Re: Ron Paul and Chairman Bernanke discuss economics
You have a wrong picture, it`s not functioning like that. Demand deposits are not supposed to be loaned. For example, when private bank receive 1000$ bill deposit from a client and latter gives a loan of 900$ in cash to another person, it pretends to the first client that it still has 1000$ of his money like nothing happend, and thus creating (counterfeiting) additional book-entry money that never existed before. Latter on, bank trying to convince the first client to use his money in some other form but cash, if so it would be in trouble. And that fraudulent process multiply several times till reserve requirement is reached or even more.
In other words, 10% reserve requirement means that private bank can create up to 10 times more "funny" or bankers money then it has real money (dollar notes and coins). That kind of privately created money is a temporary money in form of debt and literally disappers from existence when loans are paid off. And than we go again with more new debt, interest charges and taxation till whole economy broke like we have today, and bankers got more and more power and riches. They already possess 50% of U.S. resources and wealth.
It`s not. You see, privately created book-entry money needs to be "fed" with more and more that kind of money, bringing all kinds of distortions to the society: perpetual debt, inflation, interest charges, harsh taxation, huge undeserving wealth, control and power to the few.
You just reworded what the gyro said himself. The only difference is you seem to think that when a person deposits said money into their bank account that the money can’t be loaned out agian. That’s where you have the wrong picture.
A bank requires the 10% reserve to service daily withdraws from the banks clients. At the same time the total amount of deposits are lent out minus the 10% minimum ( $900 can be loaned from $1000, you already seem to understand that part). 10% does not mean they can loan out 10 times their money. It is simply what they are supposed to keep in reserve to service daily withdraws.
You’re right where you say that when the loan is paid off the money created disappears (minus interest [profit] the banks made on the deal of coarse). This is where they make their money (generally speaking, this is minus SPV’s, Derivatives, and other toxic crap they sell to other investors).
This is also where the problem lies. You see, these banks not only make loans against deposits, they also keep collateral (Mortgages, auto loans, ect…). The major banks are all insolvent now even through they got rid of mark to market rules (which is ridiculous). If a bank’s assets (deposits + hard assets). are worth less then their loans they have outstanding then they are dead in the water. To add to this, all the money that they loaned out to the population, that would disappear as it gets paid back, does not disappear because it is not getting paid back. It is still out there. All the banks get is a property they can sell for 1/3 of the amount they loaned (hence insolvent).
You must remember this is not the depression, money is not disappearing, although I do agree we are in a deflation type environment for now, or I would prefer to call it disinflation. We have had 23 banks fail since Jan, (that I k now about) and no one has lost their money, yet the product base is shrinking (everyone is going out of business). To top it off the fed/treasury are pumping in trillions that we all know about. Based off of the speech’s and reports I have read from Bernake, the money is going to keep coming, in-fact based off of a speech he gave in 2003, this is right out of his play book…(horrible).
I am going to end this on a couple points where I agree (well try too)
I agree that government and congress are the only ones that are supposed to create money. The only problem is about 4 trillion+ was allocated by them (I’m being conservative in that number). At this point everything they are doing and advocating is just as bad as the Fed which is unfortunate. Simply moving all powers back to congress and the government would be a great start, but still would have a long way to go….’long’ not being a big enough word.
I also agree that currency is a claim to products or services, even the Austrians know this too. The problem is all the money we have borrowed and spent (11.1 trillion and counting) was not spent productively. I guess one could say simply, we bought a lot of crap that makes no money. Now we don’t have the productive capacity to pay it back. Going trillions further into debt to fix an economy up to their eyeballs in debt will not fix anything.
Here are a couple quotes from ‘The Dollar Crisis’ published in 2005
"Tightening money supply is effective in battling inflation. However, increasing the money supply is no cure for deflation that results when a credit bubble pops, because it is excessive money supply growth that causes economic bubbles in the first place. To think otherwise is like believing that consuming more alcohol is the cure for drunkenness. The consumption of more and more alcohol will eventually lead to death, just as the unlimited expansion of the money supply will end in the death of the currency system involved. As unpleasant as it may be, the hangover is the period during which the body purges the unnatural toxins that over-stimulated the nervous system during the binge. Similarly, the recession is the period during which equilibrium is restored to the economy after a long period of over stimulation due to excessive monetary stimulation through credit expansion."
In other words How are we going to cure the problem of excess credit stimulation, with yet MORE credit stimulation?? Let me say again, this was published in 2005. All stats in this book are from 2003 and prior.
‘You can’t fight liquidity with liquidity, Monetarism is drowning’
This was a bit longer thank I was hoping to make it. I hope someone out there gets a small little bit from it =)…