Reforming the creation of 'money'.

[notoc]

quality post- bump past vel's bilge

Thank you.

[vel]

Come on 'Vel' you've had all week-end to get your head around this. If you don't understand what is required of you here perhaps it's because you are trying to start in the middle when you really should be starting right at the beginning, at the very point at which the new money is created.

Talk me through your understanding of the process ... take it slowly and try not to get ahead of yourself, offer proof of any assertions you might make or at least some logical reasoning behind your assumptions. Above all, don't presume that everything you have been lead to believe is exactly as it may have been taught to you.

Use any monetary system you wish, be it commodity based or fiat, the only stipulation for this discussion being that it must be considered 'legal tender' which is to say defined by laws.

Remember, it is the point of creation we are concentrating on to begin with ... don't over-complicate it, 'Vel' and resist the temptation to fudge it with sweeping statements.

Try this:

Prove or disprove the following statements:

A monetary token is a debt to the market.

Money is a tax credit.

 

Money is a medium of exchange, nothing more and nothing less. As usual I subscribe to the mainstream and not to your crackpot kind of nonsense. Therefore I go with the quantity theory of money. Without going into too much detail that theory is:

Money X Velocity = Price X Quantity

Price X Quantity is GDP. Quantity at any given time is pretty much what it is. Velocity is a constant, and money flows annually through the economy about 3 times a year so that is Velocity.

So what are you left with here? Basically money is GDP divided by 3. If you increase money you're going to increase prices. If you decrease money, or deploy tight money policy, you're probably going to cause other problems like we saw in the early Reagan years.

So from my mainstream perspective you're engaging in an exercise that is much ado about nothing.

[vel]

And the fact that Truelies endorses you is not to your credit.

[ivanm]

... and yet you couldn't figure out what I was actually saying in my original post.

What a shame that I'm about to disappear for the week-end ... I shall look forward to reading your own specific understanding of exactly how our money supply is expanded and who profits from it.

In the US the Federal Reserve System expands the money supply by buying bonds, which are new reserves for additional money.  To contract the money supply it would sell bonds, thus reducing the amount of reserve in the system.

[vel]

In the US the Federal Reserve System expands the money supply by buying bonds, which are new reserves for additional money.  To contract the money supply it would sell bonds, thus reducing the amount of reserve in the system.

Not really.

What's the difference between a $1 bond, which is a promise from the treasury, and a $1 bill, which is. . .  Can you guess what it is?

The government spends money into the economy and it removes money by taxing it out of the economy.