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No, nothing in your transactions following the deposit of $1k involves creation of new money, its the same money recirculating. For there to be new money there would have to be a transaction with the Fed, and you didnt need any to grow the $1K into $10k.

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ORIGINAL: subfever

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No, nothing in your transactions following the deposit of $1k involves creation of new money, its the same money recirculating. For there to be new money there would have to be a transaction with the Fed, and you didnt need any to grow the $1K into $10k.

The way is see it is that extra $9,000 of new money growth from the original $1,000 is all in the form of loans. Loans = debt = money. It's still debt that obligates repayment.

Yes, the money is recirculating. These loans are typically taken out to purchase goods or services. The supplier then deposits such payments into their own bank accounts, and the process continues.

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Yes, but its two different debts you are talking about. One is the national debt, which is what you think cant be paid down with a given money supply. The other is personal/corporate debt, the creation of which is enabled by the fractional reserve system without any further change in the national debt or the money supply (and the economic activity that produces in fact accelerates the paydown of the national debt...or slows down its growth if we are still in a deficit spending mode).

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When Congress passes a bill and appropriates a certain amount of money, the cost is advanced to the Department of Treasury. The Treasury does not create money, but instead borrows it from the Federal Reserve System.

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There's a lot here in the past few days, and I'm short on time. I'll pick at it gradually.

First, the Treasury auctions securities to raise money. The Fed is certainly one of the buyers often, but just one of many.

OK. Now.

Economics is about the allocation of resources. We, like all economies, *are* in a resource-based economy.

Money is not the resource itself, but rather, a system of accounting and a means to facilitate moving the resources around. As such, it reduces transaction costs, as well as promotes a healthy economy (resources are circulating). We don't have as much money as we do resources simply because we don't need that much--only the amount needed to facilitate the circulation.

Currency isn't the same as money. We need only enough currency for the passing of it in day-to-day market activity.

Consider--I'm building a new house on land I already own. The bank wants a downpayment--in this case, that's the value of the land. See what happened? I made a downpayment, but with neither money nor currency...I used a dollar denominated asset. What happens when the bank disperses the funds? They'll cut a check--no currency required. The checks will total less than the mortgage amount, as I go in with equity...we didn't need as much money as the house is now worth.

Maybe wilbeur can help make this clear to you.

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ORIGINAL: Musicmystery



What's your plan?



Let's get started.

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However, if you didn't want to build a house on the land, but instead wanted to use the value of your land to pay off other traditional consumer or mortgage debt, you would first need to convert your land into cash by way of sale. Your creditors are not going to accept the deed to your land as repayment of debt.

Debt repayment is most relevant to my course of discussion. In terms of responding to all my points posted during your absence, they all really boil down to this key question:

How can we, meaning both public and private, collectively repay our debt without creating a monetary contraction that will collapse the economy?

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And further, that "creation of debt" EXPANDS the economy. A resource is created. My architect, surveyor, builder, etc. all get work. Their purchases continue to circulate in the economy as well. And so on.

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ORIGINAL: Musicmystery

Second, paying debt doesn't contract the money supply--it just moves the money around.

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ORIGINAL: Musicmystery

Production happens. That's expanding the economy, is it not?

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New productivity covers the financial obligation. That was the point of the loan--it's not something for nothing, but a security balanced against a realistic ability to make good.

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That's ALSO an expansion of the economy.

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Tell you what. You explain how repayment contracts the money supply, i.e., when you pay your bills, the money supply drops. Because it simply doesn't--the money just moves from your pocket to the ones you paid.

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ORIGINAL: subfever


The above being the case, I still cannot see how the money supply wouldn't contract if a collective attempt were made to repay public and private debt. If we tried to do this, the banks and the Federal Reserve would receive the debt repayments until the money supply ran out. Unless new borrowers stepped to the plate and the banks/FR issued new loans, how would any more money get into the system?

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I never said anything about paying bills, other then repaying loan debt obligation.

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If by "public debt" you mean the National Debt, and by "private debt" you mean loans that individuals and companies have taken from banks, other individuals/funds etc,

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I think you are still confusing "money supply" with "currency". A loan is an expansion of the "money supply" because of fractional reserve banking, but it is not an expansion of currency.

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Repayment of a loan to a bank does nothing to reduce the money supply. It takes one component of money supply (physical currency) and puts it into the bank, increasing its reserves, and allowing it to relend that money.

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The physical currency stays a part of money supply and the additional reserves are subject to the fractional reserve multiplier so it can eventually EXPAND the money supply.

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While all of this is going on, the balancing item in the equation is the velocity of money... how the "fixed" supply of currency turns over in transactions.

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When public debt is permanently retired it means that a Treasury bond has been paid off IN CASH by the government and not replaced. Again that would be an INCREASE in the cash in circulation, not a decrease.

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ORIGINAL: Musicmystery

There are so many misconceptions here, building. U.S. citizens buy Treasury bonds--in fact, they hold the majority of the national debt. Foreign governments use U.S. currency to balance their current accounts (as we do theirs). And you're discussing money as if it were the sole asset. Hell, just personally, money is less than 1% of my financial assets, currency less than .01%, and that doesn't start to cover other assets (land, orchard, timber, house, car, possessions, etc.). And buying Treasury securities is only one of the tools the Fed can use to affect the money supply.

Look, when debt is created, so is the asset the loan was made to purchase; i.e., the resource to cover it is there at the moment of debt. Your question (and assumption) makes no sense. Accounting 101. Repayment is just a transfer of funds.

As I mentioned earlier, there's $54 trillion in wealth in the U.S. The national debt is $14 trillion. Private debt is around $36 trillion. So we've got it covered, if you really want to pay it off.

But there's good reason not to do so. I'm taking a mortgage on my new house, even though I can pay for it multiple times. Why? Other assets are tied up, and when I can borrow at 4%, makes no sense to take the funding from better performing assets. Hell, I used to borrow to expand my orchard, until the banks got nutso with credit rates, and then turned to my savings instead.

Bottom line, where you originally started--this IS a resource-based economy, and all the resources for all of this not only exist, but have so since day one. Money is what we use to grease the circulation of assets. We don't want any more than needed to do that, or it will simply be absorbed as inflation. And that availability of credit adds value--e.g., my house is worth more than the resources used to create it. Value added--so the loan actually increased total assets.

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ORIGINAL: willbeurdaddy

"Yes, I understand this. But if we're collectively attempting to retire all debt, there would be no new borrowers stepping up to the plate, and therefore no new loans. "

Again you need to clarify. I dont think anyone is attempting to retire all debt, just all or most of the National debt. New loans dont matter in that regard.

"The physical currency stays a part of money supply and the additional reserves are subject to the fractional reserve multiplier so it can eventually EXPAND the money supply. "

"Yes... if new borrowers take new loans."

It sounds like youre talking about private debt again. Your original concern was that there isnt enough money supply to retire debt. But even if there are no new loans, repayment of those loans doesnt REDUCE the money supply. The lack of expansion of the money supply just means the velocity of money has to be somewhat higher, and that happens automatically, unless you ran into technological problems with the speed of transactions themselves, obviously no longer an issue.

The money would dry up long before all the loans were collectively paid back. And, to get new money into circulation, new loans would have to be taken out.

No, the money wouldnt dry up! Paying off public debt INCREASES the money supply youve got that side totally backwards. And paying off private debt either expands the money supply or leaves it the same, it doesnt reduce it. We've been through the transactions and their impact on money supply. Im not sure what youre missing here.

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No, this isn't a resource-based economy.

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ORIGINAL: lockedaway

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ORIGINAL: willbeurdaddy

"Yes, I understand this. But if we're collectively attempting to retire all debt, there would be no new borrowers stepping up to the plate, and therefore no new loans. "

Again you need to clarify. I dont think anyone is attempting to retire all debt, just all or most of the National debt. New loans dont matter in that regard.

"The physical currency stays a part of money supply and the additional reserves are subject to the fractional reserve multiplier so it can eventually EXPAND the money supply. "

"Yes... if new borrowers take new loans."

It sounds like youre talking about private debt again. Your original concern was that there isnt enough money supply to retire debt. But even if there are no new loans, repayment of those loans doesnt REDUCE the money supply. The lack of expansion of the money supply just means the velocity of money has to be somewhat higher, and that happens automatically, unless you ran into technological problems with the speed of transactions themselves, obviously no longer an issue.

The money would dry up long before all the loans were collectively paid back. And, to get new money into circulation, new loans would have to be taken out.

No, the money wouldnt dry up! Paying off public debt INCREASES the money supply youve got that side totally backwards. And paying off private debt either expands the money supply or leaves it the same, it doesnt reduce it. We've been through the transactions and their impact on money supply. Im not sure what youre missing here.

There is a new book out called "Reckless Endangerment".  It is an analysis of how the democrat party and their patsies on Wall St. caused the financial meltdown in the past decade or more.  The book allegedly goes into very specific detail and names names.