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Author | Topic: Does fractional reserve banking lead to a cycle of perpetual debt? | |||||||||||||||||||||||
Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
As I understand it, the federal reserve creates new money as debt for the regular banks to lend as their fractional reserve. The regular banks can then create more money as debt due to their increased fractional reserve.
This gives the reserve the power to limit the amount of money they can lend by limiting their reserves. There's a huge conflict of interest though, in that the federal reserve is a private company whose main shareholders are all the banks it lends to. I asked NN about the constitution granting the power of money creation to congress only and whether they should have needed an amendment to create the federal reserve in the first place but he never responded. The fed was created by an act afaik. Should be as simple as another act to change it. Getting the politicians to do it is the hard part. The more people who know about and see the problem, the harder it is for them to ignore, so I encourage you to discuss it at church etc, to build awareness. The greater Christian community could make a huge difference in the battle for economic freedom, if it renewed its opposition to usury.
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NoNukes Inactive Member |
Here I emphasise that, fundamentally, it is the lack of new credit being issued that causes economic downturn. If one sector crashes for whatever reason, so long as new credit is being issued, it doesn't matter, growth will continue In at least some instances, what you say simply is not the case. For example, high fuel prices affect growth across almost all sectors. Once folks start losing jobs because of low demand, they are not going to buy much of anything. And it is not the case that demand is constant. Even uncertainty in a time of high prosperity can encourage saving versus spending, thus killing off demand. Your model is simply too simple. Why not just blame capitalism in general. After all, that is what determines what gets made and who gets fed. Edited by NoNukes, : No reason given. Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846) History will have to record that the greatest tragedy of this period of social transition was not the strident clamor of the bad people, but the appalling silence of the good people. Martin Luther King I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend. Thomas Jefferson
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Phat Member Posts: 18348 From: Denver,Colorado USA Joined: Member Rating: 1.0 |
You replied to me by mistake, but I will comment.
Why not just blame capitalism in general? Or why not blame human nature? Greed? We have talked about changing the Federal Reserve. They dont want politics involved, and seem to think the fed as it now stands is not political ...apart from being loyal to the banks and bankers themselves.
Democratic presidential front-runner Hillary Clinton said she would support changes to the top ranks of the Federal Reserve, an issue recently championed by progressive groups amid debate over how long the central bank should keep supporting the American economy.(...)"The Federal Reserve is a vital institution for our economy and the well-being of our middle class, and the American people should have no doubt that the Fed is serving the public interest, spokesman Jesse Ferguson said. That's why Secretary Clinton believes that the Fed needs to be more representative of America as a whole and that commonsense reforms like getting bankers off the boards of regional Federal Reserve banks are long overdue. Seems the Fed is nearly sacrosanct. Chance as a real force is a myth. It has no basis in reality and no place in scientific inquiry. For science and philosophy to continue to advance in knowledge, chance must be demythologized once and for all. —RC Sproul "A lie can travel half way around the world while the truth is putting on its shoes." —Mark Twain " ~"If that's not sufficient for you go soak your head."~Faith
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Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
In at least some instances, what you say simply is not the case. For example, high fuel prices affect growth across almost all sectors. Once folks start losing jobs because of low demand, they are not going to buy much of anything. I concede that unforeseen economic shock such as a sharp increase in the price of oil can and does have a significant impact in causing a recession. I maintain, however, that the ultimate cause is less new debt/money entering the economy. As evidence for my assertion, I offer the actions of the central banks in response to such an event. They will decrease the official interest rate. This lowers the interest burden on existing debt thus leaving more disposable income for consumption. That alone is not enough, however, the main reason for lowering of the interest rate is to encourage new lending and spending. The banks know that the only way out is to lend our way out! If lowering the interest rate doesn't work, the banks can ease their lending policies, as they did in the US causing the sub-prime mortgage crisis.
And it is not the case that demand is constant. Even uncertainty in a time of high prosperity can encourage saving versus spending, thus killing off demand. If I paraphrase that to 'uncertainty in a time of prosperity can encourage saving vs lending and spending' it aligns quite well with what I am saying. Further, someone who is in debt, is going to be paying down their debt and destroying money, meaning even more needs to be lent into existence to achieve positive growth.
Your model is simply too simple. Why not just blame capitalism in general. After all, that is what determines what gets made and who gets fed. A move away from capitalism would necessarily involve taking the profit motive out of new money. If not, then it would be pointless. So starting with the finance system seems reasonable to me. I think I've made a decent case as to why the distribution of new money for profit is just as much a problem as capitalism itself, as far as inequity is concerned. In fact, if we distributed debt free money to the 3rd world, capitalism would work for the greater good. The Federal Reserve definitely caused the Great Depression by contracting Americas’ money supply by one third between 1929 and 1933. — Milton Friedman We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It [the banking problem] is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects are remedied very soon. — Robert H. Hemphill There are thousands of quote like this, many from senators and presidents who knew exactly how rigged the system was/still is.
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Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
Or why not blame human nature? Greed? I'm not convinced we are greedy by nature. I think we are culturally conditioned to it. Growing up in an environment where the accumulation of material possessions is touted as the path to happiness encourages us to be greedy and selfish. Most people I know are not overly greedy, even having been raised in such an environment. Christianity teaches children that all humans are inherently bad. What does that do to them? If you perceive everyone else to be greedy, selfish etc, are you more, or less likely to be selfish and greedy yourself? The first part of this long doco talks about how the system we grow up in affects our eventual personalities. https://youtube.com/watch?v=W2FPZrbYWK0
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NoNukes Inactive Member |
I concede that unforeseen economic shock such as a sharp increase in the price of oil can and does have a significant impact in causing a recession. I maintain, however, that the ultimate cause is less new debt/money entering the economy. A sharp increase in the price of oil might have many causes having nothing very much to do with less debt. Fuel prices can increase from sheer speculation about future events in the middle east. What you are doing here is blaming every possible fluctuation in the economy on one factor despite examples that show similar effects from direct causes. For that reason it is easy to demonstrate that you are over generalizing. Now it may well be possible (at least sometimes) to compensate for other factors by increasing the money supply, but to suggest that only the money supply is the ultimate cause is something you have yet to demonstrate.
If I paraphrase that to 'uncertainty in a time of prosperity can encourage saving vs lending and spending' it aligns quite well with what I am saying. Not to any extent that is apparent to me. Uncertainty can be related to causes having nothing at all to do with banking. For example tax policy or being at war with countries that supply oil cause uncertainty for the economy and each of those might influence the public to save rather than spend regardless of what banking policy is.
I think I've made a decent case as to why the distribution of new money for profit is just as much a problem as capitalism itself Thanks. I just wanted to be clear on where you stood with respect to capitalism. You've answered that quite nicely. I agree that capitalism has some unfortunate respects, and I am in favor of polices that reign those things in via regulation. I'm not convinced that fractional reserve banking is the place to do the fixing. Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846) History will have to record that the greatest tragedy of this period of social transition was not the strident clamor of the bad people, but the appalling silence of the good people. Martin Luther King I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend. Thomas Jefferson
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Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
A sharp increase in the price of oil might have many causes having nothing very much to do with less debt. Fuel prices can increase from sheer speculation about future events in the middle east. You got it backwards somehow, this is how you've just presented it -Less debt>economic shock>recession. Here's how I'm presenting it - Economic shock>less debt>recession. It is the uncertainty or economic shock of a drastic commodity price increase that leads to less new money being created via debt.People worried about their job security are less likely to get a loan. If people have lost their jobs, they likely can't get a loan. People who have lost their job but are still in debt may sell assets to pay the debt, thus destroying money. Unless a loan was used to buy the asset, that is. Banks may deny further credit to companies due to the uncertainty. What you are doing here is blaming every possible fluctuation in the economy on one factor despite examples that show similar effects from direct causes. For that reason it is easy to demonstrate that you are over generalizing. But I'm not doing that, I'm saying the fluctuations are responsible for people taking on less debt. Further, as best I can tell, what I am saying is a direct logical consequence of the financial system. Starting with the premise that new money is debt, it is the only way it can work. New money is issued as debt and must be repaid.As new money enters the economy, the money supply is increased hence economic growth. As people repay their debt, the money supply contracts hence economic decline. Therefore, new debt must outweigh the debt being repaid to result in overall growth. If everyone pays all their debt, we'd have no money left. How can you not see a problem with that?
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NoNukes Inactive Member |
It is the uncertainty or economic shock of a drastic commodity price increase that leads to less new money being created via debt. You have not shown any such thing. Do you really think there is some usable economic model that would hold prices steady in the face of a scarcity? And by usable, I mean a model that maintains the capitalist incentives? Shortages and speculated shortages are sufficient cause of price increases and the subsequent effect on the economy as the cost of production also increases. That's with or without fractional reserve banking. Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846) History will have to record that the greatest tragedy of this period of social transition was not the strident clamor of the bad people, but the appalling silence of the good people. Martin Luther King I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend. Thomas Jefferson
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Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
You have not shown any such thing. I was restating my position for clarity after you misrepresented it. You have not responded to much of what I have said, even when re-quoted to you. You also seem to be doing your best to misunderstand me, either that or I am a terrible communicator.
Do you really think there is some usable economic model that would hold prices steady in the face of a scarcity? And by usable, I mean a model that maintains the capitalist incentives? I have no idea why you think this question is relevant to anything I have said. At no point have I stated 'thus we need price stability'. My point the entire time has been that the money supply is more important than price stability and that we need a new (or at least alternative option) method of money distribution. What's so great about capitalist incentives? That you have already decided capitalism is the only usable model does explain your reluctance to honestly discuss anything that might challenge that view. It is pretty easy to demonstrate that capitalism in its current form will not be viable into the future, if you think otherwise, you have your head firmly buried in the sand.
Shortages and speculated shortages are sufficient cause of price increases and the subsequent effect on the economy as the cost of production also increases. That's with or without fractional reserve banking. Without fractional reserve banking as our only method of issuing new money, we would have many options available to counter such economic downturns. As it is now, we rely 100%, on free economic actors taking on enough debt to maintain growth and prevent recession. Or the government. Our collective debt can never be repaid without crashing the economy.
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Phat Member Posts: 18348 From: Denver,Colorado USA Joined: Member Rating: 1.0 |
Our collective debt can never be repaid without crashing the economy. Im not sure I understand this. Is our collective debt bigger than the value we have generated throughout time? In other words, do we owe each other more than we've given each other?Chance as a real force is a myth. It has no basis in reality and no place in scientific inquiry. For science and philosophy to continue to advance in knowledge, chance must be demythologized once and for all. —RC Sproul "A lie can travel half way around the world while the truth is putting on its shoes." —Mark Twain " ~"If that's not sufficient for you go soak your head."~Faith
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Riggamortis Member (Idle past 2419 days) Posts: 167 From: Australia Joined: |
Virtually all new money is created by banks as credit and when you make a payment off your home loan, for example, the principal that you repaid is destroyed.
Lending money = creating moneyRepaying it = destroying money If the amount of new money created is less than the amount destroyed, the money supply falls and we have less money to spend. That is what I have been saying is the fundamental cause of recession and that other factors contribute to a recession via their effect on the money supply. In other words, to avoid economic collapse, we MUST keep lending more money into existence. If the private sector cannot sustain further debt, the government MUST take on debt to prevent collapse. We are seeing this the world over now. We have been trapped in a cycle of perpetual debt, all the while the banks collect billions in interest every year most of which goes to the 1%. https://encrypted-tbn3.gstatic.com/images?q=tbn:ANd9GcS3n... A graph plotting Japan's private debt, public debt and gdp. It clearly shows that what I am saying must happen, is happening. The private sector debt starts to be repaid and the economy slumps, the government then takes on debt just to keep it afloat. Whether privately or publicly we are all slaves to debt.
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