I've been stuck on this chapter for a long time now, please help

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mavakil's picture
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I've been stuck on this chapter for a long time now, please help

Hi Chrismartenson fans, I'm not able to get my head around the material in this chapter completely, would be grateful if you guys help me simplify it further.

My questions are:

1. As per the third & fourth paragraph, It's the Treasury department that borrows money from Chinese/Japanese banks via bonds, so why are we discussing creation of money. It doesn't need to be created, it it's being borrowed.

2. In the fifth paragraph, it says that the Fed buys Treasury bond from a Bank. So is it that, the money is first borrowed from Chinese/Japanese banks by means of issuing a bond to them, and then in a year's time the same bond is bought back by the Fed by printing Dollars?

3. If that's so, then there are two more questions that arise:

- It doesn't make sense that the Treasury department (which I understand is part of the US Government) issues the bonds, but the same is paid back by the Fed, which is a private setup (or quasi-government at best).

- Why go through all the hassle of taking a loan from Chinese/Japanese banks and then printing money to pay them back. Might as well just print the money and use it for whatever projects that the Government wants.

4. If we remove all the transactions, is it finally the case that the money that Dollars that are circulating in America is actually loan money mostly borrowed (in the recent past) from China/Japan?

5. Any security that the Chinese/Japanese banks take for this loan that they give to US Treasury?

I have a copy of Web of Debt, that I hadn't had the chance to read yet. Any pages/chapters in that which explains the above? If that is simpler.

Thanks so much! Arif

 

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Re: I've been stuck on this chapter for a long time now, ...

Hi mavakil,

Maybe I can help.

mavakil wrote:

1. As per the third & fourth paragraph, It's the Treasury department that borrows money from Chinese/Japanese banks via bonds, so why are we discussing creation of money. It doesn't need to be created, it it's being borrowed.

That's right.  No money is created in this step.  The US Treasury is simply borrowing US Dollars that have already been printed from foreign banks which happen to have a bunch of dollars in their vaults.

mavakil wrote:

In the fifth paragraph, it says that the Fed buys Treasury bond from a Bank. So is it that, the money is first borrowed from Chinese/Japanese banks by means of issuing a bond to them, and then in a year's time the same bond is bought back by the Fed by printing Dollars?

Yes.  Remember that the U.S. Treasury and the Federal Reserve are two completely separate institutions.  The U.S. Treasury represents the federal government, while the Federal Reserve (or "Fed") is a supposedly independent banking organization.  In reality it is not independent but is controlled to a large degree by the federal government.  So... the treasury borrows a bunch of dollars from a bank and gives them a treasury bond in return.  That's how banks get treasury bonds.  At any given time a bank will have a bunch of cash and treasury bonds lying around. 

If the federal reserve thinks that the banking system needs more cash, it will buy a treasury bond from a commercial bank (not necessarily a year later - it could be the next week or next day) and goves them freshly printed money in return.  That is how new money is most often introduced into the banking system.

mavakil wrote:

3. If that's so, then there are two more questions that arise:

- It doesn't make sense that the Treasury department (which I understand is part of the US Government) issues the bonds, but the same is paid back by the Fed, which is a private setup (or quasi-government at best).

No, it doesn't make sense.  Well, that's not entirely true.  It might make sense for the fed to buy treasury bonds (along with other "zero risk" paper) as part of its normal job of fixing interest rates and adjusting money supply.  But it may not make sense for the fed to do it as much as it does.  You are correct that the fed is supposed to be a private, independent organization that would never monetize the debt of the US or any other government.  But the fed chairman is appointed by the president, after all, and many of the fed's employees come from Wall Street firms.  So it is not surprizing that it has a certain sympathy with the US government.  Many people suspect that the Fed isn't as independent as it claims to be.

Even if the fed is a completely independent private organization, its first job is to protect its bank members.  It might reasonably conclude that protecting the banking system depends on protecting the US government from debt default, and so it is drawn into helping to subsidize the US government's massive borrowing needs.

mavakil wrote:

- Why go through all the hassle of taking a loan from Chinese/Japanese banks and then printing money to pay them back. Might as well just print the money and use it for whatever projects that the Government wants.

Now you're catching on.  Yes, the result is the same, but the fed chooses to use middle men because if it "monetized" (bought with freshly printed money) US debt directly, it wouldn't look good.  By using middle men, the fed can disguise the fact that it is indirectly supporting the US government's borrowing needs.  It can argue that it is buying and selling treasury bonds for some other reason, and that its purchase and printing activities--while admittedly having the incidental effect of supporting government borrowing-- are being done for some other, unrelated reason.

mavakil wrote:

4. If we remove all the transactions, is it finally the case that the money that Dollars that are circulating in America is actually loan money mostly borrowed (in the recent past) from China/Japan?

China and Japan do loan us a large amount of money, but I don't think its true that our dollars are "mostly" borrowed back from China and Japan.

mavakil wrote:

5. Any security that the Chinese/Japanese banks take for this loan that they give to US Treasury?

No, they have no security which guarantees repayment and they are also vulnerable to inflation of the US currency.

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Re: I've been stuck on this chapter for a long time now, ...

Mavakil,

Drkrybluv and I are engaged in a thread that may interest you because it relates to this topic at hand.

https://www.PeakProsperity.com/forum/why-dont-they-just-keep-printing/33320

 

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Re: I've been stuck on this chapter for a long time now, ...
jrf29 wrote:
mavakil wrote:

4. If we remove all the transactions, is it finally the case that the money that Dollars that are circulating in America is actually loan money mostly borrowed (in the recent past) from China/Japan?

China and Japan do loan us a large amount of money, but I don't think its true that our dollars are "mostly" borrowed back from China and Japan.

Hi Arif

Fortunately for both of us, jrf29 did an excellent job of answering your questions. 

Just to clarify one thing. For the past year or so, the Federal Reserve has been infusing massive amounts of money into the system, in an effort to stave off deflation (drop in the money supply from all the money lost) caused by the 2008 financial collapse, which might change the numbers slightly, but normally - believe it or not - about 95% of our money supply is actually loaned into existence by the fractional reserve system, which is described in chapter 7. The new money created out of thin air by the Fed is really only a small percentage of the total. It's truly amazing how the money gets multiplied through the loan process.

This might help too:

http://www.financialsense.com/fsu/editorials/gnazzo/2005/1129.html

Best

Greg

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Re: I've been stuck on this chapter for a long time now, ...

Greg,

100% of the money in circulation only comes into exsistance through an extention of credit by a private commercial bank.  The Fed does not put any debt free money into circulation.

 

"There is no such thing as debt free money under U.S. Law" Thomas L. Woodward - Congressional research service.

"...the actual creation of money always involves the extention of credit by a private commercial banks." -Russel L. Munk U.S. Treasury.

 

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Re: I've been stuck on this chapter for a long time now, ...

Thomas

I'm sure you mean well, but despite your keen interest in monetary reform (I am aware of your preference, shared by DrKrbyLuv, for debt-free money spent into existence), I've found nothing in any of your posts to suggest that you understand the system we currently have - however knowledgeable you may be about superior alternatives. Putting up isolated quotes from authoritative sources, without adding anything to substantiate them is completely unhelpful. And I think it is particularly unhelpful for someone who is new to these simple, but counterintuitive, and therefore confusing concepts. You remind me of someone who has read extensively about algebra or calculus, and can site chapter and verse, but then can't perform a simple equation. What's the point?

Thomas Hedin wrote:

100% of the money in circulation only comes into exsistance through an extention of credit by a private commercial bank. ...

I think you are taking Munk too literally. It is not only untrue - certainly, coins and currency do NOT come from "an extension of credit by a commercial bank" - but by focusing exclusively on M1, or some measure of money held by the non-bank public, you ignore the critical role of the central bank (the Federal Reserve) in creating and maintaining the base (high-powered) money supply (through the purchasing and selling of government (treasury) securities) - without which the commercial banks cannot extend credit. That's the whole point of the chapter Mavalik is questioning. 

Quote:

The Fed does not put any debt free money into circulation. 

Yes. There is no debt free money. All money is debt. But what the Fed does do, is purchase 'debt' (government bonds - treasuries) from the banks (which had first purchased the bonds from the government by lending them existing money) using no corresponding 'asset.'  It simply creates the money out of thin air. And this is how new reserve (High-powered) money is created, which the commercial banks can than multiply using the fractional reserve system. That's the key point that needs to be understood.

Here's an explanation of the less common process by which the Fed has been infusing more money into the system through it's open-market operations, since the meltdown.

http://en.wikipedia.org/wiki/Quantitative_easing

I hope this clears things up.

Best

Greg

 

 

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Re: I've been stuck on this chapter for a long time now, ...

I've found nothing in any of your posts to suggest that you understand the system we currently have....

certainly, coins and currency do NOT come from "an extension of credit by a commercial bank"

Can you please explain the process to me how coins and currency are created and moved into circulation?

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Re: I've been stuck on this chapter for a long time now, ...
Thomas Hedin wrote:

I've found nothing in any of your posts to suggest that you understand the system we currently have....

certainly, coins and currency do NOT come from "an extension of credit by a commercial bank"

Can you please explain the process to me how coins and currency are created and moved into circulation?

Me and my BIG mouth!  Just because I don't think you understand the system, that makes me the expert? Wink

http://www.ustreas.gov/education/fact-sheets/currency/distribution.shtml

This should help

Best

Greg

 

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Re: I've been stuck on this chapter for a long time now, ...

Me and my BIG mouth!  Just because I don't think you understand the system, that makes me the expert?

Please answer the question about how coins and currency are moved into circulation so that you and I can use them. 

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Re: I've been stuck on this chapter for a long time now, ...

Hello all, nothing I enjoy more than money creation threads as this is is the most important topic that we can discuss. In it lies the reasons that we are drowning in debt and also the key to our freedom and sovereignty.

mavakil wrote:

1. As per the third & fourth paragraph, It's the Treasury department that borrows money from Chinese/Japanese banks via bonds, so why are we discussing creation of money. It doesn't need to be created, it it's being borrowed.

2. In the fifth paragraph, it says that the Fed buys Treasury bond from a Bank. So is it that, the money is first borrowed from Chinese/Japanese banks by means of issuing a bond to them, and then in a year's time the same bond is bought back by the Fed by printing Dollars?

Hi mavakil, great line of questioning!  You mentioned that you have Ellen Brown's "Web of Debt" and requested references.  I think that is a fantastic book, and I'll try to reference it where practical for your research. 

The Federal Government funds budget deficits by printing bonds (debt) that are sold to banks, individuals, sovereign nations, etc.  Individuals and non-banking concerns use their own money in buying the bonds.  But the banks and private Fed handle the transaction quite different.

Banks and the private Federal Reserve hold an unusual monopoly in that they may "monetize" (create money) based on the collateral and a promissory note of others.  The bonds act as collateral and a promise to pay.  The banks and the private Fed create the money virtually for free and then collect interest.  Banks may also use excess reserves held in their Federal Reserve account to buy the bonds.  The reserves are created by the Federal Reserve's FOMC (open market committee).  In either case, it is money for free for them and debt to us.  (refer to Ellen Brown's "Web of Debt" - Chapter 2 "Behind the Curtain: The Federal Reserve and the Federal Debt"  page 23). 

Thomas Edison saw through this scheme almost 90 years ago and elegantly explained what was happening and the solution:

“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good also...Both are promises to pay, but one fattens the usurers and the other helps the people.

If the currency issued by the Government was no good, then the bonds would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges..." - see more in another post

If the bonds are good, Edison is saying we should simply issue dollars instead, effectively they are both money.  If others are willing to accept the collateral and promise to pay, why doesn't the government accept the collateral and monetize the project without any debt?  Only sovereign nations hold the power to create and issue money.  We have given that supreme prerogative to a private banking cartel.  Without our authority and agreement, they hold no such power.  (refer to Ellen Brown's "Web of Debt" - Chapter 4 "How the Government was Persuaded to Borrow it's Own Money" page 45).

I think China and Japan buy our debt by recycling surplus dollars.  Not to get off topic, but China is rather unique in that they have not given away their right to create and control their own money.  The central bank of China is owned by the state which is the big reason why they are a creditor nation and we are a debtor nation.  China, unlike us, has no need to borrow from any private bank.  (refer to Ellen Brown's "Web of Debt" - Chapter 27 "Waking the Sleeping Giant: Lincoln's Greenback System Comes to China" page 253). 

mavakil wrote:

- It doesn't make sense that the Treasury department (which I understand is part of the US Government) issues the bonds, but the same is paid back by the Fed, which is a private setup (or quasi-government at best).

Agreed, it makes sense.  And the Federal Reserve is completely privately owned and independent from the government.  If there is anything quasi about it, it is that the private Fed also controls much of our government.  Again, I don't want to get sidetracked but the New York branch of the private Fed basically runs the entire system.  The big Wall Street banks own a majority of the New York Fed and the New York Fed accounts for over 50% of total Fed ownership.  

mavakil wrote:

- Why go through all the hassle of taking a loan from Chinese/Japanese banks and then printing money to pay them back. Might as well just print the money and use it for whatever projects that the Government wants.

Correct, but the problem is that we have given our power to issue and control our money to a private banking cartel.  At any time we choose,, we can take back our power and eliminate any need for a national debt.  BTW, the national debt and income tax are completely by choice.  We have no need for either.  (refer to Ellen Brown's "Web of Debt" - Postscript "Credit Relief for the States: The Minnesota Transportation Act" page 473). 

BTW - Thomas Hedin is one of the major shakers in the Minnesota Transportation Act along with Byron Dale, you will have a greater appreciation for their heroic efforts in the "Web of Debt"  - we're honored to have him stop by!    

mavakil wrote:

4. If we remove all the transactions, is it finally the case that the money that Dollars that are circulating in America is actually loan money mostly borrowed (in the recent past) from China/Japan?

The national debt is just over $12 trillion, around $3.5 trillion is held by foreign countries.  For a complete breakdown, see the "Debt Clock"

Hope this info is helpful,

Larry

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Re: I've been stuck on this chapter for a long time now, ...
Thomas Hedin wrote:

Me and my BIG mouth!  Just because I don't think you understand the system, that makes me the expert?

Please answer the question about how coins and currency are moved into circulation so that you and I can use them. 

Thomas

From the link provided earlier  http://www.ustreas.gov/education/fact-sheets/currency/distribution.shtml

"Currency notes and coins are all produced by the Treasury Department. After production, the Treasury ships the coins and currency notes directly to Federal Reserve banks and branches. The Federal Reserve then releases them as required by the commercial banking system. The demand for money by the public varies from day to day and from week to week. There are even differences from season to season. Banks are usually first to feel the impact of the public's demand for cash. To meet the needs of the public, banks turn to their regional Federal Reserve bank for coins and currency when their supplies are low.

The United States Mint is responsible for producing coins and the Bureau of Engraving and Printing (BEP) produces currency notes. Both bureaus must produce coins and currency in quantities sufficient to fill the needs of the public."

From FAQ contained within the link  http://www.ustreas.gov/education/faq/coins/production.shtml

"The United States Mint ships its coins to Federal Reserve Banks, which are responsible for putting coins and paper money into circulation and also for withdrawing them from circulation when they are worn out.

When a private bank needs coins to provide to you and its other customers, it purchases them from a Federal Reserve Bank. Banks have checking accounts at the Federal Reserve Banks, just as you do at your bank. To buy cash for you, your bank uses special checkbook money called a “reserve balance.” The coins make their way back to the Federal Reserve Bank at some point because banks often accumulate more cash than they need for day-to-day transactions. They deposit the excess cash into their checking account at a local branch of the Federal Reserve Bank until their customers need it. Coins circulate from the Federal Reserve Bank to the private banks to you and back again until they are worn out, unfit for circulation. The Federal Reserve replaces those coins by ordering new ones from the U.S. Mint—and once those coins are minted, a new circulation cycle begins. A circulating coin generally lasts 30 years or longer."

The rest would appear to be self explanatory.

Best

Greg

 

 

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Re: I've been stuck on this chapter for a long time now, ...

The rest would appear to be self explanatory.

I already know how they move around the banking system but please answer my question.  How do coins move into circulation so that you and I can use them.  You tell me that I don't understand the system so I want to hear what you know.

 

Please explain the process how those coins move into circulation so that you and I can use them.

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Re: I've been stuck on this chapter for a long time now, ...
GregSchleich wrote:

When a private bank needs coins to provide to you and its other customers, it purchases them from a Federal Reserve Bank. Banks have checking accounts at the Federal Reserve Banks, just as you do at your bank. To buy cash for you, your bank uses special checkbook money called a “reserve balance.” The coins make their way back to the Federal Reserve Bank at some point because banks often accumulate more cash than they need for day-to-day transactions. They deposit the excess cash into their checking account at a local branch of the Federal Reserve Bank until their customers need it. Coins circulate from the Federal Reserve Bank to the private banks to you and back again until they are worn out, unfit for circulation. The Federal Reserve replaces those coins by ordering new ones from the U.S. Mint—and once those coins are minted, a new circulation cycle begins. A circulating coin generally lasts 30 years or longer."

Thomas, hasn't this been asked and answered?

Why not quit playing games and say what you want to say?

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Re: I've been stuck on this chapter for a long time now, ...

You still haven't explained how those coins/currency in the banking system moves into circulation so what you and I can use them.

You said it's self explainatory, so if its so easily explained please explain.

I already know how coins/currency move about in the banking system, I want to know how they are moved into circulation.

 

Please explain the process in how those coins circulate to us.

 

Because you said this statement below, which if it was true would mean that we can get coins/currency into circulation without an extention of credit.  Your statement below is at best false, and at worst a lie.  I'm not playing games, you're just telling me I don't know what I'm talking about so I thought I would give you ample room to explain but you still cannot explain how coins/currency go into circulation so that you and I can use them.  Who told you the lie that we can get coins/currency without an extention of credit?

certainly, coins and currency do NOT come from "an extension of credit by a commercial bank"

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Re: I've been stuck on this chapter for a long time now, ...

Well, I'm not Greg but I think I see the divergence.

Greg DID ANSWER the question, although not to the completness you seem to be looking for.

Given what has been sourced by Greg above, you can see (and appear to agree) that my local bank can obtain paper dollars and coins using this process. If I cash a check from Thomas for $20 for apples I grew and recieve a $20 FRN, I can state that this cash does not come to me at interest. Where the "problem" lies is where did the money behind the check come from. In this scenario, cash moves into circulation based on the checkbook money that was originally loaned into existance, but not to me and not in the form of cash or coin.

Is this what you are getting at Thomas?

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Re: I've been stuck on this chapter for a long time now, ...

Greg never answered the question.  He only showed how banks moves coins/currency around without dealing with how coins or currency is placed into circulation so that you and I can use it.

Given what has been sourced by Greg above, you can see (and appear to agree) that my local bank can obtain paper dollars and coins using this process

That is the way banks obtain currency/coins but that is not the way you and I obtain coins.  We cannot obtain coins or currency directly from the treasury like the banking system can.  We can only obtain coins/currency from the banking system.

If I cash a check from Thomas for $20 for apples I grew and recieve a $20 FRN, I can state that this cash does not come to me at interest. Where the "problem" lies is where did the money behind the check come from. In this scenario, cash moves into circulation based on the checkbook money that was originally loaned into existance, but not to me and not in the form of cash or coin.

Yes that is exactly what I was trying to get him to get to.  He told me I didn't know anything about how the system works so I mearly asked him to answer one very simple question which you were able to answer on your first try.

The mere fact that We CANNOT obtain ANY Coins or Currency without an extension of credit proves that both coins and currency only come into circulation through an extention of credit.  We have no way to obtain them without drawing down checking accounts and purchasing those coins/currency.  Granted FRN's and Coins do not bear interest the extention of credit that is required to exsist has to exsist before the coins or the currency can.

Coins are not a debt to the government (issuer) but they are a debt to the people (user).  The mear fact that the people have to go into interest bearing debt in order to obtain the coins proves this very point.

All Cash and Coins are is a portable means of a book keeping entry at a bank.  It would be rather hard/impossible to carry around a book keeping entry wouldn't it?  The problem lays with how the check book money is created and destroyed in our monetary system because in order for any other form of money to exsist the interest bearing debt check book, book keeping entry (numbers) has to exsist first.

 

P.S.  I confused your post # 12 and thought it was Greg.  Sorry Greg.

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Re: I've been stuck on this chapter for a long time now, ...

Thomas,

With all due respect, you and Greg are both correct. You are arguing over nuances that have little to do with the OP. This could have (and should have) ended many posts ago if you would just say what you think rather than trying to constantly trap people. It gets very old.

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Re: I've been stuck on this chapter for a long time now, ...

Thomas

I'll do my best to get to the bottom of this.

In a question about 'Crash Course' chapter 8, "The Fed -  Money Creation" a first time poster, new to this material asked the following:

mavakil wrote:

4. If we remove all the transactions, is it finally the case that the money that Dollars that are circulating in America is actually loan money mostly borrowed (in the recent past) from China/Japan?

As it appears that mavakil mistakenly believes that most of the money in circulation comes from the 'high-powered money' produced when the Fed monetizes government debt (securities) (much of which is owed to China and Japan), I posted the following, hoping to clarify this misunderstanding:

GregSchleich wrote:

 - believe it or not - about 95% of our money supply is actually loaned into existence by the fractional reserve system, which is described in chapter 7. The new money created out of thin air by the Fed is really only a small percentage of the total. It's truly amazing how the money gets multiplied through the loan process.

To which you then responded:

Thomas Hedin wrote:

Greg,

100% of the money in circulation only comes into exsistance through an extention of credit by a private commercial bank. 

I am clearly talking about money creation, and it seems reasonable to assume you are too. Because first, your figure of "100%"  certainly seems intended to correct my figure of "about 95%." - meaning it's reasonable to assume we're talking about the same thing. And second, in a discussion about money creation, especially when mavekil's original question was prefaced with the phrase, "if we remove all transactions," - I certainly take the phrase "comes into existance" to mean "to be born," "originate," or "be created" - NOT to mean that commercial banks are always a necessary conduit - which is what you now seem to be arguing.

Thomas Hedin wrote:

... Because you said this statement below, which if it was true would mean that we can get coins/currency into circulation without an extention of credit.  Your statement below is at best false, and at worst a lie. ...  Who told you the lie that we can get coins/currency without an extention of credit?

Quote:

certainly, coins and currency do NOT come from "an extension of credit by a commercial bank"

Nobody told me a lie, Thomas. There is a clear lineage of reference here that should establish the fact that I'm talking about money creation- NOT the role of the commercial banks as a conduit in then getting it into circulation. Coins and currency "come from" government debt, monetized - first purchased by the Fed, then purchased by the commercial banks, and then purchased by you and I. That's how it gets into circulation. But unlike about 95% of our money supply, it is NOT loaned into existence by "an extension of credit by a commercial bank, " but rather, it comes into existence directly from government debt. And so rather than say "cash comes into 'circulation' BASED ON the checkbook money that was originally loaned into existence," as Ready did, I would say "cash (loaned into existence by the Fed) comes into circulation IN EXCHANGE FOR checkbook money..."

Thomas Hedin wrote:

... He told me I didn't know anything about how the system works ...

That's really not what I said. I said I didn't think you understood it. Actually, I think you know quite a bit about it. In fact, "a little knowledge is a dangerous thing" - comes to mind. Sometimes a lot of knowledge is even worse! Smile You know a ton of stuff. I just don't think you have a lot of the dots connected correctly yet. I could be wrong. 

thomas Hedin wrote:

... I mearly asked him to answer one very simple question which you were able to answer on your first try.

Not to take anything away from Ready, who's a stand up guy, but he got in on the second try, after you FINALLY abandoned the passive/aggressive routine. And BTW, you called me a liar!  I admit, my first post was pretty blunt and I did feel a little uncomfortable about it afterwards. So maybe ... in terms of decorum, can we call it even?  Smile

Peace

Greg

PS: Ready is right. Please either PM me, or if you feel you have to have the last word, that's fine -   I'll link to another thread if I still feel I need to respond. Thanks

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Re: I've been stuck on this chapter for a long time now, ...

Here is the solution to the current mess created through fraud, deception, and usuary (interest):

http://endtheecb.ning.com/video/mathematically-perfected

Best regards,

Sjaak

 

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Re: I've been stuck on this chapter for a long time now, ...

It is great to see interest and passion in what many might think a boring topic; the creation and issuance of money.  Some sparks can make things more interesting but not if they are over nuanced details that become personal.  I can say with certainty that Ready, Greg and Thomas are credible, intelligent and honorable people.  Let's move on from the small misunderstanding and go back to the issues.

turtle1663 wrote:

Here is the solution to the current mess created through fraud, deception, and usuary (interest):

http://endtheecb.ning.com/video/mathematically-perfected

Hello Sjaak, thanks for the End the European Central Bank(s) link and more specifically, Mike Montagne's video.  I've been a big fan of Mike Montagne as he was the first to open my eyes to the inherent and terminal flaw of interest debt.  During the Reagan administration he submitted mathematical modeling that clearly showed that debt would grow exponentially - enslaving us and future generations in perpetual debt by design and intent.

   

30 years ago, Mike prophetically projected that debt would become unsustainable somewhere around 2010-2012 as the chart above shows.  He could not know then what interest rates might prevail and this important variable may effect the actual end date.  You can download his spreadsheet and see that as the rate of interest grows, the collapse is expedited.  

You can also see that by reducing the interest (quanitive easing and zirp) the system may be artificially sustained, at least for awhile.

I was greatly impressed when I first watched the Crash Course as Chris Martenson articulated the exponential growth of debt.  He had the courage to say the unthinkable.

We find ourselves in a terrible situation - that is that our money supply is solely in the hands of a private and unaccountable group of elite power brokers.  If we are to move forward as a civilization there first must be an awakening, an understanding that our financial system may be a tool of tyranny or the key to our most basic freedom.

Larry

Benito_3's picture
Benito_3
Status: Member (Offline)
Joined: Aug 22 2010
Posts: 1
Re: I've been stuck on this chapter for a long time now, ...

The video is so simplified that it contradicts itself. 

This is the way the model was explained:

1. Treasury sells Bonds and Banks buy them, say $100 worth

2. Federal Reserve buys Bonds from Bank say $100 worth (The supposed creation of money)

What is the difference between the Bank selling the Bond back to the Treasury and getting $100 back or selling it to the Federal Reserve and getting $100?  In either case the Bank gets the same $100 that it started with and thus no infusion of new money into the banking system.  The Bank had to have the money in the first place to be able to buy the Bond.

Something is missing from this model to be able to "create money" as explained.  Can someone please fill in the missing piece.

Suggest that the missing piece gets added in a revision to the video to help others.

Thank you

Ben Loyola

No_Fiat's picture
No_Fiat
Status: Silver Member (Offline)
Joined: Oct 20 2011
Posts: 104
Simple 2 step process

 It is a very simple 2 step process!

The Federal Reserve System (which is neither federal or a reserve) creates money out of thin air.

Banks receive the fiat money so they can loan it out. For every fiat dollar they lend they can legally create 9 fiat dollars through a system called fractional reserve banking.

Remove the 2 steps above and things will settle down into a real and true supply and demand economy.

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