In the comments you said: "It would actually have to find investors. The horror! The horror!
WTF do you think CDs and money market accounts are?" regarding the banks lending out money in the full reserve banking system.
I'm having trouble connecting the dots, but how is it that investment spending loans don't create inflation (or at least not as much) when the money is loaned out?
That is, how is investment spending different from on the services, or capital goods bought with said spending. If, say, for example, I invest $10,000 in a company, doesn't that money become the salary of people who build the goods, or sell the resources and end up in the bank, just like it would with consumer spending?
It depends on what happens to the money. In a fractional reserve system, the money is loaned out AND available by the depositor, so it exists twice. With a time deposit, the depositor can't take out the money until the term is up.
All in favor of criminalizing Fractional Reserve Banking? It sounds like fraud to me. If I lent out money, and wrote a check for a portion of it (money I don't have), that's fraud!
Also relavent (because it involves inflation, which is worsened by Fractional reserve banking and because I don't want to separate those out into other threads when they're so similiar): Our debt to China. I hear Peter Schiff going on and on about our debt to China and Japan, and how if they weren't financing us, we'd feel it.
I've written to you at least once before about this and didn't get a response:
If the Trade Deficit is good because it's the same as us being subsidized by other countries, what is Schiff bitching about?
Unless of course I already answered the question when I asked about how if it puts us in debt, as it subsidizes us.
In that's the case, disregard the question.
A thought/idea: It may seem like its too late, but I disagree. It's never too late!
Here's how we get out of debt and back to freedom:
1. [Insert all of Harry Browne's policy ideas listed in his book Why Government Doesn't Work here]
2. Abolish The Federal Reserve and outlaw Fractional Reserve Banking (along with whatever Sweden did that made them so awesome at banking: 1 failure in 70 years is awesome).
3. Get back on a 100% Gold Standard (or something) via free market, private money (suggested by Ron Paul with examples).
4. Federal Government's role: Federal Courts, President and the cabinet, Congress and the Military. Local Government: courts and police. State government deciding laws governing their internal affairs. Ideally though, said laws would only apply to force and fraud, with varying punishment/respiration of course. Oh, and allow it so that people can opt out of paying taxes for private counterparts if they want (no government monopolies: That's part of what got us into this mess in the first place).
Now I know Peter Schiff says "The Dollar is overvalued" however, as the extra money from fractional reserve banking is taken out of circulation, the money supply would temporarily decrease, causing a revaluation of the dollar.
From the model in your video about recession and GDP:
GDP = C + I + G + X
As the dollar gains value, it would cause C to greatly decrease and I to greatly increase, spurring production of goods and services (even moreso if we abolish ALL government regulation). As this happens, the cross point of short run A. Supply and A. Demand would likely cross at a point to the left of the LR A. Supply curve (because of the taxes on consumption, but not saving/investment). Because our economy is now producing more than we're consuming, we'd be able to export the extra (higher quality) goods and pay back the balance sheet and possibly our entire external debt.
With the only Federal source of revenue being a single Fair Tax of about 10% (at first; it would decrease with the debt) and the selling of government owned land (after government forgives all self-owed debt), we should be able to pay back our debts. After the debt is payed back, a national excise/tariff on all goods and services of 1% (or less) federally should be good.
And yes, I'm a nerd for this stuff. :P
About the China thing:
Remember that the US policy is to devalue the dollar on the exchange market, making foreign goods more expensive. China doesn't want that to happen. So they create yuang out of thin air (inflating their currency) and use it to purchase dollars on the exchange market. They then sit on the dollars and the exchange rate goes the other way.
I'm not sure I understand how the buying foreign currency works, however, I would imagine this insanity wouldn't happen if we were on a gold standard.
Of course not.
Quote from: MrBogosity on July 01, 2009, 09:01:06 PM
About the China thing:
Remember that the US policy is to devalue the dollar on the exchange market, making foreign goods more expensive. China doesn't want that to happen. So they create yuan out of thin air (inflating their currency) and use it to purchase dollars on the exchange market. They then sit on the dollars and the exchange rate goes the other way.
The following is something read on Yahoo answers about the debt we owe China. It's still small potatoes compared to our:
1. Unfunded Medicare & Medicaid Liabilities (> $86 trillion)
2. Unfunded Social Security Liabilities (> $13 trillion)
3. Federal Debt (> $11 trillion)
It shows that that's not always the case.
"According to Ron Paul, a member of the house banking committee, we owe China about 2 & 1/2 trillion American dollars.
China gets American dollars when they sell us stuff made in China. Instead of sitting on the dollars
they buy American interest bearing Treasury Bills & Treasury Bonds, which would have different maturity dates. These Gvt. issues can also be rolled over when the maturity date arrives.^1
It's a distinct possibility that it may never be paid off or paid back because the numbers are so high.^2
These American dollar debt obligations can be sold or traded by China at any time provided a buyer is found.^3
If the Fed is ordered by Congress to buy them back, it would probably be at a very deeply discounted price, which would show the worlds bankers exactly how unsound dollars have become.
If the Fed buys huge amounts of Treasury debt, it can be assumed the national debt {about 9 trillion dollars} would be owed to the Fed, which apparently is owned by the wealthiest bankers in the world, not the American people.
Now do you see why Ron Paul wants to abolish the Fed?" - Yahoo Answers from 2 years ago.
1. OK, to make this not a problem we just need to get rid of regulation in the USA such that we can produce the wealth to pay back said bonds. Also, back up, sit on the dollars? Umm...hello, ever heard of "foreign exchange markets"? Whenever we buy an import, the seller is paid in their own country's currency because of it. Unless it's the currency markets buying the bonds with the money...
2. Once again, small potatoes compared to the other debts we have. Also, why does our government have the ability to issue bonds? wtf?
3. Sounds like a job for the gold standard. Seeing as how its the government selling the bonds, if we defined the values in terms of gold, we could simply exchange these for gold (or other commodities) if we had a trade/account deficit.
Personally I think the China issue is overblown, I don't care what Schiff says, the numbers just don't add up to it being as big a deal.
Back to the trade deficit issue; It sounds like while it DOES give us debt obligations as Peter Schiff seem to say, while also acting to subsidize us as you say.
From what I understand, a trade deficit is something measured in dollars (or via the same unit of currency for consistency), not by the number of each unit of currency traded. For example, say if the USA and England each traded, such that the USA exported $100 of goods, and imported 50 British Pound Sterling to the UK, assuming an exchange rate of 2 USD = 1 BPS, that's a trade deficit of zero, because the amounts imported and exported are of the same value (100 USD (export) - 100 USD (import) = 0 )
Whereas if it went like this:
USA w/ England: imports (from England) = $200 (or 100 BPS) and exports (to England) = $100; that's a trade deficit of $100, again going by the values exchanged, not the currency. As Henry Hazlitt pointed out, this can be good because the British now have dollars with which they can now trade for American goods/services, but I wish he mentioned the foreign currency markets to make his point more modern in the second edition.
I apologize for the outburst and the unruliness of this post. This is just something that irks me.
Whoo!
Sorry if I went off in that last post.
Well, for the heck of it, I'm going to post some arguments for Inflation, and why they're horseshit. Slightly off topic, but still related as fractional reserve banking increases inflation.
1. Without inflation, there would be no economic growth
Growth during the time we were on a gold standard was about 4%. Compared to about 2.9% with inflation, over the last 30 years. What's more, GDP has been constantly mucked around with, so the numbers are even further apart than they appear.
2. Without inflation, people would spend less, less spending means less jobs, this decreases aggregate demand even more, with decreases jobs even more, just like in the great depression.
False dichotomy. Just because we're not inflating the money supply doesn't mean it will decrease either, or that spending will decrease. Just look at computers. They constantly fall in price, yet people still buy them.
The Great Depression was caused by the Fed taking money out of circulation, while the Federal government put wage and price controls up. With prices unable to fall with the decrease in money supply, it lead to the inevitable result of mass unemployment.
This also relies on the false premise that spending is what drives an economy. It is production, spurred by investment, and yes, savings that creates growth and stimulates the economy.
3. Without inflation people would make less. (I shit you not, this was a real argument put forth by my economics professor.)
Yes, but it won't be worth as much. This assumes that everyone gets to use the newly created money at the same time, when that isn't the case. It's the banks, government, and politically connected corporations that get to use said money at its full value first, therefore they benefit, meanwhile, most of us are making roughly the same amount, while having to pay extra for most everything else (inflation tax).
A question on a site:
Q: "You live in a free market economy destroyed by corruption and price-fixing. Your livelihood is put in jeopardy by the decisions of politicians who care not for your suffering. You are a member of a disposable society, with no sense of value or community."
a: "That about sums it up."
b: "Certainly not! Everything is FINE!"
c: "That's why I smoke so much pot."
d: "You're really bumming me out, man."
What I said to say:
"*facepalm* Price-fixing doesn't happen in a free market. That ONLY happens with government. Man, how stupid can some people get? As for corruption, that's why we have a rule of law in the free market. To punish the initiation of force and fraud. It's really disheartening to watch these immature socialists try to cherry pick things to be in their favor, and play the martyr."
Throgar: "Price-fixing doesn't happen in a free market. That ONLY happens with government.
The question doesn't say that a free market economy includes price fixing and corruption. It says that the free market economy in question has been destroyed by price-fixing and corruption."
sing_le: Um,Senbonz,have you never heard of cartels and collusion?
guardianbob: "Cartels are inherently unstable. Heck, OPEC can't keep their taps closed (and they use guns!). The temptation to break the cartel and rake in millions/billions is just too good." (If that means what I think it does: YES! Someone who knows what they're talking about. :D )
JaronK: "Price fixing ABSOLUTELY happens in a free market economy. The government is the only check that keeps it from happening. Anyone who doesn't know this simply doesn't know their history. A good economy must be regulated, but not strangulated, by an appropriately powerful government. Too much government control can destroy an economy, but we already know from past experience that too little does the exact same thing (see American history, with the boom and bust cycles and robber barons)."
I facepalmed when I read this last comment. This guy doesn't have a damn clue what the hell he's talking about.
His argument is basically a baseless claim with nothing backing it, coupled with a Golden Mean Fallacy.
We got the worst boom and bust cycles with the addition of fiat currency, and wouldn't have had ANY if the government didn't prop up banks using Fractional Reserve Banking. As for the "robber barons"...umm...that's what they did: With GOVERNMENT support. The ones that didn't have as much of that provided vastly cheaper products causing the greatest increase in people out of poverty either before or after!
Rockefeller and his company caused the price of Kerosene to drop in price dramatically so that even the poor could afford it.
As for cartels and price gouging from monopolies, as Tom Woods said, the kicker is, it didn't happen. Going back to Rockefeller, he just couldn't drop the price to get rid of all the competition. And when he tried to raise them again, they came back with a vengeance.
When he tried buying them off, all that did was create a market for start ups.
Not to mention how, as ConfederalSocialist has eloquently pointed out, those regulations are what makes it HARDER for start ups to undercut those monopolies. When that happens, you get fucktards like JaronK bitching saying: "See! The free market causes monopolies!"
As for the cartels deal, they only last until someone gets greedy, or a new start-up comes in to undercut them.
This is basic economics for crying out loud.
As for the point he made about "the market being destroyed by it".
Ehh...
I suppose... Though the writer could have worded it better.