US Budget for Dummies....

I whole heartedly agree. The problem is a large chunk of the population is no longer interested in 'freedom' but in organized theft.

Still confusing. If the number of people increases and a young couple wants to move out of their parent's house into their own house, and do all the labor to build it, the value of other houses decreases. How does the system increase the paper money supply to keep prices constant?

If it were a gold economy, and you could reliably recover an ounce of gold a day, many members of the community would simply pan for gold, which would drive prices up for other things, since nobody wants to do anything, other than pan for gold and drink beer.

How does the local fed deal with that problem?

-Bill

Again, you're confusing money and wealth. You have another home and a family to live in it so the value of the other homes doesn't go down. The market is still stable. You've created wealth because you have another home (value) and another worker. Money is a completely different issue.

Who is brewing the beer in your perfect world?

The "local fed" loans money to buy the labor to build the house, that the new family will pay off over their lifetime, with their labor (if all goes well).

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Yes, I understand the standard explanation. But I still miss the point of where the new created money ends up. If the bank is the local fed, and they make a loan to the new family by printing money they don't have, who has title to the new printed money when it is payed back to the bank? It would seem the bank's function is to simply manage the loan and collect interest for their efforts. But since the bank is slowly collecting the original principal created, the bank has now increased their assets by adding the repayed loan to their books. That seems like a good scam if you can become a bank.

-Bill

As of the time of loan it ends up in the seller's hand, with the buyer owing the bank.

Ashes to ashes, dust to dust. The money goes back to from whence it came, 'thin air'. That is, unless there is a need for it in the 'money supply', in which case it has to be re-loaned to someone to stay in circulation.

Except plain ole banks are not allowed to create money. Only the Fed can do that.

I'm still pondering the possible implications. For example, money 'created' by debtwould seem to imply that there MUST be debt for the process to work and an ever increasing debt at that, since we need 'more money' than the original loan to pay it back, which would seem to imply the money supply has to increase, which requires more debt to 'create' it.

You scenario didn't create any "money", though it did create wealth. No bank was involved and, in fact, no money even changed hands.

The fed.

No, the repaid loan is of no value. The interest paid on the loan, minus costs, is (or was) of value, sure.

"Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world."

You say the scenario didn't create any new money, yet the interest minus costs on the loan created new value. How does this increase the money supply when there are the same number of dollars in circulation as before? And the fed printing money is not the answer, since there is no fed, only the single bank in the simple scenario.

-Bill

Of course it didn't create any new money because that was one of your story's constraints. You can't specify that no new money is possible and then wonder why none exists. Well, maybe you can...

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I'm still confused. Maybe I will be forever. In the simple example, no money was created but new value was. This results in increasing prices. Now, in the gold economy, money is simply created by mining more gold. I suppose you could use tulip bulbs which were considered of great value at one time. Whatever is of value could be the currency base. But if we decide to use paper dollars, in the simple economy to regulate prices, how do we print the paper dollars and how do we distribute them? I doubt they will give me any of the new printed dollars. Who will get them and under what conditions?

-Bill

Bill, Assuming that it is your home that was built. You got a loan to buy the house, paid it for a period of time (with dollars that you earned elsewhere) and then sold the house for a profit. Assuming that there is only one bank, then that bank gives you the dollars to pay for your old house. Ok, in present reality, the bank moves virtual dollars to your bank account, only a few physical dollars come out when you withdraw them. Most dollars are virtual, and banks (the fed) 'create' them all the time.

So, if I built the house with my own labor and no material cost, the housing prices will fall 9% because of the new house and no new money. A couple kids in the community want to get married and buy my house and they have no money. The bank as a sponsor to the community prints the money needed to buy my house at fair market rates and gives the money to me, and the new owners owe the bank the value of the loan. This avoids deflation and props up the housing market and the money supply has increased to reflect the expanding economy. If the economy stops expanding (equilibrium) and the loan is paid off, the bank now has the original printed money paid back and available for the next loan without having to print more money. Is that a reasonable analysis?

-Bill

The only problem I see is your assertion that housing prices fall 9%. Housing prices remain the same (they haven't changed) there is just a new house available. For the purposes of argument, you can actually always assume that there is an infinite supply of money available, you just have the persuade the banks or other investors to use it for your purposes...

Confuses macro and micro economics.

The basic distinction is that microeconomics applies to entities that cannot affect prices, while macroeconomics applies to those entities (like governments and monopolists and monopsonists) can affect or even control prices.

Joe Gwinn

No confusion at all. They are both basically as much psuedo science as psychology (I have a psych degree...) They claim to have mathematical relationships, but then wave their hands about what those relationships actually are, and how to quanticize them. Reality is just so messy!