Posted: Sep 26, 2013 2:55 pm
by stevecook172001
babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier
Well, at least someone else appears to understand the money multiplier.

However, in relation to your point about the amount of money that has to be held on account, this can be entirely offset by the amount of money that is pushed into the system.

For example, on a fractional reserve ratio of, say, 20%, £1,000 of base money becomes £3,000 in circulation and the original £1,000 on deposit at the banks (see earlier post for details). If the government imposes a new higher fractional reserve limit this does not stop the multiplier, but is does reduce the factor of multiplication by a given amount. However, if the total amount of base money pumped into the system rises at the same time, this can have the effect of completely mitigating against any reduced multiplication inherent in a higher fractional reserve. In other words, despite the level of debt relative to base money reducing, the absolute level of debt may remain or even rise.

And we haven't even touched, yet, on the implication for the money supply, going forward, that interest on the loans has. Namely, that the interest on the loans means that there is literally not enough money (either base or credit) in existence at any given time to clear all the debts. The only way this is resolved is by the issuance of yet more debt to cover those interest payments. Or, to put it more colloquially, such a process may be properly termed a ponzi-scheme.

If you accept that the majority of money in circulation is actually debt (over 90%), then why should the creation of such money be in the hand of a private state-backed monopoly, Why does the state not simply spend it into the economy directly on capital projects (thus allowing it to circulate and get to work and also avoiding massive interest payment to private monopolies, in turn requiring an ever growing money supply to fill the hole in the future supply implied by that interest) and then tax it back out of existence in the form of tax (in the event of a downturn requiring a contraction of the money supply to avoid inflationary price rises)?

Hell, they could even put it directly into each and every citizens bank account and allow it to be spent into the economy by the citizens. There is absolutely no logic nor is there any moral justification for allowing the lending of money into existence to be in the hands of a private monopoly cartel who can then add interest to the money that they lend into existence such that, despite producing literally nothing, they end up owning everything.