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Author Topic: Looks like we'll get a twofer
Pyrtolin
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quote:
Originally posted by Pyrtolin:
So the basic contention is that because some of the lending banks assets came from a deposit from the Federal Reserve, which is a separate entity, with the legal authority to do that, it was not valid money that the bank had, because the Justice of Peace decided to assert that they were the same institution and thus confuse the specific distinctions between them.

The Fed does create money- thats where our supply of money comes from. That doesn't change the fact that the bank had to have the cash on deposit (from the Fed, in this case, which it would have to pay interest on that deposit to, just like any other deposit) to make the loan. The lending bank didn't make the money from nowhere, it made it from the deposits it had, which included Fed deposits to maintain the money supply.

That's about like saying that a farmer creates water from nothing when he pays a city water system to pipe in water for irrigation instead of waiting for it to fall from the sky.

It's also worth noting that this decision didn't hold up to any appeals, both because it didn't have any ground to stand on and because it was well out of the authority of the court that made it.
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Colin JM0397
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Of course it didn’t stand up on appeal. Can’t have the peasants getting all uppity and not paying their tithes to the massa! Besides, the overturn on appeal has absolutely no bearing on the gentleman accurately describing in recorded testimony how the game works, and that is the point, not the final decision of the higher courts.

To the greater point, this says it all: http://www.youtube.com/watch?v=W1DchGc07TY&feature=player_embedded

All money in the US comes into existence through loan/debit, period. Even that 10% reserve is owed back, eventually, to the Fed. The CARTEL system uses the economic downturns to grab hard assets at pennies on the dollar, and the band plays on…

Beyond that, it's a pointless back and forth. My numbers can beat up your wimpy numbers any day of the week.

[ August 17, 2010, 09:04 AM: Message edited by: Colin JM0397 ]

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Colin JM0397
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Hey, whadayaknow - it's available in PDF for free:
http://mises.org/books/desoto.pdf

Must be where Py craftily read a page or two and pronounced 800 pages of historical evidence and mathematical proofs incorrect on nothing more than his word.
[Roll Eyes]

If anyone wants some good historical background on how loans (and thereby the fractional system) grew from banks being originally just depositories, see the section "WHY IT IS IMPOSSIBLE TO EQUATE THE IRREGULAR DEPOSIT WITH THE LOAN OR MUTUUM CONTRACT" pg 169

If you want to look at the greater info from which I was quoting yesterday, read Chapter 4 “The Credit Expansion Process” for a full mathematical breakdown of how a 10% reserve requirement eventually equates to a 900% money expansion.

The math is all there - you can decide for yourselves.

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Colin JM0397
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This is a better quote than the one from yesterday and goes directly at Py's assertion that a duck is not a duck - ie that banks are not engaging in this money creation from nothing mechanism.
From pg 199.
quote:
Herbert J. Davenport, The Economics of Enterprise (New York: Augustus M. Kelley, [1913] 1968), p. 263. Fourteen years later, W.F. Crick expressed the same idea in his article, “The Genesis of Bank Deposits,”Economica (June 1927): 191–202. Most of the public and even some scholars as distinguished as Joaquín Garrigues fail to understand that banks are mainly creators of loans and deposits, rather than mediators between lenders and borrowers. In his book Contratos bancarios (pp. 31–32 and 355), Garrigues continues to insist that banks are primarily credit mediators that “loan money which has been lent to them” (p. 355) and also that bankers loan what they are lent.

They are credit mediators, businessmen who mediate between those who need money for business deals and those who wish to invest their money profitably. Banks, however, may engage in two different types of activities: they may act as mere mediators who bring together contracting parties (direct credit mediation) or they may carry out a double operation consisting of borrowing money in order to later lend it (indirect credit mediation). (p. 32)

Garrigues clearly does not realize that, with respect to banks’ most important enterprise (accepting deposits while maintaining a fractional reserve), banks actually grant loans from nothing and back them with deposits they also create from nothing. Therefore, rather than credit mediators, they are ex nihilo creators of credit. Garrigues also subscribes to the popular misconception that “from an economic standpoint,” the bank’s profit consists of “the difference between the amount of interest it pays on the deposit operation and the amount it earns on the loan operation” (p. 31). Though banks appear to derive their profit mainly from an interest rate differential, we now that in practice the chief source of their profit is the ex nihilo creation of money, which rovides banks with financing indefinitely. Banks appropriate these funds for their own benefit and charge interest on them to boot. In short, bankers create money from nothing, loan it and require that it be returned with interest.



[ August 17, 2010, 10:32 AM: Message edited by: Colin JM0397 ]

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Pyrtolin
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That quote you posted doesn't stand as evidence of anything because it's an assertion based on the author's redefinition of "ex nihilo" to mean "Loans made based on deposits of money loaned to the the depositor." Trying to use that as evidence is begging the question, because you have to accept his faulty principles for it to be a meaningful argument.

And even then, he's still not saying the words that you're trying to put into his mouth. When he says "ex nihilo" he means the process of lending out funds that are on deposit while still promising the depositor access to those funds. That's where his "ex nihilo" creation comes from- the promise to be able to pay the depositor back at any time base on the statistical guess that the depositor will never ask at any time for more than the partial reserve the bank keeps on hand. He's not talking about pulling new currency out of the air (physical or digital), but about using the actual currency for investment purposes while still presenting an account that shows that it can be withdrawn at any time.

And his entire argument is faulty because he tires to assert a definition of "deposit" that doesn't apply in the context of a fractional reserve bank.
His argument falls apart from the very foundation once you accept that people realize from the start that the "deposit" that they make in a fractional bank will be used for lending, and in fact the benefits of such lending are an express part of why they choose to use such a bank.

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Colin JM0397
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You are only relying on your opinion that it is incorrect with absolutely zero proof/evidence otherwise.

It is so or isn't so merely because you claim it to be?
Riiiiiight [Roll Eyes]

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Pyrtolin
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quote:
Originally posted by Colin JM0397:
You are only relying on your opinion that it is incorrect with absolutely zero proof/evidence otherwise.

It is so or isn't so merely because you claim it to be?

Not my opinion, but the basic definition of the terms and the basic math that he presents, as well as the way that what you are claiming doesn't follow at all from what he is actually saying.

The math that he presents is perfectly accurate, but he is very explicitly using "ex nihilo" in a completely different sense from the meaning that you are trying to apply to it, and nowhere in what he says does he support your assertion that a bank could, in a single transaction, transfer funds that they don't actively have on deposit to someone else. A 10% reserve can result in a 10x multiplier factor, but by the time that's reached, all of the created funds are tied up in the intermediary obligations created, and thus can't be give in a lump sump to a third party as a single loan disbursement. Every intermediary loan in the process still involves drawing from the actual currency that's on deposit, multiplying it only serves to time more of the base stock up in reserves and produces diminishing returns on the way. When you hit the point at which the full theoretical multiplier is reached, every penny of the currency now has to serve as a reserve against the stack of deposit obligations. No new currency was created- the only "ex nihilo" creation lies on still allowing the depositors to draw on their accounts as if the bank had not lent any of the money out.

Do you believe that any significant portion of the population does not expect to earn interest from a bank's lending activities with their money when they deposit it in the bank? If you read through the first two chapters of the work, you can see pretty clearly that his entire premise rests on the assertion that deposits and loans must be completely separate things, which is begging the question because a fundamental axiom of fractional reserve banking is explicitly combining them. To accept his premise, you have to actively accept that all people using such a bank do so under the impression that they're distinct and without the understanding that what such a bank calls a deposit is effectively a loan by his definition that they can choose to recall at any time.

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Colin JM0397
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"The math that he presents is perfectly accurate"
Exactly.

Ex nihilo means "out of nothing" or "from nothing"

$1,000 becomes $10,000

It is legalized counterfeiting and it sucks the earning power from the people without them realizing it.

End of discussion.

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Pyrtolin
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quote:
Originally posted by Colin JM0397:
"The math that he presents is perfectly accurate"
Exactly.

Ex nihilo means "out of nothing" or "from nothing"

Exactly. And there's no nothing here. The total quantity of currency remains the same, and each loan is only made from the actual currency that they bank has on hand at any given time. It can only make a $900 loan if it has $1K on hand and no other obligations. IF that money is deposited back with it, it can only make a smaller loan. At no point can it have $1K on hand and go directly from there to making a $10K loan as you've been claiming. The math presented in the book doesn't support that claim either, instead it tries to re-define ex nihilo imply that the value of a depositor's investment must be reflected by actual cash on hand rather than simply the amount that the bank is obligated to pay the depositor should the depositor request payment.

The concept of ex nihilo only applies to the Federal Reserve, and that's because the Fed has explicitly been granted the authority to generate new currency as needed.

quote:
It is legalized counterfeiting and it sucks the earning power from the people without them realizing it.
"Legalized counterfeiting" is an oxymoron. Counterfeiting is the creation of currency by someone without the legal authority to do so.

There is no counterfeiting by the commercial bank. No currency is being created- and in fact the limitations of currency are explicitly what creates the multiplier ceiling. At some point there isn't enough currency left to be able to meaningfully split into a reserve and lendable currency.

And again, opposite of what you claim, people's earning power is increase because not only is more currency enabled to remain liquid for them to actually have a chance to earn, but they're able to earn interest on even the smallest of investments without having to risk losing the money, never mind being prevented from accessing it when they need it. Meanwhile they're protected from the natural deflation and progressively lower wages that increased population and productivity would cause, especially when combined with ever greater supplies of currency being locked away in vaults instead of circulating and facilitating economic growth.

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Colin JM0397
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Orwell would be proud.
Your misdirection is a complete line of BS; I never made any such claims and I'm not going to play your game of strawman and misdirection footsey.

It's all there in plain English for everyone to read who wants to invest the time in a little fractional reserve education.

On that note, for anyone wanting a good lesson on all this, don't let the 800 pages stop you from looking - you can get a good idea from reading a select few sections - mainly chapters 3 and 4.

[ August 17, 2010, 04:26 PM: Message edited by: Colin JM0397 ]

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Pyrtolin
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You did not say this?
quote:
The bank is making out because, in the running example, they only had to have 10% on hand to begin with in order to make a loan for the other 90%. It is a bait and switch, they use your property title as the collateral for the other 90%. They then put the property title on their books to show as the balancing asset. In other words, the title is what they use to create the funds loaned out. When you pay in full, the bank just made 90% without even considering the interest.
You very explicitly made the claim that a bank can somehow disburse a loan while only actually having 10% of the loan's value on hand. Your statement above is flat out wrong, and what you describe in that quote is not even remotely the process described in the book.
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Daruma28
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You very explicitly made the claim that a bank can somehow disburse a loan while only actually having 10% of the loan's value on hand. Your statement above is flat out wrongLMAO

Pyrtolin, now you're grasping at straws. Did you not read the court testimony? Or are you incapable of comprehending it? Or are you purposely dissembling here because you are a useful idiot?

The basic point of the link I provided was that the Federal Reserve Chairman of the Minnesota Region basically admitted that money is "created" when the bank enters it into their ledger. He said that under testimony in a court of law.

BTW - After this decision, the judge was found 6 months later, poisoned to death. The highest levels of the money-creation racket system ALWAYS make sure that anyone who dares to defy their system end up dead.

Read the relevant passage of testimony again:

In other words, when say like the First National Bank of Montgomery wants to make a loan of one hundred dollars; if it has a reserve of seventeen dollars on deposit with our bank, it can make a loan of a hundred dollars?

A. If the reserve bank decides to lend it, yes, this is discretionary.


It can't be any more plain.

You cannot refute the testimony of the Federal Reserve Banker in a court of law, so you try and misdirect with a barrage of overly-wordy Engfish.

BTW, did you google Engfish?

[LOL]

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TomDavidson
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quote:
The basic point of the link I provided was that the Federal Reserve Chairman of the Minnesota Region basically admitted that money is "created" when the bank enters it into their ledger...
This wasn't even considered an "admission," you realize. And the guy found poisoned wasn't a judge, either. He was a small-potatoes JP.
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Pyrtolin
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quote:
The basic point of the link I provided was that the Federal Reserve Chairman of the Minnesota Region basically admitted that money is "created" when the bank enters it into their ledger. He said that under testimony in a court of law.
The Fed Chair admitted that the Fed creates money. Because that's what it's intended role is. The JoP twisted that into asserting that the commercial bank creates money by actively trying to assert that they were one business rather than two separate entities with different roles.

quote:
In other words, when say like the First National Bank of Montgomery wants to make a loan of one hundred dollars; if it has a reserve of seventeen dollars on deposit with our bank, it can make a loan of a hundred dollars?
As above. If the bank deposits $17 of its assets on hand with the Fed as its reserve, then it can easily out $100 from its cash on hand. Nothing was said about the loan in question coming from nothing, only that the bank had to show that it had put so much on reserve before being allowed to put the rest into a loan (though it would appear that he accidentally calculated based on the loan rather than the needed deposit because of way the question was framed- with a 17% reserve, he'd have needed a deposit of $120.50 of which he'd have to put $20.50 on reserve to allow for a $100 loan) Reserves are money put aside that explicitly can't be loaned, so the fact that the loan is coming out of cash on hand rather than out of the reserve that's required to be kept aside is implicit to the statement.

quote:
BTW, did you google Engfish?
Repeating ad hominem arguments over and over doesn't suddenly make them pertinent to the topic of discussion. And you're actively mistaking writing that's long because of necessary detail with writing that's overburdened with irrelevant or redundant descriptions.
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Daruma28
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quote:
Originally posted by TomDavidson:
This wasn't even considered an "admission," you realize. And the guy found poisoned wasn't a judge, either. He was a small-potatoes JP.

Semantics. The point is what the testimony under oath revealed.

quote:
Originally posted by Pyrtolin
You very explicitly made the claim that a bank can somehow disburse a loan while only actually having 10% of the loan's value on hand.

No, the bank can "disburse" a loan by having 10% deposited in the Fed Reserve Bank. The other 90% is a number they enter into their accounting system. If the borrower wants the cash, the bank than issues a cashier's check for the amount. But the bank did not have the 90% cash to back up the initial loan.

quote:
Originally posted by Pyrtolin
The JoP twisted that into asserting that the commercial bank creates money by actively trying to assert that they were one business rather than two separate entities with different roles.

No, you're twisting precisely what the testimony revealed. So long as the bank has the required 10% reserve on deposit at the Fed's regional branch, they are allowed to create a loan.

quote:
Originally posted by Pyrtolin
Repeating ad hominem arguments over and over doesn't suddenly make them pertinent to the topic of discussion.

Oh the irony... It is not ad hominem. Let's call it constructive criticism for the sake of the rest of us that continually wade through your overwrought prose.

And you're actively mistaking writing that's long because of necessary detail with writing that's overburdened with irrelevant or redundant descriptions.

This is the very definition of Engfish, you dolt! [Exploding]

- why yes, the dolt was certainly ad hominem. [LOL]

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Pyrtolin
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quote:
Originally posted by Daruma28:
quote:
Originally posted by Pyrtolin
You very explicitly made the claim that a bank can somehow disburse a loan while only actually having 10% of the loan's value on hand.

No, the bank can "disburse" a loan by having 10% deposited in the Fed Reserve Bank. The other 90% is a number they enter into their accounting system. If the borrower wants the cash, the bank than issues a cashier's check for the amount. But the bank did not have the 90% cash to back up the initial loan.

Please show me where that is explicitly stated in the testimony rather than being meaning that you're inserting after the fact to try to support your point.

The bank issues a check. If someone walked into the bank to cash the check, the bank would have to hand them currency for it and deduct the vault from its cash on hand. If the person cashed it with another bank, the originating bank would have to transfer that bank the equivalent amount of currency and deduct the value from its accounts. The very nature of a cashiers check means that the bank explicitly has enough funds on hand to honor it when it is cashed.

And what point is the local bank manager asked whether or not he makes the loan from cash on hand? It's the Fed Chair that says that the Fed creates money. It's the local bank owner that say he has to have a certain amount on reserve before he can make a loan. The JoP explicitly states in his summary that he had to consider them one entity for the logic of the findings to stand. The Fed creates money. The bank loans from cash on hand, limited by the amount it has in reserve.

quote:
quote:
Originally posted by Pyrtolin
The JoP twisted that into asserting that the commercial bank creates money by actively trying to assert that they were one business rather than two separate entities with different roles.

No, you're twisting precisely what the testimony revealed. So long as the bank has the required 10% reserve on deposit at the Fed's regional branch, they are allowed to create a loan.

That was never in the testimony. That's your desired meaning stacked on top of what was actually said. The local bank wasn't asked about where the funds came from, only whether or not it had to meet a certain reserve requirement before being able to disburse the funds.

quote:
quote:
Originally posted by Pyrtolin
Repeating ad hominem arguments over and over doesn't suddenly make them pertinent to the topic of discussion.

Oh the irony... It is not ad hominem. Let's call it constructive criticism for the sake of the rest of us that continually wade through your overwrought prose.
No, lets call it for what it is. Irrelevant sniping and trying to discredit me or my argument on anything but its own merits.

quote:
[ab]And you're actively mistaking writing that's long because of necessary detail with writing that's overburdened with irrelevant or redundant descriptions.

This is the very definition of Engfish, you dolt! [/QB]

I did indeed cite the basic definition of Engfish there as a point of comparison. If you want to explicitly identify places where I've used unnecessary descriptors or inserted irrelevant information, feel free, but that won't make such relevant to the main argument or actually affect the validity any more than your current vague smears are.
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Colin JM0397
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A mind like a steel trap, once it closes...

Py, if you bothered to read further and not get fixated on my initial statement, you would have noticed that I already said the statement was inaccurate - all on my own and without your help, to boot. In fact, I corrected that statement at least twice over the past few days so as to not mislead anyone... anyone paying attention, at least.

[ August 18, 2010, 09:43 AM: Message edited by: Colin JM0397 ]

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Pyrtolin
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quote:
Originally posted by Colin JM0397:
A mind like a steel trap, once it closes...

Py, if you bothered to read further and not get fixated on my initial statement, you would have noticed that I already said the statement was inaccurate - all on my own and without your help, to boot. In fact, I corrected that statement at least twice over the past few days so as to not mislead anyone... anyone paying attention, at least.

My apologies, in that case.

Do you agree, then, that only the Fed is doing any ex nihilo creation of money- that the commercial banks are explicitly lending out of cash on hand, even if some of that cash was deposited by people with other loan obligations that eventually need to be paid back for the loaning institution to be able to fully meet its liability to its depositors?

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Colin JM0397
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[Roll Eyes]
You either have the worst case of cognitive dissonance ever or you are purposefully trying to mislead, misdirect, and discredit a plain, simple fact. Your use of language and crafty misdirection shows you are not an idiot, which makes you worse.

Look at the book again. He has figure charts even a 1st grader can follow.

-1,000,000 on deposit can guarantee a 900,000 loan.
-To do this the bank CREATES a deposit account (from nothing) of 900,000 to draw from.
-They then lend out the 900,000 which zeros out that 900,000 deposit account, leaving the 1,000,000 completely available.
-They also show the 900,000 loan as an asset, so the total amount of assets the bank shows is now 1,900,000.
-Deposit that 900,000 in the same or another bank (doesn't matter where), repeat 9x, and we have our 900% increase without any Fed involvement.

Once the available credit is all tied up, the Fed opens up and kicks some more magic never before existed cash out of their discount window, with no reserve requirement on their part, for that matter. The report I read the other day that has them "releasing", IIRC, 20 billion USD a month to the commercial banks in order to stave off all sorts of economic nastiness.

[ August 18, 2010, 10:21 AM: Message edited by: Colin JM0397 ]

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Pyrtolin
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quote:
-They also show the 900,000 loan as an asset, so the total amount at the bank is now 1,900,000.
This is where you go wrong.

They show the 900K as an asset, yes. Balanced against the $1M _liability_ represented by the deposit account. So they don't add those two together, because they're on different columns of the account book.

The amount that a bank can lend is based on its liabilities plus its capital (which is recorded alongside of its liabilities, not its assets, since its capital represents liability to its actual shareholders), not its assets.

The only way they can increase their liabilities, and thus their ability lend any further, is to get more deposits, investment, or to fold their profit into their liabilities. Their assets reflect how much they've lent our or invested- they can't use assets to make loans.

You're being confused by the fact that, to a bank, those terms mean the opposite of what they do to the average person because the bank sits in the opposite position from the average person- loans it makes represent its source of profit, while deposits it receives are money that it has to repay.

[ August 18, 2010, 10:31 AM: Message edited by: Pyrtolin ]

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Pyrtolin
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quote:
-Deposit that 900,000 in the same or another bank (doesn't matter where), repeat 9x, and we have our 900% increase without any Fed involvement.
But all of that increase is balanced by debt obligations. At no point did a bank actually create new currency or putt from cash that it did not have on deposit. Instead that $1M was able to do 10X the economic work that it would have if the original depositor has spent it instead of putting it in a lock box, all while not forcing the original depositor to have to spend it immediately to keep it moving.

He can access his resources as he needs them, while the actually currency is kept moving and not frozen in a lockbox. In the meantime the bank pays him for the use of his funds, first by not actually having to charge him for its services, and second by returning a share of the investments and loans that it makes on his behalf.

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Pyrtolin
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And what might be confusing you on the asset/liability issue is when he talks about Saxon banking, where the loan is made and immediately placed into a deposit account to be drawn on as needed by the borrower. Anywhere where that form of banking might have been used has been pretty much replaced by credit accounts instead (otherwise people would always have to pay interest on their full credit limit whether or not they had actually used it). The continental tables are more relevant, because those are what are actually used.

[ August 18, 2010, 10:43 AM: Message edited by: Pyrtolin ]

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Pyrtolin
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I'll more clearly add- I do fully agree that the higher level money supplies are expanded by these methods. That is their explicit and freely admitted point. They don't generate more currency, but they do ensure that existing currency doesn't get frozen in the lock boxes of those wealthy enough to horde it.

My contention is that this expansion of the money supply is an essential economic good because it keeps currency in play and allows more people to have a chance to accumulate actual wealth instead of mistaking currency for wealth.

We can argue the merits of the money supply itself, but its begging the question to assert that the reason the fractional banks are bad is because they expand it as if it were accepted de facto that a larger money supply is a problem to begin with.

My contention here would be that the problem lies more in the fact that, along with other factors that make lending too profitable, the baseline currency supply itself hasn't been increased rapidly enough to keep up with our actual growth, and people are forced into involuntary debt because of lack of access to enough money to meet their baseline needs and obligations. If all debt is voluntary and no one is forced to take it to survive or otherwise enable themselves to be self sufficient, then the success or failure of what debts people do have becomes simply a matter of business fortunes and not survival level crises.

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Daruma28
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And you're actively mistaking writing that's long because of necessary detail with writing that's overburdened with irrelevant or redundant descriptions.

Are you incapable of seeing how this sentence of your definition demonstrates precisely what Engfish entails? [LOL]

Since you're writing style has obviously been developed to pander to the intellectual solipsism of the halls of academentia, you are incapable of recognizing your own Engfish.

They don't generate more currency, but they do ensure that existing currency doesn't get frozen in the lock boxes of those wealthy enough to horde it.

No, you tool, they generate DEBT. Debt that sinks the country further and further into insolvency. Debt that entraps people into a lifetime of paying on the interest for this "money."

My contention here would be that the problem lies more in the fact that, along with other factors that make lending too profitable, the baseline currency supply itself hasn't been increased rapidly enough to keep up with our actual growth, and people are forced into involuntary debt because of lack of access to enough money to meet their baseline needs and obligations.

You are so confused. Please tell me you don't teach economics at your institution of Engfish promulgation...

You have a complete failure of understanding what inflation is. We have had 1920% inflation -- the dollar has lost 94+% of it's purchasing power since 1913, because the fractional reserve and fiat cash system has expanded the credit/debt supply of money exponentially!

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Pyrtolin
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And production and overall wealth and the basic standard of living have, as a result, increased to an even greater degree. Of course you're also leaving out that we'd been using fractional reserve banking for over a century at that point, and we didn't shift to a fiat currency for another half century after that. Nor are you factoring in the effects of externally caused inflation such as the 70s where artificial production shortages led to an inability to produce goods fast enough to match existing demand.

You're not even supporting the implicit assertion that the dollar was properly values and distributed at that time. More than that, you're ignoring the hodgepodge of different types of money that used at the time, like mines that only paid workers in company scrip, only good at company stores or for company rent, that they could generate at will and never actually let them lay hands on anything resembling general currency, never mind invest in a useful commodity.

The inflation you're pointing to was necessitated by the increasing rate of population growth and the explosion of industrial production. Without it, there wouldn't have been enough money to go around for basic support and maintain wage levels, never mind enough to fuel growth at the required rate.

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Daruma28
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And your endless Engfish rebuttals continually obfuscate, misdirect or outright deny the reality of the situation.

When you're pinned down, you immediately revert to "Well, it's responsible for so much growth and prosperity."

I get it Pyrtolin. You're a tireless-rebutter, even when the evidence clearly shows how wrong you are. No, scratch that...especially when the evidence clearly shows how wrong you are.

If you think getting the last word in by always writing extensive replies in Engfish to the point where the opposition simply tires out from wading through your overburdened prose means a rhetorical victory, I concede.

You win. [Roll Eyes]

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Pyrtolin
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quote:
No, you tool, they generate DEBT. Debt that sinks the country further and further into insolvency. Debt that entraps people into a lifetime of paying on the interest for this "money."
I fully agree that we've swung to far over to the debt side of the matter. That's why I said that a big part of the problem is too little baseline currency in circulation. And, more importantly that we still force people to go into debt for baseline survival costs. Our economy is growing faster than we feed money into it, and people are forced to take on debt to make up the difference because their incomes aren't growing at an equal rate, in part due to a lack of circulating currency and in part due to tax incentives that make debt more profitable than investment.

We need to do more to drain the economically cancerous trusts that are used to pull ever increasing amounts of money our of the active economy and we need to ensure a minimum income across the board so that debt isn't needed to survive, just to provide additional capital stock for larger ventures with good odds of providing a good return on their investment.

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kenmeer livermaile
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Pyrtolin's not a tool. He's a factory!
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Colin JM0397
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It is funny how several of us have offered up several links, reports, and scholarly works to back up our points, while Py continues to argue his/her/its opinion without a single backing link, report, or scholarly work. As if the tireless rebuttals of one person's opinion are enough…

Victory by the bludgeoning arrogance of a true believer!
He/she who posts last wins?
[Exploding]

---------------------------------
quote:
My contention is that this expansion of the money supply is an essential economic good because it keeps currency in play and allows more people to have a chance to accumulate actual wealth instead of mistaking currency for wealth.
That’s been perfectly clear by you defending the system ad nauseam.
I would actually respect your opinion if you would just come out and say you support the mechanism as it is without these constant misdirections, straw men, etc. But you try to argue that the duck is not a duck, and then say "oh by the way, I really love the sound of that duck quacking. It's so pretty the way it walks and swims on the pond... but it's not a duck, I tell you, it's not!"

Next up for reading assignments: "True Believer" by Eric Hoffer.
http://www.amazon.com/True-Believer-Thoughts-Movements-Perennial/dp/0060505915/ref=sr_1_1?s=books&ie=UTF8&qid=1282224467&sr=1-1

[ August 19, 2010, 09:45 AM: Message edited by: Colin JM0397 ]

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Mike_W
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Essentially, you've argued for 2 pages about the definition of the terms currency and money supply. Reading a whole lot of background isnt going to help a lot unless you can agree on terms.
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Pyrtolin
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You want specific cites? Here's the Wealth of Nations on banking and value:

http://www.econlib.org/library/Smith/smWN7.html#B.II, Ch.2, Of Money Considered as a particular Branch of the General Stock of the Society

Adam Smith on the fact that the fundamental value of wages are only nominally related to any given commodity, but more strongly in how much can be purchased as a result of those wages:
quote:
Though we frequently, therefore, express a person's revenue by the metal pieces which are annually paid to him, it is because the amount of those pieces regulates the extent of his power of purchasing, or the value of the goods which he can annually afford to consume. We still consider his revenue as consisting in this power of purchasing or consuming, and not in the pieces which convey it.
The specific value of money doesn't matter, so long as wages are consistently adjusted to maintain overall purchasing power in relation to the value of the money. "How much is a dollar worth?" is irrelevant as compared to "How much will the going wage for an hour of labor buy?"

And on the basic usefulness of Fractional Reserve banking:
quote:
A particular banker lends among his customers his own promissory notes, to the extent, we shall suppose, of a hundred thousand pounds. As those notes serve all the purposes of money, his debtors pay him the same interest as if he had lent them so much money. This interest is the source of his gain. Though some of those notes are continually coming back upon him for payment, part of them continue to circulate for months and years together. Though he has generally in circulation, therefore, notes to the extent of a hundred thousand pounds, twenty thousand pounds in gold and silver may frequently be a sufficient provision for answering occasional demands. By this operation, therefore, twenty thousand pounds in gold and silver perform all the functions which a hundred thousand could otherwise have performed. The same exchanges may be made, the same quantity of consumable goods may be circulated and distributed to their proper consumers, by means of his promissory notes, to the value of a hundred thousand pounds, as by an equal value of gold and silver money. Eighty thousand pounds of gold and silver, therefore, can, in this manner, be spared from the circulation of the country; and if different operations of the same kind should, at the same time, be carried on by many different banks and bankers, the whole circulation may thus be conducted with a fifth part only of the gold and silver which would otherwise have been requisite.
And now explaining that the balance should be used for external investment:
quote:
Let us suppose, for example, that the whole circulating money of some particular country amounted, at a particular time, to one million sterling, that sum being then sufficient for circulating the whole annual produce of their land and labour. Let us suppose, too, that some time thereafter, different banks and bankers issued promissory notes, payable to the bearer, to the extent of one million, reserving in their different coffers two hundred thousand pounds for answering occasional demands. There would remain, therefore, in circulation, eight hundred thousand pounds in gold and silver, and a million of bank notes, or eighteen hundred thousand pounds of paper and money together. But the annual produce of the land and labour of the country had before required only one million to circulate and distribute it to its proper consumers, and that annual produce cannot be immediately augmented by those operations of banking. One million, therefore, will be sufficient to circulate it after them. The goods to be bought and sold being precisely the same as before, the same quantity of money will be sufficient for buying and selling them. The channel of circulation, if I may be allowed such an expression, will remain precisely the same as before. One million we have supposed sufficient to fill that channel. Whatever, therefore, is poured into it beyond this sum cannot run in it, but must overflow. One million eight hundred thousand pounds are poured into it. Eight hundred thousand pounds, therefore, must overflow, that sum being over and above what can be employed in the circulation of the country. But though this sum cannot be employed at home, it is too valuable to be allowed to lie idle. It will, therefore, be sent abroad, in order to seek that profitable employment which it cannot find at home. But the paper cannot go abroad; because at a distance from the banks which issue it, and from the country in which payment of it can be exacted by law, it will not be received in common payments. Gold and silver, therefore, to the amount of eight hundred thousand pounds will be sent abroad, and the channel of home circulation will remain filled with a million of paper, instead of the million of those metals which filled it before.
Note here, that the primary problem was that, at the time, paper currency wasn't useful abroad because it was too far away from the reputation of the banks that earned it. Technology has solved that problem and anyone in the world can easily exchange currencies directly or otherwise access foreign banks from across the world to make purchases in other countries.

And here he is on how credit from such banks is essential to business growth:
quote:
The commerce of Scotland, which at present is not very great, was still more inconsiderable when the two first banking companies were established, and those companies would have had but little trade had they confined their business to the discounting of bills of exchange. They invented, therefore, another method of issuing their promissory notes; by granting what they called cash accounts, that is by giving credit to the extent of a certain sum (two or three thousand pounds, for example) to any individual who could procure two persons of undoubted credit and good landed estate to become surety for him, that whatever money should be advanced to him, within the sum for which the credit had been given, should be repaid upon demand, together with the legal interest. Credits of this kind are, I believe, commonly granted by banks and bankers in all different parts of the world. But the easy terms upon which the Scotch banking companies accept of repayment are, so far as I know, peculiar to them, and have, perhaps, been the principal cause, both of the great trade of those companies and of the benefit which the country has received from it.

Whoever has a credit of this kind with one of those companies, and borrows a thousand pounds upon it, for example, may repay this sum piecemeal, by twenty and thirty pounds at a time, the company discounting a proportionable part of the interest of the great sum from the day on which each of those small sums is paid in till the whole be in this manner repaid. All merchants, therefore, and almost all men of business, find it convenient to keep such cash accounts with them, and are thereby interested to promote the trade of those companies, by readily receiving their notes in all payments, and by encouraging all those with whom they have any influence to do the same. The banks, when their customers apply to them for money, generally advance it to them in their own promissory notes. These the merchants pay away to the manufacturers for goods, the manufacturers to the farmers for materials and provisions, the farmers to their landlords for rent, the landlords repay them to the merchants for the conveniencies and luxuries with which they supply them, and the merchants again return them to the banks in order to balance their cash accounts, or to replace what they may have borrowed of them; and thus almost the whole money business of the country is transacted by means of them. Hence the great trade of those companies.

By means of those cash accounts every merchant can, without imprudence, carry on a greater trade than he otherwise could do. If there are two merchants, one in London and the other in Edinburgh, who employ equal stocks in the same branch of trade, the Edinburgh merchant can, without imprudence, carry on a greater trade and give employment to a greater number of people than the London merchant. The London merchant must always keep by him a considerable sum of money, either in his own coffers, or in those of his banker, who gives him no interest for it, in order to answer the demands continually coming upon him for payment of the goods which he purchases upon credit. Let the ordinary amount of this sum be supposed five hundred pounds. The value of the goods in his warehouse must always be less by five hundred pounds than it would have been had he not been obliged to keep such a sum unemployed. Let us suppose that he generally disposes of his whole stock upon hand, or of goods to the value of his whole stock upon hand, once in the year. By being obliged to keep so great a sum unemployed, he must sell in a year five hundred pounds worth less goods than he might otherwise have done. His annual profits must be less by all that he could have made by the sale of five hundred pounds worth more goods; and the number of people employed in preparing his goods for the market must be less by all those that five hundred pounds more stock could have employed. The merchant in Edinburgh, on the other hand, keeps no money unemployed for answering such occasional demands. When they actually come upon him, he satisfies them from his cash account with the bank, and gradually replaces the sum borrowed with the money or paper which comes in from the occasional sales of his goods. With the same stock, therefore, he can, without imprudence, have at all times in his warehouse a larger quantity of goods than the London merchant; and can thereby both make a greater profit himself, and give constant employment to a greater number of industrious people who prepare those goods for the market. Hence the great benefit which the country has derived from this trade.


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Colin JM0397
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Are you frocking kidding me? You quote from the Wealth of Nations in an attempt to refute information as to how the modern fractional reserve system works?
[LOL]
Weak, oh so weak!

You’re attempting to redirect to show the fractional system of debt and credit creation is a great thing, but you miss the point in your rush to champion the status quo. Again, if you would spare us the 2 pages of whishy-washy mental meanderings and just say what it is you believe in, support, and stand for, then we might actually get somewhere. Alas, that probably is the point.

Lead them down enough rabbit holes and they tire of the chase and go away?

The problem I have is the private banking cartel has government by the balls. Such a system of debt and credit firmly controlled by a private cartel means said private cartel owns and controls our supposed representative government.

I find it quite interesting that you talk so blatantly out of both sides of your mouth – railing against the too-powerful corporate entities in one thread, and then championing the very system that keeps the too-powerful corporate entities in control in this thread.

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Pyrtolin
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quote:
Originally posted by Colin JM0397:
Are you frocking kidding me? You quote from the Wealth of Nations in an attempt to refute information as to how the modern fractional reserve system works?

I'm not trying to refute how it works, given that we seem to have come to agreement on how it works now that you've given up your incorrect claims about it issuing loans without the currency on hand to do so and that it issues loans based on its assets rather than based on its capital and liabilities.

quote:
You’re attempting to redirect to show the fractional system of debt and credit creation is a great thing, but you miss the point in your rush to champion the status quo.
Having agreed that fractional reserve banks actually do operate per the definition of fractional reserve banking, that is where the question naturally moves. If you want to argue some other specific point, please make it clear what specific assertion you want to debate.

quote:
Again, if you would spare us the 2 pages of whishy-washy mental meanderings and just say what it is you believe in, support, and stand for, then we might actually get somewhere. Alas, that probably is the point.

This sounds like you want me to try to reduce a complicated issue to a battle of soundbytes so that you don't actually have to try justify the assertions you make or provide any detail on how your proposals would work rather than just just using assertion as proof that they're better.

I can't read your mind in context to what you want me to state my beliefs about here, so I can give you a laundry list of points that may or may not be what you're looking for:

-Currency is an abstract value exchange medium, it has no inherent value beyond what people are willing to trade for it.
-Most specifically- currency is not wealth. It can be used as a means of acquiring wealth or investing in ventures because people agree to trade it for useful or valuable things in lieu of other objects of specific value.
-Liquidity is the fundamental purpose of currency. It exists to be spent or invested, and needs to keep moving to do its job. Freezing currency out of the economy by storing or saving it implicitly damages the ability to people to represent their demand to producers.
-Fractional Reserve banking is essential because it allows people to save the value of their earnings without freezing the majority of their currency out of the system or forcing them to purchase non-liquid assets. Instead they can gain a share of the benefit of investing their earnings, even if they're too meager to be invested on their own, while still having easy access to the liquidity that they need for day to day expenses.
-There exists no natural resource which is has no inherent value other than the ability to divide it into arbitrary amounts to reflect value and whose production can be excatly matched to the pace of population and economic growth. On the other hand, we are fully capable of producing a resource that meets the essential qualifications at the rates needed.
-Monetary inflation is essential to account for population and production growth. Maintaining a stable money supply in the face of growing production and population would lead to pathological levels of deflation and more hands and products struggled to attract ever scarcer currency.
-Price inflation is also essential because it discourages people from freezing currency, instead requiring them to invest it in real assets or productive projects to maintain its value in the long term.
-Currently not enough money is in active circulation to fully realize potential consumer demand for basic needs, forcing people to take out debt to meet those needs instead.
-Until baseline demand is fully realized, the quantity of currency, specifically its availability to those with unrealized baseline demand, to needs to be increased until we reach a positive equilibrium point where all can survive without having to resort to debt. But it needs to be done at a rate that matches the ability of production to expand, or else it will cause damaging levels of inflation.
-For a capitalist economy to function, everyone must have access to at least a small capital stock, and all productive work done must contribute to that stock rather than being lost to survival needs.
-Any individual should be able to launch a personal business venture without risking debt or starvation due to the 90% likelihood that any given venture will fail. Debt should only be useful when they have a clear need and ability to expand a venture more quickly than immediate revenue will allow once its basic viability has been established.

quote:
The problem I have is the private banking cartel has government by the balls. Such a system of debt and credit firmly controlled by a private cartel means said private cartel owns and controls our supposed representative government.
I agree in as much as the banks are allowed, in any direct way to spend money to affect decisions of the government. We have a system that's designed to allow them to give input on decisions that affect them, because ignoring those who have practical experience in the field is equally bad, but beyond that they should absolutely be prevented from involvement in politics because of the inherent conflict of interests.
But your implicit assertion that the Fed is owned by anyone other than the government is wrong by simple definition. The banking industry does not own it in any way, but simulates ownership by exercising political control over the government representatives who should properly be advocates of the people working to mitigate their power.

quote:
I find it quite interesting that you talk so blatantly out of both sides of your mouth – railing against the too-powerful corporate entities in one thread, and then championing the very system that keeps the too-powerful corporate entities in control in this thread.
You're begging the question there. Your assertion depends on accepting your position as true before it can be valid.
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Colin JM0397
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Having agreed?

Let me be clear since the subtlety of moving on is lost on you:
You are being an obtuse ideologue and an irritating knave.
A person abandoning a point doesn't grant you any concession or agree by lack of disagreeing to anything.

I haven't agreed to squat with you.
Furthermore, you have not established a single point other than continually stating your opinion and trying to pass that off as fact.

You keep repeating your OPINIONS about how the system works, and then trying to misdirect with out of context sources. Your premise on how the fractional reserve system of credit and debt is fictitious at best and, as I’ve been saying over and over, I completely disagree. The evidence I’ve provided completely disagrees with your misguided opinions. You have provided zero backing information and keep trying to pass your opinions off as fact.

You are beyond ridiculous.

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G2
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It's getting worse, the odds of a double dip just jumped big time:
quote:
New orders for manufactured durable goods in July increased $0.6 billion or 0.3 percent to $193.0 billion, the U.S. Census Bureau announced today. This increase followed two consecutive monthly decreases including a 0.1 percent June decrease. Excluding transportation, new orders decreased 3.8 percent.
The expectation was 3% and we got only a tenth of that because of heavy orders for airplanes. Without that, we saw a 3.8% decrease.

While the orders fall, inventories are increasing quickly:
quote:
Inventories of manufactured durable goods in July, up seven consecutive months, increased $1.8 billion or 0.6 percent to $311.2 billion. This followed a 1.3 percent June increase. Machinery, up five consecutive months, had the largest increase, $0.9 billion or 1.9 percent to $51.4 billion.
Inventory bubble - that means significant slowdowns in manufacturing which leads to lost jobs. Awesome.

New home sales hit an all time record low:
quote:
Sales of newly built homes dropped to their lowest level since the government started tracking the numbers more than four decades ago ...
That means we can expect even more deflation in the housing market, further eroding the American dream.

In 2 days we get a report from the Commerce department that is expected to show Q2 GDP at 1.4%. The CBO says the Obama stimulus accounted for anywhere from 1.7% to 4.5% which means all Q2 growth was due to the artificial stimulation - it essentially masked the double dip. It can't do it forever though and it looks like its time is about up. If the Q2 GDP is as low as it looks like it will be, expect the stock market to quite poorly.

The federally mandated Summer of Recovery continues ...

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Colin JM0397
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Housing might actually bounce back a bit... maybe.

Read a good point yesterday that part of the huge dip is due to the subsidies running out in this past spring. A lot of folks looking to buy hurried into buying before the subsidy ran out.

Also, need to remember, just like the census workers inflated and then deflated the employment numbers, the subsidy inflated and now deflated the housing numbers. For a good look at what the numbers will do going forward look to how the car purchase numbers panned out after those subsidies ran out.

I haven’t, but I wager we’ll see a bump up in housing sales next quarter as the system continues to recover from the government intervention. [Razz]

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JWatts
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quote:
Originally posted by Colin JM0397:
Housing might actually bounce back a bit... maybe.

Read a good point yesterday that part of the huge dip is due to the subsidies running out in this past spring. A lot of folks looking to buy hurried into buying before the subsidy ran out.

That's probably true, much like the Cash for Clunkers programs essentially just compressed the purchasing time frame and left a period of very slow purchasing in its wake.

The Cash for Clunkers probably had no long term stimulus benefit and the housing subsidy will probably have little benefit. I expect it to do a little better, just because it ran a little longer, but the net effect still won't be worth the very high cost.

quote:
A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.

Source
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G2
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quote:
Originally posted by G2 on May 27, 2010:
quote:
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression.

<snip>

The M3 is about a 12-18 month leading indicator, the canary in the coal mine. That canary died about 10 months ago. If it really is the leading indicator it's puported to be, we're going to start taking a pounding by the end of the year.

Interesting to follow this up. We're right at the 12 month mark since I posted that, how's the canary? Well, he's on life support it appears:
quote:
The last month has been a horror show for the U.S. economy, with economic data falling off a cliff, according to Mike Riddell, a fund manager at M&G Investments in London.

"It seems that almost every bit of data about the health of the US economy has disappointed expectations recently," said Riddell, in a note sent to CNBC on Wednesday.

"US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing."

and the effect:

quote:
"What we’ve got right now is almost near panic going on with money managers and people who are responsible for money," he said [Peter Yastrow, market strategist for Yastrow Origer].
Panic on Wall Street, what could go wrong?

From Robert Reich:
quote:
The US economy was supposed to be in bloom by late spring, but it is hardly growing at all. Expectations for second-quarter growth are not much better than the measly 1.8 per cent annualised rate of the first quarter. That is not nearly fast enough to reduce America’s ferociously high level of unemployment. The labour department will tell us on Friday whether the jobs situation improved in May, but there has been no sign of a surge in hiring. Nor in wages. Average hourly earnings of production and non-supervisory employees – who make up 80 per cent of non-government workers – dropped to $8.76 in April. Adjusted for inflation, that’s lower than they were in the depths of the recession.

Meanwhile, housing prices continue to fall. They are now 33 per cent below their 2006 peak. That is a bigger drop than recorded in the Great Depression.

It looks like that M3 statistic is pretty damned reliable.
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Pyrtolin
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And yet, instead of taking action to pump up the money supply, people are trying to argue that we need to reduce it even further, just like we did in 1937, so that we can delight in repeating history.
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kmbboots
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quote:
Originally posted by Pyrtolin:
And yet, instead of taking action to pump up the money supply, people are trying to argue that we need to reduce it even further, just like we did in 1937, so that we can delight in repeating history.

Exactly.
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