the_austrian

Yes. This is the point I'm driving at, it is apparently a given for people that when there is a transaction there is economic advantage for both participants and that it is economically significant. This I don't argue with but I'm only pointing out that it isn't the transaction in itself which creates the changes. Two identical apples transposed will not make any difference in the outside world. Money circulating doesn't, in itself do very much but it's the economic changes which it signifies which are to our advantage.

I'm not intimate with Northern Rock, but from my understanding they failed to get even enough regular deposit accounts to fund their operations which is why they went to the credit markets. A bank doesn't need to go to the credit markets, but it can if other banks want to make a quick profit on their deposit accounts. Securitisation only means that the risks are shifted around, it doesn't change the underlying dynamic.

I think a conclusion must have been jumped to by one of us, since the concepts are kind of unarguable if there is no magic teabags. Economics and money seems uniquely ill equipped in terms of language and definitions to be easily understood. But when I talk about transactions, I mean nothing more than that, a simple exchange of property between two entities. Unless supply or demand is altered, I see no reason why a simple transaction should influence anything else. If something else, be it increased efficiency or more effective use of resources is considered to be implicit and necessarily part of all transactions, that is an assumption I do not make and for me, would require explanation. It might be a null transaction of a type I have described with the repeated exchange of tea or bananas. Economic activity usually improves our environment, which is a deflation of a kind, because prices fall, but not necessarily.

An increase in transactions doesn't mean more demand. Isn't inflation a decrease in demand for currency? Transactions can happen for any reason, there is no reason to assume it relates to demand in any particular way, either greater demand or less.

I'm talking about velocity which is to do with transactions, whether or not anything productive has occurred is a question for the protagonists. The price of the banana would rise, so in that sense money would fall and there would be inflation of prices. So the price is altered by demand. This doesn't alter my position about velocity being of no consequence to prices. If anything, it establishes it.

Let's say it's a banana. The teabags being reused was not meant to provide any detail, it's just about the single tea drink. If a banana is sold back and forwards, to the same person, an even number of times, so that everything is as it was originally, there would be no reason for prices to change. We can't know that millions of exchanges like this are not taking place all the time. A fresh pound, straight from the mint costs the same as one that has been around the block.

Let's start again. Your friend sells you a cup of tea for £1. For whatever reason, you decide to sell it back and the friend accepts. The tea is back with the original person, and you still have your £1. The tea has been exchanged an even number of times between you and is back with the original person. You can repeat this as many times as you like, at a high frequency. There is nothing to prevent this trade taking place millions of times. At the end of this adventure prices for tea, and for cash will not be altered, any more than they would have done if there had been only one trade.

Or are you a teapot person?

That was the original example, nothing magic about it perhaps I should have been more clear. You have one cup of tea. That gets sold for £1, but then you sell it back, the same cup of tea. Now it is back with the original owner. If you do this same action over and over, the tea can remain back with the original person, you can do it millions of times every second.

Milk first? Barbarian.

It's the same cup of tea, it goes back and forth. Only one teabag.

It's reality. The most incredible part about making conversation over the internet is that we are exposed to what other people truly think on a deeper level than we might otherwise have the opportunity to do. I'm amazed, quite often at what I read.

Not buying it I'm afraid, so I'll keep giving my example. If I sell a cup of tea to a friend for £1, back and forth a billion times that doesn't alter the price of tea in the cafe down the road. Neither does it alter the price of the £1.

Banks aren't hoarding it, they are massively insolvent already. They have a legal entitlement to be insolvent. QE hasn't affected prices because they purchased Treasuries with the money which is replacing one form of 'money' with another. It is a wash, so of course there would be no change in prices. Using QE money to buy Treasuries is like swapping two £5 notes for one £10, prices don't change. It's not because of a lack of bank lending that prices haven't changed, lending makes no difference to prices. They aren't lending when they issue mortgages, they are making new credit, which does influence prices. I also doubt people are paying down their debts to any great extent.

We can't assume that because for every buyer there is a seller. The velocity of the money supply is not different from the velocity of money, money makes up the money supply. And if friends swapping things over and over won't affect global prices then no other form of exchange will as there is no material difference between trade among friends, and that in the marketplace.

If people sold their currency, that would be hyperinflation, but that's because of the loss of value not a result of the sales. It happens at the same time which allows the confusion. There is no reason why a commodity changing hands would influence the price of all other units. If I resell my lump of gold, or my car perpetually to a friend over and over, that alters the price of other gold and cars in no sense. The other units hold their value regardless of the changing ownership of another piece of material.

No, this is the type of rationale that justifies our serfdom. We get inflation today, by issuing money (or credit, whatever) today. There is no other way. All money is available, if it is not lost. There is no worthwhile distinction between available money and other types of money. There is no fast and slow money; it all counts. The velocity theory of prices is nonsense. Velocity doesn't influence prices.

Loans don't alter prices, so the banks must be doing something more than simply issuing credit that they are good for.

Banks erode savings. I can't see in your post what contradicts this.

Don't know if it's a bad thing, but I'm tailoring my replies to the recipient; I wouldn't have written the same thing to you.

The (price) inflation happens long before the bailout.

Banks devalue savings which is a form of theft.

Very generous.

If the banks issue a bunch of new lies, the price of a house will go up, become more expensive, yes?

On reflection, I think I'd be willing to say it's a fraud committed by the Government, not the banks. Or at least not the individual bankers, who are only operating under the permission of the State. So, FRB is Government fraud committed against the people, those that are not aware of the nature of the banking system.