cashout: (TRACK1&2)+ITALY,USA,UK,BANK LOGINS,TRANSFER TO ANY BANK PAYPAL,CC AND EQUITY CREDIT HOME LINE TOP UP, IRA ,SHOPPING,WU.TRANSFER.BANK TO BANK..TRANSFER ....FULLZ...DUMPS+PIN..MAKE CHEAP MONEY IN CHEAP DEALS..ANY real deal guys here that trust his job should contact me at youcancomein@yaHOO.COM
What if I, as the employee, am a gold miner. I dig up, and smelt $1,000.00 worth of gold, ship it to the government and they send me my check. Now we are on a gold standard - since the government has in its reserves an amount equal to the dollars it created. What if the economy needed more than gold; items like oil, timber, and food. Now our currency is backed by all the production that the workers created. Fiat money is never worthless - it is backed by production.
This video is WRONG WRONG WRONG - INACCURATE INACCURATE INACCURATE. The bank cannot "create" 9 times its deposits, it can loan 90% of its deposits! The way new money is created is that original deposit remains "booked" and is money. The loaned money when redeposited by the borrower into a their account is booked and thus there is the original deposit, plus the new deposit of lent funds. This process continues (90% or the amount after reserve) which replicates out creating roughly 9-10x money
@johnnibarger There would eventually be UP TO $9000 created from the original $1000 deposit if each deposit was lent (minus reserve) which in turn was 100% deposited into a new bank account which in turn was then lent (minus reserves).
@johnnibarger As I said in the video, to keep the model simple, I am using one bank to represent the entire banking system, and one transaction to represent many. The *net result* is the same, as you said yourself -- reserves can be multiplied by up to 9x, given a 10% reserve requirement.
@spectator59 I watched the video 3x and it does not provide adequate explanation to make this distinction. It appears to say that a $1000 deposit creates an ability to loan 9x. 9x may be the net effect, and this may actually be referred to as the "money multiplier" but it is important that you explain that a bank does not loan more money that it books, it can only loan it's deposits minus reserves and that the lent funds being redeposited creates the effect of new money, not leverage
@johnnibarger One more issue that would be interesting is that it is IMPOSSIBLE for all debt to be paid in full. Because all currency is issued through debt, and debt incurs interest charges, the initial $1000 lent requires more than $1000 to be repaid. Therefore there is not enough money in existence to repay all debt with interest. This creates the necessity for a continual increase in money otherwise the interest eventually over time would consume all money supply.
@johnnibarger "Modern Money Mechanics," written by the Fed, says, "Carried through to theoretical limits, the initial $10,000 of reserves distributed within the banking system gives rise to an expansion of $90,000 in bank credit (loans and investments) and supports a total of $100,000 in new deposits under a 10 percent reserve requirement." The video illustrates that fact. The issue you raise concerns "excess reserves" and the associated incrementalism, and is secondary, IMO.
@ehertzog - I never used the term "90% effect." I referred to multiplier. 90% was the "example" lendable amount of funds if a reserve were set at 10%.
@GerhardSchroeder The Fed receives interest only on the bonds it holds. The received interest is considered income for the Fed, and is first used to pay their expenses (salaries, equipment, etc). From the remaining profits, they pay 6% out as a dividend to all member banks. At the end of the year, everything that's left over after that is rebated back to the US Treasury.
cashout: (TRACK1&2)+ITALY,USA,UK,BANK LOGINS,TRANSFER TO ANY BANK PAYPAL,CC AND EQUITY CREDIT HOME LINE TOP UP, IRA ,SHOPPING,WU.TRANSFER.BANK TO BANK..TRANSFER ....FULLZ...DUMPS+PIN..MAKE CHEAP MONEY IN CHEAP DEALS..ANY real deal guys here that trust his job should contact me at youcancomein@yaHOO.COM
If there was a 1,000 in the bank they could only lend out 900. Then when that 900 is deposited back at the same bank they can lend out 810 and so on and so forth.
Sorry for asking so many questions but I am a finance major so this stuff intrigues me since it is really not taught in school as much (the whole Fed Reserve thing), so here is my next question:
I am probably missing something basic here but here I go:
So when the Fed receives that money from circulation it no longer shows up as a liability? So if the liability side is reduced what on the Asset side gets reduced? (I really thank you for answering my earlier question, you are a big help)
Where can I go if I want to scrutinize the Fed's balance sheet.... I know it is like $2.9 Trillion in assets, but what part of that is bonds, currencies, stocks, etc, etc. Can you break that down for us spec? Thanks.
@SonOfAbba You can start with the H.4.1 report. Google "federal reserve h.4.1". About $1.6T of the Fed's assets are US Treasury Securities. There's another $1T in agency debt and mortgage backed securities, and the remaining $0.3T is misc odds-and-ends. Currency in circulation is on the liability side, currently about $1.0T.
Thank you Spec. I went there and verified that your numbers are right. What exactly is agency debt? Is that if the Fed wants to upgrade some main-frame computers for ACH transfers and then they call that agency debt?
i dont understand what you mean in 2:15 when you said "the fed writes a check to the employer".....ha? the employer earn money from the already existing money (ie customers money) not the gov....or you just took this scenario to demonstrate your presentation? didnt get that
@makaveliguy The scenario in the video starts with no money in the economy. After the government creates some money, the way it gets into circulation is for the government to spend it -- which it often does by buying things from companies / employers.
So where does that leave the interest? Given a 1/10 reserve rate, the accumulation of the leftover interest debt should be exponential. Eventually it has to overtake any amount of principal that could be created. (If you make the limit infinity) Even at <1%, that's got to have an impact over time necessitating the increase in the money supply. As time goes on, the problem should transition into a hyperinflationary state and eventually a reboot.
I thought the system for bank loans was like this; people put money in their savings accounts and the bank would loan it out for a certain percent. they would pay a small portion of that interest to the person saving (whos money they used to loan out) and keep the rest of the interest as profit.
@tkarmakid That's what most people think (since that's how it is outside of the banking system), but it doesn't work that way. When the bank makes a loan, new money is created specifically for that purpose; the money that people have placed on deposit is not touched.
but why do we then get interest if our money isn´t touched? (by the way I never use the interest I get. In stead I give this money to poor people because I´m Muslim. Islam forbids interests because it´s not fair that someone demands more money from you just because he has given you a loan)
@lovepeacetrain You aren't paid interest by the bank for loaning to others; you are paid for making it possible for the bank to create money to loan, since your deposits form the bank's reserves. You are also taking a risk, since the bank may fail. Interest is not the only way for a bank to be paid for risk it takes when making a loan, but it is a convenient way for most in the Western world. It seems to me that the Islamic banking approach of sharing profit and loss has the same net result.
Yes, the bank only have the deposits, and their loans from the central bank ( and their capital ) This babble about the bank create money.....is just babble.
@wordpresswidget 1. The reason is that the government is buying something from the employer. The mechanism is by writing a check. 2. Banks can't create their own capital; they can only create debt (credit money). When a bank creates money, that action has to be associated with a note. They can't create their own earnings from thin air, and then spend that money on "stuff."
I differ on a few points and slightly outdated. For example, it brings more value to the banks to sell the loan to a third party (an investment bank) because it clears their books of liabilities [collectible] and provides them with a quick way to increase their reserves, thus allowing them to make further loans at a factor of 10 or greater than the amount of reserves in the vault. This will, therefore, both increases their risk of liabilities, and provide a massive, free, financial cashflow.
You could however make your model simpler and it would be more correct at least for countries like Sweden where there are no reserve requirements by removing the FED and the government (and in reality for the US as well). Only the Bank, the employer and you. The bank may then create money from nothing as long as its balance sheet is maintained "end-of-day" (e.g. the loan receiver making a bank deposit).
0.36- the government was a product? Why would government ask you? surely government would ask the employer? and the employer would then ask you the employee.
Therefore all money ends up with the employer not the you- you simply has his small pay check relative to the employment cost of production.
Sorry this model is simplistic and rediculas, a bank that has it's loan payed of I doubt destroys the money paid back- I think you'll find they put that money in dividens to the shareholders of the bank, as the interest is paid along with the lone itself, some of that goes into profits.
Not forgetting that banks package loans and sell them on to others. The loan money therefore still exists in the ecconomy after the loan is paid, and is given out in bonus' dividens and pay to workers etc.
@099749 If you don't believe me, search the web for "Modern Money Mechanics," printed by the Fed themselves; it describes how money is also destroyed. Banks can create money for loans, but they can't directly create their own profits, and only profits can be paid out as bonuses or dividends. Even when loans are sold, they are still paid off, and when they are, the process of paying them off removes money from the economy.
So when Goldman sachs put almost all the money the governement gave them into profits, and that's a future tax on the people effectively, and when deposits can be withdrawn after reserve loans are given, when fractional reserves have been shrinking- and all loans have been repackaged sold then reopened and repackaged and resold again
How can you follow it to see the money destoryed? None of the banks are acting correctly, If 20 banks have a piece of a loan when ended who destroys?
@099749 Credit money is destroyed when principal is repaid; that's a basic accounting requirement of the banking system. When loans are sold, the new banks that eventually receive the principle from the borrower are responsible for destroying the associated credit money. I agree that there is a lot of fraud happening in the banking system, but not in this area. Oh, and the bailout money received by Goldman Sachs is a totally different thing. The bailouts are designed to replace bank *capital*.
SO pretty much what you are saying is if the real interest rate is not 0% then it is impossible to ever payback the federal reserve the principal amount plus interest. So there is no way to ever really payback all debts. The Fed is evil, END THE FED.
Unfortunately a simple model is misleading. The US Treasury auctions its bonds and the Federal Reserve has its own trade system and a group of primary dealers. So if one wants a snapshot of bonds outstanding its not in one ledger. Secondly if the Fed prints money and uses it to buy treasury bonds , in effect it is paying down the debt (assuming that the public debt reported and the Fed balance sheet are the only ledgers ) because both the Fed and the Treasury are parts of the same US government.
@hwt2009 When the Fed prints money to buy Treasuries, although the result is that the government owes money to itself, which offsets interest payments/income, but that's not the same as paying down the debt -- that's monetizing the debt through inflation. When the Fed buys Treasury debt, more money is put into circulation. Truly paying down the debt would result in money being removed from circulation and destroyed.
Let me get this strait: 'You' earns $1,000 and the 'Employer' gets $0 !?! No wonder 'Employer' borrowed $9,000 from the 'Bank'. I wish I could have such a generous employer. Question: What does the FED (read:FRAUD) do with a $1,000 bond?
@spectator59 Your presentation is unnecessary complicated, but there are some truths in it.
You forgot the part about INTEREST DUE ON THE BOND to the Federal Reserve. This example is fine and dandy if interest rates are and have been ZERO, but they aren't and they haven't been. If they were then the Federal Reserve would receive no profits and they would be extinguished.
The reason this is hard to understand is because every tutorial runs into the easy part (loans, fractional reserves, debt) and doesn't explain thoroughly the first few stages. What does the Fed do with the bonds? How does the govt. pay the interest on the notes? What interest rate does the govt pay? What are the factors in determining the interest rate? You guys must be amusing yourselves because you're not teaching anyone anything.
@bammbamm12 Well, you have to start somewhere... The Fed can hold or re-sell the bonds it buys. For the ones it holds, the Treasury pays the Fed interest. The process is similar to the Treasury paying anyone else interest, at the same rate as on securities held by the public; the main differences are that the Treasury's "checking" account is held at the Fed, and that all interest the Fed receives over-and-above its expenses is rebated back to the Treasury every year.
@spectator59 - Thanks for clearing things up. There's really nowhere to start, it seems, because our debt based system was just dubbed over the gold backed system. In other words, there were billions in circulation when the rug was pulled out from under us. So it's hard to imagine *everything* originating from a bank loan, rather than a gold backed deposit.
Right now loans are defaulting cash is used for trade without taxation assets are being discounted due to money supply is being reduced. Each dollar has more buying power, thus deflation of all asset classes. Reduction of parasite class living off hig debt interest costs. That's what communist leaders do obamo! Just read up how well it works long term.
When the loan is paid off (plus interest), the bank now holds not only the 'original reserve' (in this vid thats 1,000). But now it received payment for money that NEVER existed in the first place- the 9,000 PLUS INTEREST! So now the reserve is 1,000+9,000+interest!
And the fraudulent cycle of fractional reserve counterfeiting continues indefinitely so long as ignorant fools let it
It isn't true that when the "loan has been paid off, the money disappears from the economy"- that just is not true.
money in this economy exists mostly if not all as DEBT! the 10% reserve is really an arbitrary reserve amount- since the banks are essentially practicing counterfeiting- & any reserve for counterfeiting really makes no difference on the counterfeit itself
@swu880 Why do you think money is not destroyed when a loan is paid off? The process of money creation *and destruction* is very clearly documented. For example, see "Modern Money Mechanics," printed by the Fed themselves. Banks can create money for loans, but they can't create their own profits. When the loans are paid off, the associated money must be destroyed; that's how the banking system works.
@spectator59 The money isn't destroyed, the loan recipient's account is simply cleared out. That money the bank receives from the loan is used just to create more debt. It's a stacking procedure, which looks similar to an upside down triangle (small amount of assets in the bank, huge amount of assets recievable)
@lotzoskillz Principle received in payment on a loan destroys the associated credit money; this is well-documented. Interest is income for the bank, which the bank can spend on salaries or distribute to stockholders. Only when loan proceeds are deposited in a bank (including after being spent by the borrower) can they be used to create more debt -- but that process is reversed as the loan is paid off.
@spectator59 person 1 sells an item to person 2. person 2 gets a loan from the bank to pay for it (the bank makes new money by issuing debt). unless person 1 takes that money and burns it in an open flame, the money is never destroyed. Person 1 either spends it as a consumer (on some item or service), or puts it in an account (aka makes a loan to the bank to) and it becomes reserves in the banks balance sheet as loanable currency, which will be used to make loans at nearly 10 times its amount
@lotzoskillz Money is destroyed when the loan is paid back; it doesn't have to be the same money that was originally borrowed. In your example, when person 2 pays the loan back to the bank, the money they use to do that is destroyed (the principle portion only). This is explained in the video. As I said above, if you don't believe me, check out "Modern Money Mechanics," written by the Fed. BTW, if person 2 defaults on the loan, then the bank has to destroy its own capital to extinguish the loan.
@spectator59 if money was ever destroyed then twinning a stream of revenue would be illegal. the current banking system exists in America only because money cannot be destroyed, ever. the only time money is destroyed is when it is burned or no longer accepted, in which case it is only replaced.
the federal reserve is an unconstitutional bureaucracy. Congress & congress alone was given the exclusive privelage of coining money (backed by gold & silver).
Congress can not give that power out to anyone just as the president's exclusive PRIVILEGE of veto can not be given out to anyone. All govt powers are priviliages not rights- individual people hold rights. And privileges are non-transferable. thus the 16th ammendment was totally unconstitutional
You mentioned that the Treasury bonds are analogous to the total debt which I think is not true...This is because the Bank also creates the loan money which isnt reflected as bonds on the Fed side...So what is that one thing thats analogous to the Total National Debt?
@djstud1987 I don't recall my exact words in the video, but the total "National Debt" is basically the sum of all Treasury bonds, bills and notes held outside of the government. The money banks create is "credit money," and is owed by the public to the banks, where the National Debt is owed by the government to the public. The sum of the two is all money in circulation, and used to be reported in the money supply statistics such as M3 before the Fed decided those stats weren't important any more
@spectator59 MAkes sense...Thanks for the reply...Can you please put in the import-export money/goods in to this scenario to explain the whole picture of the country's economy and the money cycle...
None of you got the point! The goal of the example is to explain that material slavery, not fed this fed that. Fed is just what is physically in touch with you. What is not changing is you & bill paying. The side effects of this monetary economy are inflation, bubbles and social class conflicts.
The main problem is the scarcity that's forcing human labor to exist. Humans are so different and so similar to other animals, except they don't understand the idea of collective interest.
i disagree. federal reserve "loans" money to treasury in exchange to the treasury bonds. the treasury bonds have to have some value. i think essentially the treasury bonds are assets of the US public. like schools public playgrounds etc. so when treasury gives the bonds to fed, its actually putting US public property as collateral againsts the fed loan. now US taxpayers not only have to pay the interests on the loan, which is impossible or loose its public properties to the owners of the bond.
@mintoo2cool Interesting idea, but it doesn't currently work that way. Treasury bonds are unsecured debt obligations. If you own a bond and the US defaults, you have no claim to any real property or anything else. Just look at history: many countries in the past have defaulted on their bonds, without losing anything other than their credit rating (or possibly triggering a war).
No talk of how much money is added by each bank given authority to create money out of thin air ,not just the fed ,Banks create all the money loaned out of thin air on home loans and credit cards 100% ,when you sign your name the "money " is created .Fractional reserve allows you to lend the money 7 times before it is destroyed.
your signature is the authorization ,since FDR outlaw lawful money in 33' ! it is not money ! It is fiat currency legal tender debt based notes
Americans, Patriots, join the JULY 4th Independence from the FED Day!
From May 13th to June 15th, turn in $250, $500, $1000 or more borrowed FED paper FRN dollars in exchange for public debt-free SOVEREIGN US Mint dollar coins. Exchange rate is 1 to 1 from a bank, or your U.S. Mint with free delivery.
Start circulating on JULY 4th for anything you buy. US Mint dollar coins buy down FED debt!
YES, U.S. Dollars coins for FRNs! FED pays us Full Face value.
@roymakkaypl No, the Treasury creates the bond. The bond is then sold to the public or (indirectly) to the Fed. When the Fed buys a bond, new money is created. The Fed basically has a bottomless checking account. When the Fed sells a bond, the money that comes from the buyer is destroyed. Printed money is handled differently; it is only issued in exchange for money that is on deposit with a bank--new money isn't created by actually printing on paper.
You forgot to talk about the interest money. Interest money is never created, that's why there's always a shortage of money in the system. Since you need a bigger amount of money to repay your debt than the amount that was originally lent to you, it follows that someone has to lose that extra amount of money so you can earn it and pay the interest on your loan. Therefore not all loans can be repaid, which means that there necessarily have to be bankruptcies.
@IntoTheHeartOfMusic I have addressed the issue of the interest money many times in the comments. There is no shortage of money unless the interest is allowed to excessively compound. Simple interest can be paid off with a fixed amount of money.
@spectator59 I think you may have misunderstood the question posed by @IntoTheHeartOfMusic. At the end of the video you assumed the Federal Reserve charges 0% interest from the government. But it doesn't--this money of course was never created. The treasury will have to sell another bond.
@mrgerbeck yep, sucess of this model is based on; 0% interest rates from the central bank, 100% of the credit money going back into the economy (ie. no bubbles or poor investments), and no compound interest. Also easy credit (ie. close to 0%) encourages loans and discourages savings, credit contraction and mass debt defaults are inevitable - which is the point the US is at now. If you put all that into your model it would probably be more accurate to show what has happened in the US economy.
I agree that the Treasury borrows from banks (mostly primary bond dealers) and that the Fed rebates their profits to the Treasury (mentioned many times in my comments here). The video is a simplified version that starts with no money in the economy. The net effect is the same, whether the Fed buys from a primary dealer or directly from the Treasury. Either way, new money is created which ends up in the Treasury's account at the Fed.
Is there any relationship between the interest rates of the federal reserve and the interest rates of government obligations (like treasury bills etc.) ?
Yes. The Fed can buy and sell government obligations (Treasury securities) in the open market, through the FOMC. Their primary purpose in doing that is to manipulate interest rates.
I assume they are doing this to lower interest prices on goverment bonds, which equals lower rent payment on government debt. So when the economy gets bad the FED has 2 choices
- Buy an equal amount of bonds, but now not enough buyers (china, etc) will want to buy the rest. This will force them to drive up the bond interest rate which is more rent payment on government debt (any maybe tax more).
The Fed's choices are: (1) to buy Treasuries, which will add money into circulation (as bank reserves) and thereby increase inflation and decrease the supply of Treasuries, which drives their rates up, or (2) sell Treasuries, which removes money from circulation, increases the supply of Treasuries, and thereby drives interest rates down.
At least that's the theory: it's not always quite so simple.
Demand from China and other foreign buyers is important, but it's a secondary consideration.
If you make me a loan, you can only adjust the interest rate if I agreed to it; you can't do so unilaterally. However, one aspect of paper money is that you can potentially change its value by changing the amount in circulation -- which is where usury enters the picture, because the lender has control over the value of the medium used to pay back the loan. Yet another reason I favor a gold-backed currency -- but that's not what this video is about.
ok- so u deleted all my comments- not sure why but u can go on holdin ur petty pride. Anyways it is apparent that u dont even understand supply & demand.
If i have the supply of commodity, & u hav the demand, then who has the right to charge or place condition on my supply? u or me?
Napoleon noted that the hand that is recieving is ALWAYS subordinate to the hand that is giving. since when is it the other way around? such inversion is a direct violation of supply&demand & property rights
but interests corrupt this system which deals only w/ such principle amounts. no one ever said that i who recieves interest must put back all, hell even som of it back into economy. There is no reason y i must giv bak that money. interest is the very nature of hoarding also known as accumulation. my examples that u deleted exemplified this fairly well
Monopolization is the result of & accumulation of such commodities in a closed loop market- do u kno wats a closed loop market?
& in such closed loop market where i dominate the control of a commodity which is necessary, theres no real reason besides moralsðics that i can not place MY demand on supplying MY products. It's just like playing the game Monopoly- to win the game, who would control the charges? the supplier or beggar?
I don't get why the money is destroyed. Once the Employer sends the 9K back to the bank, why that doesn't became bank reserves? How is that "destroyed"? Same thing with the Fed Bond.
Money can only exist when it's backed by some corresponding debt. When the debt is paid off, the associated money has to be destroyed. It's just the reverse of the creation process: new money is created when a loan is created. Banks don't loan their reserves; they create new money, and loan that. Strange, I know, but true nonetheless.
I think the 'Bank' can only lend out $900 in your example (I thought bank has to keep a 10% reserve of their deposits, so if they have $1000 in deposit, they loan $900 and keep $100 on reserve)
Aside from that, how does the Federal Reserve conjur the money out of nothing, do they really not give up ANYTHING to obtain the bonds? And the govt. really has to pay them the principal amount of the bond? I can't believe this is the case, but I really don't know.
I've simplified things somewhat in the video by using a single bank to represent the entire banking system and a single transaction to represent many. Although a $1000 deposit only supports a $900 loan, the loaned money is created just for the loan; it doesn't come from the deposit. If the loan proceeds are kept in the banking system (as opposed to being drawn out as cash), the process can be repeated until there is eventually $9000 in new money, with the original $1000 being 10% of the total.
Yes, that's right: the Fed doesn't have to give up anything in order to create new money: it's created from thin air. The Treasury creates a new Bond from thin air, too. They give the Bond to the Fed, and the Fed gives them money in return (actually, the public is the first source of funds; the Fed itself is secondary). However, all interest earned on the bonds, after expenses, is rebated back to the Treasury, so it's basically a zero-sum game.
And when a treasury bond that the Fed Reserve Bank is holding matures, the principle goes back to treasury too (or just gets wiped off Fed's books), right?
A T-Bond is like a loan document. The Treasury gives the Bond to the Fed and gets credit in their checking account (principle) in exchange. When the Treasury pays off the Bond, they return the principle to the Fed (using money obtained through taxes, for example), and then both the Bond and the money would be destroyed. Interest that the Treasury pays to the Fed is used to cover their expenses first, and whatever's left is rebated back to the Treasury at the end of each year.
One of the things that motivated me to make this video is that "Money as Debt" is so misleading.
As I've said in my earlier comments, the problem isn't that the debt can't be paid because the banks don't create the interest. This video shows how money can be used more than once; it circulates.
The problem happens if you allow interest to excessively compound. At some stage, the system is no longer supportable because new debt is being created faster than new wealth.
Isn't the real problem that we are talking about fiat currency? We are borrowing fiat currency from other countries that is manufactured out of thin air, then the people are taxed to pay the interest on this "money". Why doesn't the Treasury create the money with no interest attached? We would still have inflation but it would save Americans hundreds of billions of dollars in interest payments each year on the national debt. In 2008 we paid 450 billion dollars in interest.
ok so u r saying P = P+I? somehow the math just doesnt add up no matter how u calculate it. As small or big as Interest is made, as long as theres still interest, where the hell does the money to pay the interest com from? To attain stability, one obviously cant rely on perpetual debt based economic system- ie u never take out a loan to pay for a loan cuz where would u ever get the money to pay for that loan? money must b based on debt-free currency to maintain balance
Money can be used more than once; it circulates. The same money that I pay to you as interest, you can pay to me for goods, and then I can pay to you as principle. Let's say I borrow $100 from you at 10% interest. Then I pay you $10 for interest, leaving me with $90. Then you buy something from me (maybe some apples or services). Now I have $100 again, and I can pay off the principle in full.
'ok so u r saying P = P+I? somehow the math just doesnt add up no matter how u calculate it. As small or big as Interest is made, as long as theres still interest, where the hell does the money to pay the interest com from?'
See my response to that comment above. Principle (P) and Interest (I) don't have a simple mathematical relationship like that, because money circulates: it can be used more than once.
Ah right, i see it now. In your movie example, the interest rate of the FED is 0%, but would this be any higher, the FED could just buy some product for the amount of the interest, resetting the equation to zero again right?
Yes, either the Fed could spend the interest they receive back into the economy (as "expenses"), or it gets rebated back to the Treasury at the end of the year.
You can use it to provide an analogy of what happned to the financial markets, but this time assume there is exisiting money. Government wanted to buy something 1K from China. China also buys the Bond. Consumer-- you are unemployed and buy something for 1K dollars borrowed from the bank. Bank has deposits from China 1K so the bank could and does loan you 9K. You take your 9K to buy 8K from China the other you pay taxes 1K. The bank and you are stuck holding the bag.
The government has to rely on the generiosity of the Chinese to produce more goods and buy their bonds in doing so. Remember you and the bank are already in debt by 9K. So lets double it again 18K in debt then 27K and keeps going like this until China decides it's had its fill. US forced to finally produce something.
The problem with the example is that it oversimplifies interest repayment. In reality, loans are over longer terms and are not computed with 'simple' interest. There would not be enough money in the economy to satisfy the debt. Here's why: In the example presented here, there is a total of $10K in the economy, $9K @ interest. If the loan is to be repayed over 5 yrs @interest of 10%/year, total interest will equal $2.4K. Add that to the $9K of principal repayed and you have $11.5K! Nuff Said!
Another problem is that most people focus on the government debt part, which is the least of our worries. The government interest expense is reimbursed by the Fed.
The consumer is not reimbursed for their debt. Here lies the flaw with our current system.
If debt were reimbursed at the consumer level by the Fed, then we would actually have a Zero-sum game, then money creation would be a public service of Gov't. The economy would not have to keep borrowing to satisfy prior interest expense. Wow!
It's not "reimbursed." The Fed creates new money, some of which is used to pay interest on the national debt.
It's true that the Fed doesn't pay interest on consumer loans. However, what they do instead is to cause inflation, which allows borrowers to pay off their loans with cheaper money, by effectively stealing from those who are savers.
Actually Principle & interest are paid simultaneously, mostly interest in the beginning, mostly principle in the end. Maybe you're thinking of some kind of interest-only balloon loan? But either way I agree with your correction about the flow aspect of money. Each year or so the money would come back to the borrower by performing services, etc. for the bank. The initial 9k could be exchanged millions of times over. Thx for the correction!
I'm glad it makes sense to you; unfortunately that's not the case for many who post comments here. My explanation was just to keep the math easy. Exactly how P&I are paid depends on the type of loan. What all loans have in common is that payments are credited against interest before they are credited against principle. If some principle is included with the interest payments, it doesn't change the final outcome in terms of how the money circulates.
To what degree does the Gov't pay interest to the Fed when securities are purchased to expand the money supply? My research tells me that the Fed reimburses most, if not all the interest expense. This uncertainty seems to be the argument with the conspiracy theorists about money creation- the whole debt upon debt thing.
The gov obtains money for interest on the debt from taxes and new debt. Of the total interest paid, about 7% of it goes to the Fed, for the debt they hold. However, all profits made by the Fed are rebated back to the Treasury every year. The debt-on-debt thing is a definite problem, but not because of any conspiracy. It's a simple matter of compounding and the law of exponents: it can't continue forever.
The *real* problems are: fractional reserve banking, an unbacked currency, and inflation.
The interest side is zero sum. The problem is that the Fed isn't limited in their ability to create new principle (bank reserves), which leads to the problems with compounding.
More money is created through FRB than by the Fed; it's the primary mechanism of inflation. Banks create money at their whim, and in the process they devalue all existing money, then profit by doing so. FRB is fraudulent and immoral, in the sense that 99.9% of bank customers have no idea how "lending" really works.
I can agree with that. At the same time, the economy demands the amount of money through loan applications rather than banks 'pushing' them. Think the problem is with int. rates. With a free-floating int. rate (rather than the Fed determined rate), the market would equalize, rather than keep borrowing since its so cheap to borrow. Rates would naturally climb discouraging borrowing. Any thoughts on this idea?
There are other ways to address the liquidity needs of the economy...
Manipulated interest rates are certainly a huge problem. The Fed influences rates through the creation and destruction of money. Banks do the same thing, using FRB. In order to have true free-market rates, you would have to eliminate both the Fed and FRB; Fed manipulation alone isn't enough.
One cause of the business cycle is interest rate variability and unpredictability, which are made impossible by the Fed and FRB.
The interest is paid to the bank first, before the principle. In your example, start with the borrower having $9K and the bank has $1K. After 5 yrs, the borrower pays the bank the $2.4K interest, leaving him with $6.6K. Next, the borrower sells something to the bank - maybe apples, labor - it doesn't matter what. The bank pays him $2.4K. Now he has $9K again, and can fully pay off his loan. The moral is: money circulates; it can be used more than once.
The Feds Can Just Print Up Trillions of dollars and get away with it legally and they have. Money isnt worth anything it's just paper with pictures of Slave Owner presidents who we all honor as our American heroes, its really sickening.
All profits earned by the Fed are by law rebated to the Treasury every year.
In your example, start with the Treasury having $1000 and the Fed having zero. Interest on loans is paid first, so the Treasury pays $10 to the Fed, leaving them with $990. The Fed then rebates that $10 back to the Treasury. After that, the Treasury can pay the full $1000. There was enough money in the economy to pay both principle and interest.
You said if all debt was paid off then all money would disappear. It's actually impossible to pay off all debt because the instant a dollar is created interest is charged on it, so as long as it is debt-based currency the debt cannot be repaid. There is more debt than there is money because of the interest.
It's of course impossible in practice to pay off all debt. But not in principle. As I've explained several times in these comments, and as the video itself shows, the interest can be paid off because money can be used **more than once**. A person or bank who earns interest can spend those dollars back into the economy, where they circulate and can be spent to pay down principle.
Watch the video again. Maybe it will make more sense the second time.
Let's say you loan me $1000 at 10% interest. Interest gets paid first on a loan, so I pay you the $100 interest, leaving me with $900. Then I do some work for you, or sell you something, and in exchange, you pay me $100. That $100 has now been used again; it circulates. Now I have $1000, and can pay off the principle of the loan in full. No additional money had to be created to pay the interest.
What did Bank A use to buy the bond with? Only the Fed can create money by buying bonds. Second, banks can't use bonds as fractional reserves. Third, the profits earned by the banks can be re-spent into the economy, and used to pay off the principle.
The real problems here are: (1) the fractional reserve system (which requires the Fed in order to function), and (2) allowing debt to compound beyond the borrower's ability to pay. Interest by itself isn't evil or destructive.
Well, the congress can't find it either! lol That's why all the guesses.
Yes treasuries are issued against all new money (US dollars) outstanding. The fed doesn't charge interest the fed pays us it's profits in excess of 6% dividend. Pre-existing money is backed by treasury also. Has to be look at the signatures.
Money is created and destroyed at the federal reserve virtual/physical location, and nowhere else.
If he loaned you $1000 of real money out of his pocket, no problem.
If the bank created new debt-money to make the loan, problem.
As above, the interest-problem, so-called, is not eliminated by repayments of money "within" the economy. These are financial transactions that do not affect the quantity of debt-money created with an interest obligation.
This 'velocity" in the money system becomes a factor in the equation of how much new money is required to support the supply-demand within the economy.
However, once that new "quantity" has been created, THAT NEW MONEY requires interest payments that can only come from creating new money.
Recirculation of money, not just the banks' interest payments, has no real effect on the interest payments problem.
Gold or silver backing never prevented the boom-bust cycle the banksters use to transfer the wealth of true producers of wealth to the criminal non producing parasites, the international central banking cartel The banksters love difficult to produce scarce commodities masquerading as "money". They already own the vast majority of the gold and silver reserves in the world. Supposed gold backing didnt prevent the depression in 1857, the panic of 1907 nor the Great depression of 1929.
question 1: Why should the Government or Treasury dept create an INTEREST BEARING bond(or debt) in the first place? Can not the Treasury Dept. directly monetize the purchase(production) it wishes to acquire(roads, bridges, weapons, buildings, ships, airplanes, schools etc) by ordering the Bureau of Engraving to print the currency and spend that money directly into circulation INTEREST FREE? Why do we need a non-producing parasitic middleman( the fed) to issue our currency
Sure, they could - but they don't. If the Treasury directly monetized all of their purchases, the overall rate of inflation would be much higher. "Borrowing" from the Fed is also an important illusion. Without that, it's more obvious that government just "prints and spends." Borrowing in theory was supposed to place some restraints on government spending -- of course we all know how well that worked! Also, all interest paid to the Fed is rebated to the Treasury every year...
The interest paid back?....rebated? hahaha! Well, sort of... Supposedly "after expenses" and operating costs" eh? and since the Fed is not audited and the
federal reserve Inspector General recently ADMITTED that the agency WILL NOT account for 9.3 TRILLION DOLLARS recently "disappeared" or spent in the last year!
You make no sense. The governments purchases are monetized one way or another. Borrowing from a privately held Central Banking Cartel is no "illusion". Every dollar created is loaned into existence by the fed WITH INTEREST ATTACHED BUT THE INTEREST IS NEVER ISSUED INTO CIRCULATION. THUS THE DEBT CANNOT BE PAID IN FULL WITHOUT REBORROWING. Price Inflation is caused by the ever increasing % of the money supply committed to debt service on unpayable interest.
There is no need for the Treasury to monetize all government purchases.
There is only a need to monetize that portion that is equal to the money supply required as "new money" to support the economy.
If it is done correctly, in the proper quantity as did the Colonies with their debt-free money, then there is NO inflationary effect, except that caused by a growing economy.
In a growing economy, the share you hold naturally decreases. That's not inflation.
Second question: According to "Modern Money Mechanics", the money supply is reduced by the sale of T-Bills on the open market by the Federal Reserve. It noted that the transaction of purchasing T-Bills was a net negative to the money supply in the financial system.
When the Fed sells Treasuries in the open market (via the FOMC), they are pulling money out of circulation, and replacing it with Treasuries. When that happens, bank reserves are decreased, which reduces their ability to create new loans. So there is a primary effect on money supply in the form of the sale itself, and a secondary effect via banks. The process is reversed when the FOMC buys Treasuries. That's one mechanism by which the Fed influences interest rates.
A couple of questions regarding the destruction of money:
From speaking with a bank employee that I go to lunch with often, he asserts that payments made on loans go back on the bank's balance sheets and contribute again to their liquidity. They then make additional investments as excess reserve permits.
The interest portion of loan payments contributes to bank earnings and therefore bank capital. When loan principle is repaid, the associated money is destroyed. It contributes to bank liquidity in the sense that the bank's reserve ratio is increased, so they are then free to re-create the money for other loans.
Buying $300B in Treasuries will create $300B in reserves and it **might** create up to $2.7T in additional credit. But there's no way to know for sure what the net effect will be. The problem is that money is being destroyed as fast or faster than its being created, by way of debt deflation -- loans being paid off or defaulted. In fact, the net effect might still be deflationary, not inflationary.
When the treasury pays off the bond, where does the interest money portion of the bond go? I would imagine that this is paid to the FED - if so where does that money go from there?
This has been flagged as spam show
cashout: (TRACK1&2)+ITALY,USA,UK,BANK LOGINS,TRANSFER TO ANY BANK PAYPAL,CC AND EQUITY CREDIT HOME LINE TOP UP, IRA ,SHOPPING,WU.TRANSFER.BANK TO BANK..TRANSFER ....FULLZ...DUMPS+PIN..MAKE CHEAP MONEY IN CHEAP DEALS..ANY real deal guys here that trust his job should contact me at youcancomein@yaHOO.COM
ThePurestmoney 3 weeks ago
Wroooooooong!!!!!!!!!!
TheAwesomeMoments 3 months ago
What if I, as the employee, am a gold miner. I dig up, and smelt $1,000.00 worth of gold, ship it to the government and they send me my check. Now we are on a gold standard - since the government has in its reserves an amount equal to the dollars it created. What if the economy needed more than gold; items like oil, timber, and food. Now our currency is backed by all the production that the workers created. Fiat money is never worthless - it is backed by production.
PleaseReadSomething 3 months ago
This video is WRONG WRONG WRONG - INACCURATE INACCURATE INACCURATE. The bank cannot "create" 9 times its deposits, it can loan 90% of its deposits! The way new money is created is that original deposit remains "booked" and is money. The loaned money when redeposited by the borrower into a their account is booked and thus there is the original deposit, plus the new deposit of lent funds. This process continues (90% or the amount after reserve) which replicates out creating roughly 9-10x money
johnnibarger 3 months ago
@johnnibarger There would eventually be UP TO $9000 created from the original $1000 deposit if each deposit was lent (minus reserve) which in turn was 100% deposited into a new bank account which in turn was then lent (minus reserves).
johnnibarger 3 months ago
@johnnibarger As I said in the video, to keep the model simple, I am using one bank to represent the entire banking system, and one transaction to represent many. The *net result* is the same, as you said yourself -- reserves can be multiplied by up to 9x, given a 10% reserve requirement.
spectator59 3 months ago
@spectator59 I watched the video 3x and it does not provide adequate explanation to make this distinction. It appears to say that a $1000 deposit creates an ability to loan 9x. 9x may be the net effect, and this may actually be referred to as the "money multiplier" but it is important that you explain that a bank does not loan more money that it books, it can only loan it's deposits minus reserves and that the lent funds being redeposited creates the effect of new money, not leverage
johnnibarger 3 months ago
@johnnibarger One more issue that would be interesting is that it is IMPOSSIBLE for all debt to be paid in full. Because all currency is issued through debt, and debt incurs interest charges, the initial $1000 lent requires more than $1000 to be repaid. Therefore there is not enough money in existence to repay all debt with interest. This creates the necessity for a continual increase in money otherwise the interest eventually over time would consume all money supply.
johnnibarger 3 months ago
@johnnibarger "Modern Money Mechanics," written by the Fed, says, "Carried through to theoretical limits, the initial $10,000 of reserves distributed within the banking system gives rise to an expansion of $90,000 in bank credit (loans and investments) and supports a total of $100,000 in new deposits under a 10 percent reserve requirement." The video illustrates that fact. The issue you raise concerns "excess reserves" and the associated incrementalism, and is secondary, IMO.
spectator59 3 months ago
@johnnibarger It is called a "multiplier effect" and not a "90% effect" for a reason.
ehertzog 3 months ago
@ehertzog - I never used the term "90% effect." I referred to multiplier. 90% was the "example" lendable amount of funds if a reserve were set at 10%.
johnnibarger 3 months ago
The government has to pay interest for bonds. Where does this interest go? I mean the FED receives this interest but what does it do with it?
GerhardSchroeder 4 months ago
@GerhardSchroeder The Fed receives interest only on the bonds it holds. The received interest is considered income for the Fed, and is first used to pay their expenses (salaries, equipment, etc). From the remaining profits, they pay 6% out as a dividend to all member banks. At the end of the year, everything that's left over after that is rebated back to the US Treasury.
spectator59 3 months ago
This has been flagged as spam show
cashout: (TRACK1&2)+ITALY,USA,UK,BANK LOGINS,TRANSFER TO ANY BANK PAYPAL,CC AND EQUITY CREDIT HOME LINE TOP UP, IRA ,SHOPPING,WU.TRANSFER.BANK TO BANK..TRANSFER ....FULLZ...DUMPS+PIN..MAKE CHEAP MONEY IN CHEAP DEALS..ANY real deal guys here that trust his job should contact me at youcancomein@yaHOO.COM
ThePurestmoney 3 weeks ago
This has been flagged as spam show
i slept in the middle of the lecture :p
soba7i 4 months ago
This has been flagged as spam show
i slept in the middle of the lecture :s
soba7i 4 months ago
i slept in the middle of the lecture :s
soba7i 4 months ago
i slept in the middle of the lecture :s
soba7i 4 months ago
i wish paper was worth the number on it
spotroy 5 months ago
16 folks who watched this video work for bank or own bank
samann95014 5 months ago
If there was a 1,000 in the bank they could only lend out 900. Then when that 900 is deposited back at the same bank they can lend out 810 and so on and so forth.
WhoisJacqueFresco 6 months ago
Sorry for asking so many questions but I am a finance major so this stuff intrigues me since it is really not taught in school as much (the whole Fed Reserve thing), so here is my next question:
I am probably missing something basic here but here I go:
So when the Fed receives that money from circulation it no longer shows up as a liability? So if the liability side is reduced what on the Asset side gets reduced? (I really thank you for answering my earlier question, you are a big help)
SonOfAbba 6 months ago
Where can I go if I want to scrutinize the Fed's balance sheet.... I know it is like $2.9 Trillion in assets, but what part of that is bonds, currencies, stocks, etc, etc. Can you break that down for us spec? Thanks.
SonOfAbba 6 months ago
@SonOfAbba You can start with the H.4.1 report. Google "federal reserve h.4.1". About $1.6T of the Fed's assets are US Treasury Securities. There's another $1T in agency debt and mortgage backed securities, and the remaining $0.3T is misc odds-and-ends. Currency in circulation is on the liability side, currently about $1.0T.
spectator59 6 months ago
@spectator59
Thank you Spec. I went there and verified that your numbers are right. What exactly is agency debt? Is that if the Fed wants to upgrade some main-frame computers for ACH transfers and then they call that agency debt?
SonOfAbba 6 months ago
This has been flagged as spam show
A biggest public campaign has started to abolish fractional reserve system. Visit POSITIVE MONEY website and support the campaign.
PositiveMoneyUK 7 months ago
it's the interest that kills us and creates bankruptcies
stevebyu 7 months ago
spectator59 -
i dont understand what you mean in 2:15 when you said "the fed writes a check to the employer".....ha? the employer earn money from the already existing money (ie customers money) not the gov....or you just took this scenario to demonstrate your presentation? didnt get that
makaveliguy 9 months ago
@makaveliguy The scenario in the video starts with no money in the economy. After the government creates some money, the way it gets into circulation is for the government to spend it -- which it often does by buying things from companies / employers.
spectator59 9 months ago
@spectator59
ha now i see. i think cooperations is a more precise to say insted "companies" or "employer"
makaveliguy 9 months ago
This has been flagged as spam show
Really enjoyed you video informative. When you have time come visit my channel!
TheHcgdietplan 9 months ago
This has been flagged as spam show
Really enjoyed you video informative. When you have time come visit my channel!
FatReleaseSystem 9 months ago
The "investment" in this scheme is "work". Sorry, left that out.
miinyoo 10 months ago
So where does that leave the interest? Given a 1/10 reserve rate, the accumulation of the leftover interest debt should be exponential. Eventually it has to overtake any amount of principal that could be created. (If you make the limit infinity) Even at <1%, that's got to have an impact over time necessitating the increase in the money supply. As time goes on, the problem should transition into a hyperinflationary state and eventually a reboot.
That sounds like a Ponzi scheme. Am I right?
miinyoo 10 months ago
I thought the system for bank loans was like this; people put money in their savings accounts and the bank would loan it out for a certain percent. they would pay a small portion of that interest to the person saving (whos money they used to loan out) and keep the rest of the interest as profit.
tkarmakid 11 months ago
@tkarmakid That's what most people think (since that's how it is outside of the banking system), but it doesn't work that way. When the bank makes a loan, new money is created specifically for that purpose; the money that people have placed on deposit is not touched.
spectator59 11 months ago
@spectator59
but why do we then get interest if our money isn´t touched? (by the way I never use the interest I get. In stead I give this money to poor people because I´m Muslim. Islam forbids interests because it´s not fair that someone demands more money from you just because he has given you a loan)
lovepeacetrain 7 months ago
@lovepeacetrain You aren't paid interest by the bank for loaning to others; you are paid for making it possible for the bank to create money to loan, since your deposits form the bank's reserves. You are also taking a risk, since the bank may fail. Interest is not the only way for a bank to be paid for risk it takes when making a loan, but it is a convenient way for most in the Western world. It seems to me that the Islamic banking approach of sharing profit and loss has the same net result.
spectator59 7 months ago
@tkarmakid
Yes, the bank only have the deposits, and their loans from the central bank ( and their capital ) This babble about the bank create money.....is just babble.
kennjohnsen 7 months ago
2 questions:
1. What is the mechanism/reason the government deposits $1000 with the employer?
2. Why would the bank pay "you" $900 instead of creating $8100 in new money and depositing $900 of that into the deposit account of "you"?
wordpresswidget 11 months ago
@wordpresswidget 1. The reason is that the government is buying something from the employer. The mechanism is by writing a check. 2. Banks can't create their own capital; they can only create debt (credit money). When a bank creates money, that action has to be associated with a note. They can't create their own earnings from thin air, and then spend that money on "stuff."
spectator59 11 months ago
I differ on a few points and slightly outdated. For example, it brings more value to the banks to sell the loan to a third party (an investment bank) because it clears their books of liabilities [collectible] and provides them with a quick way to increase their reserves, thus allowing them to make further loans at a factor of 10 or greater than the amount of reserves in the vault. This will, therefore, both increases their risk of liabilities, and provide a massive, free, financial cashflow.
lotzoskillz 1 year ago
@spectator59 nice presentation great work!
You could however make your model simpler and it would be more correct at least for countries like Sweden where there are no reserve requirements by removing the FED and the government (and in reality for the US as well). Only the Bank, the employer and you. The bank may then create money from nothing as long as its balance sheet is maintained "end-of-day" (e.g. the loan receiver making a bank deposit).
ddxhtml 1 year ago
0.36- the government was a product? Why would government ask you? surely government would ask the employer? and the employer would then ask you the employee.
Therefore all money ends up with the employer not the you- you simply has his small pay check relative to the employment cost of production.
099749 1 year ago
Sorry this model is simplistic and rediculas, a bank that has it's loan payed of I doubt destroys the money paid back- I think you'll find they put that money in dividens to the shareholders of the bank, as the interest is paid along with the lone itself, some of that goes into profits.
Not forgetting that banks package loans and sell them on to others. The loan money therefore still exists in the ecconomy after the loan is paid, and is given out in bonus' dividens and pay to workers etc.
099749 1 year ago
@099749 If you don't believe me, search the web for "Modern Money Mechanics," printed by the Fed themselves; it describes how money is also destroyed. Banks can create money for loans, but they can't directly create their own profits, and only profits can be paid out as bonuses or dividends. Even when loans are sold, they are still paid off, and when they are, the process of paying them off removes money from the economy.
spectator59 1 year ago
@spectator59
So when Goldman sachs put almost all the money the governement gave them into profits, and that's a future tax on the people effectively, and when deposits can be withdrawn after reserve loans are given, when fractional reserves have been shrinking- and all loans have been repackaged sold then reopened and repackaged and resold again
How can you follow it to see the money destoryed? None of the banks are acting correctly, If 20 banks have a piece of a loan when ended who destroys?
099749 1 year ago
@099749 Credit money is destroyed when principal is repaid; that's a basic accounting requirement of the banking system. When loans are sold, the new banks that eventually receive the principle from the borrower are responsible for destroying the associated credit money. I agree that there is a lot of fraud happening in the banking system, but not in this area. Oh, and the bailout money received by Goldman Sachs is a totally different thing. The bailouts are designed to replace bank *capital*.
spectator59 1 year ago
@spectator59
Quote: "I agree that there is a lot of fraud happening in the banking system, but not in this area."
My point was how can you be sure of that?
099749 1 year ago
SO pretty much what you are saying is if the real interest rate is not 0% then it is impossible to ever payback the federal reserve the principal amount plus interest. So there is no way to ever really payback all debts. The Fed is evil, END THE FED.
longlivetherepublic1 1 year ago
Unfortunately a simple model is misleading. The US Treasury auctions its bonds and the Federal Reserve has its own trade system and a group of primary dealers. So if one wants a snapshot of bonds outstanding its not in one ledger. Secondly if the Fed prints money and uses it to buy treasury bonds , in effect it is paying down the debt (assuming that the public debt reported and the Fed balance sheet are the only ledgers ) because both the Fed and the Treasury are parts of the same US government.
hwt2009 1 year ago
@hwt2009 When the Fed prints money to buy Treasuries, although the result is that the government owes money to itself, which offsets interest payments/income, but that's not the same as paying down the debt -- that's monetizing the debt through inflation. When the Fed buys Treasury debt, more money is put into circulation. Truly paying down the debt would result in money being removed from circulation and destroyed.
spectator59 1 year ago
Let me get this strait: 'You' earns $1,000 and the 'Employer' gets $0 !?! No wonder 'Employer' borrowed $9,000 from the 'Bank'. I wish I could have such a generous employer. Question: What does the FED (read:FRAUD) do with a $1,000 bond?
@spectator59 Your presentation is unnecessary complicated, but there are some truths in it.
civonamzuk 1 year ago
You forgot the part about INTEREST DUE ON THE BOND to the Federal Reserve. This example is fine and dandy if interest rates are and have been ZERO, but they aren't and they haven't been. If they were then the Federal Reserve would receive no profits and they would be extinguished.
You forgot about INTEREST ON BONDS.
nmreich 1 year ago
The reason this is hard to understand is because every tutorial runs into the easy part (loans, fractional reserves, debt) and doesn't explain thoroughly the first few stages. What does the Fed do with the bonds? How does the govt. pay the interest on the notes? What interest rate does the govt pay? What are the factors in determining the interest rate? You guys must be amusing yourselves because you're not teaching anyone anything.
bammbamm12 1 year ago 15
@bammbamm12 Well, you have to start somewhere... The Fed can hold or re-sell the bonds it buys. For the ones it holds, the Treasury pays the Fed interest. The process is similar to the Treasury paying anyone else interest, at the same rate as on securities held by the public; the main differences are that the Treasury's "checking" account is held at the Fed, and that all interest the Fed receives over-and-above its expenses is rebated back to the Treasury every year.
spectator59 1 year ago
@spectator59 - Thanks for clearing things up. There's really nowhere to start, it seems, because our debt based system was just dubbed over the gold backed system. In other words, there were billions in circulation when the rug was pulled out from under us. So it's hard to imagine *everything* originating from a bank loan, rather than a gold backed deposit.
bammbamm12 1 year ago
@bammbamm12 Would you answer the questions you raised?
wordpresswidget 11 months ago
@wordpresswidget - I have no idea - it makes me dizzy just thinking about creating a monetary system.
bammbamm12 11 months ago
Right now loans are defaulting cash is used for trade without taxation assets are being discounted due to money supply is being reduced. Each dollar has more buying power, thus deflation of all asset classes. Reduction of parasite class living off hig debt interest costs. That's what communist leaders do obamo! Just read up how well it works long term.
bohemianh 1 year ago
When the loan is paid off (plus interest), the bank now holds not only the 'original reserve' (in this vid thats 1,000). But now it received payment for money that NEVER existed in the first place- the 9,000 PLUS INTEREST! So now the reserve is 1,000+9,000+interest!
And the fraudulent cycle of fractional reserve counterfeiting continues indefinitely so long as ignorant fools let it
swu880 1 year ago
It isn't true that when the "loan has been paid off, the money disappears from the economy"- that just is not true.
money in this economy exists mostly if not all as DEBT! the 10% reserve is really an arbitrary reserve amount- since the banks are essentially practicing counterfeiting- & any reserve for counterfeiting really makes no difference on the counterfeit itself
swu880 1 year ago
@swu880 Why do you think money is not destroyed when a loan is paid off? The process of money creation *and destruction* is very clearly documented. For example, see "Modern Money Mechanics," printed by the Fed themselves. Banks can create money for loans, but they can't create their own profits. When the loans are paid off, the associated money must be destroyed; that's how the banking system works.
spectator59 1 year ago
@spectator59 The money isn't destroyed, the loan recipient's account is simply cleared out. That money the bank receives from the loan is used just to create more debt. It's a stacking procedure, which looks similar to an upside down triangle (small amount of assets in the bank, huge amount of assets recievable)
lotzoskillz 1 year ago
@lotzoskillz Principle received in payment on a loan destroys the associated credit money; this is well-documented. Interest is income for the bank, which the bank can spend on salaries or distribute to stockholders. Only when loan proceeds are deposited in a bank (including after being spent by the borrower) can they be used to create more debt -- but that process is reversed as the loan is paid off.
spectator59 1 year ago
@spectator59 person 1 sells an item to person 2. person 2 gets a loan from the bank to pay for it (the bank makes new money by issuing debt). unless person 1 takes that money and burns it in an open flame, the money is never destroyed. Person 1 either spends it as a consumer (on some item or service), or puts it in an account (aka makes a loan to the bank to) and it becomes reserves in the banks balance sheet as loanable currency, which will be used to make loans at nearly 10 times its amount
lotzoskillz 1 year ago
@lotzoskillz Money is destroyed when the loan is paid back; it doesn't have to be the same money that was originally borrowed. In your example, when person 2 pays the loan back to the bank, the money they use to do that is destroyed (the principle portion only). This is explained in the video. As I said above, if you don't believe me, check out "Modern Money Mechanics," written by the Fed. BTW, if person 2 defaults on the loan, then the bank has to destroy its own capital to extinguish the loan.
spectator59 1 year ago
@spectator59 if money was ever destroyed then twinning a stream of revenue would be illegal. the current banking system exists in America only because money cannot be destroyed, ever. the only time money is destroyed is when it is burned or no longer accepted, in which case it is only replaced.
lotzoskillz 11 months ago
@spectator59 Well-documented, OK, but where are the documents that prove that?
Simboiss 1 year ago
the federal reserve is an unconstitutional bureaucracy. Congress & congress alone was given the exclusive privelage of coining money (backed by gold & silver).
Congress can not give that power out to anyone just as the president's exclusive PRIVILEGE of veto can not be given out to anyone. All govt powers are priviliages not rights- individual people hold rights. And privileges are non-transferable. thus the 16th ammendment was totally unconstitutional
swu880 1 year ago
You mentioned that the Treasury bonds are analogous to the total debt which I think is not true...This is because the Bank also creates the loan money which isnt reflected as bonds on the Fed side...So what is that one thing thats analogous to the Total National Debt?
djstud1987 1 year ago
@djstud1987 I don't recall my exact words in the video, but the total "National Debt" is basically the sum of all Treasury bonds, bills and notes held outside of the government. The money banks create is "credit money," and is owed by the public to the banks, where the National Debt is owed by the government to the public. The sum of the two is all money in circulation, and used to be reported in the money supply statistics such as M3 before the Fed decided those stats weren't important any more
spectator59 1 year ago
@spectator59 MAkes sense...Thanks for the reply...Can you please put in the import-export money/goods in to this scenario to explain the whole picture of the country's economy and the money cycle...
djstud1987 1 year ago
None of you got the point! The goal of the example is to explain that material slavery, not fed this fed that. Fed is just what is physically in touch with you. What is not changing is you & bill paying. The side effects of this monetary economy are inflation, bubbles and social class conflicts.
The main problem is the scarcity that's forcing human labor to exist. Humans are so different and so similar to other animals, except they don't understand the idea of collective interest.
KennethZuo 1 year ago
i disagree. federal reserve "loans" money to treasury in exchange to the treasury bonds. the treasury bonds have to have some value. i think essentially the treasury bonds are assets of the US public. like schools public playgrounds etc. so when treasury gives the bonds to fed, its actually putting US public property as collateral againsts the fed loan. now US taxpayers not only have to pay the interests on the loan, which is impossible or loose its public properties to the owners of the bond.
mintoo2cool 1 year ago
@mintoo2cool Interesting idea, but it doesn't currently work that way. Treasury bonds are unsecured debt obligations. If you own a bond and the US defaults, you have no claim to any real property or anything else. Just look at history: many countries in the past have defaulted on their bonds, without losing anything other than their credit rating (or possibly triggering a war).
spectator59 1 year ago 3
@spectator59
That was how the USA fell. The USA collapsed b/c the country couldnt pay off the debt. And the US was then formed to replace the USA
swu880 1 year ago
No talk of how much money is added by each bank given authority to create money out of thin air ,not just the fed ,Banks create all the money loaned out of thin air on home loans and credit cards 100% ,when you sign your name the "money " is created .Fractional reserve allows you to lend the money 7 times before it is destroyed.
your signature is the authorization ,since FDR outlaw lawful money in 33' ! it is not money ! It is fiat currency legal tender debt based notes
blowbackinevitable 1 year ago
Americans, Patriots, join the JULY 4th Independence from the FED Day!
From May 13th to June 15th, turn in $250, $500, $1000 or more borrowed FED paper FRN dollars in exchange for public debt-free SOVEREIGN US Mint dollar coins. Exchange rate is 1 to 1 from a bank, or your U.S. Mint with free delivery.
Start circulating on JULY 4th for anything you buy. US Mint dollar coins buy down FED debt!
YES, U.S. Dollars coins for FRNs! FED pays us Full Face value.
ENDTHEFED Questions?
prayfortruejustice 1 year ago
fed make bond for 1000$ he get money and how he give it back he print new money ?
roymakkaypl 1 year ago
@roymakkaypl No, the Treasury creates the bond. The bond is then sold to the public or (indirectly) to the Fed. When the Fed buys a bond, new money is created. The Fed basically has a bottomless checking account. When the Fed sells a bond, the money that comes from the buyer is destroyed. Printed money is handled differently; it is only issued in exchange for money that is on deposit with a bank--new money isn't created by actually printing on paper.
spectator59 1 year ago
You forgot to talk about the interest money. Interest money is never created, that's why there's always a shortage of money in the system. Since you need a bigger amount of money to repay your debt than the amount that was originally lent to you, it follows that someone has to lose that extra amount of money so you can earn it and pay the interest on your loan. Therefore not all loans can be repaid, which means that there necessarily have to be bankruptcies.
IntoTheHeartOfMusic 1 year ago
@IntoTheHeartOfMusic I have addressed the issue of the interest money many times in the comments. There is no shortage of money unless the interest is allowed to excessively compound. Simple interest can be paid off with a fixed amount of money.
spectator59 1 year ago
@spectator59 I think you may have misunderstood the question posed by @IntoTheHeartOfMusic. At the end of the video you assumed the Federal Reserve charges 0% interest from the government. But it doesn't--this money of course was never created. The treasury will have to sell another bond.
mrgerbeck 1 year ago
@mrgerbeck yep, sucess of this model is based on; 0% interest rates from the central bank, 100% of the credit money going back into the economy (ie. no bubbles or poor investments), and no compound interest. Also easy credit (ie. close to 0%) encourages loans and discourages savings, credit contraction and mass debt defaults are inevitable - which is the point the US is at now. If you put all that into your model it would probably be more accurate to show what has happened in the US economy.
LuqmanNaq 1 year ago
@mrgerbeck Looks like you've discovered the root problem of our money system. Money is debt and interest is not created.
matthew376 1 year ago
Comment removed
johnnypop82 1 year ago
I agree that the Treasury borrows from banks (mostly primary bond dealers) and that the Fed rebates their profits to the Treasury (mentioned many times in my comments here). The video is a simplified version that starts with no money in the economy. The net effect is the same, whether the Fed buys from a primary dealer or directly from the Treasury. Either way, new money is created which ends up in the Treasury's account at the Fed.
spectator59 1 year ago
So the employer makes no money? Somthing seems off with your diagram.
ratnuig 1 year ago
With government obligations i mean government bonds.
1337ROFLMAO1337 1 year ago
Is there any relationship between the interest rates of the federal reserve and the interest rates of government obligations (like treasury bills etc.) ?
1337ROFLMAO1337 1 year ago
Yes. The Fed can buy and sell government obligations (Treasury securities) in the open market, through the FOMC. Their primary purpose in doing that is to manipulate interest rates.
spectator59 1 year ago
I assume they are doing this to lower interest prices on goverment bonds, which equals lower rent payment on government debt. So when the economy gets bad the FED has 2 choices
- Buy an equal amount of bonds, but now not enough buyers (china, etc) will want to buy the rest. This will force them to drive up the bond interest rate which is more rent payment on government debt (any maybe tax more).
- Buy more bonds which is basically inflation.
Not really good options if you ask me...?
1337ROFLMAO1337 1 year ago
The Fed's choices are: (1) to buy Treasuries, which will add money into circulation (as bank reserves) and thereby increase inflation and decrease the supply of Treasuries, which drives their rates up, or (2) sell Treasuries, which removes money from circulation, increases the supply of Treasuries, and thereby drives interest rates down.
At least that's the theory: it's not always quite so simple.
Demand from China and other foreign buyers is important, but it's a secondary consideration.
spectator59 1 year ago
If you make me a loan, you can only adjust the interest rate if I agreed to it; you can't do so unilaterally. However, one aspect of paper money is that you can potentially change its value by changing the amount in circulation -- which is where usury enters the picture, because the lender has control over the value of the medium used to pay back the loan. Yet another reason I favor a gold-backed currency -- but that's not what this video is about.
spectator59 2 years ago
ok- so u deleted all my comments- not sure why but u can go on holdin ur petty pride. Anyways it is apparent that u dont even understand supply & demand.
If i have the supply of commodity, & u hav the demand, then who has the right to charge or place condition on my supply? u or me?
Napoleon noted that the hand that is recieving is ALWAYS subordinate to the hand that is giving. since when is it the other way around? such inversion is a direct violation of supply&demand & property rights
imbrd 2 years ago
but interests corrupt this system which deals only w/ such principle amounts. no one ever said that i who recieves interest must put back all, hell even som of it back into economy. There is no reason y i must giv bak that money. interest is the very nature of hoarding also known as accumulation. my examples that u deleted exemplified this fairly well
Monopolization is the result of & accumulation of such commodities in a closed loop market- do u kno wats a closed loop market?
imbrd 2 years ago
& in such closed loop market where i dominate the control of a commodity which is necessary, theres no real reason besides moralsðics that i can not place MY demand on supplying MY products. It's just like playing the game Monopoly- to win the game, who would control the charges? the supplier or beggar?
imbrd 2 years ago
I don't favor debt-based money or a debt-based economy: I'm simply explaining how it works.
spectator59 2 years ago
I don't get why the money is destroyed. Once the Employer sends the 9K back to the bank, why that doesn't became bank reserves? How is that "destroyed"? Same thing with the Fed Bond.
sysFail81 2 years ago
Money can only exist when it's backed by some corresponding debt. When the debt is paid off, the associated money has to be destroyed. It's just the reverse of the creation process: new money is created when a loan is created. Banks don't loan their reserves; they create new money, and loan that. Strange, I know, but true nonetheless.
spectator59 2 years ago
I think the 'Bank' can only lend out $900 in your example (I thought bank has to keep a 10% reserve of their deposits, so if they have $1000 in deposit, they loan $900 and keep $100 on reserve)
Aside from that, how does the Federal Reserve conjur the money out of nothing, do they really not give up ANYTHING to obtain the bonds? And the govt. really has to pay them the principal amount of the bond? I can't believe this is the case, but I really don't know.
ElDukerino1 2 years ago
I've simplified things somewhat in the video by using a single bank to represent the entire banking system and a single transaction to represent many. Although a $1000 deposit only supports a $900 loan, the loaned money is created just for the loan; it doesn't come from the deposit. If the loan proceeds are kept in the banking system (as opposed to being drawn out as cash), the process can be repeated until there is eventually $9000 in new money, with the original $1000 being 10% of the total.
spectator59 2 years ago
I see. Thanks.
ElDukerino1 2 years ago
Yes, that's right: the Fed doesn't have to give up anything in order to create new money: it's created from thin air. The Treasury creates a new Bond from thin air, too. They give the Bond to the Fed, and the Fed gives them money in return (actually, the public is the first source of funds; the Fed itself is secondary). However, all interest earned on the bonds, after expenses, is rebated back to the Treasury, so it's basically a zero-sum game.
spectator59 2 years ago
And when a treasury bond that the Fed Reserve Bank is holding matures, the principle goes back to treasury too (or just gets wiped off Fed's books), right?
ElDukerino1 2 years ago
A T-Bond is like a loan document. The Treasury gives the Bond to the Fed and gets credit in their checking account (principle) in exchange. When the Treasury pays off the Bond, they return the principle to the Fed (using money obtained through taxes, for example), and then both the Bond and the money would be destroyed. Interest that the Treasury pays to the Fed is used to cover their expenses first, and whatever's left is rebated back to the Treasury at the end of each year.
spectator59 2 years ago
Comment removed
concord39 2 years ago
Comment removed
concord39 2 years ago
One of the things that motivated me to make this video is that "Money as Debt" is so misleading.
As I've said in my earlier comments, the problem isn't that the debt can't be paid because the banks don't create the interest. This video shows how money can be used more than once; it circulates.
The problem happens if you allow interest to excessively compound. At some stage, the system is no longer supportable because new debt is being created faster than new wealth.
spectator59 2 years ago
Isn't the real problem that we are talking about fiat currency? We are borrowing fiat currency from other countries that is manufactured out of thin air, then the people are taxed to pay the interest on this "money". Why doesn't the Treasury create the money with no interest attached? We would still have inflation but it would save Americans hundreds of billions of dollars in interest payments each year on the national debt. In 2008 we paid 450 billion dollars in interest.
LawyerScumGhost 2 years ago
ok so u r saying P = P+I? somehow the math just doesnt add up no matter how u calculate it. As small or big as Interest is made, as long as theres still interest, where the hell does the money to pay the interest com from? To attain stability, one obviously cant rely on perpetual debt based economic system- ie u never take out a loan to pay for a loan cuz where would u ever get the money to pay for that loan? money must b based on debt-free currency to maintain balance
imbrd 2 years ago
Money can be used more than once; it circulates. The same money that I pay to you as interest, you can pay to me for goods, and then I can pay to you as principle. Let's say I borrow $100 from you at 10% interest. Then I pay you $10 for interest, leaving me with $90. Then you buy something from me (maybe some apples or services). Now I have $100 again, and I can pay off the principle in full.
spectator59 2 years ago
Can you explain this? This is quoted from imbrd.
'ok so u r saying P = P+I? somehow the math just doesnt add up no matter how u calculate it. As small or big as Interest is made, as long as theres still interest, where the hell does the money to pay the interest com from?'
1337ROFLMAO1337 2 years ago
See my response to that comment above. Principle (P) and Interest (I) don't have a simple mathematical relationship like that, because money circulates: it can be used more than once.
spectator59 2 years ago
Ah right, i see it now. In your movie example, the interest rate of the FED is 0%, but would this be any higher, the FED could just buy some product for the amount of the interest, resetting the equation to zero again right?
Thanks for explaining this.
1337ROFLMAO1337 2 years ago
Yes, either the Fed could spend the interest they receive back into the economy (as "expenses"), or it gets rebated back to the Treasury at the end of the year.
spectator59 2 years ago
ppt 2007 cool
turningheadfart 2 years ago
You can use it to provide an analogy of what happned to the financial markets, but this time assume there is exisiting money. Government wanted to buy something 1K from China. China also buys the Bond. Consumer-- you are unemployed and buy something for 1K dollars borrowed from the bank. Bank has deposits from China 1K so the bank could and does loan you 9K. You take your 9K to buy 8K from China the other you pay taxes 1K. The bank and you are stuck holding the bag.
jmitterii2 2 years ago
The government has to rely on the generiosity of the Chinese to produce more goods and buy their bonds in doing so. Remember you and the bank are already in debt by 9K. So lets double it again 18K in debt then 27K and keeps going like this until China decides it's had its fill. US forced to finally produce something.
jmitterii2 2 years ago
A difficult concept beautifully explained!
order9066 2 years ago
The problem with the example is that it oversimplifies interest repayment. In reality, loans are over longer terms and are not computed with 'simple' interest. There would not be enough money in the economy to satisfy the debt. Here's why: In the example presented here, there is a total of $10K in the economy, $9K @ interest. If the loan is to be repayed over 5 yrs @interest of 10%/year, total interest will equal $2.4K. Add that to the $9K of principal repayed and you have $11.5K! Nuff Said!
thejohnnydj 2 years ago
Another problem is that most people focus on the government debt part, which is the least of our worries. The government interest expense is reimbursed by the Fed.
The consumer is not reimbursed for their debt. Here lies the flaw with our current system.
If debt were reimbursed at the consumer level by the Fed, then we would actually have a Zero-sum game, then money creation would be a public service of Gov't. The economy would not have to keep borrowing to satisfy prior interest expense. Wow!
thejohnnydj 2 years ago
It's not "reimbursed." The Fed creates new money, some of which is used to pay interest on the national debt.
It's true that the Fed doesn't pay interest on consumer loans. However, what they do instead is to cause inflation, which allows borrowers to pay off their loans with cheaper money, by effectively stealing from those who are savers.
spectator59 2 years ago
Actually Principle & interest are paid simultaneously, mostly interest in the beginning, mostly principle in the end. Maybe you're thinking of some kind of interest-only balloon loan? But either way I agree with your correction about the flow aspect of money. Each year or so the money would come back to the borrower by performing services, etc. for the bank. The initial 9k could be exchanged millions of times over. Thx for the correction!
thejohnnydj 2 years ago
I'm glad it makes sense to you; unfortunately that's not the case for many who post comments here. My explanation was just to keep the math easy. Exactly how P&I are paid depends on the type of loan. What all loans have in common is that payments are credited against interest before they are credited against principle. If some principle is included with the interest payments, it doesn't change the final outcome in terms of how the money circulates.
spectator59 2 years ago
To what degree does the Gov't pay interest to the Fed when securities are purchased to expand the money supply? My research tells me that the Fed reimburses most, if not all the interest expense. This uncertainty seems to be the argument with the conspiracy theorists about money creation- the whole debt upon debt thing.
thejohnnydj 2 years ago
The gov obtains money for interest on the debt from taxes and new debt. Of the total interest paid, about 7% of it goes to the Fed, for the debt they hold. However, all profits made by the Fed are rebated back to the Treasury every year. The debt-on-debt thing is a definite problem, but not because of any conspiracy. It's a simple matter of compounding and the law of exponents: it can't continue forever.
The *real* problems are: fractional reserve banking, an unbacked currency, and inflation.
spectator59 2 years ago
Given the video, it seems as though it is a zero sum game after all. What problems do you see with Fractional reserve banking? Overcreation of money?
thejohnnydj 2 years ago
The interest side is zero sum. The problem is that the Fed isn't limited in their ability to create new principle (bank reserves), which leads to the problems with compounding.
More money is created through FRB than by the Fed; it's the primary mechanism of inflation. Banks create money at their whim, and in the process they devalue all existing money, then profit by doing so. FRB is fraudulent and immoral, in the sense that 99.9% of bank customers have no idea how "lending" really works.
spectator59 2 years ago
I can agree with that. At the same time, the economy demands the amount of money through loan applications rather than banks 'pushing' them. Think the problem is with int. rates. With a free-floating int. rate (rather than the Fed determined rate), the market would equalize, rather than keep borrowing since its so cheap to borrow. Rates would naturally climb discouraging borrowing. Any thoughts on this idea?
thejohnnydj 2 years ago
There are other ways to address the liquidity needs of the economy...
Manipulated interest rates are certainly a huge problem. The Fed influences rates through the creation and destruction of money. Banks do the same thing, using FRB. In order to have true free-market rates, you would have to eliminate both the Fed and FRB; Fed manipulation alone isn't enough.
One cause of the business cycle is interest rate variability and unpredictability, which are made impossible by the Fed and FRB.
spectator59 2 years ago
can you explain us where it says that the FED reimburse the money?
tgejason 2 years ago
The interest is paid to the bank first, before the principle. In your example, start with the borrower having $9K and the bank has $1K. After 5 yrs, the borrower pays the bank the $2.4K interest, leaving him with $6.6K. Next, the borrower sells something to the bank - maybe apples, labor - it doesn't matter what. The bank pays him $2.4K. Now he has $9K again, and can fully pay off his loan. The moral is: money circulates; it can be used more than once.
spectator59 2 years ago
The Feds Can Just Print Up Trillions of dollars and get away with it legally and they have. Money isnt worth anything it's just paper with pictures of Slave Owner presidents who we all honor as our American heroes, its really sickening.
Readingiseasy 2 years ago
Only to add that fed gives money to government with an interest.
and let say the interest would be 10 dollars for 1000 dollars. So the government would need to pay 1010 dollars.
The problem is there isn't 1010 dollars in the economy. there is only 1000 dollar.
Therefore government cannot pay its debt unless it borrows more money with interest. and then cannot pay the next debt. therefore it keeps on going
so.. this system can only produce one result and it is the gov. owing money to fed
dannidale 2 years ago 2
All profits earned by the Fed are by law rebated to the Treasury every year.
In your example, start with the Treasury having $1000 and the Fed having zero. Interest on loans is paid first, so the Treasury pays $10 to the Fed, leaving them with $990. The Fed then rebates that $10 back to the Treasury. After that, the Treasury can pay the full $1000. There was enough money in the economy to pay both principle and interest.
spectator59 2 years ago
In what law, please?
EconomicStability 2 years ago
He's also missing a step or two. No fault the knowledge of inner banking is hidden. Can't find out about certain processes. lol niether can congress!
VerifiedNews 2 years ago
Yes, I simplified things in a few places, in order to fit things into YouTube's 10 minute limit...
spectator59 2 years ago
@spectator59 all profits minus 6% i believe.
rvborgh 4 months ago
You said if all debt was paid off then all money would disappear. It's actually impossible to pay off all debt because the instant a dollar is created interest is charged on it, so as long as it is debt-based currency the debt cannot be repaid. There is more debt than there is money because of the interest.
LucidDreamTricks 2 years ago
It's of course impossible in practice to pay off all debt. But not in principle. As I've explained several times in these comments, and as the video itself shows, the interest can be paid off because money can be used **more than once**. A person or bank who earns interest can spend those dollars back into the economy, where they circulate and can be spent to pay down principle.
Watch the video again. Maybe it will make more sense the second time.
spectator59 2 years ago
No, the money can't be used "more than once". Once you've paid a bill you can't use that money to pay another bill.
The moment a dollar enters the economy interest is charged on it, so there is always more debt than money.
The debt cannot be repaid even in theory because if you used all FRNs to repay the debt there will still be interest to pay.
People have explained this to you in the comments so please reread them. Maybe it will make more sense the second time.
LucidDreamTricks 2 years ago
Let's say you loan me $1000 at 10% interest. Interest gets paid first on a loan, so I pay you the $100 interest, leaving me with $900. Then I do some work for you, or sell you something, and in exchange, you pay me $100. That $100 has now been used again; it circulates. Now I have $1000, and can pay off the principle of the loan in full. No additional money had to be created to pay the interest.
spectator59 2 years ago
Comment removed
LucidDreamTricks 2 years ago
What did Bank A use to buy the bond with? Only the Fed can create money by buying bonds. Second, banks can't use bonds as fractional reserves. Third, the profits earned by the banks can be re-spent into the economy, and used to pay off the principle.
The real problems here are: (1) the fractional reserve system (which requires the Fed in order to function), and (2) allowing debt to compound beyond the borrower's ability to pay. Interest by itself isn't evil or destructive.
spectator59 2 years ago
Please provide an economics textbook reference for this explanation.
Thanks.
EconomicStability 2 years ago
you can read "Modern Money Mechanics" published by the federal reserve of chicago.
Also The Federal Reserve Act of 1913
VerifiedNews 2 years ago
I've read them both - it's not in either.
EconomicStability 2 years ago
Well, the congress can't find it either! lol That's why all the guesses.
Yes treasuries are issued against all new money (US dollars) outstanding. The fed doesn't charge interest the fed pays us it's profits in excess of 6% dividend. Pre-existing money is backed by treasury also. Has to be look at the signatures.
Money is created and destroyed at the federal reserve virtual/physical location, and nowhere else.
Anything else would be counterfiet.
VerifiedNews 2 years ago
If he loaned you $1000 of real money out of his pocket, no problem.
If the bank created new debt-money to make the loan, problem.
As above, the interest-problem, so-called, is not eliminated by repayments of money "within" the economy. These are financial transactions that do not affect the quantity of debt-money created with an interest obligation.
The interest problem remains.
And, it's principal, by the way.
EconomicStability 2 years ago
ALL money can be re-spent.
And is re-spent.
Recirculated.
Passed from debtor to debtor.
This 'velocity" in the money system becomes a factor in the equation of how much new money is required to support the supply-demand within the economy.
However, once that new "quantity" has been created, THAT NEW MONEY requires interest payments that can only come from creating new money.
Recirculation of money, not just the banks' interest payments, has no real effect on the interest payments problem.
EconomicStability 2 years ago
Gold or silver backing never prevented the boom-bust cycle the banksters use to transfer the wealth of true producers of wealth to the criminal non producing parasites, the international central banking cartel The banksters love difficult to produce scarce commodities masquerading as "money". They already own the vast majority of the gold and silver reserves in the world. Supposed gold backing didnt prevent the depression in 1857, the panic of 1907 nor the Great depression of 1929.
debtfreecurrency 2 years ago
question 1: Why should the Government or Treasury dept create an INTEREST BEARING bond(or debt) in the first place? Can not the Treasury Dept. directly monetize the purchase(production) it wishes to acquire(roads, bridges, weapons, buildings, ships, airplanes, schools etc) by ordering the Bureau of Engraving to print the currency and spend that money directly into circulation INTEREST FREE? Why do we need a non-producing parasitic middleman( the fed) to issue our currency
with INTEREST attached?
debtfreecurrency 2 years ago
Sure, they could - but they don't. If the Treasury directly monetized all of their purchases, the overall rate of inflation would be much higher. "Borrowing" from the Fed is also an important illusion. Without that, it's more obvious that government just "prints and spends." Borrowing in theory was supposed to place some restraints on government spending -- of course we all know how well that worked! Also, all interest paid to the Fed is rebated to the Treasury every year...
spectator59 2 years ago
The interest paid back?....rebated? hahaha! Well, sort of... Supposedly "after expenses" and operating costs" eh? and since the Fed is not audited and the
federal reserve Inspector General recently ADMITTED that the agency WILL NOT account for 9.3 TRILLION DOLLARS recently "disappeared" or spent in the last year!
debtfreecurrency 2 years ago
You make no sense. The governments purchases are monetized one way or another. Borrowing from a privately held Central Banking Cartel is no "illusion". Every dollar created is loaned into existence by the fed WITH INTEREST ATTACHED BUT THE INTEREST IS NEVER ISSUED INTO CIRCULATION. THUS THE DEBT CANNOT BE PAID IN FULL WITHOUT REBORROWING. Price Inflation is caused by the ever increasing % of the money supply committed to debt service on unpayable interest.
USURY IS THE CAUSE OF INFLATION!
debtfreecurrency 2 years ago
There is no need for the Treasury to monetize all government purchases.
There is only a need to monetize that portion that is equal to the money supply required as "new money" to support the economy.
If it is done correctly, in the proper quantity as did the Colonies with their debt-free money, then there is NO inflationary effect, except that caused by a growing economy.
In a growing economy, the share you hold naturally decreases. That's not inflation.
That's growth.
EconomicStability 2 years ago
Nice video. Thanks for sharing!
hotstockventures 2 years ago
So they just destroy the money? Or do they stick it in their pockets?
celticbandit 2 years ago
Second question: According to "Modern Money Mechanics", the money supply is reduced by the sale of T-Bills on the open market by the Federal Reserve. It noted that the transaction of purchasing T-Bills was a net negative to the money supply in the financial system.
Can you explain this a bit more?
duckbizkit 2 years ago
When the Fed sells Treasuries in the open market (via the FOMC), they are pulling money out of circulation, and replacing it with Treasuries. When that happens, bank reserves are decreased, which reduces their ability to create new loans. So there is a primary effect on money supply in the form of the sale itself, and a secondary effect via banks. The process is reversed when the FOMC buys Treasuries. That's one mechanism by which the Fed influences interest rates.
spectator59 2 years ago
A couple of questions regarding the destruction of money:
From speaking with a bank employee that I go to lunch with often, he asserts that payments made on loans go back on the bank's balance sheets and contribute again to their liquidity. They then make additional investments as excess reserve permits.
Is this not the case?
duckbizkit 2 years ago
The interest portion of loan payments contributes to bank earnings and therefore bank capital. When loan principle is repaid, the associated money is destroyed. It contributes to bank liquidity in the sense that the bank's reserve ratio is increased, so they are then free to re-create the money for other loans.
spectator59 2 years ago
How much new money will be created as a result of the FED's action and to what degree will this new money dilute the value of the US dollar?
zwiespaltu2 2 years ago
Buying $300B in Treasuries will create $300B in reserves and it **might** create up to $2.7T in additional credit. But there's no way to know for sure what the net effect will be. The problem is that money is being destroyed as fast or faster than its being created, by way of debt deflation -- loans being paid off or defaulted. In fact, the net effect might still be deflationary, not inflationary.
spectator59 2 years ago
great vid.
ph4rcyd3r 2 years ago
When the treasury pays off the bond, where does the interest money portion of the bond go? I would imagine that this is paid to the FED - if so where does that money go from there?
zwiespaltu2 2 years ago