Apologies to Dan40 - Taxes can pay off the Debt! But it destroys our Equity!!

Base money is money supply. Quit trying to make everyone think you are smart by changing the terms slightly.

The money supply is created by and in response to borrowing money. This happens regardless of whether the borrowing is government or private.

That is fact. You can't dispute it with anything because it's fact.

The money supply can and does increase without governmnet debt. Period.

 

Base money is reserves + currency held by the public. None of which is created by the bank.

The money supply is dependent on Government debt. Period!

Nice try though... get back to the drawing board!

As I've shown you in the example... the Government needs to go in to debt first before anyone of us has the money in which to pay taxes or buy Government debt.

 

Reserves are created by depositors. The Fed can allow banks to create an unlimited amount of money by simply changing the reserve requirement at the stroke of a pen.

 

Base Money = Reserves + currency in the hands of the public.

There is no change to base money when you deposit cash in to a bank. Simply currency is exchanged for reserves.

So still, you are very wrong about how our economic system works.

Banks do not create base money.

 

I can agree with you to a point but i see alpha's point.. banks get loans from the government.. they loan it out exponentially to other banks .. who lend it out exponentially to businesses. Since its a fiat currency and its value is defined by who holds its debt.. not any tangible asset.. (except all the property owned in the U.S) it started off as government debt.. without seed debt from the government, fractional banking at the lower levels cant take place.. furthering scheme along.

Its all funnymoney from its birth to its crash. We have currency based on debt that the world has a major stake in. The only thing propping up its value is the fear of assured mutual destruction.

As soon as a wealthy nation can find its way around being dependant on the dollar holding its value; thus ending this little runaway fiat/fractional reserve ponzi scheme, we will see the Weimar republic 2.0.

 

The statement was made that the only way the money supply can increase is for the goverment to increase debt.

Here is how fractional banking works to increase money supply. What am i missing. The FED can increase money supply with the stroke of a pen. No new government debt required.

When the FED lowers the reserve requirement on deposits, the money supply increases. When the FED raises the reserve requirement on deposits, the money supply decreases.

The reserve requirement is a rule set by the FED that must be satisfied by all depository institutions including commercial banks, savings banks, thrift institutions and credit unions. The rule requires that a fraction of the bank's total transactions deposits (e.g. this would include checking accounts but not certificates of deposit) be held as a reserve either in the form of coin and currency in its vault or as a deposit (reserve) held at the FED. The current reserve requirement in the US (as of March 2004) is 10% for deposits over $45.4 million. (for smaller banks, i.e., with lower total deposits, the reserve requirement is lower).

As discussed above, the reserve requirement affects the ability of the banking system to create additional demand deposits through the money creation process. For example, with a reserve requirement of 10%, Bank A that receives a deposit of $100 will be allowed to lend out $90 of that deposit, holding back $10 as a reserve. The $90 loan will result in the creation of a $90 demand deposit in the name of the borrower and since this is a part of the money supply M1, it rises accordingly. When the borrower spends the $90, a check will be drawn on Bank A's deposits and this $90 will be transferred to another checking account in Bank B. Since Bank B's deposits have now risen by $90, they will be allowed to lend out $81 tomorrow, holding back $9 (10%) as a reserve. This $81 will make its way to another bank, leading to another increase in deposits, allowing another increase in loans, etc, etc. The total amount of demand deposits created thru this process is given by the formula,

DD = $100 + (.9)$100 + (.9)(.9)$100 + (.9)(.9)(.9)$100 + …….

This simplifies to,

DD = $100/(1 - 0.9) = $1000

or

DD = $100/RR

where RR refers to the reserve requirement.

This example shows that if the reserve requirement is 10% the FED could increase the money supply by $1000 by purchasing a $100 T-bill on the open market. However, if the reserve requirement were 5%, a $100 T-bill purchase would lead to a $2000 increase in the money supply.

However, the reserve requirement does not only affect the FED's ability to create new money, it also allows the banking system to create more demand deposits (hence more money) out of the total deposits it currently has. Thus if the FED were to lower the reserve requirement to 5%, the banking system would be able to increase the volume of their loans considerably and it would lead to an substantial increase in the money supply.

 

I didn't say the only way the money supply (Whatever money supply you are talking about) can increase is from Government debt. I said the money supply is dependent on Government debt.

There's a difference, I'll see if you can figure it out!

 

The Federal Reserve does not create money from it's open market purchases. It creates reserves. You are right that this lends banks the ability to lend more money, but you are wrong in your assumption that banks actually do lend this money as we have seen in the past 3 years of Fed OMO's.

 

The problem is that the conditions for economic growth have been destroyed by the government. The economic machine has been destroyed, on purpose.

No amount of government spending is going to fix the root problem.

 

The problem has nothing to do with the Government. The problem is real American's are much poorer (in terms of wealth) now then they were before.

That has nothing to do with the Govt. This is what is killing our economic growth.

 

And what pray tell caused all of that wealth to just evaporate?

 

The government created the environment that lead to all of that wealth being destroyed. Fake weatlth was created in the housing boom by giving loans to people who could not afford them. This was government policy. The bubble created by these dishonest transactions led to the destruction of trillions in wealth. All of that is in the rear view mirror.

Somehow I think you believe that the solution is for the government to create a bunch of "fake" wealth again on paper. It won't work.

There is no way the government can destroy the environment for a robust private sector and step in and create wealth through debt creation. That is exactly what the Obama administration is doing. It is't working and it won't work.

The government must remove the toxic business environment they have created over the last few years and let the private sector do the economic recovery thing they are so good at doing.

 

Lol, people lost wealth because they made their own decisions. You guys are so pathetic for blaming the Government for everything.

And money is not "fake wealth". People are poorer than they thought, they have tons of debt, and no money in which to pay it. This isn't Obama's amazing revelation, this is how we have dealt with recessions for the past 80 years. You just need to stop blaming the Government for all your problems. It's time to man up.

 

The first two years of the Obama administraion were a free for all to destroy the private economy and spend money.

Unpresidented in the history of the US.

Besides, can't the american people start spending some that debt you claim is actually an asset?

 

Lol, that's a complete lie. Got any more lies you'd like to share to us?

 

Iriemon, here is the explanation of taxes being used to pay off debt. I already admitted I was wrong on that point. But I still do not see any line items under Govt expenditures that go to the principal of the public portion of the national debt.