Is Credit Card Debt an expansion of the Money Supply?

[rpwi]

Yes, but banks can't do this unless they are getting loans from the fed or they are counterfeiting. In your example the gold smith is counterfeiting whatever the notes he is giving out. Do really believe the banks are doing the same?

Yes. In the old days the issue was goldsmiths printing more claim-slips than there was gold. Then banks did pretty much the same thing as the gold smiths. Then in the US, dollars replaced gold as the reserve and checking accounts are the new gold claim slips. Our checking accounts are fraudulent. We can't all redeem our demand deposits for dollars because the banks are gambling our deposits away with side-investments. Now a bank need not get a loan from the Fed to practice fractional banking (unless you consider FRBN's loans or FR Deposits loans in the more abstract sense). All they need are dollar deposits...and they can promise more claims on dollars than they have dollars on hand.

 

[Black Flag]

All they need are dollar deposits...and they can promise more claims on dollars than they have dollars on hand.

Correct. That is the fundamental fraud of the Fractional Reserve system

 

[Steven Douglas]

You do not value them - and if you took a ton of gold to Fijians, they'd throw it in the garbage.

Hardly.

Gold has only indirect exchange value - you can't eat a bar of gold, nor use it to fuel your car. You have to exchange it for the thing you do eat and gasoline.

Pretty daft response - you can't eat an iPod, roll of copper tubing, a gallon of paint, a box of nails, or use any of them to fuel your car either, but they all have direct value in and of themselves. Like gold, which - as I said, but you apparently missed - I have as three crowns, and use in a sputtering process.

Same as FRBN -no different.

FRBN's, gambling chips, checks, etc., have indirect/exchange value only. If you want to split hairs, gambling chips could have value as coasters for elves, and FRBN's could have direct value as kindling, or toilet paper - but that's about it.

 

[Black Flag]

Not true. The measure of MB is all cash in circulation + all cash in private bank vaults + all coinage + all private bank deposits at the Federal Reserve. Pretty much all of MB is in the economy. If the Federal Reserve had been holding MB in their vaults...it would not have been counted as MB. Logically it makes no sense that the Fed would create a lot of MB and then do nothing with it.

Ok, you misunderstand the graph and the action of the FED, while being correct about the MB contents.

This is the DEPOSIT BANKS excess reserves.

So the FED created money in exchange for these banks unmarketable assets (bad mortgages and stuff).

These banks, instead of making loans, put the new money into the reserve of the FED, thus excess reserves.

Thus, this money has not entered the market. It sits unused and uncirculated.

It DOES count to the MB, but is has the same effect as the FED not printing as far as inflation concerns (not used, no inflation) BUT it has the effect of protecting the banks capital requirements, which is a matter of solvency.

 

[Black Flag]

Hardly.

In fact, yes.

They had no use for the stuff.

(They may now, being Westernized, but back then ... it was as utterly useless to them as the planet Pluto is to you)

Pretty daft response - you can't eat an iPod, roll of copper tubing, a gallon of paint, a box of nails, or use any of them to fuel your car either, but they all have direct value in and of themselves.

Exactly and so does FRBN - about the same as gold

Like gold, which - as I said, but you apparently missed - I have as three crowns, and use in a sputtering process.

And I have emergency fire starter, which gold -in fact of practice- is utterly useless to use.

Get the point?

Just because YOU are utterly unimaginative for some other uses for paper other than money does not diminish FRBN being money while backed by nothing - absolutely no different a situation of gold being backed by nothing but once was money but not money now!


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.

FRBN is.

FRBN may be deficient as money for certain reasons, but that does not change the fact:
-that it is backed by nothing, like gold was backed by nothing.
-that it is money now.

 

[Black Flag]

Rpwi,

I showed above "where" the money went (excess reserves)

To show and confirm your point that indeed the MB had to increased as well.

 

[Steven Douglas]

And I have emergency fire starter, which gold -in fact of practice- is utterly useless to use.

You keep going back to that same weak red herring - finding a specific use for one thing, and dismissing the value of another for not being suited to that particular purpose. It's a completely daft argument because gold does not derive its value from being edible or for its use as a fuel. Gold also doesn't compute by itself, isn't drinkable, can't be used as a hammock or underarm deodorant, and it won't keep your garden pest free. But that does not negate gold's intrinsic properties or the purposes to which gold is UNIQUELY suited, and therefore DIRECTLY valued.

And note this: it is precisely because gold is directly and valued for its many uses that it has gained market exchange value throughout most of humanity over the past several thousand years (ancient isolated primitive people notwithstanding). It is for that reason that even long after gold has been demonetized, it can STILL be exchanged for many 88 times what the original dollar bill note that was once backed by it was worth.

Get the point? Gold continues to have both direct utility value AND universal exchange value (irrelevant isolated exceptions noted and dismissed), even through wars, pestilence, famines, and fiat currency failures worldwide. Meanwhile, the paper you believe in and are so in love with as somehow being on par with gold only loses value (relative to a wide basket of commodities) over time - and will eventually be worth less than the paper it is printed on - just like Continentals and Weimar Deutschmarks.

Just because YOU are utterly unimaginative for some other uses for paper other than money does not diminish FRBN being money while backed by nothing - absolutely no different a situation of gold being backed by nothing but once was money but not money now!

Nice straw man. I never said FRBN was not money while backed by nothing, but it's a red herring to even state that gold is backed by nothing, as gold IS backing, and continues to have both direct and exchange value for that reason - even when it is not officially monetized. The same cannot be said of FRBN's. Repeal legal tender laws and allow PM's to compete freely as currency, without taxation and other barriers to entry, and watch the steadily eroding value of your precious FRBN's accelerate.

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.

FRBN is.

I don't know how you are defining money, but it seems pretty narrowly constrained to me. Gold is a penalized, taxed form of money, and not efficient for a number of reasons -- but it is still money.

FRBN may be deficient as money for certain reasons, but that does not change the fact:
-that it is backed by nothing, like gold was backed by nothing.
-that it is money now.

Those points aren't even being argued, nor are they in dispute, excepting the point I made: that gold IS a form of backing. That's why it CONTINUES to have market value, even when it is not a widely accepted or officially recognized form of currency.

 

[cubical]

Yes. In the old days the issue was goldsmiths printing more claim-slips than there was gold. Then banks did pretty much the same thing as the gold smiths. Then in the US, dollars replaced gold as the reserve and checking accounts are the new gold claim slips. Our checking accounts are fraudulent. We can't all redeem our demand deposits for dollars because the banks are gambling our deposits away with side-investments. Now a bank need not get a loan from the Fed to practice fractional banking (unless you consider FRBN's loans or FR Deposits loans in the more abstract sense). All they need are dollar deposits...and they can promise more claims on dollars than they have dollars on hand.

We can all redeem our demand deposits because the fed exists(though it might take a day or so to get the physical money). But to do this the fed must loan the bank the money. They are not counterfeiting the money like the gold smith, the fed is the one counterfeiting and creating inflation.

With no fed, fractional reserve banking is no problem.

 

[Black Flag]

You keep going back to that same weak red herring - finding a specific use for one thing, and dismissing the value of another for not being suited to that particular purpose.

Steven,

It is you who created this red herring - you seem to believe that because you don't like paper, that it can't be used for money.

Yet, when other's don't like gold and say it can't be used for money, you go ballistic ....when they use your own argument against you!

It's a completely daft argument because gold does not derive its value from being edible or for its use as a fuel.

Your argument is completely daft argument because FRBN does not derive its value from being jewelry or filling for your teeth.

Gold also doesn't compute by itself, isn't drinkable, can't be used as a hammock or underarm deodorant, and it won't keep your garden pest free.

FRBN have great art and skill in its manufacture, made out of the finest linen paper in the world.

But that does not negate gold's intrinsic properties

Paper doesn't have "intrinsic" properties? You jest!

or the purposes to which gold is UNIQUELY suited, and therefore DIRECTLY valued.

FRBN purpose is UNIQUELY suited and therefore DIRECTLY valued...too!

Probably why we use it as money!

And note this: it is precisely because gold is directly and valued for its many uses that it has gained market exchange value throughout most of humanity over the past several thousand years

So what?

IT
AIN'T
MONEY
NOW.

So who gives a flying rat butt what the Egyptians used 5,000 years ago?

Do you think salt is money today because the Romans used salt as such???

It is for that reason that even long after gold has been demonetized, it can STILL be exchanged for many 88 times what the original dollar bill note that was once backed by it was worth.

And if you bought it in 1977 and sold in 1982, you'd be in the poor house!!

Some store of value, huh?

Get the point?

Do you?

Not one thing you raised about gold cannot be applied to FRBN.

Just, in your opinion, you like gold. *shrug*

Gold continues to have both direct utility value AND universal exchange value (irrelevant isolated exceptions noted and dismissed), even through wars, pestilence, famines, and fiat currency failures worldwide.

FRBN continues to be money, direct utility value AND universal exchange value. It sits as the reserve currency for most of the world and most of the world uses FRBN adjacent to their own national currency, even through wars, pestilence, famine and currency failures worldwide. It is the currency everyone runs to when theirs collapses.

Which is FRBN is money.

Meanwhile, the paper you believe in and are so in love with as somehow being on par with gold only loses value

So did gold in 1982, Spain 1600, California 1849, Yukon 1902....

Repeal legal tender laws and allow PM's to compete freely as currency, without taxation and other barriers to entry, and watch the steadily eroding value of your precious FRBN's accelerate.

But we already know... FRBN are used in every country on earth ... and many have tied their own currency to it, and most countries you can buy goods directly at the retail with it...

You have your "competition" and the winner is perfectly clear ... except to those that have gold in place of their eyes.

I don't know how you are defining money, but it seems pretty narrowly constrained to me.

Darn right.
A definition of something that encompasses 1/2 the world is useless.

I mean isn't:
Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo.

...kinda hard to understand? (The longest, grammatically correct, 1 word sentence in the English language)

Gold is a penalized, taxed form of money

Your argument is against tax, not for gold.

but it is still money.

Nonsense.

Take a gold coin and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.
Take a gold coin to France and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.

Take it ... Brazil... same thing.

But I take the FRBN and they say "Thank you, sir!"

Gold is not money ... today.

that gold IS a form of backing.

So is FRBN, which is why it is the World's Reserve Currency and sits in every Central bank on earth as such.

That's why it CONTINUES to have market value, even when it is not a widely accepted or officially recognized form of currency.

It has market value, like copper, platinum, palladium, etc. Heck, you can buy coins in those metals too, just like gold.

But like those other metals, gold is NOT money unless it has a stamp of some national current as a coin... otherwise, today, it is just a valuable commodity.

 

[Steven Douglas]

It is you who created this red herring - you seem to believe that because you don't like paper, that it can't be used for money.

Why continue? From a red herring you dive straight into a straw man. I never once claimed that paper couldn't be used for money. Who are you talking to anyway?

 

[Black Flag]

Why continue? From a red herring you dive straight into a straw man. I never once claimed that paper couldn't be used for money. Who are you talking to anyway?

Ya, you're right - you drifted from this statement you made

"..I didn't claim that I didn't value FRBN's. I said I didn't value them directly..."

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

 

[Steven Douglas]

Ya, you're right - you drifted from this statement you made

"..I didn't claim that I didn't value FRBN's. I said I didn't value them directly..."

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

It wasn't an opinion -- just an observation, with an actual attendant logical train of thought - one you did not address at all, save with unrelated red herrings and finally with a strawman argument that made me realize you might be giving knee-jerk responses without actually reading any of my arguments.

Direct and indirect value are salient to understanding a fundamental difference between paper currency (or electronic entries on a debit card) as money, which has indirect value only, and tangible goods, like gold, which can have both indirect value as a medium of exchange, and direct value as an actual good in itself.

Unlike paper money, both the direct and indirect value of an ounce of gold are at all times EQUAL. If I am pricing that gold in FRBN, one ounce will get me $1,631 - and if I am pricing it in goods and services from a tailor I deal with, who does happen to accept gold and silver coin as payment, that same ounce of gold (which to you isn't even "money", whatever that means, but to him it is) will buy $1,631 FRBN equivalent worth of whatever I want from that tailor. Indirect or direct, the value is the same. NOT so with paper money, and that's the difference (as well as why Weimar Deutschmarks and Continentals were only worth something once upon a time). The indirect (exchange) value of paper money is not equal to the direct value of the paper itself. Likewise with base metal coins.


Lastly, you obviously have a very narrow personal definition for what money is, or can be, the criteria of which you haven't really established at all, except loosely in context:

Take a gold coin and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.
Take a gold coin to France and try to buy your food, they will laugh at you - or you will have to suffer a huge discount to its commodity price.

But I take the FRBN and they say "Thank you, sir!"

Gold is not money ... today.

In that context, using your logic, it would seem that the following is some kind of criteria for what is NOT money:

1- being laughed at - OR
2- suffering a huge discount to a commodity price
3- not universally accepted

Am I missing something? If not, do you see how absolutely silly that is? In point of fact, NOBODY laughs at gold except you, and I'm sure only in a forum to try to make a point, as if argument by ridicule could accomplish that. Gold might not be EFFICIENT as a form of money (TODAY), but that does not mean that it cannot be used as money - or that gold is not being used as money today.

I said much earlier that I trade in US minted silver coins all the time. I like using these coins as money, and have made quite the habit of it, given that I don't like keeping money in FRBN any more than I would bitcoins. The reason for this: FRBN's have this nasty habit of CONSTANTLY INEXORABLY LOSING VALUE. So I convert them as quickly as I acquire them into a far more stable currency.

So I do have a circle of people that I trade with for all kinds of basic needs -- merchants that I personally cultivated for the sole purpose of circulating and trading with using only US minted silver coins - with no laughter, as they are more than enthusiastically accepted, and no "discount to its commodity price". They seem to think of it as money, just as I do.

That leaves "not universally accepted", which seems to be another of your personal criterion (if not yours, source please) for what can or cannot be called money. The fact that I can trade in silver coin with a finite number of merchants does not take away from the fact that I DO, in fact, use US minted silver coin as money. So what, exactly in your mind, makes it "not money", and what's the source of that reasoning?

 

[rpwi]

Correct. That is the fundamental fraud of the Fractional Reserve system

Yet don't you see that if banks promise more checking accounts than they have in dollars...and customers don't bother to verify that the banks have their dollars...that this results in inflation?

 

[Black Flag]

Yet don't you see that if banks promise more checking accounts than they have in dollars...and customers don't bother to verify that the banks have their dollars...that this results in inflation?

No.

The mechanics:
- Deposit withdrawn
- Spent for product
- Producer Deposits

The amount of money in the system can never exceed the amount of money.

If "everyone" withdrew, the system would collapse, because there is not enough money.

Therefore, the system can never have, right now, more money then there is.

So the amount of money in the system can never be more then M0 at any one time, given the system has not collapsed.

Now, the rate of transactions are faster as the withdrawal/spending/re-deposit happens in a microsecond. But that, too, does not change the amount of money in the system, but the number of transactions the system can support per second - and I know of few economic theories other than crack pot Keynes that attributes rate of transactions to be equal to be money to be a causation of inflation.

 

[Black Flag]

It wasn't an opinion -- just an observation, with an actual attendant logical train of thought - one you did not address at all, save with unrelated red herrings and finally with a strawman argument that made me realize you might be giving knee-jerk responses without actually reading any of my arguments.

Steven, I did address and agreed that it was YOUR observation, and I gave mine which was opposite of yours.

Now you tried to use YOUR observation as a platform to create a theory - but my observation undermine your platform - therefore, you can only hold your position based on opinion until you absorb further information.

Direct and indirect value are salient to understanding a fundamental difference between paper currency (or electronic entries on a debit card) as money, which has indirect value only, and tangible goods, like gold, which can have both indirect value as a medium of exchange, and direct value as an actual good in itself.

Your opinion is in the measure.

Your opinion - you believe golds has MORE direct value, by being gold, then paper, being paper.

You tried to show this by example.

I showed paper is far more used as a commodity then gold

You get frustrated and point to gold in historical vaults.

I show paper today in current vaults.

You get frustrated.

 

[Black Flag]

Unlike paper money, both the direct and indirect value of an ounce of gold are at all times EQUAL.

Not true.

Value for gold in raw form -natural gold nuggets- trades easily 3 to 8x per oz. value.

Gold in jewellery has massive price/value over bar, as does gold coin over bar.

Gold bar is less valuable then gold certificates as you need to pay storage and insurance for gold bar but not for -say- Mocatta Certs.... gee, paper more valuable the the gold... hmmm....

...and the same thing with paper.
Paper on your walls is a lot less valuable then paper in your wallet.

Just watch your face when I put a piece of old wallpaper of yours in the fire, followed by an old $100 bill - we'll see which one you think has "direct" value.

 

[rpwi]

Ok, you misunderstand the graph and the action of the FED, while being correct about the MB contents.

This is the DEPOSIT BANKS excess reserves.

My mistake but it doesn't affect the argument at large. I just glanced at your graph and assumed it was a MB graph. In my initial post I referenced the spike in MB:

http://www.shadowstats.com/charts/monetary-base-money-supply (bottom right)

And asked the question...if MB is the most proper determiner for inflation...then why in 2008 when we had an unprecedented spike in MB...did not inflation spike more than 10%? You have yet to provide an answer to this question.

So the FED created money in exchange for these banks unmarketable assets (bad mortgages and stuff).

These banks, instead of making loans, put the new money into the reserve of the FED, thus excess reserves.

Thus, this money has not entered the market. It sits unused and uncirculated.

It DOES count to the MB, but is has the same effect as the FED not printing as far as inflation concerns (not used, no inflation) BUT it has the effect of protecting the banks capital requirements, which is a matter of solvency.

What you propose is impossible. Let's first address the graph, you used: "Excess Reserves of Depository Institutions". This is basically how much reserves banks have above their reserve ratio. So basically this is telling us that the ratio between checking accounts and the dollars/MB they correspond with is shrinking (my point entirely).

Banks do not 'put the new money into the reserve of the FED'. The money is already held as a liability of the Fed. Either has a dollar bill...or has a 'electronic dollar bill'. If ABC bank has the following balance sheet:

Assets:

Cash:10m
'Electronic Cash' or Deposit at their local Fed Branch: 10m
Investments: 25m

Liabilities:

Demand Deposits: 30m
MISC Borrowing: 10M

Equity:

Retained Earnings: 5m

Then how do they 'hoard' dollars the fed? I don't get the circulating argument as well. Dollars (either paper or electronic) held as reserves at banks don't really circulate accept to meet withdrawals or to be transferred to another bank. Indeed, legally only banks can hold electronic dollars which is very unfair of the Fed and create privilege for the banks. In essence it's the demand deposits that do most of the circulating...what happened in 2008 to present was fractional banking took a HUGE hit and the money multiplier collapsed. This merely means banks aren't gambling as much with our checking account reserves like they used to. The collapse in M1 while MB exploded is why we didn't have runaway inflation. M1 IS money. Now the story with M1 is a little more complicated as M2 and M3...while dipping...bounced back much more sharply. Near demand deposits are more of a worry now with fractional banking than just normal checking accounts. The reason is we've had a huge transfer of wealth from the poor to the wealthy in this country and the wealthy prefer interest bearing bank accounts over the mundane checking accounts you and I have. Banks also prefer to invest in M2 and M3 because the yields are so pathetic they are practically non-existant and M2 and M3 bank money is subject to less regulation (most notably with reserve requirements and FDIC rules).

 

[Black Flag]

Lastly, you obviously have a very narrow personal definition for what money is, or can be, the criteria of which you haven't really established at all, except loosely in context:

Hmmm.....Steven....

It is the very definition of M0, which you accept. So it really isn't much of a criteria to accept what you and other call "money".

Our difference is you want to make a debt instrument - which can only be created by an exchange of money - which is an action; that is an exchange; to be the same as the object of the exchange.

Like I said to Roy, you want the dog's bark to be the same thing as a dog - so when a dog bark's you think there are two dogs outside your door!
And equally, when you open the door, and see only one, you argue "Ha! All that has happened is the other dog evaporated...but he was really there up to that point!!"

 

[Black Flag]

My mistake but it doesn't affect the argument at large. I just glanced at your graph and assumed it was a MB graph. In my initial post I referenced the spike in MB:

http://www.shadowstats.com/charts/monetary-base-money-supply (bottom right)

And asked the question...if MB is the most proper determiner for inflation...then why in 2008 when we had an unprecedented spike in MB...did not inflation spike more than 10%? You have yet to provide an answer to this question.

I did so, sir, which is why you look at the excess reserves graph.

If I print up a bunch of money, but you merely stash them under your pillow, does the creation of money create inflation. No.

I think we are orbiting around this issue, and that is you (and Steven and a lot of others) believe money is a wholly different unique economic good with different economic laws operating upon it vs. every other economic good.

So you think apples and the law of supply and demand "does this", but when it comes to money, the law of supply and demand is completely different, you make up bizarre theories of thin-air money, debt-money, and massive other cause/consequence stories that never actually reflect anything of reality.

If I said to you that the a guy ordering a bushel of apples and pays in advance, and gets a receipt for delivery in 30 days, and then declared that receipt was the same as physical apples in hand, you'd look at me cross-eyed. *Ed: If I further said the receipt for apples has increased the supply of apples, and thus caused the price of apples to fall...ie: inflation of apples... you'd laugh at me!... and demand "what bizarre law of supply and demand are you applying, BF???"

Yet you want me to believe the same story after you substitute "money" for "apple".

So, inflation and monetary expansion all operates under the laws of Supply and Demand

If I produces a billion zillion diamonds, because diamonds are not rare, but I stuff the diamonds in a huge warehouse, and only take a handful out a month, what price do you believe the diamonds will demand? The a price based on the number in the warehouse, or the number brought out for sale?

 

[Black Flag]

...well since Debeer's makes a mint on diamonds, the price of diamonds is not reflected by the number of diamonds in their warehouse, but by the number they bring out for sale.

...and astonishingly, same with money.

The banks are not selling the money they have --- it sits unsold in *their* warehouse, called the Excess Reserves at the FED. Banks selling money is called "loans" and they are not selling.

The day they do sell (and that day will come), you will then - and only then - see the spike in inflation you are looking for.