Charlie Rose

robdverity  11/22/2009 12:40 AM Report

Well debt = credit. Time value of money = interest. Matter of degrees. Excesses. Egregious greed = corruption = venal whores in Congress and pols. Paulson then Geithner; Rubin with Summers' purchase of Obama; Greenspan then Bernanke making / printing money. The only thing missing? Adults!

Lastly in a democracy for sale to the highest bidder(s) is by definition a plutocracy. Economics only apply to the bottom 99%. Goldman Sachs, Citigroup et al are exempt.

BILLPARKS  08/12/2009 10:08 PM Report

Dear Mr. Rose,

On your July 30th show, Robert Shiller rased the point that the source of the major fluctuations in the economy had not been identified by theoretical economist, continuing on, he attributed the cycles of boom and bust to some inconstancy in human behavior. Although I agree that psychology has a significant influence in the behavior of the economy, I find strong evidence that indicates more fundamental processes are in play in causing the boom and bust fluctuation of the economy.

Despite the fact that money is one of the most basic elements of the economy, few economists examine its creation as a possible source of the economic crisis. Considering how money is created, I find very Three entities have the legal authority to issue the nation’s money supply: the Federal Government, the Federal Reserve and commercial banks.

According to the Government Coin and Currency Report, Of the $50 trillion U. S. money supply, the U.S. Government supplies just $36.4 billion in coins, comprising just 0.07% of the money supply; the Federal Reserve supplies $998 billion in paper currency, comprising 2% of the supply; the commercial banks supply the remaining $49 trillion as intangible money used in checking and savings accounts, comprising 98% of the nation’s money. With the exception of government minted coins, 99.9% of the nations money is created from credit as debt and extended into the economy as loans. The federal reserve uses government bonds to back the currency it issues, and the banks use fractional reserve lending practices to make business, institutional and individual loans.

The goose destroying the economy’s jet engine, so to speak is interest. The FED and the commercial banks create only the principal of their loans. They do not create additional money to pay the required interest, thereby creating an impossible contract when the loans are considered as a whole. Keeping in mind that 99.9% of the money is created in this way, if all the loans are repaid, there is no money to pay any interest; on the other hand, if the interest is paid from the existing money supply, there is not enough money to repay all the loans. Either way, the contracts cannot all be fulfilled. In practice, creating new and larger loans, using the new money to service old loans, expanding the money supply, devaluing the money and calling the action inflation is the only way to give the monetary system the short-term appearance of stability. Based on perpetual growth of new debt, the system has mathematical limits determined by the interest requirements exceeding the capability of commercial banks to originate new loans.

But the difficult in this system is easily seen when expressed as a mathematical inequality:

? principal ? ? principal + ? interest

This expression indicates that the fault causing the “normal business cycle’ of boom and bust is inherent in a debt based monetary system.