Exponential money collapso

  By Mystic | December 26, 2011 - 05:32 |

For a while now `collapso` has been trying to explain what he means by `exponential` things being a problem with regard to the money system.
It may well be, but I am still not at all sure what `collapso` is talking about.
This video is to give him space to explain what he means.
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Written by: Mystic on December 26, 2011.
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  • The German Perspective
    • The German Perspective

      And in order to continue being a “know-it-all” here is a quote from the video:

      “The greatest shortcoming of a human race is our inability to understand the exponential function”

      Seems that this statement is proven in this discussion :-D!

      • http://overthepeak.com/wordpress/ Mystic

        I have pushed forward this video more than any other.

        I don’t think the problem is in the understanding the exponential function.  The problem is me not understanding how Collapso is applying it to some part of the money system (that makes the system inevitably doomed).

        • Bigcollapso

          Once you understand that the debt based money must grow at the compounding rate, you are half way there.
          The next step is to realize that wealth creation is totally disconnected from money creation. If the the money creation gets too far out in front of the wealth creation, you have inflation.
          If the inflation effects the actual operation of the economy, you have a problem. If the actual wealth creators are not creditworthy, you have a problem. If the financial industry sits around and waits for “recovery” you have a problem. Ie, when money and wealth get grossly out of sync you have problem.

          • snedmeister1

            Hello BC, I appreciate you leaving the word “exponential” out of that comment…!!! :)

            We ARE half way there..!!! ;)   ( Sorry, couldn’t resist…. ).

            Safe journey I trust, any more thoughts on our discussion…???

            It’s getting really late here, so I’m going to retire to the pit, but hopefully you would have read some of the comments here by tomorrow, so we can work through this topic…..

            It’s a good ‘un though, thoroughly entertaining, and definitely flexes the brain a bit….:)

  • The German Perspective
  • Bigcollapso

    “BigCollapso” is at the inlaws getting ready for a 8 hour drive home.
    My suggestion for this thread would be we find some of Dr Albert Bartlett stuff, and some Dr Chris Martenson stuff. Lately Chris has been using the “magnet” analogy to explain how the human brain, even when warned of the effect, and even with practice, still cannot adjust in time to keep a magnets from slamming together.
    I seems that the human brain is literally hardwired for linear functions.
    Exponential functions can be learned, but they are learned with the frontal brain, which does not have as much role over behavior as the more primitive brain does.

    • http://overthepeak.com/wordpress/ Mystic

      Pointing to High Priests (or waffling psycho bullshit) does not cut it~!

      I can wait until you get back…….and you can explain it then. 

      • Bigcollapso

        1. Start a bank of mystic.
        2. Create a 5 Mystic note.
        3. Loan the 5 Mystic note to your neighbor
        4. After the appropriate amount of time for interest to be due, start going to your neighbors and start demanding that he pay you 6 Mystics. Principal + Interest.
        5. Why can’t he pay?
        6. The debt issued money thing is that simple and that broken.

        • http://overthepeak.com/wordpress/ Mystic

          Thanks for making it simple Collapso.
          I have done a video reply (where I put this to being a compounding problem, but not an exponential problem).

          • Bigcollapso

            Compounding and exponential are the same thing. Exponential is a larger class of functions that do not work out very well because in time they always yield a number that cannot be dealt with by a fixed sized Earth. When ever you see an Exponential in the study of how the world works, you know that it will not continue forever, the only question is how and when it ends.

            • CSARichardo

              I still have a great engineering economics book which has tables for various compounding periods which I still use to do time cost of money calculations.  Used it for  my original mortgage, used for for sinking fund (savings) and pension payout calculations, etc.

              I am still not sure what you guys are trying to solve:)  I will be home in a few days and give it more thought !

              • Bigcollapso

                If you understand exponential functions inside and out, and understand that deft based money is an exponential function, then the next part to understand is that wealth and money are two very different things. Bankers have made the two seem tied together, but we have now entered an era where wealth generation is stopped, even going negative if you count entropy to existing assets, and money MUST grow. This is really a problem. The new money must be created to solve the exponential equation, but if it gets onto circulation, you have a major problem because there is no wealth to back it. Even if it does not get into circulation, you have more and more UN-spendable money as a function of time, creating a situation where more and more rich people have the capability of collapsing the system.

          • integrationbyparths

            The number e (approximately 2.7183) is the limit as n goes to infinity of (1 + 1/n)^n. This is equivalent to compounding continuously, and is approximately equal to compounding daily.

        • Jetser

          You went wrong at 4.

          4. The neighbor spends the note with a 3rd party.

          There are now 3 players in the economy, and there is trade. This is a more realistic simulation. The neighbor has promised to do 5Mystics worth of work, plus interest. When he does that work, and gets paid, he can repay part of the loan. Mystic uses the note to buy things from either of the other parties and the neighbor can earn the money multiple times within the period he is required to repay the loan. If the neighbor is able to product 5Mytics worth of work plus interest in the period laid down then it is always possible for him to repay.

    • snedmeister1

      BC, I have no problem understanding the exponential function, none whatsoever….

      If we had an economy, as I have stated to Z below, based on only horizontal money supply, you would
      be correct, there would never be enough money to pay the debts and the economy would need to keep
      ramping up the debt exponentially to keep up ( And that is only assuming we have zero defaults )….

      This is one of the reasons for the dramatic economic swings on the Gold standard…

      But the reality is, we are not on this type of system, we are not on any Gold standard where Gov’ts need to
      borrow to spend, thus adding to the debt based money….

      We are actually on a FIAT system, where countries like the US and UK etc, can and do, create their own vertical
      money….

      This actually means, we do not need “exponential debt based money creation”, as the vertical money has no interest to
      be paid on it….. 

      • Jetser

        Snedmeister1,

        In a gold standard, isn’t gold the vertical money? It’s not a perfect analogy of course, but credit can be denominated in gold and physical gold used to pay off the debts, resulting in there being sufficient money to repay all the debts even if no more credit gets created.

        • snedmeister1

          Well spotted, yes I suppose you could say that… ( If I understand you correctly )…

          But the difference here, is that FIAT issuers ( Gov’s ) control the amount of vertical money in the system….
          ie, they run deficits or surpluses….

          On a Gold standard, they can not just create more Gold/ money, they have to take it from the finite supply….
          To spend, they either spend their Gold reserves, or tax, or borrow….

          Welcome J…. ( Is your name Jester, or is it really Jetser..?? )

          • Jetser

            Thanks. I’m not exactly new, just very irregular.

            As long as the difference between fiat and gold as “vertical money” is understood, and the way government has to behave under either is understood, then all can be fine. Problems arise when certain people, mentioned by Mystic in the video, desire one form when the other is in place and analyse the economy as they want it to be instead of as it is. As a consequence they demand the government behave as it shouldn’t.

  • Anonymous

    I have been trying for a couple of years now to come up with a simple, visual way to explain the math problem associated with lending money into existence as the principle on a loan that is burdened with interest. 

    Let us imagine a world with an economy that needs $100 and a bank that lends $100 into existence burdened by a 3% interest rate. At the end of the first year $103 is needed to repay the loan but there is only $100 in existence. And additional loan of $3 is needed just to repay the loan. This is why the economy must always grow.

    But wait, when the loan is repaid, there will be no money left and the economy now needs to borrow $103 to satisfy the need for money. At 3%, there will be a need for $3.09 of additional loans (growth) during the year just so there will be enough money to repay the loan at the end of the year.

    The cycle repeats itself only now there is as need for $106.09 to provide the economy with money and have enough to pay the interest. If growth stays ahead of 3% the money system keeps working. If growth stops, then the money supply must be artificially inflated so the debt can be serviced or the money system collapses.

    This regular growth is called “exponential” growth. Since exponential growth is required to keep the money supply sufficient to repay the loans AND exponential growth is impossible, there is a problem. At some point the system must collapse.

    My example is WAY to simple. One year notes at 3% with payment in full at the end of the year are not the rule. But taken on the whole, the economy needs a certain amount of money for transactions and then it needs a certain amount more to service the loans that created that money and the result is that slow, regular and exponential growth must occur or the loans cannot be repaid.

    Prior to 1971 the US Treasury issued US Notes as money. This was money that could be used to repay debt but was not itself debt. This issue of money helped offset any need for money that was not made up for by the lending due to actual growth of the economy. Also, exponential growth curves begin with very slow growth and the slope of the curve is almost flat for many years, as it was from the early 1940s to the early-1970s.

    I better stop there, it gets way more complicated when you add in issues like the gold standard, use of the US dollar on the international market, population growth, money hoarding, deficit spending, speculation and resource peaking.

    I agree with the Mystic, someone should make a video that explains this math problem associated with creating money as principle on debt burdened by interest. I wish I was talented enough to do it. I find myself feeling that this is the most important social, political and economic issue but I don’t want to discuss it with people because it is so hard to explain.

    • http://overthepeak.com/wordpress/ Mystic

      Hello Z,
      I generally fall back on `Easy Peasie’s Law`, which states that – if big brained people (`collapso` and `Z` in this case) need years to work out how to explain something, then that something is not a real something~!

      P.S.  Take a peek at Steve Keen lecture which includes the important difference between stocks and flows (debunking the `interest is not created hypothesis`)
      http://www.youtube.com/watch?v=xfXimjtz4GA&list=UUM1ubsbE-tG9ru61mc3zX8A&index=1&feature=plcp

      Please comment / post more often Z ~!?

      • Anonymous

        I tend to lean more toward H.L. Mencken who said, “For every complex problem, there is an answer that is clear, simple–and wrong.” And Albert Einstein’s Constraint, “Everything should be kept as simple as possible, but no simpler.”

        Big, complex things don’t usually have simple answers and the solutions are often counterintuitive. The abstract nature of math is particularly troublesome and I suspect that complex math models confuse even very bright people, I know they usually leave me scratching my head.

        I found two excellent presentations that discuss the problem of debt-based money in terms of “exponential”.

        I am NOT trying to brush anyone off to a so-called expert, but rather directing you to someone who I think has done a reasonably good job of explaining the problem whereas I am not doing such a good job of it.

        Margrit Kennedy speaks on interest free economy
        http://youtu.be/QuBy3BzCXwg

        Or,

        Why Do We Need Monetary Innovation? Prof. Dr. Margrit Kennedy
        http://doors8delhi.doorsofperception.com/presentationspdf/margritkennedy.pdf

        Also,

        Money Owned and Owed: The Two Faces of Money, by Geraldine Perry & Ken Fousek
        http://www.thetwofacesofmoney.com/files/money.pdf

        One of the more interesting parts of this presentation is the DUM chart, where “D” = Debt, “U” = Unpayable interest and “M” = Money supply.

        The money needed for economic activity is lent as principle, as the loan is repaid, the money supply is extinguished leaving the economy with to little money for economic activity. Additionally, money that was NOT created is also needed to repay interest on the debt, but as noted, the money supply is being extinguished with each payment on the priniciple of the loan leaving not only less money for economic activity but less money for the payment of interest.

        If a loan is made for $100,000 to purchase a home, repayment of the principle + interest will likely require $200,000 over 20 years. The borrower will have to compete with others to get back not only the $100,000 that was borrowed but $100,000 of money that was borrowed by others. If the borrower is successfull, this will leave others without sufficient money to repay their debts unless the money supply is expanded by extending more loans.

        The endless requirement for additional loans to cover the cost of interest is what creates the exponential growth requirement. Any slow down in economic growth will leave many borrowers short of the funds needed to service debt.

        • Bigcollapso

          You got it. Another way to say it is from the standpoint of the Central Bank Stockholders.
          “The clock has moved forward, you will either make me richer, or your economy crashes in depression”
          BC

      • Anonymous

        Regarding Steve Keen, The video is 1 hour and 22 minutes. Keen want to argue in favor of a credit-based economy. I will try to hit a few point.

        http://youtu.be/xfXimjtz4GA?t=5m32s

        Here Keen argue that there are two source of spending, from income and from increase in debt. What Keen should tell you is that “income” is just “debt” as opposed to “increase in debt”. But even that may not be true. One person’s income is either someone else’s debt or someone else’s increase in debt. And so on and so on and so on, ad infinitum.

        http://youtu.be/xfXimjtz4GA?t=6m1s

        Moments latter, he argues that that “impatient” agents borrow from “patient” agents. He seems to ignore the fact that the “money of account” held by the so-call “patient agent” is nothing more than someone else’s debt.

        http://youtu.be/xfXimjtz4GA?t=7m23s

        And here is where I wanted to stop watching. Keen employs ad hominem calling me a “crank”. It is almost impossible to take people seriously when they are calling me names.

        OMG! Banks don’t create “money” out of nothing, they create “purchasing power” out of nothing? Keen then tells us that this is not absurd, which is a sure sign that it is absurd.

        Investment then takes place without diminishing anyone’s spending power? In other words, the people who own the means of production and exchange do not have to spend any of their own money, money is created out of thin air for them. They are free to keep their own money and spend it on other things.

        If they aren’t investing their own money, why do we regard them as the owners? What justifies their ownership and reward if they are not putting their own spending power at risk? How is this different than creating money out of nothing for some and leaving others to servitude as a means of getting money?

        Keen is NOT an honest broker and I really want to stop listening, but I will listen to it all because I always do what the Mystic says.

        http://youtu.be/xfXimjtz4GA?t=14m15s

        Keen babbles on about stuff before suggesting that so-called “Ponzi” financiers emerge as something of an abhoration whereas us “cranks” realize that the entire money system is a “Ponzi” scheme and the eventual emergence of financiers who are so obviously engaged in such as scheme is inevitable rather than an abhoration.

        In describing the “Ponzi” finance scheme, Keen describes the money system as a whole. Some borrowers are able to repay their debts and have money left over but only because others borrow more money into the system or others loose their money and/or go under water with debt. Taken as a whole there is never enough money from economic activity to service debt costs, more money must always be created to satisfy the need.

        He finally gets around to his favorite thesis, debt for “unproductive” purposes is the problem.

        I really need to stop, just to keep from having a total fit. This is like discussing irreducible complexity or first cause with a Christian fundamentalist. Keen is having one of those praxeological moments where human behavior is the problem, not the fundamental math associated with issuing debt as money. The use of words like “cranks”, “inpatient agents”, “Ponzi financiers” serves no purpose other than to justify winners as good by labeling loosers as bad? 

        If Keen actually got around to explaining the math and I missed it because I am to immoral to sit through the whole sermon, let me know where I should fast forward to.

    • snedmeister1

      No money left..???

      What ever do you mean…???

      If the economy was based only on horizontal money, you and BC would be correct…

      But the fact it, it isn’t….

      Vertical money can offset any shortfall in the need to pay interest on the horizontal debt money…

      This is why Gov’ts always run a deficit, to keep an economy growing, otherwise a surplus sucks the cash out, and then the private sector must ramp up it’s borrowing leading to the scenario you and BC refer to….

      But, the US and UK don’t run surpluses, and I will go as far as to say, they probably never will…. ( for this reason )…

      • Anonymous

        Hi Sned,

        As I never get tired of pointing out, deficit spending by government does NOT increase the money supply. As I pointed out in the previous post, until 1971, the US Treasury issued US Notes as money which did actually increase the money supply to meet some of the demand for money to pay interest on debt. This kind of issue did increase the money supply but it was quickly extinguished by the use of the money to repay debt. The US government no longer does this and I do not think that any of the OECD nations do it.

        • snedmeister1

          Evening Z…

          Long time no speak….:)
          Have you moved onto pastures green, or are you still generally here, but not commenting..???

          Hypothetically speaking, if I were to be proved right about vertical money, would this end the
          “exponential debt based money” theories here…???

          If not, there is no point in me trying is there..??

          Hope your Xmas went well….

          • Anonymous

            I’m in and out at Over the Peak but usually don’t take time to comment. I have been politically active at the local level and it has taken me away from my Internet community. Unfortunately, many people are politically focused of fiscal solutions to what is a monetary problem.

            The terms “vertical” and “horizontal” money appear to be a way of pretending that the US Treasury loads its own account with money and then disperses that money to the commercial banking system where it increases the money supply. Please correct me if I have missed the purpose of using these terms as a subsitute for M0, M1, M2 and M3 or MZM or any of the standard ways that we identify money.

            I have repeatedly demonstrated that this is NOT how it works. The mechanics of money creation are plainly published by the Federal Reserve and established in the statutes of law. 

            The account of the US Treasury is loaded by selling Treasury securities. The money that purchases those securities comes out of the supply of existing money created by the banks themselves and does NOT expand the money supply. Instead, it repurposes idle money or competes for money that might have been put to other uses.

            The Federal Reserve purchases some of those securities indirectly from the market and these securities become the instruments against which base money is created. The securities held by the Federal Reserve are essentially low interest loans because the Fed returns its profit from them to the Treasury. I have some questions about what happens when a security held by the Fed matures. Does the Treasury pay the Fed and then get most of the money back? Or, does the Fed sell the Treasuries on the open market ahead of maturity so the the Treasury must buy them from private note holders?

            Now, if you could convince me that the Federal Reserve was NOT doing what it says it does, that the Treasury was NOT doing what it says it does and that the Federal Reserve and the Treasury where ignoring the statutes of law, then I might believe that something called “vertical” money existed and expanded the money supply.

            This so-called “vertical” money did exist at one time, the Treasury spent something called US Notes into existance as money and this could well be the tool to extinguish the liabilities associated with repayment of interest on loans IF the Treasury where to resume the practice. In a sense, it would transfer the liability for funding most of the operations of government away from taxes so long as the money created by the Treasury was roughly equal to the need for money to extinguish interest on debt plus or minus the growth or contraction of the economy.

            MMTers and I are at odds over the mechanics of money creation as currently practiced but together in terms of what could be done IF the Treasury would just create some money and load its account.

            Little pretend baby Jesus had to have his birthday without me again but I did enjoy the Yuletide with family and friends and I hope you did as well.

            • snedmeister1

              This whole debate seems to come down to: 
              Does the Gov’t spend money first and tax etc after, or does it borrow to spend….??

              The answer is important, to decide whether vertical money exists or not, and thus the impact of debt creation… ( And the need for exponential debt creation )….

              I would like to refer you to your point; “The account of the US Treasury is loaded by selling Treasury securities. The money that purchases those securities comes out of the supply of existing money created by the banks themselves and does NOT expand the money supply. Instead, it repurposes idle money or competes for money that might have been put to other uses.”

              If that were all performed before any spending, how do you explain historically high deficits, combined with historically low interest rates…???

              • Anonymous

                It isn’t really a matter of “if” it is true. The records of government borrowing ahead of spending are VERY public! I have researched this practice going back to the Territorial Code and how states and territories financed their operations.

                We do NOT have historically high deficits. High deficits are usually only seen in times of war and are otherwise a modern phenomenon, since the mid 1970s, since the Treasury stopped issuing US Notes and since we stopped taxing the highest income earners at high rates.

                The only reason that we have high deficits is because the wealthy people who run the whole plutocracy would much rather lend their idle money to they government at a low interest rate than pay taxes. There is no reason to speculate or invest idle money because new money can be created out of thin air for that purpose.

                The Federal Reserve may be the lender of last resort, but the Treasury is the borrower of last resort.

                Interests rates have not been historically low, that to is a new phenomenon that was predicted by the people who brought you the phrase “exponential money”. How do you expand the money supply at a rapid rate when all of the people who normally borrow money have borrowed so much money that they can’t borrow any more? You lower the interest rate and the terms easier! Duh!

                This whole issue of lending money into existence as principle and the mathematically impossible need for exponential growth in money supply to pay back the principle with interest seems so obvious to me that I really struggle to understand why it needs more explanation.

                And I have no idea why people don’t believe what the Federal Reserve, the Treasury and the statutes of law say about how the Treasury loads its accounts, spends money and then collects taxes to repay the loans. Why don’t people just go to the Internet and look at the spreadsheets that are posted by the Treasury? 

                All doubt about how this works should have ended with the report of the Grace Commission to Congress in 1984.

                • snedmeister1

                  So, we have the private sector de-leveraging yet the reserves in the banking system are still high enough to
                  keep interest rates this low….???

                  If the “exponential debt based money supply” is shrinking, how do the bank reserves stay high enough to
                  make the rates so low….???

                  What I am saying is, if the Gov’t didn’t spend in first, those net bank reserves would be shrinking, and the interest
                  rates would be going up, not down….

                  Also,
                  Are you sure we don’t have historically high deficits..??? 
                  I think we would struggle to find other periods in time of Trillion Dollar Deficits…???

                  • Anonymous

                    Hi Sned,

                    … private sector de-leveraging .. reserves high … interest rates low …

                    In 2008 the base money supply which is the reserves of the commercial banks was too low to support normal day-to-day transactions between banks. It is not uncommon for a given bank to have a low reserve balance. When this happens, the reserves of another bank which are in excess of what are required are loaned to the bank that is short at a rate that is set by the Federal Reserve Board. Some banks keep reserves high intentionally and these accounts are called money market accounts. But in 2008 there was not enough excess reserves to cover deficient reserves. One of the roles of the Federal Reserve is to be the lender of last resort and so banks were loaned money directly by the Federal Reserve.

                    The root cause of the deficiency in reserves was a large demand for credit, especially credit to pay high prices for petroleum products. Companies that normally rely on revolving lines of credit to do simple things like make payroll and pay utility bills found that credit was no longer available to them so they sold off stock to raise cash and the stock market tumbled.

                    Another thing companies did to deal with the inavailability of credit was postpone purchases and lay off employees; some companies went out of of business. When the dust settled the economy had contracted but the debt was still there.

                    The Federal Reserve expanded base money supply by purchasing not only additional Treasury securities but by many less conventional means. Today there is a glut of base money (reserves) but the economy has contracted and the demand for credit has contracted with it.

                    Businesses and people are paying off their debt because they have no choice, but they are not borrowing more so the money of zero maturity (MZM) is contracting. This is the money that does all of the work.

                    The demand for money to service debt is a more or less fixed cost and has not contracted so the price of goods and services remains high even though some costs have been reduced largely by reducing payroll.

                    So how does the Federal Reserve increase the amount of money available to service debt (MZM) in a contraction economy? By lowering the rates! It isn’t working but it is the only tool they have in the tool box and they are hoping that if money is cheap enough someone will borrow some.

                    Technically the total money supply may be going up, but the supply of money that the public uses to do business on a day to day basis is AFTER DEBT SERVICING is shrinking. 

                    … if the government didn’t spend first, those net bank reserves woudl be shrinking and the interest rate would be going up …

                    Government spending does NOT establish commercial bank reserves. These credit accounts with the Federal Reserve Banks is established by the Federal Reserve Banking System itself and NOT the US Treasury. The special account in the New York Federal Reserve Bank for the US Treasury is NOT the source of money for commercial bank reserves.

                    Go to the Cleveland Federal Reserve Bank web site and you will see the creative ways that the Fed increased base money (reserves) by purchasing a broad variety of unconventional securities. 

                    Normally the Fed would just buy up some US Treasuries from private holders (the Fed does NOT buy securities directly from the Treasury). The simple fact is that the US Treasury did NOT need to sell a bunch more securities to load its account for spending and the demand for US Treasury securities by private buyers was and is high so if the Fed wants to buy them it has to compete for them.

                    US Corporations doing business internationally and offshoring all of their profits to avoid taxation insist that their accounts be held in US dollar denominated instruments so the international demand for US Treasuries is high. Cautious domestic investic investors also want US Treasuries as an alternative to riskier stocks and bonds. The fact is that the US Treasury could sell twice as many securities as it offers. That is why the yield is so low on US Treasury securities.

                    The next best option for cautious investors is money markets, the yield might be 0% but at least you don’t loose your money. That is why reserves are high and interest rates are low.

                    Yes, I am absolutely sure that we do not have a history of high deficits. The current deficits are historically unprecidented and can only be compared to those of WWII. The late 40′s, 50′s, 60′s and early 70′s were all years with low deficits. The government had low deficits before the depression too. This trend is even more obvious when you look at state and local deficit spending as the federal government has reduced its share of their expenses.

                    • snedmeister1

                      Do you not see the link between high deficit spending, and excess reserves Z..??

                      How does lowering interest rates increase the reserves of banks, IF the private sector is still de leveraging…??

                      You wrote a nice long piece there, but you keep missing my point, and you zoom in on a specific area…
                      Keep it as an overall perspective…. Your perspective is it’s one pie that only the private sector can add too….

                      You say that Gov’ts can only borrow existing reserves, I say, they don’t…
                      They sell Bonds and take existing reserves from the system, but only existing reserves they put there first…

                      Now, if the people do not take on more debt based credit, and you say the Gov’t can’t ( It can only borrow
                      existing reserves ), then how does the Gov’t / FED keep reserves high enough during de leveraging periods
                      without injecting vertical money…???

                      You can point to as many sites as you like, I would like to see your math workings….
                      There must be an injection of vertical money, or the rates would increase by default as the private sector de leverage,
                      this would be made worse by Gov’t spending, but we see the reverse….

                      Lets get right down to the nuts and bolts of this…

                      Compounding interest is only relevant if there is no vertical input….
                      If there was no vertical input, the pie that the Gov’t borrows from would be shrinking, and thus be exacerbating
                      the problem when the private sector de leverages…

                      What we see, is the opposite…

                      Forget looking at mechanics of specific operations for a moment, lets look at the overall pie, or we go nowhere…
                      We can deduce how it is achieved after we determine if the pie size is only determined by private parties…

                      Without vertical input somewhere, when the private sector de leveraged over all, the rates would have increased,
                      as the Gov’t would be competing for a shrinking pie, as they can only borrow existing reserves…. This did not happen….

                      How did this happen without a vertical input somewhere…??

                    • snedmeister1

                      ( P.s. Zarathustra…..The deficits have never been so large as recent history, you are referring to debt to GDP ratio, not the deficit amount )

                    • Anonymous

                      Sned: “Do you not see the link between high deficit spending, and excess reserves?”

                      Z: You are confusing cause and effect. This is a common logic fallacy.

                      Sned: How does lowering interest rates increase the reserves of banks, IF the private sector is still deleveraging.?

                      Z: You are setting up a straw man argument, a common logic fallacy. I did NOT say that lowering interest rates increase the reserves of banks. You are once again confusing cause and effect.

                      Sned: “You say that Gov’ts can only borrow existing reserves …”

                      Z: You are setting up another straw man argument. I did NOT say that. I said that the US Treasury borrows money that is created by the commercial banks of the Federal Reserve Banking System.

                      I really need to stop. You really do NOT want to understand the mechanics of money creation. You want to “look at the overall pie” and ignore the “mechanics of specific operations”. This is why you are confusing cause and effect.

                      Almost all of what you are writing demonstrates to me that you regularly substitute what I write with words that you wish I had written and ignore corrections that I make to your suppositions. Here are two HUGE examples of corrections that I have repeatedly made:

                      Sned:  ”I say … that they sell Bonds and take existing reserves from the system, but only existing reserves they put there first.”

                      Before I can even begin to analyze that I have to rewrite it.

                      Sned (rewritten): “I say that the US Treasury sells securities and that the credit/money that pays for the securities is transferred to the special account of the US Treasury in the New Your Federal Reserve Bank from the reserve credit accounts of commercial banks which was created and loaded into those accounts by the US Treasury in advance of selling the securities.”

                      Of course that is absolutely nuts! I have repeatedly told you how base money is created by the Federal Reserve Banking System and loaded into the reserve credit/money accounts of commercial banks. But you are not interested in the “mechanics of specific operations”. You want to be free to make up mechanical operations that suite your imagination better.

                      Sned: “… how does the Gov’t / FED keep reserves high enough …”

                      Sned (rewritten): “How does the US Treasury / Federal Reserve Banking System, which are the one and the same thing, create and maintain a base money supply sufficient to …”

                      This is nonsense! I have written over and over and over that the US Treasury and the Federal Reserve Banking System are two separate and distinct things and the US Treasury does NOT create base money from which the reserve/credit accounts of commercial banks are loaded. But once more, you are not interested in the “mechanics of specific operations”. You want to be free to make up mechanical operations that suite your imagination better.

                      If you want to have a discussion about the money system, you must use the words that are peculiar to and descriptive of the money system. You many not casually use the words “Govt”, “FED”, “reserves”, “Bonds” or even “interest rates” in the discussion to mean something other than what the mean. The financial agent of the US government is the US Treasury. “Fed” is short for the Federal Reserve Banking System which in not synonymous with “government”. “Reserves” are technically both the commercial banks’ vault cash and the credit/money accounts they have with one of the several Federal Reserve Banks. Together with the coins and notes in circulation, this category of money is the “monetary base” or MB. In the more general sense, “reserves” refers to only the credit/money accounts that commercial banks have with a Federal Reserve Bank.

                      Am I getting anywhere? Probably not, but let me continue.

                      If you wish to invent theoretical concepts like” vertical” and “horizontal” money so that you can  ”look at the overall pie” without being distracted by the ”mechanics of specific operations” you really need to find someone who is smoking your brand of weed and make a night of it. This isn’t a fantasy fiction role playing game and you don’t get to make up stuff to fill in the gaps, namely the “”mechanics of specific operations”.

                      Please forgive the rudeness, but this is getting very old for me. I desperately want to communicate in precise terms how money is created and destroyed with people who say things like, “The government just prints money.” Must I wait for Nietzsche’s ubermensch to arrive so that I can have this conversation at a level superior to that of big time wrestlers and reality TV show guests? Have we evolved from worm to ape only to stop there with a superior version of ape that has learned how to drive a car and flush the toilet? Let’s not imagine that we can discuss the complexity of a forest intelligently while referring to trees as big green thingys that are all over the place.

                      Now I will go get some coffee and come back in a more polite mood.

                    • snedmeister1

                      You didn’t answer my question….

                      If the private sector is de leveraging and the pie ( reserves ) is shrinking, when the Gov’t increase demand for said pie, the interest rate will increase – by default…. ( under your description )…

                      This did not happen, we had the reverse, private de leverage, gov’t deficits increasing, lower interest rates…
                      ( And getting frustrated just shows you can’t answer it… )

                      I suggest you reign that temper in before entering politics, it’s not an attractive trait….
                      You might also try and work out how to answer the above question….

                    • Anonymous

                      No, getting frustrated means that you are not demonstrating a basic enough understanding of the mechanics of money creation to ask a question that can be answered.

                      For example, I just told you what reserves are and you just used to word “reserves” to mean something totally different. If reserves are vault cash plus credit/money on account with the Federal Reserve Banks, then reserves are not shrinking. 

                      If by the “private sector is deleveraging” you mean that individuals and businesses that are borrowers are paying off their loans and are not taking out new loans, then you are NOT talking about “reserves” because reserves are NOT loaned to businesses and individuals.

                      On the other hand, if you are talking about reserves and interest rates, then you must be talking about the rates set by the Federal Reserve Board for short term loans that banks make to one another but it appears that you are referring to the interest that banks charge individuals and businesses that borrow.

                      If by the “private sector is deleveraging” you mean that the commercial banks are lending less money as a fraction of reserves then what that means is that banks have more capacity to loan than they are taking advantage of which would explain why interest rates where lower but would contradict your assertion that interest rates should go up due to less availability.

                      There is no “government” demand for “reserves” so I have absolutely no idea what to do with that. Are you referring to the US Treasury or the Federal Reserve Banking System, I can never tell because you don’t seem to make any distinction between them? The US Treasury competes in the open market for credit/money but does not participate in the short term lending of reserves between banks.

                      I can’t answer your questions because they are not intelligible. Here is one of my favorite questions and maybe, just maybe, if you think long and hard about it you will understand why you are not the answers that seem to be expecting.

                      What is the difference between a duck?

                      Think about it … really think hard … there aren’t answers for poorly formed questions. Ask yourself what you mean when you use words like “reserves” and “government” and then see if there aren’t better words or phrase. Ask yourself if your question aren’t loaded with faulty presuppositions. Are you asserting a false cause and effect as a presupposition? Are the questions setting me up for a straw man argument? 

                      All I can do is keep pointing out the problems. There is no answer to the question, “What is the difference between a duck?” and there are no answers to your questions. You must reform the questions so that they can be answered.

                    • snedmeister1

                      I will put this in laymans terms, so there is no confusion….

                      You state that a Gov’t creates no money…
                      That the private sector does this, and only the private sector…
                      That the Gov’t borrows only from money already in the system, created by debt put in the system…

                      What I am saying is, the money in circulation increases with the debt created, so it decreases with the
                      paying back of debt…. ie the size of my pie analogy is determined only by private money creation ( in your description ).

                      When we had the recession, the private sector began to de leverage, so this would follow that the amount of
                      money in the system was reducing too under your scenario…. ( correct me if I am wrong )…

                      The inter bank interest rates are determined by the amount of money in the system to loan to each other…
                      The more money they have sat there, the lower the rates go, as the demand falls…

                      It would therefore follow for me, that as the private sector payed down debt, and the amount of money reduced, the
                      interest rates should have raised sharply when the Gov’t began putting demand on this private sector determined pie….

                      This is what does not make any sense…
                      Forget the fancy words, and cut ‘n’ paste…

                      Use the numbers to show me… Don’t get mad and frustrated, explain it….
                      What you say happens, makes no sense if I understand you correctly, because the rates went down…..

                    • Anonymous

                      Yes, I do say that the “government” does not create money. I prefer to be far more specific and say that the US Treasury, which is the fiscal agent of the government, does not create money. Every time you type the word “government” I worry that you mean the Federal Reserve Banking System because you repeatedly fail to recognize that the Federal Reserve Banking System is not part of the government.

                      When you write “the private sector does this” I must pause. Didn’t I just write in at least three replies that “the private sector” is to broad and generic of a phrase to be used in this conversation. If by “private sector” you mean the Federal Reserve Banking System creates money, then you have properly characterized my position.

                      If your next line means that the US Treasury (the fiscal agent of the government) funds the operation of government by borrowing money created when commercial banks lend to individuals and businesses, then you have properly characterized my position.

                      If you are saying that money supply increases or expands as individuals and businesses borrow from commercial banks, then we are in agreement. If you are saying that money supply decreases or contracts as individuals and business repay the loans, then we are in agreement.

                      Here is where I am confused. You use the pie analogy two or three ways. You might be referring to the total money supply, the total credit available or the total reserves, but I do not know. You seem to use pie as an analogy for each of these without making any distinction.

                      Also, you have misrepresented my position with this analogy and the context in which you appear to be using “pie”. The lending of money by commercial banks is NOT the ONLY factor in total money supply. However, I think it is fair to say that all of the money available for the purchase of US Treasury securities is created in this manner. We will revisit this in a moment.

                      Once again, you are using the phrase “private sector” but I cannot be sure what the context is. In your earlier use, you appeared to be referring to the commercial banks, but now you appear to be referring to individuals and businesses that borrow money.

                      You are also carelessly using the word “deleveraging”. Yes, “deleveraging” is one word, not two; please consult Investopedia if there is any doubt. There are two kinds of loans. One form of leverage is leveraged lending and that is what commercial banks do. Another form of leverage is what individuals and businesses do when they borrow from the commercial banks. I think you are referring to the second context.

                      If you are saying that as individuals and businesses pay off their debts without incurring additional debt they are the “private sector” and they are “deleveraging”, and this behavior is working to reduce or contract the total money supply, then you are properly characterizing my position.

                      The Interbank Lending Rate is influenced by the excess reserves held by commercial banks. This is NOT quite the same as what you wrote. When commercial banks engage in leveraged lending, they expand the quantity of the total money supply but reduce the quantity of excess reserves. I do want to emphasize the word “excess”. The total quantity of reserves and the quantity of excess reserves are NOT the same thing. In 2008 the total quantity of reserves was to low for the total quantity of loans extended against reserves. In other word the total money supply was high but the excess reserves against which new loans could be made and which must be maintained for normal Interbank transfers was to low. This was the cause of the monetary crisis.

                      If by “the amount of money in the system to loan to each other” you mean “excess reserves” and if you do not mean “total reserves” then you are correct, the higher the quantity of excess reserves, the lower the Interbank Lending Rate would be expected to be. Keep in mind that there might be several reason for a high quantity of excess reserves and one of them is a low demand for new credit as individuals and business pay off their old loans without incurring new loans. Another might be quantitative easing by the Federal Reserve Board. Or, money that would normally be invested in stocks, bonds and commodities fleeing to money markets to avoid risk.

                      Forgive me but I must cut and paste your next sentence then I will try to tell you what is wrong with your conclusion.

                      Sned: “It would therefore follow for me, that as the private sector payed down debt, and the amount of money reduced, the interest rates should have raised sharply when the Gov’t began putting demand on this private sector determined pie.”You presuppose that a reduction in total money supply is the same as a reduction in idle money. Wealthy individuals and businesses are risk adverse when it comes to the lending of their accumulated credit/money assets and look for ways to invest that money with safe returns. They don’t lend their money to other individuals and businesses, they buy US Treasuries. Right now a lot of risk adverse money hoarders need someplace to put their accumulated credit/money so their is a high demand for US Treasuries. If the stock market were rewarding investors with low-risk, 8% yields the Treasury would have to discount its securities to be competitive but that is not the case.

                      The US Treasury is NOT competing with individuals and businesses for a “piece of the pie” it is competing with stocks, bonds and commodities and other investment vehicles.

                      I think this is worth rewording and saying again. When individuals and businesses want to borrow money, other individuals and businesses that have money are NOT interested in lending to them. They do NOT wish to risk their accumulated credit/money in this manner. Commercial banks create money against reserves for this purpose. The US Treasury is NOT competing with individuals and businesses for new money, it is competing with stocks, bonds and commodities for old money.

                      It must be said that some money creation does occur for the purpose of purchasing Treasury securities. I have researched this and the quantity of US Treasuries held by commercial banks is VERY small compared to the quantity held by individuals and businesses. It’s complicated, but commercial banks will sometimes buy Treasury securities either as a safe way of holding earnings that have not yet been paid out to stockholders or as an intermediary to the later purchase by the Federal Reserve Banks.

                      So, on to numbers …

                      On October 23, 2010, I wrote an article, “Estimated Ownership of U.S. Treasury Securities (March 2010)” which you read and commented on in which I provided you with the numbers (see http://overthepeak.com/wordpress/archives/722). I showed you that at that time 6.02% of the US Treasury securities were held by the Federal Reserve as assets against the monetary base which is essentially the credit/money reserves of commercial banks. An additional 2.14% of US Treasury securities were held by commercial banks and might or might not have been new credit/money. All of the rest of the Treasuries were old credit/money.

                      Let’s put this into perspective. There is roughly $56.4 trillion in total debt both public and private all of which is leveraged against just $2.7 trillion in base money that was created by the Federal Reserve roughly $1.6 trillion of which is backed by US Treasury securities. The US Federal Government debt is over $15, all but $1.6 trillion of which was created by commercial banks lending to individuals and businesses.

                      The total money supply expressed as either M2 or MZM which is essentially all of the money that could be drawn upon to repay debt, is roughly $9.7 trillion and bears little or no relationship to the total US Federal Government debt. If almost all of the money that purchased US Treasuries was created for the purpose of purchasing US Treasuries then there should be at a very minimum a money supply of roughly $15 trillion and that would not include other privately created money. But there isn’t! 

                      Ok, I don’t have the patience to get into velocity of money and I think I have written way too much already. Again, please forgive the pre-coffee grumpies.

                    • snedmeister1

                      You are forgiven….:)

                      If we are going to correct each other, then I will say, when you write the phrase “to much”, it is actually spelt “too much”..!!

                      Usually, I wouldn’t stoop this low, but I couldn’t resist, as this seems to have digressed to who has the higher ability to digest the Oxford dictionary….

                      To clarify, when I say Private sector, I mean banks, businesses, people etc etc…

                      Public sector, I mean to be Gov’t and yes, the FED…I’m sorry, but in my mind they are two parts of the same whole….?? ( If that is too much for you to take without blowing a gasket, we can substitute in the BoE if you would rather..?? It is entirely nationalised..!! :) ).

                      When I say delevergaing, I mean paying down debt and defaults….

                      To be honest, you know all this though in my opinion…. ( Maybe not, I just get that impression ).

                      What I would ask, to be clear, is why do people paying down debt in a system based on debt money, not reduce the amount of excess reserves or total reserves in the system….???

                    • Anonymous

                      Reserves are established by the credit/money created by the Federal Reserve Bank for the commercial banks. This is the monetary base. The Federal Reserve Banks are the bankers’ banks and the credit/money that is in the reserve account is the bankers’ money. Ordinary people and businesses do NOT get to play with this money. It gets reduced when the Federal Reserve Bank sells its assets which are debt instruments such as US Treasuries. It can also be reduced IF the commercial banks ask for vault cash from the Federal Reserve Banks.

                      Yes, the US Treasury borrows ahead of spending. That is their job. The US Treasury has a special account with the Federal Reserve Bank of New York. It is very much like a commercial bank account accept for the fact that the US Treasury is NOT a depository institution. I know it complicates thing but technically the US Treasury does operate a bank but that is another issue.

                      When the US Treasury sells a security, the credit/money is transferred from the buyers account to the US Treasury account. The Treasury has a balance and it is publicly recorded what that balance is, I have seen it but I can’t find it at the moment. All of the checks written by the various agencies of the US Government clear through this account.

                      The credit/money that buys Treasuries doesn’t stay in the Treasury account very long before it is used to pay for government operations so the money doesn’t really leave general circulation (velocity).

                      I cannot imagine what would happen if the US Treasury overdrafted. I’m sure the checks would clear which would technically create money. Up until 1971 Congress authorized the Treasury to load a limited quantity of credit/money into this account without selling Treasuries and to print US Notes as paper currency against this account. This is a holdover from Lincoln’s Greenbacks and a compromise reached with banks in the late 19th century. I don’t know why they stopped doing it, but I think this practice is one of the reasons why we didn’t see runaway growth of debt to repay interest from the late 40s to the early 70s.

                    • Snedmeister1

                      Z, You just hit the nail on the head…
                       
                      You can not imagine what would happen if the US treasury went into overdraft….
                       
                      Let me tell you…. Absolutly nothing….!!!
                       
                      The world would go on, they would credit accounts as usual, simply because they can control their own issuance of currency via the central bank….
                       
                      To be honest, I refer you to your earlier post, where you say “This is getting old”….
                       
                      These same scare stories repeat day after day, “The US will default etc etc “….
                       
                      If you insist on cut’n'pasting FED papers and “Laws” they “Must” follow, I will just cut and paste areas of another set of laws, which, as
                      of late have been ignored when the need arises ( Yes, I am talking about the Constitution )….
                       
                      And for a lot less “need” than the default of a nation…!!!
                       
                      This is where all the IQ in the world doesn’t help, you need a bit of common sense too….
                       
                      Sorry to sound so harsh, but if you think for a minute that the US Gov’t will allow default, because of a piece of paper you happen to
                      be running around with, then I think you will be waiting a long time…..!!!
                       
                      I wish you all the luck with your chosen career Z, really I do, but you wouldn’t be getting my vote…..

                    • Anonymous

                      It is getting difficult to read these skinny columns of text. But this last reply is THE reply that I believe you were trying to get to all along.

                      MMTers and I part company when they misrepresent the mechanics of how money IS being created at this very moment but we come back together when we get to what would likely happen IF the account balance of the US Treasury fell to zero and a US government check was presented at a commercial bank.

                      The check would clear, plain and simple. Of that I have never had any doubt. But what I don’t know is how the various people involved behind the curtain would do it. 

                      Would they simply record a negative balance on the spreadsheet and wait for the US Treasury to sell some securities and load up the account? This would create money for the moment and then rapidly extinguish it. 

                      Or, would Congress authorize the Treasury to add some digits and allow this to be a new money issue like Lincoln’s Greenbacks? It wouldn’t be long before this new money issue would be used to extinguish some of the $56 trillion in debt. The government could do this decades without even bothering to tax the public and it wouldn’t raise the money supply so long as the Fed tightened up its lending policies.

                      One thing is for sure, there is no need for the dog and pony show, the Treasury could make all the money it needs. Another thing is for sure, and this is what gets me in arguments with MMTers, even though there is no need for the dog and pony show, the dog and pony show goes on and the Treasury keeps borrowing ahead of spending even though it does not need to.

                      It’s time to move this discussion to a new thread before out columns become microscopic. I’m glad we got to this point in the discussion.

                    • http://overthepeak.com/wordpress/ Mystic

                      New comment below (or above~?)

                    • snedmeister1

                      Mystic is right (below), I will type a little post on the new vid, I think I know what you mean, but I want to
                      see the closed circle as such….

                      I have a couple of questions, questions that are answered from others that offer them….

                      I don’t fully understand your point, and I can’t read the link ( It won’t open ), so maybe re-write your point..???

                      See you on Callapso 3….??

                • Bigcollapso

                  I think that some people just can’t believe the size of the scam that they were born into.

              • Bigcollapso

                The debt increasing by the compounding rate is a mathematical function of TIME. All that matters is the interest rate and TIME. That is it period. This needs to be our starting point of discussion. No spending, no governments, no people, no MMT nothing just a mathematical function, a rate, and TIME.

                • Anonymous

                  Hi BC,

                  It seems like everyone understands interest and compound interests when you put it in terms of earnings on a savings account. But when you try to point out that the only way anyone can earn compound interest is it others pay compound interest it just doesn’t quite compute even though most people have figured out that compounded interest on a mortgage note is ugly, really ugly. I don’t understand why this is so difficult, it is obvious that earning compound interest is a Ponzi scheme. Some gets and others looses and the game is up when the scheme has grown to a certain size.

                  I think time is the part that really fails to be intuitive. Things that are really small and really big toss the human brain for a loop. In the short term or medium term the whole thing seems plausible especially if you isolate just a few lenders and borrowers and don’t look at it all at once.

                  And I agree that all of the minutia that I address about the Federal Reserve, the US Treasury, securities, base money, reserves, etc. is just distraction. If it is mathematically impossible for one person to save 1 cent at 5% interest for 2000 years then the whole thing is really impossible.

                  BTW, if one person did set up a simple savings account with 1 cent at 5% interest for 2000 years, it would take the cash value of planet Earths made of solid gold to pay the saver. I’m guessing that some time between year one and year 2000 the compound interest savings account would fail. It’s just math and it is just a question of when.

                  • Bigcollapso

                    I like you. I need you. This stuff is very hard for people to grasp, but necessary if we are to live in freedom.

                  • Windcutter

                    The account would not have to fail.

                    You have to factor in the rate of inflation.

                    Even if the original cent through compound interest created a balance of some huge number, say 1,000,000,000  that would then only buy a minuscule piece of gold in 2,000 years, possibly even smaller than the 1 cent’s worth you could buy at today’s rate.

                    But on the way a few zeroes would be chopped off the currency denominations and then 1,000,000,000 would be then be called 1 ‘new era cent”.

                    • Anonymous

                      No, I still haven’t had my coffee!

                      This is the kind of nonsense I expect from Austrian economists … praxeology, which is synonymous with bullshit.

                      The more honest way of saying this is that the money system that you invested one cent in collapsed and was replaced because exponential growth due to compounding of interest is impossible. Can you spell “business cycles”?

                      When a money system fails and is replaced, bad things happen to good people. Money systems don’t fail all at once and good people get hurt all along the way while they are failing. Today, the bottom 80% of the people work hard to pay more interest than they earn so that the top 10% can hardly work and still earn more interest than they pay. This is the ultimate wealth transfer scheme.

                      Eventually, the system will fail. Don’t worry, the top 10% will be fine as long as the bottom 80% keep believing in the debt-money system. Whatever adjustments are made to the currency will still leave some in the position of owners and others in the position of owers.

                      I need my coffee now!

                    • Windcutter

                      Hang on a bit there, I was only addressing the last paragraph, which stated the impossibility of a single cent invested at 5% compound interest over 2,000 years being paid back if the purchasing power of the currency measured in gold remained the same.

                      All I pointed out was the the purchasing power would not remain the same, as inflation would destroy any nominal gains in the number of cents in the account. I can’t see any connection to business cycles. Which I just managed to spell.

                      I suppose that essentially the constant gnawing away of the currency by inflation could be construed as a continual ongoing failure of the currency. Maintaining an inflation rate is a Central Bank aim, so maybe we know where to put the blame.

                      Enjoy your coffee!

                    • Anonymous

                      You’re a good speller! Still working on the first cup.

                      Yes, I would say that the business cycle is result of the failure of the money system. An I’m not alone. I’m just a guy, but 86% of the brightest economists in the United States figured this all out in 1939.

                      If I told you that you could gain 5% by saving your money at my bank and then I didn’t pay the 5% you would accuse me of business fraud. But if I paid you the 5% in terms of money of account but the buying power of your total money saved actually went down then you might not notice that you were defrauded.

                      But this is more insidious! What if the same system that offered you 5% on your savings, virtually guaranteed that the bottom 80% of income earners would always ”owe” more credit/money than they “owned” and that the top 10% would profit handsomely as they always “owned” far more than they “owed”. This would be a steady and regular transfer of wealth from the bottom 80% to the top 10% so long as the scheme could be kept from collapsing.

                      Each business cycle (mini-collapse) resets the clock AFTER it robs the bottom 80% of even the illusion of having gained any wealth.

                      Inflation is essential to the scheme and this is where you might brush up on your spelling of the phrase “Ponzi scheme”. You receipt of 5% interest on savings is totally dependent on the ability of others to repay their loans. Isn’t that the very definition of a Ponzi scheme, one in which some make money as long others can be found who are willing to pay in more money. Borrowing more money into existence is essential to being able to make those loan payments.

                      Time to go warm up the cup and find some food.

                • snedmeister1

                  No pleasantries this morning BC…??
                  Oh well, Good morning to you…!! :)

                  Your repeated statement is only relevant if ALL of the money is debt based….
                  If not, it is both irrelevant, and most definitely NOT an exponential expansion of debt based money, leading to the callapso….!!!

                  As soon as you insert £1 of non-debt based money into the equation, it is a non exponential system, by definition…. And if you can insert £1, why not more…???

                  Do you agree that this all boils down to whether the Gov’t borrows from a finite private sector pie, or not…???

                  • Bigcollapso

                    The Federal Reserve, is an amazingly complex beast. It has a government charter, and it’s Chairman is appointed by the president. Although if you look at the history, you will see that the president does not ever change the chief, for instance Bernanke is a Republican and Obama hates Republicans.
                    The important part to understand is that the money is issued with debt, and the interest is payed to the private banking system. The Federal Reserve has no budget, finances itself with inflation, and is not subject to audit

                    • snedmeister1

                      Hmmm, I take that answer to mean, you didn’t understand the question…..

    • Jetser

      Z,

      In an economy which needs $100 the bank would only have to lend $99, because there has to be a dollar before credit denominated in dollars can be created. If there is a single dollar in existence then any level of debt can be repaid whilst that dollar circulates in the economy. The physical object which is the basis for the credit does not get destroyed when a debt is repaid.
      I think you’ve taken the gradient of an exponential chart to represent the rate of growth when it actually represents the size of growth. It is the rate of change of the curve which represents the growth rate. Picture a classic exponential chart and let’s assume it’s showing GDP:
      - Each point on the curve represents the size of the economy at a given time. If I were to use a car journey as an analogy, this would be distance travelled.
      - The slope of the curve represents the absolute value of the change. In the 40s to early 70s this would have been a smaller dollar value than today, but that tells us nothing about the growth rate. This is like the car’s speed.
      - The rate of change of the slope is the growth rate. A curve which starts off looking flat and ends up looking vertical could have the same growth rate along the entire axis. This is like acceleration.

      • Anonymous

        Hi Jetser,

        The reserves against which loans are made by banks are created by lending. The Federal Reserve purchases U.S. Treasuries and other securities and in doing so creates “base money” or M1 against which banks lend and create the money that becomes M2. the more exotic kind of money, M3, is what is created by the stock market when securities are purchased on margins.

        Again, I am oversimplifying, but the argument that there must have been a first dollar is kind of a chicken and egg argument. And the argument that the first dollar created can extinguish all of the other dollars created by the magic of fractional reserves is just as flawed since the original dollar can only in theory extinguish the principle that it created and can never extinguish the interest owed on that principle.

        • Jetser

          You’ve misunderstood me. Suppose there is no such thing as a unicorn. Can you promise to pay me a unicorn? Suppose there is no dollar. Can you promise to pay me $100? There has to be a dollar before there can be debt denominated in dollars. It’s not a chicken and egg thing.

          I’m not claiming that “fractional reserves” mean a single dollar can repay any amount of debt. I’m saying that by circulating “the thing which is a dollar” through the economy, all debts can be paid off.

          • Anonymous

            Let’s try a different kind of “suppose” and let’s make it a more real kind. Let’s suppose that you want to have something called money and you would like to call your money “dollars” even though we all know that the money isn’t “dollars”.

            The way that would happen would be that the party wishing to have money would sign an IOU and denominate the IOU in “dollars” and the party that intended to create and lend the money would issue to the party that wished to borrow it something called a transferable ”note” which was denominated in “dollars” even though nobody even remembers what a dollar is.

            Of course the lending party might not want to waste time having these notes printed and might prefer to simply make an electronic journal entry. But if the borrower wanted something more physical a token coin or a printed note could be given to the borrower.

            In the chicken and egg argument, the egg (an IOU or security) definitely comes first and the chicken (a coin, note or journal entry) comes second.

            The only way to extinguish the IOU is to return the money that it created which also extinguishes the money.

            • Jetser

              This tells me that you do know what I mean. There is something which is a dollar, and it is not debt. It is a real thing which does not get destroyed when it is used in payment for debt. The key word: IS

              “…even though nobody even remembers what a dollar is.”

              You got close when you used the word “coin” but moved away again by ignoring the coin when considering the ways in which debts can be settled.

              • Anonymous

                The word “coin” doesn’t mean what you think it means. It means to make or form by stamping or pressing. Ink pressed into paper is just as much the coining of money as stamping an image on a bit of metal.

                Money need not be “coined” at all. Money is monetta, a monitoring of future obligations in exchange for goods or services provided in the present. Money has always been debt and money has always always extinguished when the obligation has been met.

                The token which has been given as evidence for the obligation, met or unmet, has varied throughout history from small clay tablets with cuneiform, to inscriptions on clay pots, to coined metal, to wooden tally sticks, to paper notes, to journal entries, paper or electronic.

                The first metal coins where token given to those who donated wheat to the temples in Egypt and entitled the bearer to sexual favors. You can imagine that these tokens had awesome exchange value.

                • Jetser

                  Don’t get hung up on the word coin (which does mean what I think it means, noun and verb). The existence of any token or commodity in which the debt is denominated will suffice to make any debt payable. Money does not have to exist but currency always does. If you want to start a debt based money system with no currency or commodity then you will fail at the very first part part where someone sells bonds and someone else gives their excess money. As I understand it, the first money was accounts made on clay tablets, which was purely debt but was denominated in wheat. There will always be wheat so any amount of the debt could be paid off.

                  • Anonymous

                    I think we are on the same page with the words … the words get in the way of discussion when we lack a really good substantial word for something, especially if the really good word has been taken over and used for something else.

                    What we need is a medium of exchange so that we can trade the value of what we do for the value of what others do without to many barriers to trade. It will always be monetta because one person gives and another person takes and different times so there is always this tokens now for the real value of the goods and service later or the opposite.

                    Some 1939 economist has the idea in their head that money was worth the goods and services that it would purchase. So instead of backing money with a single commodity like gold or silver, it should be backed by a basket of goods and services and the quantity of money should be regulated so that its buying power remains stable even in an economy where supply and demand are always changing the relative value of the individual goods and services.

                    We will probably keep calling the money dollars over your objections AND mine. I think they should just call it money or call it a unit for units of money or maybe call it credit which is what it is. I don’t think that would go over so good with the public though, they like dollars and have no idea why.

                    What ever this money is, it can’t be privately issued into existence for profit by a government picked monopoly or cartel as the principle on debt burdened by interest.

          • Anonymous

            I guess I should have mentioned what a “dollar” is since I made a big thing of it in my earlier reply. A dollar, daler or thaler is a Gulden of Joachimstahl, a large silver coin minted in a Bohemian valley or dale called Joachim’s Valley, Vale, Dale or Jaochimsstahl. This large silver coin was considered to be of the same value as a smaller gold coin called a Gulden or Guilder because it was golden.

            It may have been a traditional practice to stamp or coin this metal into tokens called monetta or money but in modern practice we have found that paper works very well and have for a very long time. It was used successfully in the colony of Pennsylvania for sixty years without any precious metals as coins or reserves until King George outlawed the practice and forced the colonists to use his fiat currency, silver and gold coins embossed with the royal seal. This led the cash poor colonists to implement a system of trade called barter which proved to be very inferior to the use of Colonial Scrip.

            Forgive the rant, but I’m anticipating some kind issue to be raised about what is and is not a dollar and I really don’t want to go there. I’ve made many videos on the subject of silver and gold and why we no longer stamp them with token values and declare them by fiat to be money.

            Sadly, We the People no long exercise our right and duty of declaring what is and is not money and leave it to the banks to do that so instead of government-issued fiat money controlled by We the People, we have privately-issued fiat money controlled by the banksters.

  • Cosimo

    In the universe many things, but not all, are organized in systems with
    dependent systems within them. When the dependent subsystems within them
    begin to fail in their assigned tasks ( or become so virtual or
    imagined ) the greater system can no longer use the sub-system for any practical good.  The dependent  system simply does not function in reality any longer but instead
    demands its delusions, miss-evaluations, extinctions, frauds, and vain imaginings be
    accepted as real.

    As organized systems begin to collapse they tend to misuse what energy they have left.  This results in the misuse of energy across many sub-systems at the same time. Each individual sub-system then evaluates the misuse or miss-evaluation of other systems negatively. Worse yet, these dysfunctional sub-systems ignore the overall failures of the systems in which they are only a part.  Like the proverbial two dogs who stop barking at the hole in the fence they only see their little corner of the world. The result of these ‘local evaluations of overarching problems’ are threats at first then actual deeds to ‘correct’ the misdeeds of other sub-systems. Increased chaos ensues.

    The ultimate result , of course, is catastrophic failure as reality eventually re-asserts itself. In most cases these dysfunctional subsystems will be utterly destroyed but sometimes they can save themselves it they no longer depend on other dysfunctional systems for critical infrastructure.

    It is useful to study the Bible, The Fourth Way, and Complexity Theory (or Chaos Theory) because we are now in this phenomena. Like those other nebulous terms: Global Warming and The Lord Jesus Christ the situation does not require any degree of belief or disbelief.  The situation is self-resolving.

    • http://overthepeak.com/wordpress/ Mystic

      Yer wot~!??

  • Guest

    I know I’m repeating some of the other comments, but I’ll go ahead anyway. Like several other commenters, I think the exponential function is not difficult to understand – but I’m struggling to see what the problem is and how this problem applies to the money game – other than some (or many) people misunderstand what money tokens are and therefore erroneously believe the political and ideologically motivated claptrap that people Ron Paul and Peter Schiff come out with.

    As far as I can tell, the likes of Ron Paul, Peter Schiff et al. are no wiser than the monkeys currently running the game because like the monkeys currently running the game the likes of Ron Paul seem to think they can control, manage and direct the outcome of the game by changing the rules. To even suggest that they could *fix* the game (ie. economy) is evidence enough that they haven’t a bloody clue what they’re talking about – to claim that they can do it by reverting to an older rule book that is wholly inadequate for today’s economy seems laughable to me.

    • snedmeister1

      Evening Richard.
      Hope Christmas was good…

      The point BC is making, in my view, is one of an economy based on money creation through debt…

      Not that exponential money creation is the problem, but exponential debt creation that accompanies it in this type
      of scenario….

      That as soon as the new debt being taken on slows, we get the collapse as there isn’t enough money in the
      system to pay it all back with the interest….
      It is the common “End The Fed” perspective banded about….

      It is why I keep banging on about vertical money…

      Vertical money is what carries the slack when the private sector de leverages…
      ( Although I am pretty sure you know that last bit ).

      NOTE : Apologies BC, if I misrepresent your views, but this is how I understand you…..

  • Anonymous

    Hi Nick, could you please have a look at the Kiwi 6 thing? Says to me (lately)”private, permission denied’ or some such words. For some reason unable to open your Vimeo thing too ( read the word wall… on your page 2…so know what you are on about with this vid).

    By the way great comment exchange on this. Thanks all. ( me mind is some like a washing machine with these matters (& similar), some times open the door & out pops dungarees… other times open it up & out pops a thong ( got me as pair of thongarees this time)… Probably too much political fabric softener in the wash).

    Thanks again any ways.

    • http://overthepeak.com/wordpress/ Mystic

      Hello axion,
      I have had a look at the kiwi thing and can see that no one has listened to the either of the last two…..I could not find out why, but did stab around and may have changed something for the good.
      Would you have another try and tell me how it is~!?
      (if no worky – what is the message exactly~?)

      (reading the transcription must have been fun~!?)
      Thanks.

  • Anonymous

    No, same. Says that the: file has been set to private by the owner ( I presume you) or ( their or) that it is being reviewed by the kiwi6 com( them) for copyright infringement.

    • http://overthepeak.com/wordpress/ Mystic

      I logged out of Kiwi6 and tried back here and it let’s it play for me.
      I will try it on Mrs. Mystic’s portable.
      Is the video still a no-go (if so…..all is very odd (and maybe beyond me))~?

  • Arif

    Question to BC

    Where is the problem?  
    a) exponential money creation is a problem?
    b) exponential energy/consumption is a problem?
    c) something else? both?

    a) My opinion in short: money is constantly changing. This is not a collapse, but this is a another change of money creation rules. Maybe this will help you to explain what the problem is with “exponential stuff”. Is exponential money creation system so “bad” when money feets to reality (energy/resources)?

    I will try to explain why I think exponential money creation system is not as BIG problem as many can think. Money rules, money creation, money token is changing conastantly. 10 years ago, 50 years ago, 200 years ago we had diffrend money creation system. History shows that money adapts to reality (physical reality?). Money was adopting very fast. Let me explain.

    I didnt read most of the comments, becouse most of them was talking about creation of tokens and those tokens are only non-existent tokens. You can delate them and create new ones (pick any default or hierinflation). Debts (numbers) are only tokens to play games. We can “reset” the rules and after 5-10 years and we can live beyond provious point. I think money are not the real problem …and in my opinion discusion about de-levaraging/compunding-interest will not move us forvard. I get it – we CANNOT pay it back…but the RULES of money creation can be changed. Rules or even money tokens can be changed….as it used to be in the past. We “just” simply will play along with reality – if we will have deflation/recesion for the next 30 years then the money creation will addopt. I understandthat we CANT kick the can the road with our current rules, with our current tokens, but we can change TOKENS. Gold standard, no gold, fiat, no fiat, exponential, stable, fiat, no fiat….Money cration games lasts of the centuries! Tokens survived a lot of crazy things. We will just keep playing this game becosue money is more and more important to us. Money will not wanish.  Yes, I understand that this will “cease” many saving and bank account digit numbers… but resources, factories, technology, stuff, knowledge will still be with us! In my opinion very, very fast someone will find  new “money tokens” just to take adventage of other players/countires. World will not be standing by frozen. World will react. World/countires will try to take advenge of the game called “life”. They will experiment with new rules/new tokens….someone will win this game. Game of money creation.Now FED is master of the game. Now we have “demend” for dollars, in the future will will have “demend” for other tokens…and someone will benefit it. Exponential money system will simply adobt to reality. Exponential system will not be with us forever.

    b) do we realy need exponential energy system to survive? to keep humankind allive? or can we live with FLAT or declining energy consumption rate? This is SUPER open topic but my point is this – this game is also changing all the time. Game of consumption is changing so my question is this – do we need constant GPD/consumption rate increase to “improve” our live? Do we are realy doomed without exponential growth?
    [In my opinion - no. Now I must finish my writing (dinner), but if needed I can explain. ]

    c) they cant be equal. Money are more important? Energy is more important? Who is driving who? If energy (reality) then we should focus on energy not on debt we cannot pay when we are talking about exponential systems…but why we keep talking about money if they are second in importance? Money will not change the reality. Reality will change the money. Money will addopt. Yes or no?

    I will reperat my question using diffrent words? What you are most affraid of? a, b, or c? are those problems are equal for you?

    PS – sorry for many empty spaces (“Enter”). Im experimenting with copy-paste posts.

  • http://overthepeak.com/wordpress/ Mystic

    Z,
    As you say, good point to get to re: you and the MMTers.

    I would say that the government `runs a balanced budget`.  I know, I know that these are not the right words, but what I mean is – That government spending is balanced by taxes taken in plus money for treasuries.
    There is no `real` deficit.  The money balance is unaltered.

    Would you be able to put the right words on that way of saying things~?

    And if you understood that…..what would stimulative government spending look like~?

    (and just to show that I am trying not to be silly – Would it be right to add more money into an economy at a time that it is `naturally` shrinking~?)

    • Anonymous

      You and I have had this discussion before. Making the spreadsheets balance seems to be some kind of bean counter religion. The dogmatic belief in good accounting principle that they learned in college prevent them from acknowledging that the whole world wouldn’t fall apart if they just scribbled some numbers in the journal creating a positive balance in the US Treasury account without offsetting the new assets with liabilities (aka securities).

      I think your point is well taken that money is needed to fix the monetary problem. This is insanely counter-intuitive to the non-mathematical mind. The money supply is expanding but not for the morally acceptable Steve Keenian productive purpose and not for consumption either. All of that new money is being used to service the ever expanding debt and the money available for these other purposes is shrinking.

      So, we crank out some new money without any corresponding debt just like Lincoln did. Some of this money produces stuff, some of it buys stuff and some of it extinguishes debt. The money supply actually shrinks as debt is extinguished.

      The trick to this is to reduce the amount of new money being created as debt so that debt actually goes down as new debt-free money is spent into existence by government and the money supply shrinks.

      So how would business function without access to all of that credit? Well, for one thing all of the wealthy people and businesses who rent their money to the government could rent their money to businesses instead or better year invest in business instead of lending to it.

      So how are all of those lower income people going to buy all of that without using new credit/money. That too is easy, as less of the cost of goods and services is linked to borrowing money the price will go down. On average 45% of the price is for the servicing of debt. 

      We can prime the pump a bit by scribbling some numbers in at the US Treasury and apportioning money to the states so they can bump up spending and retire some debt We can even issue some tax credits to the bottom 80% to help offset the fact that for the last several decades their share of ownership has eroded because of the transfer of wealth from the bottom 80% to the to 10%.

      At some point with much of the debt extinguished the new issues of money will begin to increase the money supply and if there is not corresponding growth t the economy there will be the potential for inflation due to monetary expansion. At this point there will be several ways to remove money from general circulation ranging from spending reduction to more debt-lending to higher taxation.

      The final question was should we reduce money from the money supply if the economy is shrinking in a natural and healthy way, maybe the population has stabilized and is now contracting or maybe we are engineering goods to last longer or have reduced consumptive waste, the economy might be shrinking because it has too due to resource depletion.

      The current monetary crisis would be much worse if some of this wasn’t already happening. But I agree that one of the functions of a monetary authority in the kind of money system that I would advocate would be to tax away some of the money to extinguish it so that money would not loose its value in a naturally contracting economy. Taxation might not be the only way to do that. Some money will always be burdened by interest and increasing the interest rate or the amount of money created for lending would reduce the money supply. Also, if the population is dropping or the economy is naturally shrinking the demand for government services would drop and there would be a reduction in money creation for spending. Also, the model that I envision includes some kind of regular public dividend which could be reduced. Apportionment to states could be reduced as well

      In true MMT fashion you would only do this if all of the people were employed but that might be to much for this reply.

      • http://overthepeak.com/wordpress/ Mystic

        Hello,
        I guess I do this a bit at a time….
        You say that – “All of that new money is being used to service the ever expanding debt”….
        Now, I know that `all` does not mean `all`, but let’s have a look at that.
        The last 10 years, about 10 trillion in new debt (non-financial).  I would say that most of it went for mortgages (we don’t need to go to Z1 do we).
        Would you like to comment (on the understanding that the last thing I want to be is `right`)~?

        Here is a question that came to mind (as I read Steve Keen)…..
        Most everyone I read says that money is `extinguished` when the debt is paid back.
        Keen says that the debt is extinguished, but the bank puts the money on its books (does not `destroy` it)…….and comment~?

        Yes, we can say that the debt thing will naturally shrink for a long while (debt feeding frenzy is over) and that gap needs to be constructively filled (or at least, filled enough to keep out of depression).

        OK businesses have money.  The government is doing the best it can to get them to take their money elsewhere……..but, businesses like everyone act in packs (and there is no return better than next to bugger all out there….that is worth the risk).

        As things stand and the government wanting to do a bigger and more glorious dog and pony show, it is hard to be hopeful for the employment figures~!?

        • Anonymous

          MZM (Money of Zero Maturity) is essentially all of the money that can be spent as money.

          The total MZM on 12/12/2011 was $10,628.6 million; on 12/13/2010 was $9,758.5 million. The new MZM created in the last year was $870.1 million.

          The velocity of MZM is 1.458. This means that every dollar on MZM is used 1.458 times in the course of a year so because money is used for multiple transactions it is more like having $1,268.6 million in new MZM to spend over the course of the last year.

          The total public and private national debt is roughly $56,420.0 million. If the aggregate interest rate on that debt was even as little as 2.25%, then all of the new money created was needed just to pay interest.

          Of course the aggregate interest rate is undoubtedly higher. And some of that money was needed to make payments against the principle as well.

          If we factor in velocity, the total amount of MZM transacted in the last year is $15,496.5 million. If there are 8% in interest and fees, then $4,513.6 is needed just to pay interest on the total public and private debt. I have no idea how much money was needed to make payments on principle, but it is reasonable to believe that as much money was needed for principle as for interest so nearly half of the MZM was needed just to make payments on loans.

          Contrast this to what I said earlier, that 45% of the cost of everything in aggregate is the cost of servicing debt.

          I won’t just stand by my assertion that all of the new money being created is being used to service debt, I will go further and suggest that there wasn’t enough new money created to service the debt. The money available for productive purposes is shrinking. This is why the Fed is desperate to expand the money supply. All of the inflation in prices is due to the cost of servicing debt and no amount of improvement in productivity of labor, reduced cost of materials or technological gains can keep the price from going up to service the debt that is behind production.

          This is what the early stages of collapse looks like.

          Since you mentioned mortgages, I feel obligated to mention that while in the aggregate 45% of price is for the servicing of debt, in housing it is 70%.

          Another Steve Keenian moment? I used to think he was guy was quite bright but I am beginning to change my mind about him.

          When the bank creates the debt it does two things, one thing is to create the asset and the other thing is to create the liability. As you already know the IOU or promissory note is the asset and the credit/money account is the liability.

          Let’s imagine that the IOU is for $10,000 to purchase a vehicle. The credit/money that the bank places in his account is transferred to another account in another bank to purchase the vehicle but the asset, the IOU remains in the bank where it was deposited. As the borrower makes the last payment, the asset is extinguished. The bank is ahead for all of the interest and fees collected but the principle collected is a net-net.

          Let’s reexamine that again, the bank created $10,000 in credit/money as a liability to itself against $10,000 in assets in the form of an IOU. When the borrower bought the car the bank lost $10,000 in credit/money as the reserves of the lending bank where transferred to the bank of the person who sold the vehicle. Over the next four years the lending bank collects back the $10,000 in principle which is a liability to the bank and uses that liability to extinguish the $10,000 in assets, the IOU. This is a net-net on the balance sheet and both the credit/money and the asset/IOU are zeroed out.

          What remains to the bank is the interest that it collected. This credit money that is now on deposit with the bank is a liability to some other banks where it was created as loans to some other people.

          Steve Keen should know this stuff! Maybe he does?

          Now on to getting wealthy people to risk their money …

          There is no incentive for a wealthy person to risk their own money. If you are wealthy, you form a corporation and you borrow money in the name of the corporation and transfer all of the risk to the corporation. Money will be created for your favorite productive purpose without any personal risk to your own assets.

          If you do have to risk some of your own money, you make sure that you borrow more money as soon as possible and pay yourself back in big fat salaries and bonuses. Seriously, the owners don’t have any skin in the game. They own it all with money that was created for them or put up by suckers.

          If you have money of your own, you put it someplace safe where it is guaranteed a rate of return, the best way to do that is to buy US Treasuries with the money that you didn’t use to pay taxes. Duh!

          If you are into stocks, you don’t risk your own money, you risk the money of those suckers who are setting aside for retirement and then you borrow money (buy on margins) to bet against them and collect commissions on both sides. What a racket?

          Finally, the government … the best democracy that plutocrats can afford … they distract us with their carnival tricks but they have no intention of doing anything crazy like putting an end to the Ponzi scheme that is regularly transferring wealth from the pockets of the 80% to the pockets of the 10%. Nero will be seen fiddling as Rome burns to the ground.

          • http://overthepeak.com/wordpress/ Mystic

            Please let me start by saying that you are very full of facts, very full of generosity in trying to put those facts over……but freaking awful at doing so.
            Three decimal points is just a distraction……If you wanted to devise a way of getting someone to stop reading your comment……three decimal points is not a bad start.
            If we are to get on, you will have to learn to communicate~!  Be like a good teacher, not a boring old drone.
            Now, where were we.

            I’ve read it all and am not in the slightest bit minded to reply.
            I am sure it is all right enough, but it is put over in such a way that makes me just want it to be all wrong, because the author is such a boring pudding.
            Silly I know.

            I hope someone else will talk to you.
            Thanks anyway. 

            • Anonymous

              Yes, I am a “boring old drone”. I have found within myself the ability to grasp the science of this very complex issue but I haven’t found it withing myself the ability to translate that to informative and entertaining dialog at the eighth grade level of comprehension. The person who can do that is very gifted.

              Here is the problem, I am here and I am commenting but when I suggest to people that they watch this video or read that explanation I am told that I should make the video myself or provide the explanation myself. I know that the other person did a much better job of it than I am going to do but I can’t get others to pay attention to them so I try to do it myself as requested. 

              My college professors in economics and finance where “boring old drones” too. The textbooks that I read where filled with all of that boring material. Almost everyone that I learn from is a “boring pudding”. I know who I am and they know who they are and we all wish we where gifted with the ability to communicated dry, boring, complicated, college-level economics in a fun, entertaining, informative, grade school level presentation.

              I really wish I was the “good teacher” that you and others are looking for, but I am not. Until someone comes along with the gift, the rest of you have two choices, you can keep whining about how it’s someone else’s fault that you don’t understand or you can dig in and learn from dry, “boring old drones”.

              Don’t think me to harsh, when I reread my own work I think the same thing, “Nobody is going to get through this, it is too long, too dry, etc.” I don’t think I have ever gotten though anything written by Billy Mitchell without skipping parts of it and have finally just quit reading his blog altogether Forget 3-digits, he actually includes formulas and math in his blogs! *gasp*

              • http://overthepeak.com/wordpress/ Mystic

                Yep, Bill Mitchell he’s another one~!

                If I may, I think the problem is in the first line – “I have found within myself the ability to grasp the science of this very complex issue”.

                I would guess that most economics teachers don’t have that grasp and you  do not have it either.

                Even if you do, it is most advisable to pretend that you do not~!
                `Preaching` at people is a mega-turn-off.  Down-play your own knowledge. 

                Your generosity is evident, so there must be a way.
                Get into the person’s mind (you do it sometimes.  you did it once or twice with Sned here), gauge their level, find out what they want to know and try and give them that (and no more).

                Here, try this -

                Listen smarty pants Z, you really got yourself in a twist with the over-all debt, base money thing.
                You should not throw all Steve Keen stuff out just because he does not get it all right~!
                Stocks and flows my boy….Stocks and flows.
                You quote a MZM as the only money able to pay debts back, but that is not right is it~!
                Even allowing for velocity (about one a half).
                I get paid at the end of the month of January.  That is the MZM stock for that date.
                But you forget that I will get paid 11 more times that year (and pay my mortgage every time).

                Now……over to you Zman~!