Pope Francis claims global economy is close to collapse and describes youth unemployment rates as an ‘atrocity’ in damning message

[ralfyman]

It has been empirically proven that either the money multiplier doesn’t exist or it is so small as to be insignificant.

Empirical data shows that the multiplier exists. That’s why M2 in 2007 was $7.25 trillion vs. reserves of $60 billion.

The problem is $7.25 trillion, with more than $6 trillion consisting of private bank loans, is more than 10 times what a 10-pct reserve requirement allows.

Thus, not only is the amount multiplied incredibly significant, it shows that the Fed has no control over how much money is created.

More details in the article shared earlier.

If private banks don’t need a central bank then why would they lobby to create a new one? It sounds to me like the problem is central banks.

They would probably for the same reasons that led to the formation of the Fed and of central banks worldwide, and not just private banks but industrialists.

The implication is that capitalist economies, especially as they grow to become increasingly complex, need governments with regulatory groups to back them.

The problem is that in time those who dominate these economies will ensure that the government will work for them. And that’s what happened in the U.S.

A borrower does not have to either deposit the money in a bank or invest in a business to pay back loans with interest, they can pay it back with income. Which is what most people who borrow do.

The process is the same: the lender expects to get his money back with interest. The only way for the borrower to cover the loan and interest is to use the loan as capital, produce, and profit. But to do that he has to sell what he produces. And the one who buys what is produced consumes.

Thus, savings involves consumption. Savings with interest requires more consumption.

What is wrong with increased production?

It leads to increased money supply (which necessitates even more production), a resource crunch, and environmental damage coupled with global warming.

Yes, which I have said many times. I think you have a reading comprehension problem?

The problem is that you argue that the money multiplier doesn’t exist. What you argue you have said “many times” is the money multiplier.

It has been empirically proven that the money multiplier either doesn’t exist or is so small as to be insignificant. I think you are confused as to what the money multiplier is.

Here’s the definition of the multiplier:

en.wikipedia.org/wiki/Money_multiplier

The basis of the multiplier is fractional reserve banking. It is illogical to argue that the first doesn’t exist while the second does.

How large is the amount? M2 is supposed to be 10 times larger than required balances. That is not insignificant. Actual M2 for 2007 was even larger than that.

The reason is endogenous money. Read the article shared earlier for details.

Seems like they haven’t really been a problem till now.

That’s right. Shadow banking, deregulation, etc., became more prominent from the early 1980s onward. I discussed this in earlier messages.

 

[ralfyman]

Never said they were.

That’s why the Fed doesn’t control money supply. Much of M2 is created through private bank loans, not by money injected into the system by the Fed.

So, basically you’re saying that if we had real savings then the unregulated derivatives market wouldn’t exist?

What I’m saying is that even with real savings unregulated derivatives will exist. As long as governments do not regulate, then financiers will engage in financial speculation. And bailouts for the richest are assured if the “central bank” of the U.S. economy works independently of the government and works in favor of the rich.

This is, I believe, part of the background of St. Francis’ argument. That’s the reason why the rich will engage in financial speculation through the stock market, where they can earn a lot more than by providing jobs to the youth. And if another crash takes place, they know that the government will use public funds to bail them out.

 

[ralfyman]

Never said they did.

That’s the reason why the Fed doesn’t control money supply. And that’s money that’s part of a larger credit system whose size even the BIS cannot determine accurately.

I don’t want a Fed at all.

The problem isn’t just the Fed but powerful Wall Street banks which it serves.

The data does not disprove my point, it proves it.

No, it doesn’t. M2 is many times larger than the money base. If you have data showing otherwise, please present it.

Which is exactly what I said.

So, how do you abolish a Fed that consumers, businesses, and the financial elite want?

The US economy is dominated by Keynesian macroeconomic policies.

Given U.S. banks’ exposure to over $400 trillion in unregulated derivatives and an M2 that’s a hundred times larger than required reserves, not very likely.

Without saving, there would be now borrowing. Without production, there would be no consumption. Without supply, there would be no demand. It is called Say’s Law and it has never been proven wrong.

Don’t forget that what is saved is taken form what is earned, and what is earned is taken from what is produced and consumed. To make matters worse, if what is saved and lent will require an interest, then more will have to be produced and consumed.

Thus, it works both ways. If there’s no consumption, then not only is there nothing earned, and thus saved, but there will also be no interest paid for what is borrowed.

Government takeover of the Fed is not abolishing the Fed. The Fed would still exist.

Normally, one takes over first before dissolving an organization.

The Fed is not needed. You can have a middle class without easy credit and heavy borrowing and spending.

But it will be very small, like those found in poor countries. To have a middle class like that of the U.S., lots of heavy borrowing and spending will be needed, not to mention a petro-dollar propped up by an expensive military.

I have not seen a rise of the US middle class over the last three decades, I’ve seen the fall of the US middle class.

From what I know, median family income adjusted for inflation peaked in 2008 or so:

economix.blogs.nytimes.com/2012/07/23/a-closer-look-at-middle-class-decline/

It has been empirically proven that the money multiplier either doesn’t exist or is so small as to be insignificant.

M2 is many times larger than required balances, and is driven by fractional reserve banking. That’s the money multiplier.

To disprove this, please present a link showing that M2 is much smaller than what has been reported.

Have you read the General Theory like I asked too?

The current phenomenon, especially an unregulated derivatives market that’s twenty times larger than global GDP, makes textbook economics irrelevant.

It is very easy to control what you do not create. The government controls a lot of things it does not create.

The Fed controls the money supply through reserve requirements, the Fed Funds and other interest rates, FOMC, QE, etc.

The Fed determines the quantity of money in the economy at any given time. This is an established and proven fact. Why do you ignore it?

As explained in this article,

businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

neocolassical economics no longer applies. The proof is seen in M2 which is supposed to up to 10 times larger than reserves, but turns out to be more than a hundred times larger.

We are now dealing with a global economy that textbook economics can no longer easily explain.

 

[ProVobis]

I understand your point, but given credit levels that are many times that of GDP, I’m not so sure about its relevance.

I don’t think you do.

GNP = M (quantity of money) x V (velocity of money) among other things like summation of income, price-quantity, etc.

If the money stops circulating (such as where many savers without interest income can’t spend), increasing the money supply or credit to infinity won’t do you much good. Don’t forget a healthy economy thrives on savings (lending) and borrowing.

 

[ProVobis]

I’m referring to private banks in general, and activities that lead to M2. More important, the fact that M2 goes beyond what is expected given textbook economics.

I thought M2 is archaic as an instrument of measuring money supply. I understand it’s been replaced by M3, but the Fed has stopped publishing its numbers as they can’t keep up.

 

[ProVobis]

We probably should. There are details in the article shared earlier:

businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

The issue involves fractional reserve banking, which is what makes the money multiplier possible. For some, it is acceptable because the Fed is supposed to control these banks. That is, as long as they follow reserve requirements, then the Fed can simply adjust money supply by adjusting interest rates.

You can do accounting tricks all you want to prove your point but the fact is that the FED ultimately acts for itself, not the consumer nor even the banks. If threatened with extinction, it can and will destroy an economy before that happens. They didn’t call it the creature of Jekyll Island for nothing.

 

[freeRadical]

Empirical data shows that the multiplier exists. That’s why M2 in 2007 was $7.25 trillion vs. reserves of $60 billion.

The problem is $7.25 trillion, with more than $6 trillion consisting of private bank loans, is more than 10 times what a 10-pct reserve requirement allows.

Thus, not only is the amount multiplied incredibly significant, it shows that the Fed has no control over how much money is created.

More details in the article shared earlier.

The money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

They would probably for the same reasons that led to the formation of the Fed and of central banks worldwide, and not just private banks but industrialists.

The implication is that capitalist economies, especially as they grow to become increasingly complex, need governments with regulatory groups to back them.

The problem is that in time those who dominate these economies will ensure that the government will work for them. And that’s what happened in the U.S.

Sounds to me like central banks and the government are the problem.

The process is the same: the lender expects to get his money back with interest. The only way for the borrower to cover the loan and interest is to use the loan as capital, produce, and profit. But to do that he has to sell what he produces. And the one who buys what is produced consumes.

So, when a person takes out a mortgage, what do they produce and sell to pay it back?

Thus, savings involves consumption. Savings with interest requires more consumption.

Consumption requires savings. You cannot consume without savings. It’s called Say’s Law and it has never been proven wrong. Do you not what Say’s Law is? (Hint: It’s called a Say’s Law for a reason.)

It leads to increased money supply (which necessitates even more production), a resource crunch, and environmental damage coupled with global warming.

First, what is wrong with an increasing money supply?

Two, how does an increasing money supply cause environmental damage and a “resource crunch”?

The problem is that you argue that the money multiplier doesn’t exist. What you argue you have said “many times” is the money multiplier.

It doesn’t.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

Here’s the definition of the multiplier:

en.wikipedia.org/wiki/Money_multiplier

The basis of the multiplier is fractional reserve banking. It is illogical to argue that the first doesn’t exist while the second does.

How large is the amount? M2 is supposed to be 10 times larger than required balances. That is not insignificant. Actual M2 for 2007 was even larger than that.

The reason is endogenous money. Read the article shared earlier for details.

I know the textbook definition of the money multiplier. It’s funny how you criticize textbook economics when the money multiplier is textbook economics 101.

That’s right. Shadow banking, deregulation, etc., became more prominent from the early 1980s onward. I discussed this in earlier messages.

Hmm. Right when Keynesian macroeconomics had a resurgence.

 

[freeRadical]

That’s why the Fed doesn’t control money supply. Much of M2 is created through private bank loans, not by money injected into the system by the Fed.

The Fed controls the quantity of money in the economy at any given time. This is fact. Do you disagree with it?

What I’m saying is that even with real savings unregulated derivatives will exist. As long as governments do not regulate, then financiers will engage in financial speculation. And bailouts for the richest are assured if the “central bank” of the U.S. economy works independently of the government and works in favor of the rich.

This is, I believe, part of the background of St. Francis’ argument. That’s the reason why the rich will engage in financial speculation through the stock market, where they can earn a lot more than by providing jobs to the youth. And if another crash takes place, they know that the government will use public funds to bail them out.

Sounds like central banks and the government are the problem then.

 

[freeRadical]

That’s the reason why the Fed doesn’t control money supply. And that’s money that’s part of a larger credit system whose size even the BIS cannot determine accurately.

The Fed controls the quantity of money in the economy at any given time. This is fact. Do you disagree with it?

The problem isn’t just the Fed but powerful Wall Street banks which it serves.

How would they be powerful without the Fed?

So, how do you abolish a Fed that consumers, businesses, and the financial elite want?

Easy. Congress repeals the Federal Reserve Act.

Don’t forget that what is saved is taken form what is earned, and what is earned is taken from what is produced and consumed. To make matters worse, if what is saved and lent will require an interest, then more will have to be produced and consumed.

Thus, it works both ways. If there’s no consumption, then not only is there nothing earned, and thus saved, but there will also be no interest paid for what is borrowed.

It doesn’t work both ways. Consumption requires savings. It is called Say’s Law. Do you what Say’s Law is?

Normally, one takes over first before dissolving an organization.

You don’t need to take over the Fed to abolish it. An act of Congress created it, and an act of Congress can abolish it.

But it will be very small, like those found in poor countries. To have a middle class like that of the U.S., lots of heavy borrowing and spending will be needed, not to mention a petro-dollar propped up by an expensive military.

You keep making this statement but do you have any proof to back up your claim?

From what I know, median family income adjusted for inflation peaked in 2008 or so:

economix.blogs.nytimes.com/2012/07/23/a-closer-look-at-middle-class-decline/

How does that prove that the middle class has “risen”? It doesn’t take into account burden of government or taxation. By the way, no serious economist even looks at “family” or “household” income, they look at per capita income. Families and households change over time.

M2 is many times larger than required balances, and is driven by fractional reserve banking. That’s the money multiplier.

To disprove this, please present a link showing that M2 is much smaller than what has been reported

M2 does not prove the money multiplier. No one cares about M2 anymore, it is archaic.

The money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

T[he current phenomenon, especially an unregulated derivatives market that’s twenty times larger than global GDP, makes textbook economics irrelevant.

Again you criticism textbook economics even though the money multiplier is textbook economics.

As explained in this article,

businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

neocolassical economics no longer applies. The proof is seen in M2 which is supposed to up to 10 times larger than reserves, but turns out to be more than a hundred times larger.

We are now dealing with a global economy that textbook economics can no longer easily explain.

The money multiplier is neoclassical economics and it is textbook economics.

As this article explains, the money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either
[/quote]

 

[freeRadical]

The Fed controls the quantity of money in the economy at any given time. This is fact. Do you disagree with it?

How would they be powerful without the Fed?

Easy. Congress repeals the Federal Reserve Act.

It doesn’t work both ways. Consumption requires savings. It is called Say’s Law. Do you what Say’s Law is?

You don’t need to take over the Fed to abolish it. An act of Congress created it, and an act of Congress can abolish it.

You keep making this statement but do you have any proof to back up your claim?

How does that prove that the middle class has “risen”? It doesn’t take into account burden of government or taxation. By the way, no serious economist even looks at “family” or “household” income, they look at per capita income. Families and households change over time.

M2 does not prove the money multiplier. No one cares about M2 anymore, it is archaic.

The money multiplier doesn’t exist.

nytimes.com/2012/06/09/business/economy/as-recovery-drags-on-income-and-wealth-lag.html?_r=0

Again you criticism textbook economics even though the money multiplier is textbook economics.

The money multiplier is neoclassical economics and it is textbook economics.

As this article explains, the money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

 

[faithsmind]

Sounds like central banks and the government are the problem then.

Or to clarify, the problem is an overgrown, centralized government that is out of control of the people, which is what we have right now. And I believe this is due mostly to the creation of a privatized system that is in charge of the currency.

 

[ProVobis]

Or to clarify, the problem is an overgrown, centralized government that is out of control of the people, which is what we have right now. And I believe this is due mostly to the creation of a privatized system that is in charge of the currency.

Isn’t it nice that a government created this “privatized” system which has freedom to print an infinite amount of money (without competition) and charge interest on the public just to show how successful private industry can be?

 

[faithsmind]

​

The problem is that The People mistakenly believe The Federal Reserve is a federal agency serving the people…

 

[ProVobis]

​

The problem is that The People mistakenly believe The Federal Reserve is a federal agency serving the people…

It doesn’t matter what it is categorized as. We can go all day long discussing that. What matters is how much power a very small group of people have over the stock market, commodities markets, and the world’s economy.

 

[ralfyman]

I don’t think you do.

GNP = M (quantity of money) x V (velocity of money) among other things like summation of income, price-quantity, etc.

If the money stops circulating (such as where many savers without interest income can’t spend), increasing the money supply or credit to infinity won’t do you much good. Don’t forget a healthy economy thrives on savings (lending) and borrowing.

Unfortunately, credit levels go beyond money supply. Consider the liquidity pyramid shared in the “Great Credit Contraction” section of this article:

seekingalpha.com/article/147659-inflation-with-gary-north-or-deflation-with-mish

 

[ralfyman]

You can do accounting tricks all you want to prove your point but the fact is that the FED ultimately acts for itself, not the consumer nor even the banks. If threatened with extinction, it can and will destroy an economy before that happens. They didn’t call it the creature of Jekyll Island for nothing.

The article does not use “accounting tricks” but shows why actual M2 exceeds even expectations given textbook economics.

If there is empirical data showing otherwise, I’d like to hear it.

Finally, given that and the size of the credit market, I don’t think the Fed is capable of destroying the economy. Rather, the economy will destroy itself.

 

[ProVobis]

Finally, given that and the size of the credit market, I don’t think the Fed is capable of destroying the economy. Rather, the economy will destroy itself.

Without the Fed, society would find a way to survive, I’m sure.

 

[ralfyman]

The money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

What you just shared supports my arguments and is the same as what is mentioned in the article I shared earlier: what doesn’t exist is the textbook definition of the money multiplier. Put simply, given a 10-pct reserve requirement, following the multiplier M2 should increase to no more than ten times that of reserve balances. But in 2007, it was over a hundred times more than the latter.

Thus, what we have is something that goes beyond the multiplier.

Sounds to me like central banks and the government are the problem.

Most of money isn’t created by central banks or governments but by private banks, and they involve loans which go beyond reserve requirements. Beyond that is a credit market that overwhelms even unfunded government liabilities.

So, when a person takes out a mortgage, what do they produce and sell to pay it back?

It depends on the person’s work.

Consumption requires savings. You cannot consume without savings. It’s called Say’s Law and it has never been proven wrong. Do you not what Say’s Law is? (Hint: It’s called a Say’s Law for a reason.)

Yes, but savings also requires consumption, unless those savings are gained by means other than selling goods and services.

First, what is wrong with an increasing money supply?

Increased money supply leads to increased credit levels, which in turn lead to more financial speculation, which in turn leads to a financial crash. That’s what happened in 2008.

Two, how does an increasing money supply cause environmental damage and a “resource crunch”?

Increased money supply leads to more consumption, which can only be backed by increased production of goods, which in turn leads to more environmental damage and eventually a resource crunch.

Pope Francis has spoken about the first two predicaments, the first as seen in this thread and the second as discussed in another.

It doesn’t.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

See above: the article you shared gives the same arguments as what I raised earlier.

I know the textbook definition of the money multiplier. It’s funny how you criticize textbook economics when the money multiplier is textbook economics 101.

Exactly! The article that I shared, and the one you just presented, gives the same argument: it’s the textbook definition of the money multiplier that doesn’t exist.

Hmm. Right when Keynesian macroeconomics had a resurgence.

What applies to my argument concerning the multiplier also applies to Keynesian economics. What we are seeing now in terms of credit levels goes way beyond what textbook economics envision.

 

[ralfyman]

The Fed controls the quantity of money in the economy at any given time. This is fact. Do you disagree with it?

Yes, I do. As pointed out in the article I shared, the money multiplier textbook definition assumes precisely that: the Fed controls money supply because M2 will never go beyond what is allowed by the reserve requirement. Thus, by adjusting interest rates the Fed is supposed to be able to raise or decrease M2 as needed.

And yet in 2007 M2 was more than a hundred times higher than reserve balances, when it should only be ten times more.

Sounds like central banks and the government are the problem then.

Given the need for regulation, it’s more like the absence of central banks and governments that’s the problem.

 

[ralfyman]

The Fed controls the quantity of money in the economy at any given time. This is fact. Do you disagree with it?

The Fed doesn’t control money supply. Most money is created by private banks, and that involves lending beyond reserve requirements.

How would they be powerful without the Fed?

How do you think a consortium of private banks that operate independently of the government was formed in the first place?

Easy. Congress repeals the Federal Reserve Act.

The same Congress that’s part of the government that’s seen as a “problem” because it bailed out Wall Street?

It doesn’t work both ways. Consumption requires savings. It is called Say’s Law. Do you what Say’s Law is?

It works both ways unless savings come from sources other than income.

You don’t need to take over the Fed to abolish it. An act of Congress created it, and an act of Congress can abolish it.

Only if it can be assumed that the Congress works for the people. I very much doubt that.

You keep making this statement but do you have any proof to back up your claim?

I have lots of evidence for that, but I think I should discuss them in a separate message or thread.

How does that prove that the middle class has “risen”? It doesn’t take into account burden of government or taxation. By the way, no serious economist even looks at “family” or “household” income, they look at per capita income. Families and households change over time.

But the rates are adjusted for inflation. Also, for taxation, should tax cuts be considered?

forbes.com/2010/03/18/tea-party-ignorant-taxes-opinions-columnists-bruce-bartlett.html

That is, a federal tax burden of 1.7 to 4.2 pct?

Finally, if we don’t want to use money, then we can look the poverty rate. Did that go up significantly during the last three decades?

M2 does not prove the money multiplier. No one cares about M2 anymore, it is archaic.

The money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

The article you shared actually implies the opposite. That is,

It’s not that the multiplier doesn’t exist. It’s that it no longer applies, and that’s because the increase in money supply has gone beyond the multiplier.

This also counters the claim that the Fed is in control of money supply.

Again you criticism textbook economics even though the money multiplier is textbook economics.

The article that I shared argues that the textbook definition of the multiplier no longer applies. That’s because money supply is far larger than what the definition allows. On top of that, the same definition argues that because of the multiplier, the Fed is in control of money supply.

The money multiplier is neoclassical economics and it is textbook economics.

Exactly.

As this article explains, the money multiplier doesn’t exist.

pragcap.com/the-money-multiplier-doesnt-exist-outside-of-the-zero-lower-bound-either

One more time: the multiplier argues that given a reserve requirement money supply can be kept in control. With a 10-pct requirement, money supply should not exceed ten times that of reserve balances. Following that argument, one can argue that the Fed is control of money supply because it knows that there is a maximum amount that money supply will grow.

In 2007, money supply was more than a hundred times that of reserve balances. That’s because banks were lending beyond reserve requirements. With that, the Fed has no control over money supply.

Thus, it’s not that the money multiplier doesn’t exist. It’s that the textbook definition doesn’t exist. What we have is a global economy that is out of control.