How money is created

[Pliny]

Well, we're really off topic now. But why do we 'need' to find challenges when our system is about defeating them ? Maybe we need to put them back in.

We can strive to challenge ourselves, and to try our best.

You can dislike heaven all you want, but you can't stop it from happening.

Challenges will present themselves. Government is a challenge and it today creates artificial challenges for us that are totally unnecessary.

Heaven - happen? People have been selling it, buying it, working towards it, promising it, since we have existed. Obama is the latest leading America to the promised land or so some believe.

[waroftheatheists]

capital is created through of the working classes...

[waroftheatheists]

and the days of capitalism are numbered

[waroftheatheists]

the system is evil and must be destroyed...

[maple_leafs182]

Challenges will present themselves. Government is a challenge and it today creates artificial challenges for us that are totally unnecessary.

Heaven - happen? People have been selling it, buying it, working towards it, promising it, since we have existed. Obama is the latest leading America to the promised land or so some believe.

Hope is what we fight with when we have nothing else.

Don't get me wrong, I don't support Obama.

the system is evil and must be destroyed...

I agree with you, it is evil.

Edited April 21, 2010 by maple_leafs182

[M.Dancer]

and the days of capitalism are numbered

We are currently on day 73,000...only another 123,000 to go

[maple_leafs182]

once america started bailing out the too big to fails, capitalism ended.

[Jerry J. Fortin]

Not a damned thing has ended. What have just experienced is a beginning. Not of the end but of an age. We are now entering the age of transnational corporatism and all that goers with it. Business is calling the ball, governments will soon find themselves influenced by their debt loads. Many decisions will be made for financial reasons and not the reasons of the people.

[bjre]

capital is created through of the working classes...

... while a bank can take more than $50 million in one day by shorting mortgage investments. http://seattletimes.nwsource.com/html/nationworld/2011695867_goldman25.html

"Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts," Chief Executive Lloyd Blankfein wrote in a Nov. 18, 2007, e-mail to Goldman executives, referring to the practice of "shorting," or betting against an investment. "Also, it's not over, so who knows how it will turn out ultimately."

Edited April 26, 2010 by bjre

[Allen]

Ok here it is. The way the supply of Canadian currency expands is through loans **(See www.bankofcanada.ca/en/backgrounders/bg-m2). I can see that there are many people that think this system is not flawed. I mean some of the people who had argued against this are intelligent people. If ALL money is loaned to the public and private sectors, the amount in circulation will never be enough to pay the loans (due to money to pay interest does not exist). If M = all the money existing and M was loaned out at some point with I = interest . Then M would equal M+I or M=M+I. Thus creating recessions and depressions as a byproduct of this system.

**Commercial banks and other financial institutions provide most of the assets used as money through loans made to individuals and businesses. In that sense, financial institutions create, or can create money.

[Michael Hardner]

We are currently on day 73,000...only another 123,000 to go

Morris:

I've been meaning to compute this. According to you, capitalism ends on January 25th - 2347.

tinyurl.com/morrispredictsendofcapitalism

[M.Dancer]

Morris:

I've been meaning to compute this. According to you, capitalism ends on January 25th - 2347.

tinyurl.com/morrispredictsendofcapitalism

Sounds right.

[Pliny]

once america started bailing out the too big to fails, capitalism ended.

When was that? 1910? Somewhere thereabouts, I suspect.

[Allen]

Yeah just continue talking about the things that don't really apply to this forum and it's original meaning. That's a good use of your time. Let's just all argue with some yahoo that said capitalisms going to end. That seems like something you all actually have an argument for.

[Oleg Bach]

MONEY..is not gold or paper..it is people..who ever decieves the most people at the same time and controls them is considered to be rich and powerful...now..if you believe you have no power then you are their slave..if you believe they have no real power and YOU have power..then you are a king..and kings are noted controlled by money..they thrive on faith- hope - love honour and grace...Put on your crowns folks...and be free!

[Oleg Bach]

BE HOPEFUL..ONCE THOSE IN CONTROL OF THE MONEY SUPPLY REACH THEIR PEAK OF POWER..THEY WILL TURN ON EACH OTHER AND DESTROY EACH OTHER...JUST KEEP YOUR HEAD DOWN AND DON'T GET CAUGHT IN THE CROSS FIRE OR VOLUNTEER YOUR SERVICE TO THE MILITARY..BECAUSE THE UP AND COMING LAST FEUD IS N0T OUR BUISNESS..LET THEM GET RID OF EACH OTHER..BE PATIENT..good things come to those that wait.

[Michael Hardner]

All caps ? I sense this means something... are you planning to erupt or bolt from the board soon ?

[Bonam]

Ok here it is. The way the supply of Canadian currency expands is through loans **(See www.bankofcanada.ca/en/backgrounders/bg-m2). I can see that there are many people that think this system is not flawed. I mean some of the people who had argued against this are intelligent people. If ALL money is loaned to the public and private sectors, the amount in circulation will never be enough to pay the loans (due to money to pay interest does not exist). If M = all the money existing and M was loaned out at some point with I = interest . Then M would equal M+I or M=M+I.

Ok, first of all, if you are going to try to use "equations", please try to get it right. M does not = M + I. Rather, the money supply is increased over time. M is not a constant, but rather is a function of time. A simple model would be:

M(t) = Mo * e^(It)

Here, Mo is the starting money supply in some reference year, I is some interest rate and t is the time in years.

This only makes sense, because the size of the economy expands over time. As the economy grows, so too does the money supply. In Canada and most Western nations, the growth rates of the two are generally very comparable, except of course in recessions.

Thus creating recessions and depressions as a byproduct of this system.

No, recessions and depressions are not a result of smooth exponential growth. The continual steady growth of the money supply along with the continual steady growth of the economy does not lead to these phenomena. Rather, they are generated by instabilities. Instabilities result from effects that are not modeled by the smooth growth model, such as specific "bubbles" forming and bursting, or rapid changes in supply and demand overseas, wars, etc.

The point is that it is not the smooth and predictable and gradual increase of the money supply that causes sudden reversals of the market and reductions in prosperity. In any case, even when such perturbations do happen, they have little long term impact, as can be seen by long term graphs of economic growth which show that recessions are insignificant blips, with the economy in each case swiftly returning to a pattern of continuous smooth growth. Consider this graph for example:

US GDP in Constant Dollars

Edited May 6, 2010 by Bonam

[Allen]

Ok, first of all, if you are going to try to use "equations", please try to get it right. M does not = M + I. Rather, the money supply is increased over time. M is not a constant, but rather is a function of time. A simple model would be:

M(t) = Mo * e^(It)

Here, Mo is the starting money supply in some reference year, I is some interest rate and t is the time in years.

This only makes sense, because the size of the economy expands over time. As the economy grows, so too does the money supply. In Canada and most Western nations, the growth rates of the two are generally very comparable, except of course in recessions.

No, recessions and depressions are not a result of smooth exponential growth. The continual steady growth of the money supply along with the continual steady growth of the economy does not lead to these phenomena. Rather, they are generated by instabilities. Instabilities result from effects that are not modeled by the smooth growth model, such as specific "bubbles" forming and bursting, or rapid changes in supply and demand overseas, wars, etc.

The point is that it is not the smooth and predictable and gradual increase of the money supply that causes sudden reversals of the market and reductions in prosperity. In any case, even when such perturbations do happen, they have little long term impact, as can be seen by long term graphs of economic growth which show that recessions are insignificant blips, with the economy in each case swiftly returning to a pattern of continuous smooth growth. Consider this graph for example:

US GDP in Constant Dollars

All I was saying was at the point ALL money is created or the supply expands the equation is simply M=M+I. If you’re going to argue with me, do it right. Tell me how the money supply grows......

Also recessions and depressions are just when more debts are being paid off rather than loans taken out. This is controlled by interest rates. As there will never be money in existence to pay off all debt and more loans are issued and assets are seized to serve this purpose. While the system is fluid, it is not anything but carefully controlled. You can see in your chart the money supply is growing. Meaning more and more loans are being issued.

[maple_leafs182]

BE HOPEFUL..ONCE THOSE IN CONTROL OF THE MONEY SUPPLY REACH THEIR PEAK OF POWER..THEY WILL TURN ON EACH OTHER AND DESTROY EACH OTHER...JUST KEEP YOUR HEAD DOWN AND DON'T GET CAUGHT IN THE CROSS FIRE OR VOLUNTEER YOUR SERVICE TO THE MILITARY..BECAUSE THE UP AND COMING LAST FEUD IS N0T OUR BUISNESS..LET THEM GET RID OF EACH OTHER..BE PATIENT..good things come to those that wait.

I like the optimism but I don't think so.

They will not turn on each other, why would they.

MONEY..is not gold or paper..it is people..who ever decieves the most people at the same time and controls them is considered to be rich and powerful...now..if you believe you have no power then you are their slave..if you believe they have no real power and YOU have power..then you are a king..and kings are noted controlled by money..they thrive on faith- hope - love honour and grace...Put on your crowns folks...and be free!

I hope more people start thinking like you.

People, quit only looking at societies smiles, can't you guys see how much pain we are causing each other. This way of life is unjust, unsustainable and it will fall.

You guys put your faith into a system that enslaves us.

If you personally feel this system is fair,

If we're the flagship of peace and prosperity

we're taking on water and about to fucking sink

no one seems to notice, no one even blinks

The crew all left the passengers to die under the sea

We have a bubble economy right now with interest rates so low. People are encouraged to go out and get loans, the economy is then stimulated with all this new cheap money being spent. Loaning can't last forever, eventually people have to pay back those loans, that is when the bubble bursts. All that spending then that was stimulating the economy then goes away causing a recession.

Central banks have the power to create recessions and depressions.

The financial crisis isn't over, this is just the beginning. Greece is hurting the global markets already and the real problem isn't in Europe, it's in America.

Get your umbrellas, I see a storm coming.

This will be a global depression.

[williat]

All I was saying was at the point ALL money is created or the supply expands the equation is simply M=M+I. If you’re going to argue with me, do it right. Tell me how the money supply grows......

Also recessions and depressions are just when more debts are being paid off rather than loans taken out. This is controlled by interest rates. As there will never be money in existence to pay off all debt and more loans are issued and assets are seized to serve this purpose. While the system is fluid, it is not anything but carefully controlled. You can see in your chart the money supply is growing. Meaning more and more loans are being issued.

This statement you have made about recessions and depressions is by no means right, I do agree some of the general points you are making, however, it appears you have forgotten a great deal before making such a sweeping statement. I think we can agree that it may be PART (large or small is open to debate) of the issue, although not the issue entirely. It is true that more money has been loaned out then we currently have to repay it, however this is a clever calculation, what really causes economic recessions and depressions is the management of said loans/government policies, what we also see as a main underlying issue is speculation not investment. Recessions and depressions are the markets way of correcting our poor decisions. It is obvious that the money supply is growing, IT MUST if not the Cdn dollar would be in short supply, therefore ramping up the price of our currency, decreasing the amount of exports thus making Canada less attractive for investment, I say keeping printing money within reason.

[Allen]

This statement you have made about recessions and depressions is by no means right, I do agree some of the general points you are making, however, it appears you have forgotten a great deal before making such a sweeping statement. I think we can agree that it may be PART (large or small is open to debate) of the issue, although not the issue entirely. It is true that more money has been loaned out then we currently have to repay it, however this is a clever calculation, what really causes economic recessions and depressions is the management of said loans/government policies, what we also see as a main underlying issue is speculation not investment. Recessions and depressions are the markets way of correcting our poor decisions. It is obvious that the money supply is growing, IT MUST if not the Cdn dollar would be in short supply, therefore ramping up the price of our currency, decreasing the amount of exports thus making Canada less attractive for investment, I say keeping printing money within reason.

The only way the extange of money can create a recession or depression is if everyone saving their money just put it where is cannot be interest earning. This would play a very small role in recessions as the money will be eventually spent. This would only create a recession is a large number of people saved a large portion of their money at the same time. Which is not nor has ever been the case. What you believe is a clever calculation, is not as in accounting terms (the way we keep track of all money in circulation) creats an unbalanced balance sheet. The people who cannot repay their loans goes hand in hand with my previous statement. Yes I left that part out too. But they loan out more money to cover this.

Yes I agree the money supply has to expand as we are growing larger as a nation. This is just a system that does not work, mathematically. As we have seen, their clever calculation does not work.......Recessions and depressions. The markets correcting themselves as you said are a by product of this system. There will never be enough money to pay off these loans anyways. In a way, some loan ventures are doomed to fail as not every loan is repayable. Its going to happen no matter if every business has a product everyone wants. Thus recessions are just when more loans are being called in than given out.

[dpwozney]

To put a complex system in to as few words as possible; Money is borrowed from a bank. This money is borrowed with interest. Even if you turn a profit, that money you collected is borrowed as well. You can be out of debt but that only leaves other in debt. If everyone gave all their money to the central bank there would be interest left over to be paid. This interest can not be paid back because money is not created to compensate.

“We have to keep in mind that our monetary economy only grows when the money supply grows. Under the present debt-driven system, the only way we can increase the money supply is by borrowing it into existence from the private banks, thereby increasing our indebtedness to them.

It can't be stressed too much that the private banks, unlike non-bank lenders, create the money they lend. They do not--as is so widely imagined, even by the bankers themselves--lend their depositors' money. The amount of new money created by a bank loan, however, is only sufficient to pay back the principal. No money is created to pay the interest, except that which is paid to the holders of bank deposits. That's why debts must continually grow faster and faster in order for each layer of additional debt and interest to be paid. Indeed, the higher the rate of interest, the faster the money supply must grow if the economy is not to stall. If the system ever stops growing, or even drastically slows down, it crashes.

If that strikes you as a very dumb and dangerous way to operate a monetary system, you're right.”

The above quote is by Harold Chorney, Associate Professor of Political Economy and Public Policy, Concordia University, Montreal; John Hotson, Professor of Economics, University of Waterloo; and Mario Seccareccia, Associate Professor of Economics, University of Ottawa, in their May 1992 publication “The Deficit Made Me Do It!”.

[Jerry J. Fortin]

I must agree that money is created as interest bearing debt. It is not nations printing dollar bills and it is not money on deposit lend out at interest. The banks create money out of thin air. The dollars paid back are real though, and so is the interest associated with the loan. What isn't real is the rate of taxation applied to banks. They only pay taxes on their profits....like other corporations. They don't burn the dollars we pay them for our loans, and they only claim the interest as income.

Yes the system is in dire need of reform, but don't expect any changes. The policy makers are owned by the financial system lock stock and barrel.

[Michael Hardner]

dpwozney - I am familiar with one of the professors and he was a bit of a crackpot.

It seems like on this thread we've figured out that the system makes certain people rich but nobody has suggested something better on this thread or anywhere.