Credit Unions recruiting small businesses

[dre]

Destroyed millions of people's lives? Care to elaborate? Losing a job for a while or having to move to rental housing isn't exactly the destruction of one's life. The recession caused some economic hardship for a while, that's all.

Well thats an argument about symantics. A lot of people lost their jobs, their homes, and their lifes savings. Seems pretty destructive to me, and the next one will be worse.

[madmax]

I don't think so.

Credit Unions belong to the members, and earn only "a small profit".

Credit unions are "not- for-profit" because they operate to serve their members rather than to maximize[ 21][ 22][ 23] profits.[ 21][ 22][ 23] But unlike non-profit [charity] organizations, credit unions do not rely on donations, and are financial institutions that must turn what is, in economic terms, a small profit (i.e."surplus") to be able to continue to serve their[ 24][ 25] members.

According to the Credit Unions (WOCCU), a credit union's revenues(from loans and investments) need to exceed its operating expenses and dividends (interest paid on deposits) in order to maintain capital and[ 26] solvency[ 26] and "credit unions use excess earnings to offer members more affordable loans, a higher return on savings, lower fees or new products and services.

http://en.m.wikipedia.org/wiki/Credit_union#section_6

And ...

Banks are bought and sold all the time.

Credit Unions CAN’T be bought OR sold.

They are owned by their members.

http://www.alturacu.com/education/protect-credit-unions/credit-unions-101

My Bad..

I was trying to recall exactly what happened in what was essentially a takeover of a credit union..

All the board of directors in a short period of time were replaced by directors from one of the banks.

IIRC they started changing everything on how the credit union operated with regards to service... including the wages to the staff and after around 1 year or so of this the members were pulling out there moneys...

IIRC this tactic was successful in reducing the number of branches of the said credit union.

I recall some members withdrawing 500,000 and the credit union not even batting an eye.

I don't even think the chain of these credit unions exist anymore.

And yes I do know of many Credit Unions that had to silently close their doors... as these things are always handled very very quietly.

I have only been a member of one credit union in the past. I was a member for about 8 years, and it was still running a profit when it was shut down.

Weekly loans were the most prolific, then the loans for Vehicles (cars/boats/motorcycles and trips).

Not much on business loans...as i remember it.

[Bonam]

Well thats an argument about symantics. A lot of people lost their jobs, their homes, and their lifes savings. Seems pretty destructive to me, and the next one will be worse.

I dunno, seeing these things in such a light seems overly materialistic to me. "Losing your home" makes it sounds like you became homeless. That's not the case for the vast vast majority of people who got foreclosed on. They simply had to move to a rented property or buy something cheaper. No big deal. Losing your job is something that happens all the time, people lose a job and have to go find a new one. No big deal there either. I've had 7 jobs in my life so far. As for losing your life savings... how so? Stock markets collapsed, sure. If you were stupid enough to have all your life savings in volatile stocks AND to sell everything at the bottom and take a ~50% loss, that's your own fault, not the recession's.

[jacee]

My Bad..

I was trying to recall exactly what happened in what was essentially a takeover of a credit union..

All the board of directors in a short period of time were replaced by directors from one of the banks.

IIRC they started changing everything on how the credit union operated with regards to service... including the wages to the staff and after around 1 year or so of this the members were pulling out there moneys...

IIRC this tactic was successful in reducing the number of branches of the said credit union.

I recall some members withdrawing 500,000 and the credit union not even batting an eye.

I don't even think the chain of these credit unions exist anymore.

And yes I do know of many Credit Unions that had to silently close their doors... as these things are always handled very very quietly.

I have only been a member of one credit union in the past. I was a member for about 8 years, and it was still running a profit when it was shut down.

Weekly loans were the most prolific, then the loans for Vehicles (cars/boats/motorcycles and trips).

Not much on business loans...as i remember it.

I don't know how such a "takeover" could happen as the Board of Directors is elected by the members.

Maybe this is it?

April 5, 2012 00:04:00 ARNSTEIN – A number of allegations raised against the CEO of the Arnstein Community Credit Union has lead to the financial institution being placed under the administration of a provincial body. On March 22, the Deposit Insurance Corporation of Ontario (DICO) placed an order that the credit union be placed under their administration effective mmediately.

DICO is a provincial operational enterprise agency that receives premiums from credit unions and Caisse Populaire and provide deposit insurance for the institutions and are the provincial solvency regulator.

http://www.cottagecountrynow.ca/iphone/news/article/1331120--report-prompts-credit-union-takeover

Not a corporate takeover, but the provincial regulator being asked to step in temporarily.

Credit Unions can't be bought and sold.

They can merge, close, etc.

[Michael Hardner]

Well not really. Fractional reserve lending was pretty sustainable before fiat currency, and purchasing power and inflation were basically flat for hundreds of years. Our system is something completely different, because banks can use bank credit as their actual reserves, and reserve rates have been cut to almost nothing in most western countries.

Our system is indeed something different, but the world is completely different and so the economy and the system have to be.

But stealing is exactly what it is, and people have to wake up to that. A lot of people dont understand that every time a commercial bank makes a loan their paycheck shrinks and can purchase a little less. And most people have no idea how the system works at all.

How does your paycheck shrink ? Because there is inflation? Wouldn't this happen no matter how the money supply increased ?

True - most people have no idea how the system works, but this is true across the board. Economics is black magick for the common person. For something so complex, it's better to learn about it from experts with differing points of view, in my experience.

You cant just assess debt as percentage of GDP unless you live in a dictatorship.

What does that mean ? If I owe $100,000 of course it matters if my annual salary is $20,000 or $200,000.

What matters is the federal budget. You also cant separate household debt from government debt because they are essentially the same thing. Government can put money into the economy either directly or it can let consumers do it by making credit very cheap and easily available, but the result is the same. All of this borrowing guarantees a recession.

If government puts money into the economy directly, are they doing it by redistributing taxes, or issuing bonds ?

And youre ignoring the other macro-economic problems all this debt based consumption causes. This activity just caused a global recession that destroyed millions of peoples lives, and its still going on in Europe. All this debt based consumption has driven up large trade deficits in the west, and caused productive capacity to move overseas. And it also causes the insanely fast depreciation of resources.

Is the system to blame, if it was abused and compromised to the point of breaking ? Do we give up on the system entirely because of the sub prime mortgages scandal ?

Well... obviously a redesign isnt going to happen in good times Dire times are what DRIVES redesigns. The fractional reserve system was invented because there was a run on gold in England. The central banking system was created on the heals of a major banking crisis in the early 1900's, and further redesigned during the great depression. The fiat money system was created when the largest economy on earth went bust and there was a run on its reserves.

Ok, fair enough. The danger, though, is that people will take advantage of a problem to scapegoat. That has happened too. See the Cross of Gold speech.

If they didnt take a zillion dollars from taxpayers and dump it into the banks system (and the real bailouts were thousands of times larger than any of the funds they announced) it would have been "redesigned" then.

Agreed.

[dre]

Our system is indeed something different, but the world is completely different and so the economy and the system have to be.

How does your paycheck shrink ? Because there is inflation? Wouldn't this happen no matter how the money supply increased ?

True - most people have no idea how the system works, but this is true across the board. Economics is black magick for the common person. For something so complex, it's better to learn about it from experts with differing points of view, in my experience.

What does that mean ? If I owe $100,000 of course it matters if my annual salary is $20,000 or $200,000.

If government puts money into the economy directly, are they doing it by redistributing taxes, or issuing bonds ?

Is the system to blame, if it was abused and compromised to the point of breaking ? Do we give up on the system entirely because of the sub prime mortgages scandal ?

Ok, fair enough. The danger, though, is that people will take advantage of a problem to scapegoat. That has happened too. See the Cross of Gold speech.

Agreed.

Our system is indeed something different, but the world is completely different and so the economy and the system have to be.

No theres no attribute of our economy or change in our economy that makes this system necessary.

How does your paycheck shrink ? Because there is inflation? Wouldn't this happen no matter how the money supply increased ?

Inflation is a FEATURE of the system... not a necessary reality. If you only grew the money supply when the ammount of goods and services in the marketplace grows you wouldnt have any inflation at all. But thats not possible under the rules of this system because every year total debt MUST compound by at least enough to make money available to service outstanding debts. Exponential growth and debt is an unescapable feature of the system, inherent in its design.

Is the system to blame, if it was abused and compromised to the point of breaking ? Do we give up on the system entirely because of the sub prime mortgages scandal ?

Again we are talking about a rule/feature of the system. What has happened was in fact a very predictable and inevitable result of the systems design. The ammount of debt, and therefore the ammount of money needs to grow expenentially (about 3% per year), otherwise you will get mass defaults because the money to pay off existing loans and the interest on them simply does not exist.

If government puts money into the economy directly, are they doing it by redistributing taxes, or issuing bonds ?

They can do that by selling bonds directly to the treasury.

Edited April 19, 2012 by dre

[Moonbox]

This is such a dumb thread.

[Michael Hardner]

No theres no attribute of our economy or change in our economy that makes this system necessary.

I think possibly the speed and global/decentralized nature of the economy makes central planning pretty much impossible.

Inflation is a FEATURE of the system... not a necessary reality. If you only grew the money supply when the ammount of goods and services in the marketplace grows you wouldnt have any inflation at all. But thats not possible under the rules of this system because every year total debt MUST compound by at least enough to make money available to service outstanding debts. Exponential growth and debt is an unescapable feature of the system, inherent in its design.

Yes, it's about lending, speculation and growth and indeed there are problems with the system. The best alternative proposed so far was Marxism, which was a big failure in its implementation.

Why wouldn't there be inflation if you grew the money supply that way ? Money is borrowed to invest or to buy goods now, isn't it ?

Again we are talking about a rule/feature of the system. What has happened was in fact a very predictable and inevitable result of the systems design. The ammount of debt, and therefore the ammount of money needs to grow expenentially (about 3% per year), otherwise you will get mass defaults because the money to pay off existing loans and the interest on them simply does not exist.

They can do that by selling bonds directly to the treasury.

Explain?

[dre]

I think possibly the speed and global/decentralized nature of the economy makes central planning pretty much impossible.

Yes, it's about lending, speculation and growth and indeed there are problems with the system. The best alternative proposed so far was Marxism, which was a big failure in its implementation.

Why wouldn't there be inflation if you grew the money supply that way ? Money is borrowed to invest or to buy goods now, isn't it ?

Explain?

Yes, it's about lending, speculation and growth and indeed there are problems with the system. The best alternative proposed so far was Marxism, which was a big failure in its implementation.

Marxism is an alternative to capitalism and private ownership, not an alternative monetary system.

Why wouldn't there be inflation if you grew the money supply that way ? Money is borrowed to invest or to buy goods now, isn't it ?

Inflation only happens when the money supply grows faster than the ammount of goods and services in the economy. If I have an economy where the only commodities are chickens and government backed dollars, and theres one chicken in the market place, and one dollar in circulation that chicken will cost a dollar. If the governmet prints another dollar, but the chicken market doesnt grow that chicken will now cost 2 dollars. But if the chicken market grows by one AND the government prints another dollar you wont have inflation.

Explain?

Gak.... Ok.

In a tiny brand new economy somewhere... A bank opens up, person 1 walks and deposits $1000. The bank takes $100 or whatever the reserve requirement is, and puts that in its account at the central bank. The bank loans out the remaining $900 to person 2 and person 3 at 3% interest. Persons 2 and 3 now owe about 465 each for a total of $930.

The problem is that only 900 dollars exists in the economy. In order for person 2 and person 3 to be able to pay off their debts the money supply and therefore the total ammount of debt must increase by at least enough to pay for all of the interest owed on existing loans.

That means that the ammount of money must perpetually grow exponentially, the ammount of debt must perpetually grow exponentionally, and by extension the economy must grow perpetually and exponentially.

And 3% growth sounds like a nice stable managable number... but as you know it isnt. Its an exponential curve that requires more and more growth each year than the year before.

[Michael Hardner]

Marxism is an alternative to capitalism and private ownership, not an alternative monetary system.

In a tiny brand new economy somewhere... A bank opens up, person 1 walks and deposits $1000. The bank takes $100 or whatever the reserve requirement is, and puts that in its account at the central bank. The bank loans out the remaining $900 to person 2 and person 3 at 3% interest. Persons 2 and 3 now owe about 465 each for a total of $930.

The problem is that only 900 dollars exists in the economy. In order for person 2 and person 3 to be able to pay off their debts the money supply and therefore the total ammount of debt must increase by at least enough to pay for all of the interest owed on existing loans.

That means that the ammount of money must perpetually grow exponentially, the ammount of debt must perpetually grow exponentionally, and by extension the economy must grow perpetually and exponentially.

And 3% growth sounds like a nice stable managable number... but as you know it isnt. Its an exponential curve that requires more and more growth each year than the year before.

Yes, but having the treasury buy bonds from the government ? Are you looking to remove the ability of the banks to lend money that they don't have on deposit ? That seems drastic. And how will this stop government from printing more money, again ?

[dre]

Yes, but having the treasury buy bonds from the government ? Are you looking to remove the ability of the banks to lend money that they don't have on deposit ? That seems drastic. And how will this stop government from printing more money, again ?

I dont think that seems drastic... In fact Id say the opposite. But honestly Im not proposing a specific solution. I was explaining the rules of the system that make perpetual exponential growth a requirement. Theres lot of smarter people than me working on what will come next. And yes... even if we ended fractional reserve lending, or put a lot more rules around it, the government could still have bad monetary policy, but bad monetary policy wouldnt be FORCED on them by the rules of the system.

[Michael Hardner]

Theres lot of smarter people than me working on what will come next. And yes... even if we ended fractional reserve lending, or put a lot more rules around it, the government could still have bad monetary policy, but bad monetary policy wouldnt be FORCED on them by the rules of the system.

So, banks would have a lot less money to lend out... interest rates would rise and money would be in short supply. There would be less borrowing, and the economy would shrink, right ?

[dre]

So, banks would have a lot less money to lend out... interest rates would rise and money would be in short supply. There would be less borrowing, and the economy would shrink, right ?

Nope the economy would be the size that it is. We actually had very rapid growth and progress under the last system, and the system before that. The economy grows or shrinks because of supply and demand. Money is just a technology to facilitate the easy exchange of products and services.

The real question is what is sustainable positive economic growth. Borrowing to fund consumption might LOOK like economic growth buts not. Because the more you owe the less you will be able to consume in the future. So youre really moving consumption that would have happened tomorrow to today at the expense of tomorrow... this kind of activity for obvious reasons guarantees a recession later on, and the more of it you engage in, the bigger the recession will be.

Real economic growth comes when you increase your productive capacity. If you fund increased consumption with debt, youll be very prosperous for a short ammount of time, then youll be very poor. But if you fund consumption by becoming more productive (work harder, get a raise, increase productivity through innovation, etc) then you will get real sustainable growth in your little microeconomy and increased consumption in the long term.

[Michael Hardner]

Nope the economy would be the size that it is. We actually had very rapid growth and progress under the last system, and the system before that. The economy grows or shrinks because of supply and demand. Money is just a technology to facilitate the easy exchange of products and services.

How would the economy be the same size with that much less money in the system ? What are you referring to as "the last system". "Money is just a technology" doesn't mean a lot. Everything we do is a technology, including language and writing. Would the world be the same if we got rid of writing ?

The real question is what is sustainable positive economic growth. Borrowing to fund consumption might LOOK like economic growth buts not.

"Borrowing to fund consumption"... What does that mean ? Borrowing by individuals to fund their consumption of goods and services ?

Because the more you owe the less you will be able to consume in the future. So youre really moving consumption that would have happened tomorrow to today at the expense of tomorrow... this kind of activity for obvious reasons guarantees a recession later on, and the more of it you engage in, the bigger the recession will be.

So, to be clear you're talking about changing the reserve requirements for lending. Let's be specific here - what will the immediate effect be ? Higher interest rates ? Impact for institutional borrowers and consumers ?

Real economic growth comes when you increase your productive capacity. If you fund increased consumption with debt, youll be very prosperous for a short ammount of time, then youll be very poor.

But if you fund consumption by becoming more productive (work harder, get a raise, increase productivity through innovation, etc) then you will get real sustainable growth in your little microeconomy and increased consumption in the long term.

I don't see how reducing demand for goods is going to make productivity better.

[dre]

How would the economy be the same size with that much less money in the system ? What are you referring to as "the last system". "Money is just a technology" doesn't mean a lot. Everything we do is a technology, including language and writing. Would the world be the same if we got rid of writing ?

"Borrowing to fund consumption"... What does that mean ? Borrowing by individuals to fund their consumption of goods and services ?

So, to be clear you're talking about changing the reserve requirements for lending. Let's be specific here - what will the immediate effect be ? Higher interest rates ? Impact for institutional borrowers and consumers ?

I don't see how reducing demand for goods is going to make productivity better.

You need to rid yourself of the idea that demand for goods and services comes from the bank creating money. Thats not why people need food, clothing, shelter, or anything else. All easy credit does is shift future demand to today. People will buy more stuff now because of easy credit but they will buy less stuff later because they will be paying off debt. Read the example of Mike Hardners micro economy that I posted again. In the long run you didnt buy MORE stuff because of easy credit you bought less. If you just spent your money as you earned it over time you would consume MORE because you arent paying 3-25% interest.

So, to be clear you're talking about changing the reserve requirements for lending.

I would change a lot more than that. I would deregulate banking, and completely remove their ability to create money. But this isnt going to happen anyways... the monetary system wont change because a bunch of economists and politicians think it should. Thats pretty much impossible. It will change when the current system collapses in a few years. And they will be able to keep it going to a little while longer, because the banks can legally steal money from every person on the planet to keep their scam afloat. Your tax dollars are currently being used to bail out banks in Europe etc.

"Borrowing to fund consumption"... What does that mean ? Borrowing by individuals to fund their consumption of goods and services ?

Individuals, businesses or governments.

[Michael Hardner]

You need to rid yourself of the idea that demand for goods and services comes from the bank creating money.

From your example, I can see what you're saying about consumer spending. But if credit is easy, I also have the ability to spend money when I don't have it, and pay it back when I do so I will have to reduce consumption if credit is difficult.

Also, companies borrow money to invest it not to spend it. If it's difficult for them to borrow then there will be less money out there.

I would change a lot more than that. I would deregulate banking, and completely remove their ability to create money. But this isnt going to happen anyways... the monetary system wont change because a bunch of economists and politicians think it should. Thats pretty much impossible. It will change when the current system collapses in a few years. And they will be able to keep it going to a little while longer, because the banks can legally steal money from every person on the planet to keep their scam afloat. Your tax dollars are currently being used to bail out banks in Europe etc.

Deregulate banking and remove their ability to create money ? That sounds like a contradiction. They're regulated with regards to reserve requirements already aren't they ?

If you're referring to the bailout as 'stealing' then I understand, but you used that above to refer to their day to day business dealings.

I just realized that you're not answering all my questions as we go through this. Here they are again:

Are you looking to remove the ability of the banks to lend money that they don't have on deposit ?

Let's be specific here - what will the immediate effect be ? Higher interest rates ? Impact for institutional borrowers and consumers ?

I'm thinking that overall what you're trying to do is curtail borrowing across the board. Is that an accurate assessment of what we're talking about ?

[dre]

From your example, I can see what you're saying about consumer spending. But if credit is easy, I also have the ability to spend money when I don't have it, and pay it back when I do so I will have to reduce consumption if credit is difficult.

Also, companies borrow money to invest it not to spend it. If it's difficult for them to borrow then there will be less money out there.

Deregulate banking and remove their ability to create money ? That sounds like a contradiction. They're regulated with regards to reserve requirements already aren't they ?

If you're referring to the bailout as 'stealing' then I understand, but you used that above to refer to their day to day business dealings.

I just realized that you're not answering all my questions as we go through this. Here they are again:

I'm thinking that overall what you're trying to do is curtail borrowing across the board. Is that an accurate assessment of what we're talking about ?

Are you looking to remove the ability of the banks to lend money that they don't have on deposit ?

Well, clearly charging interest to loan someone something not even in your posession is a batant act of fraud. However, I would deregulate banks, and let them do what they want to... But it would be very risky for the banks to loan out money they dont have because the government and central bank would not insure deposits or put up money to protect banks from bank runs. The public would not longer be on the hook for their losses.

Let's be specific here - what will the immediate effect be ? Higher interest rates ? Impact for institutional borrowers and consumers ?

Interest rates may be higher, but they are going to get higher anyways. But youre still talking about this like its going to be some kind of organized reform. It wont be though. Interest rates will already be through the roof, and the economy will have been wrecked by the current system and we will have to implement some kind of sound money.

Deregulate banking and remove their ability to create money ? That sounds like a contradiction. They're regulated with regards to reserve requirements already aren't they ?

Its a bit different in each country. In the US they are regulated if they want to accept FDIC insured deposits. In Canada theres no reserve requirement but the central bank is nationalised... 100% of its shared are held by the minister of finance. Thats one of the biggest reasons our banking system doesnt get into so much trouble.

But once the government is no longer required to backstop commercial banks, and insure their deposits, it wont be necessary to regulate them. If they leverage deposits too much they will be vulnerable to bank runs and they will go belly up.

[Michael Hardner]

Well, clearly charging interest to loan someone something not even in your posession is a batant act of fraud. However, I would deregulate banks, and let them do what they want to... But it would be very risky for the banks to loan out money they dont have because the government and central bank would not insure deposits or put up money to protect banks from bank runs. The public would not longer be on the hook for their losses.

The public wouldn't be on the hook but depositors would be.

Deregulation is the very thing that caused the latest crisis, and before regulation banks were riskier and subject to bank runs. So in response to the crisis you would deregulate ?

Interest rates may be higher, but they are going to get higher anyways. But youre still talking about this like its going to be some kind of organized reform. It wont be though. Interest rates will already be through the roof, and the economy will have been wrecked by the current system and we will have to implement some kind of sound money.

Deregulation is a type of organized reform, at least the initiation of it is.

Its a bit different in each country. In the US they are regulated if they want to accept FDIC insured deposits. In Canada theres no reserve requirement but the central bank is nationalised... 100% of its shared are held by the minister of finance. Thats one of the biggest reasons our banking system doesnt get into so much trouble.

But once the government is no longer required to backstop commercial banks, and insure their deposits, it wont be necessary to regulate them. If they leverage deposits too much they will be vulnerable to bank runs and they will go belly up.

Is this what we've been talking about ? Returning the banking system to the days of the 1920s ?

[dre]

The public wouldn't be on the hook but depositors would be.

Deregulation is the very thing that caused the latest crisis, and before regulation banks were riskier and subject to bank runs. So in response to the crisis you would deregulate ?

Deregulation is a type of organized reform, at least the initiation of it is.

Is this what we've been talking about ? Returning the banking system to the days of the 1920s ?

The public wouldn't be on the hook but depositors would be.

Yup, of course. People that invest their money are the ones that should lose it if the scheme goes wrong. Not everyone else.

Deregulation is the very thing that caused the latest crisis, and before regulation banks were riskier and subject to bank runs. So in response to the crisis you would deregulate ?

Youre looking at deregulation in a completely different way than I am. The government regulates banks, because the government gives them 95% of the money they lend out, and they insure deposits. Private banks would be bit players if I designed the system.

And it wasnt deregulation that caused the latest crisis, although it played a small part. It was low interest rates, and overly easy credit. Easy credit creates fake demand for assets (in this case realestate), that creates asset bubbles. The exact same thing that caused the crisis is what we are doing NOW.

Is this what we've been talking about ? Returning the banking system to the days of the 1920s ?

Maybe... except for the great depression which was caused by the central banks, that system was stable for over 70 years. The goal of monetary policy is price stability, and pretty much any system would work better than what we have now. But I suspect we will see something different, and Im fairly certain we will see a unit of international account similar to the bancor. And its highly likely we will see SOME kind of perpetual currency.

But I dont think youre following what Im saying at all. We know this system cant last very much longer... its quite simply mathematically impossible because of the rigid requirement for growth in money, debt, and the economy. And nobody knows exactly what will come after, except that it will have a different set of rules.

Edited April 23, 2012 by dre

[Michael Hardner]

Yup, of course. People that invest their money are the ones that should lose it if the scheme goes wrong. Not everyone else.

Depositors are not investors.

Youre looking at deregulation in a completely different way than I am. The government regulates banks, because the government gives them 95% of the money they lend out, and they insure deposits. Private banks would be bit players if I designed the system.

They lend out virtual money - not money given to them by the government.

And it wasnt deregulation that caused the latest crisis, although it played a small part. It was low interest rates, and overly easy credit. Easy credit creates fake demand for assets (in this case realestate), that creates asset bubbles. The exact same thing that caused the crisis is what we are doing NOW.

Credit is fine if the risk is properly assessed. It wasn't and that's what caused these massive failures. Eliminating lending altogether would also prevent these types of failures, why not do that ?

Maybe... except for the great depression which was caused by the central banks, that system was stable for over 70 years. The goal of monetary policy is price stability, and pretty much any system would work better than what we have now. But I suspect we will see something different, and Im fairly certain we will see a unit of international account similar to the bancor. And its highly likely we will see SOME kind of perpetual currency.

Stock market crashes, bank crashes are usually thought of, not central banks although some right-wing economists do blame the central bank.

But I dont think youre following what Im saying at all. We know this system cant last very much longer...

We "know" this ? You do realize that you're putting a conclusion as a premise here right ? How do we know the system can't last ?

its quite simply mathematically impossible because of the rigid requirement for growth in money, debt, and the economy. And nobody knows exactly what will come after, except that it will have a different set of rules.

I already pointed out that debt as a percentage of the economy isn't much different than at other times and you dismissed that. Maybe if you address that point, you can thereby explain to me why this can't last.

[dre]

Depositors are not investors.

They lend out virtual money - not money given to them by the government.

Credit is fine if the risk is properly assessed. It wasn't and that's what caused these massive failures. Eliminating lending altogether would also prevent these types of failures, why not do that ?

Stock market crashes, bank crashes are usually thought of, not central banks although some right-wing economists do blame the central bank.

We "know" this ? You do realize that you're putting a conclusion as a premise here right ? How do we know the system can't last ?

I already pointed out that debt as a percentage of the economy isn't much different than at other times and you dismissed that. Maybe if you address that point, you can thereby explain to me why this can't last.

I already pointed out that debt as a percentage of the economy isn't much different than at other times and you dismissed that. Maybe if you address that point, you can thereby explain to me why this can't last.

Youre comparing it to post world war 2, but thats irrelevant. There was a completely different monetary system then. And I already DID explain to you why it cant last. Its very simple mathematics Mike, and I really dont think anyone needs to explain to you why no exponential curve can go on forever, and I explained to you why we have that exponential curve. If the economy/debt/money doesnt grow by about 3% per year there will be massive defaults because no money exists to pay off all those loans.

Credit is fine if the risk is properly assessed. It wasn't and that's what caused these massive failures. Eliminating lending altogether would also prevent these types of failures, why not do that ?

Risk cannot be properly assessed in the current system, because of the absolutely requirement for growth in debt/money over time. Credit is relaxed because the government/banks are so desperate to put enough money into the system to prevent a crash. Thats why youre getting a dozen pre-approved credit cards in the mail, and unsolicited calls from bankers begging you to take advantage or rock bottom rates.

They lend out virtual money - not money given to them by the government.

Same thing. The government has given them the right to create money.

Depositors are not investors.

Thats exactly what they are. They invest their money through banks in order to recieve a return on that investment.

Eliminating lending altogether would also prevent these types of failures, why not do that ?

Lending is not the problem and its important function in the economy as is investment banking. The problem is that the current system puts so much money into the economy so fast, that it creates massive bubbles in various different asset classes that destroy the economy, costing millions of people their livelyhood, homes, and jobs. The financial crisis happened because rates were pegged at rock bottom as the central banks tried prevent a collapse after the .com bubble burst. We are going to have the exact same problem in the future as a result of the overly easy credit conditions we have today. That overly easy credit drains people of their savings, which guarantees a future recession.

Edited April 23, 2012 by dre

[Bonam]

Youre comparing it to post world war 2, but thats irrelevant. There was a completely different monetary system then. And I already DID explain to you why it cant last. Its very simple mathematics Mike, and I really dont think anyone needs to explain to you why no exponential curve can go on forever, and I explained to you why we have that exponential curve. If the economy/debt/money doesnt grow by about 3% per year there will be massive defaults because no money exists to pay off all those loans.

There is no fundamental limit that would prevent the world economy from growing ~3%/year for the foreseeable future. Sure there are downturns, recessions, etc. But there is no physical limit here that would prevent this type of growth for the foreseeable future (we have tapped only a tiny tiny fraction of the energy and resources available to us). So simply requiring that kind of growth is not necessarily a flaw in a given monetary system. In fact, if as a side effect of requiring rapid growth a system also stimulates that rapid growth to happen, then that is a substantial strength of the system, assuming that one values economic growth (and the associated technological innovation and improvement in quality of life).

[dre]

There is no fundamental limit that would prevent the world economy from growing ~3%/year for the foreseeable future. Sure there are downturns, recessions, etc. But there is no physical limit here that would prevent this type of growth for the foreseeable future (we have tapped only a tiny tiny fraction of the energy and resources available to us). So simply requiring that kind of growth is not necessarily a flaw in a given monetary system. In fact, if as a side effect of requiring rapid growth a system also stimulates that rapid growth to happen, then that is a substantial strength of the system, assuming that one values economic growth (and the associated technological innovation and improvement in quality of life).

There IS fundamental limits, and we are already pushing up against them. 3% sounds like a nice steady line on a graph but its not. At 3% growth the global economy would double in about the next 20 years. The ammount of oil in the ground wont double... the ammount of fresh water wont double... the ammount of soil wont double...

We are already seeing quickly increasing energy prices because of this growth... scarcity of pottable water is rampant throughout the world and billions dont have access to safe water. Our entire system of agriculture will scale out within a few decades. Energy costs are rising at about 9% per year and the cost of food is rising at about 7%.

[Bonam]

There IS fundamental limits, and we are already pushing up against them. 3% sounds like a nice steady line on a graph but its not. At 3% growth the global economy would double in about the next 20 years. The ammount of oil in the ground wont double... the ammount of fresh water wont double... the ammount of soil wont double...

I'm aware of what an exponential is And exponential growth is fueled by technological progress. You are right, if we were to lock the world at present infrastructure types, resource types, and technologies, we couldn't sustain any kind of economic growth for long. In fact, after a few years we would start regressing as resources depleted.

Fortunately, we are not thus inhibited. New technology allows us to access new resources. Just like new technology is what keeps Moore's Law going and lets it keep following its nice exponential curve for decades, so too does new technology allow exponential growth of our economy.

Oil in the ground will be only a peripherally important resource in a few decades, as will fresh water. Water can be (and is) desalinated. Energy storage in forms besides oil is getting progressively denser and will soon be adequate for most applications besides aviation, and for primary energy sources (power plants) there are already plenty of completely viable alternatives. As for soil, economic growth is not one and the same as population growth.

My opinion is we have more than enough resources to smoothly get us into the technological singularity around 2040-2050, after which it isn't worth trying to make any kind of predictions.

Edited April 24, 2012 by Bonam

[dre]

I'm aware of what an exponential is And exponential growth is fueled by technological progress. You are right, if we were to lock the world at present infrastructure types, resource types, and technologies, we couldn't sustain any kind of economic growth for long. In fact, after a few years we would start regressing as resources depleted.

Fortunately, we are not thus inhibited. New technology allows us to access new resources. Just like new technology is what keeps Moore's Law going and lets it keep following its nice exponential curve for decades, so too does new technology allow exponential growth of our economy.

Oil in the ground will be only a peripherally important resource in a few decades, as will fresh water. Water can be (and is) desalinated. Energy storage in forms besides oil is getting progressively denser and will soon be adequate for most applications besides aviation, and for primary energy sources (power plants) there are already plenty of completely viable alternatives. As for soil, economic growth is not one and the same as population growth.

My opinion is we have more than enough resources to smoothly get us into the technological singularity around 2040-2050, after which it isn't worth trying to make any kind of predictions.

Like I said we are running into these boundaries NOW, and there is technologies to solve some of these problems, but they are many decades from solving these problems on a global scale. Its one thing to say we wont need oil in a few decades but the price has already doubled in the last 10. Its fine to say we can desalinate but you have to be energy rich to do that as well. And that 3% gets bigger and bigger every year.

Even after a couple hundred years of unprecidented technological progress humans still basically live off the land and natural resources, and thats not going to change any time soon. As for your technological singularity in 40 years good luck with that... we use the same primary energy source as we did 100 years ago. Most of the world grows their food the way we did 100 years ago. It will be 40 years even before TODAYS technology is available to most of the world.

Growth is most definately finite. The worlds population will peak about 10 billion then recede and growth in the developed world is going to slow way down... It already is. And monetary policy should NOT have the goal of economic growth because its simply not possible to generate real economic growth with a printing press.

But you do raise an interesting point about technology as it relates to our banking system... It raises the question, why do we have our current banking system at all? Since banks dont actually have in their posession what the "loan" out, and they simply act as the government appointed money creator, that leaves them with only two usefull functions...

1. They assess the credit worthiness and reputation of borrowers, to make sure the newly created money goes to people with a favorable balance of trade.

2. They administrate the collection of loan payments.

Technology has rendered both of these functions absolete. Central banks are supposed to create price stability but a piece of computer software could do that. And computer software could handle the vast majority of loan payment administration as well. But you will pay 300, 000 dollars in interest by the time you have paid off your 30 year 300k mortgage. And the tracking of your reputation and balance of trade is outsourced by banks to private companies like equifax and to the government anyways for dirt cheap.

I'm aware of what an exponential is.

Ok then... run that 3% for a couple of thousand years and tell me what the world looks like. At that point we would consume as much as the entire human race does today in a year... in just a few minutes. Even if the earth was the size of the sun this would not be sustainable on a permanent basis.

Edited April 24, 2012 by dre