

Money is Not Real - uptown
http://www.tinyrevolution.com/mt/archives/003326.html

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timf
_"The building up of unsustainable debt loads is a commonplace in history.
There are several standard means of resolving the problem: execute the
lenders, exile them, default outright or simply renegotiate to achieve partial
default and low interest rates."_

Or in the United States' case where the money is being lent in US dollars,
print money (inflate) which decreases the value of the debt in real terms.

~~~
gte910h
The modern money supply is not primarily inflated by minting/printing money.

The money supply is inflated when people make loans. Easy _credit_ causes
money supply inflation. Most of the inflation is caused by private lending,
not public printing. Loans cause a 10-1 money supply increase on the base, and
often more like 30-1 when you start to look at more risky lenders.

The recent CARD act has likely done more to deflate the money supply than
anything in recent memory, as it made one of the most pervasive forms of
credit much less attractive to people.

Every debt write down is _money disappearing_.

That alone makes me laugh at people complaining about inflation and strategic
default at the same time, as the later directly combats the former.

~~~
randallsquared
_The money supply is inflated when people make loans._

Well, when people loan more than they have, which banks in the US are allowed
to do. Loans in and of themselves promote deflation, since people get loans to
build wealth, and wealth increase in a static money supply is deflation.

~~~
gte910h
Loans _are_ inflation. By definition. Here is a movie about this:
<http://www.youtube.com/watch?v=P_Ydp7-ApdA>

Deflation occurs when the loan is paid down or written down.

~~~
randallsquared
_Loans are inflation. By definition._

The youtube video isn't working for me, right now, but that's clearly not
correct. In a loan from A to B, the money B now has the use of is money that A
does not have the use of. If there is interest on the loan, B can't make up
the money for the interest from nowhere (unless B is a government controlling
the supply for the money in question), so while the interest _represents_ the
additional wealth generated by the loan, it's not inflationary in and of
itself. If no one is creating more money, the interest has to come out of a
fixed pool of money in the economy, and now that there's more wealth (assuming
the loan was successful), each unit of money is worth a little bit more, which
is deflationary.

This might or might not be a problem, depending on who you ask. I think it
probably is, but the only way to solve it permanently (rather than in a
stopgap manner like creating money at a rate you hope matches the actual
growth of the economy) is to make actual wealth the basis of the money. This
is, uh, very difficult, to understate the problem.

~~~
gte910h
I'm referring to fractional reserve banking, and those loans, which _are_ the
primary source of money creation in the modern world. Not person to person
loans as you are talking about.

~~~
randallsquared
In my original reply to you, I agreed that loans in fractional reserve banking
are inflation:

 _Well, when people loan more than they have, which banks in the US are
allowed to do._

But _loans_ aren't the problem, or the source of the inflation. The inflation
happens separately from the loan; the loan is just a shell game to hide what's
going on.

~~~
gte910h
No, the loan is the _actual source of inflation_.

When more loans are made than there is actual economic growth, inflation
occurs.

~~~
dedward
for the next poster (randallsquared) - banks don't loan money they don't have
- or at least we have to be very careful with the terminology here.

They cannot create money out of nothing - they can only loan out a percentage
of hte money they have on deposit. The key is they have to have it on deposit
in the first place. This effect compounds itself across multiple accounts and
banks and does end up inflating the money supply by a factor of about 10
(assuming the reserve percentage is 10%) - but this is subtly but importnatly
different than the bank being magically able to create money it doesn't have.

(the bank can't lend me $90 if it does't have $100 on deposit - it will have
to keep the $10 in reserve. OTOH - if someone simply deposits $10, the bank
can't possibly lend me $90, because they just don't have it.)

~~~
randallsquared
But this only works if they can count money as loaned and deposited at the
same time. That is, if the system were sound, if they loaned out 80% of the
money on deposit, that money couldn't be counted as still on deposit, but they
do count it that way. A neat chart that shows this is:
[http://en.wikipedia.org/wiki/Money_creation#Money_creation_t...](http://en.wikipedia.org/wiki/Money_creation#Money_creation_through_the_fractional_reserve_system)

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SkyMarshal
_Of course, much of the world's elite understand exactly what they're doing:
i.e., use the economic catastrophe they themselves created as a pretext to
kill the welfare state they've despised for 65 years._

Lost me there. Pure conjecture. If you're not one of the world's elite, you
have no idea what their intent is, or even if they are truly coordinated,
Bilderburgs notwithstanding.

For example, there is another suspicion that the banking elite uses bubbles
and busts to drive down prices and then buy up productive assets on the cheap,
and that welfare systems keep large segments of the populace dependent on
government and under some measure of control. In which case, why would they
try to destroy that system?

So which is it? All? None? Nobody knows. All I know is, if I wanted
credibility for my economic analysis blog post, I wouldn't assert privileged
understanding of the intent of the world's elite unless I actually was one
(and maybe not even then).

