Bernanke's Next Parlor Trick

[gorkypark]

Re: Bernanke's Next Parlor Trick

The interest is that expansion.

Agreed; the interest has also to be borrowed into existence...this fails in a deflationary environment which is why there are black holes in the bank balance sheets..

[ricket]

Re: Bernanke's Next Parlor Trick

No ... I don't think my points are irrelevant. Rather I suspect that they are relevant and we might even roughly agree on them. However there seems to be a separate and additional point you're making, something about it not serving us well to grant banks a monopoly on making money.

I didnt mean invalid, I mean "irrelevant" in the sense that the entire system breaks down simply because the math doesnt add up. The reality is that you cant "denominate" the gold, goods, services, products etc (and thus extinguish debt) unless you can get a bank to issue you some currency to exhange for Federal Reserve Notes, of which you can pay off the debt. I doubt a bank will take straight gold bullion to pay off debts. No, you'd have to go find a buyer who had some Federal Reserve Notes, sell it to him, and then take the FRNs to the bank and *then* pay off the debt. But those FRNs were issued as an interest-bearing loan somewhere in the system, but the interest to pay back that "debt" is never created, so the FRNs represent a mathematical impossibility.

Another source is the money that remains after a default in debt or when debt is written off (i.e. the "defaulted" principal amount).

My argument is that it doesnt matter about defaults, because defaults are designed into the system (and banks know this). People say that banks hate defaults, but it's a mathematical inevitibility and banks use "defaults" as a way to confiscate property, which in any definition is also called THEFT.

I doubt an accounting class would reliably enlighten on such matters, oh wise one. :rolleyes:

Often times, when I notice what I consider to be an easily corrected error in someone else's statement, I find it more productive to correct the error in my mind and react as if the other person had spoken more accurately. Simply pointing out the alleged error to the other person doesn't usually lead to further useful discussion. One is better rewarded by looking for and then reacting to whatever more valuable insight or thought might lie behind its imperfect expression.

The bank -did- gain wealth in this transaction. It gained $100 worth of Sharky's services. This is the "normal" mildly inflating economy that banks like. Money expands with the goods and services, with banks profiting along the way.

Banks profit from the interest on reliably serviced debt. As ricket reminds us, banks require a continuing expansion in the money supply if the money is based on such debt. The interest is that expansion.

Banks lose from debt defaults, which are the mechanism by which debt based money economies reduce the money supply (deflate).

Again, the banks don't lose from debt defaults. They confiscate real property. They may not be able to sell it and break even, but eventually they will accumulate enough property (through inevitable defaults) to set their own prices at some point in the future.

[ricket]

Re: Bernanke's Next Parlor Trick

Agreed; the interest has also to be borrowed into existence...this fails in a deflationary environment which is why there are black holes in the bank balance sheets..

And in 95% of the cases of loans being issued, the interest is never borrowed into existence. This is the mathematical impossibility (ie "black hole" as you described) that I am trying to help people understand.

This "black hole" can also be called defaults. As in, no matter how hard one works, someone somewhere will be forced into default simply because there isnt any money on anyone's balance sheet that can service the debt (without borrowing more money into existence, that is). Funny, I didnt see that in any of the contracts that I signed. Nothing of the likes "You could default on this contract and we will confiscate the property you offered as collateral, through no fault of your own". I think that's a violation of contract law, in that it's fraud by deception and outright theft.

[gorkypark]

Re: Bernanke's Next Parlor Trick

Again, the banks don't lose from debt defaults. They confiscate real property. They may not be able to sell it and break even, but eventually they will accumulate enough property (through inevitable defaults) to set their own prices at some point in the future.

Bingo.....!

[ricket]

Re: Bernanke's Next Parlor Trick

If I may suggest, take an accounting class. It will help you comprehend the system.

I think this would only help with the technical nuances of how money is moved around in ledger sheets/bank accounts/etc. As to the underlying mechanism, I mastered addition and subtraction in elementary school . Ive known that 1 < 2 for quite a long time now.

Regarding your above statement, transactions are not "denominated" in Federal Reserve notes, they are denominated in "Dollars".

There is absolutely no distinction between the two. Federal Reserve Notes are the exact same thing as USD, no? Every single dollar I have in my wallet says "Federal Reserve Note" on it. Perhaps I wasnt clear, but I have been talking in the closed US Monetary system of USD/FRNs (which are the exact same thing).

It will greatly help you, if you are abled to comprehend how a "Dollar" went from being defined as a definite amount of precious metal to just a conceptual unit.

I understand exactly how it happened. Those in power/control of the government realized they didnt have enough money (ie gold) to spend to get the true power they wanted, so they designed a mechanism where they can literally create money out of thin air and give it to whomever they want without any ramifications. ;) I understand fiat money quite well and think that money should be whatever people want it to be. It doesnt have to be gold, silver, paper, or talley sticks. It's just that *no one entity* should have the authority to decree what is money and what isn't (except the market that is)

[gorkypark]

Re: Bernanke's Next Parlor Trick

.... that I am trying to help people understand.

may help to watch the "Money as Debt" video by Paul Grignon on YouTube..

[ricket]

Re: Bernanke's Next Parlor Trick

may help to watch the "Money as Debt" video by Paul Grignon on YouTube..

Yeah, I watched that one a long time ago actually. I may re-watch it to get a refreshed point of view on it...

[Starving Steve]

Re: Bernanke's Next Parlor Trick

We work an entire lifetime and what do we end-up with? Paper money that is being printed in the trillions-of-dollars, in amounts that are kept secret, with purchasing power diminishing by the day, and with an ignoramous running the Federal Reserve Bank intent upon printing and printing and printing, and lying, and destroying whatever credibility the Federal Reserve Bank used to have.

They couldn't have picked a worse FOMC head than Bernanke. Bush hand-picked this guy, and that says plenty.

Oh yes, housing is going down in price, but taxes and insurance, utilities, and upkeep are racing ahead, faster than ever before. Oh yes, pork is cheaper at the grocery store, but what about everything else? Printing and printing and printing worthless paper money that no-one wants, where is the economic recovery?

And how can there be an economic recovery in America when the nation lives off of the world and exports almost nothing? And solar energy as an energy plan?????????????? A five-year-old could have done better.

The world is going nuclear, and the future is in atomic energy, not solar and not just in wind. The future is in heavy oil, not in hope. The future is in gold, not in paper money and not in derivatives. The future is in savings and investment and exports, not in Bernanke and not in stimulus, not in central bankers and not in bail-outs.

The complete failure of current economic policy and current economic thinking needs to be frankly discussed in every economics classroom in the world. And Bernanke has to be removed, the sooner, the better.

[Starving Steve]

Re: Bernanke's Next Parlor Trick

Bernanke has to be sacked. Why doesn't Obama show leadership NOW? Put Volker in NOW. And clean these inflationists out of the world's universities NOW. This can not go on.

Solar power is not an energy policy. Wind power is not an energy policy, except on the Great Plains.

The world is moving quickly to nuclear. Obama in the U.S. has to show leadership NOW.

[Starving Steve]

Re: Bernanke's Next Parlor Trick

Here is the complete failure of deficit spending in Canada to achieve ANYTHING: $50 billion down the drain and foisted onto the children, and nothing whatsoever to show for it except a beaver buck that is an insult to savers. The economy in Canada is worse than ever.

And where did these economic policies come from? Carney worked for Goldman-Sacks in NYC, and Carney now runs the Bank of Canada and was hand-picked by Bernanke to run the Bank of Canada.

And Flahrety, the Finance Minister of the Govn't of Canada run by the Tories--- the neo-cons, Bush's bunch in the U.S.--- ran a deficit of $34 billion for no reason whatsoever except that the Putz from Princeton insisted upon it. And now Canada has nothing to show for its deficit-spending but a mess, and $50 billion may be the figure for 2009.

Go read the story: "Flaherty denies deficit pledge 'not realistic'". Go Google the story. Or go do a search right now on Yahoo.

Every student in these economics classes needs to get up and challenge this inflation deficit-spending curriculum. There is not one shred of evidence that Keynsian economics works because of deficits and inflation; it works because of giving people jobs building badly needed things such as bridges, roads, buildings, dams, power plants, pipelines, canals, seaways, etc.

The Bank of Japan reports that Keynsian economics was a complete failure in Japan. Why didn't Bernanke listen? Why didn't Princeton and Stanford take note of the failure of Keynsian economics in Japan?

And why aren't common people being given jobs right now by governments? What the hell is going on? We do NOT want inflation nor deficits; we want jobs. We do not want derivatives and bail-outs. We do not want trickle-down, nor stimulus. And governments can create public works jobs, but they don't want to. What kind of thinking is that?

[touchring]

Re: Bernanke's Next Parlor Trick

And why aren't common people being given jobs right now by governments? What the hell is going on? We do NOT want inflation nor deficits; we want jobs. We do not want derivatives and bail-outs. We do not want trickle-down, nor stimulus. And governments can create public works jobs, but they don't want to. What kind of thinking is that?

The Singapore government has been creating a lot of menial jobs recently to suck up laid off people. Earlier this year, they also offered to pay 1 mth's worth of wage for every worker if companies retained them till the end of the year.

Lately, there were rumors that foreign banks like Citibank were paid to hire new graduates - the government paying for their new wages while they work for the bank. This would have created a lot of controversy if it happened in other places.

[Sharky]

Re: Bernanke's Next Parlor Trick

Yes, but that rarely happens. Seriously, your example is the one that sounds like a myth.

Where on this planet are banks just hiring people left and right to do random odd jobs?

Really? What about all of the tellers they hire? What about all of the things they buy? All of those expenses come from income (interest), which is recirculated into the economy.

You are also assuming that every individual who takes out a loan works for an entity (such as a bank) that creates the money and receives the interest payments that can then be "recycled" so to speak, for labor or services performed by the borrower.

No, I'm not. The effect is the same if the bank simply spends its interest income into the economy.

This is obviously flawed, as only banks can create money (at least denominated in Federal Reserve Notes) that can then be added to anyone's bank account or balance sheet and private employers do not receive interest payments from their employees.

Banks don't create FRNs. They create credit money, which can be exchanged (by the Fed) for FRNs.

If this were true, why is Ben acting as if a deflationary environment were kryptonite for the debt-as-money system?

According to Ben himself, the reason he and the rest of the banking system are terrified of deflation is because it eventually implies negative interest rates. With negative rates, banks would be paying their customers to make loans. Banks would therefore stop being the massively profitable institutions they used to be.

There is absolutely no distinction between the two. Federal Reserve Notes are the exact same thing as USD, no? Every single dollar I have in my wallet says "Federal Reserve Note" on it.

Dollars and FRNs are not exactly the same thing. FRNs represent a liability with the Fed. Credit money does not.

may help to watch the "Money as Debt" video by Paul Grignon on YouTube..

No! That video is full of incorrect assertions, and will just end up leading you down the wrong path and confusing you. Try this one instead: http://www.youtube.com/watch?v=xNehYxy77RI

[Mango]

Re: Bernanke's Next Parlor Trick

I got a message back telling me that my message wasn't delivered--but it's still trying.

Turned out that Counterpunch listed the wrong address suffix. He was at msn.COM not the listed msn.net.

He replied right away with the correct address. He reads iTulip but not as often as he thinks he could/should.

Also referred me to a blog called Sudden Debt. It looked good for us beginners. http://suddendebt.blogspot.com/2009/...inflation.html

[thousandmilemargin]

Re: Bernanke's Next Parlor Trick

Old system:

Fed creates money out of thin air as it loans money to banks, who loan it to consumers, who spend it on SUVs and real estate speculation. Banks skim off fat profits.

New System:

Fed creates money out of thin air as it loans money to banks, who buy bonds, in effect loaning money to the Government, which spends it on pork barrelling, payoffs and makework schemes for social activists. Banks skim off fat profits.

The funny thing is that the markets only seem to worry about "monetarization" of debt if the Fed buys bonds directly with newly created money. If they create money out of thin air and loan it to JPM, and JPM buys bonds, then that's just the system at work, nothing to see here folks, move along.

Mish and Steven Keen will tell you that inflation can't happen because the system for transfering newly created money into the economy has broken down - the banks aren't lending.

But the banks ARE lending - to the government. That's what happens when you buy Treasuries - you're loaning money to the government. Duh.

So if the government is willing to step into the shoes vacated by the consumer and start spending, you have yourself a new mechanism for the transmission of inflation.

The current deflation environment is explained by the fact that it takes a long time for goverment spending to get moving - very little of the $700 billion stimulus package has made it out into the economy yet, not that it's much money anyway. I'd guess it will be another 12 months before the goverment starts to really hit its stride and starts to borrow and spend a trillion per quarter. First there needs to be a political environment that makes borrowing a trillion a quarter sounds like a GOOD IDEA - screams of "Do something, do something, anything!".

Look for that after the next leg down. People are not that scared yet,mostly in denial, you need real terror to generate enough goverment borrowing to create inflation.

[Slimprofits]

Re: Bernanke's Next Parlor Trick

The funny thing is that the markets only seem to worry about "monetarization" of debt if the Fed buys bonds directly with newly created money. If they create money out of thin air and loan it to JPM, and JPM buys bonds, then that's just the system at work, nothing to see here folks, move along.

That's a great observation. And I think you can add in the mainstream financial media.