# The money system



## beachlife (4 February 2014)

Value Collector said:


> What do you mean? which mums and dads are hurting? and why?




How about 99% of the work force and retirees that had their super halved in 2007 and havent even made those losses back yet, only to see what's left start to go backwards again this year.  Not to mention those that are losing their jobs, the ones that dont make the news.  Add to that the cost of everything we import is going to start rising because of the dollar, and interest rates are so low that those that have saved arent earning much from interest.  If you want to know what's around the corner, ask someone that was in their 30's in 1987.  I was in my 20's and was working in banking and I saw first hand what times like that can do to the rich and not so rich, and back then we actually had a manufacturing industry.  This time will be worse IMHO.


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## qldfrog (4 February 2014)

*Re: The official "ASX is tanking!" panic thread*



beachlife said:


> How about 99% of the work force and retirees that had their super halved in 2007 and havent even made those losses back yet, only to see what's left start to go backwards again this year.  Not to mention those that are losing their jobs, the ones that dont make the news.  Add to that the cost of everything we import is going to start rising because of the dollar, and interest rates are so low that those that have saved arent earning much from interest.  If you want to know what's around the corner, ask someone that was in their 30's in 1987.  I was in my 20's and was working in banking and I saw first hand what times like that can do to the rich and not so rich, and back then we actually had a manufacturing industry.  This time will be worse IMHO.



I do not disagree at all  beachlife, all your points are right but when you try to make people understand that the economy is gone, when you work in mining and see for two years jobs collapsing and projects cancelled while on the news everyone was talking mining boom [labour was spending the money which was not there during that time], 
When jetski and giant exhaust pipes were sold by the thousands, when colleagues with former 6 figures job, high IT knowledge are replaced by dum but cheap visa workers and have to open pizza franchise or greasy chicken palace unless they move overseas, I tend not to have much tear left for the mum and dads, the so called battlers at least not the one shown as  "battlers" by your average commercial TV;
When you try to explain that real estate can go down, people are thinking what an idiot and they pile up another property leveraged on a string of previously morgaged to the eyes one: a pyramidal scheme by any other name

Maybe a recession is needed and that could actually help the retirees who do save and even the people with half a brain.
Anyway, I have bet on a fall, and I can only say it is in my $ interest to see a nice collapse..and yes I will put money again in the stock market and yes I have some IP as well...SO let's see how it will go


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## Value Collector (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



beachlife said:


> How about 99% of the work force and retirees that had their super halved in 2007 and havent even made those losses back yet, only to see what's left start to go backwards again this year.  Not to mention those that are losing their jobs, the ones that dont make the news.  Add to that the cost of everything we import is going to start rising because of the dollar, and interest rates are so low that those that have saved arent earning much from interest.  If you want to know what's around the corner, ask someone that was in their 30's in 1987.  I was in my 20's and was working in banking and I saw first hand what times like that can do to the rich and not so rich, and back then we actually had a manufacturing industry.  This time will be worse IMHO.




I don't believe 99% of the work force's super has halved.

Markets fluctuate, always have and always will. Yes in 2007 - 2008 there was a big crash, But before that there was a big boom. Look at any chart and you will see that their super would have seen big increases before the big falls, and have since seen big increase again, If you level out the fluctuations and include dividends the share market has been a great place to be invested throughout the last 10 years.

When people make big claims about people losing everything, they seem to base there calculations on people going 100% all in just before the crash and then selling out at the bottom, and then not buying back in till the top of the next boom, this is not realistic.

Offcourse, some people do make irrational moves like that and even use leverage, But the bad result they get is just an outcome of their irrational risky bets, not something wrong with the system, the vast majority would have just let their super ride the whole way through.

If you averaged you super contributions into the market for 10years before the crash and continued to do so over the last 6 years, you would be sitting pretty right now.


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## Value Collector (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



qldfrog said:


> Maybe a recession is needed and that could actually help the retirees who do save and even the people with half a brain.




It always seems weird to me when people seem to make out that people who have a stockpile of cash in a government guaranteed bank account some how disserve to earn a relatively large interest rate on that cash.

when people say things like "Savers are getting punished by low interest rates" it seems like they are suggesting that the "savers" should be able to earn high investment returns, by holding cash in a bank account, this does not make sense to me.

To me, a government  guaranteed bank account is really only entitled to earn an interest rate that covers the rate of inflation, So the buying power of the cash holding is some what preserved over time by the compounding of the interest, But it receives no real investment earning above the inflation rate over time.


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## beachlife (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> It always seems weird to me when people seem to make out that people who have a stockpile of cash in a government guaranteed bank account some how disserve to earn a relatively large interest rate on that cash.
> 
> when people say things like "Savers are getting punished by low interest rates" it seems like they are suggesting that the "savers" should be able to earn high investment returns, by holding cash in a bank account, this does not make sense to me.
> 
> To me, a government  guaranteed bank account is really only entitled to earn an interest rate that covers the rate of inflation, So the buying power of the cash holding is some what preserved over time by the compounding of the interest, But it receives no real investment earning above the inflation rate over time.




Without cash savings the fractional reserve lending scam and whole banking system would collapse.  That's why banks all over the world, including here, close their doors to stop people withdrawing their cash when a panic sets in.  Considering how much the banks make by leveraging the deposits they hold, savers should be paid a lot more.  And that is why the govt introduced the guarantee, even though its now been reduced, to stop the mass withdrawal of savings.

IF the demographers are correct, we have just commenced what will be the biggest depression in recent history.  IF they are correct and the asx continues to tank, I assume you wont move to cash so what is your plan for what may be a 10 year depression?


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## Julia (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I don't believe 99% of the work force's super has halved.
> 
> Markets fluctuate, always have and always will. Yes in 2007 - 2008 there was a big crash, But before that there was a big boom. Look at any chart and you will see that their super would have seen big increases before the big falls, and have since seen big increase again, If you level out the fluctuations and include dividends the share market has been a great place to be invested throughout the last 10 years.



Reference to this:http://www.superguide.com.au/how-super-works/top-performing-super-funds-over-long-term

Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.



Value Collector said:


> To me, a government  guaranteed bank account is really only entitled to earn an interest rate that covers the rate of inflation, So the buying power of the cash holding is some what preserved over time by the compounding of the interest, But it receives no real investment earning above the inflation rate over time.



Interest rates on deposits are largely driven simply by supply and demand.  When there was a squeeze soon after the start of the GFC banks needed cash and rates rose accordingly.  They're now pretty flush with deposit money and rates reflect that.



beachlife said:


> Without cash savings the fractional reserve lending scam and whole banking system would collapse.  That's why banks all over the world, including here, close their doors to stop people withdrawing their cash when a panic sets in.  Considering how much the banks make by leveraging the deposits they hold, savers should be paid a lot more.  And that is why the govt introduced the guarantee, even though its now been reduced, to stop the mass withdrawal of savings.



+1.


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## McLovin (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Julia said:


> Reference to this:http://www.superguide.com.au/how-super-works/top-performing-super-funds-over-long-term
> 
> Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
> Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.




The accumulation index is higher than it was pre-GFC which probably explains why those balances are up, rather than the skill of fund managers.


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## Value Collector (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



beachlife said:


> Without cash savings the fractional reserve lending scam and whole banking system would collapse.  That's why banks all over the world, including here, close their doors to stop people withdrawing their cash when a panic sets in.  Considering how much the banks make by leveraging the deposits they hold, savers should be paid a lot more.  And that is why the govt introduced the guarantee, even though its now been reduced, to stop the mass withdrawal of savings.
> 
> IF the demographers are correct, we have just commenced what will be the biggest depression in recent history.  IF they are correct and the asx continues to tank, I assume you wont move to cash so what is your plan for what may be a 10 year depression?




Offcourse the banks should earn decent return when they lend money, they are the ones assuming the risk, they pay back the depositors principle and interest regardless of the outcome of the loans they make, the depositor takes on pretty much none of the risk involved in the transaction which generates their interest.  

The depositor gets to store their cash for free in a safe government guaranteed place and have it pretty much inflation hedged through a small interest return, that is how I see it. 

Can you explain how the banks "leverage" the deposits they hold, I understand the concept of the fractional reserve banking system, but the way your wording your reply makes me think your understanding of it is slightly warped, a bit like the way they incorrectly describe it in the "money as debt videos"


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## Bill M (5 February 2014)

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Julia said:


> Reference to this:http://www.superguide.com.au/how-super-works/top-performing-super-funds-over-long-term
> 
> Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
> Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.








McLovin said:


> The accumulation index is higher than it was pre-GFC which probably explains why those balances are up, rather than the skill of fund managers.




You are both right. This week I had to see a Financial Adviser who knows my Public Sector Superanuation fund intimately. She put it in writing for me, this was for the balanced fund:

"The maximum historical time to recover from a decline to a zero loss position for this lifestyle strategy is 4 years and 8 Months. This is the worst historical experience; all other declines have taken less time to recover to zero loss from the time of initial investment."

I went and checked this against my account which was in the Growth Fund and mine broke even in 4 years and 6 Months. Now it is well ahead.


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## Value Collector (5 February 2014)

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Julia said:


> Reference to this:http://www.superguide.com.au/how-super-works/top-performing-super-funds-over-long-term
> 
> 1, Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
> Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.
> ...




1, As Mc lovin pointed out the accumulation index has already eclipsed the pre crash point, If you are just looking at the normal index it doesn't paint a clear picture of actual returns because it is omitting dividends and solely focusing on price, which is misleading.

2, Yes, I agree (to a point). My comments were more inline with what sort of returns one should expect. I was mainly making a point that a lot of people seem to think "savers" should have special treatment, and that piles of money sitting in a government guaranteed bank should some how be expected to earn high earnings over and above the inflation rate.

To me, the guys taking the risk on investing those funds should take the lions share of the earnings those funds generate. If you want higher returns, you can take on a bit more risk and a little less liquidity and make some investments in company bond portfolio or buy some equity.


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## beachlife (5 February 2014)

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Value Collector said:


> Can you explain how the banks "leverage" the deposits they hold, I understand the concept of the fractional reserve banking system, but the way your wording your reply makes me think your understanding of it is slightly warped, a bit like the way they incorrectly describe it in the "money as debt videos"




The way I understand it is it goes like this.

The humble saver deposits $100,000 into the bank.  Based on this the bank can lend around 10x that, so the bank lends out $1m

The bank earns 6.5%, so $65000 in interest on the $1m that they lent.

The saver earns 4% on his $100k, so $4000.  

Without the deposited funds, the bank would not be able to lend that $1m or make the $61000 net profit on that money.  This is the leverage of the savings that allows the banks to make billions of $$ in profit based on what seems a small difference in interest rates.

But its a better margin than that when you consider the cummulative affect of the small accounts that recieve no interest at all.  From all those small accounts that add up to $100k, the bank keeps the whole $65k.

Contrast that to the investor that buys $100k worth of bank shares.  Those shares already exist, so the investor has not provided any new capital or contributed to the banks business at all, but demands a dividend for doing nothing.


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## beachlife (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> 1, As Mc lovin pointed out the accumulation index has already eclipsed the pre crash point, If you are just looking at the normal index it doesn't paint a clear picture of actual returns because it is omitting dividends and solely focusing on price, which is misleading.
> 
> 2, Yes, I agree (to a point). My comments were more inline with what sort of returns one should expect. I was mainly making a point that a lot of people seem to think "savers" should have special treatment, and that piles of money sitting in a government guaranteed bank should some how be expected to earn high earnings over and above the inflation rate.
> 
> To me, the guys taking the risk on investing those funds should take the lions share of the earnings those funds generate. If you want higher returns, you can take on a bit more risk and a little less liquidity and make some investments in company bond portfolio or buy some equity.




Ok here's an idea, everyone with savings in abc bank should withdraw all of their cash and buy abc bank shares.  Abc bank would disappear in a heart beat.


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## Ves (5 February 2014)

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beachlife said:


> The way I understand it is it goes like this.
> 
> The humble saver deposits $100,000 into the bank.  Based on this the bank can lend around 10x that, so the bank lends out $1m



What about the $900k,   does this magically appear in the bank's cash reserves?   Where does it come from?


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## McLovin (5 February 2014)

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beachlife said:


> The way I understand it is it goes like this.
> 
> The humble saver deposits $100,000 into the bank.  Based on this the bank can lend around 10x that, so the bank lends out $1m
> 
> ...




The multiplier is across the system or rather it's money going out into the economy as loans and then being redeposited. Banks can't print money.


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## beachlife (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Ves said:


> What about the $900k,   does this magically appear in the bank's cash reserves?   Where does it come from?




I over simplified that a bit, its the whole system that ends up multiplying it, not always the individual bank.  The banking system creates new money by issuing debt against the original deposit over and over again, and it works out to be a factor of about 10x.

But if each time the money was recycled it was done through the same bank, then the one bank would be the sole multiplier.

eg
person A deposits $10,000 at the bank.
The bank lends $9000 to person B, who buys a car from person C, who deposits the money back at the same bank.

The bank now owes person A $10,000 and person C $9000, a total of $19000.  But it only received $10,000 in the first place.  They have just created $9000 by lending and are now earning interest on the money they created out of thin air.  If both A & C want all their money back, the bank doesnt have it.  It has a $9000 problem secured against a car that is now only worth $5000.  The bank is in trouble. 

Now just rinse and repeat and the bank (or the system) can create around $100k of debt against that original $10k.  Add zeros, millions of people and you get billions in profit when times are good, and a big hole when things go bad.

This guy does a better job of explaining it.  Just think of each time he says another bank, it could also be a different person depositing back to the same bank.

http://www.gatewaycu.com.au/blogs-comments.aspx?id=4098&blogid=58


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## Ves (5 February 2014)

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Beachlife,  maybe I'm a bit slow....

... but if I deposit $10k into a bank.    And then you walk in and say want to lend $100k.

Where does the bank get the $90k from?    

Are you saying that individual banks are creating physical cash? 

So in that case, why does it appear as a liability on their balance sheet?

Surely that's a contradiction?


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## beachlife (5 February 2014)

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Ves said:


> Beachlife,  maybe I'm a bit slow....
> 
> ... but if I deposit $10k into a bank.    And then you walk in and say want to lend $100k.
> 
> ...




They get the $100k they lend me from deposits made by you and others, but the proceeds of the deposits may be from debt issued by other banks, eg someone sold a house, the person that bought the house paid for it with borrowed funds.  The cash the bank received is merely the debt issued by some other bank.

They arent creating paper money, they are creating book entries by creating debt.  They only need to hold 10% in cash, the rest is just a book entry.  This is why they close their doors when there is a run on for cash.  They only have 10% of what they owe to the depositors.  They cant pay everyone at the same time, so they close the doors and wait for calm.

It is a liability because they owe the depositors their money back one day.  The debt they create is the income producing asset for them as it earns interest.  The cash you deposit is your asset, so it is their liability to repay back to you.


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## Ves (5 February 2014)

*Re: The official "ASX is tanking!" panic thread*



beachlife said:


> They get the $100k they lend me from deposits made by you and others, but the proceeds of the deposits may be from debt issued by other banks, eg someone sold a house, the person that bought the house paid for it with borrowed funds.  The cash the bank received is merely the debt issued by some other bank.
> 
> They arent creating paper money, they are creating book entries by creating debt.  They only need to hold 10% in cash, the rest is just a book entry.  This is why they close their doors when there is a run on for cash.  They only have 10% of what they owe to the depositors.  They cant pay everyone at the same time, so they close the doors and wait for calm.
> 
> It is a liability because they owe the depositors their money back one day.  The debt they create is the income producing asset for them as it earns interest.  The cash you deposit is your asset, so it is their liability to repay back to you.



So in other words,  you're admitting that banks don't create money   (it's money that is already in the system).

Do you accept that banks are highly levaraged  (ie for every dollar of equities there is a much higher amount of liabilities)?    Their profits must come at a cost,    otherwise the market is constantly out of equilibrium.   So what are the risks that they have to accept to reap the profits?


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## skyQuake (5 February 2014)

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beachlife said:


> The way I understand it is it goes like this.
> 
> The humble saver deposits $100,000 into the bank.  Based on this the bank can lend around 10x that, so the bank lends out $1m
> 
> ...




Thats not how it works.

The bank is lending out 1mil in aggregate @ 6.5%, $90k+$81k+$72.9k etc
But people are also depositing that amount into the bank which it needs to pay interest on.

So $1mil lent out @ 6.5%
-1mil in deposits @ 4%
= $25k profits minus any bad debts


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## lusk (5 February 2014)

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Ves said:


> So in other words,  you're admitting that banks don't create money   (it's money that is already in the system).
> 
> Do you accept that banks are highly levaraged  (ie for every dollar of equities there is a much higher amount of liabilities)?    Their profits must come at a cost,    otherwise the market is constantly out of equilibrium.   So what are the risks that they have to accept to reap the profits?




None. if the government is going to bail you out how can you loose.


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## beachlife (5 February 2014)

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skyQuake said:


> Thats not how it works.
> 
> The bank is lending out 1mil in aggregate @ 6.5%, $90k+$81k+$72.9k etc
> But people are also depositing that amount into the bank which it needs to pay interest on.
> ...




Ah yes, got carried away with the simplification.



Ves said:


> So in other words,  you're admitting that banks don't create money   (it's money that is already in the system).
> 
> Do you accept that banks are highly levaraged  (ie for every dollar of equities there is a much higher amount of liabilities)?    Their profits must come at a cost,    otherwise the market is constantly out of equilibrium.   So what are the risks that they have to accept to reap the profits?




No, they create money.

But my point was that the savers allow the banks to do this, not the investors that trade the shares, and there is a risk for anyone with over $250k in any one bank.  It all works fine while there is growth, which is why govts are desperate to keep growth alive and well.

Teachers Credit Society - up in smoke in the 80's
Challenge bank - not 100% if they were bailed or just bought cheap
Rams, bailed by RHG
RHG, bailed back to Rams
Bankwest - bailed by Bank of Scotland
BOS/Bankwest - Bailed by CBA


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## craft (5 February 2014)

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Money creation needs it own thread.  Banks do lend money into existence

Loans come first not the reserves – the reserves are generated by the loaned money being re-deposited and any slippage in the form of actual cash (notes/coins) in circulation is accommodated by the reserve balance sheet.

Whilst there is liquidity in the system, banks are never reserve restrained because they lend between themselves on an overnight basis to balance the books and it’s here the central bank acts  to manipulate the interest rate and maintain liquidity. 

It is actually not the reserve requirements (loans to deposits) that limit a bank’s lending but its capital ratio’s (equity to assets) – they need enough equity to cover their potential non-performing loans if they don’t have that they have a solvency problem not a liquidity problem.


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## Value Collector (5 February 2014)

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beachlife said:


> Ok here's an idea, everyone with savings in abc bank should withdraw all of their cash and buy abc bank shares.  Abc bank would disappear in a heart beat.




Yes, but there will always be cash that needs to be stored, All I am saying is that people storing that cash risk free should not be considered a favoured class that should earn high investment returns risk free at the expense of the people taking the investment risk on those funds, 

for a simplified example, a new mining company might have three layers of stake holders. ( really it is probably, 8 layers)

1, equity owners Investors who are risking 100% of their capital in the project

2, Bankers, who are risking 100% of their capital in the project, but have a prior claim ahead of the equity owners.

3, depositors funding the bankers, who are risking 0% because they are guaranteed to get 100% of the principle and interest owed regardless of the outcome of the project.


Saying that the depositors should be entitled to earnings close to those expected for the other two groups who are taking all the risk is ridiculous. It's true all three groups play an important role, but there must be a big difference in earnings the system provides to the various classes or who would assume the risk? no one would want to invest.


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## Value Collector (5 February 2014)

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beachlife said:


> The way I understand it is it goes like this.
> 
> The humble saver deposits $100,000 into the bank.  Based on this the bank can lend around 10x that, so the bank lends out $1m
> 
> ...




I thought you would say something like that, that's the "warped view" I mentioned.

It doesn't work like that.

If somebody banks $100,000 the bank can only lend out $90,000 of that. So they would pay $4,000 in interest and collect $5,850 ( not $65,000 ).

When people talk about banks creating money it comes from that cash being redeposited, When that $90,000 gets banked they can then lend out $81,000.

So money is being created, however at every step the bank is paying interest to a depositor.

for example, 

the guy that deposits the original $100K earns interest, and so does the guy that banked the $90K and the guy that banked the $81K etc etc etc.


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## Value Collector (6 February 2014)

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beachlife said:


> Contrast that to the investor that buys $100k worth of bank shares.  Those shares already exist, so the investor has not provided any new capital or contributed to the banks business at all, but demands a dividend for doing nothing.




The investor that buys the $100K of shares is providing capital in a round about way. If there was no market for investors to sell the equity (capital) they own to other investors, the only way for investors to cash out of companies would be to go to the company and directly draw out working capital from the operating business. 

So the fact that investors can sell their shares, means more money is left in the company and reserves build up allowing the company to use this capital to make new investments.

When BHP spends $4Billion on a big new development, they can only do this because investors have not taken 100% of the earnings as dividends, they are leaving their capital in the business to be reinvested, and they only do that because they are confident that they can sell this invested equity to another investor in the future.


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## beachlife (6 February 2014)

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Value Collector said:


> I thought you would say something like that, that's the "warped view" I mentioned.
> 
> It doesn't work like that.
> 
> ...




I think that error of mine has already been addressed.

The point, the banks could not do this without deposits, but could do it without someone buying their shares tomorrow, and the high gearing makes it unsafe, hence the govts need to guarantee small deposits.


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## Ves (6 February 2014)

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craft said:


> Banks do lend money into existence.



Do you mean money that they've lent from a Central bank that has increased the money supply?   I was actually talking about commercial banks not creating money (or as McLovin put it "they can't print money themselves").  Unless I'm missing something.


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## Value Collector (6 February 2014)

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beachlife said:


> I think that error of mine has already been addressed.
> 
> The point, the banks could not do this without deposits, but could do it without someone buying their shares tomorrow, and the high gearing makes it unsafe, hence the govts need to guarantee small deposits.




My point is about who should earn the lions share of the earnings on those deposits.

The depositors can only earn interest if there are people willing to take those deposits and put them at risk.

I am simply saying that it makes sense to me that the ones taking the investment risk should be entitled to the lions share. 

For example if a project costs $1 Billion to build, but is expected to earn 15% return on that capital (if everything goes well) and the equity holders put up 50% and the banks put up 50%, I think it is fair to spilt earnings along these lines.

1, Depositors earn a nominal rate say 4% ( risk free )

2, Bankers earn a 4% margin above the depositors ( 100% at risk, but have a prior claim and 50% safty margin)

3, equity holders, take what ever profits are left ( 100% risk, no prior claim)

If people start saying that depositors should expect 10%, that means your taking a big chunk out of the potential profits of the guys that have taken the biggest risks, put there money upfront first and were the last to get paid.


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## craft (6 February 2014)

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Ves said:


> Do you mean money that they've lent from a Central bank that has increased the money supply?   I was actually talking about commercial banks not creating money (or as McLovin put it "they can't print money themselves").  Unless I'm missing something.




By commercial banks do you mean CBA, NAB etc?  Because these banks do lend money into existence.

MO or high powered money controlled by central banks is the seed for fixed fractional banking but it is not used as a control mechanism – central banks simply accommodate what is required to maintain liquidity. When they want to influence private lending they do it through interest rates not high powered money supply.


The fixed fractional reserving requirements are a liquidity measure requiring 10% to be held in a central bank reserve account. It is an attempt to keep each individual bank liquid by forcing those that are under reserved to gather more deposits either from the private sector or other banks with excess reserves. 

The reserving system needs to be distinguished in understanding banking from the balance sheet that needs to obviously be funded 100%. System wide the balance sheets stay in balance because a loan becomes instantaneously an asset to one party and a liability to another, the banking systems (as a whole) balance sheet just simply expands when a new private loan is created.

*All money is created from debt.

Whist debt bears positive interest money has built in scarcity.

Whilst there is scarcity growth is required to repay capital and interest.

A finite earth can’t accommodate infinite growth.

Our money system needs attention, to accommodate humanity moving from a growth phase to a sustainable phase and soon or else we are not going to have a sustainable phase just an end phase.*

This so called Global Financial crisis is a breather, subdued growth is a breather - the best recovery from here is not a return to historical growth but a new system that embraces sustainability and fairness of distribution. Redesigning money needs to be an important part of that and a first step to redesigning it is for a broader understanding of the current system and the actions it drives.


----------



## Valued (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*

Are there other systems of money that will allow people to be compensated for their effort? My understanding is that it's very difficult to design a fair system of exchange that still allows for those who put more effort in to earn more than those who don't. Naturally, some people will be richer than others if that's the case. In our system those who are richer than are able to turn that money into even more money, at the expense of others who chose not to put so much effort in to gain buying power (for various reasons such as the good of man kind, not materialistic, or values family over possessions). 

What system exists that allows each person to be compensated in line with the effort they put in to gain buying power? Is this system based on fiat currency that has no intrinsic value or something else? 

For me the essential element seems to be that people need to go to work and get access to stuff in return as a result of that work. Those who do more difficult jobs, work harder, do a job that requires more education, or does longer hours naturally deserve to get more stuff. How does the system choose who gets what stuff?

By the way, as to banks printing money, like what craft said my understanding of it is that by lending money they are actually creating money. I believe it works something like this: I deposit $1000 into Bank A. Bank A retains $100 of this, credits my account with $1000, and then lends the $900 to Company A. Company A then deposits their $900 with Bank B (or they spend the $900 on say a plumber and he deposits it into Bank B or even back into Bank A). Bank B retains 10% being $90 and credits the account with $900. Bank B then lends $810 to Company B and so on. We now have more money than we started with. The banks just made money from thin air.


----------



## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Valued said:


> By the way, as to banks printing money, like what craft said my understanding of it is that by lending money they are actually creating money. I believe it works something like this: I deposit $1000 into Bank A. Bank A retains $100 of this, credits my account with $1000, and then lends the $900 to Company A. Company A then deposits their $900 with Bank B (or they spend the $900 on say a plumber and he deposits it into Bank B or even back into Bank A). Bank B retains 10% being $90 and credits the account with $900. Bank B then lends $810 to Company B and so on. We now have more money than we started with. The banks just made money from thin air.




Yes, but it is not really from "thin air". It is backed by a contract, where some body promises to pay a sum + interest.

Money is just really a coupon that you can exchange for something of value later, If I give you an IOU, you have a claim against my real world assets and any future productivity I may have. That IOU is worth something, especially if I am a productive honest person and it comes with an attractive interest rate.


----------



## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> .
> 
> Whilst there is scarcity growth is required to repay capital and interest.




I agree with every thing else you say, But I don't get why people say this bit.

I have heard people make claims that our money supply doesn't have enough money to pay the interest bill on the lending, I think this is false.

They make claims that if the total money supply is $100, and there is $100 + $20 interest owed, the system couldn't pay because not enough money exists, this is just false.

think of it like this, you and I are on an island, You owe me $100, but only 1 $20 note exists. It is still possible for you to pay me back the full $100 + interest by breaking up the payments,

You catch a fish, I buy it from you for $20, you then repay me $20 ($80 owing)

You build me a hut, I pay you $20, you then repay me $20 ($60 owing)

You collect coconuts and I pay you $20, you then repay me $20 etc etc etc ( $40 owing)


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## craft (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I agree with every thing else you say, But I don't get why people say this bit.
> 
> I have heard people make claims that our money supply doesn't have enough money to pay the interest bill on the lending, I think this is false.
> 
> ...




Hi value collector

Nice to see somebody doing some thinking on the subject.

It’s not that the money supply is insufficient – as you say $20 bucks could pay back $120 if the velocity is high enough. Without the growth in production though you won’t have the required velocity. (that's what's happening globally now)

$120 dollars worth of product/service has to be produced whereas without interest, only $100 worth of product or service was needed. That extra $20 worth is the growth demanded by the money system and the growth requires resources for product or the conversion of something we used to do for ourselves or as community (ie cooking/childcare etc) for services. The planet is finite and a lot of the crap we consume is already far less valuable then what we destroy to make it and there are only so many things to turn into service before we are reduced emotionally  by not doing them for ourselves or within a freely giving community– probably overstepped that mark already too.


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## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



lusk said:


> None. if the government is going to bail you out how can you loose.




If the bank writes a $10,000 loan and the borrower refuses to pay, the government doesn't bail them out, they lose the $10,000 but they still must pay the depositor back the $10,000, this is the risk they take. If they are making a 4% interest margin they have to write a lot of good loans to pay for the bad one.

If your talking about the American Bailouts, those were on pretty embarrassing terms, the "toxic" assets were bought at cents on the dollar, and shareholders suffered big dilutions from the capital stakes taken. Not to mention that before it got to that stage some firms went under losing everything.


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## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> Hi value collector
> 
> Nice to see somebody doing some thinking on the subject.
> 
> ...




I am not getting the part where you say the velocity wouldn't be high enough without growth. the interest payments are constantly being recycled back into the economy through bank running costs, wages, dividends and investments, and the borrowers work and provide goods and services into the economy for which they get paid and then make principle and interest payments.


The environmental factor is real, But I think we will find ways around that.


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## McLovin (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> It is actually not the reserve requirements (loans to deposits) that limit a bank’s lending but its capital ratio’s (equity to assets) – they need enough equity to cover their potential non-performing loans if they don’t have that they have a solvency problem not a liquidity problem.




Which partly explains why QE has been such a failure at stimulating credit growth. Banks need credit worthy borrowers (in their opinion of course), not excess reserves.


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## Value Collector (6 February 2014)

Here is an interesting BBC Documentary if anyone wants to sit down with a cup and tea and get a good introduction into the banking system.


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## craft (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I am not getting the part where you say the velocity wouldn't be high enough without growth. the interest payments are constantly being recycled back into the economy through bank running costs, wages, dividends and investments, and the *borrowers work and provide goods and services into the economy for which they get paid and then make principle and interest payments*.
> 
> 
> The environmental factor is real, But I think we will find ways around that.





Value Collector - I'm not sure I can explain it other than I have.

It is this growth forced upon the physical economy by people creating production to pay back the original debt and then EXTRA to pay back the interest component which is the current money system’s Achilles heel in a finite world. It’s a physical growth problem.

Money can easily be manipulated to accommodate the physical – but the physical cannot always be manipulated by the money system as we are experiencing now.

High power money is being lifted left right and centre but it’s not creating actual money supply because it is all just sitting in reserve accounts because the banking system has a solvency crisis not liquidity crises. Too many of the past promises  can’t be economically fulfilled and that will stifle growth until it is worked through the system via default, austerity, inflation or financial repression.

This working through the current insolvency issue is actually a blessing in my opinion because it gives us a breather to growth and time to find a more sustainable system.

Japan was the first to hit the solvency issues caused by complacent lending justified by unsustainable growth. Others are following. Beware property lending in Aus - property is not a very productive asset and can't liquidate all the promises via its own internal return - Many sources of national income and growth are currently under a cloud - watch employment rates closely as a precursor to property instability with economy wide implications.


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## craft (6 February 2014)

VC

Sorry I kept editing the last post until it locked up and I fear it will still make no sense.

I really am struggling to explain it. Eventually after lots and lots of reading about the money system it all sort of dropped into place for me but obviously I can’t explain it very well.

The clearest point I think I can try and make is that our current money system is viewed as in crises in many places around the globe where growth has stalled. Because it is not designed to operate at zero growth, it hums along fine with growth and the underlying design component that causes this situation is positive interest rates.

We cannot have infinite growth in a finite world – we need to redesign the money system to suit the next phase where we seek quality over quantity.


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## Klogg (6 February 2014)

craft said:


> VC
> 
> Sorry I kept editing the last post until it locked up and I fear it will still make no sense.
> 
> ...




Agreed on all of that - except perhaps your definition of 'physical' growth (assuming you mean physical in the literal sense of the world). I concur that we have limited physical goods and services, but there's also the growth of the virtual ones that could grow the economy.

Not sure if it'll ever be enough, but thinking about how large and quickly this can grow, there's no reason why transactions, incomes and therefore overall growth can't hinge off of this. 

I much prefer the idea of reducing the debt burden and going through a period of austerity and defaults. Start from a clean slate.


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## skc (6 February 2014)

craft said:


> The clearest point I think I can try and make is that our current money system is viewed as in crises in many places around the globe where growth has stalled. Because it is not designed to operate at zero growth, it hums along fine with growth and the underlying design component that causes this situation is positive interest rates.
> 
> We cannot have infinite growth in a finite world – we need to redesign the money system to suit the next phase where we seek quality over quantity.




Well... they are actually trying to fix it now.

First they adjust the nominal interest rate to be very very low, then they pump supply into the system to create inflation, (which is nominal growth, not real productivity growth), you can sort of get away with the current system whilst having zero real growth.

Japan might be a good example... there's little real growth but people are still living/working/consuming. So I guess what I am saying is, whilst the current system may not be ideal, a radical redesign or catastrophic collapse may not be the only outcomes.


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## Trembling Hand (6 February 2014)

Klogg said:


> Agreed on all of that - except perhaps your definition of 'physical' growth (assuming you mean physical in the literal sense of the world). I concur that we have limited physical goods and services, but there's also the growth of the virtual ones that could grow the economy.
> 
> Not sure if it'll ever be enough, but thinking about how large and quickly this can grow, there's no reason why transactions, incomes and therefore overall growth can't hinge off of this.
> 
> I much prefer the idea of reducing the debt burden and going through a period of austerity and defaults. Start from a clean slate.




Yeah thats a good point. It would be interesting to see what percentage of GDP from 50, 20 and 10 years ago was from 'goods' which require energy *and *stuff to be consumed compared to a service based economy where you just move around some electrons, like music & internet for example. (then again we probably consume same amount of goods, if not more and have just added services)


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## McLovin (6 February 2014)

Klogg said:


> Agreed on all of that - except perhaps your definition of 'physical' growth (assuming you mean physical in the literal sense of the world). I concur that we have limited physical goods and services, but there's also the growth of the virtual ones that could grow the economy.
> 
> Not sure if it'll ever be enough, but thinking about how large and quickly this can grow, there's no reason why transactions, incomes and therefore overall growth can't hinge off of this.
> 
> I much prefer the idea of reducing the debt burden and going through a period of austerity and defaults. Start from a clean slate.




I think the point craft is making is that the current system requires perpetual growth in credit because that's what keeps it afloat. Eventually you hit a wall and the real economy can no longer support the debt burden. That's where we are at now, that there's trillions in excess reserves but no one wants to borrow. So the problem isn't a lack of liquidity it's a lack of borrowers. Without credit creation, there is no growth, but eventually the real economy can't keep fuelling the debt furnace that supports it. It's like a catch-22.

Well that's what I think he's saying.


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## craft (6 February 2014)

skc said:


> Well... they are actually trying to fix it now.
> 
> First they adjust the nominal interest rate to be very very low, then they pump supply into the system to create inflation, (which is nominal growth, not real productivity growth), you can sort of get away with the current system whilst having zero real growth.
> 
> Japan might be a good example... there's little real growth but people are still living/working/consuming. So I guess what I am saying is, whilst the current system may not be ideal, a radical redesign or catastrophic collapse may not be the only outcomes.




The current fixes - mainly Austerity and Financial repression depending on where you are, are fixes for the insolvency issues. The insolvency issues are a temporary fix for excessive growth in a finite world. (you don't need a very high exponential growth rate before it must exhaust itself) The finite growth issue clashing with the money system re-appears once the insolvency issue is fixed. We'll be out of the frying pan and into the fire if nothing changes.  

Agree - solution/fixes  will most likely be evolutionary rather then revolutionary. Well lets hope so.


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## Value Collector (6 February 2014)

McLovin said:


> I think the point craft is making is that the current system requires perpetual growth in credit because that's what keeps it afloat. Eventually you hit a wall and the real economy can no longer support the debt burden. That's where we are at now, that there's trillions in excess reserves but no one wants to borrow. So the problem isn't a lack of liquidity it's a lack of borrowers. Without credit creation, there is no growth, but eventually the real economy can't keep fuelling the debt furnace that supports it. It's like a catch-22.
> 
> Well that's what I think he's saying.




the money supply can expand and contract with the economy, the credit portion is elastic and provides the expansion or contraction.

The fed and other reserve banks generally want a little inflation rather than deflation, and they have the ability to offset deflation by injecting more money (through buying bonds and if needed injecting physical cash). 

If we got to the stage where credit growth was stagnate permanently, I don't think it would be a problem, the money supply can be adjusted accordingly.


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## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> .
> 
> It is this growth forced upon the physical economy by people creating production to pay back the original debt and then EXTRA to pay back the interest component which is the current money system’s Achilles heel in a finite world. It’s a physical growth problem.
> 
> .




I can't see why growth in the physical economy is needed to repay the interest component, especially when its long term debt.

All it requires is that the borrowers have the ability to earn money which doesn't necessarily require that the economy grow.

Do you have an example of borrowers who need to grow to make their payments.


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## craft (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I can't see why growth in the physical economy is needed to repay the interest component, especially when its long term debt.
> 
> All it requires is that the borrowers have the ability to earn money which doesn't necessarily require that the economy grow.
> 
> Do you have an example of borrowers who need to grow to make their payments.




Think about the whole system not just one player in the system. 

I can't explain it any further, it is counterintuitive and I have no chance of putting down all the associated points that fill out my understanding. Perhaps also I'm wrong; perhaps we are just misunderstanding each other.


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## craft (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I can't see why growth in the physical economy is needed to repay the interest component, especially when its long term debt.
> 
> All it requires is that the borrowers have the ability to earn money which doesn't necessarily require that the economy grow.
> 
> Do you have an example of borrowers who need to grow to make their payments.




Actually after giving up I thought about it a bit more and perhaps (but maybe not) I can explain it a bit better with your original island example.

You are on your island, you forgo $100 worth of consumption to make a loan in return for the promise that $120 worth of production is returned to you.   Forget about money supply and velocity and all the other nitty gritty (as I agree $20 money supply can pay off $120 if the velocity is adequate). The positive interest rate agreed to as part of the loan transaction dictates growth in production for the debt agreement to be honoured. This is the money system driving the physical growth that I refer too.

Even if credit growth is stagnant production must still increase to meet interest burdens already agreed; unless interest rates are zero. It is only when no interest is charged that money does not drive production increases or if money is created without a corresponding debt obligation. 

If the economic production does not increase the system wide debt obligations already in existence cannot be honoured.

The scarcity is not the money itself because its liquidity can be managed adequately (theoretically)  by the central banks but the scarcity is the economic opportunity to increase physical production, timely and profitably(or at least at the cost of capital)  which the money system dictates via fiating into existence as debt agreements bearing positive interest rates.

I’m sorry if I have confused you further – Promise to stop now.


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## skc (6 February 2014)

Here's a video that talks about this very issue.


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## Value Collector (6 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> Actually after giving up I thought about it a bit more and perhaps (but maybe not) I can explain it a bit better with your original island example.
> 
> You are on your island, you forgo $100 worth of consumption to make a loan in return for the promise that $120 worth of production is returned to you.   Forget about money supply and velocity and all the other nitty gritty (as I agree $20 money supply can pay off $120 if the velocity is adequate). The positive interest rate agreed to as part of the loan transaction dictates growth in production for the debt agreement to be honoured. This is the money system driving the physical growth that I refer too.
> 
> ...




I must be missing something because i see no reason that the interest can not be covered by normal turnover in the economy, because the money once its created can just keep recycling, and the interest that gets earned continually gets recycled back into the economy.

It doesn't mean more production is required, it just means production shifts more so to the people that have to earn money to make the payments, like in the island example, you would be running doing all the production while i sit and eat the fish and the coconuts, no extra coconuts and fish need to be produced, its just you have to produce them instead of me.


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## Value Collector (6 February 2014)

skc said:


> Here's a video that talks about this very issue.





I have watched all three of the money as debt series several times, and there is a lot of misinformation and half truths in there. And i completely disagree with their version of why the interest can not be paid, if that is what craft means i completely disagree.


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## craft (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> I must be missing something because i see no reason that the interest can not be covered by normal turnover in the economy, because the money once its created can just keep recycling, and the interest that gets earned continually gets recycled back into the economy.
> 
> It doesn't mean more production is required, it just means production shifts more so to the people that have to earn money to make the payments, like in the island example, you would be running doing all the production while i sit and eat the fish and the coconuts, no extra coconuts and fish need to be produced, its just you have to produce them instead of me.




If interest is at a positive rate - then a debt agreement is for more to be paid back then is given/received initially.

In the example I would have to do 20% more then you did to accumulate your $100 to repay you the $120 we agreed to.

Not only does the production shift to repay the principal of $100 but I have to produce 20% more to pay the interest - *this is the physical growth money as debt forces.*

Even if there is only a single $20 note (physical coinage) available on the island and that doesn't change - we have to recycle(velocity)  it 6 times which requires me to produce 6 lots of production worth $20 a throw. 

Under your understanding -* How do I NOT physically produce more and still honour our agreement for repayment of principle + interest in full?*


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## Value Collector (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> If interest is at a positive rate - then a debt agreement is for more to be paid back then is given/received initially.
> 
> In the example I would have to do 20% more then you did to accumulate your $100 to repay you the $120 we agreed to.
> 
> ...




Again I will use the Island example, I catch 1 fish everyday for 5 days for you for $20 per day, You now owe me $100 + $20 interest which we agree on. To repay me, you go and catch 1 fish every day for $20 per day for 6 days
generating $120. The production rate didn't have to increase by 20%, the production rate was steady at 1 fish per day


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## craft (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> Again I will use the Island example, I catch 1 fish everyday for 5 days for you for $20 per day, You now owe me $100 + $20 interest which we agree on. To repay me, you go and catch 1 fish every day for $20 per day for 6 days
> generating $120. The production rate didn't have to increase by 20%, the production rate was steady at 1 fish per day



 The finite world had to give up 6 fish as opposed to 5. Interest is charges on a time basis so you can't just stretch the time frame to make the production rate appear the same.


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## Value Collector (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> The finite world had to give up 6 fish as opposed to 5. Interest is charges on a time basis so you can't just stretch the time frame to make the production rate appear the same.




the finite world was always going to be asked to give up 1 fish per day regardless of who caught it, the fact that the loan was made didn't mean any extra fish had to be caught, it just meant you had to do a bit more work.

But fish are not really finite, they breed, as long as the production rate does not go over their reproduction rate we will always be able to get our 1 fish every day.


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## craft (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> the finite world was always going to be asked to give up 1 fish per day regardless of who caught it, the fact that the loan was made didn't mean any extra fish had to be caught, it just meant you had to do a bit more work.




You have seemed to miss the implication of interest being a function of time. Production time frames can not just be extended without compensating via the interest component.  



Value Collector said:


> But fish are not really finite, they breed, as long as the production rate does not go over their reproduction rate we will always be able to get our 1 fish every day.





The problem the money system now faces as opposed to when it was designed is that for many products we are now extracting at rates far higher then they are replenished(oil etc) and polluting at rates far higher(co2 etc) then can be absorbed/repaired.


And the growth required is exponential (compounded) so we need to take more and more every year just to maintain the same growth rate.

The change to money design needs to make it function at sustainable environmental levels without causing cyclical insolvency events (or the ultimate destruction of an environment capable of supporting us). That means changing the element (Interest) that drives the physical growth requirement. Trick will be to do it in a way that still drives technology /social /cultural advancements etc to make life better whilst laying off the plundering of nature.


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## Value Collector (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



craft said:


> 1,You have seemed to miss the implication of interest being a function of time. Production time frames can not just be extended without compensating via the interest component.
> 
> 
> 
> ...




1, Our example used an interest rate of 20% over 5 days, In reality interest is far lower. As long as in general borrowers can pay the annual interest bill and make a principle reduction they will be fine, I can't see it being a problem. But also It doesn't require an extension of production time frames, It just requires the borrowers to take of a larger portion of the future workload.

2, That's not related to the money system, that's a problem we would have with any form of trade system, humans use resources and currently some of those resources are non renewable, that's a fact. But that's not caused by the money supplies interest rate, that would be the case at 0% interest.


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## craft (7 February 2014)

*Re: The official "ASX is tanking!" panic thread*



Value Collector said:


> 1, Our example used an interest rate of 20% over 5 days, In reality interest is far lower. As long as in general borrowers can pay the annual interest bill and make a principle reduction they will be fine, I can't see it being a problem.
> 
> 2, That's not related to the money system, that's a problem we would have with any form of trade system, humans use resources and currently some of those resources are non renewable, that's a fact. But that's not caused by the money supplies interest rate, that would be the case at 0% interest.




As interesting as I find this topic, I'm going to have to invoke the agree to disagree and get on with other things.
Thanks for the discussion.


If anybody is interested I have found Bernard Lietaer encouraging reading on how monetary systems may evolve to be more accommodative to our changing needs.

Probably wont grab your attention if you don't see any floors in the current system. 

http://www.lietaer.com/


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## burglar (7 February 2014)

Trouble with islands, the currency used is often pearls or shells.
So this leaves you with the double problem of calculating the intrinsic value of the fish and the currency.


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## craft (7 February 2014)

A bit of vision around an end to the growth paradigm. 

Acceptance that growth is not necessary for an enriched life is a stepping stone to redesigning the money system to work efficiently without growth.


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## craft (7 February 2014)

Another Charles Eisenstein Video on Money and how it is intertwined.

It’s nearly two hours but if you’ve got the time to spare, I highly recommend it as a thought provoker.


Part 1


Part 2


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## Value Collector (7 February 2014)

craft said:


> A bit of vision around an end to the growth paradigm.
> 
> Acceptance that growth is not necessary for an enriched life is a stepping stone to redesigning the money system to work efficiently without growth.
> 
> ]




In a world where Billions still live below the poverty line, with limited access to fresh water, shelter, food and health care, I think global economic growth is very much needed to enrich the lives of those people.

People die of simple things like starvation and disease simply because the global economy has not expanded to the point where they are included yet, we have a long way to go.

People will bring up problems, such as your references to a finite world and I am the first to admit there will be problems, But I don't think any of them are insurmountable, We will find ways around them, humans are very good at that, and fortunes will be made in the process.


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## craft (7 February 2014)

Value Collector said:


> In a world where Billions still live below the poverty line, with limited access to fresh water, shelter, food and health care, I think global economic growth is very much needed to enrich the lives of those people.
> 
> People die of simple things like starvation and disease simply because the global economy has not expanded to the point where they are included yet, we have a long way to go.
> 
> People will bring up problems, such as your references to a finite world and I am the first to admit there will be problems, But I don't think any of them are insurmountable, We will find ways around them, humans are very good at that, and fortunes will be made in the process.




Do we need more growth to fix those things? or a better way of delivery and distribution? Growth is now coming at an exorbitant cost and lowering quality of life on an overall basis so how can more growth improve quality of life overall. 

I also don't think things are insurmountable, but I do think we are going to have to align our money system better to the reality of finite growth and to deal with issues of financial concentration.


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## Value Collector (7 February 2014)

Here is a talk from Bill Gates on the Innovations needed to improve lives and the environment, He outlines how through innovations we will be able to produce more goods and services to raise global living standards, while also reducing impact.


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## craft (7 February 2014)

Value Collector said:


> Here is a talk from Bill Gates on the Innovations needed to improve lives and the environment, He outlines how through innovations we will be able to produce more goods and services to raise global living standards, while also reducing impact.





Thanks for the video


I agree



craft said:


> Trick will be to do it in a way that still drives technology /social /cultural advancements etc to make life better whilst laying off the plundering of nature.




We can and should do the sort of things he talks about and innovation and efficiency are imperative. But note he still talks about research funding, cost issues and imposed price signals. 

My point is that we are fighting the current money system to get these things done. 

One saving grace for me with the concentration of wealth that the current system creates is how some at the top like Bill Gates have decided not to consume ridiculously but to use their control of money to try and plug the holes left by the system that created the money.


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## Value Collector (7 February 2014)

craft said:


> Do we need more growth to fix those things? or a better way of delivery and distribution?




Yes, we need more growth.

We need more Dams, water pipelines, power lines, power plants, hospitals, ports, roads, bridges, trucks, ships, planes, railways, phone towers, fibreoptic cables  etc etc. the list is endless.

Offcourse delivery and distribution is a big part of growth, its hard to distribute water without pipelines, food without roads and refrigeration, education without libraries and the internet etc.

Developed countries have most of those things, but will need more incrementally, But even developed countries have room to grow when it comes to areas of scientific advancement, Design, education and many service industries.

I don't see a future where we a limited and have to sit in the dark, In 100years from now, I think the products and services available globally will be far more than we have now.


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## sptrawler (8 February 2014)

Value Collector said:


> In a world where Billions still live below the poverty line, with limited access to fresh water, shelter, food and health care, I think global economic growth is very much needed to enrich the lives of those people.
> 
> People die of simple things like starvation and disease simply because the global economy has not expanded to the point where they are included yet, we have a long way to go.
> 
> People will bring up problems, such as your references to a finite world and I am the first to admit there will be problems, But I don't think any of them are insurmountable, We will find ways around them, humans are very good at that, and fortunes will be made in the process.




When there is no poverty, where everyone lives to extremely old age and there are no children dying. We won't be able to feed them.
Even if we can feed them, the problem perpentuates and becomes a bigger problem.lol


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## Valued (8 February 2014)

sptrawler said:


> When there is no poverty, where everyone lives to extremely old age and there are no children dying. We won't be able to feed them.
> Even if we can feed them, the problem perpentuates and becomes a bigger problem.lol




If we can't feed everyone then arn't the people not being fed in poverty? Then don't you have a divide between the haves and the have nots? Wouldn't the starving people end up dying, fixing the population issue?


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## Value Collector (8 February 2014)

sptrawler said:


> When there is no poverty, where everyone lives to extremely old age and there are no children dying. We won't be able to feed them.
> Even if we can feed them, the problem perpentuates and becomes a bigger problem.lol




Why wouldn't we be able to feed them.

The problem at the moment is not a lack of farmland, water or technology, It is a problem caused by a global economy that is still fragmented and disjointed. Millions of people live outside of the developed economy so they live in poverty, these are people that could contribute to the global economy if they had the basic infrastructure we take for granted.

But I for one welcome any problems we get that would be caused by no children dying and people living disease free into extreme old age, Because I think those problems would be solved too.


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## Trembling Hand (8 February 2014)

sptrawler said:


> When there is no poverty, where everyone lives to extremely old age and there are no children dying. We won't be able to feed them.
> Even if we can feed them, the problem perpentuates and becomes a bigger problem.lol




No not really. As people move put of poverty their birth rates dramatically drop.


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## Value Collector (8 February 2014)

Trembling Hand said:


> No not really. As people move put of poverty their birth rates dramatically drop.




This reminds we of a speech Christopher Hitchens gave where he talks about the empowerment of women being a way out of poverty.


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## craft (8 February 2014)

Trembling Hand said:


> No not really. As people move put of poverty their birth rates dramatically drop.





Population dropping might stop us from hitting finite resource limitations. I would give it a decent % probability but it still leaves the money system with problems in relation to growth.  Look at the problems Japan's money system is having with the very low growth because of demographics. 

It doesn't need to be that way GDP per capita via innovation and efficiency can still go up and improve standard of living even if overall GDP is dropping because of the population component its just that at the moment the money system is designed for overall GDP growth.

USA since 1900 has had real growth of 1.3% population + 2% productivity.
Since 2000 that has dropped to .9% population and 1% productivity.

I don't know Japan's numbers but I would guess the decline in Population is offsetting the productivity component. Japan has got quite aggressive with its easing lately in yet another attempt to get its economy going - I suspect the evolution to the money system might occur there first and the so called currency wars are a start of the change as well. They innovated QE which is a band aid for the current system.

Historically money has always been evolving - I won't be surprised if we evolve to some sort of official negative/zero interest rate currency or have government take over the creation of money without debt obligation - question is what happens to outstanding debt obligations because new money without debt obligations will instantly devalue current obligations via inflation.


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## Value Collector (10 February 2014)

craft said:


> .
> 
> or have government take over the creation of money without debt obligation - question is what happens to outstanding debt obligations because new money without debt obligations will instantly devalue current obligations via inflation.




any money system where you have banks taking deposits and then lending a fraction out will have a portion of the money supply being based on debt obligations.

Are you suggesting a system should be brought in where banks to do not make loans? Because that's the only way I can see that such a system could be said to not be based on debt obligations,


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## craft (10 February 2014)

Value Collector said:


> any money system where you have banks taking deposits and then lending a fraction out will have a portion of the money supply being based on debt obligations.
> 
> Are you suggesting a system should be brought in where banks to do not make loans? Because that's the only way I can see that such a system could be said to not be based on debt obligations,




I’m not trying to prescribe any solution – just watching.

As you can probably guess from my posts so far my view is a paradigm shift in growth rates (very near or at hand) at an aggregate level and a monoculture monetary system based on positive interest that requires aggregate growth to function properly.

Something will give

I’m just trying to think through the possibilities and not be caught unawares.


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## Value Collector (17 April 2018)

This probably the best explanation on the money system I have seen.


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