Why does everyone believe a so-called scientific theory that is based on obviously false premises? - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

Political issues and parties in the USA and Canada.

Moderator: PoFo North America Mods

Forum rules: No one line posts please.
#14933320
The title above was shortened from this original intended title/subject.
I don't understand, why does nearly everyone believe a so-called scientific theory that is based on obviously false premises?

I'm going to hide what theory I'm talking about because I want you to look at this with an open mind.
Please do not jump ahead to see what it is.

Science is mostly base on experiments. When experiments can't be done, then it must look at observations of the past and use deductive logic.

Quoted from Wikipedia,
Deductive reasoning, also deductive logic, logical deduction is the process of reasoning from one or more statements (premises) to reach a logically certain conclusion.[1]
Deductive reasoning goes in the same direction as that of the conditionals, and links premises with conclusions. If all premises are true, the terms are clear, and the rules of deductive logic are followed, then the conclusion reached is necessarily true.

Deductive arguments are evaluated in terms of their validity and soundness.
An argument is “valid” if it is impossible for its premises to be true while its conclusion is false. In other words, the conclusion must be true if the premises are true. An argument can be “valid” even if one or more of its premises are false.
An argument is “sound” if it is valid and the premises are true.
It is possible to have a deductive argument that is logically valid but is not sound. Fallacious arguments often take that form.
The following is an example of an argument that is “valid”, but not “sound”:
1. Everyone who eats carrots is a quarterback.
2. John eats carrots.
3. Therefore, John is a quarterback.
The example’s first premise is false – there are people who eat carrots who are not quarterbacks – but the conclusion would necessarily be true, if the premises were true. In other words, it is impossible for the premises to be true and the conclusion false. Therefore, the argument is “valid”, but not “sound”. False generalizations – such as "Everyone who eats carrots is a quarterback" – are often used to make unsound arguments. The fact that there are some people who eat carrots but are not quarterbacks proves the flaw of the argument.


Suppose the science behind AGW, aka climate change, had as a premise, "The land area of the earth is entirely covered by deserts, there are no forests or farm land." And programed its climate simulating super-computer programs with this assumption. Would this not undermine your confidence in AGW?
Suppose Astronomy had as a premise, "Deep empty space has something in it that sucks the energy out of photons that pass through it at a very tine rate." And used this to prove that the observed red-shifts result only from this effect. Would this not undermine your confidence in Astronomy?
Suppose Political science had as a premise, "Votes in all countries are always counted 100% accurately, with no cheating, ever." Would this not undermine your confidence in the conclusions about the vote in Nigeria?

Whether or not the logic is valid, if even one premise, aka assumption, is in fact false, then the proof is NOT SOUND. Meaning worthless.

The so-called science I'm talking about uses many obviously false assumptions in its proofs and it can not do repeatable experiments. To me this means the Theory is Worthless. And yet, today it is accepted by over 90% of Americans and Europeans. It is used every day by many agencies as the basis of their public policy decisions. For examples: the US Congress, IMF, World Bank, WTO, Central European Bank, the big Wall St. Banks, etc.
Why is this?

A list of false assumptions used in Neo-Liberal [aka Neo-Classical or Mainstream] Economics ---
1] Banks just use the money deposited in them by depositors to make loans to either good businessmen or spendthrift credit card holders. With this assumption they prove that these transfers of money don't matter at a macroeconomic level, and so there is no need to include credit levels and, in fact, the entire banking system in the model. This is false because as everyone knows banks create dollars and so add to the "money supply" when they make loans.

2] The nation's or world's economy is in or near "equilibrium' most all the time. Actually this is false because the economy is in a constant state of change. It is constantly changing. Economists made this assumption way back in the 60s and 70s when the mathematical theory of Chaos had not been inverted yet. Chaos Theory now allows the calculation of complex equations which do not have singular solutions. Instead, they behave like the economy, i.e. constantly changing and never-ever returning to the starting point. This is illustrated by the famous "Butterfly Effect".

3] The Market sets the correct price of every good or service at all times because the economy is made up of "rational agents". These agents are assumed to all use the same info "to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action." [quoted from Wikipedia]. This is false because nobody can possibly know ALL the available info on anything. It is false because it assumes that emotion plays NO part in economic decisions.

4] Whenever a nation cuts its budget its debt to GDP ratio will fall. So, cutting the Gov. budget is a good remedy for when the nation's debt to GDP ratio is too high. This is false because it is quite likely that cutting the nation's budget will cut the incomes of its people, so they will spend less, so the GDP will drop. If the GDP drops more than the budget is cut [which is almost always true in practice] then the debt to GDP ratio will go up not down. Austerity does not work as the theory says it will.

5] The US Gov. is just like a nuclear family. It can't keep spending more than it earns without negative consequences. This is false because actually the only sort of family the US Gov. is like is this family --- The extended Jones family has about 10 senor citizens, about 20-30 adults and about 40-50 children. In addition it has the ability to print real US $100 dollar bills and $100K dollar US Treasury Bonds both of which it can spend or sell. Since there is no such family in the US the assumption is false. Also, the US Gov. can increase its analogous income only with taxes which by definition will have a massive impact on the economy as a whole. Further, the nuclear family in the original assumption can easily cut its spending without also cutting its income. But, the only way the US Gov. can cut its analogous spending is to reduce its spending which by definition will reduce the GDP of the US and so reduce its income.

6] If the US Gov. keeps its deficit high for a long time there will be [or at least may be] hyperinflation. This is false because a Cato Institute study of all 56 instances that could be fond in all of recorded human history of hyperinflation; not even one of them was a result of only deficit spending. In every case there was also a massive reduction in the supply of many goods or a key good like oil. There was also very often some other important factor like the need of the Wiemar Republic to buy gold with newly printed D-Marks to pay the treaty required reparations in gold. So, even without one actual historical case; hyperinflation is still used as a threat if the deficit isn't controlled. [My source for this Cato Inst. study is a Stephanie Kelton video.]

I content that the world's economy has not recovered from the GFC of 2008. That this is so because the seen need for austerity has kept the great nations of the world from spending enough under Keynesian economic theory to off set the damage done by the GFC. That this means that the income and standard of living of every person who reads this is being kept too low solely by the current Mainstream economic theory [which is not SOUND because it is based on false premises].

So again, I ask. Why does everyone believe in this economic theory?
#14933322
Yeah, I agree about the science of economics. It's not just institutional inertia preventing change. That's true of all science - continental drift/plate tectonics being the most famous example. In economics, there's another factor at work. University economics departments have chairs funded by the wealthy, and they tend to choose candidates that support the status quo. It can get even worse; George Mason was embroiled in a scandal over Koch funding of its entire economics department. So, the Kochs obviously could give a shit whether taxation funds spending. They just want to insure they can draw money from the US Treasury while keeping their taxes low, and the Friedman/Chicago School/monetarist/deregulation axis is where they get the bang for the buck.

The upshot is that a professional economist that doesn't pay fealty to to neoclassical economics is going have a very rough row to hoe. Heterodox doesn't get published in major journals, and being published in major journals is critical for academic advancement.

In a truly rational world, we could point logical flaws and that would be that. In the real world, self-interest outweighs evidence. It's not about the flawed premises in economics. The discipline has been corrupted at its core.

The good news is that there's a determined cadre of professional economists who are determined to bring down the current paradigm. There's MMT, of course, but also a larger group of post-Keynesians (of which MMT is a branch). So, along with the MMT advocates, you might take a look at people like James Galbraith and Michael Hudson. There are cracks in the foundation of economics, and they are getting deeper.
#14933324
quetzalcoatl wrote:Yeah, I agree about the science of economics. It's not just institutional inertia preventing change. That's true of all science - continental drift/plate tectonics being the most famous example. In economics, there's another factor at work. University economics departments have chairs funded by the wealthy, and they tend to choose candidates that support the status quo. It can get even worse; George Mason was embroiled in a scandal over Koch funding of its entire economics department. So, the Kochs obviously could give a shit whether taxation funds spending. They just want to insure they can draw money from the US Treasury while keeping their taxes low, and the Friedman/Chicago School/monetarist/deregulation axis is where they get the bang for the buck.

The upshot is that a professional economist that doesn't pay fealty to to neoclassical economics is going have a very rough row to hoe. Heterodox doesn't get published in major journals, and being published in major journals is critical for academic advancement.

In a truly rational world, we could point logical flaws and that would be that. In the real world, self-interest outweighs evidence. It's not about the flawed premises in economics. The discipline has been corrupted at its core.

The good news is that there's a determined cadre of professional economists who are determined to bring down the current paradigm. There's MMT, of course, but also a larger group of post-Keynesians (of which MMT is a branch). So, along with the MMT advocates, you might take a look at people like James Galbraith and Michael Hudson. There are cracks in the foundation of economics, and they are getting deeper.

OK, that explains why the professionals don't reject it.

A big part of my question [though] is/was aimed at the people here who read my posts and argue that MMT is full of shit.

Why do they believe in a theory that is damaging them personally in their pocket book and is based on nothing but UN-SOUND Logic and counterfactual historical examples?

If the theory of AGW was as riddled with bullshit nobody would believe it.
#14933336
FYI, Logic is based on reasoning so not always absolute and can be subjective. Perhaps the reason why people don't question economic theory is because until there is a crash, there is no reason to. And then the real problems surface and seem bleeding obvious to everyone. But even your points are based an assumptions btw. So why do you think your opinions are superior or accurate?
#14933343
B0ycey wrote:FYI, Logic is based on reasoning so not always absolute and can be subjective. Perhaps the reason why people don't question economic theory is because until there is a crash, there is no reason to. And then the real problems surface and seem bleeding obvious to everyone. But even your points are based an assumptions btw. So why do you think your opinions are superior or accurate?

Please be more specific.
Some of them are totally fasts, like banks create dollars every time they make a loan.
What others are you questioning?
The others are not *just* my opinions. They are part of an actual professional heterodox economic theory.
And, the world has not recovered from the GFC like it dd back in the 50s, 60s, 70s, or 80s.
And the mainstream economists all said in 2008, "Nobody could have predicted the crash." So is this true? No, some heterodox economists did predict it. Why didn't those guys predict it? Maybe because they had factored the banking system and credit levels out of their model.
#14933375
Not all your assumptions are based on solid facts @Steve_American, but here is my quick take on your points.

1] Banks just use the money deposited in them by depositors to make loans to either good businessmen or spendthrift credit card holders. With this assumption they prove that these transfers of money don't matter at a macroeconomic level, and so there is no need to include credit levels and, in fact, the entire banking system in the model. This is false because as everyone knows banks create dollars and so add to the "money supply" when they make loans.


Only the FED creates new Dollars. What the banks do is allow money that is tied up in savings to flow by creating loans (assets). If every single person wanted to withdraw their money at the same time (a run on the bank), the bank would run out of cash to give back their money. So they work off a fractional reserve to protect themselves from such danger.

2] The nation's or world's economy is in or near "equilibrium' most all the time. Actually this is false because the economy is in a constant state of change. It is constantly changing. Economists made this assumption way back in the 60s and 70s when the mathematical theory of Chaos had not been inverted yet. Chaos Theory now allows the calculation of complex equations which do not have singular solutions. Instead, they behave like the economy, i.e. constantly changing and never-ever returning to the starting point. This is illustrated by the famous "Butterfly Effect".


I largely agree with this, however in good times there is what you call an equilibrium that gives investors a confidence to enter the markets.

3] The Market sets the correct price of every good or service at all times because the economy is made up of "rational agents". These agents are assumed to all use the same info "to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action." [quoted from Wikipedia]. This is false because nobody can possibly know ALL the available info on anything. It is false because it assumes that emotion plays NO part in economic decisions.


This is an opinion with perhaps some truth to it. Nonetheless confidence is more of a factor in markets.

4] Whenever a nation cuts its budget its debt to GDP ratio will fall. So, cutting the Gov. budget is a good remedy for when the nation's debt to GDP ratio is too high. This is false because it is quite likely that cutting the nation's budget will cut the incomes of its people, so they will spend less, so the GDP will drop. If the GDP drops more than the budget is cut [which is almost always true in practice] then the debt to GDP ratio will go up not down. Austerity does not work as the theory says it will.


This is definitely an opinion. But I do believe Austerity needs to be balanced and not rushed for some of the reasons you highlighted. Austerity seems to have worked for the UK will little ill-effect for example. Perhaps less so for other EU members. But unless you get on top of spending, you only create more debt that needs to be addressed on the future btw.

5] The US Gov. is just like a nuclear family. It can't keep spending more than it earns without negative consequences. This is false because actually the only sort of family the US Gov. is like is this family --- The extended Jones family has about 10 senor citizens, about 20-30 adults and about 40-50 children. In addition it has the ability to print real US $100 dollar bills and $100K dollar US Treasury Bonds both of which it can spend or sell. Since there is no such family in the US the assumption is false. Also, the US Gov. can increase its analogous income only with taxes which by definition will have a massive impact on the economy as a whole. Further, the nuclear family in the original assumption can easily cut its spending without also cutting its income. But, the only way the US Gov. can cut its analogous spending is to reduce its spending which by definition will reduce the GDP of the US and so reduce its income.


IMO, the only thing stopping the Dollar from suffering from high inflation today is it's reserve status and that it is being used for commodity exchanges. The US are too print happy - and this will have an impact in the future I am sure of it. So this is an assumption on your part (and my part too).

6] If the US Gov. keeps its deficit high for a long time there will be [or at least may be] hyperinflation. This is false because a Cato Institute study of all 56 instances that could be fond in all of recorded human history of hyperinflation; not even one of them was a result of only deficit spending. In every case there was also a massive reduction in the supply of many goods or a key good like oil. There was also very often some other important factor like the need of the Wiemar Republic to buy gold with newly printed D-Marks to pay the treaty required reparations in gold. So, even without one actual historical case; hyperinflation is still used as a threat if the deficit isn't controlled. [My source for this Cato Inst. study is a Stephanie Kelton video.]


While there is demand for Dollars, there will be no hyperinflation. It is when the demand stops that the US will suffer. I predict this will happen when the Petro-Dollar ends. So again this is an assumption on your part (and my part too).
#14933400
I'm going to try to put my replies in italics in the spaces between your quotes. And highlight them.

B0ycey wrote:Not all your assumptions are based on solid facts @Steve_American, but here is my quick take on your points.

Only the FED creates new Dollars. What the banks do is allow money that is tied up in savings to flow by creating loans (assets). If every single person wanted to withdraw their money at the same time (a run on the bank), the bank would run out of cash to give back their money. So they work off a fractional reserve to protect themselves from such danger.

You are just wrong. What can I say to convince you? Nothing. Try googling it.
The fact that you are missing is how many dollars did the bank loan out. If it is 2 times the amount of its deposits, then the bank created dollars as everyone knows [but you]. The reason the bank can loan out more than its deposits of real [in your opinion] US created dollars is that by making the loan it also adds to its deposits. This automatically gives it the reserves it needs to meet the Fed. reserve requirements until the borrower spends his dollars. But even then those dollars are 99% of the time still in the US banking system, which means the 1st bank can borrow them at a very low rate from whatever bank they ended up being deposited into. The banks feel that making 0.025% less net on the loan is better than making nothing because the loan was turned down for lack of cash. So, the banks don't worry if they have the cash, they know they can ALWAYS get the cash later.


I largely agree with this, however in good times there is what you call an equilibrium that gives investors a confidence to enter the markets.

Chaos Theory predicts that things can look rosey for a while and then suddenly shit happens. And this is whit deterministic equations. Google it to.

This is an opinion with perhaps some truth to it. Nonetheless confidence is more of a factor in markets.

The point is the assumption is false. If it is false then every conclusion reached based on that assumption is UNSOUND + WORTHLESS.
I didn't say work one about confidence in the market.


This is definitely an opinion. But I do believe Austerity needs to be balanced and not rushed for some of the reasons you highlighted. Austerity seems to have worked for the UK will little ill-effect for example. Perhaps less so for other EU members. But unless you get on top of spending, you only create more debt that needs to be addressed on the future btw.

Austerity sent the UK into a double or triple dip recession. That is not working to me.
The debt only needs to be addressed in the future if nations are really like nuclear families,which they are not. This is just your opinion.
BTW --- this is a very good thing for Americans because it is flatly impossible to pay off the US debt with tax revenues. Just like with just $5T worth of gold at $1000/oz it is impossible for America to get back on the gold standard as long as there is a $20T debt. The US can only value gold at $200/oz and be able to give gold for the $25T in cash and bonds it owes. If it tries to value gold at the market price it will run out of gold and still see 75% of the dollar holders wanting gold it doesn't have. If the US defaults on the debt then maybe it can go on the gold standard, but the 1% will not let the US default on the debt. The debt is mostly owed to them.


IMO, the only thing stopping the Dollar from suffering from high inflation today is it's reserve status and that it is being used for commodity exchanges. The US are too print happy - and this will have an impact in the future I am sure of it. So this is an assumption on your part (and my part too).

This is just your opinion.

While there is demand for Dollars, there will be no hyperinflation. It is when the demand stops that the US will suffer. I predict this will happen when the Petro-Dollar ends. So again this is an assumption on your part (and my part too).

Google the Cato Institute report. Read it for yourself. Like I said I'm relying on Stephanie's testimony about it. If she said it right then in the history of the world there has never been a case of deficit spending by a rational government leading to hyperinflation. Claims to the contrary are, at this point, just opinions.

So, your response is to just blow off my facts. It's all fake facts to you. There is nothing that will convince you, is there?

So, that is one answer to my question. That is, you and many others are so enthralled to the Bullshit served to you by the 1% that all arguments to the contrary are just "fake facts". I can understand that.

.
#14933432
As you have said @Steve_American, you are just a layman. But to be fair, even in investment banking, the so called experts are speculating. So economics are full of laymen. :lol:

Nonetheless your understanding of loans is correct to an extent but is not the creation of new money. It is just circulating existing money. But you should know this. It was you who said that money is an IOU in another thread right? Well, who creates the IOU if not the FED?

And the 2008 crash caused the UK recession. Borrowing and austerity was the UK governments solution.
#14933444
B0ycey wrote:As you have said @Steve_American, you are just a layman. But to be fair, even in investment banking, the so called experts are speculating. So economics are full of laymen. :lol:

Nonetheless your understanding of loans is correct to an extent but is not the creation of new money. It is just circulating existing money. But you should know this. It was you who said that money is an IOU in another thread right? Well, who creates the IOU if not the FED?

And the 2008 crash caused the UK recession. Borrowing and austerity was the UK governments solution.

Again, you are just flat wrong. google it. Banks create dollars by making loans.
Who creates the IOU when a bank makes a loan? Obviously the bank does, duh. But the IOU is still a dollar just like any other dollar. These dollars are electronic money, not printed dollars. They are in a bank, they move to another bank with a check, etc. Sometimes someone wants cash so the Fed. has provided all banks with some cash for just this situation. Soon someone deposits the cash and it is back to being electronic money. That is, just numbers in a bank account in a computer.

Yes, the crash caused the first dip. What caused the 2nd and 3rd? Answer is austerity. You said austerity worked. Now it seems your are saying that it didn't work.
#14933452
Steve_American wrote:Again, you are just flat wrong. google it. Banks create dollars by making loans.
Who creates the IOU when a bank makes a loan? Obviously the bank does, duh. But the IOU is still a dollar just like any other dollar. These dollars are electronic money, not printed dollars. They are in a bank, they move to another bank with a check, etc. Sometimes someone wants cash so the Fed. has provided all banks with some cash for just this situation. Soon someone deposits the cash and it is back to being electronic money. That is, just numbers in a bank account in a computer.


Loans are assets from existing money. And the proof? Well if there is a run on the bank, the shit hits the fan. We have this bizarre notion from people that because the digits are in the depositors account and the digits are in the loanee account that this is new money. It isn't. It's circulating money and risk. Should the loanee spend the money, the depositor the will stuggle to get his money if there was a run on the bank and it runs out of reserve - unless the FED prints more money and gives it to the bank as a loan of course. But this is not worth my time explaining. So believe what you like.

Yes, the crash caused the first dip. What caused the 2nd and 3rd? Answer is austerity. You said austerity worked. Now it seems your are saying that it didn't work.


Being that the UK is almost producing a surplus again, I would say it has worked. Nonetheless, when can you spend your way out of debt? At some point you need to pay it back. So austrerity will have to happen at some point regardless.
#14933456
B0ycey wrote:

Loans are assets from existing money. And the proof? Well if there is a run on the bank, the shit hits the fan. We have this bizarre notion from people that because the digits are in the depositors account and the digits are in the loanee account that this is new money. It isn't. It's circulating money and risk. Should the loanee spend the money, the depositor the will stuggle to get his money if there was a run on the bank and it runs out of reserve - unless the FED prints more money and gives it to the bank as a loan of course. But this is not worth my time explaining. So believe what you like.



Being that the UK is almost producing a surplus again, I would say it has worked. Nonetheless, when can you spend your way out of debt? At some point you need to pay it back. So austrerity will have to happen at some point regardless.

Why pay it back? If the US Gov. raises taxes or cuts spending it will cause a deep depression far sooner than it can squeeze $17T out of the US economy.
If you need to pay it back just create dollars with key strokes, which is much like printing it.
Then the debt is gone. Solved. New problem is $17T new dollars in the economy. How damaging is this? No one KNOWS because it has never been done.

Again, I'm right and you are wrong. Banks do create money.
Link: https://www.sciencedirect.com/science/a ... 1914001070
International Review of Financial Analysis, Volume 36, December 2014, Pages 1-19
Title: Can banks individually create money out of nothing? — The theories and the empirical evidence.
Abstract: This paper presents the first empirical evidence in the history of banking on the question of whether banks can create money out of nothing. The banking crisis has revived interest in this issue, but it had remained unsettled. Three hypotheses are recognized in the literature. According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out. According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction. A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking). The question which of the theories is correct has far-reaching implications for research and policy. Surprisingly, despite the longstanding controversy, until now no empirical study has tested the theories. This is the contribution of the present paper. An empirical test is conducted, whereby money is borrowed from a cooperating bank, while its internal records are being monitored, to establish whether in the process of making the loan available to the borrower, the bank transfers these funds from other accounts within or outside the bank, or whether they are newly created. This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, "out of thin air".

There I googled it for you.
.
#14933513
Steve_American wrote:Why pay it back? If the US Gov. raises taxes or cuts spending it will cause a deep depression far sooner than it can squeeze $17T out of the US economy.
If you need to pay it back just create dollars with key strokes, which is much like printing it.
Then the debt is gone. Solved. New problem is $17T new dollars in the economy. How damaging is this? No one KNOWS because it has never been done.


Any nation that prints its own currency can never go bankrupt. However, if the currency is not in demand or loses confidence, it's value drops. The US have already printed way more than their economy is worth (in my opinion). The only reason the Dollar has maintained it's value is due to being a reserve currency and that it is sought-after for commodity exchanges. Should the Euro take this title, the Dollar will lose value rapidly I'm sure of it. Doubling your debt only increases the risk of hyperinflation in the future. It is fantasy to think the US will get away with never needing to balance their books and create a surplus.

Again, I'm right and you are wrong. Banks do create money.


I find it remarkable that the banks needed to borrow any money during the 2008 crisis considering they can create it 'out of fairy dust'. Why did lehmans collapse again? :lol:

Your link is clearly an act of scanning the internet to find anything to back up your claim. But more importantly, it doesn't actually back up its claim btw. It is barely heresy. I can only assume it has based its findings on some of the bank's practices to create credit. One of which is to sell loans. But the Dollar is an IOU from the FED. It cannot be created by a bank and that has always been my point. The bank by liquidating assets such as loans and repackaging them as something else only creates more liabilities and potential toxic assets. And if the loanee cannot afford to pay back their loan, a bank cannot just print Dollars. It goes bankrupt if it doesn't have suitable reserves. Do you not understand that?
#14933586
B0ycey wrote:Any nation that prints its own currency can never go bankrupt. However, if the currency is not in demand or loses confidence, it's value drops. The US have already printed way more than their economy is worth (in my opinion). The only reason the Dollar has maintained it's value is due to being a reserve currency and that it is sought-after for commodity exchanges. Should the Euro take this title, the Dollar will lose value rapidly I'm sure of it. Doubling your debt only increases the risk of hyperinflation in the future. It is fantasy to think the US will get away with never needing to balance their books and create a surplus.

Doubling the US debt is going from $20T to $40T, that is a lot of deficit spending. Creating enough surplus will undermine the economy. It is my opinion that there is no doubt about this. I said it above and you ignored my claim. This seems to be common on the internet, i.e. when confronted with a point you can't refute you just ignore it.

I find it remarkable that the banks needed to borrow any money during the 2008 crisis considering they can create it 'out of fairy dust'. Why did lehmans collapse again? :lol:

Banks can't loan to themselves [can they?] so they can't save themselves with pixie dust money.

Your link is clearly an act of scanning the internet to find anything to back up your claim. But more importantly, it doesn't actually back up its claim btw. It is barely heresy. I can only assume it has based its findings on some of the bank's practices to create credit. One of which is to sell loans. But the Dollar is an IOU from the FED. It cannot be created by a bank and that has always been my point. The bank by liquidating assets such as loans and repackaging them as something else only creates more liabilities and potential toxic assets. And if the loanee cannot afford to pay back their loan, a bank cannot just print Dollars. It goes bankrupt if it doesn't have suitable reserves. Do you not understand that?

Heresy or not, it is an experiment that claims to prove that the bank did not have an entry on its books before the loan labeled something like, "money available to loan" and that to make the loan no money was moved from this account into the borrower's account. This is the key experimental result. You just assumed away that observation.
. . Why can't the bank create electric facsimiles of dollars? Is there an actual law on the books about this? Show it to us.
. . Yes, the bank risks bankruptcy unless it sells the loan to someone else. If it does this, then the buyer will be the one going bankrupt, not the bank.
. . The bank is required by the Fed. Res. Bk to have on deposit a certain amount of reserves based on the amount of its deposits. The FDIC insures the deposits so all the depositors will not demand them all at the same time. You know that, right? If a solvent bank can't meet the demands for cash or e-dollars by some big depositors then it will borrow them from other banks or in an extreme case from the Fed/ Res.

Like I said above, you are so enthralled by the BS of the 1% that you see evidence to the contrary as fake facts. So, you can just ignore it or wave it away with a flip of your wrist. Or with a rhetorical question. I hope the lurkers can see you doing this.

.
#14933601
B0ycey wrote:Well @Steve_American, at the beginning of this evoked debate, I explained that your points are based on assumptions and this reply just proves it. I hope lurkers see that.

Well lurkers, I hope you can see that I replied to more of B0ycey's points than he replied to mine.
He assumed that banks can't create e-dollars because only the Fed. Res. can do this. I asked him to show us the law that says this. You can see in this above reply that he just ignored that request. He didn't even use google to see if in the 4 years since the experiment was published, someone had written a refutation of it. BTW, Crantag agreed with me that "everyone knows that banks create new dollars when they make loans" and this adds to the M2 money supply.
I want to point out that no real scientist would ever respond to an experimental result by labeling it "almost heresy" and then "assuming there must be an error in it somewhere", before bowing it off. This is the sort of behavior that makes Macroeconomics a Non-science. A real scientist would either dig deep into the methodology to find an error or he would try to repeat the experiment.


Perhaps one should not ask the other to explain if they don't like the answer :lol:

This sentence makes no sense. Did he mean "if you don't like the answer"?
Or does he mean that I should not ask "the other" to explain his answer when I don't like his answer? If so, what is wrong with asking for an explanation?

.
#14933629
I don't know how many times I need to say the same thing but in a different format @Steve_American. The US dollar is merely a national IOU from the government. A bank cannot create it as it is not an IOU from them. All a bank does is circulate existing deposits into assets via a method of risk and rules (fractional reserve). If it over steps the mark and these assets become toxic, they either go bankrupt or they need a government bailout - as they do not have the ability to print new Dollars. After all, why would the bank need to attract deposit customers (and pay interest) if they could just create money anyway? And that is the last I will say on the subject. You either understand that or you don't.

As for evidence as to why a nation cannot just print money to get out of debt...

https://en.m.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic
#14933633
Commercial banks do create money.

Central bank money is used in inter-bank payment systems, but not exclusively so. Needless to say it is not used for intra-bank payments. Think of an extreme case: A cashless economy (no physical cash) and only a single commercial bank. All payments would just be balance sheet changes, no central bank money involved.
#14933640
B0ycey wrote:I don't know how many times I need to say the same thing but in a different format @Steve_American. The US dollar is merely a national IOU from the government. A bank cannot create it as it is not an IOU from them. All a bank does is circulate existing deposits into assets via a method of risk and rules (fractional reserve). If it over steps the mark and these assets become toxic, they either go bankrupt or they need a government bailout - as they do not have the ability to print new Dollars. After all, why would the bank need to attract deposit customers (and pay interest) if they could just create money anyway? And that is the last I will say on the subject. You either understand that or you don't.

Look, B0ycey, maybe it makes no sense that banks can create IOUs in the name of the US Gov., but you didn't show us where it is illegal. You have made 2 replies since I asked for that and you never supplied the law. You just said it is "almost Heresy" and re-asserted you assumption that banks can't create dollars because they are IOUs of the Gov. How much of the linked paper about the actual experiment did you read? Any?
. . If the bank does NOT have a bookkeeping entry and account before a loan is made that holds the dollars the bank can still loan out and so can't transfer dollars into the borrower's account from this non-existent account, then just where did the dollars now (after the loan is made) in the borrower's account come from?
. . It is quite likely that the BS your spouting is what you were taught in a college level economics course. It is, as I have said, often the position of the Mainstream of modern economics. This does't make it correct, though. In science one experiment outweighs all previous opinions.
. . Your side has had 4 years to publish papers that refute the paper I linked to. Maybe you should find and read 2 of those papers.

How about I add this ---

link: https://opentextbc.ca/principlesofecono ... ate-money/
27.4 How Banks Create Money

Banks and money are intertwined. It is not just that most money is in the form of bank accounts. The banking system can literally create money through the process of making loans. Let’s see how.

Money Creation by a Single Bank
Start with a hypothetical bank called Singleton Bank. The bank has $10 million in deposits. The T-account balance sheet for Singleton Bank, when it holds all of the deposits in its vaults, is shown in Figure 1. At this stage, Singleton Bank is simply storing money for depositors and is using these deposits to make loans. In this simplified example, Singleton Bank cannot earn any interest income from these loans and cannot pay its depositors an interest rate either.

The assets are reserves ($10 million). The liabilities + net worth are deposits ($10 million).
Figure 1. Singleton Bank’s Balance Sheet: Receives $10 million in Deposits.

Singleton Bank is required by the Federal Reserve to keep $1 million on reserve (10% of total deposits). It will loan out the remaining $9 million. By loaning out the $9 million and charging interest, it will be able to make interest payments to depositors and earn interest income for Singleton Bank (for now, we will keep it simple and not put interest income on the balance sheet). Instead of becoming just a storage place for deposits, Singleton Bank can become a financial intermediary between savers and borrowers.

This change in business plan alters Singleton Bank’s balance sheet, as shown in Figure 2. Singleton’s assets have changed; it now has $1 million in reserves and a loan to Hank’s Auto Supply of $9 million. The bank still has $10 million in deposits.

The assets are reserves ($1 million) and loan to hank’s auto supply ($9 million). The liabilities + net worth are deposits ($10 million).
Figure 2. Singleton Bank’s Balance Sheet: 10% Reserves, One Round of Loans.

Singleton Bank lends $9 million to Hank’s Auto Supply. The bank records this loan by making an entry on the balance sheet to indicate that a loan has been made. This loan is an asset, because it will generate interest income for the bank. Of course, the loan officer is not going to let Hank walk out of the bank with $9 million in cash. The bank issues Hank’s Auto Supply a cashier’s check for the $9 million. Hank deposits the loan in his regular checking account with First National. The deposits at First National rise by $9 million and its reserves also rise by $9 million, as Figure 3 shows. First National must hold 10% of additional deposits as required reserves but is free to loan out the restFirst National Balance Sheet

The assets are reserves (+ $9 million). The liabilities + net worth are deposits (+ $9 million).
Figure 3. First National Balance Sheet. .

Making loans that are deposited into a demand deposit account increases the M1 money supply. Remember the definition of M1 includes checkable (demand) deposits, which can be easily used as a medium of exchange to buy goods and services. Notice that the money supply is now $19 million: $10 million in deposits in Singleton bank and $9 million in deposits at First National. Obviously these deposits will be drawn down as Hank’s Auto Supply writes checks to pay its bills. But the bigger picture is that a bank must hold enough money in reserves to meet its liabilities; the rest the bank loans out. In this example so far, bank lending has expanded the money supply by $9 million.

Now, First National must hold only 10% as required reserves ($900,000) but can lend out the other 90% ($8.1 million) in a loan to Jack’s Chevy Dealership as shown in Figure 4.

The assets are reserves ($90,000) and loans ($8.1 million). The liabilities + net worth are deposits (+ $9 million).
Figure 4 First National Balance Sheet.

If Jack’s deposits the loan in its checking account at Second National, the money supply just increased by an additional $8.1 million, as Figure 5 shows.

The assets are reserves (+ $8.1 million). The liabilities + net worth are deposits (+ $8.1 million).
Figure 5. Second National Bank’s Balance Sheet.

How is this money creation possible? It is possible because there are multiple banks in the financial system, they are required to hold only a fraction of their deposits, and loans end up deposited in other banks, which increases deposits and, in essence, the money supply.
... I snipped off a lot more ...


As for evidence as to why a nation cannot just print money to get out of debt...

https://en.m.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic
You ignored again something I put in this thread. The case of the Weimar Republic is NOT a case of just printing money to spend into the economy. It was a case of having to buy gold to make reparations and the foreigners using the marks to buy German production before the Germans could buy it. Also the Fr. were occupying the Ruhr industrial region. Both of which led to shortages of German production for the Germans to buy.
.

In my opinion, masculinity has declined for all o[…]

Russia-Ukraine War 2022

So have people given up on blaming that terrorist […]

@ingliz good to know, so why have double standar[…]

...Or maybe because there are many witnesses sayin[…]