New Contrarian's View - Paul Milne on the Economy

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

fennel.assumption.edu/pub/view/1999/View1099.htm

Hot link, anyone, please?

-- seraphima (seraphima@aol.com), November 07, 1999

Answers

Your Wish Is My Command

Now you only get two more wishes.

-- The TB2000 Wonder Genie (catsbutt@umailme.com), November 07, 1999.


Contrar ian's View

-- u (v@v.v), November 07, 1999.

Here is a link to The Contrarian's View

-- bvvb (bvvb@no.no), November 07, 1999.

While I'm not an economist, I'm not comfortable with the mercantilist viewpoint. Money is a facilitator of economic activity, and an enabling mechanism for productivity. It's much more abstract than a physical brick of gold. It permits the division of labor that allows us (as members of an economy) to develop new and better products, and boost living standards.

Yes, there will always be a range of living standards, from the rich to the poor. But this shouldn't disguise the fact that the poor today live longer, healthier, more comfortable lives in many ways than the rich did 100 years ago. Back then, for example, smallpox, leprosy and tuberculosis were common. Today they are nearly unheard of. Back then, dawn-to-dusk hard labor was the rule, today the rare exception. Back then, common factory hours were 12 on and 12 off, today 40 hour weeks are most common. How many people today "owe their souls to the company store"?

Money can be viewed as an abstract measure of the relative values of all we do and all we produce, as determined by the marketplace. As we do more and different (and hopefully better) things, the relative values continue to change. We should focus on what the money is used for and whether (and how) market mechanisms are being inhibited or aided, rather than on what money "is" or where it comes from.

The whole point of the fable of King Midas was that money as a physical object is meaningless, and that viewing money that way is harmful. We are made richer by what we *do*, because we cannot own what we don't produce, nor can we benefit from what we haven't yet learned. Milne regards perhaps the most productive decade in human history as "bad" because the money used to accomplish this was somehow the "wrong kind". And he uses tools developed during that decade to tell us so!

-- Flint (flintc@mindspring.com), November 07, 1999.


In answer to flint who will take acception to anything that I write:

While I'm not an economist, I'm not comfortable with the mercantilist viewpoint. Money is a facilitator of economic activity, and an enabling mechanism for productivity.

(Blah blah blah blah blah.)

It's much more abstract than a physical brick of gold. It permits the division of labor that allows us (as members of an economy) to develop new and better products, and boost living standards.

(Blah blah blah blah blah)

Yes, there will always be a range of living standards, from the rich to the poor. But this shouldn't disguise the fact that the poor today live longer, healthier, more comfortable lives in many ways than the rich did 100 years ago. Back then, for example, smallpox, leprosy and tuberculosis were common. Today they are nearly unheard of. Back then, dawn-to-dusk hard labor was the rule, today the rare exception. Back then, common factory hours were 12 on and 12 off, today 40 hour weeks are most common. How many people today "owe their souls to the company store"?

(Blah blah blah blah blah)

Money can be viewed as an abstract measure of the relative values of all we do and all we produce, as determined by the marketplace. As we do more and different (and hopefully better) things, the relative values continue to change. We should focus on what the money is used for and whether (and how) market mechanisms are being inhibited or aided, rather than on what money "is" or where it comes from.

(Wrong. Before you can focus on what it is to be used for you have to understand what it is , in the first place. That would help. Paper is not money nor can it ever be. Our founding fathers understood that and that is why they penned into the constitution that the governemnt could COIN money. Over time our governemtn has slowly, sureptitiously perverted our 'money' until it is no longer money. Our fiat paper is 'treated' as if it were money, which it is not. It is eveidence of debt.

flint does not understand that, but waxes on about bullshit.)

The whole point of the fable of King Midas was that money as a physical object is meaningless, and that viewing money that way is harmful. We are made richer by what we *do*, because we cannot own what we don't produce, nor can we benefit from what we haven't yet learned. Milne regards perhaps the most productive decade in human history as "bad" because the money used to accomplish this was somehow the "wrong kind".

(wrong again, butthead. It is not the 'wrong kind' of money. It is NOT money at all. And it is not amazing that sub-moronic cretins like you applaud the last decade as the 'most productive' when all that has been accomplished by it is to heap up more and more oily rags in a pile ready to be burned. The credit expansion created by fiat money and a monetarist federal reserve board is our death knell.

Our 'money' was abolished. it was replaced by blue smoke and mirrors. Our fiat paper is merely treated as money. You can treat a tiger like a house-cat, but sooner or later it will kill you.

You think that temporary prosperity created by a scam is a good thing. That is, until it comes crashing down on your head. By temporary, I mean the last 80 years. A ponzi scheme always benefits some people for a while. Then it collapses to everone's chagrin.

Your myopia is laughable but not unexpected.)

And he uses tools developed during that decade to tell us so!

( And the parting shot. He used a product of the economy to warn people so what he is saying can not be true. Another fine and shining example of the living breathing fallacy that is flint.)

-- Flint (flintc@mindspring.com), November 07, 1999.

-- Paul Milne (fedinfo@halifax.com), November 07, 1999.



Sigh. Well, one more attempt:

[Before you can focus on what it is to be used for you have to understand what it is]

That's why I started out with several paragraphs explaining what money is. You didn't read them, you simply responded with blah, blah, blah. But you are quite correct that one must explain what money is first. Before your contentions can be supported in debate, you must address the definition you are disputing. You failed to do so.

[Paper is not money nor can it ever be]

This is what failure to read causes. I did not say paper was money. I said money is an abstract concept to facilitate economic activity. It can take any useful form, from gold to paper to bits on magnetic tape. So long as a measure of relative value works and is agreed upon, the physical nature of that value isn't relevant. You yourself purchase the necessities of your life using bits on tape. It works. You buy real food.

[It is NOT money at all]

This position is flatly contradicted by the entire economy around you. If it works like money, is accepted as money (you spend it yourself), and accomplishes every purpose money was invented to accomplish, then it's money. Saying it's not money while using it as money and deriving every benefit from it that money provides, is a most peculiar position to take. Terms like "irrational" come to mind.

[You think that temporary prosperity created by a scam is a good thing]

I admit I enjoy prosperity. It's not my fault you opted to run away from reality, to live on handouts derived from the efforts (and resulting prosperity) of others. And that prosperity is very real. We all live with it every day, and enjoy it. It didn't happen by magic (or smoke and mirrors) either. It happened because of a thriving and productive economy, which money helped make possible. I'd encourage you to think about this if such encouragement weren't so obviously futile.

[He used a product of the economy to warn people so what he is saying can not be true.]

The tools you use are real. Not fake, not scams, not smoke and mirrors. Now I'm not claiming that prosperity will last forever; it never has. Indeed, it was far more short-lived and cyclical back in your "good old days" before the Constitution was so cruelly perverted [grin]. It is highly likely that the amazing prosperity we've experienced for over 50 years is do largely to an understanding of what money really is. You know, all that blah blah blah that you reject without thinking?

I admire the force of your convictions, and the vehemence with which you defend them. If your convictions reflected reality, I'd admire them even more.

-- Flint (flintc@mindspring.com), November 07, 1999.


Flint, Again, you miss the real point. When a bank creates "money" out of thin air, what did they "DO"? What valuable product did they work so hard to produce? Typing up a check for $100,000. isn't what I call "producing" anything, except the indebtedness of whomever the bank lends it to.

I wish I could go into my study, and type up a check for $100,000. from a blank sheet of paper (I have no money really) and loan it to you, and then exact monthly payments from you and have the law on my side to enforce you paying me back. And if you didn't, I would take possesion of the collateral you put up for me to loan you the money I didn't have in the first place.

That would suit me fine. I would feel like I had put in a good honest days work because I was "intelligent" and I learned from that.

When you ever realize, that any money - (bills or digital) -was borrowed from a BANK, and has to be PAID BACK, with INTEREST, then you will one day see that yes, we are all debtors, and owe our "money" to the Banks, who didn't do anything for the "Money" they lent us, except type up a check on a worthless piece of paper.

Nice work when you can get it.

-- Gregg (g.abbott@starting-point.com), November 07, 1999.


Gregg:

It sounds like you read somewhere that "banks create money" and you have come up with a completely erroneous concept of what this means, or how it works. Suffice it to say that bankers cannot simply write themselves checks based on thin air. No particular, individual bank can lend in excess of its deposits. The banking system (all banks together) do "create money" up to a certain known, fixed multiplier. Yes, this multiplier applies to all new value the economy generates. The purchasing power of a dollar takes this into account.

And it should be obvious to you that banks are businesses. If they could just "create" all the money they wanted, how could they ever fail? Yet they do. It should also be obvious that if banking were a whole lot more profitable than *any* other line of business, people would all go into banking (at least until the competition among all those banks reduced those profits to normal levels). Yet this doesn't happen. Do you ever stop to wonder about these things?

I recommend that you read some books about how banking really works. I caution you that getting your banking "education" from the likes of Andy or Milne or Gold Eagle will provide only a highly biased (and thoroughly discredited) notion.

-- Flint (flintc@mindspring.com), November 07, 1999.


I'd rather not let Flint's first assumptions go unquestioned.

The poor of the world have been under the yoke of industrial-strength European colonialism, industrial-strength American Slavery, and industrial-strength western imperialism since you or any one has been taking good notes. We extract labor and resources from the planet without regard to consequences, other than our own comfort.

So when you say that the "poor" benefit from our consumptive, resource-grabbing, hedonistic lifestyle you might want to preface that with compared to the other damage we have been up to since Columbus eyed his first slaves in 1492.

Peter Sure,

-- Peter Starr (startrak@northcoast.com), November 07, 1999.


Peter:

You raise an entirely different subject, you know. Issues of economic externalities and carrying capacities are important, no doubt. Our choices as to what constitutes comfort, progress or improvement are open to debate, and we may not be choosing wisely.

But this is quite different from the question of whether the money that permits such behavior is an abstract means of relative valuation that facilitates our activities, or is somehow not money at all even though it usefully serves all the purposes that fit the definition of money.

-- Flint (flintc@mindspring.com), November 07, 1999.



Flint You said: It sounds like you read somewhere that "banks create money" and you have come up with a completely erroneous concept of what this means, or how it works. Suffice it to say that bankers cannot simply write themselves checks based on thin air.

{Would you mind telling me any other source where you can get money? I'm sorry if to you it seems erroneous that that is the case. The money under someone's mattress came from a bank at some distant time. All cash and all digital money COMES FROM BANKS. Has a bank ever given away money? No. If they don't give it away, then you are in debt to them because you have to pay it back.}

You said: No particular, individual bank can lend in excess of its deposits. The banking system (all banks together) do "create money" up to a certain known, fixed multiplier. Yes, this multiplier applies to all new value the economy generates. The purchasing power of a dollar takes this into account.

{Yes, I believe the multiplier is at least 17. I therefore would have to have $5882.00 on deposit, to loan you $100,000. To me that's almost "out of thin air". Certainly, not very expensive air. The purchasing power of the dollar has nothing to do with the Fractional Reserve Rate.}

You said: And it should be obvious to you that banks are businesses. If they could just "create" all the money they wanted, how could they ever fail? Yet they do. It should also be obvious that if banking were a whole lot more profitable than *any* other line of business, people would all go into banking (at least until the competition among all those banks reduced those profits to normal levels). Yet this doesn't happen. Do you ever stop to wonder about these things?

{No, I've never wondered about these things. You cannot start a Bank that doesn't use the Federal Reserve System - and their Money. You must play by their rules. It used to be a bank wrote it's own Bank Notes. The Federal Reserve is the real entity that actually does creat money out of thin air, and then they charge Member Banks for the right to use that money.}

You said: I recommend that you read some books about how banking really works. I caution you that getting your banking "education" from the likes of Andy or Milne or Gold Eagle will provide only a highly biased (and thoroughly discredited) notion.

{I've never read anything about banking by Andy or Gold Eagle. Why don't you try and get a copy of the Federal Reserve Act of 1913. You can't. You have to get it from the Board of Governors of the Federal Reserve. I have read many books on banking and talked with many bankers. Do you think there might be a reason this info is not common knowledge? I suggest you enquire a bit more on the subject. It's not what you believe it to be.}

-- Gregg (g.abbott@starting-point.com), November 07, 1999.


Careful Gregg. You'll wake Flint from his simpleminded slumber.

-- a (a@a.a), November 07, 1999.

Gregg:

You are responding without reading. Let's try again.

I said: No particular, individual bank can lend in excess of its deposits.

You said: I therefore would have to have $5882.00 on deposit, to loan you $100,000. To me that's almost "out of thin air".

No, Gregg. If you had 5882.00 on deposit, with a multiplier of 17, you would be able to lend me a maximum of 16/17ths of 5882.00 And no more. You cannot lend in excess of your deposits.

Since the rest of your misconceptions stem from this elementary error, they become logically moot. Now, if you owned TWO banks and had enough customers, you could lend out $100,000. And as I wrote, the purchasing power of the dollar is the practical result.

Please do not confuse the ratio of total dollars to total wealth within an economy, with the function and purpose of those dollars. Where they came from is a separate question from how well they serve their intended purpose.

'a':

I'm impressed not so much with your wit, but with how broadly you apply it. Your contributions to understanding have surpassed all doubt.

-- Flint (flintc@mindspring.com), November 07, 1999.


Here's a stunning eye-opener. All money is created as debt to be repaid at interest. When the government(the people) needs money,in excess of revenues, the treasury receives permission to issue bonds. The Fed(private corp) buys the bonds by increasing the treasury's checking account by the value of the bonds. but there is an interest charge that is not created! The money is spent into the economy. This accounts for about 25% fo the money supply.

Private banks and thrifts create money by by issuing loans. The total value of the loans becomes part of the money supply. This is about 75% of the money supply. They are required to have a small "fractional reserve" to do so. They charge interest of course but this interest charge was not created.

Thus,by simple math, the total debt both private and public is not repayable!

My question is why the power to create money and charge the American people interest is held by private corporations such as the Federal reserve and banks and thrifts? this power should be for the benefit of all.

For a compelling and constitutional solution read "Debt Virus" by Jacques S. Jaikaran

-- (toddjk@aa.net), November 07, 1999.


Flint, Flint, Flint,

I see now why all the financial information ever posted here (this whole Forum) doesn't make you bat an eye.

There are many, many people like you. They are good souls. They have the value system we were taught as kids.

Hard work = fair wage. Work harder to make more money. It's not right to accept pay for something you didn't do. It's not right to profit at the expense of others. Don't let someone borrow something if it isn't yours.

And on and on.

I believe in those precepts.

BANKS DONT!!!!!!!

You believe that they take in money - deposits - and very carefully decide who merits it being loaned to. You - as a borrower - believe that if you don't pay it back, perhaps some poor old person won't get their life savings back when they need it most. If you had borrowed the money from a friend, or business, that might be true. But Banks don't operate that way.

----{You said: No, Gregg. If you had 5882.00 on deposit, with a multiplier of 17, you would be able to lend me a maximum of 16/17ths of 5882.00 And no more. You cannot lend in excess of your deposits. }

By your calculations, if you borrowed $5882.00 from a bank, they would have to have remaining on deposit, $5536.00.

My friend, you must get this. Fractional Reserve Banking means, you only have to have 1 of the Denominator ( one seventeenth ) of the deposit - in our case, 1/17th of $5882 is $346.

You think that 16/17ths of that is still in the BANK?

How do you explain the Trillions and Trillions of dollars loaned out!!! Latest estimates of U.S. Bank exposure in the derivatives Market is about 35 TRILLION. If there was 32.94 Trillion dollars in U.S. Banks, would there be any body that didn't have a Beani Baby in the US? (Got tired of being serious)

Are you getting the picture????

If YOUR scenario is true - HOW COULD ANY BANK GO BROKE?????

Please understand this. For all of our's sake here on the Forum. I think then you will understand better why we are concerned, even without Y2K.

-- Gregg (g.abbott@starting-point.com), November 08, 1999.



It's true that INDIVIDUAL banks can't write loans in excess of the current multiplier of their deposits.

The "money" is created at the top by the Treasury/Fed Reserve combine, and this "trickles down" to your local economy and banks.

Obviously, individual banks can and do go bust. But that doesn't affect the OWNERS of the Federal Reserve System.

-- A (A@AisA.com), November 08, 1999.


I think you guys need to put your reading glasses on. Flint said that he could loan out 16/17 ths of your money. This is the way I understand fractional reserve, furthermore I suppose the alternative would be to not allow people like me and you to get a car or house loan. I assume all countries use the fractional reserve system.

On the other hand, I had an enlightening conversation with my 12 year old daughter the other day. She wanted an explanation of stocks and bonds.

Her: So what is a stock?

Me: Stock is a piece of paper issued by a company in return for money.

Her: In other words, it's a big money making scheme. What is a bond?

Me: A bond is a debt instrument. For example, if the school district wanted to build a new school, they would issue bonds and people would pay money for them. They would promise to pay back the money with interest.

Her: In other words, it's a big money-making scheme.

From the mouths of babes...

-- Amy Leone (leoneamy@aol.com), November 08, 1999.


Gregg:

Any is right, you misread what I wrote. Your calculation is correct, and agrees with mine. The bank would have only $346 left on deposit after that maximum loan, and that's the fractional reserve. It isn't much.

A is incorrect. An individual bank may not lend more than actual deposits, NOT more than the deposits times the multiplier. But banks work in tandem. Gregg, you somehow failed to notice my claim that if you had TWO banks, then the two banks between them COULD lend out as much as $94,118. However, in that case the deposits at the two banks together would total $100,000.

This happens because someone borrowed 16/17ths of the original from one of your banks and deposited it in the second. The second bank then lent out 16/17ths of that to someone who put it into your first bank. This game continues, back and forth, until the total deposts reach $100,000, $94,118 of which is loaned out. This is how the banking SYSTEM creates money through fractional reserve.

It works in practice because the risk (that someone might not repay) is spread out over many people. And banks do indeed try to qualify loans. There is a theoretically optimal default rate, greater than zero, that banks shoot for. Sometimes they miss, and they tend to miss on the dangerous side ( too many risky loans). These banks risk failure.

Yes, I know it's one function of the FED to create money out of thin air, in an effort to maintain a constant ratio between total dollars and total wealth of the economy. If the economy grows, the dollar must deflate unless new ones are created. But individual banks can't create new money just because they feel like it. They are all loaned out the max as it is (the multiplier is fully used) pending a legislated change in the reserve ratio.

Finally, none of this is really related to whether money is "really" money, or whether it's just some kind of fake or illegal stuff. Again, where it comes from is a separate question from how well it works and serves the purpose for which money was invented. I'm not trying to address the mechanics of the banking system -- that's not the point of the original thread. Money is much more a concept than an object. I don't accept that our economy or our prosperity is some kind of imaginary scam because some tiny fraction of our money is physically embodied in the "wrong" form, making it somehow not money at all. As an abstract, money serves its purpose to the degree that the public accepts it as a measure of value. NOT as a value in itself, but as an abstract representation of value. It works, people notice that it works, they use it, they accept it because it works, and it works because they accept it. And this is the core idea, despite those who claim that it shouldn't *ought* to work for whatever reasons their beliefs fix upon.

-- Flint (flintc@mindspring.com), November 08, 1999.


Amy, Well that's the problem. As you understand it and as Flint understands it. Fractional Reserve banking - a FRACTION of the money deposited. As Flint said, the Fractional reserve Rate is the MULTIPLIER. As in MULTIPLY - not DIVIDE by.

Are you people just uninformed or dense or what?

I dont' know how to make it any clearer. If you deposit 1,000.00 in a bank, and they can only loan out $941.00 (16/17ths), at say %10 interest, that means they would make $94.00 in one year on that loan.

Are you kidding me? Plus they are paying interest on the deposit, say at %4. How in the world could they pay anybody's salary?????

This is not rocket science. Is it that hard to understand???? Geeesh.

-- Gregg (g.abbott@starting-point.com), November 08, 1999.


. "...Again, where it comes from is a separate question from how well it works and serves the purpose for which money was invented."

I ask, for what purpose was money created? Answer: to active the production of goods; to facilitate the transfer of the same; to pay taxes and debt; and, to serve as a measure and store of value.

The debt-dominated money creation proccess directly effects "how well it works". Our constant companions are inflation,deflation bankruptcies and unenployment. unpayable debt for the economic arena is a result of the money creation proccess. You must understand, ALL money, except coin that is minted by the Treasury, is created as debt.

yes, it appears at times to work. The skies are blue into eternity. But the national a nd private debt continues to expand.

-- (toddjk@aa.net), November 08, 1999.


Greg - Most banks have more than 1000 on deposit. If you have a 30 year mortgage, you are probably paying about a thousand a month in interest. That is how those salaries get paid. No it isn't rocket science.

-- Amy Leone (leoneamy@aol.com), November 08, 1999.

Still don't understand the money issue, do you Flint? The bankers are corrupt, and that is inarguable, except to idiots.

-- Patrick (pmchenry@gradall.com), November 08, 1999.

Amy is quite correct. Say your bank has $100 million in deposits (a mid sized bank). Say you have lent out $94.1 million of that at 10%, and you are paying 4% interest on those deposits (these are Gregg's rates). So your interest income comes to $9.41 million, and your interest paid comes to $4 million, for a difference of $5.41 million per year.

Out of that $5.41 million you must pay for your physical plant, your taxes, your salaries, your overhead, your equipment, and cover any bad (defaulted) loans.

Your net profit comes to about the same as if you were in any other business. That's how competition works.

Patrick:

I think you're in wrong field. You should go into banking, so that you can be nice and corrupt and pay yourself all that free money. Nobody is stopping you, you know.

-- Flint (flintc@mindspring.com), November 08, 1999.


Flint...

That was a stupid answer, but I expected no more from a staunch defender of the status quo, even as it steals from you as it does the rest of my countrymen. I'm not attacking you personally, hell, I don't even know you. You may be the niceset guy around, but on the money issue, you are illiterate.

Don't worry, most folks don't know any better either. Shame, really...

-- Patrick (pmchenry@gradall.com), November 08, 1999.


If banks only lend out savings deposit funds, how does growth in the M1 occur? Think. Also deposits are liabilities not assests to a bank. You can't lend liabilities.

-- (toddjk@aa.net), November 08, 1999.

Moderation questions? read the FAQ