How money is created

[cybercoma]

Really. Then why don't I understand what you're saying ?

What is the "source" of money ? Was money exchanged in ancient Egypt still in exchange now ? If I repay my loan, how does that make it impossible for someone else to do so ?

I haven't read past this post, and I probably should before I reply. Let me just say that I'm not totally comfortable in my understanding of the banking system and how money is created, so it's tough for me to really talk about it. Hopefully someone else covers it, but investment, at the end of the day, comes from money that they firms have received. That money ultimately comes from loans that were made available by the banks.

[cybercoma]

Paper is not money. It is used as a currency but because it lacks several of the requirements that define money, it is more of a "token" than anything else, much like a bus token.

The paper is money because the law defines it as money. That's why instead of "this note is redeemable for gold or silver" they say, "this note is legal tender".

[Michael Hardner]

I haven't read past this post, and I probably should before I reply. Let me just say that I'm not totally comfortable in my understanding of the banking system and how money is created, so it's tough for me to really talk about it. Hopefully someone else covers it, but investment, at the end of the day, comes from money that they firms have received. That money ultimately comes from loans that were made available by the banks.

That's what I'm looking for - some explanation of this logic that says "the banks are the source of all money". The money that was made before the banking system grew also. Doesn't it need to be accounted for too ?

[M.Dancer]

That's what I'm looking for - some explanation of this logic that says "the banks are the source of all money". The money that was made before the banking system grew also. Doesn't it need to be accounted for too ?

No..there was absolutely no money before there were banks..actually, banks predate the invention of money.

I'm not one who puts much stock in that banks are the source of money, because that is nonsense. Enterprise is the source of all money, the exchange of services or goods for script or kind...The ancient caravans that travelled thousands of miles with goods didn't do so with the pupose of breaking even or paying their salaries, they did it for profit. Banks were a convience that facilitated trade. I could deliver goods to a customer, get a promisary note that was less rickey than returning with specie, and go to my local temple of diana and redeem it.

If you were to ask a Roman what the sourse of wealth was, he would say property. If you asked Duddy Kravitz, he would say the same thing...

On the otherhand, you could ask, what is the source of a cars momentum? Is it the wheels? The engine? The gas?

Never the less, whether a bank loans money, or whether the entrepreneur saved his money...it is enterprise that drives the economy...banks couldn't survice without enterprise, but enterprise could survive without banks..

[August1991]

The important question though is am I South African! No, but I have staked a few claims out in the BC wilderness.

Ah ha!

[Michael Hardner]

No..there was absolutely no money before there were banks..actually, banks predate the invention of money.

Ok... I remember now my readings about Sumaria and the beginnings of civilization, and I suppose you're right. It seems like what you're saying is that the powers that be approve commercial ventures, and therefore ultimately control them and demand interest on them however it is the ventures themselves that drive the economy.

If that is what you're saying, that makes sense too.

[M.Dancer]

Ok... I remember now my readings about Sumaria and the beginnings of civilization, and I suppose you're right. It seems like what you're saying is that the powers that be approve commercial ventures, and therefore ultimately control them and demand interest on them however it is the ventures themselves that drive the economy.

If that is what you're saying, that makes sense too.

I'm not saying anything about the powers that be...or the powers than do not be....money, or cattle, was lent well before banks started doing it. My guess is there are far more individual loans out at this point in time from parents, friends and private sources than from banks.

And while parents, etc, may or may not charge interest, banks can only charge what is competitive ion the marketplace....no one borrowing, the rates go down, everyone borrowing, the rates go up.

[Jerry J. Fortin]

While we all sit back and debate the complex modern financial system perhaps it is noteworthy to suggest we all keep an eye on world currencies. One in particular I think bears close scrutiny, the Chinese one.

Has anyone given any thought to what WILL happen when it ceases to be state controlled and is allowed to float in the open market?

[M.Dancer]

While we all sit back and debate the complex modern financial system perhaps it is noteworthy to suggest we all keep an eye on world currencies. One in particular I think bears close scrutiny, the Chinese one.

Has anyone given any thought to what WILL happen when it ceases to be state controlled and is allowed to float in the open market?

The price of toxic crap will rise.

[Jerry J. Fortin]

The price of toxic crap will rise.

Rather simplistic don't you think......I will suggest calamity.

[bjre]

While we all sit back and debate the complex modern financial system perhaps it is noteworthy to suggest we all keep an eye on world currencies. One in particular I think bears close scrutiny, the Chinese one.

Has anyone given any thought to what WILL happen when it ceases to be state controlled and is allowed to float in the open market?

Every country manipulate its currency through its central bank and by other means.

Especially for US, not only manipulate its own currency, but also want to manipulate all currency in the world.

There are too many examples, here is one of them: in 1971, Nixon ended the gold standard for US dollars, but Nixon was from US government at that time.

You may say, Federal Reverse is not a government agency. But US government is just selected by huge interest groups. So the interest groups are the real boss of the States and many other countries, like Canada. They actually want to control currencies from Russia, to Thailand, to South America, to Europe, to United States itself. They want more money, they don't care life of ordinary people in any country.

They always want to manipulate the currency of China for a long time till now.

Edited April 2, 2010 by bjre

[Allen]

Again you all strayed from the original intent of this post. I do not care how other countries use their monitary system. Frankly it could afftect me less. I don't care how investments or stocks work. I don't care where your paycheck came from. All I care about is the creation of money and how that gets to the general public. If money is not CREATED through debt, tell me where it comes into circulation from. Look for yourself. It's not a conspiricy because this is how the system works. Resessions and depressions are a by-product of this system.

In my opinion this system needs to change.

[Michael Hardner]

All I care about is the creation of money and how that gets to the general public. ...

In my opinion this system needs to change.

Why is that all you care about ? Why does it need to change ?

[Pliny]

Why is that all you care about ? Why does it need to change ?

Idon't know why that is all he cares about but I do know that he is correct that money creation is a system of debt creation.

[August1991]

All I care about is the creation of money and how that gets to the general public. If money is not CREATED through debt, tell me where it comes into circulation from.

If you borrow a book from a public library, you have in effect created "money". The library holds a card (or a computer record) showing that you must return a book. Now, imagine that the public library is merged with another library and passes on all its cards (computer records) to the new amalgamated library. Your card (computer record or "money") is now "circulating".

Most transactions in the world occur using "money" (call it more accurately financial paper or computer records) that is entirely private. No government or central bank is involved.

Being a child of Voltaire you should be familiar with his prescient statement that; "All paper currencies eventually return to their intrinsic value of zero."

And why wouldn't gold also possibly fall to its intrinsic value of zero?

Quoting Voltaire on economics is a bit like quoting a physicist before Newton.

Argus, sometimes you crack me up.

Please don't confuse me with Argus. Argus is a frustrated civil servant who must secretly vent on this forum. I no longer suffer such a malaise.

[Smallc]

Please don't confuse me with Argus. Argus is a frustrated civil servant who must secretly vent on this forum. I no longer suffer such a malaise.

My goodness, I've been out of it lately.

Edited April 4, 2010 by Smallc

[bjre]

Again you all strayed from the original intent of this post. I do not care how other countries use their monitary system. Frankly it could afftect me less. I don't care how investments or stocks work. I don't care where your paycheck came from. All I care about is the creation of money and how that gets to the general public. If money is not CREATED through debt, tell me where it comes into circulation from. Look for yourself. It's not a conspiricy because this is how the system works. Resessions and depressions are a by-product of this system.

In my opinion this system needs to change.

I think change is possible.

It can make the world more fair.

For example, make the interest rate variable according to the amount. Make the interest rate lower if amount is large.

Rate change according to amount is not new, for example, income tax. It need some complex management system for this.

However, I think Canada is not able to do it alone. If other country don't do it in the same way, investment money will flow abroad.

[Michael Hardner]

Idon't know why that is all he cares about but I do know that he is correct that money creation is a system of debt creation.

What percentage of circulated money are we talking about here ? My money is mine. When I go to spend it, the store owner doesn't know if I'm using borrowed money or my own to buy my Brylcreem.

[Pliny]

And why wouldn't gold also possibly fall to its intrinsic value of zero?

My goodness! You're right. Gold could fall to it's intrinsic value of zero.

Even though that has never happened in history it could happen in the future. However unlikely that may be. History only reveals that paper currency eventually becomes worthless.

Quoting Voltaire on economics is a bit like quoting a physicist before Newton.

You don't have to be an economist to see what lessons history has taught us. I'm sure he merely saw that whenever paper was used for "money" and not just as a currency it eventually became worthless. Gold has yet to fall to a value of zero.

Please don't confuse me with Argus. Argus is a frustrated civil servant who must secretly vent on this forum. I no longer suffer such a malaise.

You quit your job?

[Pliny]

What percentage of circulated money are we talking about here ?

Where?

My money is mine. When I go to spend it, the store owner doesn't know if I'm using borrowed money or my own to buy my Brylcreem.

Nor does he care. You're using his money to buy your brylcreem.

[Michael Hardner]

Where?

Nor does he care. You're using his money to buy your brylcreem.

Where ? In circulation.

[maple_leafs182]

What percentage of circulated money are we talking about here ? My money is mine. When I go to spend it, the store owner doesn't know if I'm using borrowed money or my own to buy my Brylcreem.

The money that is in your hand was loaned by someone initially in order for it to be in existence, money is created out of debt.

You yourself may not have personally took out the loan to create that money but someone else did.

[Allen]

The money that is in your hand was loaned by someone initially in order for it to be in existence, money is created out of debt.

You yourself may not have personally took out the loan to create that money but someone else did.

Good to see that someone gets it out there. Again people do not be fooled by the extange if money through circulation this system is not perfect. What you gain is somebody else's loss. When a company is making billions of dollars other companies are losing just as much. Then you throw interest into the mix and you have an unbalanced equation. A mathimatical impossiblility is created. Meaning $1 = $1+interest or 1=1A. Unless a=0, this is impossible.

[Bonam]

What you gain is somebody else's loss. When a company is making billions of dollars other companies are losing just as much. Then you throw interest into the mix and you have an unbalanced equation.

No, economics is not a zero sum game. Economies grow, new wealth is created. There is no imbalance. The money supply grows over time, just as the total value of goods and services grows over time.

[bjre]

Good to see that someone gets it out there. Again people do not be fooled by the extange if money through circulation this system is not perfect. What you gain is somebody else's loss. When a company is making billions of dollars other companies are losing just as much. Then you throw interest into the mix and you have an unbalanced equation. A mathimatical impossiblility is created. Meaning $1 = $1+interest or 1=1A. Unless a=0, this is impossible.

The value is created by people who produce goods and provide service.

Investors don't create new value, they take part of value from those who create new value and borrow money.

The first $1 and the second $1+interest is not at the same time, between the 2 time stamps there are new created values. Such as a new house has been built in the interval and ready for selling.

Edited April 5, 2010 by bjre