). In reality it comes from the banking system, so you can't say I make the decision to 'lend' to the bank since that was what I already received in payment. Furthermore the idea of investing in a bank by opening a demand deposit from an accounting standpoint is correct, but from a market standpoint not logical. What type of 'investment' yields 0% (mostly), promises perfect liquidity and is only backed by a small percentage of liquid reserves? From an accounting perspective, what Ponzi offered were investments as well.

There are two reasons people pull money out of a bank.
One, to spend it.

But spending the money does not result in a loss of reserves in the banking system in the aggregate so it is largely irrelevant. If you are a bank...and a depositor pays 100k to another bank...why does it matter? The banking system as a whole still has the same amount of reserves. I know I can borrow all the reserves I need from 'Federal Funds' (the market for excess bank reserves). The other bank has ER (excess reserves) so he lends these as over-night loans to the banking system as a whole and I know they'll find their way back to my bank as BR (borrowed reserves). I still have my reserves no problemo. Yes...I now have to pay interest on these borrowed reserves (a pittance nowdays) which is not ideal...but given the ebb and flow of transactions it is not the big deal that you make it out to be. It would be a big deal if the Fed stopped supporting the 'Federal Funds' by injecting MB to maintain their 'Federal Funds Rate'. With no intervention from the Feds...the interest rate for excess reserves would keep climbing and climbing and climbing until it went so high the entire banking system collapsed (as it should).

Or two, they do not trust the bank.

Sure...or three...they can't withdraw their money...because the bank made it up.

Thus, with (1), the money moves out through one deposit and right back into another deposit …from buyer deposit to seller deposit. Nothing strange here, either.

Indeed...so if there is no pressure on reserves escaping the banking system...what is to keep the bankers from pretending they don't have them...creating more deposits than they have reserves...then creating inflation?

The goldsmith analogy is most excellent. If x = the supply of gold...and the goldsmiths promise 2x in gold deposits...and use 1x to buy loan assets...CLEARLY they have created inflation. They can get away with this, because the public assumes the claim as a liability is matched by a short term asset (in actual gold). But because the bank mismatched the short term assets for a long term asset...fraud was committed. The banking system is no different than the goldsmiths of old. Reserves are the new gold...checking accounts are the new gold claim slips. You seem to feel that if there were multiple goldsmiths and their clients exchanged gold claims and therefore gold bars occasional...this prevents inflation...but clearly this is not the case. Competition for deposits does not prevent them from creating deposit inflation.

With (2), the REAL money comes out, reducing the banks capital reserves and threatening the survival of the bank –which has nothing to do with real money created or destroyed – it merely has to do with the bank facing its fraud – too many calls on the same real money.

So what does the receiver bank do with their excess reserves? If the other banks play hard-to-get with their excess reserves this will drive up the interest rate for reserves and the Fed will intervene and fabricate as much money it takes to achieve the Fed Funds Rate. Bank doesn't have much to worry about...it will always have the short term liabilities (because of the Fed) to back it's much higher yielding long term assets.

I believe the FED sets the rate.

Not directly. The media and our education system perpetuates the myth that the Fed stipulates at what interest rate banks can lend to each other. What happens is that the actual market for bank reserves is quite erratic and never perfectly matches the Fed Funds Rate. The Open Market is a reactionary tool in which the Fed tries to rebalance the amount of reserves in the banking system after-the-fact to achieve the Fed Funds Rate.

Then if the Fed monitors this and injects MB accordingly

But it does not do this necessarily.

They mostly do. If the banks are lending overnight excess reserves to each other at 5% and the Fed Funds Rate is 3%...the fed will create as much MB as possible and continue to buy t-bills until 3% is achieved.

No, it will not generate more demand for reserves as pointed out above – the bank improves its ratio as loans are paid off.

Typo on my part.

It is correct to say that the following will create more demand for reserves (and indirectly MB and MB inflation to occur):

* A transfer of reserves from the banking system out of the banking system
* An increase in bank loans
* Banks not playing nice with each other and not relending their excess reserves

The following will create less demand for reserves which will result indirectly in the destruction of MB and result in MB deflation:

* A transfer of reserves (well cash/coin) from out of the banking system to go into the banking system
* A decrease in bank loans (like repaying loans)
* A competitive and smooth Fed Funds market

 

[rpwi]

Well...if people are constantly re-depositing what they are withdrawing...then reserves hardly matter, right?

They matter muchly - the reserves determine the risk to the depositor.

Your average depositor does not look up the credit rating of their bank. So it does not matter to them. The banks on the other hand do not worry about losing reserves...what they 'worry' so much is having to pay interest on the reserves. The biggest worry for a bank is their loan portfolio. Defaults horrify them. Repaid loans that can't be reissued hurt profits. This is what scares a bank...not lost reserves so much (as long as the Fed is running the show).

But you check under the mattress every time you buy something - for that is real money that is transacted. And there is no more real money in the system then there really is in the system! Reality sorta works that way!

No I don't. When I write a check, I don't verify that my bank has the reserves necessary to meet the transaction. For starters if the transaction was to a person who also deposited at my bank...reserves aren't touched. You don't understand this. Now if I sent a payment to another bank...the banking system as a whole still has the amount of deposits and reserves so nothing has changed. I will get the reserves back virtually rightaway as a round-about deposit...or as an 'over-night' loan of reserves. In the scheme of things...reserves aren't lost. Just the banks that are able to acquire the most direct demand deposits get to pay the least amount of interest on them. Given the small interest rate on reserves...this is not a big deal.

I mean a banking system could have 1 million reserves and a trillion dollars in deposits. If nobody 'checks' under their mattress to see if the reserves are still there then for all practical purposes, they aren't, right?

So, yes, it all "works" as long as there is not more concurrent transactions then the money supply.

It's not concurrency so much... A whistling economy means yeah...they will be a lot of outgoing reserves...but there will also be a lot of incoming reserves from depositors. The other source of reserves in the Fed Funds Market can provide reserves at as fast a rate.

Now you say it can 'work' given your 'concurrency' criteria. Surely a million to one conversion from reserves to deposits justifies inflation, no? What about a trillion to one? A zillion to one? Remember the Fed uses float...so we weren't not talking cut and paste...we're talking copy and paste and then delete the old file. Float as a hidden generator of MB is quite evil...it makes it easier for banks to borrow the reserves they need. Still in a hyper leveraged economy...this would favor certain bank characteristics. Bank mergers would become more prevalent (and perhaps just one super monopoly bank would result) as the shock of having to meet such serious reserve transfers (while possible in many cases due to inter-bank lending and the open market) would favor bigger banks. Only the big pelicans can eat the big fish. In fact this explains why we don't have small mom-and-pop banks. While inter-bank reserve transfers are irrelevant to the bigger banks...they can cripple the small ones.

No. When two customers of the same bank partake in a transaction, no 'real money' (mb) has been exchanged.

In fact, it has.
Do not be fooled by the short hand.

All transaction occur with money or it is a barter.

Because the speed of withdrawal to redeposit in now measured in microseconds does not change this.
All it means is the economy can produce more transactions in a given time period.
It does not change the money supply.
It does not "necessarily" change the demand for money or lessen it.

No reserves are transferred when two customers of the same bank do a deal. Say my local bank has 10x in deposits, 1x in cash/credit at the fed and 9x in loans. If I write a check to Bob who banks here too...no reserves moved. The bank would not change it's credit/deposit of reserves at the local Federal Reserve Bank of Chicago. The Fed Bank of Chicago's liability to our bank would not change. In fact none of our banks assets including cash would be changed on the ledger. Only liabilities swapped. So I just bought a widget from Bob...and no reserves were transferred! You have yet to explain this. Your logic is that M1 does not equal inflation because all checks written (using your logic) require a transfer of MB. But where is MB transferred? What are the accounting entries?

If, in fact, the system worked as you say such lending would be unnecessary - debt is money, right? So why would a bank need to borrow money so to cover money?

To meet reserve requirements. Although they tricked regulators in the 90's by temporarily converting their demand deposits into 'savings deposits' at night when the Fed checked...and in this way they avoided the reserve ratio requirement and were able to ramp up fractional banking much more than they should have been able to legally. The other concerns are the threat from cash withdrawals. Now the 'over-night' bank lending market is not 'perfect'. So the Fed also uses the Discount Window to provide reserves to poor needy banks.

Sorry, no.
It does not happen greater than the reserves.
That is why small banks can only make small loans and big banks make big loans.

Small banks can make big loans...they just borrow the reserves from other banks to cover them. Or in our modern system they sell the big loans to big banks.

Your local bank cannot make a loan for $1 billion to a local who will buy a land from another local, even if that local deposited the loan .... because the new billionaire may want to not want to deposit it!

If it doesn't accept it...then there never was a deal to start with. Yes...a bank can't make unreasonable loans...otherwise it's credit rating tanks and it can't get money from the Fed Funds Market to meet outgoing reserve transfers.

It's worked for 100 years.

Kind of my point. If we have been accepting bank money as dollars...and we haven't faced the consequence of bank runs (thanks to Fed aid), then we face another consequence from fraud and that is inflation. You are not fan of fractional banking right? You do think it is fraud to promise more deposits than dollars, right? Are you saying it is ONLY fraudulent during a bankrun? That there are no other side-affects from Fractional Banking...no inflation...not even mal-investment?

 

[Paul Or Nothing II]

I do not believe it to be an erroneous claim. The Fed "could" do anything it wants. As a agency above the law working in total secrecy, it can issue currency by purchasing assets rather than purchasing T-Bills or extending credit to banks but 99.99999% of the time it does not. In the United States today our system is debt-based and the Fed is the reason for this. If the Fed stayed with its current policy and all debt was paid off it would be extremely hard to find any FRN in circulation.

Ok, let me re-quote you :
http://www.ronpaulforums.com/showth...Money-Supply&p=4333243&viewfull=1#post4333243

If the entire country was debt free, no money would exist at all.

Again, it isn't necessarily true at all, as I've said, Fed can buy stocks, gold or whatever & "create money" that way, they don't "have to" buy Treasuries, money doesn't necessitate debt, it's simply untrue
What they do is irrelevant, they'd never bought companies' assets on such large scale as they did during the crisis but now they have, who could've seen that comingso so they can buy anything else too, whether they do or not is irrelevant to your original proposition that existence of money necessitates debt, which isn't true, & THAT IS ALL I'm trying to say

I'm merely trying to point out that making such erroneous claims weakens rest of our arguments when we're arguing with someone who doesn't look at things from our perspective; he's going to hold onto that erroneous statement & therefore think & claim that everything else you're saying is equally untrue, even if the rest of your argument is completely on the point

To a point you made on your last post, I disagree with the fact that the people are the only ones to blame for the debt crisis we are now in.

Please re-check, I haven't said that people are responsible for "debt-crisis", I've said they're responsible for the "personal debt" they CHOSE to take on; sure, Fed's policies & government's stupid regulations are to blame for the "debt-crisis" but the only the people themselves are responsible for their own "personal debt"

It is easy to say, "Just don't get into debt and it is all your own fault if you do." That mentality is harmful because it will divide (and could possibly derail) the Revolution. Granted, in a free-market economy it would be your own fault if you went into debt, but that is not the case today. Inflation does not hit all industries equally. Inflation hits industries that are closes to the government first (healthcare, education, real-estate, energy) and then spreads to other sectors (agriculture, transportation, entertainment) while only allowing a few extremely efficient sectors to resemble a free-market (electronics, social media). This manipulation of the system allows the banks to get people into debt even when they do not want to. A few examples:

This is just as bad as justifying a thief's theft because he was poor; existence of certain bad situations doesn't absolve us of the CHOICES we make

Look, freedom is about CHOICE! Now, we don't all always the perfect set of options to choose from, sometimes it's like choosing between bad & worse but that doesn't mean we shouldn't be held responsible for it

As I've explained before, when one borrows money, they increase moneysupply & inflation & are essentially taking purchasing-power from existing holders of money so it is incumbent upon them to repay it & thereby decrease the moneysupply
Also, when one borrows & uses it to purchase goods/services, they are drawing on the existing LIMITED pool of goods/services, & it is incumbent upon them to produce goods/services worth that much & repay it

Whether a free market exists or not is irrelevant, it may never but that doesn't absolve people of the CHOICES they've made & they must learn to take responsibility for their actions

If one wants to hold the government responsible for its actions then one must first learn to take responsibility for one's own actions; we've runaway big government only because people don't want to take responsibility for their actions, they want the big government to take care of everything, that's the fundamental problem & we won't advance towards freedom unless people understand personal responsibility

 

[Paul Or Nothing II]

Going bankrupt on your debt is destruction of money. If it weren't then why did all the foreclosed homes cause price deflation in 2008?

That's not how it works! Fractional-reserve-banking creates the illusion of there being more money/goods/services than there actually are, the collapse only lays bare the reality that there isn't as much as previously thought, that's why Austrian Economists call deflation followed by an inflationary boom, a "correction"; it's sort of a "correction" in market-participants' perception of market-factors

Prices of homes went high because people were getting cheap loans, which pushed up the demand & prices, without regard to repayment capability of the borrowers; when the eventual reality set in, the demand plummetted & consequently so did prices

 

[Paul Or Nothing II]

In other words, your monetary theory (albeit popular) is wrong

And, until the illusion that deposits are "money", incredibly serious errors are made in determining: inflation/default consequences and other general monetary policies.

It's not "my theory", it's the theory that whole economics community follows, be it mainstream economists or Austrians; while your "theory" is probably only restricted to your imagined little world of your own definitions

Central bank money is not fictional - open your wallet, and you will probably see a bit of it.

PS: I dare to open your wallet and see "commercial-bank-money" in there....gee! Not one ...single..bit ...of it...

So, which one is an illusion, and which one is real?

Now unless you often do not believe what you see and can touch ... well, that would mean you have a mental problem ... but I do not believe you do as you are often, on other matters, incredibly lucid.

So, it must be an error on your part - an error of fundamental proportions.

Seems you've a short memory!

Didn't I tell you a while back that even if all the notes & coins are taken out of circulation, then STILL you could have central-bank-money as well as commercial-bank-money, so they're both equally fictional & therefore, claiming that one is "money" while the other isn't is height of ridiculousness

Bubbles have nothing at all to due with the illusion of "Commercial-bank-money" -- it has everything to do with the central bank's interest rate and lending policies

Austrian Economists have been trying to scream to the world for decades that fractional-reserve-banking creates inflation & bubbles, & it would only be too obvious to any reasonable person who takes the time to understand it but you seem intent on living in your own imagined "bubble" & unwilling to learn & revisit your understanding of things

What's really funny is that you DO understand that commercial-bank-money are claims on central-bank-money & despite it don't realize such an obvious thing that an increase in bogus claim-checks necessarily distorts the market's perception of total supply, causing market-participants to think there's more than there actually is, which naturally leads to bidding up of prices to unsustainable levels & bubbles

 

[Paul Or Nothing II]

Let's return to the goldsmith example. Don't you agree that a goldsmith that issues more gold slips than he has gold is dishonest and creates inflation? If he uses these gold slips to loan out money...isn't it logical, that if this money were to be repaid the amount of gold slips and therefore inflation would be reduced? What's the difference between what the goldsmiths did and what banks do now?

+1

I don't know how anybody could not understand such a basic thing! I think you should push forward with this example, which was never replied to

There is no question that demand deposits are a different type of money than base money...but claim slips are technically money as they are stores of values accepted as a means of exchange. Certainly they can create inflation and deflation just like base money can.

+1

Again, this is elementary stuff that should be comprehensible to any reasonable person

 

[Paul Or Nothing II]

ed:
Steven, you might argue gold would be a "better" money then FRBN, and likely -on some points at least- I may agree with you.

But it is not money now.

Well, it isn't common form of "money" right now but surely, some people DO use it as "money" to make their dealings, as Steven himself has stated that he does business with it on occasions

What is "money"? "Money" is simply anything that people accept, not necessarily because they want to consume that thing itself but only to exchange it for other desirable things in the future

Surely, there can be more than one form of "money", & not all people may perceive it as "money" but that doesn't cease it from being "money" for those who are using it as "money"; I'm sure, in the past, when gold was more common form of "money", there were other communities that didn't use it as "money" but does that have any effect on the perception of that community which IS using it as money? NO! Not at all!
I, Steven & others could sell each other goods in exchange for gold, it mayn't make it "money" to others but surely for us it IS & anyone else saying otherwise doesn't make an iota difference

I'll cite your own statement :

...as if your opinion of value held some universal merit - which we have seen does not.

.....and as if your or anyone else's opinion of what "money" is has some universal merit?

It doesn't! As I've said, some people may perceive something as "money", others not but that doesn't change anything for those who do

 

[Paul Or Nothing II]

Relativley speaking I have a new and probably flawed view on this but I'd like to try to answer what's highlighted in green.

From what I understand aren't other nations already in the process of slowing lending to the US? I believe I read somewhere that the Federal Reserve had to buy nearly 60% of our debt for the fiscal year 2011?

What happens when China and the other big players stop lending real production for our funny money?

Either US will have to stop issuing additional debt (which is unlikely) or the Fed will have to keep buying more & more of it; & remember, every time Fed buys something, it "creates money", so you get the picture, right!

 

[Black Flag]

It's not "my theory", it's the theory that whole economics community follows, be it mainstream economists or Austrians; while your "theory" is probably only restricted to your imagined little world of your own definitions

I do not care how much you appeal to authority, your argument remains a fallacy.

Please prove how an instrument created by a transaction using money, measured in terms of money – is…money!

As I’ve said to Steven – you believe a dog’s bark is another dog so that there are two dogs outside your door.

As long as you do not open the door, you believe there are two dogs guarding your house and the moment you do open the door, and see one, you bizarrely claim the other “disappeared” and then claim that because now there is only one dog when there was two, your property is less secure and the home invaders are more likely to attack you!

If you feel you are in command of your monetary theory to such a degree you can convert it into understanding reality – prove it!

Show me the money!

Seems you've a short memory!

Didn't I tell you a while back that even if all the notes & coins are taken out of circulation, then STILL you could have central-bank-money as well as commercial-bank-money, so they're both equally fictional & therefore, claiming that one is "money" while the other isn't is height of ridiculousness

You have a real problem with reality!

You see the money in your wallet and bizarrely claim its fictional!

Well, send it over bud! I take all that fictional money out of your hands at no charge to you!

But your argument is bizarre.

Because I say one is not money and the other is money, your response is “well if all the money is taken out of circulation, the IOU’s would still exist, therefore the money must be fictional”.
Do you actually read the utter incomprehensible gibberish you typed there?

Austrian Economists have been trying to scream to the world for decades that fractional-reserve-banking creates inflation & bubbles, & it would only be too obvious to any reasonable person who takes the time to understand it but you seem intent on living in your own imagined "bubble" & unwilling to learn & revisit your understanding of things

They are correct. It does.

But you cannot ascertain the reason it does without making up fairy tales.

Instead you ascribe a theory requiring leprechauns and “debt” money that appears magically when money creates, and is equal to the money that creates it and has an effect EXCEPT when you actually reach for it and put it into your hand, then it disappears into a debt that needs to be repaid with real money, but probably will not be.

!Gasp! Utter crackpottery!

Appearing and disappearing money! And to you, this is a great theory because it make real money fictional because what you say is money is money except its fictional too, explains why you like gold, because all of this doesn’t happen with gold except when it does!

What's really funny is that you DO understand that commercial-bank-money are claims on central-bank-money

Yes, I have a firm grasp on what is money and what is debt and an obligation to pay satisfied only with money....which makes the two not the same thing.

For your theory to work, you have to make two, dissimilar, things become the same thing ... not because they have the features of similarity as they are not the same thing (given you have to add a bunch of adjectives to them for you to keep them straight) but merely to satisfy your THEORY about the behavior of one over the other.

So they are not the same thing - the necessity of adjectives demonstrates this - but once you get your nod that they are the same thing, you drop the adjectives and apply the powers of money to both of them as if they were the same thing.

Then you stand back and proclaim wisdom and understanding about reality!

But your theory leads you to this:

You think the latter is money, except its fictional.

You think the former is money because it is an IOU based on the latter, which you think is money, but it is fictional.

You then make up cause and effect stories of reality based on the latter being money, but is fictional – thus arguing that fairy tales manifest in reality.

Then you yell at me that I am living in a fantasy world by demanding reality be held firm in assigning cause and effect!

despite it don't realize such an obvious thing that an increase in bogus claim-checks necessarily distorts the market's perception of total supply

Total supply of ….what?

causing market-participants to think there's more than there actually is, which naturally leads to bidding up of prices to unsustainable levels & bubbles

So your story is this:
You and I go to an auction.
You have no money called “thin air money”.
I have real money.

The auction starts.

Because you think you have money, but you really don’t, you bid on products against me, raising the price of the goods that I have to pay.

So, answer these questions:
Why do I continue bidding?

If you raise the price higher than my value, I stop bidding.

But that is what I do anyway in making choices to spend. I do not spend more than my value.

So if you “somehow” raise the price of your goods by participating, and I do not bid –what happens to you?
You can’t pay since no one takes your thin-air, non-existent money.

The bid starts again and I get it at my price.

I agree that you believing you have money when you do not have money creates bad things for you.

But it does not create bad things for me.

 

[Black Flag]

Paul,

Further to the auction story.

You can only buy what you can pay for.

So you look into your account and see a bunch of IOU's owed to you.

You convert as many of those IOU's as necessary to pay for your goods.

But at no time can you convert more IOU's into money then there is money.

Thus at no time can you bring into the auction more money then there is money.

No matter how much money you think you have, you can only spend the amount of money that exists.

Thus, you cannot buy any goods greater than the amount of money you can actually spend, no matter how many IOU's you hold.

 

[Black Flag]

Paul,

Rothbard held to the same monetary theory as I - so your claim that the Austrians agree with you and disagree with me is false. It means, really, you do not understand Rothbard's argument nor understand mine.

 

[Paul Or Nothing II]

Seriously, your delusions have no limits! Just like Roy L, you've your own little imaginary world in your mind where reality is very different from what other people experience in the real world

As I've said, you're probably the only person who believes in your "unique" understanding of nature of money & it's effects so good luck with your delusions

Paul,

Rothbard held to the same monetary theory as I - so your claim that the Austrians agree with you and disagree with me is false. It means, really, you do not understand Rothbard's argument nor understand mine.

Oh! So you're going to talk about Rothbard now? He was the really HARDCORE gold-standard guy while you're clearly not!

He must be turning in his grave that someone like you is citing him in his defense, when the facts are that he was a vehement opponent of fractional-reserve-banking, specifically BECAUSE he understood that it leads to inflation & bubbles - which you clearly don't

He would pity someone like you who can't even discern the difference between an empty claim-check & the actual claim-money; again, he was the gold-standard guy & usually exhibited little respect for those who supported toilet-paper-money

Many Austrian economists have clearly expounded on the role of commercial-bank-money in causing inflation & bubbles, this is a widely known fact among those who have ACTUALLY understood it & claiming anything otherwise, especially in the name of Rothbard, is pure nonsense

 

[Steven Douglas]

Please prove how an instrument created by a transaction using money, measured in terms of money – is…money!

That's easy. Isn't that pretty much the defining characteristic of all the paper you now define as the only money?

The original dogs were gold and/or silver coin, an undeniable historical fact that will never go away. Paper IOU instruments were created by a transaction using this money, which instruments were measured in terms of money, and are what you now indeed call...money!

The paper currency, once issued by banks and now widely referred to as "money", were the original barks, not dogs, created far in excess of the hard specie they [mis]represented. Somehow these instruments, these barks, which were created by a transaction using money, and were measured in terms of money, were magically elevated to the status of real dogs, not barks, once the gold and silver origins were removed. Woof!

Ironically, right now we have an echo of that original scenario, wherein substitute instruments of paper instruments that were once substitutes themselves are created. The paper instruments (original barks which you now refer to as dogs), are now being used to create yet other instruments (mere echoes of the same bark). These instruments, which are measured in terms of the paper instruments, are but nothing but echoes of barks (which echoes you don't want counted as a dogs)! Now that's rich.

Now that Sweden is going paperless, and Canada is looking to follow suit, you may have to evolve your thinking, and adapt your paradigm, as what you consider barks, not dogs, may be the only things circulating if the paper itself is removed, as gold and silver once were, after which even the concept of "reserves" becomes a virtual abstract - a controlling number and a fiction in itself. No actual money. Just a number, as whatever-it-is-that-circulates-electronically out in the real world is the only thing that is counted by anyone as money. And I've no doubt that a future Black Flag will defend these transactions as such, crying out, as you now do against gold and silver coin, "Paper and coins are not money! Can you use them to buy food? No. Can you pay your taxes with them? No." lol

 

[Paul Or Nothing II]

That's easy. Isn't that pretty much the defining characteristic of all the paper you now define as the only money?

The original dogs were gold and/or silver coin, an undeniable historical fact that will never go away. Paper IOU instruments were created by a transaction using this money, which instruments were measured in terms of money, and are what you now indeed call...money!

The paper currency, once issued by banks and now widely referred to as "money", were the original barks, not dogs, created far in excess of the hard specie they [mis]represented. Somehow these instruments, these barks, which were created by a transaction using money, and were measured in terms of money, were magically elevated to the status of real dogs, not barks, once the gold and silver origins were removed. Woof!

Ironically, right now we have an echo of that original scenario, wherein substitute instruments of paper instruments that were once substitutes themselves are created. The paper instruments (original barks which you now refer to as dogs), are now being used to create yet other instruments (mere echoes of the same bark). These instruments, which are measured in terms of the paper instruments, are but nothing but echoes of barks (which echoes you don't want counted as a dogs)! Now that's rich.

Now that Sweden is going paperless, and Canada is looking to follow suit, you may have to evolve your thinking, and adapt your paradigm, as what you consider barks, not dogs, may be the only things circulating if the paper itself is removed, as gold and silver once were, after which even the concept of "reserves" becomes a virtual abstract - a controlling number and a fiction in itself. No actual money. Just a number, as whatever-it-is-that-circulates-electronically out in the real world is the only thing that is counted by anyone as money. And I've no doubt that a future Black Flag will defend these transactions as such, crying out, as you now do against gold and silver coin, "Paper and coins are not money! Can you use them to buy food? No. Can you pay your taxes with them? No." lol

+1

Great analogy

And yes, if paper & coins are gotten rid of then that definitely puts a huge, irreconcilable hole in his "theory", which he's made up in his own mind in his own imaginary world, just like our other friend Roy L

 

[Black Flag]

+1

Great analogy

And yes, if paper & coins are gotten rid of then that definitely puts a huge, irreconcilable hole in his "theory", which he's made up in his own mind in his own imaginary world, just like our other friend Roy L

Nonsense, Paul.

You get confused between digital money which is real money, and debt which is what you believe is money.

Digital money is not debt - it is not an IOU. It is a bailment - it is your money, only your money and always your money.

But because you hold a crack pot theory of money, you can't even tell the difference between them.

 

[Black Flag]

That's easy. Isn't that pretty much the defining characteristic of all the paper you now define as the only money?

Nonsense, Steven.

It is your claim that debt is money.

I ask how can an IOU - something created that is referenced by money be money.

It would be it's own reference - but then its not an IOU!

Your bizarro world is irrational - and when confronted, you merely fall back into your irrational definition, and try to shove it on me.

Sorry, you still have not provided any coherent theory, Steven.