J.H.

You lost me after this:

"Neo-cons are often economic interventionists. Indeed, in America they were basically left-wingers who decided they liked war."

What-tha? Cheney is a 'leftie'?

John
Whether you identify as a "neocon" or not this is an argument straight from their "textbook".
And as usual it is a complete distortion and fabrication designed to sow fear.

Hasnt the vast majority of the governments stimulus already been handed out in $900 cheques and the start of infrustructure spending etc? So in other words it has already borrowed the money and I dont remember interest rates going up lately do you? Where did the billions for those handouts come from? Overseas? Local? Made up? Why didnt interest rates rise?

Your facts and your logic are faulty and designed to mislead. Indeed they are nothing more than right wing propaganda spouted by mean, selfish, heartless, bloated, snouts in the trough exploiters who have no idea of hardship and absolutely no concience nor empathy.

Im confused? You called bush and cheney left wingers? Your nuts.

Pericles,where does the inflationary money come from each yr.You are denying the very existence of the fractional reserve system of banking.Only a small proportion of money belongs to depositors or is borrowed from other banks.So let's not deny the reality.

Every yr the banks have to create new money to equal the increase in population,increases in GDP and inflation.They do not borrow to cover these.Why would you borrow money to cover what you have already produced and pay interest on your own productivity?

Surprise! Surprise! A certain K Rudd, writing in today's Sydney Morning Herald, claims that "Australians should brace for high unemployment, rising interest rates, severe budget cuts and more expensive food and petrol". He should have added, "as forecast by John Humphreys and also the National Executive of the LDP". ( also, I might add, many members of the Liberal Party!)
Now, the alternative would have been to cut taxes and reduce the size of government(s). Cutting taxes would have kept more money in the hands of employees and companies, so they could have had more to spend (or save) and could have made better decisions on how it was to be spent or saved. As it is, the Grand Plan of infrastructure spending involves several layers of governments at the Federal, State and (sometimes) local council level. Our taxes are skimmed at each level, before the actual work on painting a school house, or building a bridge to nowhere, even begins.

Once more into the breach.

>>Pericles says "To do so, it borrows from Bank B, which happens to have $1,100 in the safe, from which it takes a grand to lend to Bank A." This is wrong.<<

No, Fickle Pickle. It is right. Otherwise, how would you get your loan from Bank A? It has only $100 in the vaults. If it credited your account with $1,000 that it didn't have, and you went to the ATM to withdraw it - it simply wouldn't be there.

This is mysterious, too.

>>defaulting loans means the bank keeps the deposits banks CANNOT lose money with this product.<<

If the borrower defaults on the loan, how can you avoid losing money? You have $100 in the vaults, you lend $1,000, the loan defaults, you have lost $1,000. Fact.

Until and unless you accept that Banks cannot produce money out of a hat, any understanding of our financial system will be closed to you.

That applies to you too, Arjay.

>>Pericles,where does the inflationary money come from each yr.<<

Government policy determines the presence or absence of monetary inflation. Many governments have delegate the mechanics of this to Independent institutions, such as the Bank of England in the UK, or the Fed in the US, but they will be conducting government policy as they do so. How else do you think Mr Rudd is able to inject the billions that is described as the "economic stimulus package"?

>>You are denying the very existence of the fractional reserve system of banking<<

Not at all. What I am saying is that the requirement for a Bank to maintain prudential reserves (that you describe as "fractional Banking) is not what causes monetary inflation.

>>Only a small proportion of money belongs to depositors or is borrowed from other banks.<<

That is where you go wrong, Arjay.

In order to provide you with your loan, the money has to be borrowed, from somewhere. A quick glance at the balance sheet of any Bank will show you the reality of this.

>>So let's not deny the reality.<<

Agreed. Let's not.

Pericles,

I understand where you are coming from but you (and many others) make the mistake of not seeing the need for a difference between loans of "existing money" and of loans against "existing assets" and of loans to produce future assets.

This is caused by the fact that for the last 100 years and in fact since about 1694 when the Bank of England started to increase the money supply through loans that people have come to believe that loans are the only prudent way to increase the money supply.

You would agree that we can increase the money supply by the controller of the currency printing the money. We would both agree that is not sensible.

It seems sensible to use the loans mechanism to increase the money supply and it could be a sensible way of doing things but it has been abused and we have the GFC and so it would seem sensible to look at alternatives.

I agree we can use the loans mechanism to create money. I agree we can give loans and pay interest on those loans. Where I disagree is that when we loan money that is not backed by an asset that it should be subject to interest payments.

There are better ways of increasing the money supply than by creating interest bearing loans and I have given one way.

To see a more complete description of variations on this theme go to.

http://stableproductivemoney.wordpress.com/2009/07/25/a-banking-product-to-fund-renewable-energy-infrastructure/

and

http://stableproductivemoney.wordpress.com/2009/06/12/submission-to-national-broadband-network-greenfields/

I give ways that money can be increased prudently that will stop the business cycle, the wild fluctuations in exchange rates, the stop financial services destroying the "real" economy and stop permanent inflation.