"He who makes the money - makes the rules"

[matrix]

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who mostly borrow money to buy stuff they don't really want or need who have been conditioned to buy that stuff by brainwashing - sorry advertising

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Awfully arrogant of you to think you know what other people want or need.

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Really? - what do you suppose the majority of people spend all that credit card debt on?

I live on a planet where millions of people in the poorest part of the world live in less than $1 (one dollar) per day.

So I think it's safe to say that all the people in the western world don't really need all of the crap they spend money on to continue to live.

The whole of the advertising industry is based on the idea of getting people to buy products that they wouldn't otherwise want - so I think it's safe to say that the majority of things that people buy aren't things that they really wanted...

[BCPVP]

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Really? - what do you suppose the majority of people spend all that credit card debt on?

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Tons of different things. What's your point? That you can divine what is "necessary" and what is "crap"?

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I live on a planet where millions of people in the poorest part of the world live in less than $1 (one dollar) per day.

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And how's the quality of life of those people?

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So I think it's safe to say that all the people in the western world don't really need all of the crap they spend money on to continue to live.

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You said that people were spending money on things they don't want. You have no way of knowing that.

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The whole of the advertising industry is based on the idea of getting people to buy products that they wouldn't otherwise want

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Your way to hung up on these conspiracy theories, man. Not everyone is out to get you. Brainwashing is coercive (against the will of the brainwashed). Advertising is not.

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so I think it's safe to say that the majority of things that people buy aren't things that they really wanted...

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Not even close.

[hmkpoker]

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Yes. The key is when does it happen?

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It is always happening. Expansion in the monetary supply always results in higher prices in the market. However, it does not happen evenly; it is staggered, sudden, and in different sectors. We see this in the form of sudden "booms," like the many real estate booms that have been happening around the country. The precious metals boom was another. I believe that this also had a large impact on the recent oil boom.

But this is not terribly relevent. The point is that you can't get something for nothing. If I counterfeit money in my basement and use it to buy a car, I'm surely not paying for it, and the car dealer (who appreciates the new business) isn't really paying for it, but as he spends the money, and the next person spends the money, the market eventually figures out that there's more money and raises the prices in different sectors at a time. If you are in one of the later sectors to recieve the new money, you are losing on the deal. You are paying for my new car. You can't get something for nothing; inflation-caused booms have to have equal and opposite recessions (excepting other variables, such as innovation and increased productivity).

As to whether inflation causes increased productivity, this is really unsubstantiated. Granted that MV=PY, if you increase the supply and turnover, how do we know that Y is increasing? Are people now getting more goods for the same price, or are they just paying a higher price for the same good? Does a widgit maker, in reaction to seeing that there is new money in the economy, say "hey, more demand, I'll produce more widgits because people will buy them," or does he say "I'll charge more for the same widgits"? If he doesn't, then why are the prices constantly going up?

Do you honestly believe that monetary expansion doesn't help some and hurt others?

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For example, say the Mint announced that in one month's time, helicopters would dump bale after bale of hundred dollar bills over every major city in America, with the goal of doubling the money supply. Do you believe prices tomorrow would rise or stay the same?

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Do you mean literally tomorrow, before the money has been dumped in? I can't say for sure what kind of impact such madness would have on the market immediately, but the prices have nowhere to go but up.

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Well, thanks to the twin miracles of financing and fiat currency, I can afford to live in DC and get an education. Thank goodness.

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Complete egalitarian socialism would provide someone who was otherwise completely unproductive with a living wage for nothing on his end. Does that justify it?

[bobman0330]

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Do you honestly believe that monetary expansion doesn't help some and hurt others?

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Obviously it hurts holders of cash assets and lenders of fixed-rate debt, to the extent inflation isn't provided for in the loan, and helps holders of fixed-rate debt, to the same extent.

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Do you mean literally tomorrow, before the money has been dumped in? I can't say for sure what kind of impact such madness would have on the market immediately, but the prices have nowhere to go but up.

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I mean literally tomorrow. And yes, prices will go up. My point is that the wealth transfers caused by inflation can occur before the actual printing of the money. In a world of rational people, where inflation is predictable, inflationary expectations will be taken into account in transactions. For example, if I make a loan to you and want to collect 5%, but I expect inflation of 2%, we'll set the loan at 7%. When prices rise 2% over the next year, I lose money because your loan payments are worth less, but I already recouped that loss by properly setting the interest rate.

That's a pretty vanilla example, but the point is that your counterfeiting illustration is not necessarily the way it works in the real world. And I certainly see no reason to believe that inflation helps real estate owners because they're higher up the chain of money, largely because no such thing exists.

[hmkpoker]

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Obviously it hurts holders of cash assets...and helps holders of fixed-rate debt

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In other words, it helps the rich at the expense of the poor.

(I ellipsis'ed the "lenders of fixed rate debt" thing, because monetary expansion is precisely the reason why they are able to lend out so much and get so much business in the first place. For them it is, at least, a double edged sword)

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And I certainly see no reason to believe that inflation helps real estate owners because they're higher up the chain of money, largely because no such thing exists.

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That's funny, didn't you just say that monetary expansion helps the holders of fixed rate debt to the same extent that it hurts the holders of cash assets? Who do you think has the fixed-rate debt?

[GMontag]

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Do you just not understand how fractional reserve banking works at all, or what?

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I don't understand how the fractional reserve system works - perhaps you can educate me or point me to somewhere that can.

As I understand it presently.

A bank is permitted to lend ten times the amount of money it has on deposit.

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You're looking at it backwards. Fractional reserve banking means that for every $1 you deposit into a demand account (one where you can withdraw at any time like savings or checking accounts), the bank has to keep $0.1 of it around (or whatever percent reserves they stick to). The other $0.9 they are free to invest with, either by providing loans with an interest rate, or through other investment avenues such as the stock market.

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So say ACME Bank has $1billion in reserves - it is alowed to lend out $10billion to customers, all it does to acheive this is alter some bits held in a computer system somewhere to increase the balance of the person taking out the loan.

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$9 billion, and again you are looking at it backwards. Its not that the bank has $1 billion, so it gets to just make up another $9 billion out of nowhere. Its that depositors have deposited a total of $10 billion, $1 billion of which the bank has to keep around as reserves, and the other $9 billion the bank is free to invest.

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All the time it's not really doing all that much apart from lending out money that doesn't exists

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Again, the money does exist. It was given to the bank by depositors. There is no way for the bank to loan out more money than had been deposited (plus the capital the bank owns itself).

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But they must come from nowhere if that money is lent using "fractional reserve banking" by definition.
so ACME bank has loaned out $100million each to customers a,b,c,d,e,f,g,h and i - at the same time ACME bank gets deposits from new customers j,k,l,m,n,o,p,q and r - now it has reserves of $1billion again and can then lend out more money again, up to 10 times the total all this time collecting interest and repayments from the first 9 customers.

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There's nothing in the definition of FRB that requires money come from "nowhere". A bank cannot just make up money. It cannot loan out more money than the total of all its deposits and capital.

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If everyone who has money at a bank turns up on mass closes their accounts and withdraws their money as cash - before too long the bank will be forced to close it's doors and would go out of business.

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This is true. So what? You could say the same thing about any person or business that has borrowed money. If all their creditors came at once unexpectedly demanding their money, they most likely would not be able to cough it up. That doesn't mean it is fraudulent.

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there isn't enough paper currency in circulation to cover the amount of money that banks supposedly have.

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That's because you are adding it up wrong. Take the amount owed the bank in loans and other investments, subtract the amount the bank *owes* depositors, and then add in the bank's reserves and other capital, and that's how much money the bank has. The problem is that you persist i thinking of money in a savings account as money that you actually have. You don't have it. You lent it to the bank.

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Why can't it work so that ACME bank has $1billion in capital and is then permitted to only lend out $1billion.

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That *is* how it works, assuming of course that you are including depositors' money in that $1 billion of capital.