About labor unions [and inflation]
>Article #102697 (102698 is last): >From: Dan Parker <email@example.com> >Newsgroups: alt.politics.economics,sci.econ >Date: Wed Feb 3 12:12:55 1999 >Almost all money enters the economy as debt when a bank determines >someone has sufficient collateral to give them a loan. The loan money >is created from nothing, and is subject only to a small capital >reserves requirement (banks do not lend the money of their >depositors). JCT: You are absolutely right but you will hardly be able to get Professor Flaherty and his economist friends to agree. They're convinced that the banks do lend their money of their depositors, just like piggy banks. Flaherty isn't the only economist teaching these false notions. When I tried to explain their error, Jonathan Simms wrote:
A $100 loan at 6% interest will result in a charge for >repayment of $5,907.59 after 70 years (as calculated by engineer >Theodore Thoren after he studied 200 years of U.S. monetary, and >after he retired as veep of an aerospace firm). The full amount is >knocked down somewhat by interest free injections of money through >bankruptcies, debt foregiveness etc. However, this is the >mathematical, structural cause of inflation. JCT: One of the most important proofs that inflation is caused by interest is that interest-free systems have no inflation.
>There is also the political cause where a government will print up >tons of money to buy votes, fight a war etc. JCT: I am surprised that someone who understands that banks create the money would then say that governments print it up. Governments license the banks to create it then get in line with all the other debtors to borrow it. See below.
>Article #102699 (102743 is last): >From: firstname.lastname@example.org (William F. Hummel) >Newsgroups: alt.politics.economics,sci.econ >Subject: Re: About labor unions [and inflation] >Date: Wed Feb 3 13:33:21 1999 >The average price of goods and services goes up and down over >time, but the nominal interest rate on credit money is always >positive. The notion that interest payments on loans is the >"structural cause of inflation" has no basis in fact. It is the >discredited "interest rate time bomb" theory. JCT: In the Essence of Money debates, Hummel was the guy who who chickened out on a regular basis and now we have him here again challenging the fact that interest causes inflation. We have Flaherty who weaseled out of his admission, another economist who accused me of distorting his message by my omitting what he admitted was a redundant repetition, and now Hummel who backed out of every exchange still making the same arguments he couldn't back up earlier. What is is about what economists study that makes them such weasels? And despite chickening out from every challenge, they still act like they're the experts in the subject. Just go back and see the Essence of Money debates and you have to wonder how Hummel or Flaherty can even show their faces after having refused to take up every challenge on such a regular basis.
>See http://people.we.mediaone.net/wfhummel/timebomb.html JCT: I'll go see his rebuttla of the timebomb and do a critique but I'm sure he'll just back down from any defence of it as he backed down every time in the Essence of Money debates. A guy who won't put his money where his mouth is is really not worth heeding.
>The factors that determine the general price level are many and >varied, and most have nothing to do with too much money being >"printed." Money comes into existence mainly as a result of the >demand for credit, not by the government simply printing it. JCT: Okay, so he's a rare economist who realizes that banks create the money, not the government but being an economist means he probably also believes that they don't create it at all but lend out depositors' funds at the same time.
>The central bank can err by setting its lending rate too low, i.e. >below the expected inflation rate. In time that can lead to excessive >borrowing demand, and excessive (credit) money creation. There have >been occasions in the past when such monetary policy error did >contribute to price inflation, but that is only one of the ways the >inflation is created. JCT: So why is it so hard for economists to believe that inflation can also be shift B, the result of unpurchasable production evinced by foreclosure.
>And note that example is not a case of "printing" to much money, >rather it is one of making credit too cheap. JCT: So he does insist that it is too much credit rather than the to increase in debt. Which is wrong. It is the increase in debt due to interest.
>Inflation comes in a variety of guises, some are demand pull and >others are cost push. The oil embargoes of the 1970s created a >shortage of oil in the U.S. that resulted in a huge excess in >demand over supply, and that drove up energy prices that permeated >our whole economy. JCT: These kind of price rises due to demand are not artificial and hence are not what I consider inflation. I consider inflation the artificial kind of price rise not due to the supply-demand but due solely to interest on the debt.
>That is an example of demand-pull, or its equivalent, supply-drag, >and the effect on prices was permanent. >Also in the 1970s, labor unions had sufficient muscle to force wage >increases that significantly exceeded the increase in labor >productivity. That led to a wage-price spiral, an example of >cost-push inflation. The money supply growth followed. There are >many other examples of both demand-pull and cost-push inflation. For >a more general discussion on inflation, visit >http://people.we.mediaone.net/wfhummel/inflation.html. Hummel JCT: A critique of this will also be included.
>Article #102773 (102784 is last): >From: Dan Parker <email@example.com> >Newsgroups: alt.politics.economics,sci.econ >Subject: Re: About labor unions [and inflation] >Date: Fri Feb 5 01:59:45 1999 >"William F. Hummel" wrote: >>The factors that determine the general price level are many and >>varied, and most have nothing to do with too much money being >>"printed." >Well at least we can agree on this point. There are many influences, >as in any complex system, and inflation is not too much money chasing >too much goods (money is cancelled out of existence as it goes back >to the bank in the form of loan repayments). However, you are wrong >about how interest influences inflation according to the engineering >studies and basic math and logic. JCT: I know of only one engineering study of the banking system. Mine. Do you know of any others?
>>Money comes into existence mainly as a result of the >>demand for credit, not by the government simply printing it. >Imagine the very first money in the world. You want a 100, I print it >up and lend it to you at 10%. You want to use a 100 to stay at the >same level. But you need 110 to do this in the second year, and more >each year after (compounding). So you say, like everyone else, well I >took that 100 and invested it in production and I made 120 worth of >shoes, so I can pay you back the 110 and still have 10 left over. >Except, I only made 100 didn't I? So a demand for more credit. JCT: That's one thing economists can never get into their heads. They always assume that there's enough money, $120, to sell the goods on your island even when your island only started with an original 100 and had no increase. I always try to explain that though the farmer or manufacturer may produce $120 worth of goods, it's no use if he can only sell $100 worth of it which results in stores full of goods and people with empty wallets. Hey, that's what's going on out there now. Abundance of production and insufficiency of market, ie, money. If the farmer could pay his interest with his extra 20 cows or the manufacturer could pay with his extra 20 products, there would be no problem but the banks insist on payment in money and there is insufficient money when everybody who borrowed 10 always owes 11.
>Anyways, I gotta to resist temptation or I'll be forever responding >to stuff that can't really teach me anything. I know what is behind >the economic illusion and this is where I can learn a lot more. Your >posts are better than most on this list though I must say. JCT: All I know of Hummel is he keeps repeating the same false economic theories and when he's called on it, he just backs down but continues to restate the same tripe as if he know what he was talking about. A guy who keeps backing down shouldn't act like he's a winner when it's obvious that the guy who chickens out can't be the winner.
>Article #102782 (102784 is last): >From: Edward Flaherty <firstname.lastname@example.org> >Date: Fri Feb 5 06:35:43 1999 >Dan Parker wrote: >>Imagine the very first money in the world. You want a 100, >>I print it up and lend it to you at 10%. >What did you, the money creator, do during that year? Don't you have >to eat? Where are you going to get the money from? Hey, just print up >a $10 bill and go to the grocery. Suddenly, there's $110 in >circulation. JCT: I've challenged Flaherty on this point over and over in the Essence of money debate and though he weaseled out of that debate, here he is once again repeating the same false tripe. I'm sure there aren't too many economists out there who will agree that bankers create new money to pay their bills because even Flaherty contradicted himself by also stating that it was paid from bank income. From the Essence of Money #9 is some of our debate, I quoted him:
>everything is connected to the reservoir. Just eliminate your + and >-, and connect all arrows to the reservoir and you'll have it right. JCT: It's obvious that if the bank expenses pipe is connected to the reservoir rather than the source pump, then it's obvious that Flaherty is saying that the bank expenses are being paid from the money the bank has taken in with fees and interest. Not new money. He argued expenses were paid from a source of new money:
>You argue that I contradict myself when I state that money is >destroyed when a loan is repaid, but then isn't really destroyed >because banks create deposits when they pay their operating >expenses, pay dividends, or buy assets. >JCT: First of all, he argued that the money is destroyed and then >really isn't destroyed. That's pretty funny. Then he argued that when >they pay their operating expenses, pay dividends or buy assets, they >create new money from the source. JCT: So again today we find him arguing the operating expenses pipe is connected to the pump, not the reservoir. Then he contradicted himself by arguing that expenses were paid from old money:
>When the bank pays its operating costs, dividends, or buys fixed >assets, its excess reserves decline; that is, its reservoir falls. JCT: I responded:
>JCT: But now he says that paying operating expenses comes from >the reservoir, a clear case of double-think. He double-thinks that >when money comes out of the tap, the reservoir of old money goes down. >Clearly, if the bank expenses pipe is connected to the reservoir as I >say, this is true but then the statement that they come from the tap >must he then false. They can't both be true. What's funny is that I've >pointed out to him many times in the past that they can't be coming >from both but he just can't see it. JCT: Once again, Flaherty wrote it was old money from income:
>bank income has only three possible outlets: expenses, dividends, >or assets -- even if those assets are reserves. JCT: Again, I responded:
>JCT: Now he's once again saying that the money to pay for >operating expenses comes from the bank's income, not the source. JCT: But he contradicted himself once again when he wrote:
>The IMPORTANT issue is the way in which this money is "spent" back >into the economy: How much of this money is spent to pay bank >employees and/or to pay realistic rent for the space required for >such employees. FDIC data indicates that about 50% of bank expenses >is interest on customer deposits. About 30% is employee compensation. >The rest is miscellaneous stuff. JCT: Of course, I pointed out his contradiction once more:
>JCT: Here once again, he agrees that bank expenses are paid with >money "spent back" into the economy. Not from newly created deposits. JCT: Finally, just remember that earlier he argued that all the pipes were connected the reservoir of already existing money and said that there was no + source or - sink. Now he's arguing that bank expenses are connected to a + source which he previously argued did not exist. Have you ever heard anyone so confused in your life? And he's an expert economist? And these contradictions were all in the same post! What a joke. It would be hilarious if it weren't so sad. This guy teaches his contradictions to his students. I wonder how grades those who respond expenses are paid with new noney from the source as opposed to those who respond they're paid with old money from the reservoir? Finally, when I got him to admit that loans were connected to the source, a few weeks later he weaseled out of that capitulation and started arguing that he had won our debate. Considering his above contradictions, is it any wonder that he takes his statement "OK John, you win," to also mean "OK John, you don't win?" Finally, he how argues:
>The reason Thoren, Jaikaran, et al are wrong is they mistakenly think >bank lending is the only source of bank-created credit. It is not. JCT: The engineer Thoren and Jaikaran et al, including Turmel, all correctly believe that the + source is only connected to the loans pipe and not the expenses pipe is because we believe Flaherty when he argues that the bank expenses pipe is connected to the reservoir but disbelieve him when he makes the contradictory argument that it is connected to the tap source.
>Banks add deposit money, sans additional loans, whenever they pay >operating costs, dividends, or buy new assets from the public. >The interest "time-bomb" hypothesis is a myth. Edward Flaherty, JCT: Since Flaherty holds both points of view, that expenses are paid with new money and old money, it explains why he's refuse to accept the "time-bomb" hypothesis under his first belief that it's new money but it's difficult to understand why he'd reject it when he's arguing that expenses are paid with old money. Anyway, no one has exemplified the brain-damage suffered by economists more clearly than Prof. Flaherty. For that reason, I advise everyone to try to remember which of the two contradictory views he is holding whenever he makes any arguments.
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