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Debt Based Monetary System Question


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#136 24gray24

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Posted 28 November 2011 - 12:56 AM

lol - I've been meaning to reply to this thread for days, but since it's fairly quiet down in this forum I figured there was no rush. And then I see an Injin led nine page epic this evening. I feel proud to have provided a platform for this :P


I don't understand why the money supply has to keep increasing. If the bank lends 100 into existence, and you have to give 110 back, you can just shine 110 shoes at a pound each, rather than 100, and pay it back.

It only has to keep increasing, if the borrower is relying on capital gains to pay it back; in that case the house price will have to rise from 100 to 110. Rises in asset prices are an illusion, if everything goes up every year, it doesn't mean we're producing more, we're just inflating the currency. But banks like it, because it gives the illusion of a pay rise every year.

On the gold standard issue, the original standard was fully gold backed. ie for each 100 oz the bank said it had, it had 100 oz. It was WW1 that killed it; after that they only had 60 oz for every 100 oz they were supposed to have.

If you go back to the gold standard now, with all bank debts bailed out, the price of gold is about $15,000 an oz. and a loaf of bread is about $100 or so. I've made those figures up, but it's very high (ie dollars very worthless) because of the scale of the banks debts. The problem is putting the price up to $100 without a revolution. I personally don't think they'll manage it: ie the yanks will start shooting bankers long before it gets to 100 a loaf.
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#137 Injin

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Posted 28 November 2011 - 01:44 PM

I don't understand why the money supply has to keep increasing. If the bank lends 100 into existence, and you have to give 110 back, you can just shine 110 shoes at a pound each, rather than 100, and pay it back.

It only has to keep increasing, if the borrower is relying on capital gains to pay it back; in that case the house price will have to rise from 100 to 110. Rises in asset prices are an illusion, if everything goes up every year, it doesn't mean we're producing more, we're just inflating the currency. But banks like it, because it gives the illusion of a pay rise every year.

On the gold standard issue, the original standard was fully gold backed. ie for each 100 oz the bank said it had, it had 100 oz. It was WW1 that killed it; after that they only had 60 oz for every 100 oz they were supposed to have.

If you go back to the gold standard now, with all bank debts bailed out, the price of gold is about $15,000 an oz. and a loaf of bread is about $100 or so. I've made those figures up, but it's very high (ie dollars very worthless) because of the scale of the banks debts. The problem is putting the price up to $100 without a revolution. I personally don't think they'll manage it: ie the yanks will start shooting bankers long before it gets to 100 a loaf.

If I lend you 100 and want 110 back, at the end of the loan I want 110 in front of me.

That's why more must be made.
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#138 Toto deVeer

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Posted 14 February 2012 - 09:24 PM

I don't understand why the money supply has to keep increasing. If the bank lends 100 into existence, and you have to give 110 back, you can just shine 110 shoes at a pound each, rather than 100, and pay it back.

It only has to keep increasing, if the borrower is relying on capital gains to pay it back; in that case the house price will have to rise from 100 to 110. Rises in asset prices are an illusion, if everything goes up every year, it doesn't mean we're producing more, we're just inflating the currency. But banks like it, because it gives the illusion of a pay rise every year.

On the gold standard issue, the original standard was fully gold backed. ie for each 100 oz the bank said it had, it had 100 oz. It was WW1 that killed it; after that they only had 60 oz for every 100 oz they were supposed to have.

If you go back to the gold standard now, with all bank debts bailed out, the price of gold is about $15,000 an oz. and a loaf of bread is about $100 or so. I've made those figures up, but it's very high (ie dollars very worthless) because of the scale of the banks debts. The problem is putting the price up to $100 without a revolution. I personally don't think they'll manage it: ie the yanks will start shooting bankers long before it gets to 100 a loaf.


I doubt that a new gold standard will be backed 100%. Maybe it will start with fiat being backed, say 20% only.

Using your analogy, if there is not an increase in currency (as debt) then there will not be enough currency in circulation for the shoe shiner to find 110 customers. He will only find 100. Somebody else has to borrow the extra 10 into existence somewhere else, and this goes on and on.

So if the borrowing interest rate is, say 5% apr, the debt has to approximately double every 14 years in order for the monetary system to function properly.
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#139 houses-do-my-head-in

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Posted 15 May 2012 - 01:57 AM

I am trying to get my head around this system and it got me thinking. If I am fundamentally wrong in my understanding then please feel free to correct me as I am a bit of an economic noob and only realised this week that banks create money in the form of debt. >-<

when a bank loans $100 it creates money out of thin air, almost as if by magic. for the bank to make a profit then that persons "word" that they will pay back the money is transferred to the banks balance sheet and the person who took out the loan (govt or person) then peforms a "function"/work in order to collect the money from the economy and pay back the bank with the amount loaned plus interest. the bank then is a creator of "wealth". however there is a problem because the bank only creates/invents the $100 into the economy but doesnt create the $10(for example) interest that is needed for the person to to pay back the $110 total.

Therefore for this system to keep on successfully generating wealth for the bank and for indivuals, more loans have to be created to other people to give the borrower a chance to "fight" for the 10$interest that they need to find in the economy.So the more loans that are made and the more transactions that are made between people in the economy then the easier it is for more wealth to be created? its like creating millions of hot potatoes of debt that are quickly passed from person to person before someones hands get burnt? This seems to me like a system to keep people working/speculating in order to make the bank money, that they created out of nothing to start with? a few get wealthy at the expense of the majority? It's like a big struggle to fight for the money in the economy, but there is only ever 1 real winner, although some borrowers can aquire a larger share of the money created and therefore they win in comparison to the rest of the population.

If this is the case and governments know this why do governments allow the banks to create money that they then borrow? why dont they just invent the money themselves in the form of loans from the government bank?

Also why do banks need savers cash if they can just invent more? is it because when the bank have reason to believe that there are less transactions in the economy and therefore a greater chance that people who borrow wont be able to get the money from the economy to pay them back. I assume that when this happens the banks require more interest as the risk is greater? But what do banks do then to make money if they refuse to create loans because of the risk? set up some of these hedge fund thingys and repackage and sell the debt on again?lol. maybe I have watched too much CNN.

On a political ideological level then communists, rather than fighting for this money through transactions they would rather share skills so everybody has everything they need? (obv there are massive obstacles for this to work, eg greed) they dont build someone a house in return for money, they do it to recieve something of worth in return? whereas capitalists want to fight over the money that is created?

And finally,

with regards to the gold reserve system/fractional reserve system that seems to leverage new money out of thin air, what will happen when all this new money is "destroyed" when people default and don't pay the bank back, as in the case of Greece? Will the banks own the country and it's assets as a form of security? If this happens then I can see World War 3 happening tbh as I think the whole system underestimates the power of an uprising of millions of people.
Also with this system am I right in saying that we attributed/socially constructed a "worth" towards gold as it was scarce and deemed precious, and exchanged this worth for currencies as "money". if this system collapses and Malthus was right, then maybe its not gold that we attribute a worth to, but what about basic resources as humankind needs these to live and reproduce rather than having gold in a bank.

wow, you got me thinking ;-)
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#140 hotairmail

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Posted 27 May 2012 - 09:40 PM

I don't understand why the money supply has to keep increasing. If the bank lends 100 into existence, and you have to give 110 back, you can just shine 110 shoes at a pound each, rather than 100, and pay it back.

It only has to keep increasing, if the borrower is relying on capital gains to pay it back; in that case the house price will have to rise from 100 to 110. Rises in asset prices are an illusion, if everything goes up every year, it doesn't mean we're producing more, we're just inflating the currency. But banks like it, because it gives the illusion of a pay rise every year.

On the gold standard issue, the original standard was fully gold backed. ie for each 100 oz the bank said it had, it had 100 oz. It was WW1 that killed it; after that they only had 60 oz for every 100 oz they were supposed to have.

If you go back to the gold standard now, with all bank debts bailed out, the price of gold is about $15,000 an oz. and a loaf of bread is about $100 or so. I've made those figures up, but it's very high (ie dollars very worthless) because of the scale of the banks debts. The problem is putting the price up to $100 without a revolution. I personally don't think they'll manage it: ie the yanks will start shooting bankers long before it gets to 100 a loaf.


The money supply has to keep increasing because some refuse to trade in balance, The money gets 'stuck' as it were. 'Inflation' is a very clever way to re-balance the money system. Otherwise you would require disorderly default or taxes by force to transfer it.

The big problem is that 'inflation' generally causes hard assets to rise even faster which means the rich get richer. The ONLY WAYS to stop this part is taxes or default in fact.

"The chicken is radiating disorder out into the wider universe."





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