The Housing Bubble

Are you sure you’re not dreaming of a time that never was, though?

Oh, there are multiple proofs of why democracy can’t work and has never worked. Hans-Herman Hoppe’s “Democracy: The God that Failed” is a wonderful study into the failure of the idea. It’s a tough read, but if you want a copy I freely lend out from my library (I have about 6 copies, 2 are out). Just ask

“Democracy” and our Constitution are always refracted through the imperfect lens of the humans who must put those ideals into practice.

That’s the issue though: humans have that imperfect lens, so we rarely learn from our mistakes. Government through democracy has existed for thousands of years (see: Roman Empire). It was a failure then, and it’s a failure now. The only way that democracy can work is if it is restricted in power as the voting bloc gets larger, as the U.S. Constitution was supposed to provide for. I would agree to living in a democracy at the local level, maybe up to 50,000, and even that is too large. I prefer heavily restricted government based on two precepts: (1) protecting liberty on public lands, and (2) protecting liberty on public lands. That’s it. The moment that government tries to provide something, it is sure to fail or be more costly than allowing greedy individuals to take risks, and reap profits if they succeed.

There has never been and never will be a complex society that’s above reproach.

That’s the benefit of a Constitutional Republic: society can stay small, localized, and competitive. Societies SHOULD be competitive, not cooperative. Chicago should openly compete with Park Ridge for citizens who have similar desires. They should not cooperate by trying to hedge against emergencies “for the greater good.” I’m a huge fan of keeping socialism to the local, local level. I’m also a huge fan of public disclosure of who is on the public dole. Welfare should not be anonymous and private. The moment that someone needs my money, and it is taken from me by force or fiat, I should know exactly who they are, so I can either help them, or look deeper and catch them lying about their need.

I also would love full disclosure of voting records: not just to prove that a vote was counted, but because I fully believe we should be able to discriminate against people for what and who they voted for. Oh, you voted for the school referendum that is making my business costs too high to facilitate growth and stability? You’re fired. Go work for the school board. Oh, you voted against privatizing the fire department? Sorry, you’re not invited to my next party.

Callous? Yes. But when I am harmed because of anonymity and can not freely dissociate with those who directly chose to harm me, my freedoms are diminished.

“I fully believe we should be able to discriminate against people for what and who they voted for.”

You lost me there. I think the last thing we need is for Walmart and Microsoft employees to be required to vote the company line or lose their jobs.

Hey, AB, I am curious about the book.

Maybe I can borrow it from you in the near future.

Walmart and Microsoft employees are schmucks, as are the vast majority of people who give up the freedom to build their abilities and talents in exchange for W9 “comfort.” The moment you tie yourself to one employer, you’re already at the bottom of the heap. Seriously. Do you shop ONLY at one store? Do you buy gas ONLY at one station? Do you eat ONLY at one restaurant? No? Then why would you ONLY work for one company? It makes little to no sense to me, unless they’re REALLY competitive in pay and benefits and compensation and future promotion possibilities.

I see no reason why you can’t be prejudice because another person is using an immoral power to rob you of your freedoms. Voting is immoral. The party harmed has no solution to extricate themselves from the theft of government enacted by the majority (actually, by a minority of eligible voters who take the time to use the immoral power). Prejudism is NOT immoral, because we all have to be prejudiced for some reason. Would you want your daughter dating a convicted child molestor? No? Why? Would you want to be friends and hire a person who has come into your house and robbed from you, each week? Really? That’s why prejudism is fine. If I know how a certain person votes, you better believe I’ll let them know it. Have I lost business because of my attitude? A little, but here’s a secret: I’ve gained MORE business because of it. People secretly like knowing they’re not the only ones who are sick of other people who are a certain way and they’re restricted from how they treat them. I don’t. I see the Obama/McCain stickers on cars of people who visit me, and I let them have it. Including employees, who I remind repeatedly are the ones who pay the taxes they vote for, not me. I just pass it down to them in lower wages, less investment, fewer opportunities and more loopholes for me to make my life better at their expense.

Funny how everyone who works for me is now as anarcho-capitalist as me, and many of them love the fact that I’d rather them compete with me in 2 years versus work for me for life. They see the reason why people are sheeple: because they just be part of the system, rather than fight against it. Everyone I meet hates the government and has prejudices, they’re just afraid to talk about it because it’s not politically correct.

Ah, so all the people who work for you agree with everything you say.

can’t imagine why for one moment.

Prejudism is NOT immoral, because we all have to be prejudiced for some reason. Would you want your daughter dating a convicted child molestor? No? Why?

??? Is this really the definition of prejudice, if they were convicted you aren’t really pre-judging them are you.

Exactly. If he does not see the flaw in his logic, he is without hope. If he sees it and does not care, he is a charlatan.

What a surprise to see him opining about real estate finance.

More Winston…

“The best argument against democracy is a five-minute conversation with the average voter.”

If your going to push the public into a political and economic structure ,at least capitalism will be more productive ,and the people might end up with more in their mouth than any other economic system . With capitalism ,it has always been true that it needs to be highly regulated to keep people playing by the rules . Law and order has to be present with capitalism. How anyone can say that the fraudulent housing lending as of late was capitalism at it’s best ,is wrong . The housing bubble was a crime wave that all regulators and politicians allowed . Wall Street was allowed to throw absurd low down loan products on the market and lenders breached their duty to underwrite loans and appraisals, to fund the housing bubble ,for big quick profits . The real estate community were allowed to falsely advertise that real estate always goes up ,sitting the stage for the sheep to get in on the doomed mania .

How could so many agencies and check and balance systems be sleeping on the job like they did during the housing boom ?
Now the FBI is investigating Indymac after the horse is out of the barn . No doubt this was a bank that went down because of fraudulent loose lending . Same bank was given 10 billion in short terms loans from the Feds Discount window ,yet it still fails ,so doesn’t seem like pumping money at bad loans is anything but a waste .

It would be a big mistake to blame the concept of capitalism
for this crime wave housing bust . IMHO of course

Great post

Good question patient renter . I have thought a lot about your question lately . Perhaps we should change to a system whereby
people who lobby Congress and the Senate can only write letters
to the Congressman and Senators ,and Political campaigns are funded by 2 dollars being taken out of peoples income tax.

Agreed with everything, though much like what happened to Ron Paul (during the election), Bunning would just be “disappeared” by the media at some point, regardless of how outspoken he tries to be.

RE: Big Dig’s red ink engulfs state
Cost spirals to $22b;

FBwODO…

The Big Dig is a financial black hole which is destroying the balance of Mazz transport infrastructure.

When the local news can’t get a dog and pony story, you can bet they’ll came up with some poor scmuck whose car got clobbered (or killed) by a piece of falling bridge, lifting asphalt or tire destroying mega-pot-hole.

And the GLOB noted yesterday that a recent poll shows 65% of younger families satisfied or better with the general status quo in MAZZ.

Big Dig = Privatization = a plan to rip off tax payers = Iraq War

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/12/03/the_public_cost_of_privatization/

Did you not get the newly revised playbook? (written in crayon)

Sometimes you have to torture the syllables into divulging all they know.

Yes.

Misstrial, honey.

I’m not mentally ill, crazy, a wackjob, or in need of psychotherapy.

Perhaps you might want to reconsider your rhetoric along with your missconceptions?

Thanks.

No what got us where we are now is a government that rolled back conservation measures. Increased the speed limit and shortsightedly let Americans build a society dependent on cheap foreign oil.

“No what got us where we are now is a government that rolled back conservation measures. Increased the speed limit and shortsightedly let Americans build a society dependent on cheap foreign oil”

The market is quickly correcting fuel economy standards. Speed limits should be about safety not conservation, 55 on rural interstates is ridiculous. I agree with you about most Americans being short sighted.

IMHO, what got us here now was the continual re-election of representatives and senators. Period. We had plenty of warning in the 1970s and plenty of opportunity to deal with the potential for being held hostage for oil, so to speak.

Don’t vote for incumbents, if you ever hope to have real change.

That said, I still believe we should form OGEC and trade grain for oil, subsidizing truly poor countries.

RE: ANWR? Its bleak, flat, plantless tundra.

With a bazillion mosquitos as big as your fist!

“No dogma taught by the present civilization seems to form so insuperable an obstacle in a way of a right understanding of the relations which culture sustains as to wilderness, as that which declares that the world was made especially for the uses of men. Every animal, plant, and crystal controverts it in the plainest terms. Yet it is taught from century to century as something ever new and precious, and in the resulting darkness the enormous conceit is allowed to go unchallenged.”

John Muir

my reply was about nancy pelosi’s re-election. We don’t need more drilling.

We need to pay what the rest of the world pays per gallon, instead of stealing from our children in yet another way (and enriching the criminal rich mofos in the process).

“This is where I wished I would had bought a farm or a ranch, when I had the chance as recommended here.”

Whats stopping you? Pull the trigger but don’t forget to come back and tell us how your “farm” cashflows.

I don’t know why people get so upset when a politician changes their mind . Can’t a person get more data and see the error of their ways ,or can’t a person respond to a change in conditions .
Even more important ,can’t a politician ,in the final analysis ,
based on solid proof ,do what is best for the Country instead of of what a money-paying lobbyist wants .

Sure politicians are elected on mandates from their contributors ,but there is also the sworn duty to affirm the Constitution and the welfare of all the people in general .

During these trying times and this critical juncture in history ,it becomes necessary for the politicians to respond to the needs of main street American ,like it never has in a long time . While it seems like the politicians are more than willing to put off all problems to future generations , they create bigger problems with the unwillingness to solve problems now, however painful they might be .

Constructive action is called for NOW. I also think this means admitting that the GLOBAL experiment with the labor force and energy dependency ,has only served to weaken America ,and anything that brings back Americas former strength ,would be a good thing .While free trade might be a good thing ,I’m not so sure that a Global labor force is the pathway to what is best for America.

I,like anybody else have enjoyed this cheap oil from other countries for years now ,but the time has come to perceive that the cheap oil is not going to continue . I have enjoyed the cheap products from other countries also ,but I don’t want it to be at the expense of American jobs and needed independence anymore .

Your “argument” consists entirely of a logical fallacy called “Begging the Question”.

That doesn’t explain why churches should be exempt from contributing to government revenue to begin with, it just explains how they can avoid the appearance of being a PAC organization.

Churches use police/fire/roads/etc, don’t they?

…and scowl on it the fatal harbinger announcing the subversion of the duperies on which they live.

Awesome. But trust me, dude will never get elected talking shiite like that.

He’s way term’d out.

I loved the old Vegas - not much of a gambler.

But you’re right - I know the value, and take the risk.

Oh, the risk - back in the day a few rolls of nickles and hours of fun.

Chuckles,
Leigh

Lucy, have you really thought through this position?

I have a post held up because there is a link contained within. I think you need to educate yourself on this matter because no fair minded person can defend this practice.

BTW, companies do hold back shares to sell in order to raise funds. Having the share price driven down because of counterfeit shares is patently unfair and I suspect you know it.

Auger, I’m just pointing out that naked short selling is a symptom rather than the underlying disease. If the banks were fundamentally sound then the naked short sellers would avoid them. Short sellers, naked or otherwise, target companies whose share prices they believe are overvalued. They may or may not be right but, as I said above, a fundamentally healthy company should not be threatened by a short-term share price decline. Lots of companies plan to finance their operations by selling shares and often, for many different reasons, they can’t. If the management doesn’t have a plan B, that’s a fault of the management not the sellers who have depressed the share price.

Would Berkshire Hathaway or Microsoft or Coca Cola be threatened by naked short selling? I suspect that no amount of naked short selling would bother Berkshire Hathaway. In fact I’m sure Buffet would be happy if sellers pushed his share price down to $10,000 or $1,000 so he could buy-back, and so would I.

A company like Berkshire would not be threatened mainly because of the size of their float and share price. However, take a small cap company and it can be wiped out because of naked short sellers.
I agree that short sellers are legitimate but only if they borrow the shares to short. Introducing counterfeit shares into the market place is patently unfair. Borrowing shares to short is self-correcting in that there is a limited amount of shares to sell into the market. A determined naked short seller can continually and without limit, sell fake shares and even ramp up the amount sold in order to crush the price. It is a price manipulation scheme as opposed to a bet on a company’s fundamentals.

Naked short selling has a huge tax loop hole that is being exploited by hedge funds against small cap companies.
If a hedge fund can ID a company that has a business model that requires stock sales to service debt or one that will go BK if they can drive the shares low enough, they can drive it into BK and get tax free income to boot.
Any money made by selling phantom shares is not taxed if the share price goes to zero because of BK. The hedge fund never has to cover.
In addition, there was a small cap company that went into a proxy fight where 80 million proxies were sent in. Problem? The float of the company was only 50 million shares! 30 million folks thought that they could exercise the rights of voting their stock except that they didn’t have those rights because they owned phantom shares!
Next case, take SLV for instance. Every share is supposed to be backed by 10 oz of silver. Start selling naked shorts and what happens? It devalues every shareholder because extra silver is not added to the holdings when phantom shares are sold. It is a complete and utter fraud which is recognized as a fraud and completely unacceptable to anyone who values a fair marketplace.
I agree that large cap organizations are only marginally impacted by naked short sellers, but this is due to self preservation instincts by the shorters, not because it is fair. It is the small caps and their investors that get raped by the naked shorts.
At any rate, this is why I believe you are wrong about companies that are fundamentally sound being unthreatened.
I do agree that with regard to the banks, their bigger problem is the fact they are insolvent and everyone knows it. The naked shorts are just taking advantage of what is eventually going to happen anyway.

Here is an article (a bit tinfoilish I might add) that speaks to that point.

“Just this week we heard from the head of the SEC, Christopher Cox, that “naked shorting” of financial stocks would not be tolerated.

Absolutely bloody amazing!

In case anyone is unaware, naked shorting of ANY stock is basically supposed to be illegal in the first place,

Naked short selling involves selling stock without first borrowing (or sometimes even locating) the stock. If a naked short seller does not borrow the stock he sold, he will be unable to deliver that stock to the buyer to close the transaction. This is called a “failure to deliver” (FTD). Naked short selling is generally illegal, though market makers are allowed to temporarily naked short for the sake of bona fide market making. FTDs are always illegal when delivery failure exceeds 13 days.

How Phantom Naked Shorts Circulate In the System Like Real Ones:

Exchanges do not disclose whether short sales are naked and supply no information on FTDs. Even worse, in transactions where shares are not delivered, brokerages issue stock IOUs called “share entitlements.” Retail customers’ account statements do not distinguish between real shares and share entitlements.

FTDs create phantom shares that circulate in the system as real shares. Just as counterfeit currency dilutes and destroys value, phantom shares deflate share prices by flooding the market with false supply.

Naked shorting of equities has been an acknowledged problem for a very long time. See / listen to Jim Puplava’s excellent interview on this topic with Bud Burrell here.

The next thing folks need to understand is that all exchange traded equities [stocks] are electronically cleared through an institution called the Depository Trust Clearing Corporation [DTCC]. Since the DTCC clears all equity trades they CATEGORICALLY KNOW who the counterparties are that FAIL TO DELIVER. So why would you suppose the SEC has not subpoenaed from DTCC “lists of naked short violators” years ago?

Hmmmmmmm?

Could it be that some company’s stocks, or industries deemed ‘unfriendly to financials’, are ‘targeted’ for regular take-downs or even decimation?

Hmmmmmmmm?

Perhaps we would get a better clue as-to-what’s-going-on if we knew a little bit more about whom the good folks are who run the DTCC?

Let’s take a peek at the rogues-gallery of “who is” on the Board at the DTCC:

Donald F. Donahue
Chairman & Chief Executive Officer, DTCC
Read Full Bio
William B. Aimetti
President and Chief Operating Officer, DTCC
Read Full Bio
Mark Alexander
Managing Director - Global Markets, Merrill Lynch
Gerald A. Beeson
Senior Managing Director and Chief Financial Officer, Citadel Investment Group, LLC
J. Charles Cardona
Vice Chairman, The Dreyfus Corporation
Stephen P. Casper
Chairman and Chief Executive Officer, Fischer Francis Trees & Watts, Inc.
Art Certosimo
Executive Vice President, Bank of New York
Randolph L. Cowen
Chief Information Officer, Goldman Sachs
Norman Eaker
Principal, Edward Jones
Robert Kaplan
Executive Vice President, State Street Global Services
Gerard LaRocca
Managing Director, Chief Administrative Officer of the Americas, Barclays Capital
Ian Lowitt
Co-Chief Administrative Officer, Lehman Brothers Holdings Inc.
Norman Malo
President and Chief Executive Officer, National Financial Services LLC, Fidelity Investments
Louis G. Pastina
Executive Vice President of NYSE Operations, NYSE Euronext
Ronald A. Purpora
President, ICAP Securities USA LLC
Neeraj Sahai
Senior Managing Director, Citi Markets & Banking
Timothy J. Theriault
President of Corporate and Institutional Services, Northern Trust Corporation
Michele Trogni
Global Head of Operations, UBS AG
David A. Weisbrod
Senior Vice President, JPMorgan Chase & Company
Amazing, ehhh?

So, it now appears that the “bootlicking” Cox and his cronies over at the SEC are going to begin “selectively” enforcing laws – already on the books – but, as it appears, only and exclusively to aid his “Faustian Friends” at the banks and brokers on Wall Street.

This is tantamount to treasonous dereliction of duty. For uttering such a statement Cox should be immediately impeached and the SEC disbanded. A troupe of green boy scouts could do better.”

You said:
“It is counterfitting only in the short term. They have to buy back the stock later.”

Which is not necessarily true. In addition there are no tax consequences to this event as well.

I’ve been crying for someone to start a full reserve bank because I would save in it, and I would borrow from it, even if rates were much higher than the immoral market rates created from the Fed and fractional reserve banks. I think many people I associate with would do so as well.

It’s a wonder that anyone can get 30 year loans. Who in their right mind would lend anyone a loan for 30 years?

I’d love to see a full-reserve bank.

When someone borrows money from a bank, fractional reserve or not, it is not counterfeiting because an equal amount of debt that offsets the borrowed money is created.

That’s short sighted. You deposit $100,000 with First Bank of ThinAir. They reserve $10,000 and loan out $90,000, which is redeposited in another bank. Now $190,000 exists on bank books from the original $100,000, and more can be made out of re-loaning the newly deposited $90,000 minus reserves.

Now, you want your $100,000. The bank has a few options: call the $90,000 loan (never happens), look for other depositors to offset the $100,000 you’re withdrawing (happens often enough but not always), borrow $100,000 from another bank overnight until they can find more depositors, or borrow from the Fed to shore up their balances.

It’s fun to use the term “money created out of thin air”, but that doesn’t fully explain what is happening.

When the bank borrows from the Fed, that is what is happening. The Fed/Treasury collude to create more money by using Treasuries to create new dollars which are loaned from the Fed to the bank in need of new dollars. New money is created. New money exists. Why do you think M3 expands at a much higher rate than M0/M1/M2? Because of newly created money, out of thin air.

Yes, there is theoretically Treasury debt that offsets the creation of new money, but that doesn’t mean that new money wasn’t created out of thin air. Try creating gold out of thin air versus digital currency and you’ll see the problem.

But counterfeiting money IS creating it out of thin air because there is no offseting debt created along with it.

That is true, but it doesn’t mean the two are different. As long as the debt is backed only by fiat, you have a “temporary” creation of new money out of thin air. Just because that money is supposed to be paid back, some day, eventually, hopefully, doesn’t mean that it wasn’t generated with nothing backing it for the moment.

Some day all that M3 will have to be paid back down to the M0/M1/M2 values (depending on how you look at those figures). Some day. Some day.

“That is true but it doesn’t mean the two are different.”

The difference is all the difference in the world. It is the debts created by borrowed money is what is causing much of the world’s grief.

Counterfeited money has no associated debts, hence no grief (until one gets caught).

Now, you want your $100,000. The bank has a few options: call the $90,000 loan

Does that loan cease to exist if the bank borrows from the Fed? In other words, does the Fed’s “money out of thin air” have no loan/collateral backing up it’s creation?

That “equal amount of debt” IS the bank “naked shorting” the cash. And naked shorting is “counterfeiting”.

It would be one thing if the bank gave you notes that read “Bank XYZ owes the bearer $W on demand” and then you went and sold that IOU on the market for ($A = $W - XYZ Risk Cost) and then you went and spent $A and then repaid Bank XYZ $W + interest. You are paying the bank for their reputation to get a better rate on a loan than if you sold your a “Your Name owes the bearer $W on demand” IOU to the market directly.

In the above example everyone in the market was aware that they were dealing with DEBT instruments and could value the credit-worthiness of bank when buying Bank XYZ’s debt.

If instead, Bank XYZ simply hands you $W printed from nothing but an offsetting accounting entry (Fractional Reserve Banking, even without the FED or Treasury involved) then Bank XYZ is passing off its debt at full face value and completely indistinguishable from the “real thing”.

I could “legally” set up “fractional reserve” banking if I had a good reputation in the community. Simply by lending IOU’s to people that pay interest on the face-value of the IOU. The IOU looks different than a dollar, but the community would accept it as if it were a dollar and then come back to redeem the IOU for real dollars.

Now, if I lend you an IOU, you trade the IOU for a good or service, and the merchant comes to redeem the IOU before you have paid back the loan then I am in DEFAULT!!! (Naked Short) Therefore, it is FRAUD to lend an IOU payable on demand for money/goods/services you do not have.

The only way banks can get away with this fraud is because there is no difference between the IOU and the thing owed… they counterfeited it.

When I loan someone $100,000 for 30 years at 7%, the borrower will ultimately repay about $239,000.

Where will that additional $139,000 in interest payments come from?

Someone’s will eventually have to print a total of 139K in new dollars because 139K in new wealth was created from this loan transaction.

To put it another way, assume I had a printing press in my basement and was counterfeiting money “in the traditional sense”.

Would it be any more “moral” for me to enter on the books that “I promise to destroy $X” in the future when I print $X dollars today to lend to you at interest?

“Where will that additional $139,000 in interest payments come from?”

If the borrowed money was put to use generating more money then the interest payments can be paid out from this newly generated money.
If the borrowed money was just consumed then it must be paid back by other means, such as wages or by furthur borrowing.

If the borrowed money was just consumed then it must be paid back by other means, such as wages or by furthur borrowing.

that doesn’t exactly address my point..

There is some total amount of dollars in circulation.
When i cut a tree down, and build a piano with the wood, i have created brand-spankin new wealth.. $200 in labor and materials is magicly transformed into a $2,000 piano.

There now exists some amount.. lets say $1,800 for simplicity.. more in real, tangible wealth than there is in dollars.

We now have a choice of either deflating the dollar (tedious) OR printing $1,800 in new dollars (the easy way). By printing 1800 new bucks, we maintain the current value of a dollar… no inflation or deflation.

“There is some total amount of dollars in circulation.”

Agreed. And the total of these dollars are matched by the total amount of goods and services that these dollars can be exchanged for.

Increase the total amount of dollars faster than the amount of total goods and services and you will have a rise in prices for these goods and services.
Decrease the total amount of dollars and you will have a decline in prices for goods and services.

And the decrease in total dollars is what we are now experiencing in our economy, that’s why we are seeing a decline in prices for goods (i.e. houses) and services (i.e. candle making shops).

Sorry, but you all have it wrong about total $$ == Total Goods.

You cannot equate a good with being worth $$ or treat a “dollar” as a “unit of value” because ALL VALUE IS RELATIVE and varies by individual.

For example, total $$ is fixed, you magically create a new piano out of nothing, the price of the piano in dollars just fell. (more goods, same dollars).

If the price of the piano was constant then who should get the newly created $$ to match the value of the piano? Who ever gets that new $$ created from “nothing” could just buy the piano and therefore “stole” the piano by getting something for nothing.

This is how the banks steal all of our productivity increases even when prices stay “flat” when they should be falling due to increased labor force and higher efficiency.

The truth is you cannot create a piano from nothing.. it requires hard work. So anyone who attempts to justify “creating money” to “offset” your piano is trying to steal your wealth.

the price of the piano in dollars just fell.

I referred to that when i suggested we could take the “tedious” way out.. that is, do not print 1,800 more dollars. Instead, delfate the dollar.

Since the new amount of wealth would exceed the amount of dollars, yes.. the dollar would suffer deflation.
Now, everything carton of milk and every candybar .. every piano.. everything bought with dollars would need a new price tag to reflect the deflated dollar. This is a major chore.

All pianos in existance, previously valued at $2,000 would be deflated to perhaps $1,999 to reflect the addition of my new piano into the pool of wealth. The dollar buys more… deflation.
—

who should get the newly created $$ to match the value of the piano?

The general economy. The dollars will go into circulation and it doesn’t matter who gets them. To avoid inflation and deflation, all that matters is that total dollars = total wealth.

When I loan someone $100,000 for 30 years at 7%, the borrower will ultimately repay about $239,000.

Where will that additional $139,000 in interest payments come from?

If instead you spent $100,000 on your own business and after 30 years you have $239,000 in your savings account where did that money come from? Dollars were shifted from one person to another in exchange for equivalent goods or services. Each individual involved in that transaction made a voluntary trade that they felt “improved their situation in life”.

So while one person may end up with $139K more than they started with after 30 years, another person got to spend $100,000 30 years early for the price of $139K.

The real problem with interest only applies to large-scale fractional reserve lending. If I am the only one who can PRODUCE X (Federal Reserve Notes), and I lend 100% of my supply of X at 6% interest, then I expect 106X to be paid back in a year… then we have a problem. I must create more X or someone MUST default. The banks were seeded with 100% of the US gold supply and then issued (via lending at interest) 1000% worth of notes based on that supply. Some one must default because there is not enough gold nor notes issued by that lender to cover the principle + interest.

If instead you spent $100,000 on your own business and after 30 years you have $239,000 in your savings account where did that money come from?

It cannot come and it will not come, unless there is an increase in the supply of money, either digital or paper or in some other form. (The only other option is to devalue the dollar.)

one person may end up with $139K more than they started with

Do you not agree that there is a total amount of dollars in circulation, and that not enough dollars exist to pay the 139K without creating 139K more?

In 30 years, an additional $139K will have had to come from someplace in order to pay me my principle of $100K plus the interest of $139K.
That interest is new wealth.. new.. added.. in addition to what now exists.

——
You are assuming the supply of dollars is endless. This is a false assumption unless you believe, as so many do, that the printing presses are running 24/7 without regard to maintaining some balance between wealth and the money supply.
If you insist on your assumption, then you are absolutely correct in your own mind, and what you say will make perfect sense to you..

Granted there is often, if not always, some degree of an imbalance.. there are times and situations when a govt prints money for all the wrong reasons. Inflation becomes rampant. However, this is not always the case and it is not the case today.

hmm.. even after proofing it, i still screwed up..

(The only other option is to devalue the dollar.)
is supposed to read:

(The only other option is to deflate the dollar.)
The dollar’s value increases (it’s not devalued) if new wealth is created while the dollar supply remains static.

This is not the best forum for debating this stuff.. typos can be deadly in a technical discussion.

Deflating the dollar is not a BAD THING! It is only “bad” for banks that are “caught short” as the value of the dollar increases! It is only bad because of the unwinding of a debt bubble.

You say give the “new money” to the general economy, but it has to start with someone. *someone is getting something for nothing*.

In a way, the deflation of the dollar (increasing its value) distributes the new “wealth” to everyone. To distribute the new money “fairly” you would have to do it in proportion to the dollars in existence. You achieve price stability and avoided giving someone “something for nothing” but you did not save yourself work… instead of adjusting the price of goods on the shelf, now you have to adjust the value of every bank account and dollar bill in existence.

I agree that deflation is not a bad thing, but it is not the easy or efficient way to adjust for newly created wealth.

As for my piano, someone goes to a bank and withdraws or borrows $2,000. That bank is now short on working capital. It can get more capital from the central bank. This is where the new money enters the economy.

There are people.. including the central bank.. watching GNP, GDP, etc. When they notice there’s a lot of growth (lots of new pianos), they can increase the money supply by printing new dollars accordingly, and using that new money to purchase govt securities from private banks. That’s basically how new money is injected into the economy.

Nobody got something for nothing. The bank which gave out the $2,000 for the piano later traded a debt (a govt security) for some cash. Of course with millions of transactions happening every moment, any bank may have gotten the fresh cash.. it doesn’t matter which.

http://en.wikipedia.org/wiki/Open_market_operations

damn.. i hate correcting these things as much as i hate making the errors.
I never know if the readers can figure it out for themselves, or if the clarification is needed.
Anyway:

As for my piano, someone who wants to buy it goes to a bank and withdraws or borrows $2,000…

And who gets to profit from the interest on that money that was created to be lent? Why do debtors get first dibs on *new* money created to “offset” my piano?

You see, there is nothing special about money, it is simply the most marketable commodity. In theory, I could create a piano and Joe down the street could build a new car. We could simply trade or use another currency.

Why is it not easy or efficient? It seems very fair and easy to me. You assumption that new money must be created to solve a non-problem creates a new problem, transfer of wealth from those with $$ to those with the newly created money.

Person A withdraws $2000 from their bank account and you deposit $2000 in your bank account. Total capital has not changed. Besides, if there is a shortage of capital, then interest rates will go up, thus creating more capital.

In your scenario, you create $2000 from nothing to serve as new capital… this is a debt, not capital. Now the system has to fund interest on a debt (which drains future profits and reduces future savings and capital).

Barter means you need what i have and vise versa. That condition is rare. Among millions of people, it’s impossible. Barter would slow the economy to a crawl if it doesn’t actually kill it.
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Interest is the reward for taking risk. Not everyone has money to lend, and not everyone who has money can or wants to accept the risk of lending. Not all loans get repaid as we so readily see in today’s environment..
Those that can and do lend grease the wheels of society and business and are doing all of us a great service.

Nobody is forced to borrow. Borrowing is a convenience and of course it should cost something to borrow money.
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Instead of printing money, relying on deflation whenever new wealth is created requires the repricing of every single service and material for sale in every transaction, but that’s only half the story.
If neither new money is printed nor old money “destroyed” (by the Fed selling govt securities), we’ve got to adjust the dollar’s value both upward and downward before every transaction, and do it everyday of the year, from coast to coast.

Since price-communication on the vast majority of goods and services is very slowly diseminated, we’d have a most inefficient market where nobody could be sure of current prices from one moment to the next.

keep the value of dollars stable.. create or destroy them as required.

When you exchange dollars for other goods you are “bartering” through a two step process. First you trade what you have for money and then you trade money for what you want. The ONLY condition thing necessary to “grease” the economy is for there to be some goods that are in high demand by everyone.

Back to that piano example, suppose you magically create a piano that had a market value of $2000 or 500 gallons of gas. You then argue that this will change the price of all goods by a small amount. Well, the supply of gas did not change yet the supply of piano’s did; therefore, a person with 500 gallons of gas can now buy the piano for 499 gallons of gas. You then print $2000 dollars to “offset” the value of the piano, but this instead causes the price of gas to go up because more money chasing the same gas, yet the price of the piano stayed the same.

Not only have you failed to keep prices “stable”, but you have transfered wealth from those who hold dollars to those who created new dollars.

If interest is the reward for taking a risk and the risk of default is what keeps fractional reserve system in balance, then why not let anyone who wants to lend counterfeit money at interest so long as they destroy money when the debt is repaid? I am sorry, but when you naked short the dollar (and have no skin in the game), then there is only profit and no risk. At 5% interest, 1 in 20 loans could default and you would still break even. 10% interest?

There are several fundamental erroneous assumptions you make:

1) That there exists a “proper price” for any particular good or service.
2) That one person increasing their “wealth” through labor means another person can increase their wealth by lending an “equal” amount of counterfeit money at interest.
3) That all goods and services deflate proportional to the increase in the total value of all goods/services.
4) That all goods inflate proportional to an increase in the supply of dollars.
5) That it is possible to determine how much money to print as a result of new production. (See #1)

I agree that money is a easy way to barter, but this fact does not address the subject at hand, ie the positive or negative effects of a fluctuatinig money supply.

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..this instead causes the price of gas to go up because more money chasing the same gas, yet the price of the piano stayed the same.

Money isn’t earmarked.. It doesn’t chase just one thing. The new money supply, with an extra $2,000 in it, is chasing both pianos and gasoline (as well as all other goods and commodities). What it “chases” is everything, and it all evens out.
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the risk of default is what keeps fractional reserve system in balance,..

I never said anything of the sort. The risk of default is what makes lenders deserved of making a profit (assuming the loan is repaid).
Default is the risk. Interest is the reward for taking that risk.
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1) yes, and that price is market price.. and it’s basically determined by supply and demand.
2) i have no idea what you mean by that.
3) No. Money supply should stay in balance with the amount of goods and services. If it does, prices remain stable
4) If you meant to say the “Price of all goods”, correct. Too much money makes prices go up.
5) Assuming one can know exactly how much wealth is being created and destroyed at any time, you can then print a commesurate amount of money and keep prices stable.
However, it’s impossible to keep track of every little thing, so the answer is no.. it’s not possible.

You borrow 90K and then SPEND 90K and then that person DEPOSITS 90K in their account. One way or another, that money gets deposited in SOMEONE’S account.

Every $100 that the Fed creates in exchange for treasuries, the banking system multiplies to $1000.

Electricity deregulation in NYS…

A moment ago we were talking about Texas, you were challenged and now you change to yet another “free market” (no, really this time it IS!) strawman to beat down. Typical. Can’t you stay on task with a little critical thinking?

is your blind support of monopolies

Making more stuff up. Can you point to one single example of where I have supported monopolies? I am one of the few people you will ever interact with that truly doesn’t support monopolies. People like you on the other hand are critical of monopolies when it’s convenient but have your own personal exceptions where you are just SURE that it’ll work this time. (golly gee but it must!)

how you “built your house”

The reason this comment is funny is that you clearly think it’s really witty and going to bother me. It’s funny b/c I hang out with loud-mouth construction workers all the time, so I’m used to it and more, you gotta get low to get under my skin…

Great guys to drink large quantities of beer with and good to have with you if you ever get in a fight. Critical thinking…maybe not so much.

But since I have soft spot for you construction types, I’ll ignore the personal prodding and see if I can engage in a little civil conversation. So far, this has been largely unsuccessful with you, but like I said, I got a soft spot for you guys.

So, I don’t know anything about this new-improved, it-really-is-a-free-market thing you changed topics to, but in about 30 seconds I was able to come up with the following straight from the Public Service Commission of the State of New York.

…delivery of electricity to homes and businesses, however, will remain the job of the local utility and continue to be regulated by the PSC.

So right off the bat, it looks like a significant part of the market is heavily regulated.

Additionally, assuming what you are saying is accurate: “NYS forced traditional power companies to divest of their generating capacity “, again we see heavy involvement. I mean, when a government comes in a says to a company “you can no longer be a producer of this good”, that is in the range of heavy regulation and arguably out-right control.

Heck, maybe that’s a good thing, I dunno, but if you are going to claim that the free market has failed, maybe you should pick a market in which the govt doesn’t choose who can do what, how and when to such a degree.

Here are some other issues that indicate this might not be quite the deregulated you were told it is:

- Have you seen the “Uniform Business Practices”? It dictates operational aspects like: “The ESCO (me:energy generators) shall, within three business days of any final agreement…send an electronic confirmation notice to the customer…”

Sounds like a reasonable business practice and all, but why is the state dictating operating procedure down to customer service? If that’s not significant regulation I don’t know what is. The rest of the UBS goes on to regulate virtually every detail of operations.

But it’s all deregulated of course, since that’s what the local rag and politicos tell you. They would never lie.

“The reason this comment is funny is that you clearly think it’s really witty and going to bother me.”

If it didn’t bother you wouldn’t have dedicated a third of your post backpedaling from it.

Try some truth sometime. It’s liberating.

Dude, I admitted early on during that thread that I didn’t personally build the house and that it was a misnomer. Wasn’t that truthful enough?

Do you have anything substantive to add or are you just here to wave the flag they issued you?

yes, agree; it’s going to be a good cleanse (was about time, after 20 years of voodoo economics) and a great opportunity for education (although an expensive one, for most people).