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#14621036
If money is just conjured out of thin air when it is lent by banks why can't the gov't cut out the intermediary and create the loan itself? Or mint a trillion dollar coin to fund the budget?

Is there any president for this?
What would the repercussions be?
#14621063
It's called inflation. More money in circulation means the value of the currency decreases. This leads to further inflation, creating a downward spiral e.g. Zimbabwe. Of course the Americans seem to be printing money.
#14708740
The Sabbaticus wrote:It's called inflation. More money in circulation means the value of the currency decreases. This leads to further inflation, creating a downward spiral e.g. Zimbabwe. Of course the Americans seem to be printing money.


The money is created 'electronically' nowadays,

Actually,the classical cause is,"Too much money chasing too few goods".

In this era of unjustified austerity, the excess money gravitates to those with the most money.

This is a double-evil, it rewards the beneficiaries of the austerity, by denying the rest there proper rewards in the economy & of course they do not suffer the effects of inflation as their incomes rise far ahead of it each year.

It deprives the largest section,of which-eventually-there will be political consequences & it helps the beneficiaries of the austerity by countering any inflationary effects through reducing 'real' incomes of the poor, thus negating any price increase effects for the beneficiaries.
As the poorest people's rises in income are purely nominal or negative,any price rises are 'real' for them,thus making them poorer year on year.

Additionally, everyone,has suffered from a V.A.T increase of 2.5%,so,unless pay\salary increases exceed that, the government ensure that demand is minimised by keeping the poor poorer,which is government policy,a WAR AGAINST THE MAJORITY, that's why there will eventually be 'consequences' for the current beneficiaries & their 'TORY' benefactors.

They swindle £60 BILLION a year from taxpayers into the pockets of 'buy-to-let landlords(£25 BILLION) & those claiming additional pension contribution relief of £34.8 BILLION a year.

They do this without a squeak from the CORBINISTA'S.
#14749931
AFAIK wrote:If money is just conjured out of thin air when it is lent by banks why can't the gov't cut out the intermediary and create the loan itself? Or mint a trillion dollar coin to fund the budget?

Is there any president for this?
What would the repercussions be?


It's called, 'Sovereign Debt' & it takes place because the financial markets charge premium rates for loans.

As governments 'borrow' such large sums, they can command lower interest,or for long-term borrowings,called 'Gilts', they offer a guaranteed return at 'maturity'.
Whichever method of 'creating' money is used, the end result is 'inflation',which can, often does, become 'systemic' & intractable leading to hyper-inflation.

In the UK at present,the government try to avoid that inflationary effect by freezing public service pay or pensions, making welfare cuts, raising council tax,plus other forms of taxes, in favour of the rich & better off, who NEVER pay a price, but always receive taxpayers largesse, in the form of additional pension contribution reliefs(£48 BILLION p.a),Buy-to-let house purchases(paid in whole by poorer taxpayers) & many other countless 'tax-breaks'.

Like Cervante's 'Don Quixote' on his trusty steed, the mule never ever gets the carrot dangling before his eyes, every step he makes towards it,brings it no closer to his reward, the same is true of the TORY deceit on eliminating the DEFICIT,the 'goalpost' has been 'moved' post 2020,which means more pain & suffering from 'TORY' traditional policies, a declaration of war against those whom they class as 'not one of us', the 'poor' in need.

The reality is, people flee from depreciating currencies,less there is a solid reason not to,such as assets that are tradeable that essentially colateral,used as payment by default.
ALL governments are effectively trading on equity, by spending the people's earnings by extracting income taxes, then compounding that felony by extracting Sales taxes & other 'Stealth' taxes.

This is the essential 'problem' in any 'democracy', one puts a 'X' on a ballot paper,which is no different than signing a 'blank cheque', except it's worse than that, you give governments 'Carte-Blanche' power to do whatever they see fit in all walks of national life.
Is that any different,or for that matter, any better than what happens in a dictatorship or any other form of administrative power?
#14749981
Governments borrow money based upon the same principle as capitalism. An increased population results in increased GDP and more government tax money. This makes it cost effective to be in debt, but eventually must destroy itself, unless we keep breeding like rabbits.
#14749994
AFAIK wrote:If money is just conjured out of thin air when it is lent by banks why can't the gov't cut out the intermediary and create the loan itself? Or mint a trillion dollar coin to fund the budget?

Is there any president for this?
What would the repercussions be?


Money is nothing more than an IOU. The value of a given currency depends on the government. If you have lots of IOUs the value of the currency should devalue. But if investers have confidence in a currency, this isn't always the case. This is called quantitative easing. Anyway, if a government prints lots of money to pay off debts and investers lose confidence in interest repayments being paid by such government (a default), taking such action might reduce the overall value of the national debt (when compared to another currency) but this comes with a high cost - increased inflation. Germany, Zimbabwe and Argentina are some recent examples of governments doing this and the end result was hyperinflation. So to answer this question, yes governments can do this, but it should be a last resort. And to answer your thread question, why do governments borrow money? They do so to invest in growth. A nation is run similar to a business would be. You borrow money to make money.
#14750017
AFAIK wrote:If money is just conjured out of thin air when it is lent by banks why can't the gov't cut out the intermediary and create the loan itself? Or mint a trillion dollar coin to fund the budget?

Is there any president for this?
What would the repercussions be?


Money is not borrowed from other governments. This is a holdover from obsolete monetary systems. The actual mechanistic function of issuing sovereign debt is to accommodate the need for safe savings instruments in the private sector.

While it is true that we have legal and institutional arrangements that currently require us to offset spending in excess of tax revenue with debt issues, there is no monetary necessity for this. Literally, none whatever.

It would be far more logical to issue debt proportional to the demand from the private sector, irrespective of putative 'deficit' status. This is cognitive paradigm change which will take another few generations.

Budge 'deficits' literally do not exist*. They are artificial constructs. Tax revenue and government spending are not operationally related in any way.

Can government spending result in inflation? Sometimes, but not always. Government spending is inflationary when employment is strong and warehouse stocks are low. in a persistent environment of high unemployment, high excess capacity, and disniflationary pressure it is irresponsible for governments not to spend. There is no 'budgetary' constraint on such spending, only political constraints.

*(For a government that issues debt in its own sovereign currency, not pegged to a commodity or external currency)
#14750035
AFAIK wrote:If money is just conjured out of thin air when it is lent by banks why can't the gov't cut out the intermediary and create the loan itself? Or mint a trillion dollar coin to fund the budget?

That would reduce the amount of wealth private banksters can take from the economy without causing inflation. Banksters own the government, so guess how likely that is.
Is there any president for this?

Yes, and his name was Abraham Lincoln. ;) He was fed up with private banksters demanding high interest for loans to fund the Civil War, and decided to just print currency -- "greenbacks" -- instead.
What would the repercussions be?

Lower taxes, by the exact amount of the reduction in the wealth appropriated by private banksters.

Historically, the problem with government emitting money is that as with private banks, it is too tempting to issue too much, causing inflation. This could be solved by making it the responsibility of an independent Mint whose sole mandate was price stability. Government would have to concurrently rescind the banksters' privilege of creating debt money, but the only barrier to this superior solution is political: the banksters' financial interests come before the public interest.
The Sabbaticus wrote:It's called inflation. More money in circulation means the value of the currency decreases. This leads to further inflation, creating a downward spiral e.g. Zimbabwe. Of course the Americans seem to be printing money.

No. In all modern, advanced capitalist societies (not Zimbabwe), the monetary system is based on private commercial banks creating debt money by lending. So it is private commercial banks that cause inflation by creating too much debt money, not governments printing too much currency. There is a lot of disinformation circulating about money, and many people do still believe the myth that inflation is caused by government printing money.
Last edited by Truth To Power on 15 Dec 2016 19:17, edited 1 time in total.
#14750039
Truth To Power wrote:In all modern, advanced capitalist societies (not Zimbabwe), the monetary system is based on private commercial banks creating debt money by lending. So it is private commercial banks that cause inflation by creating too much debt money, not governments printing too much currency. Many people still believe the myth that inflation is caused by government printing money.


Yes, but even private banks merely respond to the demand for credit, they cannot create the demand. Therefore, their ability to create money is quite limited. All this is saying is that money creation is a market phenomenon, and that governments (or private banks) only have a limited control over it. This is why trillions in QE have not been able to counter disinflationary tendencies in western economies.

Another thing that is not well appreciated is the fact that private credit is responsible for periodic financial crashes, not government borrowing.
#14750047
Truth To Power wrote:In all modern, advanced capitalist societies (not Zimbabwe), the monetary system is based on private commercial banks creating debt money by lending. So it is private commercial banks that cause inflation by creating too much debt money, not governments printing too much currency. Many people still believe the myth that inflation is caused by government printing money.

Not completely true. Banks have capital. They lend this capital to gain more capital. Lending out capital results in it being spent rather than become stagnant. This creates growth. Currency value is determined by the confidence in it. Confidence in the government paying its creditors. A strong economy creates confidence. However, and this is important, QE creates more IOUs and more interest to pay overall. By printing money, you reduce the value of previous IOUs. This doesn't necessary reduce confidence if the economy remains strong, but if you over do it,the penny will hit investers who have the said currency that it is losing it monetary value and they will eventually sell such currency. This will result in a loss of confidence and a loss in currency value overall. Look at Argentina as an example. A former wealthy country whose wealth was fabricated.
#14750055
The simple & plain answer is lack of available funds.

When a government lacks funds, she debases the coin, back in the old days, they reduced the weight of gold, then used silver in place of gold, then copper and so on and that created what today we call inflation by devaluing the value of a unit of currency. To avoid this pitfall which caused quite a bit of trouble, governments today have more options a) to sell bonds in the market and use the funds to fund whatever it is they need to fund and inject the money into economy in a controlled fashion to avoid inflation, and/or use QE which floods financial institutions with money that are then injected into the economy according to demand which once again offsets the inflationary effects of money-printing(digitally or otherwise) which is merely another form of debasing the unit of currency. Central banks act as regulators during the injections so that inflation can be tamed.
Governments can either borrow or print money, borrowing vs printing is that borrowed money affect inflation less than printed money because they are money that already circulate within the market while printed money are new money. The cost of inflation can be greater(and many times is) than the cost of the interest-rate, and that is the purported job of the financial ministries in collaboration with the central banks to determine.
#14750072
quetzalcoatl wrote:The actual mechanistic function of issuing sovereign debt is to accommodate the need for safe savings instruments in the private sector.

There is no such need, merely a desire on the part of wealthy parasites for risk-free returns without the need to make any contribution to production to earn that return. The other reason for issuing sovereign debt is to provide banksters with income without a need for them to make any sort of productive contribution in return.
While it is true that we have legal and institutional arrangements that currently require us to offset spending in excess of tax revenue with debt issues, there is no monetary necessity for this. Literally, none whatever.

Correct. The necessity is legal and political.
It would be far more logical to issue debt proportional to the demand from the private sector, irrespective of putative 'deficit' status. This is cognitive paradigm change which will take another few generations.

The expression, "private demand for public debt" refers to the desire of the wealthy to have government take wealth from others and give it to the wealthy without the latter having to make any productive contribution in return.
Budge 'deficits' literally do not exist*. They are artificial constructs. Tax revenue and government spending are not operationally related in any way.

That is true at the margin, but it must not be imagined that governments could do away with taxation altogether and just issue money to pay for their spending. Taxation is needed to transfer purchasing power from the private to the public sector. Leaving that purchasing power in the private sector while trying to pay for all government spending by issuing new money would be highly inflationary.
Can government spending result in inflation? Sometimes, but not always. Government spending is inflationary when employment is strong and warehouse stocks are low. in a persistent environment of high unemployment, high excess capacity, and disniflationary pressure it is irresponsible for governments not to spend. There is no 'budgetary' constraint on such spending, only political constraints.

Which are the result of both desire for unearned wealth on the part of banksters and parasites, and the broad public ignorance of the character of the debt money system.
quetzalcoatl wrote:Yes, but even private banks merely respond to the demand for credit, they cannot create the demand.

That is incorrect. By issuing -- let's be honest, shall we? -- debt money (not "credit"), private banksters increase the money supply. This creates upward pressure on prices, especially for the assets the debt money is issued to buy, like REAL ESTATE. When people see rising prices for these assets, they want to climb on the escalator instead of toiling on the treadmill that powers it. But the only way for them to do that is by borrowing money to buy the asset, increasing their demand for debt money. This is the positive feedback mechanism that causes the "business cycle."
Therefore, their ability to create money is quite limited.

It is limited, but only by the restraint of fear on their greed.
All this is saying is that money creation is a market phenomenon, and that governments (or private banks) only have a limited control over it. This is why trillions in QE have not been able to counter disinflationary tendencies in western economies.

No, the problem is in how inflation is measured. QE has actually been very successful in its intended purpose: skyrocketing the prices of the stocks and real estate the wealthy own.
Another thing that is not well appreciated is the fact that private credit is responsible for periodic financial crashes, not government borrowing.

I don't think many people blame government borrowing for crashes. But it's true that few people understand how bankster issuance of debt money, the debt money system per se, causes bubbles and crashes.
B0ycey wrote:Not completely true.

It is completely true. Without reading further, I predict that you are about to demonstrate your ignorance of the banking system. Watch:
Banks have capital. They lend this capital to gain more capital.

No, they do not. Banks use their capital as reserves. The money that is lent to borrowers is CREATED AT THE MOMENT IT IS LENT. This is a fact that not one person in 1000 understands. When a bank makes a loan, it simply writes a higher number in the borrower's account (which is an asset to the borrower and a liability to the bank), and makes a balancing entry in its loans account for the amount of the loan as an asset (which is also a liability for the borrower, of course). From that moment, the "borrowed" (actually newly created) money in the borrower's account is valid for purchases, like any other money. When the borrower spends it, the bank simply reduces his account by that amount, and it shows up on the books of the vendor as cash.
Lending out capital results in it being spent rather than become stagnant.

Banks don't lend out capital, although they do have to have capital in order to lend, because they are required to by law (capital adequacy ratio).
This creates growth.

It is the issuance of new money that creates the growth, not lending of existing money, which would merely transfer purchasing power from one party to another.
Currency value is determined by the confidence in it. Confidence in the government paying its creditors.

Governments can always pay creditors who are owed money the government can issue.
A strong economy creates confidence. However, and this is important, QE creates more IOUs and more interest to pay overall.

Not necessarily. The reduced interest rates can actually reduce total interest expenses.
By printing money, you reduce the value of previous IOUs. This doesn't necessary reduce confidence if the economy remains strong, but if you over do it,the penny will hit investers who have the said currency that it is losing it monetary value and they will eventually sell such currency. This will result in a loss of confidence and a loss in currency value overall. Look at Argentina as an example. A former wealthy country whose wealth was fabricated.

Different situation. Argentina owed US dollars, not pesos. A government may indeed find itself unable to pay debts denominated in currencies in cannot issue itself.
#14750101
noemon wrote:The simple & plain answer is lack of available funds.


No. 'Funds' is another word for unit of measurement. That which is being measured is what is actually real: the wealth of a nation in goods and services. The funds are markers for who is assigned ownership of real wealth. (Chartalists make this analogy: the score in a football game is not limited by any limitation on the availability of points. It is only limited by the skill and judgement of the players and coaches.)

Where this breaks down is where people who control these funds are able to survive merely by renting these markers out. There is a ratcheting effect whereby rentiers, over time, are available to accumulate a greater portion of these markers - without engaging in any productive activity. This ratcheting effect is inherent in the debt nature of money itself, and is why you have a transfer of wealth from manufacturing sector to the financial sector as an economy matures.

The only constraints on sovereign spending are inflation (however you choose to measure it) and the real wealth available. Mauritania, for example, can spend all it wants to, but it is limited by its real wealth.

@Truth To Power
Taxation functions as a kind of control rod. It is a useful in extinguishing money created in the private sector (when necessary to combat inflation) - however, it doesn't 'fund' government spending.

Crashes are another way of extinguishing money, albeit an involuntary one.
Last edited by quetzalcoatl on 15 Dec 2016 20:35, edited 1 time in total.
#14750105
You are only using jargon to expand on the definition of 'funds' which does not contradict what I said which in turn renders the "no" fallacious. There is no point in listing all the subsidiary definitions of "funds" and "wealth" to answer the OP's question which is quite simple.

Why does the state(when it lacks funding) not print money and chooses to borrow it instead.

And the answer is simple, it chooses a combination of borrowing and printing according to its inflationary targets. The reason why it does not choose print over borrow all the time is again inflation. Untamed inflation is a greater evil than the interest rate paid to borrowed money.
#14750107
noemon wrote:You are only using jargon to expand on the definition of 'funds' which does not contradict what I said which in turn renders the "no" fallacious. There is no point in listing all the subsidiary definitions of "funds" and "wealth" to answer the OP's question which is quite simple.

Why does the state(when it lacks funding) not print money and chooses to borrow it instead.

And the answer is simple, it chooses a combination of borrowing and printing according to the its inflationary target. The reason why it does not choose print over borrow all the time is again inflation.


Nevertheless, availability of 'funds' plays no role at all in these decisions.

This is not to be tendentious, btw. The availability of funds scam is how the right is justifying cutting Social Security and Medicare.
The more 'moderate' center politicians are unable to combat this argument as long as they buy into the "availability of funds" illusion.
#14750111
Of course it does, availability of funds to pay up liabilities is at the very essence of these monetary functions and the primary reason these monetary policies were established in the first place. It was then noticed that these functions can also be used in other situations like to stimulate growth and tame inflation but that is a luxury and not the reason d'être.

edit: Centrists can target those neo-cons by using the tax-argument without pretending that lack of funds does not exist. Taxes is another way that the government can "borrow" money free of charge, especially from those that hold billions.
#14750113
@Truth To Power
So many errors in your post, I can't be arsed to even explain how the banking system works to you. Noemon has pretty much got it spot on in terms of national debt concepts and repayments plans. However what I will say is, if banks were the system that created global wealth, how did the 2008 banking crisis occur? After all, banks in your world create fictional national wealth. Why not create new wealth instead of borrowing from governments with bailouts that saved their asses? Or why not use this capital they never use? How did Lehmens fall?
#14750114
noemon wrote:Of course it does, availability of funds to pay up liabilities is at the very essence of these functions and the primary reason these functions were established in the first place. It was then noticed that these functions can also be used in other situations like to stimulate growth and tame inflation but that is a luxury.


Well, your view is similar to most people. It is common in economics profession. However, even Alan Greenspan acknowledged that a sovereign government cannot run out of money, nor can it be forced into bankruptcy to pay its obligations.

Of course 'funds' (markers) are necessary. A barter economy would be foolish. But the availability of these markers is not a limiting factor. This is not to say limiting factors do not exist. They do. But the limiting factors are not intrinsically financial - and to allow ourselves to believe that they are is to enthrall ourselves unnecessarily.

B0ycey wrote:@Truth To Power
if banks were the system that created global wealth, how did the 2008 banking crisis occur? After all, banks in your world create fictional national wealth. Why not create new wealth instead of borrowing from governments with bailouts that saved their asses? Or why not use this capital they never use? How did Lehmens fall?


Banks create no wealth. They create debt. Debt is then used to acquire control of wealth. Finance is valuable is permitting expansion of real goods and services, but it has its dark side as well. Over time, finance will become a larger and larger sector of the economy. This creates instability.
#14750118
Greenspan's statement is true and in line with what economists are aware of because a government can indeed print its way out & down, but at the same time impoverish all those with savings. Just because it can do it, it does not mean that it should, nor that it is the optimal solution.

Trump and the neo-cons should be reminded that Caesar and Pericles paid their armies and their navies out of their own pockets and not out of state coffers.
#14750126
quetzalcoatl wrote:Banks create no wealth. They create debt. Debt is then used to acquire control of wealth. Finance is valuable is permitting expansion of real goods and services, but it has its dark side as well. Over time, finance will become a larger and larger sector of the economy. This creates instability.

Banks use clients money (capital) and invest it or loan it out. They can only use the money they have. The reason the financial crisis occurred in 2008 was the capital was used for bad debt. The debt became worthless as it was defaulted by the person who had it and the overall capital in banks reserves reduced as a result. Banks don't create money unless it's the national bank in accordance with the government. Simple.
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