Captain, we need another Printing Press.

[Strifen]

2000: 27.142T +1.7T (+6.6%) <-Start of the stock bubble burst
2001: 29.327T +2.2T (+8.1%) <-Start of mega housing bubble
2002: 31.829T +2.5T (+8.5%)
2003: 34.606T +2.8T (+8.7%)
2004: 37.808T +3.4T (+9.8%)
2005: 41.251T +3.4T (+9.7%)
2006: 45.347T +4.1T (+9.9%) <- Debt creation hits its peak
2007: 49.760T +4.4T (+9.7%)
2008: 52.792T +3T (+5.9%)
2009 Q1: 52.915.1T (+. 2%)
2009 Q2: 52.792.9T (-1.3%) <- Debt deflation sets in first time in 70 years

http://www.federalreserve.gov/releas...rent/z1r-4.pdf

[Phelps McManus]

"Captain, we need another printing press"

So what do we need an extra printing press for? Who is the captain? Is the money being printed on a boat? Is this a play on a meme I don't know? Should we print over 9000 billion dollars?

Interesting information, I just don't get the title.

[The Ancient]

This is the guy.

[Strifen]

Can't edit the title but It was supposed to be called US money supply.

That's what the total credit market debt is, the money supply of the US. The federal reserve tracks the total credit market debt. Every time you swipe a credit card or go to a commercial bank and request a loan you have effectively added to this debt.

For the last 70 years the US consumer has been the engine that has driven the world, every economic zone either has the US as their #1 importer or they import to a country that does. What does the US export? US consumer debt(US dollars) the engine that powers the system.

The numbers shows that the US consumers hit their maximum potential to manufacture new dollars back in 2006, shortly after they ran through all willing borrowers with the sub-prime fiasco.

Now what we're seeing is debt deflation, the US consumers are tapped out and are not even creating enough new dollars to service the existence of the previously requested ones.

[Phelps McManus]

Originally Posted by Strifen

That's what the total credit market debt is, the money supply of the US. The federal reserve tracks the total credit market debt. Every time you swipe a credit card or go to a commercial bank and request a loan you have effectively added to this debt.

Really? I figured when I swiped a credit card, money was sent from Visa to Best Buy and now I owed Visa money (zero sum plus interest). I didn't know that shit actually created money! If I had known that, I would have always paid in cash .

So is paying off my mortgage subtracting from the money supply? Do they cash the check I send them every month and then burn the money?

I am even more confused than before.

Now what we're seeing is debt deflation, the US consumers are tapped out and are not even creating enough new dollars to service the existence of the previously requested ones.

I don't know what this means but it sounds bad.

edit: Where does the trade deficit and foreign countries using their surplus to purchase Treasuries fit into all of this?

[Strifen]

It adds to the credit market debt, same thing when as if you were to go to a bank and get a loan for a house. If nobody was in debt then we would have no money and no economic growth. The entire money supply has a % interest attached to it, it needs to be payed with the participation of new willing borrowers and if there is not enough debt inflation every year what happens is debt deflation sets in where this debt starts to shrink. I'm not sure on the exact details of how but according to the FEDs owns numbers its happened for the first time in Q2 09.

"We are completely dependent on the commercial banks. Someone (Consumer) has to borrow (Request) every dollar we have in circulation, cash or credit. If the banks create ample synthetic (At the request of the consumer) money we are prosperous; if not, we starve. We are absolutely without a permanent money system, It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." --Robert H. Hamphill, 1938 Atlanta Federal Reserve Bank

[Northerner]

While there are some serious errors here already but there isn't much point in getting into the details. Let's just say that a contraction of debt is not a bad thing necessarily and is probably a reflection of economic reality. In fact, were credit too loose in the past then it is a correction and healthy for the economy in the long term.

Hamphill's comments are still popular of course but many other countries have quite successful economies without the level of credit leverage seen in the US. Of course it fuels entrepreneurs but it also causes many of the problems we've seen recently in terms of poorly allocated risk and so on.

[Elurin]

Originally Posted by Phelps McManus

So is paying off my mortgage subtracting from the money supply? Do they cash the check I send them every month and then burn the money?

Yes, actually. (Not about the burning money part though)

Banks are allowed to create new loans based on how much money they are owed (i.e. outstanding loans). When you pay off your mortgage, you're shrinking the amount your bank can lend in the future.

[Phelps McManus]

Originally Posted by Elurin

When you pay off your mortgage, you're shrinking the amount your bank can lend in the future.

Good thing nobody is paying off their mortgages then (interest only and option ARMS ftw!).

What you say makes perfect sense. It is similar (but not exactly the same) as personal finances. If I loan money to my friend, every dollar he pays me back is actually more money I can loan out to others. In the banking world, where you want to encourage as much debt as possible, it means less money I can lend out to others.

edit: And this article backs you up: 20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down

[Elurin]

It differs because banks are essentially allowed to create money with new loans. Banks don't have nearly enough resources to loan out how much they do. So the government says, you can lend out x% more than you have in outstanding loans (I believe it's about 90% right now -- or 10% reserve requirement. This means 90% of your loan, then 90% of that one and so on). So with your $200,000 mortgage, a bank can create close to $2,000,000 worth of new money.

Look up fractional-reserve banking.

[Phelps McManus]

Originally Posted by Elurin

This means 90% of your loan, then 90% of that one and so on). So with your $200,000 mortgage, a bank can create close to $2,000,000 worth of new money.

Look up fractional-reserve banking.

OK, so Fractional-reserve banking - Wikipedia, the free encyclopedia says that banks can lend out 90% of their deposits, keeping 10% as reserves.

From what you are saying, they can loan that money to people as a mortgage and count that as a deposit worth 10 times the amount of the loan/collateral. That is pretty awesome. I had no idea banks worked like this but now I am beginning to understand what "too big to fail means".

[Soriak]

FRB means the bank can loan out most of the deposits from its clients. So if you drop of $100 at your bank, it'll loan out $90 to someone else. But it CANNOT loan a fraction of that $90 loan again.

Now whoever borrows that $90 is going to spend it and the business that received it will in turn (probably) depose it at some bank. Of those $90, that bank is going to loan out $81, and so on.

Nonetheless, it's always loans on deposits. You can't just issue a $200k loan for a mortgage and then get another $180k to loan. Especially because the previous home owner probably still has an outstanding mortgage himself. So that $200k doesn't get deposited entirely, but will be used to pay off some other debt. As debt is paid off, the bank's reserves increase and they can again loan out more.

You can do the same thing. Go to a bank (or a friend) and borrow money, then loan it out at a higher interest rate. You're lending money that isn't yours and you're increasing the liabilities all the same. ($100 loaned from the bank, you loan $100 to others = $200 in total debt obligations) If you have enough people to loan to and your math is right, you can profit from the spread. There's nothing magical about it that only works for banks... although you'll have one hell of a time getting money at a reasonable rate - I don't imagine investors will want to buy your bonds. edit: actually, you can loan out the full $100, whereas a bank could only loan out $90. Unlike banks, your lending isn't regulated.

So with your $200,000 mortgage, a bank can create close to $2,000,000 worth of new money.

That simply isn't true.

[Phelps McManus]

So what happens when you introduce Reverse Mortgages and banks paying themselves with the proceeds?

Originally Posted by TFA

Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn't need to be repaid until after the homeowner dies.

How much money was created? Mr. Garcia is basically doing the exact opposite of paying back his mortgage, so I presume he is patriotically increasing the money supply by quite a bit.

I know this is a simple example, but I am really having trouble with the basics here. You guys really seem to have a firm grasp of how this stuff works, especially Elurin. Soriak obviously has no idea what he is talking about. Is he even American?

[prescient63]

Originally Posted by Elurin

It differs because banks are essentially allowed to create money with new loans. Banks don't have nearly enough resources to loan out how much they do. So the government says, you can lend out x% more than you have in outstanding loans (I believe it's about 90% right now -- or 10% reserve requirement. This means 90% of your loan, then 90% of that one and so on). So with your $200,000 mortgage, a bank can create close to $2,000,000 worth of new money.

Look up fractional-reserve banking.

I swear this board makes me more dumb every time I read it. The way you present information makes it seem as if one bank can lend out $2,000,000 based on a $200,000 mortgage. This simply isn't true. A bank can lend $180,000 based on a $200,000 deposit/asset and through the money multiplier the net creation of dollars between all banks lending and receiving money can be approximately $2,000,000 ($200,000/0.1) if there is absolutely no loss in the system which obviously isn't the case.

In case this wasn't simple enough..
Bank 1 receives 200k deposit and loans 180k
Bank 2 receives 180k deposit and loans 162k
Bank 3 receives 162k deposit and loans 146k
etc.....

You fuckers make my brain hurt.

[prescient63]

Originally Posted by Phelps McManus

Soriak obviously has no idea what he is talking about. Is he even American?

Soriak is one of the few people on this board that has any fucking clue what he's talking about.