Reply #10: Ah, frodo, a captive banker to query....so if the house doesn't show up ev [View All]

[junker]

so if the house doesn't show up every time it is refinanced, describe this transaction to the GDP...

a man in WA state borrows 20K dollars to buy raw logs (a lot of them) and rent some space in a field and hire some labor to build log houses.

1) the first impact is the fractional reserve 'creation' of the money in their book-2-bill relationship with the bank 'originating ' the loan. As of that point, the Fed records a 20K dollars 'boost' in economic activity counted within the GDP. Further they note the 'poof' into existance of the 20K due to the deposit of the required fractional reserve amounts to 'create' the 20K dollars. This adds the 20K minus the reserve requirement to the GDP...since they create the money and call their own act of creation a postive for the GDP even though no-thing of value exists at that point and the only 'thing' created is debt.

2) BOB receives his loan of 20K and immediately buys logs. Now the vendor of the logs records the transaction, pockets the profits, hides some from his wife, and goes out drinking. BUT the point is that the next quarter's activity survey of the tax authorities shows the quarters take from BOBs activity buying the logs and notes that within the natural resources area of the report, we had an up tick of 5 thousand dollars. So now the 20K is actually the 20K minus the reserve amount (what 1% these days?) plus the 5K spent for the logs. So suddenly we have magnified the GDP calcs by 25K. We could even follow the analogy further and note the beer being drunk which was paid for by the profits hidden from the log vendors wife....but too trivial.

3) however note that BOB gets a bunch of guys together and they knock out a log house which is sold to MIKE. Now BOB records the sale, and the 45K that he charges goes into the GDP as increased 'manufacturing' activity. So now we have 20K + 5K + BEER MONEY + 45K all on one house entering the system.

4) MIKE also gets a loan, only he gets a loan for 85K so he can buy property and pay for setting up the house. Of course, the 85K now hits the GDP calcs through the origination formula plus also through the reserve requirements activity and other activity. As the bank handed this out as a 'building loan' it also shows up under the 'construction metrics'.

5) Now MIKE puts the house on the lot but his girlfriend hates the place and they move out the next quarter and the house is put on the market at 130K. Now when the house sells this time, it hits the GDP in 9 areas including real estate activity, reserve requirements reports, commercial transactions activity (escrow and related services), und so vieter....

now the issue is, where in any of the formulary available, does either the Federal reserve or the Govt back out any of the previous calculations involving the same money stream?

Further, the conclusion from the example above (paraphased from the feds' own training manuals), the only 'thing' being tracked is debt. Not creation of goods or services but rather the debts used to 'finance' them. To speak of this otherwise is to live in denial. And dear Frodo, as a banker, tell me who 'owns' the house in any of the transactions above...not the financee, all they 'own' is the debt. It is the bank that 'owns' the transaction.

And as to disparaging remarks about Austrian economists, let me please note that ad hominum attacks (especially by association) are frequently used by those who find themselves engaged in a battle of wits or facts while in possession of neither. To have an opinion of the austrians without noting that your profession has destroyed 4 currencies in the USofA since 1690 stinks of denial and self-serving piety of personal opinion propped up by self-agrandizing position. NOT that I believe that of you, merely pointing out that to the engaged mind your approach to discussion does not serve you well.

Yes, my opinions on fiat currencies are considered extreme, that view is held primarily by those who have not lived through a currency collapse (I have seen 4 in my life and the crises that resulted are not pretty).

I am a realist. Perhaps, as noted a purist, and as such I do beleive that R. Rubin and AL. G. conspired to implement the 'strong dollar' policy at the expense of the deaths of thousands of persons (mostly in africa) within the poor, resource exploiting countries of the world. And that this blantant manipluation of the currency led to both the 'boom' and the bust which is following and will lead into the most extreme form of deflationary depression yet seen in the world. That this happened on a democrat's watch does not absolve them for not knowing about it, but since the origination of the problem was in 1913 when W. Wilson, in signing the Income Tax and Other Acts which allowed the Federal Reserve to seize control of the money of the USofA, said, 'today I have sold my fellow citizens into slavery. May they have forgiveness on my soul.', then the act was soooo long in coming that the Democrats at the peak can be held to be more washed in the tide of the times, than channelers of the obvious stupidity that has gotten us here.

So it is not political with me. A man's political association does not blind me to his perfidy or honor, as the case may be. To act other wise is not rational.

But let me also point out that one who believes the outputs of the GDP figures from the Govt, or virtually any report from the FED is a bigger fool than my wife thinks me to be....