Economics Questions

Re: If recessions are caused by expansion of the money supply...

Aravind — Sat, 27 Apr 2013 18:46:15 GMT

Hi als & others,

This is a very interesting question! I'm not an expert in Austrian economics (started reading about it only a few months ago), so the answer that am going to suggest may be wrong or if I'm simply repeating stuff that's already been said in the previous posts then excuse me :)

Ok, now that the introductions are done here is my reply:

I think the problem is not with the increasing money supply but with the way it is brought about. In FRB, banks are creating new money in a "fake" way. What I mean by "fake" is suppose the society has saved up 100 units of money today, banks should only lend 100 units today. But when they issue fake receipts, what they are doing is borrowing money from the future in exchange for an IOU, i.e. issuing lets say 1000 units today hoping that the borrowers will pay back in some years (and hence the term money as debt). And this time travel stuff is never a good idea (if you don't agree, then I can suggest you some nice scifi literature ;))

In a central bank based banking system, the Govt. and Central bank together are creating this debt money (via govt. bonds).

There is nothing wrong when individuals borrow money today that is saved by another individual today with the promise of paying back in the future with some interest. But it is not right when, say, the individual borrows money by simply creating a fake receipt even legally, I.e. by signing an IOU and even if the bank believes he/she can pay back based on his income today. Now, why is this wrong...because it is very difficult to know how much money we can borrow from the future! This is what banks and central banks are doing now in a FRB-central bank reserves-govt. borrowing-fiat money system on a global level.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 19:16:12 GMT

Do what you want. You are just another useless member of society preaching about the evils of people who work.

That's pretty harsh. It's not like I'm planning out a career as a lifelong recipient. I expect to work and pay taxes like everyone else, and I'm okay with that. Public roads are pretty cool. You should drive on them some time.

Re: If recessions are caused by expansion of the money supply...

gotlucky — Wed, 26 Sep 2012 19:03:39 GMT

Do what you want. You are just another useless member of society preaching about the evils of people who work.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 19:01:09 GMT

But they're probably teaching the marine biology of whalefucking in Goolrich 301 at the moment. It'd be embarassing to just walk in unnannounced and unenrolled.

Re: If recessions are caused by expansion of the money supply...

gotlucky — Wed, 26 Sep 2012 18:58:09 GMT

Then go to class.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 18:55:01 GMT

And drop out of school? I got enough on my plate without burgerflipping grease.

Re: If recessions are caused by expansion of the money supply...

gotlucky — Wed, 26 Sep 2012 18:51:39 GMT

mustang19,

Get a job.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 18:22:37 GMT

Going back around again. A monopsony is a sufficient condition for monetary expansion, but not a necessary one. And if security purchasers make incorrect investment decisions, they can grow credit all they want.

Re: If recessions are caused by expansion of the money supply...

Rodolphe Topffer — Wed, 26 Sep 2012 18:18:51 GMT

I already explained why banks could not create money in excess of what public really want. Read The Theory of Free Banking.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 17:47:49 GMT

Bankers were seeking profit, making unsound and risky investments because there are profits to be made, a condition which had been made possible with inflationary credit and, of course, deposit insurance.

This is exactly what happened during the subprime bubble.

I don't dispute any of that (besides the DI bit). I'm just saying that if central bank lending or monetary base growth is insufficient, then there are other ways for private agents to create money. If the supply of base money and available reserves is insufficient to sustain lending at the level that investment banks (and their customers) desire or demand, they're free to create money in the form of securities which are either money or something very similiar to it for practical purposes. Which is exactly what happened.

Re: If recessions are caused by expansion of the money supply...

Rodolphe Topffer — Wed, 26 Sep 2012 17:38:07 GMT

alsdjfalsdjfos,

"certain posters who have substituted indiscriminate linkposting for argument"

My english is not good enough. This would not be easy to pursue a lengthy discussion. Even so, you are just seeking pathetic excuse for not reading the articles I provided. Furthermore, you have not replied to my previous arguments. You have just selected a few passages you are willing to reply.

And about what you have said before ...

"I should also note that the only way to completely get rid of credit growth would be to outlaw credit growth through far reaching financial regulations to eliminate all fractional reserve banking and paper currency, abolition of public property in land and application of all rents of land to private purposes, equal liability of all to work, and abolition of all forms of interest and credit."

You have yet to prove it. And I'm still waiting.

"A derivative isn't backed by anything besides an asset (like a house) or another financial security. You never said you were going to regulate mortgage backed securities so banks can't pile derivative upon derivative over fixed assets like they do all the time. They don't need deposits. Investment banks don't even generally hold deposits."

I repeat once again. With credit expansion, the limitless availability of funds allows the ever-increasing purchases of security, and the like. Otherwise, the interest rates will rise and immediately stop and deflate a developing bubble. You cannot speculate without money.

And it is not much more useful to invoke the keynesian theory of animal spirits. Without cheap money, a lengthening of the structure of production requires a sacrifice of the present prosperity (short term) in favor of a prosperous future (long term). All prices cannot increase at the same time. But, a lengthening of the production structure without prior savings only leads to a boom, where everything seems to increase at the same time (consumption, investment, profit, etc.), generating an excess of optimism. And from that moment, only, financial markets begin to boil, and bubbles inflate (then explode).

Bankers were seeking profit, making unsound and risky investments because there are profits to be made, a condition which had been made possible with inflationary credit and, of course, deposit insurance.

This is exactly what happened during the subprime bubble.

Re: If recessions are caused by expansion of the money supply...

Autolykos — Wed, 26 Sep 2012 17:08:31 GMT

Thanks for implicitly admitting that you employed the red herring fallacy in this post - and therefore that you're being intellectually dishonest. That amounts to a complete concession of your position. In other words, you seem to have no intellectual leg to stand on whatsoever.

I'll add that your last post clearly supports the above.

Re: If recessions are caused by expansion of the money supply...

alsdjfalsdjfos — Wed, 26 Sep 2012 17:02:47 GMT

See, this is what I mean. You're not interested in serious, rational discussion. You just want us to help you pat yourself on the back over your alleged moral superiority. FYI, I consider you to be morally bankrupt.

You think I'm morally bankrupt for not granting Goldman Sachs a fundamental right to make proprietary trades with its clients money? I doubt it. Maybe you do, though. But you still haven't established that libertopia wouldn't have a business cycle or that financial derivative credit growth would slow or cease. So far that's just a "maybe".

Re: If recessions are caused by expansion of the money supply...

Autolykos — Wed, 26 Sep 2012 16:39:23 GMT

See, this is what I mean. You're not interested in serious, rational discussion. You just want us to help you pat yourself on the back over your alleged moral superiority. FYI, I consider you to be morally bankrupt.

Re: If recessions are caused by expansion of the money supply...

Autolykos — Wed, 26 Sep 2012 16:15:12 GMT

... And that refutes my point how?