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Inflation Lesson

Missed AB

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I am seeing all over people discussing inflation as if it is the end all cure for fixing the economic woes of this country.

I use the AC because it's hot outside. It's not hot outside because I have the AC on.

Inflation is the effect of the economic cycle. It is not the cause of the economic cycle.

Cause and effect is a very important concept to understand, and we are heading down a dangerous path here. This is an academic experiment with our currency, being funded and tested by the fed. We are experimenting with the concept of using the printing press to warm up the economic temperature. The fed is not looking to stop deflation. It is looking to CAUSE inflation in times of stagnant growth.

Typically prices go up with higher demand and trace lower with less demand. This is normal and makes perfect sense. As fewer goods are able to find homes, then prices need to drop. But, causing the price to raise without the market forces, ie without demand places the economy in a dangerous position when a recovery emerges.

At some point the economy will rebound off the L shape curve. If the starting inflation rate is 3% with flat demand, what happens when demand is increased a significant amount and the supply and demand shifts to the right?

One of 2 paths can be taken. First option is to raise taxes and interest rates. This will act as breaks on the economic cycle slowing growth keeping unemployment high and in effect remove spending power from the consumer... as these are things which are done to keep inflation in check.

Option 2 is to do a little of the above or nothing at all. If 3 percent inflation is ideal and we are at 2 with no growth, then we would have to accept much higher levels of inflation in the future which according to the current stated opinion would not be ideal either.

Economic cycles are normal. The past 15 years the government has manipulated the currency and lending rates to help smooth out the econonomic cycles. We accepted inflation and increased debt for mild recessions at least 3 times. Now we can't take on anymore debt to grow the economy. The shrinking economic cycle typically causes decreased debts and increased savings which are then the stimulus in the next uptrend in the cyclical wave.

We minimized the contraction part of the equation 3 times. Logic would dictate a prolonged deep recession to make up for the missed 3. Which begs the question what happens if we can successfully minimize this 4th one?

We are trying to quick fix this. This can not be quick fixed, and needs to play out in a more traditional sense so we do not risk tomorrow for today's gains... With hind sight it is easy to see how the "lost decade" played out. Why do we need to repeat the same mistakes?
 
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I am seeing all over people discussing inflation as if it is the end all cure for fixing the economic woes of this country.

I use the AC because it's hot outside. It's not hot outside because I have the AC on.

Inflation is the effect of the economic cycle. It is not the cause of the economic cycle.

Cause and effect is a very important concept to understand, and we are heading down a dangerous path here. This is an academic experiment with our currency, being funded and tested by the fed. We are experimenting with the concept of using the printing press to warm up the economic temperature. The fed is not looking to stop deflation. It is looking to CAUSE inflation in times of stagnant growth.
The Fed isn't going to actually print money, instead it's going to change the digits on it's balance sheets so it can buy up more toxic securities from the banks who still have those toxic assets on their books. And in doing so, the Feds hope it will increase the banks reserves so they feel more confident to lend. The money created will come from the banks lending in a process called "fractional reserve banking." It ain't pretty but that's what our capitalist credit based economy seems to be based on.

Typically prices go up with higher demand and trace lower with less demand. This is normal and makes perfect sense. As fewer goods are able to find homes, then prices need to drop. But, causing the price to raise without the market forces, ie without demand places the economy in a dangerous position when a recovery emerges.
It's also a little too simple. Macroeconomics is a lot more complex than just basic supply and demand because we are in a global economy now and there many external influences at work, such as trade agreements, tariffs, labor, individual laws of countries, new financial instruments such as derivitives and hedging that all have influence on the market.

At some point the economy will rebound off the L shape curve. If the starting inflation rate is 3% with flat demand, what happens when demand is increased a significant amount and the supply and demand shifts to the right?
But the inflation rate is currently at 1% and the Feds want a rate of 2% and will do a little quantive easing to try and achieve that ideal. If inflation goes past that 2% target then I suppose the Feds would do a retraction of the money supply to help lower inflation.


Option 2 is to do a little of the above or nothing at all. If 3 percent inflation is ideal and we are at 2 with no growth, then we would have to accept much higher levels of inflation in the future which according to the current stated opinion would not be ideal either.
But apparently 3% inflation isn't ideal. The Feds seem to think 2% is ideal and again currently we are at 1% inflation. The Feds are more concerned about deflation and want to raise the inflation rate up 1% over a period of time to meet their target rate of 2%. I suppose it's because they think a 2% is sustainable for economic growth whereas no inflation is stagnation and deflation is recessionary.

Economic cycles are normal. The past 15 years the government has manipulated the currency and lending rates to help smooth out the econonomic cycles. We accepted inflation and increased debt for mild recessions at least 3 times. Now we can't take on anymore debt to grow the economy. The shrinking economic cycle typically causes decreased debts and increased savings which are then the stimulus in the next uptrend in the cyclical wave.
Actually, we could still take on a lot more debt. If you look at Japan, the third largest economy in the world, they have a debt ratio of over 200% of GDP and yet their economy is still thriving. But thats because their national debt is held internally and so the money spent on debt is kept in the country instead of flowing out to foriegn creditors. But if you look at the debt created by WW2, what followed was the largest economic expansion in US history.

We are trying to quick fix this. This can not be quick fixed, and needs to play out in a more traditional sense so we do not risk tomorrow for today's gains... With hind sight it is easy to see how the "lost decade" played out. Why do we need to repeat the same mistakes?
When congress removed the safe guards in 1999 it allowed for the same conditions that created the Great Depression. Why do we have to keep repeating the same mistakes? Ask Goldman Sachs, JPMorgan, Citigroup and Bank of America.
 

Missed AB

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The Fed isn't going to actually print money, instead it's going to change the digits on it's balance sheets so it can buy up more toxic securities from the banks who still have those toxic assets on their books. And in doing so, the Feds hope it will increase the banks reserves so they feel more confident to lend....

But the inflation rate is currently at 1% and the Feds want a rate of 2% and will do a little quantive easing to try and achieve that ideal. If inflation goes past that 2% target then I suppose the Feds would do a retraction of the money supply to help lower inflation.

I will write more later, but it is clear that you don't fully understand what you read read on your web websites... :/ Learn what QE is then re-read your post. The FED creates the money and give it to the banks so they can then put it into circulation... The Fed buys bonds to artificially keep inflation rates LOW, what happens when they STOP that practice? That is the same thing as in my ANALOGY of printing money.

That is NOT how you stimulate. You need to contract to give consumers pricing power to allow them to get rid of debt and save so they can continue in the next wave of economic returns. YOu need to contract to get rid of innefficient practices and companies.

The economy may be global, but it is local as well. And destroying the local economy and currency in the hopes of gaining exports is flawed to say the least.
 

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I am seeing all over people discussing inflation as if it is the end all cure for fixing the economic woes of this country.

I use the AC because it's hot outside. It's not hot outside because I have the AC on.

Inflation is the effect of the economic cycle. It is not the cause of the economic cycle.

Cause and effect is a very important concept to understand, and we are heading down a dangerous path here. This is an academic experiment with our currency, being funded and tested by the fed. We are experimenting with the concept of using the printing press to warm up the economic temperature. The fed is not looking to stop deflation. It is looking to CAUSE inflation in times of stagnant growth.

Typically prices go up with higher demand and trace lower with less demand. This is normal and makes perfect sense. As fewer goods are able to find homes, then prices need to drop. But, causing the price to raise without the market forces, ie without demand places the economy in a dangerous position when a recovery emerges.

At some point the economy will rebound off the L shape curve. If the starting inflation rate is 3% with flat demand, what happens when demand is increased a significant amount and the supply and demand shifts to the right?

One of 2 paths can be taken. First option is to raise taxes and interest rates. This will act as breaks on the economic cycle slowing growth keeping unemployment high and in effect remove spending power from the consumer... as these are things which are done to keep inflation in check.

Option 2 is to do a little of the above or nothing at all. If 3 percent inflation is ideal and we are at 2 with no growth, then we would have to accept much higher levels of inflation in the future which according to the current stated opinion would not be ideal either.

Economic cycles are normal. The past 15 years the government has manipulated the currency and lending rates to help smooth out the econonomic cycles. We accepted inflation and increased debt for mild recessions at least 3 times. Now we can't take on anymore debt to grow the economy. The shrinking economic cycle typically causes decreased debts and increased savings which are then the stimulus in the next uptrend in the cyclical wave.

We minimized the contraction part of the equation 3 times. Logic would dictate a prolonged deep recession to make up for the missed 3. Which begs the question what happens if we can successfully minimize this 4th one?

We are trying to quick fix this. This can not be quick fixed, and needs to play out in a more traditional sense so we do not risk tomorrow for today's gains... With hind sight it is easy to see how the "lost decade" played out. Why do we need to repeat the same mistakes?

I wouldn't be that worried about inflation. We have plenty of utilized manufacturing capacity and plenty of unemployed people ready to go back to work. If demand increases, then we will simply increase production. We shouldn't see inflation until our production capacity is nearly maxed out.
 

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Missed AB said:
Now we can't take on anymore debt to grow the economy.

Sure we can. Is there a limit to how much debt we can take on? Yes, but it is not known a priori; it is observable only when the market tells us it is too much. What we can observe at his point in time is that there is still a large appetite for debt securities in general (as witness the IBM sale of long-dated bonds at 1%) and U.S. govt debt in particular.
 

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I will write more later, but it is clear that you don't fully understand what you read read on your web websites... :/ Learn what QE is then re-read your post. The FED creates the money and give it to the banks so they can then put it into circulation... The Fed buys bonds to artificially keep inflation rates LOW, what happens when they STOP that practice? That is the same thing as in my ANALOGY of printing money.

That is NOT how you stimulate. You need to contract to give consumers pricing power to allow them to get rid of debt and save so they can continue in the next wave of economic returns. YOu need to contract to get rid of innefficient practices and companies.

The economy may be global, but it is local as well. And destroying the local economy and currency in the hopes of gaining exports is flawed to say the least.
Don't bother replying later, if you can't discuss the topic without the fallacious petty insults since you're only proving you are what you accuse me of.
 

phattonez

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I wouldn't be that worried about inflation. We have plenty of utilized manufacturing capacity and plenty of unemployed people ready to go back to work. If demand increases, then we will simply increase production. We shouldn't see inflation until our production capacity is nearly maxed out.

The problem is that people don't demand it, and what's the point of making people demand it. Get production where people demand it, and you can help that along by allowing people to save which increases the total amount of capital available.
 

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The Fed isn't going to actually print money, instead it's going to change the digits on it's balance sheets so it can buy up more toxic securities from the banks who still have those toxic assets on their books. And in doing so, the Feds hope it will increase the banks reserves so they feel more confident to lend. The money created will come from the banks lending in a process called "fractional reserve banking." It ain't pretty but that's what our capitalist credit based economy seems to be based on.

What's the difference between giving banks money and printing them a certificate that says they have the money? Do you think that the bank acts differently in the two situations? Or will they treat both the same?
 

Missed AB

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Don't bother replying later, if you can't discuss the topic without the fallacious petty insults since you're only proving you are what you accuse me of.

Odd that you would get upset at ME for for your faults...

T
But the inflation rate is currently at 1% and the Feds want a rate of 2% and will do a little quantive easing to try and achieve that ideal. If inflation goes past that 2% target then I suppose the Feds would do a retraction of the money supply to help lower inflation.

You missed the whole point that inflation is not the cause of a growing economy, it's the effect.

If you look at Japan, the third largest economy in the world, they have a debt ratio of over 200% of GDP and yet their economy is still thriving.
Where do you get your information from? Japan will probably enter another recession this year. Not exactly "thriving".
But if you look at the debt created by WW2, what followed was the largest economic expansion in US history.
Debt needs to be paid back. If you are paying back debt, then that is money plus interest that is NOT being spent on the economy.

Government debt should be accelerated at times of low economic cycles and decreased/paid back at times of high economic cycles. The problem we have is that we have funded our entire previous 3 growth cycles with credit, and we can't sustain more credit individually or federally. Today, debt ratios held by countries is having an effect on the value of that countries currency more so than any other time in recent history. How can you honestly suggest expanding our debt is a prudent decision?

How do you read the risk benefit of letting the economic cycle take a natural course (for a change and not be manipulated by the government).
 
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Moot

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Odd that you would get upset at ME for for your faults...
If you have to use insults and ad hominem attacks then you and your argument are weak.

You missed the whole point that inflation is not the cause of a growing economy, it's the effect.
Really.

Where do you get your information from? Japan will probably enter another recession this year. Not exactly "thriving".
I get my information from the internet, where do you get your information? Japan's debt is kept internally, which means the interest that is paid on their debt is paid to the Japanese debt holders and it is respent inside their country. That is how their economy has managed to thrive. Our US debt is held by foreigners, which means the interest we pay on our debt goes out of the country to foreign debt holders such as China and it is not recycled back into our economy. If you don't like the debt, then stop buying Chinese goods and invest in your own country.

Debt needs to be paid back. If you are paying back debt, then that is money plus interest that is NOT being spent on the economy.
But the money borrowed is spent on the economy and that is the reason for borrowing it. We had to borrow to prevent another Great Depression which would have been a lot worse than carrying a debt until the economy recovers.

Government debt should be accelerated at times of low economic cycles and decreased/paid back at times of high economic cycles. The problem we have is that we have funded our entire previous 3 growth cycles with credit, and we can't sustain more credit individually or federally. Today, debt ratios held by countries is having an effect on the value of that countries currency more so than any other time in recent history. How can you honestly suggest expanding our debt is a prudent decision?
We are coming out of one of the worst financial disasters since the Great Depression. I would hardly call the subprime bubble and meltdown a normal "business cycle" It was a banking scam of major proportions that nearly destroyed this country.

How do you read the risk benefit of letting the economic cycle take a natural course (for a change and not be manipulated by the government).
It was not a normal business cycle in any sense of the word and to let things take it's course would have been a disaster of catostropic proportion. The bailout and stimulus were the right actions to take. The only action that would have been better would be not to let it happen in the first place.

We can sustain a lot more debt as long as the economy is growing. And right now the economy is growing, albeit slowly. But at least it is growing which is a lot better than if the government had done nothing.
 
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Moot

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What's the difference between giving banks money and printing them a certificate that says they have the money? Do you think that the bank acts differently in the two situations? Or will they treat both the same?
Fractional reserve banking is a racket. But that is what this capitalist country is based on and if the people didn't like it, then they would stop using their credit cards and taking out loans. But if they did that, then the economy wouldn't grow and there would be no middle class. Like it or not, we are a credit based economy and the Feds lending to big banks who lend to smaller banks who lend to businesses and consumers is how the money circulates into the economy to create value.
 

Missed AB

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If you have to use insults and ad hominem attacks then you and your argument are weak.
It is only an insult if it is untrue. You do not read/understand the information you post. I called you on that in a previous post as well where you misrepresented the quote from a book chapter you posted and did not read remember? You are attempting to use fallacies to defend yourself, maybe the problem is your posts and not mine.

I get my information from the internet, where do you get your information? Japan's debt is kept internally, which means the interest that is paid on their debt is paid to the Japanese debt holders and it is respent inside their country.
I have no dispute with your stated debt ratio. You said Japan's economy is "thriving" and it's not.

Japan’s economy: Nowhere to hide - The Curious Capitalist - TIME.com

If you don't like the debt, then stop buying Chinese goods.
If we stopped buying cheap chineese goods, then we would see the "real" rate of inflation. Then there would be no need for the fed to do any QE, that's a great idea!

So you understand inflation is an effect of a growing economy, or you disagree that inflation shifts with demand?

But the money borrowed is spent on the economy and that is the reason for borrowing it. We had to borrow to prevent another Great Depression which would have been a lot worse than carrying a debt until the economy recovers.
You are very unclear about who is "we". The government, the consumer, businesses...

Also I am not arguing against past. I understand if we did not do what we did things would be a lot worse off and there was an actual probabity that our currency would been destroyed.

Today's ferderal spending is not about emergency survival. It is about trying to "revitalize" an economy that has entered a recovery phase. What's wrong with letting the economic cycle naturally take over without any government intrusion?

It was not a normal business cycle in any sense of the word and to let things take it's course would have been a disaster of catostropic proportion.
Now you're getting it! The past 3 business cycles have been funded ONLY with debt and we were on the brink of a disaster. Now you want to fund the 4th business cycle with same philosophy of the previous 3... how do you see that story ending?

Putting the breaks on the skid with the "bail out" is a lot different than funding a recovery.

We can sustain a lot more debt as long as the economy is growing. And right now the economy is growing, albeit slowly. But at least it is growing...
Which is exactly why we DO NOT need more govt stim. Do you get it yet? At what point do you stop funding and let the economic cycle take it's natural course? If NOT when it's growing, WHEN DO YOU STOP?
 
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It is only an insult if it is untrue. You do not read/understand the information you post. I called you on that in a previous post as well where you misrepresented the quote from a book chapter you posted and did not read remember? You are attempting to use fallacies to defend yourself, maybe the problem is your posts and not mine.
I'm not interested in having a ninny nanny bitch fest with you. If you can't discuss the topic objectively like an adult then I will find someone else who can.
 
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Odd that you would get upset at ME for for your faults...



You missed the whole point that inflation is not the cause of a growing economy, it's the effect.


Where do you get your information from? Japan will probably enter another recession this year. Not exactly "thriving".

Debt needs to be paid back. If you are paying back debt, then that is money plus interest that is NOT being spent on the economy.

Government debt should be accelerated at times of low economic cycles and decreased/paid back at times of high economic cycles. The problem we have is that we have funded our entire previous 3 growth cycles with credit, and we can't sustain more credit individually or federally. Today, debt ratios held by countries is having an effect on the value of that countries currency more so than any other time in recent history. How can you honestly suggest expanding our debt is a prudent decision?

How do you read the risk benefit of letting the economic cycle take a natural course (for a change and not be manipulated by the government).


Can you back up the bolded part with any sort of article?
 

Missed AB

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I'm not interested in having a ninny nanny bitch fest with you. If you can't discuss the topic objectively like an adult then I will find someone else who can.

Stop brining it up then. Move on past the point of contention and reply to the rest of the post.
 

Missed AB

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Can you back up the bolded part with any sort of article?

But who should be concerned? Residents of the country, first and foremost, says Bivens. A massive external debt could possibly trigger an exchange rate devaluation, especially if a country relies heavily on imports, creating a situation where money will be more difficult to tax in the future, debts will be more difficult to repay with less valuable currency and issues of fiscal sustainability arise.

News Headlines


The US has spent $3.5 trillion in fiscal 2010, while taking in only $2.2 trillion in tax receipts, creating a $1.3 trillion budget deficit, about the size of Canada’s economy, or about 10% of GDP. That is the highest ratio of debt to GDP since World War II. The White Househas proposed to spend $3.8 trillion for fiscal 2011. The federal deficit is at $13.9 trillion, approaching the size of the US economy....Moody’s said the nation's debt rating was “not under immediate threat,” although it did say the rating could be downgraded in 2013 if the fiscal position of the US did not improve....If the US lost its Triple-A rating, the country would have to spend more to borrow, creating further financial pain

Does the US Deserve its Triple-A? - FoxBusiness.com


Tracing the history of the national debt back through our history, the CBO finds that the national debt did not exceed 50% of GDP, even when the country was fighting the Civil War, the First World War or any other war except World War II. As you can see in the chart, the national debt declined sharply after World War II as the nation began paying off its wartime debt when the conflict was over. http://forecastsandtrends.com/ads/ftarticle.php?ftid=697


Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply.

Congressional Budget Office - Federal Debt and the Risk of a Fiscal Crisis
 

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Fractional reserve banking is a racket. But that is what this capitalist country is based on and if the people didn't like it, then they would stop using their credit cards and taking out loans. But if they did that, then the economy wouldn't grow and there would be no middle class. Like it or not, we are a credit based economy and the Feds lending to big banks who lend to smaller banks who lend to businesses and consumers is how the money circulates into the economy to create value.

Where is the proof that we would not grow if we outlawed the fraud that is fractional reserve banking?
 

Missed AB

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Where is the proof that we would not grow if we outlawed the fraud that is fractional reserve banking?

More importantly how do you "outlaw" it? Regardless of the effects if it was there or not, if you cannot reform the banking system to prevent loan origins, then there is no benefit of this academic lesson...

Each dollar that is deposited to the bank 90% 50% 10% 1% what ever amount set can be loaned... If you have loans you will have this issue because at some point the person taking out the loan will give the money to another person who will then deposit that cash into a bank account, making it subject to the bank loan process. At the end there is always a risk that there can be multiple claims on the same dollar on the deposit side creating a run on the banks reserve...
 

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Where is the proof that we would not grow if we outlawed the fraud that is fractional reserve banking?

Is there any chance that fractional banking would be outlawed? If there is how would this happen. Let's say that a bank is leverged 5:1 which would be a very conservative bank in today's world. Would they have to call in, or not roll over 80% of their loans.
 

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More importantly how do you "outlaw" it? Regardless of the effects if it was there or not, if you cannot reform the banking system to prevent loan origins, then there is no benefit of this academic lesson...

If a bank says that they can pay back all of your money on demand, but they can't give that money back to all demanders at one time, so it is fraudulent.

Each dollar that is deposited to the bank 90% 50% 10% 1% what ever amount set can be loaned... If you have loans you will have this issue because at some point the person taking out the loan will give the money to another person who will then deposit that cash into a bank account, making it subject to the bank loan process. At the end there is always a risk that there can be multiple claims on the same dollar on the deposit side creating a run on the banks reserve...

It is a system that is only propped up by the FDIC. Otherwise things like time deposits and other such things would be more popular. At least that wouldn't be fraudulent.
 

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Is there any chance that fractional banking would be outlawed? If there is how would this happen. Let's say that a bank is leverged 5:1 which would be a very conservative bank in today's world. Would they have to call in, or not roll over 80% of their loans.

Banks don't have time deposits?
 

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If a bank says that they can pay back all of your money on demand, but they can't give that money back to all demanders at one time, so it is fraudulent.

You have 120 in your account, and I borrow 100 dollars. I got it from a loan. I buy something from NONPERELLI and he deposits it.
Your account = 120
My account = -100
NONPERELLI = 100

Bank loans out 80% of NONPERELLI's deposit to WASHU. He buys from MOOT. MOOT deposits the money in the bank
My account -100
Your account 120
NONPERELLI = 100
WASHU -80
MOOT 80
Bank = reserve 40
Loans < deposits

The loans vs deposits are the problem. How do you structure loans so there are not multiple claims on the same dollar? You can't. If you use deposits as a gauge to set much money the bank can loan, then any loaned money that eventually finds it's way back to the bank in the form of a deposit box can then be "reloaned". I don't see any way of preventing that from happening, do you?
 

phattonez

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You have 120 in your account, and I borrow 100 dollars. I got it from a loan. I buy something from NONPERELLI and he deposits it.
Your account = 120
My account = -100
NONPERELLI = 100

Bank loans out 80% of NONPERELLI's deposit to WASHU. He buys from MOOT. MOOT deposits the money in the bank
My account -100
Your account 120
NONPERELLI = 100
WASHU -80
MOOT 80
Bank = reserve 40
Loans < deposits

The loans vs deposits are the problem. How do you structure loans so there are not multiple claims on the same dollar? You can't. If you use deposits as a gauge to set much money the bank can loan, then any loaned money that eventually finds it's way back to the bank in the form of a deposit box can then be "reloaned". I don't see any way of preventing that from happening, do you?

I already told you. Time deposits, or at least let people know that if you are getting interest on a demand deposit that you can't get all of it at once. A 100% reserve ratio would not allow this "re-loaning" to occur.

Besides, the problem is in people thinking that they can get all of their money, but not all of those expectations can at the same time be true. The true problem lies there. Correct that and the problem is pretty much gone.
 
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Fractional reserve banking is a racket.

Yes, it is a "racket". In very much the same way that the insurance industry and the hotel industry, and the printing industry, and the grocery store industry, and the clothing industry, and the construction industries are rackets. All profitable industries are "rackets" to someone. Thank God for rackets or else none of us would have jobs.
 

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Where is the proof that we would not grow if we outlawed the fraud that is fractional reserve banking?

It's only fraud if it is illegal or if someone is harmed by it. I would not agree that the fractional reserve banking system is fraud. Risky - yes. But all industries have a certain amount of risk. There is little profit without risk.

As a user of a checking account I am aware that it is possible that my bank may not be able to honor my account. But in 25+ years of having a checking account that has never happened. Not even when my bank failed a couple of months ago. I never lost access to my money. I am aware of the risk, but the risk is so low that it is insignificant. My money is guaranteed by the FDIC. There is risk with every transaction, everything I purchase, everything I sell, every time I drive my car or eat a meal. I accept a certain amount of risk every time I take a breath of air.

We are compensated for the use of our money, either interest or low fee banking accounts or simply convienience. There is nothing wrong with us being compensated for allowing the bank to utilize our short term or long term cash when we arnt using it. It's really a very efficent system where almost nothing goes to waste, and it increases the velocity of money. Imagine how profitable and efficient the housing industry would be if every single housing unit was being utilized every single day. Or if every single car was used every day. Most of us have cars that sit in a parking lot most of the day - imagine how wealthy we would be if we had the ability to effeciently rent them out when we were not using them.
 
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