I found the arguments as to where debts come from confusing? Can anyone help me? My understanding in that debt is first created by central banks who create money from thin air and placed in the form of numbers on a screen in a bank. This is a loan and has an adjustable interest rate attached. The bank then lends the money to the people,other banks and governments. Charged at a higher interest rate of course and so on. The major problem with this system as apposed to the gold standard for instance is that the debts can never be repayed because of the interest (they didn't print the interest) so the only way to make repayments on this debt is for Central banks to create more money LOANS .get used to these articles because the only thing that can keep this machine running is an ever increasing amount of debt. To me what happened in 08 is the little brother of the type of debt bubble we are creating today. Comment please as I am always learning and welcome some decent insight. Thanks.
I found the arguments as to where debts come from confusing? Can anyone help me? My understanding in that debt is first created by central banks who create money from thin air and placed in the form of numbers on a screen in a bank. This is a loan and has an adjustable interest rate attached. The bank then lends the money to the people,other banks and governments. Charged at a higher interest rate of course and so on. The major problem with this system as apposed to the gold standard for instance is that the debts can never be repayed because of the interest (they didn't print the interest) so the only way to make repayments on this debt is for Central banks to create more money LOANS .get used to these articles because the only thing that can keep this machine running is an ever increasing amount of debt. To me what happened in 08 is the little brother of the type of debt bubble we are creating today. Comment please as I am always learning and welcome some decent insight. Thanks.
A couple of points -
1. It's private banks who create most of the money in the system, not reserve banks.
2. Don't listen to anything Simon says, he has no idea.
EDIT - I shouldn't be so harsh on Simon - we would all love to hear him explain how money is created in the banking system - over to you Simon - strut your stuff.
Be in no doubt that it is you who is the cult here.
b_b has mathematical certainty.
That's similar to what the Scientologists say about the psychiatry discipline. According to your nutty dogma, there is no difference between the savings profiles of h'hold aggregates between different nation. It's nothing more than an accounting trick.
That's similar to what the Scientologists say about the psychiatry discipline. According to your nutty dogma, there is no difference between the savings profiles of h'hold aggregates between different nation. It's nothing more than an accounting trick.
Like a pea and thimble? That's quite funny really. It's grade 5 maths.
1. It's private banks who create most of the money in the system, not reserve banks.
2. Don't listen to anything Simon says, he has no idea.
EDIT - I shouldn't be so harsh on Simon - we would all love to hear him explain how money is created in the banking system - over to you Simon - strut your stuff.
I found the arguments as to where debts come from confusing? Can anyone help me? My understanding in that debt is first created by central banks who create money from thin air and placed in the form of numbers on a screen in a bank. This is a loan and has an adjustable interest rate attached. The bank then lends the money to the people,other banks and governments. Charged at a higher interest rate of course and so on. The major problem with this system as apposed to the gold standard for instance is that the debts can never be repayed because of the interest (they didn't print the interest) so the only way to make repayments on this debt is for Central banks to create more money LOANS .get used to these articles because the only thing that can keep this machine running is an ever increasing amount of debt. To me what happened in 08 is the little brother of the type of debt bubble we are creating today. Comment please as I am always learning and welcome some decent insight. Thanks.
For a Country like Australia with a floating non convertible currency, money comes from two sources;
1. Bank credit creation 2. Government spending
Bank credit creation When a person or entity borrows money from a bank, the bank simultaneously credits the loan and deposit account of the borrower. The deposit is then spent into the economy. That is, the debt (loan) creates the deposit. This is also known as endogenous money. Banks create the money from thin air, but zero net financial assets are created.
But Banks have certain constraints (too numerous to go into here). However one constraint is that banks are required to hold a certain amount of reserves (exchange settlement balances) with the central bank (CB). So as the banks balance sheets expand, they need more reserves, This is supplied by the central bank because if they didn’t, demand for reserves would exceed supply and the cash rate would rise.
So in summary – the loan creates the deposit, and banks seek the reserves later – and always supplied by the CB because the CB targets an interest rate.
As to the view the economy needs ever growing debt to sustain itself, well that is nonsense. I’ll show you with a simple example.
Someone with a loan does work for someone that has a deposit. The wages are paid, and the deposit and loan offset each other. Aggregate debt falls, yet GDP grows (from the labour).
Like a pea and thimble? That's quite funny really. It's grade 5 maths.
Only if you teach maths based on fallacy. Very similar to saying that If Scientologist A distributes 8 books per day and Scientologist B distributes 10 books per day, there is no difference between the two disciples in distribution efficacy because all books are the property of the Church.
Only if you teach maths based on fallacy. Very similar to saying that If Scientologist A distributes 8 books per day and Scientologist B distributes 10 books per day, there is no difference between the two disciples in distribution efficacy because all books are the property of the Church.
That's a very poor argument Terry. Have another shot at it. We won't count this one.
b_b
5 Jan 2017, 05:44 PM
As to the view the economy needs ever growing debt to sustain itself, well that is nonsense. I’ll show you with a simple example.
Someone with a loan does work for someone that has a deposit. The wages are paid, and the deposit and loan offset each other. Aggregate debt falls, yet GDP grows (from the labour).
If the CB targets inflation and that includes inflating asset prices, inflating wages and costs, I think the money supply has to grow to accommodate that increasing demand on the available pool of money.
It might work in your example once, but if that work was performed again as it is in continuous employment, then that employer will need more money to keep going. I know that his business should earn money from other parties, but they are also in the same economy suffering increasing demands on their supply of money as wages and the price of goods increase.
For a Country like Australia with a floating non convertible currency, money comes from two sources;
1.Bank credit creation 2.Government spending
Bank credit creation When a person or entity borrows money from a bank, the bank simultaneously credits the loan and deposit account of the borrower. The deposit is then spent into the economy. That is, the debt (loan) creates the deposit. This is also known as endogenous money. Banks create the money from thin air, but zero net financial assets are created.
But Banks have certain constraints (too numerous to go into here). However one constraint is that banks are required to hold a certain amount of reserves (exchange settlement balances) with the central bank (CB). So as the banks balance sheets expand, they need more reserves, This is supplied by the central bank because if they didn’t, demand for reserves would exceed supply and the cash rate would rise.
So in summary – the loan creates the deposit, and banks seek the reserves later – and always supplied by the CB because the CB targets an interest rate.
As to the view the economy needs ever growing debt to sustain itself, well that is nonsense. I’ll show you with a simple example.
Someone with a loan does work for someone that has a deposit. The wages are paid, and the deposit and loan offset each other. Aggregate debt falls, yet GDP grows (from the labour).
Ok makes sense in regards to the bank making the loan out of thin air then being backed up the central bank. Same thing I guess only created front to back instead. Your other point in regards to infinite debt doesn't make sense to me as the wages and all forms of currency in the system originated in the form of a loan? Yes? With interest yes? The only currency (money created without interest) that I know of is the Japanese yen and it's very experimental. I think the Japanese have created the highest debt to gdp ratio in the world?
That's a very poor argument Terry. Have another shot at it. We won't count this one. If the CB targets inflation and that includes inflating asset prices, inflating wages and costs, I think the money supply has to grow to accommodate that increasing demand on the available pool of money.
It might work in your example once, but if that work was performed again as it is in continuous employment, then that employer will need more money to keep going. I know that his business should earn money from other parties, but they are also in the same economy suffering increasing demands on their supply of money as wages and the price of goods increase.
I wouldn’t bother with Terry, Rufus.
It’s pretty clear to me “Terry” is a bull sock. Probably Shadow / K. No-one is that stupid. No-one can consistently lose every single debate every time. Such a person would not be capable of operating computer.
I put “Terry” on ignore about a year ago hoping this sock disappears. It’s a shame really, since there are some smart Bears on this forum. But Terry’s existence makes them all look stupid (brings down the average). Sometimes they even take his side – all the while the Bulls are just laughing at them
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