dre Posted February 9, 2012 Report Share Posted February 9, 2012 Are we talking about government debt or personal debt? I'm not sure I follow your logic.. Why would any growth be necessary given your formula? If you're talking about gov't debt, presumably, some portion of that gnp is taxed and used to pay down interest/debt? Or if we're talking about personal debt (which is what you originally mentioned), couldn't people just spend less? Im talking about bank credit which accounts for about 95% of our money supply. Without that roughly 3% growth money wont exist in the national economy to pay back all the loans. Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 9, 2012 Report Share Posted February 9, 2012 Im talking about bank credit which accounts for about 95% of our money supply. Without that roughly 3% growth money wont exist in the national economy to pay back all the loans. So you're talking about a growth in the money supply? But I thought we we're talking about gdp growth. I don't think there's any danger of running out of money when we can just print more of it. Obviously inflation is a concern though. How does any of this necessitate growth though? People have and will continue to default on loans. If money supply stops growing and people are forced to declare bankruptcy then the banks just take a bath on those loans. Quote Link to comment Share on other sites More sharing options...
dre Posted February 9, 2012 Report Share Posted February 9, 2012 (edited) So you're talking about a growth in the money supply? But I thought we we're talking about gdp growth. I don't think there's any danger of running out of money when we can just print more of it. Obviously inflation is a concern though. How does any of this necessitate growth though? People have and will continue to default on loans. If money supply stops growing and people are forced to declare bankruptcy then the banks just take a bath on those loans. I don't think there's any danger of running out of money when we can just print more of it. Obviously inflation is a concern though. How does any of this necessitate growth though? Because we DONT print money. Thats a figure of speech. What really happens is we loan money into existance through the banking system. This is how 95% of the overall money supply was created. The goverment only created 5% of the entire money supply. And when we loan that new money into the system, theres interest owing on it. The problem is only the principle ever enters the economy. Heres a really basic example. Theres a national economy with only you and I in it, and a bank and the government. The government has passed some kind of central banking act which gives the banks the right to control the money supply by using fractional lending. Theres no money in the money supply at all to start out with. The bank creates new money by making a 100 dollar loan to each of us. Theres now 200 dollars in the economy. The problem is, between you and I we owe the bank 210 dollars... the hundred we borrowed, plus 5% interest each. Where can that 10 dollars possibly come from? It simply does not exist. Unless more money enters the economy one of us is guaranteed to default, even if we are the two most industrious people on the planet. BUT!!! If BOB immigrates to our little economy, and borrows a hundred dollars from the bank, the money supply grows and you and I can pay back our loans. But Bob has no chance to pay HIS loan back unless more money is loaned into existance and theres more economic growth. Heres an example of this phenomenon based on BOC reports for the late nineties. In 1999 bank credit amounted to $557 billion, almost 95 percent of our money supply. Real interest (i.e. nominal interest minus inflation) on this bank credit was at least 5 percent, or $28 billion. But where is this interest to come from since banks create credit, but not the interest they charge on that credit? It cant come from the approximately $32 billion in cash (GCM) that circulates in public hands. It can only come from more bank credit with more interest attached. But for all existing bank credit to be paid without anyone defaulting on their loans, the economy must expand by 2.9 percent ($28 billion of interest divided by the GDP, $953 billion). Since the average annual real GDP growth from 1960 to 1995 was only 2.3 percent, the economy is going to repeatedly stumble in its effort to keep up with the interest payments on all that bank credit. This is what drives the business cycle. We dump credit into the economy which causes consumption, production, and growth, but after it reaches a certain point we end up with a recession and a glut of defaults and forclosures because its not mathematically possible for people to pay off their loans without a steady supply of new borrowers. Edited February 9, 2012 by dre Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 10, 2012 Report Share Posted February 10, 2012 Because we DONT print money. Really? What's the royal canadian mint for? Quote Link to comment Share on other sites More sharing options...
dre Posted February 10, 2012 Report Share Posted February 10, 2012 Really? What's the royal canadian mint for? It creates the tiny bit of cash in circulation. Less than 5 percent of the money supply. Quote Link to comment Share on other sites More sharing options...
eyeball Posted February 10, 2012 Report Share Posted February 10, 2012 I wonder how much drag on growth the fear the government has stirred up over pensions will cause? Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 10, 2012 Report Share Posted February 10, 2012 (edited) It creates the tiny bit of cash in circulation. Less than 5 percent of the money supply. And what do banks do with that tiny bit of cash again? When there is an increased demand for base money, the central bank must act if it wishes to maintain the short-term interest rate. It does this by increasing the supply of base money. The central bank goes to the open market to buy a financial asset such as government bonds, foreign currency, gold, or seemingly nonvolatile (until the 2008 financial fallout) MBS's [3] (Mortgage Backed Securities). To pay for these assets, bank reserves in the form of new base money (for example newly printed cash) are transferred to the seller's bank and the seller's account is credited. Thus, the total amount of base money in the economy is increased. Conversely, if the central bank sells these assets in the open market, the amount of base money held by the buyer's bank is decreased, effectively destroying base money. http://en.wikipedia.org/wiki/Open_market_operation For a Canadian perspective, the Canadian Securities Course has an interesting section on this. You seem to be pretty interested in this stuff, so you should think about giving it a whirl: https://www.csi.ca/student/en_ca/courses/csi/csc.xhtml#tabview=tab1 Edited February 10, 2012 by CPCFTW Quote Link to comment Share on other sites More sharing options...
guyser Posted February 10, 2012 Report Share Posted February 10, 2012 Really? What's the royal canadian mint for? To print coins. The Royal Canadian Mint does not print money as in the paper money as referenced earlier. The Canadian Bank Note Company prints our paper money, and that of many other countries too. Quote Link to comment Share on other sites More sharing options...
Smallc Posted February 10, 2012 Report Share Posted February 10, 2012 Do they print the new notes? I know the paper comes from Australia, but are the bills printed in Canada? Quote Link to comment Share on other sites More sharing options...
guyser Posted February 10, 2012 Report Share Posted February 10, 2012 Do they print the new notes? I know the paper comes from Australia, but are the bills printed in Canada? Yes they do. 145 Richmond Rd, Ottawa On. Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 10, 2012 Report Share Posted February 10, 2012 To print coins. The Royal Canadian Mint does not print money as in the paper money as referenced earlier. The Canadian Bank Note Company prints our paper money, and that of many other countries too. Cool story bro. Now can you show me where paper money was referenced earlier? Quote Link to comment Share on other sites More sharing options...
guyser Posted February 10, 2012 Report Share Posted February 10, 2012 (edited) Cool story bro. Now can you show me where paper money was referenced earlier? dre, on 09 February 2012 - 04:22 PM, said: Because we DONT print money. CPCSOS Really? What's the royal canadian mint for? See, print money refers to paper...see , still with me? You asked whats the Mint for......I answered to issue coins, which are punched, not printed. Petard,trip over, enjoy ! Cool story eh bro? Edited February 10, 2012 by guyser Quote Link to comment Share on other sites More sharing options...
dre Posted February 10, 2012 Report Share Posted February 10, 2012 And what do banks do with that tiny bit of cash again? http://en.wikipedia.org/wiki/Open_market_operation For a Canadian perspective, the Canadian Securities Course has an interesting section on this. You seem to be pretty interested in this stuff, so you should think about giving it a whirl: https://www.csi.ca/student/en_ca/courses/csi/csc.xhtml#tabview=tab1 Iv read many thousands of pages on this subject already mostly from the BOC, but Iv saved the link and will read it. Anyways you asked where the 2.9% number came from, and why our monetary system created the required for growth at about 3%. I explained why. Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 11, 2012 Report Share Posted February 11, 2012 (edited) See, print money refers to paper...see , still with me? You asked whats the Mint for......I answered to issue coins, which are punched, not printed. Petard,trip over, enjoy ! Cool story eh bro? Coulda sworn coins were money. Guess I'll throw out all these useless toonies Btw did you not just say "to print coins". So what is it? Punched or printed? Make up your mind! Edited February 11, 2012 by CPCFTW Quote Link to comment Share on other sites More sharing options...
CPCFTW Posted February 11, 2012 Report Share Posted February 11, 2012 Iv read many thousands of pages on this subject already mostly from the BOC, but Iv saved the link and will read it. Anyways you asked where the 2.9% number came from, and why our monetary system created the required for growth at about 3%. I explained why. It's actually a course... it will cost you about $1000 to take. It's mostly about the Canadian securities industry in general, but there is a chapter on economics and monetary policy. Sorry, I just wasn't sure how you arrived at that number. I'm still not quite sure I understand it without making the assumption that the money supply can't be adjusted, but I'll let it go. Quote Link to comment Share on other sites More sharing options...
dre Posted February 11, 2012 Report Share Posted February 11, 2012 It's actually a course... it will cost you about $1000 to take. It's mostly about the Canadian securities industry in general, but there is a chapter on economics and monetary policy. Sorry, I just wasn't sure how you arrived at that number. I'm still not quite sure I understand it without making the assumption that the money supply can't be adjusted, but I'll let it go. It CAN be adjusted, but its adjusted by adding more interest bearing debt. If I borrowed 1000 dollars from the bank to take that course you recommended, M3 would grow by about $1000, but the total outstanding debt would grow by $1100 or whatever. And nothing to be sorry for at all. I can see why you origionally thought I just pulled that number out of my ass. Quote Link to comment Share on other sites More sharing options...
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