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The History of Money

bkyle
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7/27/2011 2:11:34 AM
Posted: 5 years ago
There is a lot of misunderstandings in the forum regarding money, debt, and the economy. To help make things clear, I strongly suggest watching this video:

"Money as Debt" by Paul Grignon and his team
youtube.com watch?v=Dc3sKwwAaCU

This video is eye-opening. Everyone should watch it.
Considering the important of money in everyone's lives, is there anything more important to really understand?

For those that prefer to read rather than watch videos, here is a transcript:
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bkyle
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7/27/2011 2:12:03 AM
Posted: 5 years ago
Here's a particular section I liked beginning in the video at 2:40 on how money is created...

<transcript>

Most of us believe that banks lend out money that has been entrusted to them by depositors. Easy to picture. But not the truth.

In fact, banks create the money they loan, not from the bank's own earnings, not from money deposited, but directly from the borrower's promise to repay.

The borrower's signature on the loan papers is an obligation to pay the bank the amount of the loan plus interest, or, lose the house, the car, whatever asset was pledged as collateral. That's a big commitment from the borrower.

What does that same signature require of the bank? The bank gets to conjure into existence the amount of the loan and just write it into the borrower's account.

</transcript>
bkyle
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7/27/2011 2:12:26 AM
Posted: 5 years ago
Here's another important section beginning in the video at 8:55 on why fiat currency is so important...

<transcript>

It would have been straightforward to outlaw the practice of creating money from nothing.

But the large volumes of credit the bankers were offering had become essential to the success of European commercial expansion.

So, instead, the practice was legalized and regulated.

Bankers agreed to abide by limits on the amount of fictional loan money that could be lent out. The limit would still be a number much larger than the actual value of gold & silver in the vault. Quite often the ratio was 9 fictional dollars to 1 actual dollar in gold.

These regulations were enforced by surprise inspections.

It was also arranged that, in the event of a run, central banks would support local banks with emergency infusions of gold.

</transcript>
bkyle
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7/27/2011 2:12:48 AM
Posted: 5 years ago
This section in the video appears at 12:12 regarding limits on the creation of money...

<transcript>

Governments place an additional statutory limit on the creation of new money, by enforcing rules known as fractional reserve requirements.

Essentially arbitrary, fractional reserve requirements vary from country to country and from time to time. In the past, it was common to require banks to have at least one dollar's worth of real gold in the vault to back 10 dollars worth of debt money created.

Today, reserve requirement ratios no longer apply to the ratio of new money to gold on deposit, but merely to the ratio of new debt money to existing debt money on deposit in the bank.

</transcript>
bkyle
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7/27/2011 2:13:20 AM
Posted: 5 years ago
This great example in the video beginning at 13:13 illustrates "The Velocity of Money"...

<transcript>

To illustrate this in a simple way... let's imagine that a new bank has just started up and has no depositors yet. Investors have paid for the bank's infrastructure and have supplied it with sufficient cash to meet the demand for cash withdrawals. Typically, cash in the vault will amount to no more than one dollar for every 20 or 30 dollars that could be demanded from the bank. The bank has joined the central bank system, which permits the new bank to borrow cash from the central bank if it's needed.

The doors open and the new bank welcomes its first loan customer. The customer needs $10,000 to buy a car. On approval, the bank creates an account for the borrower and types in that the bank owes the borrower $10,000. This $10,000 is not taken from anywhere. It is created on the spot. The borrower does not take this money out in cash. Instead he writes a check on his account to buy the car.

The seller then deposits this newly created $10,000 check at her bank.

At a ratio of 9:1, this new $10,000 deposit allows the seller's bank to create a new loan of $9,000.

And if that $9000 is then deposited by a third party, it becomes the legal basis for a third issue of bank credit, this time for the amount of $8100.

Like one of those Russian dolls, each layer of which contains a smaller doll inside, each new deposit contains the potential for a slightly smaller loan in a decreasing series.

Now, at any stage, if the money created is taken in cash and not deposited at a bank, the process stops. That's the unpredictable part of the money creation mechanism.

But more likely, at every step, the new bank credit money will be deposited at a bank, and the reserve ratio process can repeat itself over and over until almost $100,000 of brand new bank credit money has been created within the banking system.

All of this new money has been created entirely from debt. And all transactions have been carried out with bank credit. None of the banks involved have needed to use any of the cash in their vaults.

What's more, under this ingenious system, the books of each bank in the chain must show that the bank has 10% more on deposit than it has out on loan. This gives banks a very real incentive to seek deposits in order to be able to make loans, supporting the general but misleading impression that loans come out of deposits.

Now, it can't said that any one bank got to multiply the initial $10,000 of bank credit into $100,000 of bank credit. However, the banking system is a closed loop. Bank credit created at one bank becomes a deposit in another, and so on and so on.

In a theoretical world of perfectly equal exchanges, the banks would owe each other nothing at the end of the day, and the $10,000 created out of thin air as a loan by the first bank could indeed become almost $100,000 of new loan money in the banking system.

If that sounds ridiculous, try this. Actual reserve ratios can be much higher than 9:1. For some types of accounts, twenty to one and thirty-three to one ratios are common.

There are also many exceptions where NO reserve requirements apply at all!

So...while the rules are complex the common sense reality is actually quite simple. Banks can create as much money as we can borrow.

</transcript>
bkyle
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7/27/2011 2:13:40 AM
Posted: 5 years ago
This section of the video beginning at 24:21 is perhaps the most important part since it describes the fundamental flaw in our current monetary system...

<transcript>

And that's not all. Banks create only the amount of the Principal. They don't create the money to pay the Interest. Where is that supposed to come from?

The only place borrowers can go to obtain the money to pay Interest is the general economy's overall money supply. But almost all that overall money supply has been created exactly the same way –as bank credit that has to be paid back with more than was created!

So everywhere, there are other borrowers in the same situation, frantically trying to obtain the money they need to pay back both Principal and Interest from a total money pool which contains only Principal.

It's clearly impossible for everyone to pay back the Principal plus the Interest unless every penny of interest the lenders take in is recycled back to those who need this money to make their payments. This means interest earnings must be 100% spent so that borrowers can earn these dollars repeatedly. While much IS spent as interest to depositors, operating expenses and dividends, some of the interest income becomes new loans at interest, or investments, creating additional demand for money and an ultimate shortage of debt-free money available for borrowers to earn.

The big problem here is that for long term loans such as mortgages and government debt, the total Interest far exceeds the Principal, so unless a lot of extra money is created to pay the Interest, it means a very high proportion of foreclosures, and a non-functioning economy.

To maintain a functional society the rate of foreclosure needs to be low. And so, to accomplish this, more and more new debt money has to be created to satisfy today's demands for money to service the previous debt. But, of course, this just makes the total debt bigger. And that means more interest must ultimately be paid, resulting in an ever-escalating and inescapable spiral of mounting indebtedness.

</transcript>
bkyle
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7/27/2011 2:14:03 AM
Posted: 5 years ago
Few people understand exponential growth so this section beginning at 27:02 is critical to understanding the trouble economies around the world face...

<transcript>

Money facilitates production and trade. As the money supply increases, money just becomes increasingly unless the volume of production and trade in the real world grows by the same amount.

Add to this the realization that when we hear that the economy is growing at 3% per year, it sounds like a constant rate. But it's not. This year's 3% represents more real goods and services than last year's 3% because it's 3% of the new total. Instead of a straight line as is naturally visualized from the words, it is really an exponential curve getting steeper and steeper.

The problem, of course, is that perpetual growth of the real economy requires perpetually escalating use of real world resources and energy. More and more stuff has to go from natural resource to garbage every year ...forever, just to keep this system from collapsing!

"The greatest shortcoming of the human race is our inability to understand the exponential function." ~ Albert A. Bartlett, physicist

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist." —Kenneth Boulding, economist

</transcript>
bkyle
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7/27/2011 2:14:23 AM
Posted: 5 years ago
Here are a list of some great quotes that appear throughout the video...

"Each and every time a bank makes a loan... new bank credit is created — new deposits — brand new money."
~ Graham F. Towers, Governor, Bank of Canada, 1934-54

"The process by which banks create money is so simple the mind is repelled."
~ John Kenneth Galbraith, Economist

"Permit me to issue and control the money of a nation, and I care not who makes its laws."
~ Mayer Anselm Rothschild, Banker

"Everybody sub-consciously knows banks do not lend money.
When you draw on your savings account, the bank doesn't tell you you can't do this because it has lent the money to somebody else."
~ Mark Mansfield, economist and author

"Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess."
~ Irving Fisher, economist and author

"That is what our money system is. If there were no debts in our money system, there wouldn't be any money."
~ Marriner S. Eccles, Chairman and Governor of the Federal Reserve Board

"This is a staggering thought. We are completely dependent on the Commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money, we are prosperous; if not, we starve. We are, absolutely, without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is."
~ Robert H. Hemphill, Credit Manager of Federal Reserve Bank, Atlanta, Georgia

"We are absolutely without a permanent money system...
It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."
~ Robert H. Hemphill, Credit Manager Federal Reserve Bank of Atlanta, Georgia

"I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money... I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue."
~ Wright Patman, Congressman (1928-1975)Chair of House Banking Committee (1963-1975)

"Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal—that there is no human relation between master and slave."
~ Leo Tolstoy

"None are more enslaved than those who falsely believe they are free." ~ Goethe

"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.
Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again...
Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit'."
~ Sir Josiah Stamp Director, Bank of England 1928-1941 (reputed to be the 2nd richest man in Britain at the time)

"All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation."
~ John Adams, Founding Father of the American Constitution

"Whoever controls the volume of money in our country is absolute master of all industry and commerce...and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."
~ James A. Garfield, assassinated president of the United States

"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity."
~ Abraham Lincoln, assassinated president of the United States

"Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and of democracy is idle and futile... Once a nation parts with control of its credit, it matters not who makes the nation's laws... Usury once in control will wreck any nation. "
~ William Lyon Mackenzie King Prime Minister of Canada who nationalized the Bank of Canada

"For more than a century, ideological extremists at either end of the political spectrum have seized upon well-publicized incidents to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as "internationalists" and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will. If that's the charge, I stand guilty, and I am proud of it."
~ David Rockefeller, international bankerMemoirs (2002) pg. 405

"Only the small secrets need to be protected. The big ones are kept secret by public incredulity."
~ Marshall McLuhan, media "guru"
FREEDO
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7/28/2011 2:53:53 AM
Posted: 5 years ago
This isn't a new idea for this forum. There's a few topics put up just recently that bring up the same thing.
GRAND POOBAH OF DDO

fnord
Tiel
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7/28/2011 2:55:48 PM
Posted: 5 years ago
Opinion: Great topic. The more people keep helping other people understand how the monetary system really works, the better our world is going to be. Time to wake up people!
"Only the inner force of curiosity and wonder about the unknown, or an outer force upon your free will, can brake the shackles of your current perception."
darkkermit
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7/28/2011 3:10:52 PM
Posted: 5 years ago
I'm undecided about fractional reserve banking or not. I don't know enough about the money supply. However, the idea that debt can't be repaid is absurd. It doesn't matter whether the money supply is greater than the amount of debt or not. That's a fallacy.

The only thing that is important is the velocity of money, and whether one's income is enough to pay off the interest. That's how people make decisions on whether to make loans or not. Even if people cannot pay off their debts, its not necessarily the end of the world. It leads to a rescission, but capital and assets are simply liquidated in the process. It's not an ideal circumstance, but it is what has to be done. I don't know how much capital exists in the United States, but I believe it is close to 1 trillion.

Fractional Reserve banking and the process of making money is quite a simple economic concept. The manipulation of the money supply is quite a complex concept though.
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Tiel
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7/28/2011 4:05:13 PM
Posted: 5 years ago
At 7/28/2011 3:10:52 PM, darkkermit wrote:
I'm undecided about fractional reserve banking or not. I don't know enough about the money supply. However, the idea that debt can't be repaid is absurd. It doesn't matter whether the money supply is greater than the amount of debt or not. That's a fallacy.

The only thing that is important is the velocity of money, and whether one's income is enough to pay off the interest. That's how people make decisions on whether to make loans or not. Even if people cannot pay off their debts, its not necessarily the end of the world. It leads to a rescission, but capital and assets are simply liquidated in the process. It's not an ideal circumstance, but it is what has to be done. I don't know how much capital exists in the United States, but I believe it is close to 1 trillion.

Fractional Reserve banking and the process of making money is quite a simple economic concept. The manipulation of the money supply is quite a complex concept though.

Opinion: It comes down to very simple logic. If you have something physical which can be created almost endlessly and represents nothing of value, but is used to obtain things of value. Then this physical representation can be endlessly created and manipulated in order to control everything of value within the given system.

This kind of a system design... A system design that is based on the non-valuable physical representation of things of value, this is a faulty design as it pertains to the fairness and stability of ALL the entities within the system. In this system, only those who can control and accumulate the most of this non-valuable representation benefit. In this system, the amount of non-valuable physical representations that you can accumulate is directly equal to your standard of living. Since this non-valuable physical representation can be almost endlessly created by a small number of people, only a small number of people obtain the highest standard of living possible within the system. Those entities who are in this position control the standard of living for all other entities within the system. This would not be a problem if entities in control distributed this resource equally or fairly, as equality and fairness always balance any system. Those entities who control this resource distribute it in a way that makes the system unbalanced. Anytime you have an unbalanced system, it will either have to work towards becoming balanced or one polarity will consume the other, resulting in a destruction of the system as a whole.

The system we live in is a failed design, because the basic elements of the system are too easily corruptible. The system is far too easily manipulated into the point of imbalance. The basic structure of our current system right now started as imbalanced, it has always been imbalanced. The design itself is one of imbalance, and all imbalance will either have to balance itself out or fall as a result. Our current system is not designed in a way to where it CAN be balanced, so it will inevitably fail.
"Only the inner force of curiosity and wonder about the unknown, or an outer force upon your free will, can brake the shackles of your current perception."
bkyle
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7/28/2011 4:54:46 PM
Posted: 5 years ago
At 7/28/2011 3:10:52 PM, darkkermit wrote:
I'm undecided about fractional reserve banking or not. I don't know enough about the money supply. However, the idea that debt can't be repaid is absurd. It doesn't matter whether the money supply is greater than the amount of debt or not. That's a fallacy.

You said it is absurd and it is a fallacy, but you didn't say why. On a personal level, of course debt can be repaid. Come in to lots of cash somehow and you can pay off your personal debt. But really, you just transferred the debt to someone else. Remember, money is debt.

The only thing that is important is the velocity of money, and whether one's income is enough to pay off the interest. That's how people make decisions on whether to make loans or not.

True, on an individual level, but false for the closed system that is banking. As I wrote in a different forum thread here, the velocity of money is how fast and how many balls a juggler can handle. The money circulating multiple times as income allows us to inflate GDP, but it doesn't make a difference to total debt. Increasing velocity allows more people to service (carry) debt because there are more people with incomes who can make debt payments, but principle payments on debt is a money sponge.

When money is taken out of circulation and applied to the principle of a debt, it's like picking a ball out of the air from juggler. It hurts the economy because there are fewer balls going around.

The main problem is that we're adding a lot more balls for the juggler to keep up than the few we take away. Total debt just keeps growing: personal, municipal, state/province, federal, and corporate. All of that outstanding debt is exponentially creating more debt due to interest.

I know it's not possible, of course, but if everyone sold everything and tried to pay back all of the debts on the planet, it could not be done because of the new debt created via interest. There would be no more balls in the air, so no more velocity, yet debt would still remain and continue growing.

So, if the total outstanding debt cannot be erased and grows continuously and exponentially like a cancer, collapse of the entire system is a mathematical certainty. We can keep playing musical chairs and pretend the game never ends, but reality will certainly catch up with us.

Even if people cannot pay off their debts, its not necessarily the end of the world. It leads to a rescission, but capital and assets are simply liquidated in the process. It's not an ideal circumstance, but it is what has to be done. I don't know how much capital exists in the United States, but I believe it is close to 1 trillion.

At what level does unemployment have to reach for it to become "the end of the world"? As unemployment increases, it creates a downward spiral of people who cannot support their local businesses, creating more and more unemployment. Unemployment does not necessarily grow linearly. Feeding on itself, it can grow exponentially.

Early in history, government could take on debt to stimulate the economy. Not any more. First, governments at every level are already up to their eyeballs in debt and cannot carry more. Second, look at how well QE1 and QE2 have worked to stimulate job growth. Get ready for QE3 coming soon. It's like giving tax payer money from the poor and middle-class straight to wealthy.

Fractional Reserve banking and the process of making money is quite a simple economic concept.

Did you watch the "Money as Debt" video? Fractional reserve banking is fundamentally flawed. It is creating the chains of debt that our children and grandchildren will wear for generations.
darkkermit
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7/28/2011 5:52:03 PM
Posted: 5 years ago
At 7/28/2011 4:54:46 PM, bkyle wrote:
At 7/28/2011 3:10:52 PM, darkkermit wrote:
I'm undecided about fractional reserve banking or not. I don't know enough about the money supply. However, the idea that debt can't be repaid is absurd. It doesn't matter whether the money supply is greater than the amount of debt or not. That's a fallacy.

You said it is absurd and it is a fallacy, but you didn't say why. On a personal level, of course debt can be repaid. Come in to lots of cash somehow and you can pay off your personal debt. But really, you just transferred the debt to someone else. Remember, money is debt.


No money is created via debt. That does not make it debt. It's like stating that a sculpture is created via an artist. That does not mean the sculpture is an artist.
As long as "money supply* velocity" > interest on debt + principal, then it is theoretically possible to pay off the debt.


The only thing that is important is the velocity of money, and whether one's income is enough to pay off the interest. That's how people make decisions on whether to make loans or not.

True, on an individual level, but false for the closed system that is banking. As I wrote in a different forum thread here, the velocity of money is how fast and how many balls a juggler can handle.

The money circulating multiple times as income allows us to inflate GDP, but it doesn't make a difference to total debt.

debt does not perpetually increase. I would only have to show you a graph to prove you wrong:
http://www.caseyresearch.com...

Yes, that is not good at all. However, you will notice that there was a point in time where debt was decreasing, even under fractional reserve banking, so your theory of perpetual debt is wrong.

Increasing velocity allows more people to service (carry) debt because there are more people with incomes who can make debt payments, but principle payments on debt is a money sponge.

Increasing the velocity of money can come from selling assets, goods and services and stocks. It doesn't just come from carrying debt.

When money is taken out of circulation and applied to the principle of a debt, it's like picking a ball out of the air from juggler. It hurts the economy because there are fewer balls going around.

As long as the debt increases at the same level as GDP, it is not a problem. Furthermore, it remains to be seen that much of the money supply is created via interest, not just debt.

The main problem is that we're adding a lot more balls for the juggler to keep up than the few we take away. Total debt just keeps growing: personal, municipal, state/province, federal, and corporate. All of that outstanding debt is exponentially creating more debt due to interest.

Yes, however perpetual debt is not a requirement.

I know it's not possible, of course, but if everyone sold everything and tried to pay back all of the debts on the planet, it could not be done because of the new debt created via interest. There would be no more balls in the air, so no more velocity, yet debt would still remain and continue growing.

Yes it can, velocity can increase very fast If one trades assets and commodities. I don't say this is a good thing, but the idea that the debt can't be paid off is nonsense. Liquidation is key.

So, if the total outstanding debt cannot be erased and grows continuously and exponentially like a cancer, collapse of the entire system is a mathematical certainty. We can keep playing musical chairs and pretend the game never ends, but reality will certainly catch up with us.

Except its not really a game of musical chairs.

Even if people cannot pay off their debts, its not necessarily the end of the world. It leads to a rescission, but capital and assets are simply liquidated in the process. It's not an ideal circumstance, but it is what has to be done. I don't know how much capital exists in the United States, but I believe it is close to 1 trillion.

At what level does unemployment have to reach for it to become "the end of the world"? As unemployment increases, it creates a downward spiral of people who cannot support their local businesses, creating more and more unemployment. Unemployment does not necessarily grow linearly. Feeding on itself, it can grow exponentially.

As I said, liquidate the bad assets and let wages fall.

Early in history, government could take on debt to stimulate the economy. Not any more. First, governments at every level are already up to their eyeballs in debt and cannot carry more. Second, look at how well QE1 and QE2 have worked to stimulate job growth. Get ready for QE3 coming soon. It's like giving tax payer money from the poor and middle-class straight to wealthy.

I agree stimulus is bad.

Fractional Reserve banking and the process of making money is quite a simple economic concept.

Did you watch the "Money as Debt" video? Fractional reserve banking is fundamentally flawed. It is creating the chains of debt that our children and grandchildren will wear for generations.

Yes I have. I believe it is good on some levels, but bad in other levels.
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bkyle
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7/29/2011 2:56:19 AM
Posted: 5 years ago
At 7/28/2011 5:52:03 PM, darkkermit wrote:
debt does not perpetually increase. I would only have to show you a graph to prove you wrong:
http://www.caseyresearch.com...

That graph is an incomplete picture. How did that debt get decreased? Most of the debt was probably just transferred to someone else. I'm talking about all debt in the world. The complete closed banking system. One (where one is any entity that can take on debt) can reduce one's debt through various financials activities and exchanges, but it's only at the expense of shifting that debt to another entity.

Yes, some cash reserves and assets can be liquidated to remove some debt, but not all of it because of the debt created via interest.
darkkermit
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7/29/2011 1:44:14 PM
Posted: 5 years ago
At 7/29/2011 2:56:19 AM, bkyle wrote:
At 7/28/2011 5:52:03 PM, darkkermit wrote:
debt does not perpetually increase. I would only have to show you a graph to prove you wrong:
http://www.caseyresearch.com...

That graph is an incomplete picture. How did that debt get decreased? Most of the debt was probably just transferred to someone else. I'm talking about all debt in the world. The complete closed banking system. One (where one is any entity that can take on debt) can reduce one's debt through various financials activities and exchanges, but it's only at the expense of shifting that debt to another entity.

Yes, some cash reserves and assets can be liquidated to remove some debt, but not all of it because of the debt created via interest.

Please show me the data for perpetual debt. Fractional reserve banking has been around for hundreds of years, so somehow the theory that there is perpetual debt is absurd.

you do realize that in fractional reserve banking, there is a limit to the amount of debt that can be created, since there is a reserve ratio. Monetary based is injected into the system via open market operations. Only once a monetary base exists can the money multiplier effect occur.

Furthermore, the rate of savings must be greater than the amount of debt in society.
http://en.wikipedia.org... FRB devalues the dollar, but it does not create a scenario where there is more debt then money.
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Tiel
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7/29/2011 5:36:38 PM
Posted: 5 years ago
At 7/29/2011 1:44:14 PM, darkkermit wrote:
At 7/29/2011 2:56:19 AM, bkyle wrote:
At 7/28/2011 5:52:03 PM, darkkermit wrote:
debt does not perpetually increase. I would only have to show you a graph to prove you wrong:
http://www.caseyresearch.com...

That graph is an incomplete picture. How did that debt get decreased? Most of the debt was probably just transferred to someone else. I'm talking about all debt in the world. The complete closed banking system. One (where one is any entity that can take on debt) can reduce one's debt through various financials activities and exchanges, but it's only at the expense of shifting that debt to another entity.

Yes, some cash reserves and assets can be liquidated to remove some debt, but not all of it because of the debt created via interest.

Please show me the data for perpetual debt. Fractional reserve banking has been around for hundreds of years, so somehow the theory that there is perpetual debt is absurd.

you do realize that in fractional reserve banking, there is a limit to the amount of debt that can be created, since there is a reserve ratio. Monetary based is injected into the system via open market operations. Only once a monetary base exists can the money multiplier effect occur.

Furthermore, the rate of savings must be greater than the amount of debt in society.
http://en.wikipedia.org... FRB devalues the dollar, but it does not create a scenario where there is more debt then money.

Comment: Interest is something that is created out of thin air. It represents nothing. There is no exchange being made to balance interest. Interest is created out of thin air, and then is paid back by something that is real. This is why it can never fully be paid back. Because what is real and being used to pay interest (physical money) never equals the total debt. This is because the total number of debt includes the past numbers of interest created. The total number of physical money will never reflect the total number of debt, because of the creation of interest which does not represent physical money.

In order for the system's total debt to equal the total physical money... The central bank would have to create one dollar of physical money for every one dollar of created interest. This is a paradox of a solution. For if one dollar of physical money was created for every one dollar of interest, debt would not exist within the system as a whole. This in fact would make interest non-existent because the bank would just be paying it's own interest by creating the physical money that represents it 1$ for $1.

Conclusion: Neither debt, nor interest, can exist within a balanced monetary system as a whole.
"Only the inner force of curiosity and wonder about the unknown, or an outer force upon your free will, can brake the shackles of your current perception."
darkkermit
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7/29/2011 11:38:13 PM
Posted: 5 years ago
At 7/29/2011 5:36:38 PM, Tiel wrote:

Comment: Interest is something that is created out of thin air.

Interest is the transfer of money from debtors to savers. Without savings, there would be no debt. Saving awards those who wish to defer consumption so resources can used on goods and services that normally could not be used. Both parties benefit from the transaction.

It represents nothing.

As explained, even If the money supply were fixed, then interest would have value since savings allows for the investment in capital goods, which benefit the economy.

There is no exchange being made to balance interest.

The interest is spent. And circulated into the economy.

Interest is created out of thin air, and then is paid back by something that is real.

The value of money is determined by whether people demand it or not. If people have value for it, then it has real value. That's all. The differentiation between what is 'real' and what is 'fake' is patently absurd.

This is why it can never fully be paid back.

non sequiter. It does not logically flow that debt will not be paid back. To prove so would involve deductive analysis or mathematical proof. You provide neither.

Because what is real and being used to pay interest (physical money) never equals the total debt.

It's not important what the debt is, but whether the interest can be repaid. Once part of the principal and interest is paid, then new interest can circulate into the system and new debt can be issued. The creation of debt is a natural process. People use debt to finance business, and pay for their mortgage. This is not a problem.

This is because the total number of debt includes the past numbers of interest created.

The amount of money deposited is greater than the amount of debt. Part of fractional reserve banking requires that debt be paid by credit rather than actually physically currency. As long as this occurs, there is no problem.

The total number of physical money will never reflect the total number of debt, because of the creation of interest which does not represent physical money.

Why does it matter whether the money is physical or not? Debt can be repaid via credit.

In order for the system's total debt to equal the total physical money... The central bank would have to create one dollar of physical money for every one dollar of created interest.

It depends when the debt is paid. If all the debt is paid at once, then no. However, part of the money is paid back to the creditor. The creditor gives the money back to the debtor, and the debtor can now pay back the creditor. Interest is recycled.

This is a paradox of a solution. For if one dollar of physical money was created for every one dollar of interest, debt would not exist within the system as a whole.

Debt will always exist since there will always be a preference for debt financing. If I had an idea that has a positive return on investment, why not go into debt?

This in fact would make interest non-existent because the bank would just be paying it's own interest by creating the physical money that represents it 1$ for $1.

It doesn't matter if the money is physical or not. As long as it represent something of value.


Conclusion: Neither debt, nor interest, can exist within a balanced monetary system as a whole.

Conclusion: Debt is not bad. It is an important part of financing and the economy that props up businesses.
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bkyle
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7/30/2011 2:45:09 AM
Posted: 5 years ago
At 7/29/2011 11:38:13 PM, darkkermit wrote:
Conclusion: Debt is not bad. It is an important part of financing and the economy that props up businesses.

Debt is not bad. It's the compounding interest that is the fundamental and fatal flaw.

Check out this web page:

"RIP-OFF BY THE FEDERAL RESERVE"
http://beforeitsnews.com...

The whole page is good, but in particular, look for this paragraph:

"Observe that the amount of money created by the security is the amount of the principal but the amount promised to be repaid is the principal AND the interest. The interest is never created but payment is required by the agreement. It is impossible. The linear expansion of base money via fractional reserves to create commercial loans does not change this. If, hypothetically, all money in circulation was used to pay off the securities issued by Congress, all bank reserves would be wiped out and the commercial loans would collapse---and every dollar of interest on the national debt accumulated from day one would still be due---but there would be no money outside of the Fed's vaults to pay it."

There are plenty of web pages out there like this.

Here's a particular one everyone should take a look at regarding the fact that interest-bearing debt is exponential:

http://beyondmoney.net...

Not everyone understands "exponential growth". They hear growth of 3% and think that sounds not bad. The problem is not the "rate" of change, but the "amount" of change due to compounding.

Perhaps you're looking for something with a little more teeth. Perhaps an academic paper with all the proof you can sink your teeth into. Check out this one:

"THE INTEREST-BEARING DEBT SYSTEM AND ITS ECONOMIC IMPACTS"
http://www.flowman.nl...

Here's the final paragraph from the executive summary:

"The paper shows that the current price-based financial system based on interest bearing debt is self-destructive. It will destroy the global economy unless it is changed. The world must return to a financial system based on quantitative principles that remove or at least reduce to a minimum the growth of unearned income that is causing the unsustainable debt growth."

I want to be wrong. Please prove me wrong.