mmasters, thank you for your well written explainations.
Jefferson was on the money 100%.
PeakOil is You
Neat little video about the monetary system
Re: Neat little video about the monetary system
by bshirt » Tue 20 Feb 2007, 11:40:22
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Re: Neat little video about the monetary system
by MrBill » Tue 20 Feb 2007, 11:59:46
I am not entirely sure how you walk the cat backwards either. I suppose you can compare investments into depreciating assets to borrowing money and paying interest even though the investment loses value. It is a sunk cost.
But I suppose it depends on whether or not you can afford it. People still borrow money to buy new cars. Either they can afford to take those losses or not. They are not likely to sell the used car for more than their loan plus interest.
If we look at historical trends where real growth was much lower then of course the decision to borrow to buy an asset is not an easy one taken lightly.
Take long-term real-estate trends where a traditional 30-year mortgage costed 6% p.a. and houses went up predictably 3% per year on average. You have to offset the cost of owning the house plus paying interest at a higher rate than its appreciation by comparing it to renting, and even then it only made sense if you actually intended to live in that house for let us say more than 30-years.
In Japan where you have had negative growth in real estate prices that have fallen 75% in the past two decades from their peaks for example you have 50-year mortgages. There home ownership becomes an inter-generational issue. Because the real burden of interest in a low, slow growth environment is that much higher. They cannot count on inflation devaluing their future debts.
Just a few examples. I have not given it too much thought. Cheers.
UPDATE: Umm, it occurred to me that if a $10 trillion economy contracted by 25%, just as an example, then it is still $7.5 trillion. One of the largest in the world. This means that income related investments need to focus on free-cash flow and not just capital appreciation. For example a 10-year railway bond paid for by user fees or fares.
It is a simplistic assumption made by many here on peak oil dot com that you need unlimited growth. The economy needs to generate a profit. It does not need to grow exponentially against a background of energy scarcity. I probably should have pointed this out earlier. But then again it is kinda fun to watch 'self-taught experts' make fools of themselves! ; - ))
But I suppose it depends on whether or not you can afford it. People still borrow money to buy new cars. Either they can afford to take those losses or not. They are not likely to sell the used car for more than their loan plus interest.
If we look at historical trends where real growth was much lower then of course the decision to borrow to buy an asset is not an easy one taken lightly.
Take long-term real-estate trends where a traditional 30-year mortgage costed 6% p.a. and houses went up predictably 3% per year on average. You have to offset the cost of owning the house plus paying interest at a higher rate than its appreciation by comparing it to renting, and even then it only made sense if you actually intended to live in that house for let us say more than 30-years.
In Japan where you have had negative growth in real estate prices that have fallen 75% in the past two decades from their peaks for example you have 50-year mortgages. There home ownership becomes an inter-generational issue. Because the real burden of interest in a low, slow growth environment is that much higher. They cannot count on inflation devaluing their future debts.
Just a few examples. I have not given it too much thought. Cheers.
UPDATE: Umm, it occurred to me that if a $10 trillion economy contracted by 25%, just as an example, then it is still $7.5 trillion. One of the largest in the world. This means that income related investments need to focus on free-cash flow and not just capital appreciation. For example a 10-year railway bond paid for by user fees or fares.
It is a simplistic assumption made by many here on peak oil dot com that you need unlimited growth. The economy needs to generate a profit. It does not need to grow exponentially against a background of energy scarcity. I probably should have pointed this out earlier. But then again it is kinda fun to watch 'self-taught experts' make fools of themselves! ; - ))
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Re: Neat little video about the monetary system
by joewp » Wed 21 Feb 2007, 02:05:48
Can we settle this with an explanation from the horse's mouth? Commercial banks do create money. The St. Louis Federal Reserve Bank says so right on their website.
$this->bbcode_second_pass_quote('', '[')b]Commercial banks are very important in the money
supply process because thc public chooses to hold
money in the form of demand deposits. When currcncy
supplied by the monetary authorities is exchanged
by the public for a demand deposit, the form
of money changes. In addition, banks obtain additional
reserves. In a fractional reserve banking system,
which is what we have in the United States,
required reserves equal only a fraction of deposits.
The remainder of funds obtained with deposits may
be used by banks to make loans or investments. By
making loans commercial banks increase their liabilities
(demand deposits ) and assets (loans ) , and in a
sense “create” money on the basis of the original
money (reserves) provided by the monetary authorities.
linky-poo
$this->bbcode_second_pass_quote('', '[')b]Commercial banks are very important in the money
supply process because thc public chooses to hold
money in the form of demand deposits. When currcncy
supplied by the monetary authorities is exchanged
by the public for a demand deposit, the form
of money changes. In addition, banks obtain additional
reserves. In a fractional reserve banking system,
which is what we have in the United States,
required reserves equal only a fraction of deposits.
The remainder of funds obtained with deposits may
be used by banks to make loans or investments. By
making loans commercial banks increase their liabilities
(demand deposits ) and assets (loans ) , and in a
sense “create” money on the basis of the original
money (reserves) provided by the monetary authorities.
linky-poo
Yep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.
Banks are going to end up owning just about everything within a decade or two after PO unless people wise up to the scam.
Joe P. joeparente.com
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
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Re: Neat little video about the monetary system
by MonteQuest » Wed 21 Feb 2007, 02:58:44
$this->bbcode_second_pass_quote('Micki', ' ')Obviously a topic that requires intimate study to find out the whole picture.
In December of 2004, I wrote a thread that explains it all.
39 pages. I noted the pages of the most relevant parts. Covers it all, fractional reserve, M1 M2 money supply, etc.
Our Money System and Oil Depletion; Are they Compatible?
http://www.peakoil.com/fortopic3761.html
A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
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Re: Neat little video about the monetary system
by MrBill » Wed 21 Feb 2007, 05:57:28
joewp wrote:
$this->bbcode_second_pass_quote('', 'Y')ep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.
Banks are going to end up owning just about everything within a decade or two after PO unless people wise up to the scam.
$this->bbcode_second_pass_quote('', 'Y')ep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.
Banks are going to end up owning just about everything within a decade or two after PO unless people wise up to the scam.
So Big Bank has $100 on deposit from you. Where do they get the other $900 to lend out? They would have to borrow it from the Interbank market or go to the central bank for the balance. For that they would be paying interest on the money they borrow from someone else because they cannot create it out of thin air. Of course, the Fed is getting their cash from the US treasury per the link you just posted.
So pretty much if I went to Big Bank for a mortgage. I would have to pay interest plus the principle back on the money I borrowed. Boy, some scam. I can hardly understand the mechanics? Let us write another 10-pages! ; - )
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MrBill - Expert
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Re: Neat little video about the monetary system
by MrBill » Wed 21 Feb 2007, 07:48:20
$this->bbcode_second_pass_quote('MonteQuest', '')$this->bbcode_second_pass_quote('Micki', ' ')Obviously a topic that requires intimate study to find out the whole picture.
In December of 2004, I wrote a thread that explains it all.
39 pages. I noted the pages of the most relevant parts. Covers it all, fractional reserve, M1 M2 money supply, etc.
Our Money System and Oil Depletion; Are they Compatible?
http://www.peakoil.com/fortopic3761.html
MonteQuest, I posted my response in the orignal thread. Thanks. MrBill.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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