Fractional Reserve Lending IS NOT bad - its unavoidable

[Ozziecoin]

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

When you say "government" you're referring specifically and exclusively to federal government are you not?

Is this real in your opinion?

https://i.imgur.com/WJNzV69.png

http://www.usdebtclock.org/

Federal government of course.

I feel it's an important distinction as only federal government can conjure currency from thin air.

Not true.  Private sector is creating money out of thin air.  I can go ten rounds. Loving this.

http://www.ft.com/intl/cms/s/0/7f000b18-ca44-11e3-bb92-00144feabdc0.html

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

[Ozziecoin]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

Besides having effects on the banking multiplier that can increase the M3 (these issues, as we all know, are controversial and divide schools of economic thought), running a public deficit only resolves the problem if the deficit is monetized (supported on the liquid creation of money by the central bank that is transferred without debt to the State) and that was one of the solutions that I quoted, as one solution that usually creates inflation. If the States goes to the financial market to borrow money to pay for the new deficit, the debt just keeps growing.

What debt are you talking about? I thought we were talking about debt created by FRB, not government debt.
Government debt is de facto monetary instrument. It's a way to avoid 'monetization' which you mention (which is believed to be inflationary) and allow for monetary policy to control interest rates.
Deficit spending is one of the ways to add net monetary assets to the private sector. Bank lending, as a horizontal transaction, doesn't add net assets (as every loan is backed by a liability).

The highlighted bit is a lie: http://mpra.ub.uni-muenchen.de/53385/

Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right

[Ozziecoin]

http://www.ft.com/intl/cms/s/0/76b6f332-2133-11e3-8aff-00144feab7de.html?siteedition=intl#axzz31kP0HLZH

But as investors try to fathom what the Fed will (not) do next, it is worth pondering a timely speech made recently by former UK regulator Lord Turner*. As he told Swedish economists last week, and repeated to central bankers and economists in London this week, the real story behind the recent dramatic financial sagas – be that the market dance around QE or the crisis at Lehman Brothers five years ago – is that western economies have become hooked on ever-expanding levels of debt.

Until this situation changes it is delusional to think that anyone has really “fixed” western finance with post-Lehman reforms, or created truly healthy growth, Lord Turner insists. Put another way – although he did not say so bluntly – one way to interpret this week’s dance around QE is that policy makers are continuing to prop up a financial system that is (at best) peculiar and (at worst) unstable.

Some non-investment finance is socially useful, Lord Turner admits; but much is not. In real estate, for example, most credit just “funds the purchase of already existing houses” rather than investment in new homes (ie construction). And what is really striking about the non-investment piece of this financial picture is that it has exploded; as a result, as the Bank of England’s Andy Haldane also pointed out in a debate in London last week, the size of private credit, relative to GDP, has doubled to 200 per cent in the past 50 years.

This makes a mockery of existing textbooks and official policy assumptions. But the explosion in credit has another peculiar implication, both Mr Haldane and Lord Turner note: since total credit keeps rising inexorably, even as growth remains flat, the “productivity” of money is falling, even as the propensity of the over-leveraged system to have booms and busts, amid investor sentiment swings, has risen.

[Razick]

Wrong.
Fractional reserve lending is fraud.
Prices transmit information in a free market.
"Some holder(s) of a larger amount of this currency lend currency out to individuals, to collect interest. This creates a fractional reserve banking phenomenon"
lending money at interest is not fractional reserve banking.
You have your definitions mixed up. 

In what world is fractional reserve banking fraud? When you take your money to the bank and they agree to hold it for you and pay interest, you know that they are doing so in order to lend it out. If they didn't lend it out, you would have to pay THEM interest.

Also, the benefit of fractional reserve banking is that it allows multiple people to use the same money at the same time. You can have your money in a rainy-day fund, and I can use it to buy stuff until you need it back. Locking money in a vault and doing nothing with it for years is not productive.

Then have one to one lending.  NO problems with that.

One to one lending is higher risk unless your are very careful, and it takes a lot more risk. It also doesn't prevent FRB since I can borrow money from you and loan it out (pretty much the same thing). FRB is a fairly safe and efficient system.

[Razick]

FR isn't only the right to lend out money someone lent to us, in the end it's the right to create money by lending the same amount of money several times.
Technically, isn't fraud, but it's risky and concedes a public function (a sovereign one) to a corporation, the right to create money, crowding out as unnecessary the same amount of public money. If the bank can lend the same money, it doesn't have to ask for credit from the central bank. We all lose.

The problem with that argument is that money creation is not the purpose of FRB, but a side effect. Also, I'd rather have banks create money in a limited fashion than have governments printing unlimited amounts.

FRB works with dollars and with Bitcoins. Contrary to being incompatible with a free market, the only way to prevent FRB is by regulating the free market and making it less free.

[solarion]

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

When you say "government" you're referring specifically and exclusively to federal government are you not?

Is this real in your opinion?

https://i.imgur.com/WJNzV69.png

http://www.usdebtclock.org/

Federal government of course.

I feel it's an important distinction as only federal government can conjure currency from thin air.

Not true.  Private sector is creating money out of thin air.  I can go ten rounds. Loving this.

http://www.ft.com/intl/cms/s/0/7f000b18-ca44-11e3-bb92-00144feabdc0.html

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

I'm not able to read your link as it appears to be a subscriber service. Do you have another source?

The conversation you're referencing was in regards to US federal government spending vs state and local government spending. Obviously private banks can and do contribute to the currency supply which is the topic of this thread.

[Ozziecoin]

FR isn't only the right to lend out money someone lent to us, in the end it's the right to create money by lending the same amount of money several times.
Technically, isn't fraud, but it's risky and concedes a public function (a sovereign one) to a corporation, the right to create money, crowding out as unnecessary the same amount of public money. If the bank can lend the same money, it doesn't have to ask for credit from the central bank. We all lose.

The problem with that argument is that money creation is not the purpose of FRB, but a side effect. Also, I'd rather have banks create money in a limited fashion than have governments printing unlimited amounts.

FRB works with dollars and with Bitcoins. Contrary to being incompatible with a free market, the only way to prevent FRB is by regulating the free market and making it less free.

The way to avoid it is to treat all coins on the blockchain as money.  If on blockchain = money.  Not on blockchain = NOT money.

[Ozziecoin]

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

When you say "government" you're referring specifically and exclusively to federal government are you not?

Is this real in your opinion?

https://i.imgur.com/WJNzV69.png

http://www.usdebtclock.org/

Federal government of course.

I feel it's an important distinction as only federal government can conjure currency from thin air.

Not true.  Private sector is creating money out of thin air.  I can go ten rounds. Loving this.

http://www.ft.com/intl/cms/s/0/7f000b18-ca44-11e3-bb92-00144feabdc0.html

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

I'm not able to read your link as it appears to be a subscriber service. Do you have another source?

The conversation you're referencing was in regards to US federal government spending vs state and local government spending. Obviously private banks can and do contribute to the currency supply which is the topic of this thread.

Sure mate: http://www.washingtonsblog.com/2014/04/conservative-economist-wants-basically-ban-banking.html

The article refers to the ability of private instos aka BANKS to create money out of thin air.

Opponents will argue that the economy would die for lack of credit. I was once sympathetic to that argument. But only about 10 per cent of UK bank lending has financed business investment in sectors other than commercial property. We could find other ways of funding this.

Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function. This is a giant hole at the heart of our market economies. It could be closed by separating the provision of money, rightly a function of the state, from the provision of finance, a function of the private sector.

[NotLambchop]

^Was your pop a banker, Ozziecoin?

[r34tr783tr78]

I don't think that the creation of money is just a side effect: is an intended effect that directly support the profit of banks.
Anyway, being the main effect or a side effect is not the point: the point is that it's a soverign function that should be entrusted to a public independent entity, not the Government, but the central bank (well, in the USA the FED isn't exactly a public entity, but its status in one of those absurd things of the USA). And not conceded to private corporations. We all have to pay more taxes to support that aspect of the "free market".

[RoadTrain]

So, basically there are two ways new money is created: through bank lending and through deficit spending.

So the answer to this question:

So at which point is the "money" to repay the interest on a debt created?

is "when government runs fiscal deficit".

Besides having effects on the banking multiplier that can increase the M3 (these issues, as we all know, are controversial and divide schools of economic thought), running a public deficit only resolves the problem if the deficit is monetized (supported on the liquid creation of money by the central bank that is transferred without debt to the State) and that was one of the solutions that I quoted, as one solution that usually creates inflation. If the States goes to the financial market to borrow money to pay for the new deficit, the debt just keeps growing.

What debt are you talking about? I thought we were talking about debt created by FRB, not government debt.
Government debt is de facto monetary instrument. It's a way to avoid 'monetization' which you mention (which is believed to be inflationary) and allow for monetary policy to control interest rates.
Deficit spending is one of the ways to add net monetary assets to the private sector. Bank lending, as a horizontal transaction, doesn't add net assets (as every loan is backed by a liability).

The highlighted bit is a lie: http://mpra.ub.uni-muenchen.de/53385/

Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right

From the paper you provided (page 7):

In order to reduce the monetary phenomena to the essentials it is supposed that
all financial transactions are carried out without costs by the central bank. The
stock of money then takes the form of current deposits or current overdrafts. Initial
endowments can be set to zero. Then, if the household sector owns current deposits
according to (11) the current overdrafts of the business sector are of equal amount
according to (13) and vice versa if the business sector owns current deposits. Money
and credit are symmetrical. The current assets and liabilities of the central bank are
equal by construction.

It's quite opposite to being a lie To be precise, the paper discusses household sector balances, while I mean private sector, which includes both household and business sectors.
The fact that you highlighted is empirical and doesn't need thorough analysis. It's basics of accounting, double-entry accounting principle.

[Razick]

I don't think that the creation of money is just a side effect: is an intended effect that directly support the profit of banks.
Anyway, being the main effect or a side effect is not the point: the point is that it's a soverign function that should be entrusted to a public independent entity, not the Government, but the central bank (well, in the USA the FED isn't exactly a public entity, but its status in one of those absurd things of the USA). And not conceded to private corporations. We all have to pay more taxes to support that aspect of the "free market".

Even if you believe that, which I feel has little to do with rational thinking and more to do with principle (I don't mean that personally), no one has proposed a reasonable solution. Destroying the economy based on principle is pretty foolish. FRB is how things work, you actually have to intervene in the economy to prohibit it. Why do you feel that a government continually fails at almost everything it does is better suited to money creation and than a free economy? You might not like FRB but the reality is it works, and massive piles of red tape will only make things worse for everyone.

[JustBetweenUs]

You guys are missing the only point. As Abe Lincoln put it, "the hand that gives is higher than the hand that takes". When governments are in a ton of debt to banks and all they have to do is raise a little the interest rate and the country goes bankrupt... the governement (we) is at mercy.

Even if the actual economic system was the best possible (its not), it would be worth totally destroying it and starting with something new only for the fact that it gives way too much power to a very small group of people.

Now of course... I wouldn't expect an economist to understand that. It's nowhere in the books.

[solarion]

I don't think that the creation of money is just a side effect: is an intended effect that directly support the profit of banks.
Anyway, being the main effect or a side effect is not the point: the point is that it's a soverign function that should be entrusted to a public independent entity, not the Government, but the central bank (well, in the USA the FED isn't exactly a public entity, but its status in one of those absurd things of the USA). And not conceded to private corporations. We all have to pay more taxes to support that aspect of the "free market".

Even if you believe that, which I feel has little to do with rational thinking and more to do with principle (I don't mean that personally), no one has proposed a reasonable solution. Destroying the economy based on principle is pretty foolish. FRB is how things work, you actually have to intervene in the economy to prohibit it. Why do you feel that a government continually fails at almost everything it does is better suited to money creation and than a free economy? You might not like FRB but the reality is it works, and massive piles of red tape will only make things worse for everyone.

It doesn't work though. US economic history is one of bankruptcies, defaults, fascist bailouts, and outright theft. If the banking system works then what happened in 2008?

The US last openly looted the world in 1971 when Nixon unilaterally(and temporarily LOL) closed the gold window and ended Bretton Woods. The result has been a global race to the bottom for competing worthless debt based fiat currencies. Just because the vast majority of the peasants in the world don't understand the complex method that's being used to rob them, doesn't mean it's not happening or that they'll remain ignorant forever. We're stuck at insanely low interest rates long term for a reason. It helps to paper over the underlying dysfunction.  

[twiifm]

Willing to destroy the economy?  Haha easy to say if you have nothing to lose.

[NotLambchop]

...US economic history is one of bankruptcies, defaults, fascist bailouts, and outright theft. If the banking system works then what happened in 2008?

Ridiculous.  *World* history is one of bankruptcies, defaults etc., etc.  US banking system sux?  Compared to what?  This Libber paradise?  Where *every bank to date,* from Pirateat40 to TradeFortress to Ukyo to NeoBee Danny -- turns out to be a straight-up scam?

"Fascist bailouts"?  WTF does that even mean?  But hey, as bailouts go, this forum was all over Danny Brewster's D when he claimed to be bailing out Jon.  Now that he ran away, the sentiment has somewhat soured.

...Just because the vast majority of the peasants in the world don't understand the complex method ...

The vast majority could be wrong and you right, but more likely it's the other way around.  Climb off that soap box, bro, your particular brand of crazy stopped being amusing in the early naughts, don't milk it.

[Ozziecoin]

^Was your pop a banker, Ozziecoin?

Are you a bwanker mate?

[Ozziecoin]

I don't think that the creation of money is just a side effect: is an intended effect that directly support the profit of banks.
Anyway, being the main effect or a side effect is not the point: the point is that it's a soverign function that should be entrusted to a public independent entity, not the Government, but the central bank (well, in the USA the FED isn't exactly a public entity, but its status in one of those absurd things of the USA). And not conceded to private corporations. We all have to pay more taxes to support that aspect of the "free market".

Even if you believe that, which I feel has little to do with rational thinking and more to do with principle (I don't mean that personally), no one has proposed a reasonable solution. Destroying the economy based on principle is pretty foolish. FRB is how things work, you actually have to intervene in the economy to prohibit it. Why do you feel that a government continually fails at almost everything it does is better suited to money creation and than a free economy? You might not like FRB but the reality is it works, and massive piles of red tape will only make things worse for everyone.

I've got to say this is one of the most tortured pieces of logic I've come across. Almost hurt my eyes reading it. 

1. Money creation is not rocket science.  Create it, people use it.

2. Govt's NEED NOT BE INVOLVED in money creation at all. There is this thing called the Blockchain.  I don't care which we use but hopefully we stick to a few key ones and hopefully it's got privacy built in.

3. The problem is that the banking sector is creating more money out of thin air, to the detriment of everybody except the 1%.  JUST END THIS BIT!!!

Man, this should not be this hard.

[NotLambchop]

...
1. Money creation is not rocket science.  Create it, people use it.

Rocket science is not rocket science.  Light fuse, climb in, go to da moon.

Give it a shot.



*On second thought, don't.  You'll hurt yourself and I'll have to start paying for entertainment. 

[Ozziecoin]

...
1. Money creation is not rocket science.  Create it, people use it.

Rocket science is not rocket science.  Light fuse, climb in, go to da moon.

Give it a shot.



*On second thought, don't.  You'll hurt yourself and I'll have to start paying for entertainment. 

Is that a pic of you? Looks like you ate quite a few lamb chops.