Economics =)

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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 7:55 am

Mag, actually if you count obligations on derivatives and other financial instruments it's in the high hundreds of trillions.

http://www.bis.org/press/p080522.htm

That's 10 times the global gdp. To make payments on that would require a significant expansion of the monetary supply. The very act of creating money accrues interest because the creation of money has become privatized. Add in government deficits and you have a continually high need for expanding the monetary supply. To simplify things, it's sufficient to say that creating money is accomplished by creating a demand for consumer credit. Through fractional reserve banking, which v allows banks to actually hold only a tiny fraction of their financial obligations, and create money out of thin air through the federal reserve system to provide loans to consumers, the mechanism for creating endless financial expansion is firmly entrenched.

The continual need for credit creation demands a consumerist economy. This is primarily accomplished through marketing and planned obsolescence. What's even worse is that as corporations, especially financial institutions, drive the expansion of the economy it's actually the people who get saddled with the interest of money creation continually expanding the national debt.

Here's the best part: an economic model that by design requires an infinite expansion of the economy on a finite planet is mathematically guaranteed to collapse. A
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Re: Economics =)

Post by AxStapleton on Tue Feb 12, 2013 8:02 am

spotlessvoid wrote:Mag, actually if you count obligations on derivatives and other financial instruments it's in the high hundreds of trillions.

http://www.bis.org/press/p080522.htm

That's 10 times the global gdp. To make payments on that would require a significant expansion of the monetary supply. The very act of creating money accrues interest because the creation of money has become privatized. Add in government deficits and you have a continually high need for expanding the monetary supply. To simplify things, it's sufficient to say that creating money is accomplished by creating a demand for consumer credit. Through fractional reserve banking, which v allows banks to actually hold only a tiny fraction of their financial obligations, and create money out of thin air through the federal reserve system to provide loans to consumers, the mechanism for creating endless financial expansion is firmly entrenched.

The continual need for credit creation demands a consumerist economy. This is primarily accomplished through marketing and planned obsolescence. What's even worse is that as corporations, especially financial institutions, drive the expansion of the economy it's actually the people who get saddled with the interest of money creation continually expanding the national debt.

Here's the best part: an economic model that by design requires an infinite expansion of the economy on a finite planet is mathematically guaranteed to collapse. A

I just have to say, what short sighted moron decided that this was a clever economic model?

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Re: Economics =)

Post by boeloe on Tue Feb 12, 2013 8:24 am

spotlessvoid wrote:Mag, actually if you count obligations on derivatives and other financial instruments it's in the high hundreds of trillions.

http://www.bis.org/press/p080522.htm

That's 10 times the global gdp. To make payments on that would require a significant expansion of the monetary supply. The very act of creating money accrues interest because the creation of money has become privatized. Add in government deficits and you have a continually high need for expanding the monetary supply. To simplify things, it's sufficient to say that creating money is accomplished by creating a demand for consumer credit. Through fractional reserve banking, which v allows banks to actually hold only a tiny fraction of their financial obligations, and create money out of thin air through the federal reserve system to provide loans to consumers, the mechanism for creating endless financial expansion is firmly entrenched.

The continual need for credit creation demands a consumerist economy. This is primarily accomplished through marketing and planned obsolescence. What's even worse is that as corporations, especially financial institutions, drive the expansion of the economy it's actually the people who get saddled with the interest of money creation continually expanding the national debt.

Here's the best part: an economic model that by design requires an infinite expansion of the economy on a finite planet is mathematically guaranteed to collapse. A

That's not entirely accurate (hugely offtopic I know, but anyway).

First of all central banks have pretty good grip on money creation through the reserve fraction you mentioned.

Second, despite what you may hear sometimes, public debts are not a huge problem right now. Investors look mainly at debt/gdp ratio, meaning a government can do 2 things to bring that ratio down. Cut spending, or stimulate growth. There is more and more (even the IMF jumped on the bandwagon) evidence that during a depression (or global crisis) cutting spending is actually self-defeating and a pretty bad idea.

Third, I'm not really sure how you got to the "requires infinite expansion" part. But let me give you this. The key driver of economic growth is technology. The great thing about technology up until now is that it has been growing exponentially and there are no signs of it slowing down in the long run.

And finally something to think about: someone's debt is another man's asset. We'd all be worse off in a debtless world.


Edit:
Not to say that debt can cause huge problems of course, especially when big financial institutions over-leverage.

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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 8:35 am

Ax....it's actually brilliant if you're a greedy bastard. The scary part is that it seems to be collapsing under it's own weight. Of course any time a financial crisis occurs a war breaks out proportional to the size of the crisis, after which often the very perpetrators of the crisis are tasked with rebuilding, typically this involves more centralization. Of course globalization creates global reactions to regional instability and without centralized planning the whole system is wildly unstable. The solution to the global financial crisis is absolute centralization. Guess how that war is going to break out? If you guessed it's going to be about who is going to be in charge and how truly centralized that system will be... you are correct. It's called the Hegelian diabetic. Create the problem, guide the reaction, offer the solution.

Of course the solution is simple: Bring the monetary systems back under national control, ban toxic financial instruments, invoke a debt moratorium, and most importantly end militarism and invest in science and infrastructure instead. But what kind of greedy bastard wants that?

The people have to power to demand changes be made, by non cooperation and mass resistance. Those with a vested interest in maintaining the current system know this. That is why the mechanism of control is constantly expanding.

None of this is surprising, it's been the model of civilizations throughout human history. Times are changing though. Before, it used to be easier to control large populations than to kill them. Now it's the other way around. Just saying. The moral compass of war mongers always points to death and destruction.
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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 8:45 am

You're wrong.

Private interest owed by the public on the creation of money requires infinite expansion. It also robs savings value through inflation. These are mathematical guarantees. It's exactly how the system was designed. It costs money to create the money you have to repay. This means that it is mathematically impossible to ever repay. That simple.

Debt is not the problem. Money is not the problem. The problem is when money is transformed from a certificate of deposit backed by tangible assets to a lOU backed by nothing but a promise to pay. Fiat currencies in a debt based monetary system are recipes for disaster, especially when there is almost no regulation on exotic financial instruments from institutions who are interconnected with the central banks running the system.

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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 9:01 am

Also the proposed solutions are always temporary crisis management in a centrally planned economy. Like the hellfire that is the boom and bust cycle, or the financial apocalypse that is IMF shock therapy. Should parts of the system be maintained in public interest to encourage stability during a controlled evolution? Probably, but that doesn't mean you should actually defend the system itself. I'm all for progress, and I generally believe that government is a powerful tool of stability and progress in the hands of a well informed public. The problem is when private interests start mixing with government interests. The merger of state and corporation is the very of fascism. The revolving door between corporations and government has become obscene. I mean for fucks sake, look at the world around you. It's a disaster.


Ok sorry sorry I'm done
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Re: Economics =)

Post by dorktainian on Tue Feb 12, 2013 9:05 am

ah trillions of pounds in debt..... we have dismissed that claim Ah, yes...

Capitalism is about to come crashing down. It will affect everyone.

Debt creates debt creates debt. We're boned.

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Re: Economics =)

Post by boeloe on Tue Feb 12, 2013 9:12 am

spotlessvoid wrote:You're wrong.

Private interest owed by the public on the creation of money requires infinite expansion. It also robs savings value through inflation. These are mathematical guarantees. It's exactly how the system was designed. It costs money to create the money you have to repay. This means that it is mathematically impossible to ever repay. That simple.

Maybe we can split this off into a separate topic? Any mods around?

I'm pretty damn sure I'm not wrong on this. 8) There is no infinite money creation. People with savings deposit those at a bank. That bank loans that money out to other people or businesses. But they can loan out more money than they have in their deposits. But they are required by law to keep a fraction of those loans in their reserves, it's called the reserve requirement. So lets say there is a reserve fraction requirement of 10% and they have a $100 in their deposits. That means they can loan out a $1000. By no means is that infinite. The central bank has control of the reserve requirement (and the central bank is part of the government) and thus they have control over the money creation.


spotlessvoid wrote:
Debt is not the problem. Money is not the problem. The problem is when money is transformed from a certificate of deposit backed by tangible assets to a lOU backed by nothing but a promise to pay. Fiat currencies in a debt based monetary system are recipes for disaster, especially when there is almost no regulation on exotic financial instruments from institutions who are interconnected with the central banks running the system.


Well we tried that during the 19th and early 20th century, it's called the gold standard. And it was a huge failure. There were more frequent recessions, periods of high inflation and even periods of deflation. Oh and also the great depression happened.

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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 9:20 am

It is not fractional reserve that creates infinite expansion. It is that the actual process of printing money that creates interest that causes infinite expansion. The principal is the total amount of money (debt obligations) available. The interest is additional to the principal. Therefore the public debt will always be greater than the available money pool. This is why the amount of available money must always be increased, or the public would default on the national debt

Fractional reserve banking as exists [ today allows financial institutions tied in to the reserve system to create credit that they cannot themselves back. They create this credit from consumer demand and through leveraging financial instruments. The problem is that although consumer demand has some inherent restraints, unregulated financial instruments do not. Despite all the highly illegal and disastrous long term impact manipulations of central banks, the problem is growing. Through the insane over leveraging of by various institutions, mostly western ones, has greatly devalued national currencies. Wall St and co have operated with reckless abandon and because of the incestuous relationship between government, private central banks, and financial institutions nothing is done. It's rigged and it's destabilizing. There's going to be one hell of a fight over who gets to usher in the new system.


Last edited by spotlessvoid on Tue Feb 12, 2013 9:37 am; edited 1 time in total
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Re: Economics =)

Post by BleedingUranium on Tue Feb 12, 2013 9:24 am

Why couldn't a government just say "We have 100 trillion dollars now!"? It's not like money is a physical thing anymore.
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Re: Economics =)

Post by AxStapleton on Tue Feb 12, 2013 9:26 am

This needs its own thread.

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Economics =)

Post by AxStapleton on Tue Feb 12, 2013 9:34 am

A thread for discussions about the nitty gritty social science that is Economics.

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Re: Economics =)

Post by AxStapleton on Tue Feb 12, 2013 9:35 am


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Re: Economics =)

Post by BleedingUranium on Tue Feb 12, 2013 9:38 am

First question: Why couldn't a government just say "We have 100 trillion dollars now!"? It's not like money is a physical thing anymore.
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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 9:39 am

Good idea Ax, but I'm going to bed. I'll post in it tomorrow
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Re: Economics =)

Post by boeloe on Tue Feb 12, 2013 9:51 am

spotlessvoid wrote:It is not fractional reserve that creates infinite expansion. It is that the actual process of printing money that creates interest that causes infinite expansion. The principal is the total amount of money (debt obligations) available. The interest is additional to the principal. Therefore the public debt will always be greater than the available money pool. This is why the amount of available money must always be increased, or the public would default on the national debt

First to clarify, interest is a compensation, for stuff like risk (your money doesn't get repayed), deferred consumption, inflation, etc. Also I'm not exactly sure what you mean with "printing money that creates interest".

Second ultimately the money supply is supposed to be backed by wealth (which doesn't always have to be some tangible asset!). And debt can actually create wealth, think about somebody loaning some startup money to a bright nerd who programs software in his garage as a business and because of that capital goes on to grow his business to become the largest software company in the world. ;)

I also have to go now btw.

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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 10:02 am

BleedingUranium wrote:Why couldn't a government just say "We have 100 trillion dollars now!"? It's not like money is a physical thing anymore.

Because the government no longer is in charge of creating money. They basically exchange bonds with the essentially private (in the sense that although government holds some power by appointing the Fed Chairman, there is basically no oversight and the profit is privately earned) Federal Reserve for their Fed notes (dollars)

Creating that much money causes to problems. Inflation and interest. Inflation is something that can actually be temporarily managed, but the obligation to pay interest on any money created is inescapable in our current system. Which means we can try to manage our debt but we can never fully repay it, and in our current system that would send profound Shockwaves through global markets and likely lead to a total crash given our current spending habits. Nothing can be truly solved, only postponed, until monetary control is brought back under national (public) control and financial institutions like hedge funds become sufficiently regulated and appropriately taxed. That would enough stability to give us time to focus on technological solutions to our various problems.

Seriously, to bed
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Re: Economics =)

Post by spotlessvoid on Tue Feb 12, 2013 10:06 am

We'll have to pick this up in the economics thread tomorrow because you are really missing the point and seem to be unaware of certain aspects of our financial system, primarily the role and ownership of the "Federal" Reserve system and what that means for the creation of money, Boeloe
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Re: Economics =)

Post by Restrider on Tue Feb 12, 2013 11:52 am

BleedingUranium wrote:First question: Why couldn't a government just say "We have 100 trillion dollars now!"? It's not like money is a physical thing anymore.
It is possible, technically.
The problem is that you would create an over abundance of money, which will lead to inflation. Furthermore you would shatter the image of that currency.
Though backed up by nothing right now, the common populus still thinks that the bills in its pocket have a certain value that is not changing -- at least not that much (though even 3-5 % of inflation p.a. would reduce the worth of the money to its half in 22 years and 13 years respectively -- and we have such a rate of inflation right now). Now imagine you are the typical Joe Sixpack with a few $100 bills in your pocket. Next day that's worth only a fraction since the FED just decided to drown the country with money. People would lose trust and once that happens with a Fiat currency, it is over. Everyone would try to get rid off their $ and invest it in something solid (stockmarket, real estate, gold, consumables...).

That happened twice in Germany in the last century. Mostly caused by the lost wars (WWI and WWII).
My grandpa told me the following story:
His mother gave him 100 RM (Reichsmark -> old currency) to buy bread. This was during the aftermath of WWII. He waited in the line and once he asked the baker how much a bread would cost, he told him that it would cost him 70 RM. He then refused to buy that overprized bread and returned to his mother. She asked him why he had no bread. He told her about the extortion, but she ordered him to return since one cannot eat money and tomorrow it would cost even more.

Another story -- more a common joke -- about the hyperinflation in 1923:
Someone had a basket filled with RM to buy something at the grocer. Since it was heavy, he left it outside at the entrance. Then he was robbed. The thief left the billions of RM and just took the basket -- the piece of the two that was worth more.

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Re: Economics =)

Post by Andromidius on Tue Feb 12, 2013 12:06 pm

AxStapleton wrote:
spotlessvoid wrote:Mag, actually if you count obligations on derivatives and other financial instruments it's in the high hundreds of trillions.

http://www.bis.org/press/p080522.htm

That's 10 times the global gdp. To make payments on that would require a significant expansion of the monetary supply. The very act of creating money accrues interest because the creation of money has become privatized. Add in government deficits and you have a continually high need for expanding the monetary supply. To simplify things, it's sufficient to say that creating money is accomplished by creating a demand for consumer credit. Through fractional reserve banking, which v allows banks to actually hold only a tiny fraction of their financial obligations, and create money out of thin air through the federal reserve system to provide loans to consumers, the mechanism for creating endless financial expansion is firmly entrenched.

The continual need for credit creation demands a consumerist economy. This is primarily accomplished through marketing and planned obsolescence. What's even worse is that as corporations, especially financial institutions, drive the expansion of the economy it's actually the people who get saddled with the interest of money creation continually expanding the national debt.

Here's the best part: an economic model that by design requires an infinite expansion of the economy on a finite planet is mathematically guaranteed to collapse. A

I just have to say, what short sighted moron decided that this was a clever economic model?

The people who stand to profit from it. Bankers, Corporate CEO's, Shareholders, Politicians. Its gouging, pure and simple. They created a system where debt is vital to the economy - its essentially 'suction' in a series of tubes, forcing flow of money and resources. Only they aren't pumping the money and resources back into the system so eventually the system will be empty.

Of course the people who profitted from it would be long-dead and don't care about the long term. Which means eventually the system will collapse and a new one will have to be built - with horrendous suffering being the result during the transition.
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Economics Discussion

Post by CmdrShep80 on Tue Feb 12, 2013 3:00 pm

I always thought governments could just simply print more money at will. Sure that devaluates the money a bit but wouldn't it just be easier? I suppose they have to give bank collectors and debt collectors a job

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Re: Economics =)

Post by magnetite on Tue Feb 12, 2013 3:12 pm

Also remember reading somewhere about a currency reset, which sounds pretty scary.
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Re: Economics =)

Post by DoomsdayDevice on Tue Feb 12, 2013 3:14 pm

boeloe wrote:Maybe we can split this off into a separate topic?

There you go. =)

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Re: Economics =)

Post by boeloe on Wed Feb 13, 2013 7:12 am

DoomsdayDevice wrote:
boeloe wrote:Maybe we can split this off into a separate topic?

There you go. =)

Thanks Very Happy

spotlessvoid wrote:We'll have to pick this up in the economics thread tomorrow because you are really missing the point and seem to be unaware of certain aspects of our financial system, primarily the role and ownership of the "Federal" Reserve system and what that means for the creation of money, Boeloe

Well I do have a bit of trouble understanding what you mean actually. Though I am not a macro-economist, I'm just a lowly economics student (starting my finance master in september), but I do like to think I know a thing or two about how our monetary system works.

Andromidius wrote:
AxStapleton wrote:

I just have to say, what short sighted moron decided that this was a clever economic model?

The people who stand to profit from it. Bankers, Corporate CEO's, Shareholders, Politicians. Its gouging, pure and simple. They created a system where debt is vital to the economy - its essentially 'suction' in a series of tubes, forcing flow of money and resources. Only they aren't pumping the money and resources back into the system so eventually the system will be empty.

Of course the people who profitted from it would be long-dead and don't care about the long term. Which means eventually the system will collapse and a new one will have to be built - with horrendous suffering being the result during the transition.

Debt has always played an important part in the economy. In fact we would all be worse off in world without debt. In a debtless world almost no one would be able to buy a house for example. Or almost no one would be able to afford upfront a study to become a doctor or pilot. Debt is very useful concept.


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Re: Economics =)

Post by Restrider on Wed Feb 13, 2013 9:46 am

boeloe wrote:
I'm pretty damn sure I'm not wrong on this. Cool There is no infinite money creation. People with savings deposit those at a bank. That bank loans that money out to other people or businesses. But they can loan out more money than they have in their deposits. But they are required by law to keep a fraction of those loans in their reserves, it's called the reserve requirement. So lets say there is a reserve fraction requirement of 10% and they have a $100 in their deposits. That means they can loan out a $1000. By no means is that infinite. The central bank has control of the reserve requirement (and the central bank is part of the government) and thus they have control over the money creation.

That's how it works in theory.
However, it multiplies by more than ten.

Say you have $100 on your bank account at a 10% reserve fraction.
As you pointed out, the bank can then loan $1000. However these $1000 might have been used to finance/pay real estate. These $1000 thus ended up on the bank account of the constructor/architect/craftsmen etc. Since this bank (doesn't even have to be the same bank that had your $100 in the first place) now has new $1000 with a 10% reserve fraction, they can loan $10.000, which may have been used to finance a new enterprise. This money will most likely end up on a bank account of another bank, which can loan again....

You see where I am going with this?

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Re: Economics =)

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