The Financial System and Money Supply

crimsonfalcon10 said:Why fight inflation so hard? Isn't inflation the only thing balancing the ratio between savings and debt? That makes it useful! It devalues savings, yes, but it also shrinks the weight of debt. Besides, even Ben is pumping non-credit money into the economy right now. Overnight loan rates are sitting between 0-0.25%, which is basically a handout. On top of that, he's buying up junk bonds that are currently worthless in exchange for dollars... to me, that acts like non-credit money... and despite what people say, that money isn't even truly circulating in the economy...

You talk about the struggle for credit money as if it wouldn't exist without non-credit money... but without that pressure, we wouldn't see any progress at all! Inflation and interest rates constantly push me to increase my income. That is exactly why I invest in my own knowledge. I don't waste my time thinking about how to cut costs; I focus exclusively on how to boost revenue. This is why I maintain that inflation is actually a good thing—it drives people to work harder and improve themselves. Without inflation, the imbalance between savings and debt would become unmanageable, and that instability would eventually break the whole system.

Regarding the velocity of money... perhaps in the long term (over a 10-year period), the velocity is declining, but in the short term, it moves in a sort of sine wave. There will always be moments where circulation speeds up or slows down.

Maria Thomas48 said:crimsonfalcon10, you're forgetting that inflation expands the money supply. Since you only have access to loans, that means your actual principal engagement just keeps climbing. I showed this using an Excel sheet—debt (assuming purchasing power stays constant) eventually grows by the sum of inflation plus interest. In practice, that means you can't actually pay back the principal because the debt is growing faster than inflation can catch up. It’s basically debt slavery. Is this economic masochism or just a lack of common sense?

Best,

crimsonfalcon10 said:🙂 Inflation doesn't increase the money supply... inflation is actually the result of an expanded money supply or faster money circulation...

Maria Thomas48 said:Alright. Maybe I didn't word it perfectly, but the end result is identical. Credit expands the money supply. You get inflation. Right now, loans are basically the only way new money gets created. A portion of that credit stays in circulation and grows the principal, and debt tends to grow over time at a rate somewhere between the inflation rate and the average bank interest rate. If you're looking at 4% inflation and 7% interest, after maybe twenty-some years, that debt actually outpaces the original money supply and there's no getting it back. That’s actually a good thing for some people. If you're a banker, it's the best scenario imaginable. You end up with a lifelong client you can exploit however you want because they don't see it coming. You dictate the rules, influence changes to the laws, and so on. All while they remain oblivious to the fact that you used Federal Reserve regulations to trap them in debt slavery from day one.

We really need to make sure that doesn't happen to us. People are just so emotionally attached to the very things that ruin them—loans they'll never be able to pay off, inflation that funnels all created value straight into bank debt, governments constantly shifting tax policies year after year in a desperate attempt to hit some jackpot, leading to nothing but poverty and hopelessness, and working until you're 65 (or eventually 95), and so on. There's plenty more I could list about what people seem to love about a purely credit-based system, but this is enough.

Regards

crimsonfalcon10 said:Let's look at it this way... not all money is credit-based... consider what happens when the Federal Reserve buys up European Central Bank assets... so far, the Federal Reserve has injected roughly 24 billion dollars into circulation like that... does the Federal Reserve earn interest on that cash, and what percentage of total circulation does that represent? 😉The exact same thing occurs when the FED buys up toxic assets from bank balance sheets...

Maria Thomas48 said:Every bit of cash the Federal Reserve buys back can basically be viewed as a byproduct of foreign subsidies, outside investment, and exports—specifically that portion of export revenue that actually stays in the hands of citizens. You could look at it as an extra injection of liquidity, assuming we weren't constantly losing money through foreign investments, imports, or pensions being paid out to people abroad. It’s worth noting that even if our balance of payments with the rest of the world stayed in the black, that money still has a credit-based origin. Some estimates suggest that’s upwards of 95%. Maybe having that surplus would let us pay down our debt, but it would just create a massive deficit elsewhere, leading to even deeper debt held by some other foreign nation. It really makes you wonder how much debt those countries can actually shoulder before they hit a breaking point and collapse. Anyway, I heard somewhere that banks are pulling in about $20 billion a year just from interest alone. When you compare that to a GDP of around $300 billion, it seems like way too much to actually be sustainable.

Because a positive trade balance basically just shifts the burden of debt repayment onto other countries—who, let’s be honest, are also stuck without any real solutions—I’ve been thinking about this. My take is that the government needs to be able to function financially with an eye toward actual prosperity, which means maintaining a balanced trade account. You know, where imports are offset by exports. If you look at it that way, the whole "three deficits" equality gets simplified down to a single equation (minus the credit side):

The state budget deficit? It’s basically just the private sector's profit. Think about it. When the government runs a deficit, that money has to come from somewhere. It flows out of Washington, D.C., and straight into the hands of businesses and individuals. So, if the federal government is in the red, the private sector is essentially seeing that as a surplus. It’s a zero-sum game, really. One side's loss is the other side's gain. Simple math, even if people like to make it complicated.

I don’t even know how many times I’ve tried to post this, but it just won't stick. Looking at the math, it’s pretty clear that everything the government invests goes straight into profit margins, and when it comes time to pay it back, all that realized profit has to be sucked out—plus interest. It creates a massive cash deficit in terms of interest alone. Basically, the state invests, people work hard to earn money, and then they’re forced to hand it all back along with extra interest on top. It means their labor couldn't actually be converted into liquid profit. If we want to claim we’re a capitalist nation, you have to be able to accumulate capital, right? But practically speaking, this kind of credit only hands the community a pile of debt. We got the goods and services, sure, but our hard work didn't yield profit; it yielded a loss equal to the interest payments if we ever actually managed to settle the loan. It’s pure masochism. The government can't pull a cash profit from an investment because that interest has to come from the initial pool of money—and since the trade balance is hitting zero, there’s less and less of that money left. So, it's obvious why Davor Šuker has to keep taking out new loans.

Everything would look completely different if we were working with non-credit money. First off, you wouldn't be dealing with principal debt, and second, there wouldn't be any interest hanging over your head. The benefits for the community would be massive. It basically turns human labor into actual savings, which can then just be funneled straight back into new investments. Look, you can't just move non-credit money around however you want. A lot of people seem to think they can just dictate where it goes, but that’s not how the system works. It doesn't work like that.

Regarding the Federal Reserve. I honestly think it’s better if they just buy up the junk. They’ve already pumped out such a massive amount of dollars anyway. It’s probably better to just take a hit on their earnings than to mess around with shady financial maneuvers that might actually expose how broken the whole system really is.

Hey there.
I was looking through this site about the financial system earlier. It’s basically just a deep dive into how everything connects. You know, all the moving parts that make the economy actually function. It feels like one of those things where if you don't understand the underlying structure, nothing else makes sense. It's pretty straightforward once you get past the technical jargon. Just a lot of information laid out there.

Matthew Patel12 said:Mr. crimsonfalcon10, within any non-credit money system, you have savings, loans, and interest rates, though those details are ultimately trivial. That entire sphere is a private enterprise that carries no business with the government. The state issues new money in its capacity as a non-credit issuer. Private citizens then save and lend the very funds that the state released into circulation like a gift. Consequently, this money simply changes hands without altering its total volume, which precludes both inflation and deflation. The money supply only expands when the state issues it as non-credit money.
Ms. Ashley Barnes9, non-credit money totaling 5% of the circulating supply is added directly to the existing money supply, specifically the M1 aggregate. It is quite that simple.

Gregory Williams7 said: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.

Ashley Barnes9 said:The M1 aggregate for May (the most recent data available) sits at $54.8 billion. Adding 5% to that isn't even $3 billion, and with all due respect, I just don't see how such a small amount would help the current situation here in the US...

I took a look at the statistics and checked the M1 money supply growth trends starting from January 2000. Back then, the M1 in the US was a modest $12.2 billion, but by the end of 2003, it climbed to $33.8 billion—nearly a threefold increase. During that same timeframe, bank lending jumped from $55 billion to $111 billion, and external debt rose from roughly €10 billion to about €20 billion.

Looking at the second period under review—from January 2004 (after the change in administration) up to now—the M1 aggregate grew from $33.8 billion to that $54.8 billion figure, which is only about a 70% increase over nearly double the time.

Meanwhile, bank lending surged from $111 billion to $236 billion, and external debt hit €43 billion.

It’s pretty clear that money supply growth in this second period is lagging significantly behind both bank lending and the rise in external debt. I honestly don't see how even $3 billion could fix the mess we're in...

My apologies if I disrupted the flow of the conversation. Instead of discussing hypothetical scenarios, I thought I'd bring in the actual facts and exact figures available on the Federal Reserve website: http://www.federalreserve.gov/monetary/hmonet.htm

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,

Maria Thomas48;28188077 said:

My analysis shows that America swallows about 3 billion European Central Bank units annually. However, bank profits have jumped nearly to that same level. So, there's really just crumbs left for everyone else.

Given how many parasites are feeding on the American body, your analysis is actually being too modest. There are endless parasites, from foreign interests down to domestic ones that drain capital out of the US only to deposit it into exotic offshore accounts. But honestly, the banking system as a whole—which is already 95% foreign-owned—is the biggest parasite on the American organism. Out of the roughly 30 billion dollars the banking system sucks up every year, only about 10 billion actually flows back into circulation through things like interest payments to American savers and wages for employees. But we also have to consider the outflow through external debt for both businesses and the government. If commercial banks account for only 8 billion out of an external debt totaling 43 billion European Central Bank units, then the remainder is equal to domestic placements, meaning we can easily say another 20 billion dollars goes toward interest on foreign debt every single year.

Furthermore, the next major parasite directly draining money from the US consists of the telecom companies, all of which are mostly foreign-owned. T-Mobile's annual revenue exceeds 8 billion dollars; if you add Verizon's revenue, which is about 50% less, we're looking at nearly 13 billion total. About a third of that is a direct outflow via dividends to foreign owners. When you realize the total wage mass in the US is around 100 billion dollars, spending 13 billion just on "phone calls" is a massive amount.
As for the local leeches who profited from the era of corporate looting and privatization—and who continue to suck funds through corrupt and rigged jobs—it's hardly worth even mentioning. And as for the privileged classes, from certain groups of retirees to politicians, there’s already been said far too much.
But very little is said about the utility mafias, even though we've recently seen our "diligent" justice system take some steps in that direction (for example, the Duke Energy case).
Speaking of Duke Energy, the revenues of that public utility are also enormous, exceeding 10 billion dollars. Before the recent crackdowns began, Duke Energy was constantly operating on the edge of profitability or recording losses; but now that the tide has turned, they are suddenly showing significant profits. A net profit of 1.5 billion dollars in just six months means 3 billion for the full year, and they still want to raise electricity rates. What’s particularly important to note is that they continue to act arrogant, wasting money on new vehicle fleets while maintaining average personal incomes much higher than the national average.
It's a similar story with other utility-based mafia operations. For instance, American water authorities have higher average earnings than even the financial sector (with gross salaries exceeding 12 $0.00). Their annual budget is over 2 billion dollars (in 2008, it was 2.6), yet we see the recent flooding and the inefficiency of a defense system that hasn't seen a single cent of investment in years. Where does that 2 billion go—the money taken from citizens and businesses through heavy fees? Whose accounts are those funds ending up in?
And don't even get me started on the highway agencies and the road mafia, along with the construction crews tied to them that built some of the most expensive miles of road on the planet... etc., etc...

I could go on like this until tomorrow, but this isn't really the main topic, and it's a bit off-topic since it's linked to the current shortage of liquid cash in the country.

What I really want to say is that printing any additional money (aside from convertible currency, which we obviously can't do) won't help at all until we fix this mindset and the way business is conducted.

Gregory Williams7 said: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.

Ashley Barnes9 said:What I mean is that printing any extra money—unless we’re talking about convertible currency, which obviously isn't an option for us—won't actually help anything until we fix this whole mindset and the way business is done here.

Maria Thomas48 said:I won't get into whether that analysis is right or wrong. A few years back, Gustav Mahler was doing his own analyses, warning us that we were headed straight for disaster if we didn't boost GDP growth. Between all the various scams and shady dealings, we're in a bigger mess than we would have been otherwise. But it is what it is.

There's no moving forward until this fraudulent financial system is tossed out.

We need to expose the whole banking-political-economic-media scam. The lack of trust in the government is what prevents things from actually starting. The only real chance is getting everyone informed, and that's where the work needs to happen. How can the public push back if they don't even know which way the wind is blowing? It's easy to rule over people who aren't informed. Even the opposition parties and the unions are useless when it comes to actual American interests. You have environmentalists fighting over ten trees and a sidewalk in Washington, D.C., while the entire country goes down the drain.

The government decided their main goal is joining the European Union. But my take on how the EU works is that once we join, we're essentially screwed. As soon as we enter the EU and the Federal Reserve becomes part of the European Central Bank, our fate is sealed. To change things, you'd have to convince 500 million people. I can't even convince a handful of people with pure mathematical proof, let alone expect a small nation like America to successfully overhaul the entire EU system. That's why my family won't be voting for EU entry. Regardless of any other perks, controlling the money supply this way is just wrong and it destroys the economy.

The current administration's policy won't work because it hasn't worked for any other administration either. These economic advisors really ought to be fired. They should just admit, "We don't know," instead of wasting everyone's time with their ignorance.

Once economic experts can actually deal with non-credit-based money and finally agree on a solution, that will be the next step toward fixing this. Up until now, it's been a taboo subject—something nobody dares to mention. Everyone is too busy enjoying their paychecks.

Regards

Ashley Barnes9 said:The analysis is generally on point, and it's all pretty easy to verify. The Federal Reserve publishes annual reports for commercial banks right on their website ( http://www.federalreserve.gov )

And there it clearly shows that total interest income in 2009 hit $22.8 billion, while fee and commission income was $4.3 billion, plus another $3.4 billion in other non-interest income. That’s over $30 billion being sucked up by the banking system. Only a small fraction of that money actually flows back into the economy through interest payments or wages for American citizens; the rest just leaves the country...

The media loves to make a big deal out of how bank profits are shrinking, but they conveniently gloss over the details that prove the banking system gets more expensive for us every single year.

Sure, profits might be down, but that's because banks jacked up interest rates first, and then bumped up their loan loss provisions—which exceeded $3.5 billion last year. And that $3.5 billion? They took it straight from our pockets to set aside just in case...

The next big heist happens through interest payments made on loans and deposits to parent companies (those big international banks), which exceeds $3 billion. On top of that, pure profit from fees and commissions is also around $3 billion, similar to the gains from other items like currency exchange, brokerage services, derivatives sales, and so on.

Both the media and political circles stay silent about this, so you're absolutely right when you say: "We need to expose this banking-political-economic-media scam."
because the news outlets that should be reporting on this either ignore it entirely or just toss out dry statistics without any actual context.

But luckily, there are some of us who aren't afraid to talk about these kinds of taboo subjects...

greeting

Ashley Barnes9 said:The analysis is generally on point, and it's all pretty easy to verify. The Federal Reserve publishes annual reports for commercial banks right on their website ( http://www.federalreserve.gov )

And there it clearly shows that total interest income in 2009 hit $22.8 billion, while fee and commission income was $4.3 billion, plus another $3.4 billion in other non-interest income. That’s over $30 billion being sucked up by the banking system. Only a small fraction of that money actually flows back into the economy through interest payments or wages for American citizens; the rest just leaves the country...

The media loves to make a big deal out of how bank profits are shrinking, but they conveniently gloss over the details that prove the banking system gets more expensive for us every single year.

Sure, profits might be down, but that's because banks jacked up interest rates first, and then bumped up their loan loss provisions—which exceeded $3.5 billion last year. And that $3.5 billion? They took it straight from our pockets to set aside just in case...

The next big heist happens through interest payments made on loans and deposits to parent companies (those big international banks), which exceeds $3 billion. On top of that, pure profit from fees and commissions is also around $3 billion, similar to the gains from other items like currency exchange, brokerage services, derivatives sales, and so on.

Both the media and political circles stay silent about this, so you're absolutely right when you say: "We need to expose this banking-political-economic-media scam."
because the news outlets that should be reporting on this either ignore it entirely or just toss out dry statistics without any actual context.

But luckily, there are some of us who aren't afraid to talk about these kinds of taboo subjects...

greeting