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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Skeeter Bug who wrote (251480)6/2/2010 1:43:25 PM
From: neolibRead Replies (1) of 306849
 
if you lend out money, you have to have earned something of value first (added to society as a whole).

Skeeter I give up. You are incapable of understanding that an IOU is tradeable and hence money.

You think that because someone takes a loan from the bank, and the bank hands them currency cash (i.e. M0 money) that somehow this is different than taking a loan from an individual who hands them something of value.

If you are that obtuse then do it this way: A signs a note for $x and gives it to B who also signs a note for $x and gives it to A in exchange. See, no premade goods are exchanged in this transaction. Both notes are tradeable because there is a market for such things. In this case, 2x money was created. Thats how much new money can circulate in the economy as a result of the actions. The money stays in circulation until the IOUs are redeemed.

If instead, A signs a note for $x and gives it to B in exchange for real property which B already has, then 1x money was created in this transaction. It will pop out of existence when A is made to redeem the note to whoever holds it at the time of redemption.

But in either case, all signed notes represent a commitment to pay when the holders demands payment. That is money. The primary difficult with this is that A's note and B's note depend on the individual fortunes of A and B going forward, and although they had equal value at creation, they might well not have equal value in the future. Thats the advantage of a central currency.

Fractional reserve is simply one way of doing it. Charging interest is also one way of doing things. You can construct all sorts of system which might or might not have such particulars. But you can't even grasp what money is. No wonder you are clueless about why interest has utility.

And please don't come arguing that A & B swapping equal IOUs is not a meaningful transaction and therefore won't happen. There are all sorts of reasons why such transactions would happen, and they are the same as why A might sign a note to a BANK who then hands A cash. Also note that all such transactions, even with the bank, generally require collateral.
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