The future of money

[AndySir]

Asset bubbles in systems of FRB are formed because people borrow too much money against a given asset. The reason they borrow too much money against a given asset is because of a rapid rise in value of the asset which in turn feeds demand for it. A rapid rise in the monetary value of an asset is fuelled by too much debt based money chasing the asset. Debt based money that comes from, you guessed it, the banks in the form of loans. If the banks did not lend the money into existence excessively against the given asset, then the asset bubble could not exist in the first place.

A description of the mechanics, but doesn't cover why banks would be willing to lend against an asset that is likely to drop in value. Remember your counter to my criticism of the money multiplier was 'What was to stop them making unlimited credit?'. Banks that have done this have gone bust.

Same to you Kenneal - a fair description of the current crisis but notably banks went bust from following this course. The fact that some were considered too big to fail does present a clear moral hazard, but I don't think that counters anything I've said. In fact the fraud you describe might make the moral hazard the cause of this particular bubble - the banks felt they were passing the risk onto someone else. Of course they were not. It's a little odd to call that a solution, since putting yourself on a collision course with bankruptcy isn't a what I'd call a sound strategy.

As to Steve's final, repeated assertion - I've now provided you with peer-reviewed evidence that that is not the case. I've provided you with opinions and model from professors of Economics. Can you please stop treating my opinions and some kind of cognitive dissonance and respect the fact that the issue is not anywhere near as clear cut as you make out.

Remember this is your counter to the point that UK banks don't have reserve requirements, which is not an opinion : http://www.kansascityfed.org/PUBLICAT/E ... 97wein.pdf
http://www.bankofengland.co.uk/statisti ... 20reserves

[Little John]

Asset bubbles in systems of FRB are formed because people borrow too much money against a given asset. The reason they borrow too much money against a given asset is because of a rapid rise in value of the asset which in turn feeds demand for it. A rapid rise in the monetary value of an asset is fuelled by too much debt based money chasing the asset. Debt based money that comes from, you guessed it, the banks in the form of loans. If the banks did not lend the money into existence excessively against the given asset, then the asset bubble could not exist in the first place.

A description of the mechanics, but doesn't cover why banks would be willing to lend against an asset that is likely to drop in value. Remember your counter to my criticism of the money multiplier was 'What was to stop them making unlimited credit?'. Banks that have done this have gone bust.

Same to you Kenneal - a fair description of the current crisis but notably banks went bust from following this course. The fact that some were considered too big to fail does present a clear moral hazard, but I don't think that counters anything I've said. In fact the fraud you describe might make the moral hazard the cause of this particular bubble - the banks felt they were passing the risk onto someone else. Of course they were not. It's a little odd to call that a solution, since putting yourself on a collision course with bankruptcy isn't a what I'd call a sound strategy.

Banks would be willing to lend against an asset that was at potential risk of collapsing for the same reason lemmings run the risk of running over the cliff when following the crowd.

If any lemming stops and stands back from the fray, they can clearly see that everyone is heading towards the edge of the cliff. However, if they as an individual decide to stop walking they will be trampled underfoot by all of the others. So they keep walking. Game theorists have a name for the above. It's called the "Prisoner's Dilemma". Banks will keep lending in such an environment because if any one of them decides to take the long view and not lend, they will be punished by their shareholders for not obtaining the same profits or better than their competitors. So, they keep walking. Or, to use another metaphor from the thirties; "while the music plays, you are forced to dance"

As to Steve's final, repeated assertion - I've now provided you with peer-reviewed evidence that that is not the case. I've provided you with opinions and model from professors of Economics. Can you please stop treating my opinions and some kind of cognitive dissonance and respect the fact that the issue is not anywhere near as clear cut as you make out.

Remember this is your counter to the point that UK banks don't have reserve requirements, which is not an opinion : http://www.kansascityfed.org/PUBLICAT/E ... 97wein.pdf
http://www.bankofengland.co.uk/statisti ... 20reserves

Again, I see you playing the diversionary game. Whatever the actual reserve requirements of the banks, your point is hardly a refutation of the money multiplier process but is, instead, an admission that can occurs at a far more heinous level than even I was attempting to get you to accept. So, enough with the diversionary bollocks if you please.

As for lending preceding GDP. I have repeatedly asked you to explain how, if lending follows GDP, we get debt fuelled asset bubbles. They would be logically impossible to form under such a scenario. Debt fuelled bubbles can only form if the lending that takes place does so dangerously ahead of GDP such that, eventually, it proves impossible for GDP to catch up with that debt and honour its promises and so we get the collapse of the debt bubble.

Debt bubbles are definitive proof that debt based money precedes GDP. You have yet to even attempt to counter that point except to hide behind citations that deal with another issue. Tell us what these names have actually said about the above to counter it or, better still, tell us what you have to say to counter the above or you will continue to be accused of obfuscation.

[AndySir]

Banks would be willing to lend against an asset that was at potential risk of collapsing for the same reason lemmings run the risk of running over the cliff when following the crowd.

Fair enough - a little like Keynes' animal spirits. Does seem to undermine your point that the monetary system is responsible though.

Again, I see you playing the diversionary game. Whatever the actual reserve requirements of the banks, this only serves to make their capacity to play the money multiplier games from very high to astronomical. So, your point is hardly a refutation of the money multiplier process but is, instead, an admission that can occurs at a far more heinous level than I was even attempting to get you to accept. So, enough with the diversionary bollocks if you please.

I think we have reached the point now where I am providing referenced evidence and you are simply sticking your fingers in your ears and shouting "No!". To reiterate, the arguments against the money multiplier model are:

1. It's assumptions are faulty - there is no reserve ratio in the UK.
2. The model does not reflect reality. One consequence of the money multiplier model is that money supply is controlled by reserve ratios. There is no link between changes in reserve ratios and the size of the money supply.
3. The model predicts that the money supply should lead the credit cycle. There is evidence that it instead lags it.

Your assertion that debt fuelled asset bubbles would be logically impossible if lending follows GDP is false. You have just provided a behaviourist explanation yourself. More corroborating studies for your to ignore are presented here: http://www.businessinsider.com/actually ... es-2010-10

The money multiplier model is dead. No sense trying to redefine it as 'allows multiplication of base by infinity' and calling that the same principle, because that's clearly got no value outside of allowing you to win the point at the expense of the argument.

[raspberry-blower]

Banking 101

I guess you didn't read that site you just linked to. There's a section entitled "Why the money multiplier model is wrong"

You guessed wrong, Andy.
I posted it to try and get the discussion moving towards its original title thread.
FFS, once upon a time this thread was about the future of money, not arguing the toss about the money multiplier.
The current debt based system is one that requires economic growth to sustain it along with vast inputs of easily accessible energy and other resources.
Now that energy supplies are no longer cheap (they're still cheap-ish in comparison to the amount of work derived from them) the current setuo will collapse.
Given the challenges facing us (i.e. Anthropgenic Climate Change, biodiversity loss, Peak Oil, Peak everything else) what system would you deploy to move to a more sustainable future?
I think that was the whole purpose of this thread

[Little John]

Banks would be willing to lend against an asset that was at potential risk of collapsing for the same reason lemmings run the risk of running over the cliff when following the crowd.

Fair enough - a little like Keynes' animal spirits. Does seem to undermine your point that the monetary system is responsible though.

Again, I see you playing the diversionary game. Whatever the actual reserve requirements of the banks, this only serves to make their capacity to play the money multiplier games from very high to astronomical. So, your point is hardly a refutation of the money multiplier process but is, instead, an admission that can occurs at a far more heinous level than I was even attempting to get you to accept. So, enough with the diversionary bollocks if you please.

I think we have reached the point now where I am providing referenced evidence and you are simply sticking your fingers in your ears and shouting "No!". To reiterate, the arguments against the money multiplier model are:

1. It's assumptions are faulty - there is no reserve ratio in the UK.

A reserve ratio merely serves to limit the capacity of banks to multiply their deposits. A lack of reserve is not a refutation of their capacity to do so. so, you point is a deliberately fallacious one

2. The model does not reflect reality. One consequence of the money multiplier model is that money supply is controlled by reserve ratios. There is no link between changes in reserve ratios and the size of the money supply.

Again, reserve rations merely serve to place at least some limits on the banks to magic money our of their arse. Your point merely states that even this limit does not exist. This is hardly a refutation of the problem of banks being able to play the money multiplier games. In fact the reverse. Again, a completely fallacious point.

3. The model predicts that the money supply should lead the credit cycle. There is evidence that it instead lags it.

You have provided no evidence for this save for some second hand cited names. Spell the evidence out if you think you understand it.

Your assertion that debt fuelled asset bubbles would be logically impossible if lending follows GDP is false. You have just provided a behaviourist explanation yourself. More corroborating studies for your to ignore are presented here: http://www.businessinsider.com/actually ... es-2010-10

The money multiplier model is dead. No sense trying to redefine it as 'allows multiplication of base by infinity' and calling that the same principle, because that's clearly got no value outside of allowing you to win the point at the expense of the argument.

You have already conceded that banks can generate debt based money out of thin air to an even greater extent than even I was initially attempting to get you to accept. You have further provided no evidence, either empirically or, even, logically in support of your assertion that debt based money creation follows GDP nor have you provided a single shred of argument to counter the point that if debt based money followed GDP, then debt fuelled bubbles could not logically exist save for unrelated and irrelevant citations.

[AndySir]

The current debt based system is one that requires economic growth to sustain it along with vast inputs of easily accessible energy and other resources.

That is exactly the assertion that I am challenging. There is no reason for the current debt based system to require economic growth.

[Little John]

Banking 101

I guess you didn't read that site you just linked to. There's a section entitled "Why the money multiplier model is wrong"

You guessed wrong, Andy.
I posted it to try and get the discussion moving towards its original title thread.
FFS, once upon a time this thread was about the future of money, not arguing the toss about the money multiplier.
The current debt based system is one that requires economic growth to sustain it along with vast inputs of easily accessible energy and other resources.
Now that energy supplies are no longer cheap (they're still cheap-ish in comparison to the amount of work derived from them) the current setuo will collapse.
Given the challenges facing us (i.e. Anthropgenic Climate Change, biodiversity loss, Peak Oil, Peak everything else) what system would you deploy to move to a more sustainable future?
I think that was the whole purpose of this thread

He doesn't want to accept that our money system requires growth because to do so would require that lending precedes GDP and to do that would require that banks have the (unlimited by his own admission) capacity to lend money into existence that is not actually required/cannot be honoured by GDP. Hence his extreme reluctance to accept that fact that banks can multiply their deposits via loans.

He has a house of cards to support.

[AndySir]

Steve, all I heard there was "La, la, la, not listening." The arguments and the evidence you request are there for you to see, you're just refusing to.

Fine - I guess the people that really know how to run the country are farming mushrooms or sitting in their pants arguing on internet forums.

[AndySir]

A reserve ratio merely serves to limit the capacity of banks to multiply their deposits. A lack of reserve is not a refutation of their capacity to do so. so, you point is a deliberately fallacious one

Got to love this logic bomb. Restated: "Showing loans are not related to deposits doesn't prove that bank's can't use deposits to make loans." Wonderful.

[UndercoverElephant]

He has a house of cards to support.

Yep. All the hallmarks of a "plant", for want of a better word. Somebody with a lot of vested interests in propping up the fantasies that keep The System from collapsing tomorrow (because it is only faith in lies that is stopping it from collapsing). Either that or he's actually being paid to post this crap.

[UndercoverElephant]

Banking 101

I guess you didn't read that site you just linked to. There's a section entitled "Why the money multiplier model is wrong"

You guessed wrong, Andy.
I posted it to try and get the discussion moving towards its original title thread.
FFS, once upon a time this thread was about the future of money, not arguing the toss about the money multiplier.
The current debt based system is one that requires economic growth to sustain it along with vast inputs of easily accessible energy and other resources.
Now that energy supplies are no longer cheap (they're still cheap-ish in comparison to the amount of work derived from them) the current setuo will collapse.
Given the challenges facing us (i.e. Anthropgenic Climate Change, biodiversity loss, Peak Oil, Peak everything else) what system would you deploy to move to a more sustainable future?
I think that was the whole purpose of this thread

Yes, that was the purpose of this thread.

The current system is deeply immoral, and should have been replaced a long time ago on ethical/justice grounds. But right now it is doomed anyway. It is going to collapse eventuallly (has already started to collapse) anyway, regardless of what the AndySirs and his powerful masters might try to do to sustain it. We therefore have a very real reason to discuss what it might/should be replaced with. It is going to have to be replaced with something.

[AndySir]

He has a house of cards to support.

Yep. All the hallmarks of a "plant", for want of a better word. Somebody with a lot of vested interests in propping up the fantasies that keep The System from collapsing tomorrow (because it is only faith in lies that is stopping it from collapsing). Either that or he's actually being paid to post this crap.

Amazing. I've been a member here for going on eight years and been in arguments when I have held the very position Steve is now holding before either of you joined this forum. Now I understand those arguments to have been debunked I am a paid agent of disinformation? Does any of this give you pause? Or is your zealotry so complete you cannot countenance the possibility that your explanation is incorrect?

[UndercoverElephant]

He has a house of cards to support.

Yep. All the hallmarks of a "plant", for want of a better word. Somebody with a lot of vested interests in propping up the fantasies that keep The System from collapsing tomorrow (because it is only faith in lies that is stopping it from collapsing). Either that or he's actually being paid to post this crap.

Amazing. I've been a member here for going on eight years and been in arguments when I have held the very position Steve is now holding before either of you joined this forum. Now I understand those arguments to have been debunked I am a paid agent of disinformation? Does any of this give you pause? Or is your zealotry so complete you cannot countenance the possibility that your explanation is incorrect?

Private banks create money out of nothing then lend it to people who have to pay it back with interest. This is totally immoral and unacceptable. It was already immoral and unacceptable before these greedy, irresponsible bastards bankrupted the UK by lending far too much of this fiat money to people who could never pay it back. Now it is doubly-immoral, has to be ended, and WILL end because it is unsustainable.

All the rest is just trying to plaster make-up on a diseased old hag.

If we are going to have fiat money, then it should be created by the government in the interests of the people, not by private banks in the interests of themselves and their shareholders.

[AndySir]

Private banks create money out of nothing then lend it to people who have to pay it back with interest. This is totally immoral and unacceptable.

That's a strong statement. I don't think it's controversial to say that without banking there would have been no industrial revolution. There probably wouldn't even have been a renaissance. Are the dark ages the morally superior option?

If we are going to have fiat money, then it should be created by the government in the interests of the people, not by private banks in the interests of themselves and their shareholders.

A situation which has lead to hyperinflation with near 100% certainty. We KNOW that one is bad.

[UndercoverElephant]

Private banks create money out of nothing then lend it to people who have to pay it back with interest. This is totally immoral and unacceptable.

That's a strong statement. I don't think it's controversial to say that without banking there would have been no industrial revolution. There probably wouldn't even have been a renaissance. Are the dark ages the morally superior option?

What a pile of crap. Reminds me of this pile of crap:

http://voices.yahoo.com/consumerism-wor ... html?cat=9

What we need to remember is that a vibrant consumerist culture is a sine qua non for the fulfillment of all these and many more needs. If we reject consumerism the alternative is the stinking malaria infested backwater village in the middle of the Congo forest, where disease, hunger and violence would stalk every moment of our lives. It is easy for us to revile consumerism, blame it for every imagined problem on earth from environmental pollution, to bulging waistlines, to our lack of happiness. But do we really think that humans living in the Stone Age led cleaner lives or were more healthy and happy. Dare we think that the humans festering in primitivism of Congo are better off? No one in his right mind would think that way.

You are setting up an irrelevant false dichotomy: "Either we have private banks with the power to create money out of nothing and lend it to people to be repaid with interest OR it's back to the dark ages."

The dichotomy simply doesn't exist. Why can't money be created by the government in the interests of the people instead of by private banks in the interests of themselves and their shareholders?

If we are going to have fiat money, then it should be created by the government in the interests of the people, not by private banks in the interests of themselves and their shareholders.

A situation which has lead to hyperinflation with near 100% certainty. We KNOW that one is bad.

Know we don't, because it has never happened.

And I don't care if you've been registered at this forum since the beginning. The fact remains that what you are posting is either based on a grotesque level of ignorance, or you have a vested interest in promoting lies and falsehoods on behalf of a failing, corrupt, immoral system. You are indeed an agent of disinformation, and have been consistently so for as long as I've been reading your posts.