The borrower can then deposit his $9 check with a second bank,
I dont like the use of "cheque". Because real money has to move.
If in this example, The orginal $10 depositor at bank A walks in and asks for his money back, the bank has to say no.
Because it doesnt have it, what it has is a promise from a borrower to repay his loan.
We had a similar debate a while back, and its worth noting if you look up M3 and the total debt (secured and unsecured) they are almost in lock step. That pretty much ended it for me.
The borrower can then deposit his $9 check with a second bank,
I dont like the use of "cheque". Because real money has to move.
You mean like a cheque from the BoE which says "I promise to pay the bearer the sum of..." and has a signature of the Governor on it?
... money is 'real' if you think it is. That's how it works. So long as both parties in an transaction agree that it represents a store of value it doesn't matter what form it takes. The problem arises, as at present, where wealth creation and money creation (two different things) get out of sync.
"When the facts change, I change my opinion. What do you do, sir?"
John Maynard Keynes.
I don't know what credentials Cynicus Economicus has, but his examples are clear and he does his best to explain the consequences of money printing on the domestic economy and on the status of our currency in the global economy.
He states that printing money effectively taxes all existing money (savings, pensions, investments, everything!) e.g. devalues it. This seems to me to be just another way of deferring our debts within this generation and, as far as they can get away with it, well into the next.
I highly recommend a thorough read through his postings.
Last edited by pablo on 08 Mar 2009, 23:55, edited 1 time in total.
If you have more money chasing the same amount of goods, the price of the goods will go up - inflation. Just look at the price of a house with loads of cheap mortgages available.
If the government introduced the money in the form of payment for the country's houses to be insulated it would not cause inflation. That is, as long as they ensured that there was a sufficient supply of insulation and insulators available first. If they didn't there would be inflation in the cost of insulation as too much money chased too few goods.
If the government invested in insulation production and the education of insulators, then invested in their work towards insulating houses we would have an increase in the long term capital of the nation. This investment would pay back in lower energy bills and that spare money could be taxed out of the system so that any additional money floating around did not cause food price inflation or house price inflation. Meanwhile a lot of people will have earnt a living, fed themselves and generally spread a lot of good around the country without incurring a mass of debt.
Putting the money in a bank vault and saying to the bank leverage that and lend it to anyone and everyone so that they can buy LOADSA USELESS STUFF will just perpetuate the present system and lead to another bubble bursting in a few years time.
kenneal wrote:If you have more money chasing the same amount of goods, the price of the goods will go up - inflation.
The more money might not chase the goods. We may all have come to our senses, realised that materialism is so last century, the planet is in trouble and we don't need more stuff. We might just put the cash under the matress and weave our own yoghurt.
Recall having the conversation about the link between monterary expansion and inflation with a couple of Economics graduates, who absolutely insisted that my assertion that the two were linked was naive and that there were far more complicating factors. Apparently first year Economics talks a lot about the reasons why it isn't synchronous.
Natch went away and looked it up and found a great many lessons which started with a sentence saying inflation follows expansion of money in the long term, and then spent a couple of chapters explaining about Chinese imports, velocity of money and all the other reasons why it didn't happen in the timescale economists should be concerned with.
The short-term focus of the education of our economists seemed to me to be pretty damning.
Since economics isnt a science, any old hack can throw together a few unrelated facts, come up with a theory and become Federal Reserve Chairman Alan Greenspan.
That an economist thinks something is outside his time scale damns him, outside his pay timescale maybe...
Google "Austrian School" or check the time scales Reaganomics worked on.
