Why Can't the Government Create Money? Watch

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ruff ryder
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#41
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#41
(Original post by missfats)
refer to Germany in the 1918 until early 20s

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Could you kindly stop mentioning my name, on my own thread please.

Thank you.:innocent:
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Commercial Paper
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#42
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(Original post by MouseyBrown)
Can somebody please correct me if I'm wrong, but can the BoE not already print money? That's essentially what quantitative easing was, except nothing actually gets printed. This can now be done because we are not in the gold standard anymore.

Banks cannot create money from nothing.
Long-term QE doesn't create money, it's a temporary increase in supply.

When QE is finished, the BoE sells the bonds it bought and then with the money it receives, it takes out of the economy almost indefinitely.

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Hunarench95
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#43
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http://www.investopedia.com/terms/s/seigniorage.asp
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Commercial Paper
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#44
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Also, fractional reserve banking (having banks create money) is the most efficient allocation of capital which is based under a small percentage of underlying deposits and reserve ratio which then lends (extends credit) where there is demand. Hence, the current system is market-based and allows the economy to grow faster than under any alternative system, that's why we use it.

I keep hearing this argument that we shouldn't pay interest on this debt, but the interest doesn't disappear when you pay it back on the debt, it continues circulating around the economy. Also, banks have to be compensated for that risk of lending - because the credit supply is above the underlying money supply.

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Quady
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#45
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(Original post by SiminaM)
The amount of issued money must be controlled. Otherwise it would be so easy for governments to 'create' empty money and solve all problems. It would be a hysteria. Maybe it's not perfect but it is as good as it gets right now.
Is that a general statement or a comment on the gold standard? If the later then I'm confused, inherently if you're on the gold standard you can't ''create' empty money'.
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Polymath0
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#46
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#46
(Original post by saayagain)
The value of your money decreases. Without wage increases and interest on savings, your money doesn't keep up with inflation which is caused by excessive money creation. If you took all your money out of the bank and kept it in a box for one year, your money would have devalued.
This doesn't tell me anything, with all due respect. It's just confusion compounded by confusion.
Excessive creation of money is already being caused by private banks, inflating asset prices such as in the housing market, resulting in ordinary people, the upcoming generation, being priced out of the market.
Has this devalued the currency? No. Is it good for the economy? No. Is debt-based money freeing people from taxation, high prices and high levels of private debt? No.
Why would the currency debase if money is created at the same rate as private loans are being repaid and spent into the real economy?

It is productive work which gives value and meaning to money. Money is simply a creature of law.
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German123
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#47
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[QUOTE=Polymath0;53074561]I want to emphasise first and foremost that I don't belong to any particular sociopolitical ideology. I am a free thinker. I believe that there is an element of truth in every persuasion of thought, and that information ought to be gleaned in order to arrive at any given truth. It is all about reading between the blurred lines so as to connect the dots.

On that basis, I kindly request that you resist the temptation to respond with an ideologically charged opinion. You are entitled to your opinions, but you are certainly not entitled to your own facts. I want the discussion to flow with the facts and lead wherever it may.
This is just to lay the ground rules, which are hopefully reasonable enough for adherence.

As to the main discussion...

The Bank of England released a quarterly bulletin last year, in March, entitled "money creation in the modern economy." It states, clearly, that the private commercial banks have a monopoly over the creation of money. It is the process of lending which creates a new deposit of money, and the bank does not borrow from savers in order to lend to customers.

I want to know the reason why the money supply can't be nationalised so that the government can be the sole issuer of money, provided checks and balances are in place. I will discuss the checks and balances that can be applied at a later stage. Note that I am not advocating the nationalisation of the private banking cartel. That is not the problem. Commercial banks can be stripped of the power to create money and simply serve as an intermediary between savers and borrowers, which is already perceived to be its usual business.

The problem is that all money in the economy is debt-based. If we want more money, it necessarily has to come with a corresponding debt. If we want less debt, we necessarily have to suffer with less money. Such is the bipolar nature of the current system. I am advocating a way to separate debt and money from each other.

I have a proposal in mind, but I will reveal it in a piecemeal fashion so that every point can be fully digested. If there is uncertainty in some area or a need for clarification, do enquire.

In principle, what is the problem with the state creating and issuing money free of debt in order to finance public services and infrastructure projects? Why is it perceived as a natural state of affairs that the government has given a private banking cartel the privilege to create money and must borrow from the same banking cartel (through the issuance of gilts), when it can easily create money on its own without needing to go into debt?

If a government can issue a bond, why can't it issue a bill?
The obvious benefit is that most forms of taxation (income tax, council tax, etc.) can be abolished and there would be lower levels of private debt as a result of a greater amount of debt-free money circulating the economy.

I want to receive factual objections. Thanks.[/QUOTE}]
I have always thought about this question (Have not read allof this btw) but the simple answer is inflation. There is more stuff other thanthat but I think inflation is one of the reasons.
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SiminaM
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#48
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(Original post by Quady)
Is that a general statement or a comment on the gold standard? If the later then I'm confused, inherently if you're on the gold standard you can't ''create' empty money'.
General. As I said, the amount of issued money must be controlled.
Right now this is done according to the gold standard.
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Polymath0
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#49
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#49
(Original post by will2348)
This has been tried before and it was a disaster hence why it was abolished. Targeting money supply growth rates do not work that's why the BoE now targets inflation.
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When was it tried in the UK? I'm not advocating monetarism.
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Quady
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#50
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(Original post by SiminaM)
General. As I said, the amount of issued money must be controlled.
Right now this is done according to the gold standard.
So as I asked before - are there no downsides of the Gold Standard? Why'd we move off it?
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The_Mighty_Bush
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#51
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(Original post by Quady)
No downsides with the Gold Standard? Why'd we ever move off it I wonder...
There are downsides to the Gold Standard but there are also downsides to Fiat.

We moved off it to finance WW1.
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Quady
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#52
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(Original post by Polymath0)
inflating asset prices such as in the housing market, resulting in ordinary people, the upcoming generation, being priced out of the market.
Who is going to buy the houses if the 'upcoming generation' can't?

Or will people not be able to sell their homes - say when they die or want to move?
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The_Mighty_Bush
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#53
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(Original post by Quady)
Is that a general statement or a comment on the gold standard? If the later then I'm confused, inherently if you're on the gold standard you can't ''create' empty money'.
Its harder on a Gold Standard but not inherently impossible. The government can simply redefine the link as FDR did.
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Quady
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#54
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(Original post by The_Mighty_Bush)
There are downsides to the Gold Standard but there are also downsides to Fiat.

We moved off it to finance WW1.
But people advocating the Gold Standard on this thread are going to keep quiet about what the downsides are?

WWI was a decade previous...
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Commercial Paper
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#55
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(Original post by Polymath0)
When was it tried in the UK? I'm not advocating monetarism.
I can't actually remember but literally was going over this fancy diagram the other day about inflation targeting and growth rates and the performance was much better.

The reasoning behind dropping targeting money supply growth rates was because financial innovation such as securitisation etc. distorts the relationship between money supply growth rates and other variables such as growth and inflation. It was decided the relationship was too volatile and no longer linked so it had to be scrapped.

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#56
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(Original post by Polymath0)
This doesn't tell me anything, with all due respect. It's just confusion compounded by confusion.
Excessive creation of money is already being caused by private banks, inflating asset prices such as in the housing market, resulting in ordinary people, the upcoming generation, being priced out of the market.
Has this devalued the currency? No. Is it good for the economy? No. Is debt-based money freeing people from taxation, high prices and high levels of private debt? No.
Why would the currency debase if money is created at the same rate as private loans are being repaid and spent into the real economy?

It is productive work which gives value and meaning to money. Money is simply a creature of law.
To be fair, house prices are increasing because..

Increase in supply of credit > increase in supply of housing

You can get credit/loans for cars but you don't see their prices spiralling out of control. The housing market is a supply-side issue not a money creation issue.

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Polymath0
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#57
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#57
(Original post by will2348)
Also, fractional reserve banking (having banks create money) is the most efficient allocation of capital which is based under a small percentage of underlying deposits and reserve ratio which then lends (extends credit) where there is demand. Hence, the current system is market-based and allows the economy to grow faster than under any alternative system, that's why we use it.
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If the fractional reserve system was truly "market based" it wouldn't require government intervention to socialise its losses, nor would it require state compensation for bank deposits.
In a real market based banking system, money would be taken from savers and lent to borrowers. That is not happening under the current system.
You also haven't addressed the fact that all money in the economy is issued with a corresponding debt.
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Polymath0
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#58
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#58
(Original post by Quady)
So as I asked before - are there no downsides of the Gold Standard? Why'd we move off it?
I kindly ask you to take the Gold Standard discussion some place else. It is not pertinent in this thread. We are critiquing the current system in place at the moment.
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Quady
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#59
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(Original post by Polymath0)
You also haven't addressed the fact that all money in the economy is issued with a corresponding debt.
Really?

My pound coin in my pocket, where is the corresponding debt?
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Commercial Paper
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#60
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(Original post by Polymath0)
If the fractional reserve system was truly "market based" it wouldn't require government intervention to socialise its losses, nor would it require state compensation for bank deposits.
In a real market based banking system, money would be taken from savers and lent to borrowers. That is not happening under the current system.
You also haven't addressed the fact that all money in the economy issued with a corresponding debt.
But you do realise it would be very difficult for anyone ever to get a mortgage/loan if we went back to that system? And it would slow growth and progress down immensely probably causing a severe recession. And savers money is use to finance loans, but because of the reserve ratio, it causes a money multiplier effect. Which hence leads to faster growth thanks to freely available credit which is critical in any developed economy.

What do you want me to address about the debt? I don't see the problem with it? You pay interest for the risk and time value of the money - the money is not literally issued out of thin air, it's based on underlying deposits, just at a certain reserve ratio.

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