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

[ralfyman]

Again, two different words. Private banks create the money supply, the Fed controls it.

The Fed does not make decisions on private banks accepting or refusing loans.

Yet you want the government to take over the Fed?

I think you do, as the people are supposed to be the government, right?

Me either. But if it was, it would be a good thing.

If Pope Francis is right, it will be abolished, but not in the way we imagine.

That data actually proves my point. It is all in the General Theory.. Maybe you should read it.

Actually, the data disproves your point. The reasons are given in the article.

Central banks and governments foster environments, through Keynesian macroeconomic policies, that all these guys to play their game.

Central banks and governments generally do not work independently when it comes to implementing policies that consumers, business, and the financial elite want.

You can cut down on borrowing and spending without the disappearance of anything you mentioned. It’s simple, raise interest rates.

That won’t happen because the U.S. economy is dominated by consumer spending, the military can only expand given easy credit, etc.

No, consumption depends on savings and investment. It’s called Say’s Law.

It’s both ways for obvious reasons: the interest paid on savings and returns on investment will come borrowers who can only pay them back by selling more goods to services to consumers.

Yet, you want the government to take it over?

Isn’t that your point, i.e., abolishing the Fed?

But they do not need to depend on it. You can gave middle class conveniences without the Fed.

The Fed is needed for painfully obvious reasons. The rise of the U.S. middle class during the last three decades due to easy credit and heavy borrowing and spending attests to that.

No, it isn’t. But the point is moot seeing how it has been shown, empirically, that the money multiplier either doesn’t exist or is so small as to be insignificant.

Completely the opposite. The size of M2 shows that the multiplier exists. More details in the links provided.

How can M2 be ten times larger than reserve balances? Where are these banks getting all this money to loan out?

Endogenous money. More details in the article shared earlier.

I have countered your argument. You just won’t admit defeat.

Not even close. The main problem is that you keep asking questions that are answered by the article that you don’t want to read.

See, this makes me think you do not read my posts or can’t comprehend them. I never said the Fed controls private banks, I said that the Fed controls the money supply.

One more time: most of money supply is created by private banks, right? So how can the Fed control what it doesn’t create?

 

[ralfyman]

Do you have reading comprehension problems? This is the same stuff we have been over and over.

Again:

1. I never said the government controlled the money supply. The Fed does.

The Fed doesn’t control money supply. Most of it is created by private banks that accept or refuse loans. The Fed does not do that.

1. I know that the Fed is a consortium of private banks that sets interest rates and operates independently of government.

In addition, the low interest regime is what the middle class, businesses, banks, government, and financial elite want. It’s part of an economy that’s heavily dependent on consumer spending, financial speculation, and heavy borrowing and spending across the board. Part of the spending is used to fund a military used to prop up the petro-dollar.

1. I know most of the money supply is created by private banks, not the Fed.

Again:

Create and control are two different words and two different concepts. You can create something without controlling it.

The money supply is created by banks but they do not control it. The Fed does.

How were they able to manipulate interest rates?

Money supply does not go up only because of low interest rates. To find out why, read the article shared earlier for details.

 

[ralfyman]

Are you referring to the President of the Federal Reserve? Of course they favor a consumer spending economy and low interest rates, they are all Keynesian economists. That is what Keynesian economics is.

Actually, that’s not just Keynesian economics but also free market capitalism. That’s why money supply and overall credit has gone up way beyond what even Keynesian economists have imagined. For more details, read the article shared earlier.

If the private banks think they control the Fed, then they are mistaken. The Fed does what it wants. The people in charge of the Fed are Keynesian economists and they will keep following a Keynesian macroeconomic playbook.

Private banks don’t need to control the Fed because the Fed is a consortium of private banks. Private banks earn more through heavy borrowing and spending, which is why they like low interest rates.

Businesses support such initiatives which is why they work happily with banks, and some even earning more through financial speculation. The middle class shows support by voting for one Fed-supporting government administration after another. The financial elite are more than happy because this plus deregulation allows them to speculate heavily, leading to a global unregulated derivatives market that has a notional value that’s twenty times the global economy.

So much for that playbook.

 

[ralfyman]

Which is an absurd notion because it is the government itself which intends to borrow at those low interest rates as well, thereby increasing the demand for credit and puts pressure to raise rates. Actually it’s not pressure at all; it’s simply reflected in the price of those bonds, which effectively raises (or lowers) rates with or without the Fed.

Given the ability of private banks to go beyond reserve requirements, lack of credit is not a problem. That’s why overall U.S. debt had been going up considerably across the board for decades, with one administration after another following similar policies voted to power.

 

[ralfyman]

Except the Keynesians (“We are all Keynesians now”) have now gone one step better and learned how to manipulate CPI numbers as well so that they can be justified in continuing the QE long-term monetary expansion. And it’s simple things like if steak prices go up, count chicken prices instead. But don’t count (or put less weight on) the real things that take money from you like rising property taxes, insurance premiums, and such.

That’s just the tip of the iceberg. Try an global unregulated derivatives market that has a notional value of more than a quadrillion dollars. Makes Keynesian economics look like child’s play.

And then there’s peak oil.

 

[ralfyman]

But I thought the Fed was a consortium of these private banks.
I’m confused.

I think we could all do just fine if we just traded all our junk on craigslist. I love craigslist. Globalization is a house of cards because you just can’t trust people… but I do trust my local community. I predict a vast return to simplicity after this “correction”.

The Fed is a consortium of private banks but most decisions for bank loans, and which make up most of M2 (more than $6 trillion out of $7.25 trillion for 2007), are made by private banks.

 

[ralfyman]

I think Dylan Ratigan at one time called it corporate communism.

There’s also crony capitalism. All of these are results of free market capitalism.

 

[ralfyman]

You seem to focus too much on some money supply figure no one can measure accurately so it’s basically all a theory. In fairness it’s just like the velocity factor outside the banking sector that actually makes an economy work; yet you ignore this.

All in all, it sort of reminds me of the Heisenberg uncertainty principle.

FWIW, uncertainty works both ways. In any event, if anyone can show that M2 is only a fraction of what it was measured to be in 2007, please let us know.

 

[ProVobis]

Given the ability of private banks to go beyond reserve requirements, lack of credit is not a problem. That’s why overall U.S. debt had been going up considerably across the board for decades, with one administration after another following similar policies voted to power.

But you yourself said higher interest rates stifle borrowing. At low rates, the government has all the reason to borrow if they can get it. Doesn’t automatically translate into heavier spending by them or the consumer though.

 

[ProVobis]

FWIW, uncertainty works both ways. In any event, if anyone can show that M2 is only a fraction of what it was measured to be in 2007, please let us know.

I think you missed my point about velocity of money.

 

[ProVobis]

There’s also crony capitalism. All of these are results of free market capitalism.

I have to admit capitalism is a less offensive term than communism, but I think Dylan Ratigan made a good point.

 

[ProVobis]

The Fed is a consortium of private banks but most decisions for bank loans, and which make up most of M2 (more than $6 trillion out of $7.25 trillion for 2007), are made by private banks.

Are you talking about the 12 member banks of the FED or the local community banks? There are many levels and branches of our wonderful system of banks and other financial instruments. Many corporations and stores have their own credit system now and some even operate as a bank.

 

[freeRadical]

The Fed is a consortium of private banks but most decisions for bank loans, and which make up most of M2 (more than $6 trillion out of $7.25 trillion for 2007), are made by private banks.

Do you have a problem with private bank loans?

 

[freeRadical]

That is the money multiplier.

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

The implication is that removal of the Fed becomes irrelevant as most money is essentially created by private banks as they extend loans. Without the Fed, private banks will lobby and create a new central bank that will print fiat currency to meet loan requests

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.

Keep in mind that in order to earn from savings, banks need to lend them to someone who has to pay back the loan plus interest. In order to pay interest, the borrower has to either deposit that money in another bank that offers higher interest or invest it in a business that will produce and sell. The pressure to produce and sell more obviously increases with higher interest rates.

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.

What is wrong with increased production?

The same goes for the rest of money supply, which increases because of fractional reserve banking.

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

That’s why the money multiplier exists. Recall that it refers to money supply increasing given an initial amount injected into the system by a central bank. That’s why M2 is a lot higher than the money base.

For the money multiplier not to exist, almost all of M2 will have to involve money injected into the system by the Fed.

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.

Actually, it works both ways. That is, what you save is gained by selling to another who will consume what he bought. If he doesn’t buy, then you have nothing to save.

If he doesn’t save, then you have nothing to buy.

Unlikely, as financial elite existed long before central banks were formed.

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

 

[freeRadical]

I don’t think the Fed is in charge of refusing loans made from private banks.

Never said they were.

That unregulated derivatives market exists not because of real savings. More details here:

en.wikipedia.org/wiki/Derivative_%28finance%29

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

 

[freeRadical]

The Fed does not make decisions on private banks accepting or refusing loans.

Never said they did.

I think you do, as the people are supposed to be the government, right?

I don’t want a Fed at all.

Actually, the data disproves your point. The reasons are given in the article.

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

Central banks and governments generally do not work independently when it comes to implementing policies that consumers, business, and the financial elite want.

Which is exactly what I said.

That won’t happen because the U.S. economy is dominated by consumer spending, the military can only expand given easy credit, etc.

The US economy is dominated by Keynesian macroeconomic policies.

It’s both ways for obvious reasons: the interest paid on savings and returns on investment will come borrowers who can only pay them back by selling more goods to services to consumers

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.

Isn’t that your point, i.e., abolishing the Fed?

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

The Fed is needed for painfully obvious reasons. The rise of the U.S. middle class during the last three decades due to easy credit and heavy borrowing and spending attests to that.

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

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.

Completely the opposite. The size of M2 shows that the multiplier exists. More details in the links provided

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

Not even close. The main problem is that you keep asking questions that are answered by the article that you don’t want to read.

Have you read the General Theory like I asked too?

One more time: most of money supply is created by private banks, right? So how can the Fed control what it doesn’t create?

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?

 

[ralfyman]

But you yourself said higher interest rates stifle borrowing. At low rates, the government has all the reason to borrow if they can get it. Doesn’t automatically translate into heavier spending by them or the consumer though.

The implication of my argument is that interest rates won’t matter given endogenous money, issues like the Libor scandal, etc.

 

[ralfyman]

I think you missed my point about velocity of money.

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

 

[ralfyman]

Are you talking about the 12 member banks of the FED or the local community banks? There are many levels and branches of our wonderful system of banks and other financial instruments. Many corporations and stores have their own credit system now and some even operate as a bank.

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.

 

[ralfyman]

Do you have a problem with private bank loans?

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.

The problem is that money supply went up more than what the money multiplier allows. Thus, for 2007, with reserves of around $60 billion, one would expect following a 10-pct reserve requirement for money supply to reach up to $600 billion.

In 2007, M2 reached $7,250 billion. or at least ten times more than what it should be. The reason for this is that banks lend beyond the reserve requirement.

The implication is that the Fed doesn’t control money supply or private banks.