Money is defined as a medium of exchange for goods and services.
Because of this definition, the system requires enough liquidity to ensure that all transactions proceed without friction.
Money is not a vehicle for savings. By definition, it is a mistake to maintain enough cash reserves for everyone to save in currency, as this inevitably triggers inflation—leading first to galloping inflation and ultimately to hyperinflation.
True savings are found in real assets: vacation homes, farmland, canned goods, tea, cigarettes, or other tangible stores of value that hold their worth over the long term and offer practical utility. I realize it is easiest to reduce the concept of saving to the mere accumulation of paper. This is especially true when dealing with bank accounts where one loses track of the actual physical currency involved. However, in practice, paper money is not designed for that purpose. Your theory is flawed because its fundamental premise—that one should save in currency—is incorrect.
Maria Thomas48 said:Now, look, Mr. Patel, formulas are one thing, but reality is quite another. In that scenario, 5% of the money went into savings. But savings isn't just an end goal; it should really be a temporary way to accumulate capital. Once you successfully sell everything you produce—and we aren't talking about producing more than what people actually need—it makes sense that an entrepreneur eventually wants to put those earnings back into an investment. Generally speaking, all the extra money added to the system eventually ends up as someone's profit. That money can then kickstart production and provide jobs for the unemployed. Eventually, after some time passes, we reach a point of ideal employment, high production levels, and consequently, a high demand for non-credit money to realize those monetary profits. At the same time, GDP growth generates great revenue for the Government, and I think you know what happens next. Public sector unions start demanding higher wages. Politicians—whoever they may be—and their economic advisors don't have a clue about the actual situation on the ground. They see the GDP climbing and assume it’ll just keep going like that forever, so they start planning bigger spending. That’s the core of it. Ignorance and a lack of understanding. Instead of saving the surplus tax revenue, they're already setting the table for a feast they haven't even earned yet. Any wage hike leads straight to inflation. We know why. Payroll taxes automatically increase as well (that's just how the law works), and that triggers inflation. Higher tax burdens lead to rising prices. This bloats the GDP value and increases the amount of non-credit money that needs to be issued.
My take is that real GDP growth can go higher until we hit full employment (natural unemployment levels) and satisfy everyone's needs within the community's means. After that, GDP growth might only come from export sectors—where you don't need to generate non-credit money—or from population growth. Another possibility is technological progress improving productivity, which could theoretically raise wages without causing inflation (since you need fewer workers in production). But honestly, expecting that to happen across every single industry at once is a stretch.
The whole mess comes down to the economic ignorance that keeps us stuck in the hole we're currently in. And if we don't start treating economics as a serious science, we're just going to dig ourselves into a new hole (maybe a slightly shallower one).
A fundamental amateur error is mistaking consequences for causes. Inflation is already embedded in the system the moment your non-credit money enters circulation. No wage increase is required to trigger it. You could theoretically freeze wages at baseline levels if you wished. What would follow? Hunger, poverty, and inevitable civil unrest. People would drag you into the streets, douse you in gasoline, and set you ablaze. But at least you would have your precious system.
Higher wages didn't cause inflation; freshly printed money did. This isn't just economic theory; it is basic common sense.
However, when you lack any actual proof, we must simply point out the fact that this "credit-based" system has functioned for nearly 70 years, right? Does anyone have an explanation for why, when all your models predict a total collapse within a few decades, the system persists?
Furthermore, your curve is negatively exponential. It only trends downward. This implies there is no "recovery" from this crisis. If we do not start handing out cash indiscriminately, we are heading toward absolute catastrophe—economic, political, social, and total. A disaster so profound that one might as well stock up on food and hide in a bunker. Is that your prediction?
So, if global economic growth actually resumes in two or three years, does your entire theory finally and permanently collapse?
I strongly suggest reading some foundational literature on inflation. Someone once shared a link regarding the history of inflation. It was excellent material; I regret not having it handy now.
In short, it demonstrated how people have spent centuries—ever since money was invented—trying to find prosperity through printing currency. And how it always ends. The logical conclusion remains: we must strengthen the economy and boost production first. Only then should the economy follow suit. We must increase wages without printing new money. Only then will we see a true rise in the standard of living we all desire.
But naturally, you will continue to insist on your own way.
We shall see if your vision, Maria Thomas48, actually holds any weight. It is quite simple.
In the name of justice and fairness, you would simply print money so that everyone could have everything they require. In doing so, you would strip resources from the workers and savers just to hand them over to debtors and those who refuse to work. And all this, supposedly, in the name of justice.
That system died a long time ago. If true justice exists anywhere in this world, we will never witness such a scheme again.
As for the American mindset, I found your perspective somewhat relatable in the past. Let us just print more cash and allow the fools who actually labor to subsidize the idle through our "brilliant" ideas.
By the way, no matter how you wrap it—even in fancy cellophane—garbage still smells. The collapse of the former Eastern Bloc wasn't driven by nationalism, but by disastrous economic and fiscal policies.
We are discussing mass psychology here, not the psychology of an addict. It is that exact same mass psychology that turned 4 million American debtors into savers the moment news anchors started screaming "crisis!" on every major network. I know what I am talking about because I have watched how forum threads about securing loans slowly morph into discussions on how to save money safely. There is no mathematical formula you can invent to predict such a shift.
And those are precisely the kinds of shifts that would cause your system to collapse—when the masses begin spending their "savings" in an uncontrolled frenzy.
Money is not a tool for hoarding; it is a medium for exchanging goods and services. It should exist only in sufficient quantities to ensure that exchange flows smoothly. If someone is foolish enough to hoard cash, let the system punish them. Let it be punished by the very same system that some people advocate for and others spit upon. 🙂
Psychology is the fundamental driver. Human desires regarding sales, manufacturing, and consumption... these are what truly dictate value.
I would say the exact same thing. In fact, it is more than that; it is the sole factor that remains constantly shifting and unpredictable. No mathematical formula can ever truly "forecast" it.
Nostradamus: I don't require mathematical proofs when you tell me that printing money will inevitably trigger inflation. What am I supposed to write to you? If you issue 5% more currency, does that automatically result in 5% inflation?
Furthermore, you cannot simply hand out cash if there is no underlying production. What happens if people aren't actually producing anything in exchange for that money? It is easy to distribute funds that people won't even value. The crisis arrives the moment those people realize they can't buy anything with it, because there might only be one loaf of bread left for a hundred people.
You must increase production and remove the parasites weighing down the workers. That is the only way out. History is littered with attempts to violate the economy through money printing, and we know exactly how those stories end. Yet, every generation produces some fool who believes he is the one who can harness the benefits of printing while somehow avoiding the consequences. It always ends in disaster.
Credit operates on the principles of supply and demand. I offer credit and an interest rate. If you don't like the terms, don't take it. The fact that you might struggle to repay it is not my concern; I will collect what is owed one way or another. Ultimately, the burden is on the debtor to decide if they can actually afford the loan. This process creates a class of debtors. I agree with you completely, but that isn't my problem. The capable should lead the less capable; that is how any democratic system ought to function.
From what I gather, you have an issue with the interest rate the Federal Reserve charges on the money we use. There is no need for that. It is a very small rate, easily covered with minimal effort. Considering the work that institution performs—regulation, oversight, systemic analysis—the rate might actually be too low. Most of that interest paid to the Federal Reserve eventually flows back into the system through inflation and wages anyway. Or, if there hasn't been economic growth, it doesn't. But that is beside the point.
By printing money and handing it directly to the population, you are taking from those who have and giving to those who do not. You might create a "fairer" world, but you also create a generation of idlers and kill economic growth.
Is this a sufficiently clear mathematical explanation as to why you cannot simply print money and hand it to people?
And you really should specify exactly who you are referring to in your posts. Are you talking about the European Union, America, or somewhere else? Because things do not function the same way everywhere.
Matthew Patel12, you have completely lost it. No offense intended.
Did I not already explain the origins of that GDP surge to you? And yet, you continue to insist on repeating the same tired arguments. Only two people seem to be advocating for this theory regarding "non-credit" money. And for some reason, no one else appears capable of grasping it.
Both individuals share one glaring commonality: they refuse to listen to anyone. They persist in repeating the exact same points, even after those arguments have been thoroughly debunked multiple times. Why do they insist on this?
Here is an interesting system for you to consider:
External debt: 100% of GDP. The average annual interest rate on debt currently sits at 7%. Is this figure sustainable? The average GDP growth stands at 2%. Is this sufficient?
This is a situation that should concern you. It is a debt that can never truly be repaid. Everything else seems to be functioning perfectly.
Ultimately, this entire discussion is irrelevant. I asked you to adjust your spreadsheet to reflect a model where inflation sits at 2.5%, the Federal Reserve interest rate is 2%, and economic growth hits 5%. Annual economic growth should cover the interest rates while still leaving room for savings. Set the interest rate at 2.5% and inflation at 2%. It makes no difference. In reality, inflation is a non-factor in this equation. The only thing that truly matters is whether there is enough economic growth to offset the interest. Given the circulation of money, those interest payments will be covered regardless.
Is this San Francisco or not? Let’s move past that. The only thing that matters is whether we have a sustainable system that allows for saving.
Maria Thomas48 said:The Federal Reserve sets that rate for the government and the banks. Then the banks turn around and make their own profit on interest. Plus, the principal has to be paid back. It is pretty obvious this isn't some kind of non-credit money injection. Only the stuff that gets written off could be considered non-credit. But written off to whom? If it is a write-off to a bank, then it is just an even bigger scam.
The central bank doesn't lose because it issues all the money, part of which creates inflation and part of which goes toward monetary profit. Interest is applied to everything (which commercial banks skim off the top). This is just a hole in macroeconomic knowledge that is confusing you.
A bank can't go under when it can source money almost for free and then lend it out at interest. Only the central bank can be forced into bankruptcy by demanding payment for issued money (which it basically created out of nothing—just paper and ink). And that happens when credit expansion stops and everyone has to pay back the full principal plus interest using whatever other money is left. You can already see that this is becoming a reality.
That is why Americans cannot pay back the debt to the Federal Reserve, and why the Fed keeps cutting rates; they have an infinite supply of dollars out there, so even at 250 basis points, they are making an absolutely massive profit.
Just think about it. If I understood correctly, all the banks are co-owners of the Federal Reserve here in America. They issue money to themselves at 0.25% interest and then lend it out at much higher rates. Whatever the Fed earns at the end, they split based on their shares. Since the money supply grows by about 14-17% every year, it is clearly endless profit at the expense of foolish Americans and the rest of the world.
I already explained that when the government takes a loan like that, the community only ends up with a monetary loss, while the government pays for goods and services with the interest. It is a scam and a fraud that couldn't get any bigger.
Even the assassination of John F. Kennedy showed what happens when bankers are stripped of what they believe belongs to them—the right to issue money. It matters so much to them that they resort to any measure to keep it. Reading through these proofs, it seems almost silly that we had a nearly identical law regarding the Federal Reserve, where they issue money to banks so those banks can profit from credit issuance to citizens (and the state), only for the final result to be an economic collapse (not going into the details of how that process unfolds). Meanwhile, the Federal Reserve's profit is negligible because it shouldn't issue too much money or it would destroy the exchange rate (just like the Fed does). It is pure economic masochism enacted by elected representatives. We have exactly what we deserve. And if we ever wake up, maybe then we will change it.
I opened this thread specifically to spread the easily proven truth that the system is heading toward ruin due to flawed money regulation, not just because of bad investments, waste, corruption, bad tax policy, bloated bureaucracy, too many retirees, etc. Even if we removed every single retiree today, we wouldn't succeed because there is no way to actually earn anything at a community level as long as commerce is conducted using money derived from credit.
Nothing confuses me. If the Federal Reserve issues $x, and expects to receive $x + 0.25% back in a year...
And annual inflation is 5%, for example.
Money represents labor.
The Federal Reserve has lost 5% of that labor.
You have completely ignored the time component. It is entirely illogical to claim that this money costs the Federal Reserve nothing more than paper and ink. How much it costs the Federal Reserve is irrelevant. What matters is the value people assign to it. If I give you something, and a year later I demand 5% less in return, I have incurred a loss. It does not matter how much of that asset I still possess.
Maria Thomas48 said:I think that's just wishful thinking. A bank isn't going to hand you a 2% interest rate when inflation is sitting at 2.5%.
Best,
In the USA: the Federal Reserve interest rate is 0.25%, while bond yields are hovering around 3.5% annually. Inflation is undoubtedly higher than that.
I do not have the exact inflation figures on hand because they tend to massage the data. However, it is certainly higher.
What we see in the heart of the matter is exactly your concept regarding non-credit money. This is money being handed out to the masses. It is a scenario where inflation exceeds the interest rate, ensuring the lender—the bank—suffers a loss.
Come on, Maria Thomas48, take that Excel sheet you’ve been working on and plug in an inflation rate of 2.5%, a bank interest rate of 2%, and economic growth at 5%.
Let's see if we can actually pay off the debt and still have some savings left over.
Matthew Patel12 said:Mr. Mark Rothko, why bother calculating inflation when it effectively sits at zero? I know this because prices simply don't move. Perhaps there were minor errors in the early days, meaning one might see fluctuations of maybe 1-2% up or down, but if anyone actually noticed such thing, they would.
How can you expect prices for every single product to remain static? Food production technology has barely evolved over the last twenty years, yet electronics manufacturing changes daily, making those goods constantly cheaper.
As you can see, it is impossible to control all prices through money supply alone. Consequently, your theory falls apart.
Fine, since you are all being so persistent, tell me this: how would you actually calculate inflation? We all know that measuring inflation is practically a science unto itself, which leaves far too much room for manipulation. What universal method would you use to determine the true rate of inflation? And more importantly, should there even be more money injected into the system?
And by the way, the framework you just described is exactly how our current system operates. You simply choose to ignore the stipends and subsidies handed out like gifts—money that enters the system without any interest attached. Not everyone receives the same amount, but it flows into the economy regardless.
The entity that issues our currency and charges interest on it also provides that very same money to the government at no cost. The state then wields that capital however it sees fit—contracting projects, funding pensions, or supporting students.
One could view this mechanism as a form of taxation. The more complex a system becomes, the more opportunities arise for corruption. A small-scale operation run by a few dozen people naturally leaves less room for malpractice, which makes it inherently more efficient.
The total amount of money isn't the issue; what matters is how that money is utilized.
I certainly agree that problems arise when interest rates are excessive, or when the volume of money supplied to the government far outpaces the interest charged. However, there is a much higher probability that equilibrium will be maintained here than in a system where someone issues "fiat money" based solely on what they believe the system requires, 🙂 such as, say, 4%.😁
I would simply add that the exchange of goods between nations—where no single country produces everything its citizens desire—is a vital component of this entire dynamic. If I possess an abundance of raw materials for brooms and manufacture those brooms, while you possess the resources for iPods and manufacture those iPods, the sheer volume of units produced is what matters. Eventually, one could trade 1,000 iPods for 1,000 brooms, even if that seems inconceivable to you right now due to the disparity in their perceived value.
Is it the money used in trade that creates the problem?
Suppose we trade 1,000 iPods for 1,000 brooms using money as the medium. The 1,000 iPods hold the same value as the 1,000 brooms. However, for the money we utilized, we must pay interest to the entity that issued it to us.
From where does that interest come?
Once we pay that interest, we are left with enough money for only 990 brooms in the next round. In every subsequent round of trade, we find ourselves with less money.
Is that the point you are trying to make, Maria Thomas48?
Take yourself, for example. You claim to have saved money. How exactly does that happen? It is simple. You identify a source of capital and exchange a portion of your labor for it. In your wallet, you see a tangible accumulation of savings from your wages. However, the rest of the system currently perceives this as a cash outflow. I am not referring to the value of the service you provided, but strictly the movement of currency. If a million workers attempt to act in this exact same manner, the system experiences a million simultaneous cash outflows. If those workers accumulate their earnings over the years, the system accumulates a massive deficit in circulating liquidity. Economists describe this phenomenon as a slowdown in the velocity of money. This outcome is both natural and predictable. Who wouldn't want to possess savings after decades of hard work? Yet, your demand to prevent the introduction of non-credit money directly contradicts your own goal: the desire to increase your savings and physically materialize your past labor through currency.
That is precisely why hoarding cash is the worst kind of saving. And keeping that money "under the mattress"? That is even worse. It is a practice that actively harms the economy. Banks reinvest that capital when it sits in savings accounts. That reinvested money stays in circulation. It cycles through the economy multiple times. I lend it to you, you spend it. Then someone else spends it with you. Is that not how the engine turns?
The current financial architecture, defined by interest rates and inflation, essentially forces people to keep their capital in constant motion. It effectively penalizes those who attempt to save in any asset that is being bled dry by the system. Think back to the era of the gold standard. When you saved gold, you were essentially pulling it out of circulation. Theoretically, that could lead to a liquidity crisis or a shortage of money. Today, however, through various systemic manipulations, we have engineered a landscape where such a thing is simply no longer profitable. Why would anyone choose to withdraw?
One must finally realize that money itself isn't the true measure of value. Rather, it is the labor required to earn that money that matters. The system doesn't suffer from a lack of additional working hours; it suffers because there isn't enough labor to justify the capital needed to pay for it. There is more than enough liquidity in existence.
The "money shortages" we observe within certain entities do not exist because the system lacks funds. Instead, the system lacks the actual labor that would generate the revenue necessary to settle outstanding debts.
If you find yourself lacking "paper" currency, why not negotiate a deal to repay your debt through hours of service, materials, or other tangible goods? There is no need to print more paper.
I am not defending the system itself. I am defending my savings—the dollars and cents I have worked for—which people like you would simply wipe out by printing "unbacked" money. You can call it whatever you want, even garbage, but the moment you print more, my hard-earned wealth loses its value. It is that simple. What was the point of me working and saving all these years? Was it just so people like you could print more paper, hand it out to everyone, and watch my life savings evaporate? To hell with an economy like that.
There is no deep philosophy here. I am a saver and an investor. My goal is to protect what I have built. You are a debtor. Your goal is to shrink what you owe.
You advocate for uncontrolled money printing to erase your debts and artificially inflate your lifestyle. I advocate for halting the issuance of new currency so that my savings and investments gain value, allowing me to increase my standard of living.
These are two opposing mindsets that will never align because our fundamental goals are diametrically opposed.
The government should not have control over the minting of currency. The state is a consumer, and by its very nature, it is prone to corruption. Any entity that acts as both a consumer and a corrupt actor will spend money without restraint. Money must be issued by an independent institution that then provides its earnings to the government.
My sole objective is to preserve, protect, and grow my wealth. Every time Rohatinski Suker says "no," I sleep a little better at night.
The theory you are promoting might work in a closed system with a single issuer and a single spender. But in a system where the issuer is also a massive spender, a debtor, and a creditor all at once, that logic fails. History has repeatedly proven that such a system is fundamentally broken.
Fine. So we are talking about agricultural subsidies, veteran pensions, student grants, and all that other capital pumped into the system every year just to keep the public looking the other way. What is the actual difference?