Talking about 'MONEY' SUPPLY

[hdbuck]

So here I am trying to grasp the basics of money supply to support a growing economy and demography.

Today's money supply is taken care of by private institutions such as 'Central Banks' or 'Federal Reserves' but it hasn't always been like that. Indeed, for example, in the US, former presidents such as Jackson or Lincoln had tried to implement 'free-of-debt' money issued by the government (i.e. "green bucks"). The concept of 'free-of-debt' money is central for that matter as, when it is created by private institutions, it is then LENT to governments and its people, plus interest.

Nowadays, it seems that debt had clearly become out of control, making it even impossible to pay its interest.

But I dont get it, as everything that has been lent so far, it has to eventually be repaid (+interest). So how and with what can we even repay the interests since we dont create the money to repay them?

It seems money is now printed only to repay those interests (but is not even enough). So to me, it is some kind of a big cycle with no sustainable money supply since it always have to get back to its issuer at some point.

Now talking about bitcoin, everybody can 'create' it. OK, fair enough. But what about the few who where there first and got the most of it in the early stage? Wouldn't this mean that they are actually in control of bitcoin supply? 'Whales', as we call them, surely have an impact on bitcoin's price, making it even scarcer when holding on to them or causing a huge crash whenever they decide to dump them and take profit. So here we go, back to private institutions made of Bitcoin mentors (such as rptelia's initiative to create a fondation 2.0), which would then control supply, interests and so on?

Money supply is power. Everyone agree with that. But who should control it? Should it be lent or free?

edit: i just saw that 2h documentary about money supply over the last 2 000 years: http://www.youtube.com/watch?v=U71-KsDArFM
If you have some time i recommend you to watch it

[Mr. Socko]

Have you been watching "Money As Debt" .. if not you nailed it!

http://www.youtube.com/watch?feature=player_detailpage&v=jqvKjsIxT_8#t=1457


It's only the time lag between money's creation and repayment that keeps the entire system from collapsing. Everything said when this video was released applies more than ever right now. Ultimately with fractional reserve debt based compound interest banking you have to have constant 'growth' or inflation of the money supply to keep the interest from overburdening the system. That's why flat growth is so bad and even 3% growth is not enough...

If it wasn't for quantitative easing and the federal reserve openly buying bonds we would have crashed much worse instead we've blown up another bubble.

[odolvlobo]

You make the assumption that all wealth is represented by money, but money is just the medium of exchange, and it can be reused. For example, in a world where there is only $100, a farmer borrows the $100 and has to pay back $105. You are wondering how the farmer pays back the $105 when there is only $100 in the world. Well, it's easy. He sells a harvest and gets $21 for it and pays back $20 plus $1 interest, and then he does that 4 more times.

Ultimately, the ability to pay interest requires a growing economy, but not a growing money supply.

[Xav]

You make the assumption that all wealth is represented by money, but money is just the medium of exchange, and it can be reused. For example, in a world where there is only $100, a farmer borrows the $100 and has to pay back $105. You are wondering how the farmer pays back the $105 when there is only $100 in the world. Well, it's easy. He sells a harvest and gets $21 for it and pays back $20 plus $1 interest, and then he does that 4 more times.

Ultimately, the ability to pay interest requires a growing economy, but not a growing money supply.

If the yearly harvest is $21 then the economic growth is zero (under the assumption that this is the entire economic scope).

[teukon]

Today's money supply is taken care of by private institutions such as 'Central Banks' or 'Federal Reserves' but it hasn't always been like that. Indeed, for example, in the US, former presidents such as Jackson or Lincoln had tried to implement 'free-of-debt' money issued by the government (i.e. "green bucks").

As far as I'm aware, Andrew Jackson was a strong proponent of decentralised power (small government) and hard money.  Lincoln was a nationalist (big government) that created a fiat money (not backed by gold/silver, can be used to pay taxes (legal tender)) called the "green-back" (because the ink used on the reverse side was green).

Nowadays, it seems that debt had clearly become out of control, making it even impossible to pay its interest.

Citation?

But I dont get it, as everything that has been lent so far, it has to eventually be repaid (+interest). So how and with what can we even repay the interests since we dont create the money to repay them?

Simple.  You earn more money to pay the interest.  If the bank that lent the currency into existence simply destroys it when it's repaid then it will be impossible to pay the interest.  If, instead, that bank spends the repaid currency on hookers and blow, then those hookers and drug dealers will have the means to pay the interest.

It seems money is now printed only to repay those interests (but is not even enough). So to me, it is some kind of a big cycle with no sustainable money supply since it always have to get back to its issuer at some point.

Well yes, you can't truly pay off a loan + interest purely by borrowing more money.  This would be like paying off a credit card by using another credit card.  At some point, you're going to be so indebted that you can't borrow enough to make the interest payments.

Now talking about bitcoin, everybody can 'create' it. OK, fair enough. But what about the few who where there first and got the most of it in the early stage? Wouldn't this mean that they are actually in control of bitcoin supply?

In a word: No.  They cannot create new bitcoins, they can only spend the bitcoins they have.  Once their bitcoins are gone, they are as powerless as you and I.