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jiimmy
Boulder climber
san diego
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Financial wizard AND photographer! I have a new hero..............
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TradIsGood
Chalkless climber
the Gunks end of the country
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Bad math day for me...
Correction: Forgot to add the two additional net +10 deposits.
The ledger should now show on the Asset side 30 (not 100, pardon my mistake from above) in cash remaining from the initial equity, and 240 of assets (not clear whether they are current, or long term etc.
Total Assets 270.
On the liability side, 240 in deposits (presumably demand deposits or savings accounts), Leaving 30 in stockholders equity.
Assets = Liabilities + Equity (day 1 in accounting class, I would guess?)
Answers
1) The bank is $6 above the limit. At this point they can lend 5 unless they get more deposits.
Does the bank create money? Seems more like the transactions create money. Until the transactions occur, the bank is just sitting their with initial capital.
Does paying off the loans destroy money?
Is answering this question really important in understanding how financial institutions work? I think not.
Does guiding create money? Mining gold, or copper?
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 4, 2008 - 01:39am PT
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Any honest person can see you are being evasive TIG. Why? Whats the point?
Peace
Karl
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raymond phule
climber
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"Bank has 100 gold coins and loans 90 to Jstan
Jstan buys shoes from Bachar with the 90 and Bachar deposits 90 in the bank. The Bank then loans Baba 80 and he buys haulbag from Fish with the 80 and Fish deposits the 80 in the bank. Bank uses Fish's 80 and loans 70 to Jody to buy Ammo from Eric. Eric deposits the 70 in the bank. The process goes on but lets stop there.
Everybody got their loan in gold coins. The bank still has 100 gold coins and is owed 240 by all those guys. Those guys also think they have 240 in the bank, which is cool"
You have a bank that started with 100 gold coins. Then a couple of people put in some more gold coins. This is not simple imaginary gold coins but gold coins they got when they sold gear that already had cost them some gold coins and work. Those gold coins came from somewhere else. So Fish had 80 gold coins, use 5 to pay back on a sewing mashine, 45 to buy cordura and 30 to buy food and beer. He then sell the haulbag and get 80 gold coins and decide to put them into the bank.
"until they want their coins at once, which would be a run on the bank."
Yes, and everyone including John and TIG admitt this. I don't believe this is a big problem if the bank is smart and everybody are able to pay back there loans. I believe much more in John's understanding of the crises compared to yours.
"Money is created by lending. Anybody want to deny that?"
The extra money also disappear when they loans are payed back.
"If all these guys paid off their loan to the bank, what's the effect on the money supply?"
Nothing.
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raymond phule
climber
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Don't banks work something like this.
People put in money. Say 100.
The bank loan out 90 of these.
Then if all people decide to take out their money at the same time the bank is in a small problem but probably easy to solve by taken a loan from another bank. Shouldn't be any problems if the loans from the customers are paid back.
The real problems start if people can't pay back their loans. Then is it not possibly for the bank to pay back the money people have put in the bank and we have a problem.
edit: This was for a commercial bank. I believe a central banks job is to create money and in the "right" amount that everything else turns out good, value on currency, increase etc.
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WBraun
climber
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But all that paper (money) has to be backed up by something of "VALUE". Gold always holds it's value eternally.
Paper is worthless without something of value that it represents and lasts.
Paper money, plastic credit & debt cards is a stupid system created by crooks and thieves.
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bachar
Gym climber
Mammoth Lakes, CA
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Werner hits a home run.
Pretty simple - thanks Braun....
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TradIsGood
Chalkless climber
the Gunks end of the country
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werner and bachar really have not thought this through. Any money is only as valuable as people perceive it to be.
Money, whether paper, gold, oil, baseball cards or jewelry is just a medium for value exchange. If you need to eat and there is no place to spend money, you might work for food. Gold would be of no help.
You could work for more food than you could eat, and store some for winter or days when you could not work. You could even exchange it for work that someone else can do that you can't.
To see that this is true you can look at the commodity and currency markets. The value of the Euro has dropped in the last two months as measured by its exchange rate for dollars. The value of money has increased as measured by the amount of oil or gasoline you can buy.
Conversely the the value of oil has dropped as measured by the amount of dollars or euros it takes to buy it.
GOLD - a fairy tale from history. Ever try to build a computer out of it? Eat it? How much more would a book cost if you had to send gold to amazon?
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Raydog
Trad climber
Boulder Colorado
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RE:
"Sure, but those things above all stem from and are created by society "
yes, exactly my point..society, "social" VALUES.
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sawin
climber
On the ocean the last I checked.
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fkn debt...
Yes, and news many times has been hot air.
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Redwood
Gym climber
West Sacramento CA
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Karl Baba wrote: "The dependence on growth to fuel the cycle of money was fine as long as we had lots of oil, not so many people, and plenty of land. The real question is, when will the music stop in this game of musical chairs? "
It is stopping now. As you have pointed out, this fractional reserve deposit expansion scheme resembles a Ponzi scheme; it can only work temporarily. In ancient times they used to reset the system when it reached the tipping point with a Jubilee (Leviticus 25). We haven't been granted a Jubilee by the Powers that Be, unfortunately.
Contrary to what somebody asserted earlier, I forget who it was, all political entities have not always had the kind of money creation scheme that we have. The key point is not whether money is created out of nothing, but rather whether it is created as an interest-bearing debt. If it is created as an interest-bearing debt, then the system is unstable; simple as that.
The reason the system has been able to function for as long as it has (since 1913, I mean), is that there has been a constantly increasing supply of energy entering the system. By that I mean oil production, essentially. But now, as some of you may know, the Peak of world oil production has been reached, or will be reached very soon, at any rate the amount of energy entering the system is no longer increasing (is has plateaued-out). The U.S. used to be the world's No. 1 oil producer, but peaked in 1970. There is always all this talk about alternative energy sources, wind, etc., but they are too numerically insignificant to make up the difference, despite what the politicians, bless 'em, want to lead us to believe. They know the real score, but are keeping quiet "to avoid Panic" no doubt.
The entire economic system of the West (and probably the world) is going to collapse completely before too long, owing to the effect of declining oil production on the banking system. Many people naively believe that the economy can limp along in some fashion with 50% of the energy input it used to have, or 90%, or surely 99% or even 100%. It can't. The energy input has to be constantly increasing. It has stopped doing so and won't ever again.
If you want to climb something big and far away, do it now. 2008 is probably going to be the last normal year.
You want more info? Check this out:
http://www.chrismartenson.com/three_beliefs
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 4, 2008 - 03:30pm PT
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Nice post Redwood, that's it, thanks.
Raymond wrote
"You have a bank that started with 100 gold coins. Then a couple of people put in some more gold coins. This is not simple imaginary gold coins but gold coins they got when they sold gear that already had cost them some gold coins and work. Those gold coins came from somewhere else. So Fish had 80 gold coins, use 5 to pay back on a sewing mashine, 45 to buy cordura and 30 to buy food and beer. He then sell the haulbag and get 80 gold coins and decide to put them into the bank."
We were using a simple analogy before Raymond but the way the banking system works, there are no real gold coins and through their ledgers, the money that's deposited by one party is the same money that was lent to another party. It's called the multiplier effect and Fatty told us that's the way his family's bank makes bank.
""Money is created by lending. Anybody want to deny that?" "
The extra money also disappear when they loans are payed back""
This is is true, good
""If all these guys paid off their loan to the bank, what's the effect on the money supply?""
Nothing. ""
But you just admitted below that the extra money disappears when the loans are paid back! The effect on the money supply is that the money evaporates! Remember, we were using a simple analogy. Remember, or research and learn, that virtually all money in this country is based on debt. If debt goes away, so does the money.
I know it's hard to swallow but don't believe us based on individual credibility. Check it out.
Peace
karl
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Raydog
Trad climber
Boulder Colorado
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what's the problem karl?
having a hard time seeing your "fellow American"
in a new light?
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raymond phule
climber
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I have limited knowledge about this but the example of making money seems to be similar to.
I have 100 and put it into the bank.
I then loan 90 from the bank.
I put the 90 in the bank.
I loan 80 from the bank.
I put 80 in the bank.
I have now 0 in my hand but I have 270 in the bank. I also have 170 in loans.
I and the bank haven't made any money. It is just money in different columns in the books. I can't see how this matters in any way for the bank. The bank have the whole time loaned out money that it had at the time and it should be able to get it back.
The central bank probably make money and probably loan it to the banks and try to control things like the inflation with for example their interest. It's a complicated and maybe flawed system (I don't know) but I really doubt the reason if it is flawed have anything to do with what is written in this thread.
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John Moosie
climber
Beautiful California
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Raymond. The federal reserve creates money buy buying T bills with money they Do Not Have. This is the start of all the problems we have with finances. It should be important to you because by creating money out of nothing and using it to buy interest bearing T bills, we artificially inflate the amount of money in existence and this creates inflation. plus it puts us in the hole right from the beginning.
Money based on real products does not create inflation. So gradually over time your money becomes worth less unless you keep working to reinvest it in things that grow in value. Yet you still lose part of that value as a result of inflation, plus you have to work to keep ahead of inflation.
Eventually my hope is that people will realize that the federal reserve system is a ponzi scheme that will eventually fail and we will find another way to create money.
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raymond phule
climber
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Ok, have to admit I am guessing :)
"Raymond. The federal reserve creates money buy buying T bills with money they Do Not Have. This is the start of all the problems we have with finances. It should be important to you because by creating money out of nothing and using it to buy interest bearing T bills, we artificially inflate the amount of money in existence and this creates inflation. plus it puts us in the hole right from the beginning."
What is money? Money is not gold, diamonds, fishes or pigs. Money is today something imaginary that you and a country "get" when doing work and buy things in some way. I believe that the inflation have been pretty low for many years and it can to some extent be determined by the central bank.
"Money based on real products does not create inflation. So gradually over time your money becomes worth less unless you keep working to reinvest it in things that grow in value. Yet you still lose part of that value as a result of inflation, plus you have to work to keep ahead of inflation."
Should everyone pay with gold? What happens if someone finds a lot of gold?
"Eventually my hope is that people will realize that the federal reserve system is a ponzi scheme that will eventually fail and we will find another way to create money."
Do you have any solution?
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John Moosie
climber
Beautiful California
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Start by getting rid of the federal reserve system.
Inflation might be low and that might seem like no big deal, but most folks know that even one or two percent per year can over the years amount to a large amount. Think about how most families in order to maintain the standard that our parents had, must work two jobs instead of one. Meaning either dad works two jobs or dad and mom must both work in order to just have the simple things of life.
I am not here talking about those who are greedy and must have bigger and bigger things. I am talking about the basics.
As for what to replace this system with. I do not know. I am only just recently coming to understand this ponzi scheme and so don't have the answers of how to replace it.
The start to solving a problem is to recognize that one has a problem.
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 4, 2008 - 05:25pm PT
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Hi Raymond
You wrote
"I have limited knowledge about this but the example of making money seems to be similar to.
I have 100 and put it into the bank.
I then loan 90 from the bank.
I put the 90 in the bank.
I loan 80 from the bank.
I put 80 in the bank.
I have now 0 in my hand but I have 270 in the bank. I also have 170 in loans.
I and the bank haven't made any money. It is just money in different columns in the books. I can't see how this matters in any way for the bank. The bank have the whole time loaned out money that it had at the time and it should be able to get it back."
This is a strange example and I will repost an easier example below, but check it out. By your example above, you have 270 in the bank, probably paying 2% interest, and yet you owe the bank $170 and have to pay 6% interest, and the whole time it was ALL your money that you started with. Hardly a neutral situation. Of course in real if, it's not just you borrowing and loaning all that money back and forth, it's a web of people and web of banks balance it all out with their ledger system and by overnight bank loans at low interest.
Peace
Karl
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Karl Baba
Trad climber
Yosemite, Ca
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Topic Author's Reply - Oct 4, 2008 - 05:29pm PT
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Regarding "low" inflation. It's an illusion cooked by cheap imports from China and fraudulent accounting. (Energy and Food aren't considered)
Gas is 3x what it cost 7 years go. A gallon of milk is how much? The dollar is worth 37% less versus the euro than it was 7 years ago, so we get lots of Euros coming here to bolster our economy instead of Americans vacationing. Inflation under %5? BS for anything I'm buying except because of the import scam.
Now, to post the short bank explanation from earlier in this thread for folks who understandably are scared to wade through the whole thing
"Hi Raymond
Both the central banks and commercial banks create 10x money. They just use different mechanisms. Here's the explanation.
""No, you're confusing two fundamentally different types of reserve ratios. The one which allows a bank to multiply $100 by 10 to create $1000 only applies to central banks. The commercial banks however are only allowed to loan out 90% of their money, so on $100 deposited they can only lend out $90. Once this money is once again deposited, $81 is lent out, and so on as the amount approaches $0. So central banks multiply by the ratio (in this case 10) while commercial banks divide by it. This is also why onbooks it appears as though commercial banks always have 10% mroe deposits than loans, creating the myth that they actually loan out their deposits.
In effect, if a central bank has $1000, with a reserve ratio of 10:1, the central bank can create and lend out $10,000. This 10,000 isthen re-deposited in a commercial bank which lends out $9,000, then $8,100, etc. In the end money initially owned by the central bank is multiplied by 100 times, giving us $100,000. That is if the cycle isn't interrupted (by hoarding). Of course, if the reserve ratio is larger, and in some countries such as the UK and Canada it is no longer present at all, then a lot more money can be created." "
Peace
karl
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raymond phule
climber
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Yes, my example showed a stupid way to do things due to interests but it still show the meaninglessness to talk about these extra money like something important.
"Regarding "low" inflation. It's an illusion cooked by cheap imports from China and fraudulent accounting. (Energy and Food aren't considered)"
I don't know and I meant for maybe a couple of years ago.
"Gas is 3x what it cost 7 years go. A gallon of milk is how much? The dollar is worth 37% less versus the euro than it was 7 years ago, so we get lots of Euros coming here to bolster our economy instead of Americans vacationing. Inflation under %5? BS for anything I'm buying except because of the import scam."
Maybe all those things don't have anything to do with banking and especially not the underlying system that most countries use. The oil price is probably not that dependent on the banking system.
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