Junk Money Party will go on for 3 years

[Boussac]

the interest must come from some where else...

not true. the interest comes from other loans made in the meantime.
central banks never stop loaning money

Are you suggesting that A and B must borrow again to pay interests ? If THEY are not borrowing, then interests cannot be repaid without money coming from elsewhere.
In other words, if the bank does not organize a shortage of money, then all of a sudden we can think about another way of making decisions for our future..

BTW, on this topic, its worth visiting this site: metacurrency.org

[HappyFunnyFoo]

When the ECB realizes it can leverage at 250%+ of the total Eurozone's GDP for decades without any reprecussions whatsoever (the upper leveraging limit for an entity as big as the Eurozone is very high, even higher than Britain's 200%+ GDP leverage for more than two decades), I will be a very, very rich man and you guys are going to lose everything betting the wrong way.  Anyone not long equities and financials is going to get the biggest hole they've ever experienced blown in their portfolio.  Call me crazy.  Save this post and put a reminder on your calendars to look at it in ten years.

[johnyj]

On an island with only 2 people and one central bank, both A and B loaned 1 million dollar at the start of the day, the loan have 0 interest but must be returned at day end

A paid B 1 million dollar for B to sing a song, and B paied A 1 million dollar for him to dance in the court

A and B will be able to return the loan at day end. We could say that both A and B were doing stupid things but as long as they are doing it together, there will be no problem

What if only A paid 1 million for entertainment but B do not order 1 million entertainment from A? Then A will not be able to return the loan and B will have some saving, and B think A is a stupid guy: paying 1 million for a song

It's a typical "race of thrift", if one of them can live a low standard life by spending much less than the other, he will accumulate money and put the other into debt

Money is a tool for cooperation.  If B can not buy anything to A then the money he owns worths nothing.  So there is no problem.

In reality, since there are billions of people, even B won't buy equivalent worth of products from A, A might still be able to sell something to C, so the reduction in consumption from B will not be felt directly. But anyway, increased spending from C will require increased sale from C, thus B has to buy something from C to keep the whole system in balance

Besides, both A and B usually have high incentive to hold a little extra money, because they regard money as "wealth", they even want to give this "wealth" to their children and grandchildren...

Therefore, money supply does not only need to fulfill the requirement for transaction, it also need to fulfill the requirement for saving, that's the reason in a financial crisis, the money supply must increase dramatically, since lot's of people's behavior changed, they started to save more and spend less

[johnyj]

Are you suggesting that A and B must borrow again to pay interests ? If THEY are not borrowing, then interests cannot be repaid without money coming from elsewhere.

Take an extreme example, in the first year, A and B took loan to trade foods: A made fish pie and B made apple pie.  The next year, A will create boats and B will create new cottages, they need to take much larger loan to facilitate the trading of those high-valued products. Then, their interest payment from the first year can be ignored comparing with their loan from the second year, they will gladly payback their interest without even think about it

In other words, if the bank does not organize a shortage of money, then all of a sudden we can think about another way of making decisions for our future..

As shown in the example above, it is not the bank organized the shortage of money, it is the productivity and consumption increase caused the shortage of money

Of course it is an interesting thought that if we could just keep the economy scale constant and never make any new improvement, then we do not need to produce new money (In case the number of people stay unchanged). But I doubt it, since most of the people never spend everything they earned, they always want to save some of their income, and that saving action will dry out the liquidity eventually

[johnyj]

Same example but only allow saving:

First year, A and B trade foods: A made fish pie and B made apple pie. Second year, A will create boats and B will create new cottages, so they have to save enough food for second year's consumption so that they do not need to worry about food production in second year

In such a case, A and B must find a buyer (in this case the bank) who are willing to purchase and store their food until next year. And if the bank knows these food is going to store for one year, they will lower the purchase price, since they have to take risk

After A and B sold those extra food and accumulated some saving, their second year's spending will be limited to their saving, suppose all those food worth 100 shells, then their spending can never be larger than those 100 shells next year. Actually those 100 shells were used to buy back their saved food for supporting their daily life, anything they created newly like boats and cottages will still need extra money to be able to trade. If loan is not allowed, then banks will have to create money and purchase A and B's products, and sell them to each other to get the money back, just acting as a merchant

So, saving in fact have the same effect as loaning, new money still needs to be created from somewhere - the bank