If we say that in 1980, that M2 was 1600 billions and in 2010 it was 8120 billions, that's a huge increase. Even if you take into account that the population increased from 226.6 million in 1980 to about 309 million in 2010.

So, it's obvious that M2 standing alone, has little meaning. It must be compared to something, such as GDP, increase in national debt, or, what is most likely the case, a multitude of other factors. One of them, IMO, would most certainly be the velocity of money.
However, I'm not an economist.

Population change is only relevant in that it has an effect on real GDP change. Real GDP essentially doubled over that time period, so the M2/real GDP ratio also more or less doubled over that 30 years period. That's more 2 to 2.5% annual inflation of the monetary base. That's actually quite low by historical standards.

http://economistsview.typepad.com/ec...the-1970s.html

Quick question for lyric: following your reasoning that banks create money in exchange for assets: do i understand ut right and banks only give ppl interest on there savings to meet the banks reserve requirement and maybe for liquidity?

You're going to have to clarify this question. I don't understand what you're trying to ask.

Why do banks pay interest when they can create money themselves?

This is something you should ask Boro - in fact Banks cannot create money out of thin air.

They create new money when they issue loans. They don't create new money in any other way. Interest payments are paid using money that already exists.

Think of it like this: In the old days banks accepted gold and created new gold deposit-receipts each time. Today banks do not accept gold, but instead they effectively accept homes and cars each time they issue a new loan. Although dollars do not indicate that they are redeemable for anything, the loan contract indicates that the dollars are "redeemable" for a home or car.

So when a bank accepts gold and prints up new receipts it is the same as a bank accepting a lien on a home and printing up new dollars. An honest banker in either case does not simply print up new receipts (or dollars) to spend in the marketplace or to pay interest. The Fed does print fake receipts to spend occasionally, and they call it quantitative easing. Member banks do not do this; only the Fed, and they do it to adjust the value of circulating currency in both directions as they print new receipts or sell assets they previously purchased with fake dollars.

Interest payments in both cases are paid by the bank with receipts that have already been printed legitimately because of previous deposits. Today banks accept homes and cars and issue dollars instead of accepting gold and issuing receipts, but in both cases the bank makes an agreement to redeem the paper for the asset that they control, be it gold or a house.

I got that. I still didnt get why banks need people to deposit, if all this is the case.

Because actually having the credit ((fiat )money) and loaning it out at a higher rate than they are paying the saver to hold it, is the very core of banking.

The risk of default has shifted in this scenario, this is why banks do it.

But according to Lyric, they just trade dollars for assets like houses and cars. Why can't they just skip the deposit step, print off money to give to loans for their houses and cars, then be on their way?

That's what i kept trying to say. Ty

Because, in accordance with the Constitution, the federal government is the only entity that can legally print money, and no other entity, to date, has attempted to unsurp that authority.

well, the mafia tried

Banks do not need people to deposit.

Commercial banks have two jobs; one is to accept assets (gold, home lien, car title) and issue notes in return, and the other is to keep assets safe. A gold-certificate issuing bank may either accept gold and issue new notes, or it may offer to store notes (that have already been issued) in its vault for you. Issuing notes and keeping them safe are two different functions.

Depositing dollars at a bank is like storing gold certificates in the vault next to the gold. The bank today holds car titles and dollars in its vault instead of gold and gold certificates/receipts.

They can skip the deposit step. Issuing loans and accepting deposits are two separate functions of commercial banks.

Yeah, this is pretty obvious... or what am I missing???

It may interest you to note that several nations (Canada, Sweden, Australia, new Zealand) have no reserve requirement, which should make it clear that fractional reserve banking is not inflationary. If FRB were multiplying the money supply, zero reserve requirements would lead to an infinite expansion.

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

Banks do not issue commercial loans with depositors' money. The reserve requirement is a method used by the banking cartel to insure that small banks enjoy less business (issue fewer loans) than larger banks.

A bank with no reserves can operate easily. Imagine a gold certificate banker with an empty vault -- he can still issue new notes in exchange for a new deposit of gold. Today the gold-deposits are no longer gold, but are instead the homes and cars taken as collateral when new loans are issued.

So why would they even bother accepting deposits just to pay money out? How is it possibly a moneymaking enterprise if they can just offer loans?

Where can I get a certificate from a bank redeemable for someone's house?

Lot's of entities make loans that don't accept deposits-loan sharks, venture capitalists, payday places. They don't have access to cheap capital such as deposits and the price you will pay is considerably higher.
You can buy a delinquent mortgage if you like for your paper redeemable in someone's house. Ton's available atm.

I can do you one better: You can buy, in lots of 2 million, credit card debt for 5 cents on the dollar. So, you only need to put up $100k.

You get a the original documentation & a "Chain of Title" which shows that the originating bank sold the debt to you, and then you go try & collect 100% of it.

Then, rather than get into the debt collection biz yourself, you farm out the debt for collection to law firms in the states in which the debtors were last known to live, which will be several.

The firms work on a contingency basis & keep 30% of what they collect. If you give them a large enough portfolio, you could probably get em' down to 25%. The only money you advance them, is court costs to obtain Judgment if necessary.

They won't want to sue for Judgment unless the debtor owns assets they can attach to recover the debt, because they are going to have to expend man hours & attny work hours attending hearings to obtain them, when the debtor files a defense. You will have to provide a witness in those cases. The original documents of the loan/credit application, Chain of Title, & your sworn testimony that the debt was purchased, validates the debt.

To break even on the deal, you only need to collect 333.33k of the face value of the $2 million in debt, plus your legal fees. 333.33k is 16.67% of your portfolio. Anything above that is profit, minus your expenses.

You could also become licensed to collect in the states in which you own debt, which has its share of regulations, and send out collection letters b4 placing the debt with a collections law firm. That should get you enough change to pay for future legal fees + some.

This isn't a bad little Mom & Pop biz, that you can do right out of your home, if you have the $$$ required for up front investment & can wait up to 2 yrs to see the bulk of your profit.

Some of those debtors will be found to own homes, the firm will obtain Judgment & place a lien against the property, preventing him from selling it, without first using any equity out of the sale of the house to pay your debt. Judgments have a life of 10-20 years, depending on the state & can be renewed by having a Writ of Executed issued & executed by the Sheriff's Dept. prior to the expiration of the Judgment.

Of course, the bulk of the debtors are going to be found to be upside down in their mortgage, so this post has been more of a practice of my typing accuracy & speed, rather than of an informative nature.

Checking and savings account balances are invested in low-risk investments. The investments available are regulated, but they are risk-free for the banks because of FDIC insurance provided by the government, up to $1/4 million per checking account.

All US dollars are redeemable for a house, but only if you are a "depositor" of a house with the bank. Dollars are only "redeemable" if you have a bank loan.

Lyric

I personally enjoy Lyric's posts because it's quite interesting to see just how multifaceted and distorted the government has made things with this "fiat based currency economy" experiment we've had for the past 40 years or so. The explanations and rationalizations are so engrained at this point that it's become reality in most peoples minds, and makes it a tumultuous task to think differently about it IMO.

I find it fascinating that you think my views are the product of explanations or rationalizations provided by government. Please point me to anyone claiming that money is wealth, besides me and F.A. Hayek.

I think it's interesting that what you accuse me of doing is exactly what I perceive you to be doing. I see everyone as having accepted the dogma that money is not wealth. It's also interesting that you seem to associate me with Keynesians and assume I must be sympathetic to their cause.

The problem of inflation is best solved in the same way as most other problems -- get the government out of it and let private businesses compete to create the best currency.