Forum Post: Why We Must End the Fed by quadrawack and a Youtube video
Posted 13 years ago on Oct. 12, 2011, 9:51 p.m. EST by Lork
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quadrawack 1 points 2 hours ago
Rico,
Regarding the Federal Reserve banking system, let me see if I can boil this down to the simplest possible explanation. Here's an analogy.
Imagine you have a cup. This represents the Economy. Imagine you have a pitcher of water. This represents the Federal Reserve.
You pour 1000 units of water into the cup. This represents supplying the economy with money. You demand 1100 units of water back. The 100 units of water is interest.
Tell me how can the cup return 100 units of water back (interest), when only 1000 units of water was put in.
That is why many of us have a major, major beef with our monetary system, how it functions, and what it does.
NachoCheese 2 points 2 hours ago
Simple analogy, simple reply (not insulting...just stating fact):
Because the economy is not a static value that your cup represents, but rather creates wealth from productive efforts...hence the term "to MAKE money".
quadrawack 2 points 2 hours ago
Which I understand, but remember, that's 1000 units in circulation, yet 100 units have to be paid back.
Who issues that 100 units, when the pitcher didn't issue another 100 into the system?
That's the problem. Wealth from productive efforts have to be monetized, but the initial issuer only put in 1000.
NachoCheese 1 points 2 hours ago
hence thay are created. again, the economy is not a static value as represented by your cup.
quadrawack 2 points 2 hours ago
Who creates them? The pitcher or the cup? Because remember, the pitcher demands back 100 units... of water, or collateral. I understand it's more complex than that, but I'm putting this in simplest terms without cutting out too much value.
The value is created. But where does the 100 units come from to go back when the initial input was only 1000 units. Does the cup return it in the form of a part of it's glass wall for collateral? Or is the cup ALLOWED to manufacture 100 units of water, which today would be illegal, since the Fed has the monopoly on who creates money.
NachoCheese 1 points 2 hours ago
no problem, this is the problem with complex topics as simple analogies...
the economy creates the additional wealth. are you asking as though an extra 100 units of currency are required by this scenario?
quadrawack 2 points 2 hours ago
Exactly. In the entire system, it was assigned 1000 units of currency. The economy creates additional wealth. But there is still only 1000 units of currency circulating. Where is the other 100 extra units of currency, when the pitcher only put in 1000 units. I hope I'm conveying this simple concept clearly. I understand value. The question is what's used in the trade, and how did it get there.
NachoCheese 1 points 2 hours ago
I am understanding you, and honestly I'm not sure (economics is not my wheelhouse), but I think you are wanting to take this somewhere, while you do, I will go ask an economist I know...
quadrawack 2 points 2 hours ago
YES!
Thank you! I've studied the Federal Reserve and Fractional Reserve Banking (Chicago Federal Reserve Bank's Modern Money Mechanics Manual" for a long time, and one thing that frustrated me was trying to convey the concept of debt as money to people.
That's why I've tried to boil the concept down as simple as possible. But you get it!
Man, I'm glad now. :D Thank you.
Also here is the Youtube video I promised -
http://www.youtube.com/watch?v=cJqM2tFOxLQ
END THE FED!
I've added on to the analogy
Nulambda 1 points 8 hours ago
Sorry to but in, but quick question. If the cup equals 1000 and isrequired to pay 1100 back, then isnt that 100 put back into the economy, creating inflation where the value of 1000 now equals 1100... And isn't that howwealth is created and why wealth = debt? And this is how the system motivates us to work so we have to always play catch up? reply permalink ↥ ↧
quadrawack 1 points 52 minutes ago
Very good! You're getting closer to how the system works. Let's throw in fractional reserve banking into the mix. The cup puts 1000 back into the pitcher by a monthly payment method. That's all it can put back, because like I said, the initial issuance of currency into the cup is just 1000. The pitcher's rules state that it can lend out at 10X the deposit. So now, the pitcher injects 10,000 units of water into the cup. At 10% interest, it demands back 1000. But since there's only 10,000 units in the cup, the cup can only repay back 10,000. So, with that 10,000, the pitcher then reinjects 100,000 units into the cup, with interest at 10,000. Total now in the cup, 110,000.
Now multiply that concept by a hundred thousand, and you've approximated the pattern of the dollar since 1913.
And remember, the cup represents the economy. It's an analogy to our planet. We live with finite resources that are acted on by human labor to create value. That value results in a decrease of those finite resources. So the overall difference between resource - economy is a difference of zero. Hence the term zero sum game. reply permalink edit delete ↥ ↧
Nulambda 1 points 30 minutes ago
An argument I often hear against the zero-sum concept is that we are constantly creating new value and new wealth by our intellect, i.e. Intellectual property rights. How does this fit into your analogy, and do you think our intellect can create new wealth and that our minds is what really generates wealth in this country? reply permalink ↥ ↧
quadrawack 1 points 23 minutes ago
Well it's our minds plus some resource. If we take software, it takes minerals to make chips, oil to make plastics, natural gas to generate electricity. Even financial services, it takes cement to make buildings, coal and iron to make steel for those buildings, gasoline to move people, natural gas or uranium to make electricity to supply the power for computers, and trees, electricity, diesel, and chemicals to make paper. No matter what we do, one way or another, we involve the use of natural resources to power our daily lives. Even eating. It takes oil to make fertilizer, diesel fuel, diesel to move food, coal and steel to make tractors, electricity to run markets.
Unless we come up with a way to transform pure thought energy into matter, we are dependent one way or another on resources.
↥ ↧ gandhirocksmysocks 1 points 10 hours ago
There are forces that control the Fed (the pitcher). Those forces are affected from the inflows and outflows from the cup(s). The pitcher may be the sole arbiter, but free market demand may force an equilibrium in supply over the long-term. The Fed's role is to sustain itself.
What happens when perceived value doesn't match official value? What form would that black market take? reply permalink ↥ ↧
quadrawack 1 points 38 minutes ago
Well, if we take the cup to represent the planet, there are no other planets that we're trading with. So inflows and outflows remain within the cup. The free market will of course demand that it needs more currency in order to match the economic activity. But, since the cup represents the planet, which is finite in resources, we can essentially say that yes, it is a zero sum game, so overall resources = overall economic activity.
However, the pitcher is a lot like the water maker (computer). So it can keep injecting water ad infinitum via Modern Money Mechanics, aka Fractional Reserve Banking.
The cup, since it only has that initial 1000 units of water, even though it has to pay back 1100 units of water, can only pay back 1000 units. So with fractional reserve banking, the pitcher has a ratio of 10X the deposit. So the pitcher injects 10,000 units of water into the cup, with the demand that 1000 units be paid back in interest for a total of 11,000 units. Obviously because only 10,000 units were put into the cup, the cup can only pay back 10,000 units. With that 10,000 units, the pitcher injects 100,000 units with an interest of 10,000 units back. And so it goes on, ad infinitum, until the cup realizes the following:
Overall economic activity is getting more expensive, due to diminishing resources (peak oil, peak mineral, peak food) Also, with so many units of water sloshing around the cup, the price for those resources is expensive (money supply larger than amount of goods and services = inflation). So, the water is used to price real estate (real estate price bubble inflation), commodities, food, and stocks. (overall inflation)
But the interest payment BACK is constant. By now, the pitcher was able to issue 1 quadrillion in total units of water (total amount of loans + derivatives in the bubble) at 10% interest. I'm not putting in world debt level, which is 40 trillion, because at these numbers, it's relatively insignificant.
So, 1 quadrillion is 1000 trillion. Or 1 000 000 000 000 000. The overall economic activity of the cup is only 56 trillion, or 56 000 000 000 000. 10% of the 1 quadrillion is: 10 000 000 000 000, or 10 trillion.
If we take a parcel of the cup, the USA, with a 16 trillion GDP, 10 trillion is 2/3's of it's entire GDP.
That's a massive number that can never be paid back. However, debt levels have risen so large that interest payments are approximating GDP's of entire nations.
As I've stated before, it's a very simplified model, to be used as a teaching tool to convey the basic concepts.
Anyway, that's where we are today, with situtations known as Sovereign Debt Crisis, or US Deficit crisis, etc.
Hence the reason some of us are pretty pissed with the Federal Reserve and the fiat money banking system. reply permalink edit delete
I feel like I'm watching a student of mine figure out one of my riddles...
Hahaha...and sorry again for the bolding I do not know how to control that. xD
Also it looks like we're screwed in another aspect =[
http://occupywallst.org/forum/free-trade-bills-pass-congress/
RIP Bay Area Electronics Jobs....RIP USA Tech Industry...
All so we can get South Korea's beef and pork industry...imagine that...now WE'RE the ones doing "the grunt work".
Gah! Why did it do that bold thing!? x.x
Do not mind the bolding folks.
Oh and here is the link
http://occupywallst.org/forum/one-percenter-ready-to-join-if
Hopefully someone will print this out and pass it around the crowd as a basic teaching tool on money as debt.
Amen!