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Author Topic: Economic Devastation  (Read 503947 times)
rpietila
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November 24, 2015, 05:23:24 AM
 #2161

What you do not understand is that every expansion of debt without expanding the monetary base (monetary base in fiat system is almost zero,  consisting of banknotes and sometimes even they are debt) causes the total debt in the economy to grow faster vs. the monetary base.

This is quite mind-blowing so stydy it from some other source, I am out of time to explain. Money does not come into existence except by creating more debt, and debt accrues interest. The interest can only be served from taking more debt so the pyramid is negative equity and unsustainable. qed.
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November 24, 2015, 06:27:03 AM
 #2162

What you do not understand is that every expansion of debt without expanding the monetary base (monetary base in fiat system is almost zero,  consisting of banknotes and sometimes even they are debt) causes the total debt in the economy to grow faster vs. the monetary base.

This is quite mind-blowing so stydy it from some other source, I am out of time to explain. Money does not come into existence except by creating more debt, and debt accrues interest. The interest can only be served from taking more debt so the pyramid is negative equity and unsustainable. qed.
Well now interest causes a whole nother dilemma because to service the debt the government accrues which tax money cannot cover they must run into more debt to pay for the interest, so it is exponential hence the hockey stick curve we are on. This has nothing to do with what I was talking about though.
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November 24, 2015, 06:37:33 AM
 #2163

What happens when you service your mortgage through payments? Your saying that its not paying anything off at all? Are you not removing money from circulation?
...

Fact: paying a loan removes money from circulation. Thats common sense.

Fact: a new loan entitles the certified borrower of a state to further leverage that loan with a new one to a certain percentage. This is based on the fact that not everyone will go bankrupt or claim their stake all at once.

Fact: payment of all loans does not equal leverage of new loan entitlements, resulting in a net debt service environment. This is a delicate balance based on supply and demand with interest rates globally. This is why nash said fed controlled rates are the best we got right now until we reach asymptotically ideal money.


Sidhujag, I would challenge both your first and third "facts" above as both appear to be false.

1) You state that paying a loan removes money from circulation but while this may have been true under a historical gold standard it is not really true today. Your first "fact" follows from the concept of money multiplier. If bank lending is constrained by reserves then paying down debt would remove some multiple of that debt from circulation unless the paid funds were immediately reissued as new debt. This conceptualization of the money multiplier is an inaccurate model of our current system.

Quote from: Bank of England Bank's Monetary Analysis Directorate
In no way does the aggregate quantity of reserves directly constrain the amount of bank lending or deposit creation.

The reality is that under the modern system the amount of bank reserves do not constrain lending. Paying down debt does not lead to a sustained decrease in circulating currency. Instead as debt is paid down there is a transient dip in circulating currency and some banks may find themselves short on reserves. To replenish these reserves these banks simply borrow the needed reserved from other banks. This rate of interbank lending is called the federal funds rate. If enough debt is paid off the demand for reserves may cause the federal funds rate to climb via simple supply and demand. However the federal funds rate strictly controlled by the FED which sets a target for what this rate should be. If the federal funds rate starts to climb the FED simply drives it down to its artificial target again via open market operations. Thus the currency that was removed by paying down debt is simply reinjected back into the economy by the FED. The end effect of paying down debt is not a change in circulating currency but an increase in the central banks balance sheet. I wrote the following post exploring this in more depth and it's ultimate instability. Finance Part I: Understanding the Parasite

3) In your third "fact" you state "payment of all loans does not equal leverage of new loan entitlements" You seem to be saying that debt can be paid off without more debt being taken out elsewhere in the economy. I would challenge this as also false. The only real method of getting rid of debt in our current system on a macro level is some form default with subsequent seizure of the collateral underlying the loan. Simplistic flow scenarios such as Sally owes John $100 who owes Tom $100 who in turn owes Sally $100 represent a very small portion of total debt. The article linked below does a nice job of explaining why it is mathematically impossible to pay off the national debt.

http://www.zerohedge.com/news/2015-05-22/it-mathematically-impossible-pay-all-our-debt

no, when you pay off debt you deleverage and remove purchasing power from the economy. Deflation ensues.

Number 3 means we either can kick can down the road further via another technlogical revolution to increase work producitivity or we reset with ideal money. It is possible mathematically if worker producitivity tends towards infinity just like monetary base, then it becomes a linear equation of the derivative of the monetary base vs the one of worker productivity curves respectively. Ofcourse its the path with the most pain long term and humans being short sighted snd greedy the one we ulitmately probably take.
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November 24, 2015, 10:42:07 AM
 #2164

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monetary base in fiat system is almost zero

I dont get how we can say this when large amounts of government treasuries came into existence from large deficits run by many governments.   This debt is then bought and stored by the central banks in majority, isnt this an expansion of those monetary base.   All that debt pays out dollars and the rates are variable

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November 24, 2015, 12:34:11 PM
Last edit: November 24, 2015, 02:11:31 PM by CoinCube
 #2165

Quote from: sidhujag link=topic=355212.msg13054459#msg13054459
no, when you pay off debt you deleverage and remove purchasing power from the economy. Deflation ensues.

I agree that paying off debt potentially removes some purchasing power from the economy. The amount removed is the amount of debt paid off minus the increased reserves automatically reinserted back into the economy by the FED via their manipulation of the federal funds rate.  However, paying off debt in no way constrains banks from simply making more loans and adding that purchasing power back into the economy as new debt.

McLeay M, Radia A, Thomas R. Money creation in the modern economy. Bank of England Monetary Analysis Directorate Quarterly Bulletin 2014 Q3

Deflation ensues not from the removal of purchasing power as that can easily be resupplied at will by the banks. Deflation instead is the natural result of massive malinvestment induced by artificially low interest rates.

When interest rates are kept artificially low, entrepreneurs are led to believe the income they will receive in the future is sufficient to cover their near term investment costs. In an environment where the money supply is continually expanding via debt, entrepreneurs mistakenly conclude that investments are really available for long term projects when in fact the pool of available funds has come solely from artificial credit creation. Entrepreneurs see spending in the economy and assume consumer demand exists for their projects when in fact consumer demand is artificially and unsustainably elevated.

Artificially low rates produce a period of wasteful malinvestment, a "false boom" where the investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to waste, overcapacity, and eventually insolvency.

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November 24, 2015, 02:13:20 PM
 #2166

Example
Greek banks do not accept partial or full debt repayments under capital controls, unless the money comes outside the banking system
They do that because repaying debt will unwind their assets, that have been placed as collateral on ECB for liquidity, in short debt repayment directly removes liquidity from Greek banking system. So deflation is the result and ECB will do nothing. - Yourope
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November 24, 2015, 04:48:20 PM
 #2167

Quote from: sidhujag link=topic=355212.msg13054459#msg13054459
no, when you pay off debt you deleverage and remove purchasing power from the economy. Deflation ensues.

I agree that paying off debt potentially removes some purchasing power from the economy. The amount removed is the amount of debt paid off minus the increased reserves automatically reinserted back into the economy by the FED via their manipulation of the federal funds rate.  However, paying off debt in no way constrains banks from simply making more loans and adding that purchasing power back into the economy as new debt.

McLeay M, Radia A, Thomas R. Money creation in the modern economy. Bank of England Monetary Analysis Directorate Quarterly Bulletin 2014 Q3

Deflation ensues not from the removal of purchasing power as that can easily be resupplied at will by the banks. Deflation instead is the natural result of massive malinvestment induced by artificially low interest rates.

When interest rates are kept artificially low, entrepreneurs are led to believe the income they will receive in the future is sufficient to cover their near term investment costs. In an environment where the money supply is continually expanding via debt, entrepreneurs mistakenly conclude that investments are really available for long term projects when in fact the pool of available funds has come solely from artificial credit creation. Entrepreneurs see spending in the economy and assume consumer demand exists for their projects when in fact consumer demand is artificially and unsustainably elevated.

Artificially low rates produce a period of wasteful malinvestment, a "false boom" where the investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to waste, overcapacity, and eventually insolvency.
I personally think you need to deposit to be able to leverage as a bank, and paying off a loan is different.. Any link to show this is not the case?

Anyways as you can see M2 hasnt actually been following the rate drop as if should, since velocity hasnt been rising deflation is set up in an economy which expects it to move afted stimilus. When it does start bonds will heavily skew and rates will have to rise fast because inflation will be rising too fast. Not sure at what point the pain threshold of the system is breached.
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November 24, 2015, 05:45:50 PM
Last edit: November 24, 2015, 06:43:52 PM by CoinCube
 #2168

I personally think you need to deposit to be able to leverage as a bank, and paying off a loan is different.. Any link to show this is not the case?

Anyways as you can see M2 hasnt actually been following the rate drop as if should, since velocity hasnt been rising deflation is set up in an economy which expects it to move afted stimilus. When it does start bonds will heavily skew and rates will have to rise fast because inflation will be rising too fast. Not sure at what point the pain threshold of the system is breached.

All you need to do is to satisfy the regulatory hurtles required to access interbank lending at the federal funds rate. It is true that this typically, but not always, requires you to be a depository institution.

You asked for a link showing that it is possible to to leverage as a bank without accepting deposits. Banking is shrouded in secrecy and such information is deliberately hidden from the public but here you go.

Quote from: bloomberg
Goldman Sachs & Co., a unit of the most profitable bank in Wall Street history, took $15 billion from the U.S. Federal Reserve on Dec. 9, 2008, the biggest single loan from a lending program whose details have been secret until today.

http://www.bloomberg.com/news/articles/2011-07-06/goldman-took-biggest-loan-in-fed-program

It is important, however, to keep the charade going. It would not do to have people question why banks can access funds at an artificially low cost. So with some reluctance Goldman later decided that they are in fact going to offer some token banking services.

Quote from: The Motley Fool
Just so you don't waste your time trying to open a Goldman Sachs passbook savings account, understand that this new bank is solely for Goldman's wealthiest customers. "It's a private bank. We can afford to do that," CEO Lloyd Blankfein told The Journal, "because we have the contacts and the balance sheet."

http://www.fool.com/investing/general/2012/07/20/goldman-sachs-returns-to-classic-boring-banking-so.aspx



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November 25, 2015, 06:41:46 AM
 #2169

Quote
monetary base in fiat system is almost zero

I dont get how we can say this when large amounts of government treasuries came into existence from large deficits run by many governments.   This debt is then bought and stored by the central banks in majority, isnt this an expansion of those monetary base.   All that debt pays out dollars and the rates are variable

Money is defined to be something that can pay off debt.

Debt is not money.

Having more treasuries (debt) does not mean money is created.

Example from EU: only ECB EURO banknotes are money. I have checked from ECB.

Bank accounts are not money. This is the definition, and it is quite logical: Bank account is bank's debt to you. When you take a mortgage, you exchange your obligation to pay for bank's obligation to pay (the "money" in bank account).

It is possible to create fiat money out of thin air (inflationary printing of money). It is also possible to create debt/credit out of thin air. Both processes are fraudulent, but the latter is which is being practiced now - it is even more insidious as not only it devalues the savers, it also has the "financial neutron bomb" of debt deleveraging, which the controllers can detonate at will, but it may even happen without them.

Nobody has yet submitted to my prize offer: $1,000 for designing an overall worse monetary system than the one in use by IMF/BIS. If somebody wants to try his imagination, the criteria for "worse" include:
- quicker and more secret consolidation of power of all the people's life and resources to an even smaller group of controllers
- more levers to do immense damage, wholesale or targeted, to countries and individuals
- morally more degrading, leading the development of the planet to a worse direction
- causes more deaths from its operation, directly and indirectly
- achieves the enslavement of all participants who also pay the cost of it.
 
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November 25, 2015, 01:08:34 PM
 #2170

Quote
monetary base in fiat system is almost zero

I dont get how we can say this when large amounts of government treasuries came into existence from large deficits run by many governments.   This debt is then bought and stored by the central banks in majority, isnt this an expansion of those monetary base.   All that debt pays out dollars and the rates are variable

Money is defined to be something that can pay off debt.

Debt is not money.

Having more treasuries (debt) does not mean money is created.

Example from EU: only ECB EURO banknotes are money. I have checked from ECB.
 

Well ECB EURO banknotes are proof of debt of ECB to the holder. But you are right Debt is not money

Money is trust, trust creates obligations symmetric to the obligation debt, when a debt gets re-payed those obligations are settled and a connection is closed.
If enought obligations get settled the network of cooperation between people dismantles, cause obligations create information channels.
Ideally everyone should owe to everyone, but banknotes make that more managable making central bank and banking system in general an obligation multiplexer.
So money is not created by banks in the same traffic is not created by the routers.

Money is created by the customer the one who accepts the obligation to be indebted (entrusted)

The bank simply facilitates the obligation (creates the connection) in behalf (with) of the rest of us


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November 25, 2015, 02:22:42 PM
 #2171


Well ECB EURO banknotes are proof of debt of ECB to the holder. But you are right Debt is not money


No, its the other way around. Your taxes are the interest on the printed money out of thin air.

The loans that are taken by the government. Your private debt has alraedy interest in it.

So basically theft is now taxed.

There is no "out of thin air", stop refering to money as a concrete physical thing. it is not. Banknotes and balance sheets and papers and digital bank accounts are manifestations of money.

If it was the other way around then I could simply burn my banknotes and voila I own the ECB zip. right?
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November 25, 2015, 02:36:55 PM
 #2172


Well ECB EURO banknotes are proof of debt of ECB to the holder. But you are right Debt is not money


No, its the other way around. Your taxes are the interest on the printed money out of thin air.

The loans that are taken by the government. Your private debt has alraedy interest in it.

So basically theft is now taxed.

Banks note is a symbol of debt for the central bank. It says on the bank note: I promise to pay the bearer £10.

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rpietila
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November 25, 2015, 04:47:29 PM
 #2173

Banks note is a symbol of debt for the central bank. It says on the bank note: I promise to pay the bearer £10.

Depends. In Euro area banknotes are not debt, they are money, even the definition of "money".

In other places there might be relics of some obligations, but "I promise to pay the bearer £10" does not mean anything since "£10" legally means the piece of paper on which it is written.

Other places even say "in silver" yet do not honor the promise.
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November 25, 2015, 04:56:15 PM
 #2174


Well ECB EURO banknotes are proof of debt of ECB to the holder. But you are right Debt is not money


No, its the other way around. Your taxes are the interest on the printed money out of thin air.

The loans that are taken by the government. Your private debt has alraedy interest in it.

So basically theft is now taxed.
l
Man you make some wild comments. Taxes and interest are different things and unrelated.
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November 25, 2015, 10:01:29 PM
 #2175

Nobody has yet submitted to my prize offer: $1,000 for designing an overall worse monetary system than the one in use by IMF/BIS. If somebody wants to try his imagination, the criteria for "worse" include:
- quicker and more secret consolidation of power of all the people's life and resources to an even smaller group of controllers
- more levers to do immense damage, wholesale or targeted, to countries and individuals
- morally more degrading, leading the development of the planet to a worse direction
- causes more deaths from its operation, directly and indirectly
- achieves the enslavement of all participants who also pay the cost of it.

I'd like to try (even though I won't accept your $1000 if you decide I win). The aforementioned mechanism would've been a monetary system based on the idea of inflationary quotes like the one issued after the 1929 crash in Austria during the Great Depression. The famous "Miracle of Wörgl", but with a twist. To remind to the reader a bit of history, the bill was issued by Michael Unterguggenberger and its success was based on the currency demurrage and the impact it had on the economy of Wörgl, a small town in Austria. For every bill to retain its value it had to be stamped every 1 month.

Now let's try this on steroids. Imagine a currency with the same properties but issued by the FED (or any other "FED") and its allies (aka: Banksters). Imagine it electronic and every month every single "coin" to lose some of its value if the people don't pay their tax. I believe we have a potential winner, for a far worse system like the one we have now, based on an (initially) pretty good idea. BUT, why this is happening? It's the same with government...

In ancient Greece, the idea of DemoCracy [Δήμoς (Demos, the people) control Kράτoς (Cratos, the Country)] had the ability to test itself through the agora; where almost every day the politicians were put to test and criticism by the civilians. The centralization of governance, money, etc is what makes things go ugly; and there's a reason for that. *MOST* people tend to behave badly when "others aren't looking", or they won't have to explain their actions to anybody. The flaw is embedded into our system.

Decentralization of everything leads to a better world.

Sources:
1. http://www.lietaer.com/2010/03/the-worgl-experiment/
2. https://mises.org/library/free-money-miracle
3. http://www.scientificamerican.com/article/how-the-illusion-of-being-observed-can-make-you-better-person/

Chaos could be a form of intelligence we cannot yet understand its complexity.
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November 26, 2015, 12:43:40 AM
 #2176

The bankers are like this:



My dear sheeps you live inside the wolf's den and dont even notice it Cheesy Cheesy

How ignorant can you be sheeps?

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November 26, 2015, 07:52:06 AM
 #2177

I'd like to try (even though I won't accept your $1000 if you decide I win). The aforementioned mechanism would've been a monetary system based on the idea of inflationary quotes like the one issued after the 1929 crash in Austria during the Great Depression. The famous "Miracle of Wörgl", but with a twist. To remind to the reader a bit of history, the bill was issued by Michael Unterguggenberger and its success was based on the currency demurrage and the impact it had on the economy of Wörgl, a small town in Austria. For every bill to retain its value it had to be stamped every 1 month.

Now let's try this on steroids. Imagine a currency with the same properties but issued by the FED (or any other "FED") and its allies (aka: Banksters). Imagine it electronic and every month every single "coin" to lose some of its value if the people don't pay their tax. I believe we have a potential winner, for a far worse system like the one we have now, based on an (initially) pretty good idea. BUT, why this is happening? It's the same with government...

I don't believe the cashless all-fiat demurrage-tax system is at all worse than the one we currently have. Because:
- In Wörgl, it was successful
- Now, it would not be very successful because there is essentially no difference to a hyperinflation: people would choose to keep as little as possible cash in their accounts and invest in gold, silver, bitcoin, canned foods, anything, rather than cash. This is not even insidious if told in advance. The demurrage would hardly net more than the bank "service fees" now do. Even a small fee would wake up so many people (that even a 10% per year inflation did not)
- the taxation would at least in theory have a wider and fairer base, unlike currently where I used to pay up to 29% small-corp-tax (in Finland, for profit AND inflation, annually) and at the same time the multinationals pay no tax and actually get more subsidies than the small biz pay in taxes. So the current system is very evil, your proposal would be a step to right direction, unless supplemented with blatant exceptions to multinational accounts, and/or bans on holding/trading of any semi-monetary items, which kind of exceeds the scope of my assignment.

By the way, now is the time to log in to CK and do your health challenge, so that you stay in the game Smiley
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November 26, 2015, 08:05:00 AM
 #2178

You are clueless.

How do you think the government pays back the interest?

The taxes are the only revenue of the government. When they take a loan, they pay back the interests by diverting the tax income (OR RAISING TAXES MORE) to the interest payment.



Just out of reference - most governments also raise money through the sale of assets (usually it's an issue when things fall out of public hands, but not always) as well as various business interests on publicly owned land (mining comes to mind). This all being said - I honestly don't understand how Bitcoin helps in any of this - unless there is a system societal change beyond government this kind of system will remain.
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November 28, 2015, 02:16:24 AM
Last edit: November 28, 2015, 02:34:19 AM by TPTB_need_war
 #2179


The 3 camels with box cutters fairy tale.

Sort of like Dumbo The Elephant, except only 50% of the population thinks the story is true.





They also believed JFK was their savior:

http://xkcd2.com/753/



Quote
Also, if you read his speech at Rice, all his arguments for going to the moon work equally well as arguments for blowing up the moon, sending cloned dinosaurs into space, or constructing a towering penis-shaped obelisk on Mars.

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November 28, 2015, 12:45:37 PM
 #2180

Banks note is a symbol of debt for the central bank. It says on the bank note: I promise to pay the bearer £10.

Depends. In Euro area banknotes are not debt, they are money, even the definition of "money".

In other places there might be relics of some obligations, but "I promise to pay the bearer £10" does not mean anything since "£10" legally means the piece of paper on which it is written.

Other places even say "in silver" yet do not honor the promise.

I realise there are technical points of reference but if the bank expands their balance sheet and upps my overdraft or whatever facility I can then use to withdraw bank notes.  Im taking this as cash, its exchangable for goods so that what it is.  If QE or any other central bank policy enables banks to expand balanace sheets then to me the montary base has expanded.  People may never hold the cash notes, only pass it around electronically but its money in circulation so Im counting all of this as a bigger montary base which means inflation.

  If they measure their statistics by purely cash notes they'll come up with a different figure or however they restrict their view of money used but QE is inflation seems a fair argument to me, I'll accept Im wrong in some text book if need be

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