New greek finance minister.
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02-02-2015, 07:14 AM
RE: New greek finance minister.
(02-02-2015 06:47 AM)bemore Wrote:  If all money existed physically and only physically then they would of course have to move 90 units from your account into somebody elses, unless they made 90 brand new units. Of all of the money flowing around the world only a tiny majority of that is actually real money you can hold in your hand. The rest is just accounts.


There isn't much need for physical dollars because money gets reused and a lot of people simply don't use physical money any more. I can't remember the last time I used actual money. Physical money is just a tool we sometimes use.
I'm sure if there was no debt in the world there still would be more money than actual physical money.

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02-02-2015, 08:41 AM (This post was last modified: 02-02-2015 08:48 AM by bemore.)
RE: New greek finance minister.
Three housemates all decide to get a television, they dont have a lot between them but all contribute £10 each.

3 x 10 = 30

They go to the television shop and find a tv for £30. They call the assistant over and ask if there is any chance of a discount. The assistant looks around and says he could do a discount, as long as he is in on the deal.

They go over to the counter and the assistant says he can give them a £5 discount off the £30 total. He takes £5 out of the till in £1 coins. He gives £1 back to each of the housemates and he pockets the remaining £2

So each housemate, now having been given back £1, have all paid £9 each.

9 x 3 = 27
+2 that the assistant pocketed = 29.

Where is the missing pound.

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02-02-2015, 09:00 AM
RE: New greek finance minister.
(02-02-2015 07:02 AM)earmuffs Wrote:  Absolutely zero money has been created out of thin air. A whole lot of shuffling around has taken place, but nothing has been created. How the bank makes money is when interest rates are applied. But as I said before, that is no different to coke making a profit on the bottle of coke you buy at the store. The bank offers a service and so charges you for that service. It is just fortune enough that it makes a lot of profit because it's not making 6% off your $100, it's making 6% of your $90 that it lends out over and over that money shifts between people.
ie: In the example above they would charge Person B interest to lend them the money. Person C than puts that $90 in the bank which the bank lends out again and they (the bank) than charge Person D interest to borrow that money. In the above example only $100 has been put into the system but the bank has charged interest on $90 and again on $81. So yeah they do make a lot of money, but they don't create new money out of thin air like these guys are trying to say.

It's possible to construct a toy scenario in which all lending is a perfect zero-sum game, and in that case and that case only the amount of money is finite and a closed loop. That isn't how reality works. If you have a chain of fractional lending, the sum total of value in the system increases over time.

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02-02-2015, 09:03 AM
RE: New greek finance minister.
(02-02-2015 08:41 AM)bemore Wrote:  Three housemates all decide to get a television, they dont have a lot between them but all contribute £10 each.

3 x 10 = 30

They go to the television shop and find a tv for £30. They call the assistant over and ask if there is any chance of a discount. The assistant looks around and says he could do a discount, as long as he is in on the deal.

They go over to the counter and the assistant says he can give them a £5 discount off the £30 total. He takes £5 out of the till in £1 coins. He gives £1 back to each of the housemates and he pockets the remaining £2

So each housemate, now having been given back £1, have all paid £9 each.

9 x 3 = 27
+2 that the assistant pocketed = 29.

Where is the missing pound.

Aha! That's where money comes from!

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02-02-2015, 09:13 AM
RE: New greek finance minister.
(02-02-2015 08:41 AM)bemore Wrote:  Three housemates all decide to get a television, they dont have a lot between them but all contribute £10 each.

3 x 10 = 30

They go to the television shop and find a tv for £30. They call the assistant over and ask if there is any chance of a discount. The assistant looks around and says he could do a discount, as long as he is in on the deal.

They go over to the counter and the assistant says he can give them a £5 discount off the £30 total. He takes £5 out of the till in £1 coins. He gives £1 back to each of the housemates and he pockets the remaining £2

So each housemate, now having been given back £1, have all paid £9 each.

9 x 3 = 27
+2 that the assistant pocketed = 29.

Where is the missing pound.

Um...

The pound isn't missing.

They paid 25 for the TV and 2 to the assistant.

25 + 2 = 27 = 9 x 3 which is what they paid total. The 30 and the 5 are red herrings.

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02-02-2015, 09:25 AM (This post was last modified: 02-02-2015 09:30 AM by earmuffs.)
RE: New greek finance minister.
(02-02-2015 08:41 AM)bemore Wrote:  Three housemates all decide to get a television, they dont have a lot between them but all contribute £10 each.

3 x 10 = 30

They go to the television shop and find a tv for £30. They call the assistant over and ask if there is any chance of a discount. The assistant looks around and says he could do a discount, as long as he is in on the deal.

They go over to the counter and the assistant says he can give them a £5 discount off the £30 total. He takes £5 out of the till in £1 coins. He gives £1 back to each of the housemates and he pockets the remaining £2

So each housemate, now having been given back £1, have all paid £9 each.

9 x 3 = 27
+2 that the assistant pocketed = 29.

Where is the missing pound.

The friends don't pay $9 they pay $10 and get $1 back. To say they pay $9 each (9x3=27) is not really correct. So the shop gets $30, not $27. The shop assistant than takes out $5. $30 - $5 = $25 for the shop. You don't add $2 to $27, you take $2 off $27 because the assistant keeps $2 and the friends pay $27 (after $3 back).

There's no missing pound, you're wording it wrong. It's called the missing pound paradox. It's a riddle not an economic principle.

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02-02-2015, 09:27 AM
RE: New greek finance minister.
(02-02-2015 09:00 AM)cjlr Wrote:  
(02-02-2015 07:02 AM)earmuffs Wrote:  Absolutely zero money has been created out of thin air. A whole lot of shuffling around has taken place, but nothing has been created. How the bank makes money is when interest rates are applied. But as I said before, that is no different to coke making a profit on the bottle of coke you buy at the store. The bank offers a service and so charges you for that service. It is just fortune enough that it makes a lot of profit because it's not making 6% off your $100, it's making 6% of your $90 that it lends out over and over that money shifts between people.
ie: In the example above they would charge Person B interest to lend them the money. Person C than puts that $90 in the bank which the bank lends out again and they (the bank) than charge Person D interest to borrow that money. In the above example only $100 has been put into the system but the bank has charged interest on $90 and again on $81. So yeah they do make a lot of money, but they don't create new money out of thin air like these guys are trying to say.

It's possible to construct a toy scenario in which all lending is a perfect zero-sum game, and in that case and that case only the amount of money is finite and a closed loop. That isn't how reality works. If you have a chain of fractional lending, the sum total of value in the system increases over time.

But the point remains that no money is created from thin air.

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02-02-2015, 09:38 AM
RE: New greek finance minister.
(02-02-2015 09:27 AM)earmuffs Wrote:  
(02-02-2015 09:00 AM)cjlr Wrote:  It's possible to construct a toy scenario in which all lending is a perfect zero-sum game, and in that case and that case only the amount of money is finite and a closed loop. That isn't how reality works. If you have a chain of fractional lending, the sum total of value in the system increases over time.

But the point remains that no money is created from thin air.

All money is created from thin air - it's a social construct!
(but I agree that "from thin air" is a really stupid way to characterise it)

But you also earlier stated that banks don't create money at all, which is clearly false.

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02-02-2015, 09:53 AM
RE: New greek finance minister.
(02-02-2015 09:38 AM)cjlr Wrote:  
(02-02-2015 09:27 AM)earmuffs Wrote:  But the point remains that no money is created from thin air.

All money is created from thin air - it's a social construct!
(but I agree that "from thin air" is a really stupid way to characterise it)

But you also earlier stated that banks don't create money at all, which is clearly false.

No it's not. Certainly not clearly.
They don't create money, they have to have money to lend it. If the money they lent than gets put back into the banking system than they can lend it again, but the point is that someone has to put that money into the bank (or the bank can spend its profit). It doesn't create money, it spends what it has. The money it relends is balanced because someone somewhere has negative that amount of money (in the form of debt).

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02-02-2015, 09:58 AM
RE: New greek finance minister.
(02-02-2015 09:53 AM)earmuffs Wrote:  
(02-02-2015 09:38 AM)cjlr Wrote:  All money is created from thin air - it's a social construct!
(but I agree that "from thin air" is a really stupid way to characterise it)

But you also earlier stated that banks don't create money at all, which is clearly false.

No it's not. Certainly not clearly.
They don't create money, they have to have money to lend it. If the money they lent than gets put back into the banking system than they can lend it again, but the point is that someone has to put that money into the bank (or the bank can spend its profit). It doesn't create money, it spends what it has. The money it relends is balanced because someone somewhere has negative that amount of money (in the form of debt).

But it's NEW DEBT, based on the leveraged funds brought about by the fact that reserve requirements are not 100 %, and they can lend MORE than they actually have on their own ballance sheet.

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