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Re: Austrian & Keynesian Theories Vs. Mathematical Facts

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  • Tue, Apr 20, 2010 - 03:47pm

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    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=goes211]I am not 100% certain of this but I think in this case Thomas might be right.  My curent understanding is that commercial banks are the creators of almost all of the money in the system through loans.  They are not directly constrained by only loaning out deposits.  There is even a recent study ( I might have read about it on Steve Keen’s website but I am sure others can point you to it ) that showed that banks first create loans and then the required deposts follow some months later.[/quote]

I searched around for a paper, and perhaps you are referring to this paper.   I believe if you look at his examples you could get “loans create deposits” from the examples.  However, that is not what I get out of this paper. I believe he uses the starting point of loan creation to make the example simple.  What I get is that loans can create permanent “value”.  That is a loan that is used for productive use will result in more “value” in the system.  That value can be considered money because it could be encumbered for a future “loan”.

[quote=goes211 from Modern Money Mechanics]The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.[/quote]

I don’t disagree that FRB creates money, what I said is that an individual bank does not.  A bank can loan out up to the reserve requirements what it has previously had deposited.  What a bank cannot do is just give out a loan with no backing deposits.  However, on that note, a bank can borrow money from the Fed or trade assets to the Fed, those would be the same as deposits.

Thomas Hedin, I have no idea where to even begin with all your comments.  I believe you are not recognizing money as an abstract concept.  I believe you are intermingly many different concepts together.  Perhaps the best I can do is ask you to think about a few questions  related to your comments and hope it helps:

  1. What was the first dollar?  What did it represent?
  2. When the Federal Reserve was created, what happened to all the existing “dollars” in use?  Did they all just disappear?  What about the value they represented?
  3. Many of your assumptions are based on some starting point.  You talk about there being no money that is not debt.  Where is that starting point?

As far as FRB.  I don’t believe it is stealing as long as all players involved understand the rules of the game, and that participants are free to leave or change games.   Unfortunately those are not true as we changed from a system where the currency was backed by gold to one that was not with most participants unaware or not-educated enough to understand the change occured.  We also have the US populace forced to use the system, and the Fed changing the rules (reserves, increasing base money via asset purchases) for political reasons.