It is completely rational. What do you think the banks do with the money they get in interest?

No money needs to be created to pay interest; money needs to be created to replenish the money supply if interest is paid to the Fed or the money supply declines.

Again, what do you think a bank does with the interest payments it receives?

It's not a case of the bank working for free, some of the money it pays out or to its own stakeholders (employees and shareholders).

Sure it does, b/c once the loan is paid out, the bank no longer has the cash to lend more money, regardless of what it created.

Where are his calculations? Why do you think he has any skill or expertise?

Sorry, I missed the link.

Yes, those figures show the same think mine did. That wages have increased faster than inflation by about double over the past 60 years. Those figures show that real wages, adjusted for inflation, have doubled in the past 60 years. Actuals have increased about 20x. Notwithstanding inflation, incomes have gone up by double and, by measure of income, we are on average twice as wealthy.


How do you figure? Proved me wrong about what?

I am not arguing that they pay it out, I am arguing that it offsets the reduction in the money supply due to loan interest payments.

Interest is always being paid though, thats the point. Its called servicing the debt, and is always going on.


I know, but the amount they payout hardly negates the need for an increase in the money supply due to interest payments.


That isn't what we are talking about though. Remember we are focused on the effects on the overall money supply and the money that must be created due to interest payments being deducted from the overall supply of money.

Well being that Peter Schiff, who agree with him or not is a very well respected investor/author backs him..that is enough for me. Also the calculations for his various graphs and what is included in them is listed right by the graph.

Refer to post 1181 in this thread. Where you said that wages increased by 19 times and the CPI only by 9 times. That is false, actually wages increased by 2 times and the CPI increased by 9 times. Please tell me you are not trying to save face by pulling the we are twice as wealthy card. Just give up man.

__________________
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

"The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." - Thomas Jefferson

You lost me, I thought you were arguing that these interest payments require more growth of the money supply.


Sure.

Why wouldn't it if the amount they pay out equates to the interest they take it? If the amount of outflow from the bank equates to the inflow, then there is no net change to the money supply.

If the bank took the interest payments and buried it, I agree that would eventually cause a decrease in the effective money supply (which is actually in effect why the nation had such severe deflation in the GD and why we've had no significant inflation despite the Fed doubling the base).

But if the bank takes that interest and disburses it in one form or another, there is no net change in the money supply, and no need to increase it.

You keep saying that but it is not right. Money does not have to be created due to interest payments. Why do you think that?

Schiff is the source for those calculations? Link?

Yes, your own link showed the same thing for wages.

From your link:

Median wage - male
1947 $2324
2006 $36,011

That is a 15.5x increase. The only reason its smaller is because the other data went to 2009, and maybe wages didn't grow quite as fast as household income, but pretty close.

I think you are confusing actual data with real data. Real wages, meaning wages adjusted for inflation, double. And where you have actual increases of 20x and inflation increases of 10x, then real wages would have increased 2x.

Do you see it? Or I can prepare an illustration.

That is what I am arguing.



I would agree with you that there would be no need for an increase in the money supply if the bankers were paying out their entire income from interest back out in both interest payments and dividends..but that would mean banks don't make any money and simply shuffle money around the country, which we both know isn't true.

If interest payments are the cause of the dip in the overall money supply, and money needs to be created as a result of this dip..then the interest payments are the cause of money needing to be created. Simple logic.


Schiff is not the source, but he supports them. No link, its from his book Crashproof.

So you are comparing wages not adjusted for inflation? If that is the case, then we need to compare prices not adjusted for inflation. I am not sure where you are going with this. If you adjust for inflation, wages doubled....while the CPI increased 9 times. Wages simply did not keep up with inflation.

__________________
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

"The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." - Thomas Jefferson

Well, that is why I asked, "what do you think they do with dividend income"?

The fact the bank makes money doesn't change the equation. What does a bank do with the money it makes? Pays it out to salaries, dividends, makes more loans. In all those cases the money goes back into the money supply.

They aren't, unless the bank takes the money it gets and sits on it. Then money is being withdrawn from the money supply, and if new money isn't created we will have deflation due to a shrinking money supply. That is what is happening now, but its not the norm.

Personally, I put Schiff more into the "BS economists" category, but I know many revere him. He says some good things, but is off base on others. For example, his whole theme about inflation is because the base expanded. But according to him, we should be having hyperinflation by now, because the Fed doubled the money base as year ago.

But why, contrary to Schiff's prediction, hasn't that happened? Let's see if you picked this up from our discussion about how money is created a couple days ago.

No because real wages are already adjusted for inflation. Real wages already take that 9x factor into account.

Here's an illustration.

Suppose this scenario for simplicity's sake.

1947: Average Wagearner gets $2000. Cost of average food, home, care and stuff = $2000. Guy just breaks even.

2009: Average Wagearner salary has gone up to $40,000. Cost of average food, home, care and stuff = $20,000.

What do we have? In this scenario, prices have increased 10x because of inflation. Everything costs 10x more. Average Wagearner's salary has gone up 20x. Simplified but not too far off base from reality, as we have seen.

Now let's calculate his "real" or inflation adjusted wage.

In 1947 dollars, his 2009 wage would be $4000, or $40,000 divided by 10, the inflation increase.

In 2009 dollars, his 1947 salary would be $20,000, or his 1947 salary of $2000 multiplied by 10 to compensate for the effect of inflation.

In either case, his "real" wage has doubled during that time. It's either gone from $20,000 to $40,000 if we use 2009 dollars, or from $2000 to $4000 if we use 1947 dollars.

And whether we use 1947 or 2009 dollars, he is in effect twice as wealthy (using income to define wealth) cause he can by twice as much stuff in 2009 as he could in 1947.

I do have to hand it to you, when it comes to spin...you are good.

You simply don't get it. More and more money gets transfered to the bank and the bank owners in your scenario as you claim - no new money needs to be created. This is a giant transfer of wealth, and if you are to argue that dividends and interest payouts to savings accounts negates this...you need to get your head checked.

Ok, I will go along with you for the ride here. So if the bankers pay out small portions of their income in dividends and interest payments, and no new money is multiplied or created because there isnt a need, will this not result in a transfer of wealth to the bankers?


I would hardly put Schiff into the BS economists category...he was the only one predicting the housing bubble as early as 2002. I mean come on. The only reason hyperinflation has not occured is because banks aren't lending, Schiff could not have predicted that...logic would dictate that if you increase the base money supply inflation will occur.

Wow, that is so not how it works.

Going back to my link

In 1947 the average earner made 2,324, if we adjust for inflation that would equal 17,967 in 2006.

In 2006 the average american made $36,011 - that is in 2006 dollars.

The inflation rate from January 1947 to January 2006 is - 822.33%

http://inflationdata.com/Inflation/I...sp#calcresults

Now this website runs off of BLS CPI data.

So if wages roughly doubled adjusted for inflation - and there was 800% inflation between 1947 and 2006, how the hell are you arguing that people are wealthier now? Do you know how inflation works? Wages doubled, yet items cost about 800% more today than they did in 1947.

A gallon of gas in 1947 was 15 cents...I just filled up today at 2.74 a gallon...give me a break Iriemon. Your statist partisan nonsense needs to quit.

__________________
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

"The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." - Thomas Jefferson

It's not spin.

Again, what do you think the bank does with the interest income or money it makes?

Even if it is a transfer of wealth, the money still gets distributed to the banks shareholders. Who go out and spend it or deposit it. There's no change in the money supply. It is simply being transferred. There's no need to expand the money supply to pay interest because the money is just being transferred around.

Could be, depending upon the spread between what they have to pay in and what they have to pay out.

That's what killed the S&Ls in the 1980s. They were earning 6-7% on their long term mortgages but money was costing them more than that. The were losing lots of wealth and thousands went under.

That is true. He was predicting the Dow would go to 2000-4000 and the Nasdaq to 500 in two years. In 2002. The naysayers eventually get it right once in a while.

How did you calculate that?

OK. So that is 15.5x more than in 1947. Or a 1450% percent increase in average salary, right?


Because that is what "adjusted for inflation" means. That they are making double -- after the 800% inflation is factored in.

Wages didn't just double, they went up 15.5x or 1450%. If wages went up 1450%, how is that not increasing more than prices which went up 800%?

You're confusing between real and actual numbers. You can't compare inflation adjusted real numbers (wages) with unadjusted actual numbers (prices). You are comparing actual prices with real wages. But "real" wages are already adjusted for inflation.

If you want to compare actual prices and say they went up 800%, then you have to compare it with actual wages, that went up 1450%.

If you made an average wage of $2000 in 1947, the gas didn't cost you must more of your income than it did if you made an average income in 2006 of $36,000 (or a bit more in today).

Suppose you bought 1000 gallons of case in 1947. That cost you $150 dollars right? or 150/2000 = 7.5% of your income. In 2009, 1000 gallons cost you $2,740, or 7.6% of your income. About the same. Right? So the gas doesn't cost any more as a percentage of your salary than it did in 1947. You're not any worse off. For gas you're not any better off, but the price of gas has increased a lot more than most stuff.

Ad homs aren't necessary for the discussion are they? Just because you don't agree with my arguments because you don't understand who it works, is it necessary to resort to insults? Really, they are just rude at anytime, but especially when you are completely wrong about your position as is the case with these real and actual numbers, you just make yourself look silly.

From the Census Bureau link.


No...jesus...go thoroughly look at the Census Bureau info, they have 2 numbers there...they have what they earned in that time period on average and they have a number there that translates that into a 2006 wage. That is where the numbers I am talking about are coming from.



Ok, so adjusting for inflation means adjusting for the loss in value of the dollar. So to adjust for the loss in value you need 17k 2006 dollars to equal a wage of 2k in 1947. Obviously the median income in 2006 was 36k. So in 1947 it is safe to assume that if you were to reverse it and take someone in 2006 and make them go back in time to 1947 that they would be making roughly 4k/yr, because if the "adjusted for inflation" wage has only doubled, then you must assume that your "real wage" could only have doubled as well. You cannot have your "real wage" go up 15 times yet only the adjusted for inflation rate double...that math does not compute. So now that we have established that wages have only effectively doubled since 1947 we can move on.

If you want to talk "Actual wages" you need to talk in the same timeframe...you can't take 1947's 2k salary and compare it to an inflated 2006 salary...It is not a fair comparison...you either need to take the adjusted for inflation numbers or reduce your "actual" 2006 number to its 1947 equivalent which I kindly did for you. I am not denying that wages have gone up...not at all...they have effectively doubled, but the CPI has increased 9 times or there has been roughly 800% inflation according to government numbers.


See above.


I am far from completely wrong. You are making poor comparisons and trying to pass them off as logically sound....its simply wrong. It is well known throughout this board that your love for our banking system and The Fed tends to cloud your judgement. You are quite stubborn and I am sorry, but you are a statist, you prefer government intervention and feel they do a better job than most can.

__________________
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

"The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale." - Thomas Jefferson