The Fractional Reserve system... how well do you REALLY know it?

[LJ_Reloaded]

Sure, you can cite its history and probably explain in a rational manner how it works.

But do you REALLY know how it works?

I've been going on for years about how economics is in fact a zero-sum game, and an economist friend of mine finally helped me put it in the clearest possible words.

The Fractional Reserve system, with its game of "borrow X and get back X+y%", is an outright Ponzi scheme. How so? In a Ponzi scheme, past investments have to be paid off with future investments. In the Fractional Reserve system, past debts have to be paid by future loans, paid back with interest.

It is this endless cycle of compounding interest and growth-on-paper that is inevitably unsustainable. This artificial wealth has to be backed by either gold or natural resources, or something tangible - and unless we're sorcerers, said currency backing is inherently limited in nature. It isn't infinite. It just appears to be infinite because we keep finding new resovoirs of various resources or more efficient ways of getting stuff out of the Earth.

But inevitably that trick ain't gonna work. Because resources are finite.

Economics is a zero-sum game made to look like a plus-sum game because of the Ponzi Scheme that is the Fractional Reserve system.

And like all Ponzi Schemes, this one must eventually collapse. Endless cycles of compounding interest is impossible to sustain - totally impossible. When will it collapse? Who knows? I'm sure, though, that the prevailing idea here is not to worry about it, and to let one's children or grandchildren deal with it instead.

Even those who go on about reducing the National Debt are not addressing the dangers of the entire Fractional Reserve system collapsing under the weight of its own financial inequities. Considering the number of UNEMPLOYED Tea Partiers out there, they certainly are not in any way prepared for the 2012-level financial crust displacement that's going to hit them when WORLD debt itself spirals out of control and "austerity programs" are forced by means of resource shortages.

And I can tell you what the first badass resource shortage will be: drinkable water...

 

[sr71plt]

I'm dying to see how you roll this into an erotic story for Lit.

 

[Stella_Omega]

What SR71plt said.

 

[stephen55]

I've been going on for years about how economics is in fact a zero-sum game, and an economist friend of mine finally helped me put it in the clearest possible words.

No, she/he didn't.

 

[bronzeage]

I've been going on for years about how economics is in fact a zero-sum game, and an economist friend of mine finally helped me put it in the clearest possible words.

No, she/he didn't.

It's amazing how much effort some people put into exposing their ignorance.

 

[Bobby_3111]

They dont really have a choice do they? The US only has like 30 billion in gold reserves i think?

But I know very very little about the monetary system so if i'm wrong then oh well.

 

[rgraham666]

Money is an illusion. One we all agree on to make barter easier. Central banks came into existence to bring something resembling balance to this illusion.

If you think we have problems with money now, take a look at how things were before central banks came into being.

And for those who think 'returning to the gold standard' would help because gold has 'solid value', well, you're kidding yourselves. If gold had a 'solid value' there couldn't be a market for it.

 

[LJ_Reloaded]

I've been going on for years about how economics is in fact a zero-sum game, and an economist friend of mine finally helped me put it in the clearest possible words.

No, she/he didn't.

Just because you're too dumb to understand economics doesn't mean there aren't others out there who do.

Just about any economist will tell you what I said is true.

 

[LJ_Reloaded]

Money is an illusion. One we all agree on to make barter easier. Central banks came into existence to bring something resembling balance to this illusion.

If you think we have problems with money now, take a look at how things were before central banks came into being.

And for those who think 'returning to the gold standard' would help because gold has 'solid value', well, you're kidding yourselves. If gold had a 'solid value' there couldn't be a market for it.

The problem is if we keep consuming natural resources in this endless pursuit of "bigger, better, moar!!!", we're going to go right back to the world that existed before the central banks existed.

The sad part is we human beings are unable to innovate and evolve beyond the need for the fractional reserve system. The fact is, and no one can refute this... we must evolve past it, or we will become a very tragic victim of it. There's no way around that.

The only debate that is legitimate in this issue is... do we want to start work on that evolution now, or do we want to push it off to our children?

 

[3113]

The sad part is we human beings are unable to innovate and evolve beyond the need for the fractional reserve system. The fact is, and no one can refute this... we must evolve past it, or we will become a very tragic victim of it. There's no way around that.

Okay. I'm in agreement. There are finite resources and the reserve system is bogus. So? What's you're plan? You argue that we need to evolve beyond it, but evolve into what?

 

[LJ_Reloaded]

Okay. I'm in agreement. There are finite resources and the reserve system is bogus. So? What's you're plan? You argue that we need to evolve beyond it, but evolve into what?

Ah, finally. Someone is waking up to this side of things!

As a woman you should understand this better than most men... and I find it odd that you miss the obvious next step.

The next step is to encourage more cooperation instead of competition. More sharing instead of greed.

Oh, and to also look to outer space as a means of creating a vehicle for endless compound interest in that it would take TRILLIONS of years for humans to exhaust all those resources out there. We could literally live in a total glut of basic or even luxury necessities into practical perpetuity by going "out there".

However as you said before, humanity is too obsessed by the initial cost of going into space. The problem is... we will pay greater costs by not making that move.

All we need is the ENERGY to go into space... and the sun pounds the Earth with more energy per day than a BAZILLION space shuttles use in fuel to get into orbit. If we can harness that enerrgy from the sun, most problems with space resource extraction are pretty much trivialized. Mostly.

 

[Smarmy_and_Sappe]

Just because you're too dumb to understand economics doesn't mean there aren't others out there who do.

Just about any economist will tell you what I said is true.

Or as in my case, I just don't give a flying fuck.

 

[Bobby_3111]

Ah, finally. Someone is waking up to this side of things!

As a woman you should understand this better than most men... and I find it odd that you miss the obvious next step.

The next step is to encourage more cooperation instead of competition. More sharing instead of greed.

Oh, and to also look to outer space as a means of creating a vehicle for endless compound interest in that it would take TRILLIONS of years for humans to exhaust all those resources out there. We could literally live in a total glut of basic or even luxury necessities into practical perpetuity by going "out there".

However as you said before, humanity is too obsessed by the initial cost of going into space. The problem is... we will pay greater costs by not making that move.

All we need is the ENERGY to go into space... and the sun pounds the Earth with more energy per day than a BAZILLION space shuttles use in fuel to get into orbit. If we can harness that enerrgy from the sun, most problems with space resource extraction are pretty much trivialized. Mostly.

This is starting to sound like that zietgeist thing i saw on youtube...

 

[sr71plt]

Hey, wait. I think I can make this into a story afterall. A luscious woman is trying to make love to some dumb fuck who doesn't notice because he's arrived in a bordello when he thought he was standing on an orange crate in the public park.

 

[stephen55]

Don't confuse paper with commodity and it gets a lot clearer....

Just because you're too dumb to understand economics doesn't mean there aren't others out there who do.

Just about any economist will tell you what I said is true.

What I was getting at was the idea that your explanation, after the phrase "the clearest possible words" isn't clear. It's not even correct.

Fractional-Reserve Banking simply means that banks take in deposits, keep a fraction on reserve and lend out the rest. Full-Reserve banking, today almost non-existent simply meant that the bank kept all of it's deposits on reserve.

Fractional-Reserve Banking thus increases the money supply above what Full-Reserve Banking would achieve.

Paper money, as opposed to gold, silver etc. is simply an easy way of facilitating barter. Paying by cash, credit card, debit card or check is simply handier (and cheaper) than paying for your hair cut with gold.

Paper money is not a commodity. It can be bought and sold, but is only a polite fiction for a real commodity, such as gold, silver or something else tangible like pork bellies, coal or crude oil. A commodity is a resource.

Economics is all about the management of resources (commodities) in general and scarce resources (commodities) in particular. When economists confuse paper with commodity (J'accuse, Alan Greenspan!!) things go wrong. (Think sub-prime mortgages.)

That the paper money system is vulnerable to abuse is clear. That's a problem for (and caused by) people like Alan Greenspan. But don't blame it on Fractional-Reserve Banking.

As my Banker father was fond of saying, a bank is a lousy place to save money but it is a great place to buy money. Just don't think you're buying gold.

 

[LaRocha]

Resources aren't finite. Wtf is a mortgage backed security, a credit swap? Financial instruments, information technology, a new way to suck dick are new resources. Gold is a joke, fucking zeitgeist movie haha. Molybdenum and copper have value, gold has hocus pocus value. There's no such thing as world debt. World debt against what -- Martian debt? Debt and monetary reserves only matter against the debts, resources, and reserves of other countries. No one's winning so far. Australia certainly isn't going to win, its currency is based on the value of extremely finite resources. Someone's gotta bid, if China's not, too bad for Australia.

 

[LJ_Reloaded]

What I was getting at was the idea that your explanation, after the phrase "the clearest possible words" isn't clear. It's not even correct.

I meant "lend X and get back X+y%", not "borrow X".

Fractional-Reserve Banking simply means that banks take in deposits, keep a fraction on reserve and lend out the rest. Full-Reserve banking, today almost non-existent simply meant that the bank kept all of it's deposits on reserve.

The fractional reserve banking system cannot survive without charging interest on those loans.

Fractional-Reserve Banking thus increases the money supply above what Full-Reserve Banking would achieve.

In other words it creates money out of thin air. If you disagree with this, then explain to us... where does the increase in money supply come from?

 

[LaRocha]

I meant "lend X and get back X+y%", not "borrow X".


The fractional reserve banking system cannot survive without charging interest on those loans.


In other words it creates money out of thin air. If you disagree with this, then explain to us... where does the increase in money supply come from?

The federal reserve charges interest on the monetary supply. XYZ Bank, you want an overnight loan of 20 million? That'll be 20 million and change we'd like back and the clock is ticking... That's one way of creating money out of thin air. Raising taxes or decreasing spending to pay down debt is another. For the first 100 years or so of our country's history there was no federal income tax, how did the government raise funds? By being the most efficient anti-free market entity on the world trade stage, tariff mania.

 

[xssve]

The problem is if we keep consuming natural resources in this endless pursuit of "bigger, better, moar!!!", we're going to go right back to the world that existed before the central banks existed.

The sad part is we human beings are unable to innovate and evolve beyond the need for the fractional reserve system. The fact is, and no one can refute this... we must evolve past it, or we will become a very tragic victim of it. There's no way around that.

The only debate that is legitimate in this issue is... do we want to start work on that evolution now, or do we want to push it off to our children?

Then problem isn't the fractional banking system, it's zero sum depletion economics, including rapid and overdevelopment.

Problem is, all it's good for is running in place - real economic progress and expansion results from value added economics, including conservation.

But it's all about gettin' while the gettin's good - "if I don't do it, somebody else will", etc.

Meanwhile, "hard nosed" conservatives like yourself are a just running cover for more depletion economics, and yeah, it's going to bite you in the ass in the end.

You think they give a shit about your morals or your ideals? Lol. They have their own water, and they're already made it quite clear they're no damned philanthropists.

 

[3113]

How much time have we got?

The next step is to encourage more cooperation instead of competition. More sharing instead of greed.

Well, first, let's not be sexist. Women can and have been as brutally competitive and greedy as men. Remember Imelda Marcos? Margaret Thatcher? Ayn Rand? Sarah Palin? So let's not assume that because of my gender your answer to this problem is obvious to me, or that the "Y" chromosome is blinding other posters to seeing the problem and its solutions.

Moving onto the question about evolution: One of the problems of evolution is that it focuses on what is--if the environment is a swamp, then swamp creatures survive. But evolution doesn't say, "Hm, this swamp is going to become a desert soon, let's evolve these swamp creatures so they can survive there..." Evolution is not prescient, and didn't know that our competitive streak, which is certainly hardwired into us and did us a lot of good in caveman times, would lead us to this problem. Which means that there's no way to erase that caveman hardwiring even if it's doing us damage rather than good. So, rather than trying to "evolve" past competition, it might be better to find a way to channel the greed and competitiveness to benefit. As for cooperation, that, too is hardwired into us. Increase or decrease of it relies on cultural conditioning.

Oh, and to also look to outer space as a means of creating a vehicle for endless compound interest in that it would take TRILLIONS of years for humans to exhaust all those resources out there.

As a sci-fi reader and writer, I can tell you that not a new idea. But it's far easier said then done. It takes huge rockets and amounts of fuel to break free of gravity--which we have to to again and again to get machines to that off world mine. And it takes a fuckin' long time to set up mining operations with complex machines able to survive in the harshest of environments (extreme cold, radiation, etc.) and do the mining long distance (DON'T recommend sending people, that gets even more costly and more complicated!). And then we have to find ways to ship the stuff we mine on back to Earth. Believe me when I say that what you're proposing is a looooooooooooong term project. Not a year or two, but fifty to a hundred. So "Let's go into space!" is not a magic cure. It's a cure that requires a whole lot of resources, a whole lot of scientific advances, and a whole lot of time.

We can agree that we have to start on doing it if our species is going to continue on in the long run--but there's no point in posting this thread seeking to alarm us to our immediate danger if going into space is the only answer. If that's the answer, we're doomed. Because there is no way we're going to be mining outer space any time soon...not and recouping the vast amount of resources we'd need to put into the mining program to get it up and running--and keep it running.

 

[stephen55]

I meant "lend X and get back X+y%", not "borrow X".

The fractional reserve banking system cannot survive without charging interest on those loans.

In other words it creates money out of thin air. If you disagree with this, then explain to us... where does the increase in money supply come from?

I took your typo to be a typo. And yes, banks of any kind cannot exist without charging for their services. Bank employees, the management and the shareholders, not to mention depositors all insist on getting paid.

Yes, money is created out of thin air, sort of...but not in actuality.

When people get together and decide that a pork belly is worth three quatloos or that a thousand board feet of dimensional lumber is worth seventy-eight golden pastoochas...you've still got one pork belly and one thousand board feet of dimensional lumber. Try paying for a hair cut with two and a half pork bellies and you should begin to see the problem of not (completely and artificially) creating paper to represent a commodity.

So yes, (paper) money is an artificial creation. If you happen to have some American gold dollar coins feel free to hand over twenty of them to pay for your next hair cut. Just don't forget to hand over a few more as a tip. This silly example should give you reason to accept paying with paper dollars over gold dollars.

Now comes the interest part. Seeing as banks must make something (create value) to stay in business, just like every other business and seeing as banks deal in money, not pork bellies, it seems reasonable for banks to charge money as the cost of borrowing money.

You, the borrower, accept the buying power of the banks money, backed by an agreed upon value for all various commodities and the amount of all those commodities, (actually the depositors money) and do something with it. If you do it right, you create value. You build a house, start a business...whatever...

The bank doesn't (or shouldn't) want one tenth of your house or your business after you've had the benefit of that buying power for a few years. They can't lend one tenth of your house or business to the next borrower. What they can lend is the value of that commodity, but only in the form of money.

That's where the increase in the money amount (not supply) comes from. By using paper money to create value, you increase the value of the paper money. As the amount of value goes up, the mint prints more paper.

As for the Fractional-Reserve Banking system, it increases the supply of money by handing out a large portion of it's deposits as loans. This makes it much easier to borrow money. If banks couldn't lend out a fraction of their deposits as loans, you would have to go to Uncle Scrooge for a loan, or worse, perhaps your mother in law. This doesn't mean it increases the amount of money, just the portion available for you to borrow. It increases the supply.

The paper is printed at the mint. The real value exists in your home or business and in the real value of everything that backs up the paper. As long as paper is truly backed by value, it all works. If you did nothing with the value behind the money you borrowed and later give back that value plus some of your own value (perhaps in the form of your car) you're out some value. What you're not out is any value that didn't already exist in the value of your car. But the value did exist (in the car). That's why the bank takes your car, not your paper. You can try printing paper yourself but the rest of us get upset.

If the mint prints more paper every year than the years increase in overall value justifies, it doesn't work.

Implying that banks create money out of thin air is wrong.

To imply that the money isn't real or has no value is to imply that gold has no value simply because you can dig it out of the ground.

Today, gold is worth about $1,150 CDN an ounce. So, give me a half an ounce of the stuff and you can have my car.

 

[stephen55]

Economics doesn't have to be zero-sum.....

Just because you're too dumb to understand economics doesn't mean there aren't others out there who do.

Just about any economist will tell you what I said is true.

I just thought of something else.

I've been going on for years about how economics is in fact a zero-sum game, and an economist friend of mine finally helped me put it in the clearest possible words.

The Hungarian-American mathematician John Von Neumann is the guy who came up with Game Theory as applied to economics. (Theory of Games and Economic Behavior 1944) To him, game theory only made sense in terms of zero-sum co-operative games which had only two possible outcomes. (win-win, or lose-lose).

The American mathematician John Forbes Nash, Jr., of Beautiful Mind fame, didn't agree with Von Neumann. He devised non co-operative Game Theory and gave the details of the definitions and properties of what would later be called the "Nash Equilibrium". It clearly defined both zero-sum and non zero-sum economics.

In 1994, he shared the Nobel Prize in Economics with game theorists Reinhard Selten and John Harsanyi.

Ps: I really object to being called dumb.

 

[sr71plt]

Isn't LJ Reloaded just that crazy, rabid LaJoke dude under a new name? Ain't gonna calm that nut case down with rational discussion.

 

[Smarmy_and_Sappe]

Isn't LJ Reloaded just that crazy, rabid LaJoke dude under a new name? Ain't gonna calm that nut case down with rational discussion.

Yup, that's him! The reject from the GB! NNSS - New Name Same Shit

 

[Stella_Omega]

The next step is to encourage more cooperation instead of competition. More sharing instead of greed.

Well, we offer porn for free, so that's a good start.

Oh, and to also look to outer space as a means of creating a vehicle for endless compound interest in that it would take TRILLIONS of years for humans to exhaust all those resources out there ...

...

If we can harness that enerrgy from the sun, most problems with space resource extraction are pretty much trivialized. Mostly.

Are you the guy my sister just dumped for crackpotism?

He said; "If you won't get onto my motorcycle with me, I can't bring you along in my spaceship!"