|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
posted November 17, 2009 07:40 PM |
|
|
Quote:
Into the bank reserves.
But that's not increasing the money supply, at least not the one in circulation -- it only increases the availability of a loan, but it has to be paid back (so it's not an increase).
Quote:
Ah, I see what you mean. No, he can't write a check for $1000. He can, however, write a check for $100. Considering that people very rarely exhaust their entire accounts - and that banks have many of them - banks avert such a problem.
Ok now I proved my point:
If he can only write a check for $100, means he can only use $100 from his deposit. The borrower has $900 from the loan.
Total money in circulation: $1000 ($100 + $900).
No money created. 
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 17, 2009 10:52 PM |
|
|
Quote:
it has to be paid back
*sigh*
As it's being paid back, the bank is lending it back out again.
Quote:
Total money in circulation: $1000 ($100 + $900).
Except that's not how it actually works. Really, money in circulation is $1900, because it's bank deposits + money lent out.
____________
Eccentric Opinion
|
|
ohforfsake
Promising
Legendary Hero
Initiate
|
|
posted November 17, 2009 11:12 PM |
|
|
|
For higher likelyness of common understand, maybe it'd be a good idea to define what money in circulation actually require to be such (definition), then coming with a simple example of this, and then finally illustrate that both the lended out money and the deposit are both money in circulation.
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 17, 2009 11:44 PM |
|
|
Quote:
Quote:
it has to be paid back
*sigh*
As it's being paid back, the bank is lending it back out again.
Are you even reading my posts?
If it lends it out again, the original depositor will AGAIN be unable to retrieve his full $1000 in this case.
The TOTAL amount of money that can be used is $1000, not $1900. It doesn't matter that it has been "lent back out again" or the dude withdrew his whole deposit. It's the same amount.
As long as both can't be in circulation at the same time, the inactive one doesn't exist as "money that can purchase things".
Quote:
Except that's not how it actually works. Really, money in circulation is $1900, because it's bank deposits + money lent out.
No it's not. You can't use $1900 at the same time in that example. Because only $1000 is in circulation, that's the amount you can USE -- which is what money is supposed to do, exchange hands and buy things.
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 18, 2009 01:12 AM |
|
|
Quote:
The TOTAL amount of money that can be used is $1000, not $1900.
No, the total amount of money is $1900. Every time the money is lent out, it is used, so it contributes to the economy.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 18, 2009 01:17 AM |
|
|
Quote:
No, the total amount of money is $1900. Every time the money is lent out, it is used, so it contributes to the economy.
/facepalm
But the deposit that is not in the reserves cannot be used at the same time. It's practically non-existent.
Yes he can use the reserves, but reserves+lend = $1000...
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 18, 2009 01:49 AM |
|
|
The bank lends out the reserves, they're used in the economy, they're deposited elsewhere, then used again... Every time they're used, they count.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 18, 2009 01:57 AM |
|
|
You lost me totally. Not sure how simpler I can say it. Look at these two examples:
1) Person A doesn't deposit anything. He goes and spends $900 on an item, and $100 on another item.
2) Person A deposits $1000 to the bank. Person B takes a $900 loan and spends it on a $900 item. Person A withdraws $100 from his deposit (maximum he can, because the bank ran out of reserves), and goes and spends it on a $100 item.
It's the same purchasing power in both cases at that specific time (when the lent money is out there, and not returned!).
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 18, 2009 02:03 AM |
|
|
Person spends $900, the next person deposits it and more money is lent out, which is then spent, etc.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 18, 2009 02:25 AM |
|
Edited by TheDeath at 02:26, 18 Nov 2009.
|
Quote:
Person spends $900, the next person deposits it and more money is lent out, which is then spent, etc.
But it's the same money.
Look, both of them in my example spend it on the same guy -- the one who sells the items. That guy receives $1000 in both scenarios.
Because that's the money in circulation. He'll have all the active money. What happens next doesn't matter because in BOTH cases he has the EXACT same amount.
EDIT: it doesn't matter what's next, because the process repeats itself. 
1+0 is not going to be different than 1 no matter how many times you add 0 
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 18, 2009 02:30 AM |
|
|
Quote:
Quote:
Person spends $900, the next person deposits it and more money is lent out, which is then spent, etc.
But it's the same money.
It's counted several times. That's as well as I can explain it.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 18, 2009 02:33 AM |
|
|
Look I don't really care how it is counted, i only care for the active money that can be used to purchase things. I understand the definition of M1 money, I'm only saying that money has a too high value where most of it is worthless. M1 money is not representative of money that can be used to purchase stuff -- which means it's not representative of the economy.
Again I understand what you're saying but my point was that M1 money is not what I seek to get -- but rather how does the real money get injected. I explained why lending does not create purchasing money, in other words, it doesn't boost the economy.
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 18, 2009 04:20 AM |
|
|
Quote:
how does the real money get injected
M1 is real money, but if you're asking how M0 gets injected, I already answered that question. The Federal Reserve purchases securities (e.g. Treasury Bonds) from banks, thus increasing their reserves.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 19, 2009 05:46 PM |
|
|
I still don't get it. Reserves are part of deposits, in case people want to withdraw the money. So you can say that reserves have a certain percent of each deposit. Increasing the reserves does not increase all the deposits' value (obviously), so where does it go?
Can the government use that money freely? Then what are taxes for?
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 19, 2009 07:47 PM |
|
|
Quote:
Increasing the reserves does not increase all the deposits' value (obviously), so where does it go?
This increase in M0 increases banks' reserves, so now they can lend out more.
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 19, 2009 07:53 PM |
|
|
Yes but reserves can be withdrawn. In this case, who can withdraw them? If no one can withdraw them, then they don't even NEED the increase -- I mean the only point of reserves is that if people withdraw their deposits. (of course only a fraction of people).
In other words, these reserves are part of what account? Like I've been asking all along, WHERE...
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 19, 2009 10:13 PM |
|
|
Think of it like this. Suppose a bank has $1000 deposited in it, and it's lent $900 out, so people can only withdraw $100. Then it sells some bonds to the Fed, and now has a deposit of $200. Now people can withdraw $200. It's not a part of anyone's account in particular, but the bank can use it to pay anyone's withdrawal (of course, they still can't withdraw more than they deposited).
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 19, 2009 10:19 PM |
|
|
Yes but that money isn't in anyone's account, which means that once the lend gets paid back, the deposits have less money than the reserves.
There IS a problem here, not that it will lend back again. Think of it like this (0% interest for simplicity): There is an initial deposit. Bank lends out $900. Sells a $100 bond. Lend is paid back, lends again but this time more, right? I mean it has more reserves, right?
The problem NOW is that it can lend for free, keeping all the deposits. It can lend $100 for FREE, since the deposits equal $1000, but the bank has $1100 in reserves.
Now, increase the loan, right?
Do this a few times, and you'll see that it will increase and increase and increase to the point that lends exceed the deposits. So it can lend money for free keeping 100% reserves.
This is debt-driven because the only money that is increased here is debt, loaned money. Which is temporary (has to be paid back).
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
mvassilev
Responsible
Undefeatable Hero
|
|
posted November 19, 2009 10:30 PM |
|
|
Perhaps you're thinking about this the wrong way. When you go to the bank and deposit money, they write down your claim to your $1000, and then add it to the homogeneous deposit pile. When people wish to withdraw, they're not really withdrawing from their accounts, but from this deposit pile. So when a bank sells a bond, the money it gets is also added to this deposit pile.
Quote:
Now, increase the loan, right?
How can it do that?
____________
Eccentric Opinion
|
|
TheDeath
Responsible
Undefeatable Hero
with serious business
|
|
posted November 19, 2009 10:34 PM |
|
|
Yes but the increase in reserves does not belong to anyone's account, so when the loan is paid back... there's more reserves than deposits. In other words, people can withdraw ALL the money while the bank will STILL have reserves (the increase) it can lend.
In other words, after a certain point (when the money increased sufficiently) it can lend out all the extra reserves while keeping 100% of the deposits. So run on the bank would be impossible.
____________
The above post is subject to SIRIOUSness.
No jokes were harmed during the making of this signature.
|
|
|
|
This thread is pages long: 
