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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (251693)	6/3/2010 7:16:30 PM
From: Skeeter Bug	Read Replies (2) \| Respond to of 306849

>>You are not doing the accounting correctly.<< let's see... >>Lets say you have some obligation you need to pay. If you write a new IOU (issue your own money on whatever terms are agreed to) this is new debt.<< it isn't "money" in the sense that it doesn't need to be accepted by anyone else. try to pay your credit union mortgage with it - you'll lose your home. Again, this isn't a trivial difference. in addition, the size of this limited debt instrument is incredibly small compared to the real money economy. >>You are comparing it to already having currency with which to pay.<< in that it isn't the same as some had erroneously argued. >>Not fair! Apples to Apples, you need to go acquire the federal reserve notes, which would involve you getting a loan from a bank (and to keep things equal lets say this was created money as well!)<< not "as well." there was no money created in the first transaction. the money supply stayed the same. however, you are correct that a new "debt instrument" was created that may or may not be converted into money at a future point in time. at the end of the day, though, the only debt instrument that MUST be accepted for all debts, public and private, is money. if the IOU is to be paid in dollars, no new dollars (money) has been created by the time the note is paid off - merely transferred. the debtor earned the pre-existing dollars from someone else and then redirected those pre-existing dollars to pay off the debt. if the lender sells the note, pre-existing dollars are redirected to the purchase of the note. when the bank makes the loan BRAND NEW MONEY THAT HAD NEVER EXISTED PREVIOUSLY IS CREATED, >>then you pay the obligation with currency instead of an IOU.<< the IOU exchange isn't payment for the debt. it is merely a promise to pay the debt. the money exchange that settles the debt is payment on the debt. the reason the IOU isn't payment is b/c nobody else has to value it - and likely won't want the hassle of trying. the accounting looks good to me. >>But you now owe the bank who can still get your house.<< this is where the rubber hits the road... 1. the bank creates brand new money that never existed previously. 2. they collect interest on this legally counterfeited money. 3. when you don't pay as required, the bank takes your actual home without ever putting up any of its own money (it just created it out of nothing). 4. if the home is under water when the bank gets it, the government pays the bank the difference. the net effect is the bank now owns actual property without ever putting up its own capital or taken any risk (applies to TBTF banks).