Where did all the money go?

8 posts / 0 new
Last post
Nime's picture
Nime
Status: Bronze Member (Offline)
Joined: Jan 29 2009
Posts: 88
Where did all the money go?

A friend of mine asked this question after viewing the CC:

All this money that was printed by FED, fed through to banks, where more money was generated on top of it, then lent to people to buy or build houses - where all this money went?

After all someone was making profits on this, someone sold those houses, someone else sold materials for new houses, someone sold work to raise them, to remodel them, whatever. Where did all those $$$s go? Shouldn't they be still circulating somewhere in the economy?

The more I think of it the more it seems like a "good question" - that is question I have no answer for. Maybe someone else here has?

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
Status: Silver Member (Offline)
Joined: Feb 23 2009
Posts: 100
Re: Where did all the money go?

 As banks are suffering massive losses, the money is destroyed.

Brainless's picture
Brainless
Status: Silver Member (Offline)
Joined: Dec 9 2008
Posts: 150
Re: Where did all the money go?

In my thinking the money is not destroyed, but the debt has been defaulted on. Making the money free to pay the principal and the interest, then the money is 'destroyed'.

As all money is created, businesses going bankrupt frees up money to pay the debts. The solution to get rid of this debt is a lot more bankruptcies and defaults.

I think. Wink

 

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Where did all the money go?

This is difficult to understand in a debt-based economy rather than a currency economy.  If we lived in a currency monetary system, that money would indeed be sitting somewhere.  A debt-based economy depends on steady inflation.  When deflation hits, the value of total outstanding debt/credit (which is "money") simply evaporates.  The powers behind the banks decide the gig is up and they need to now hoard the massive profits they've made during the inflation years, they stop loaning, deflation..."money" disappears.

Nime wrote:

After all someone was making profits on this, someone sold those houses, someone else sold materials for new houses, someone sold work to raise them, to remodel them, whatever. Where did all those $$$s go? Shouldn't they be still circulating somewhere in the economy?

But those people were in the same system, more than likely leveraged up as well.  The "money" they made was invested in other things that were priced based on our debt-based inflation system.  And many of those people also had bank loans to finance the business operations they were running.  So at the end of the day, most of the profit was being made by the banks who sit at the top of the system and collect interest on everything.  The big money owners of those banks (very different from the operating bankers who are going out of business now) were smart and moved their debt-based "profit" into real money by buying precious metals, land, or using other ways to park real assets in Switzerland (that stuff is not circulating...it's waiting in accounts in safe banks that guarantee customers that they do not make promises to pay others based on your deposit).  

malpert's picture
malpert
Status: Member (Offline)
Joined: Oct 9 2008
Posts: 18
Re: Where did all the money go?

Money is not destroyed when prices fall, nor is wealth.   A fall in price simply reflects a change in preferences.  The goods still exist, but people just don't value them as much.  For example, If baseball cards decline in value, would money be destroyed?  Of course not... sometimes people just want money/currency more than a particular type of stuff that money can buy.  Don't ask CNBC, but money actually can be used for other things besides buying equities.

One of those things is paying back debt.  Now, this actually does destroy money.  When you pay back the bank, your bank account is reduced and therefore less money is in the economy as measured by M1 or M2.  

NOTE: this money can still be re-created because the reduction in bank deposits creates an excess reserve balance for the bank (due to higher ratio of bank cash to its deposit liabilities).

Seperately, money can be destroyed by the Fed via sale of bonds to the bank in exchange for excess reserves. Of course, the Fed famously can also re-create that money (and then some more and more and more) by purchasing bonds from the banks and creating excess reserves without limitation.

 

 

 

 

 

 

 

 

.    

 

 

 

 

 

 

 

   

 

Thomas Hedin's picture
Thomas Hedin
Status: Platinum Member (Offline)
Joined: Jan 28 2009
Posts: 815
Re: Where did all the money go?

Money is created when loans are issued and debts incurred; money is extinguished when loans are repaid.

A friend of mine asked this question after viewing the CC:

All this money that was printed by FED, fed through to banks, where more money was generated on top of it, then lent to people to buy or build houses - where all this money went? It went into circulation as interest bearing debt.

After all someone was making profits on this, someone sold those houses, someone else sold materials for new houses, someone sold work to raise them, to remodel them, whatever. Where did all those $$$s go? Shouldn't they be still circulating somewhere in the economy? Those people did in fact make a profit by capturing the brand new money that went into circulation.  That money continues to circulate in the economy until it is used to pay back the principle on somebody's loan.

The more I think of it the more it seems like a "good question" - that is question I have no answer for. Maybe someone else here has?

 As banks are suffering massive losses, the money is destroyed. A bank gets it's profit from the interest it receives on the loans it makes.  When people default on their loans they have to take the amount of the unpaid priciple off their profits and if they go into the negative then they become insolvent.  Isn't it funny how a bank can never run out of money to lend, but they can still go out of business?  As far as the banks suffering massive losses, what did they lose?  They never loaned anything to anyone in the first place except a promise to pay.  All the banks borrow you is bank credit, which is what we all use for money. The sad truth is that foreclosures leave money in circulation that doesn't have to be paid back(I.E. foreclosures actually help the economy) but that money still originated as an interest bearing debt.  Under our current system what is good for the economy is bad for the individual, and vice versa.  Clearly something has got to change.

In my thinking the money is not destroyed, but the debt has been defaulted on. Making the money free to pay the principal and the interest, then the money is 'destroyed'.  Money is only destroyed when it is used to pay the principle, and it never gets destroyed when paying interest.  The reason our debt constanly grows larger is because there is no mechanism to pay the interest, yet, but we are working on that solution right now up here in Minnesota.  I've posted some video links at the bottom of this reply, in the comments section of those videos I have The Minnesota Transportation Act linked.

As all money is created, businesses going bankrupt frees up money to pay the debts. The solution to get rid of this debt is a lot more bankruptcies and defaults.  That is one solution, but then the banks end up owning all the real property.  If they foreclosed on all the farms, homes, grocery stores, gas stations, retail outlets, we would be without food, clothing, shelter, and no way to escape this mess. The debt would be gone but we would be homeless.  I personally think there is a better way.  How about we introduce some debt free, tax free money into circulation so that we can begin to reduce, then eliminate this massive 53 trillion dollar debt and keep our economy moving along?

This is difficult to understand in a debt-based economy rather than a currency economy.  If we lived in a currency monetary system, that money would indeed be sitting somewhere.  A debt-based economy depends on steady inflation.  When deflation hits, the value of total outstanding debt/credit (which is "money") simply evaporates.  The powers behind the banks decide the gig is up and they need to now hoard the massive profits they've made during the inflation years, they stop loaning, deflation..."money" disappears.  Can you please explain a currency economy to me a bit further?  Money cannot evaporate, money can only be extinguished when loans are repaid.  When they cut off loaning people in the system continue to pay on their loans, as that principle is extguished so is the money supply.  Keep that going long enough, you'll have a recession, even longer, you'll have a depression.

But those people were in the same system, more than likely leveraged up as well.  The "money" they made was invested in other things that were priced based on our debt-based inflation system. The actual creation of money always involves an extention of credit by private commercial banks. And many of those people also had bank loans to finance the business operations they were running. Almost all businesses have to get an extention of credit in order to get in business.  But as they pay back that principle they borrowed that money is taken out of circulation, and because all money is created as interest bearing debt, once time and interest kick in the debt grows but the money supply does not.  So at the end of the day, most of the profit was being made by the banks who sit at the top of the system and collect interest on everything.  You're correct.  At the end of the day the banks end up capturing all of the real production, for simply using a promise to pay. The big money owners of those banks (very different from the operating bankers who are going out of business now) were smart and moved their debt-based "profit" into real money by buying precious metals, land, or using other ways to park real assets in Switzerland (that stuff is not circulating...it's waiting in accounts in safe banks that guarantee customers that they do not make promises to pay others based on your deposit). I know for a fact that the Federal Reserve can write a check on itself, and as far as I know it is the only bank that is allowed to do that, but my sneaking suspicion is that select big boy banks are exempt from the rule saying they have to write off loans that went into default from their profit margin.  Again I can't prove this, but all signs point that way.  As far as the banks purchasing anything, according to the federal reserve purposes and functions 4th edition, banks purchase everything they buy with a promise to pay.

Money is not destroyed when prices fall, nor is wealth.  True, as long as people understand that our money only represents an unpayable debt to a bank, that came into exsistance through and extention of credit. A fall in price simply reflects a change in preferences. Banks can force prices to drop by simply shutting down the money supply at a great expense to the average american. The goods still exist, but people just don't value them as much. If we are to prosper in this type of money system(I'm hardly defending it) prices have to continue to rise.  I put a video at the end of this post for you to watch, and I hope that it helps to explain why we have price inflation.  For example, If baseball cards decline in value, would money be destroyed?  Of course not... sometimes people just want money/currency more than a particular type of stuff that money can buy.  Don't ask CNBC, but money actually can be used for other things besides buying equities.  You're absolutely correct.  Money is simply a tool to make barder simpler.  Something used to facilitate the trades of real goods and services.

One of those things is paying back debt.  Now, this actually does destroy money.  When you pay back the bank, your bank account is reduced and therefore less money is in the economy as measured by M1 or M2.  You're right!  When the principle is paid back, that money is taken out of circulation and destroyed, like it never exsisted, but because of interest the debt is now larger than the money supply.

NOTE: this money can still be re-created because the reduction in bank deposits creates an excess reserve balance for the bank (due to higher ratio of bank cash to its deposit liabilities).  The actual creation of money ALWAYS involves an extention of credit. There is no money until someone has borrowed it.  It doesn't matter how much money the bank has, because if it holds all of it's money, it has effectily taken all that money out of circulation, and any money they have in their accounts came into existance through an extrention of credit.  I had a banker tell me the other day that they simply do not follow any reserve requirement anymore anyways.

Seperately, money can be destroyed by the Fed via sale of bonds to the bank in exchange for excess reserves. Of course, the Fed famously can also re-create that money (and then some more and more and more) by purchasing bonds from the banks and creating excess reserves without limitation.  This I'm unsure about, I'm going to do some research on this.  I'll try to do a follow up on this.

I filmed Byron Dale last Saturday in an effort to show people how this process works.  Here is the videos that I did that help explain how this whole money system functions just based on the principles under which it works.  I don't like this money system any more than you do, but we are trying to pass a law up here in Minnesota to introduce some debt free, tax free money into circulation.  I think we can all agree that this debt based money is destroying this nation, so the natural cure would be to introduce debt free money.

 

I hope this helps.

 

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: Where did all the money go?

Nime wrote:

Where did all the money go?

 

There was a lot of money out there.  1/2 of the money (paper/computer) was value only (hence the diappearing bubbles) while the other half is/was liquid (tangible).  Some of the value and money were backed and/or invested in by mortgages.

James Wandler's picture
James Wandler
Status: Martenson Brigade Member (Offline)
Joined: Aug 12 2008
Posts: 219
Re: Where did all the money go?

Thomas,

Please contact me by email.  I like where you are going and I'd like to help. 

Thanks,

James

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments