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Ok, sorry for the delay.
There are several points of your example that are simply incorrect. Not to make another "attack" against the Austrian school, but another common weakness is the almost religious reliance on underlying assumptions that are not proved. In your case here, you make three general errors. 1) You completely misuse/misunderstand the concept of reserve requirements. 2) You use circular reasoning - that is, your proof rests heavily on the things to be proven ( that the Fed measures GDP entirely by credit creation AND that a house shows up in GDP several times as it runs through it's life) - and 3) In smaller dollar amounts you mistake (again) money creation and the velocity of money.
So let's get started, we have a lot to cover - Reserve requirements - you get this almost entirely backwards.
What is a reserve requirement? And what purpose does it serve? Anyone who has ever see "It's a Wonderful Life" knows what happened when there was a "run" on the bank. Because the bank doesn't actually have your deposits sitting in the vault (the money is in someone else's home in the case of the Bailey S&L), so if enough people want to withdraw their deposits in cash, the bank just goes under. To avoid this, the Fed now requires every bank to hold a percentage of the deposits in a reserve account, correspondent accounts, OR in cash. The percentage required is supposed to insure adequate liquidity in the case of high demand for cash (as in a run).
This is important - Reserve requirements have NOTHING to do with loans. Since your entire house of cards is built on this assumption we could just stop here. But I could have done that last night - why make you wait? So let's run through your example:
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 I pointed out, this does not happen. There is no reserve requirement for money loaned out, why would there be? Now, there IS a reserve requirement for the bank that takes the deposit (presumably the checking account for the vendor of the logs and/or the accounts of the people he pays for the work), BUT there is no way to tie it to the money loaned out. They have the same requirement if he brought in $20,000 from his mutual funds or if he was paid in cash. Further, reserve requirements vary substantially with the type of deposit. If the logger puts it in a CD there is currently NO reserve required. More than that, since cash-on-hand, certain investments, and some correspondent accounts count toward reserves, many banks have little to no money actually on deposit with the fed. Some only keep what is necessary to clear checks through the fed. In practice, there is no describable effect from an particular transaction (that is, the loan probably does NOT show up in anyone¡¦s reserve account. Certainly not in a way the fed could measure money creation). Additionally, the ease banks have of borrowing reserves (at incredibly cheap rates today) means that there never has to be ANY connection between the two.
As of that point, the Fed records a 20K dollars 'boost' in economic activity counted within the GDP. Well, not here actually (this is part of your circular argument - you are trying to prove that this loan causes a boost in GDP measurements, you can't use the argument to prove itself). The GDP effect is when the 20k is actually used to buy the logs, not when it is loaned out (or, when the final product is sold in the example given). If you borrow 20k and stick it in a CD you don't impact GDP (but you will impact inflation - though that's another topic) and there is no reserve reporting at all.
Further they note the 'poof' into existence of the 20K due to the deposit of the required fractional reserve amounts to 'create' the 20K dollars. Now here you are correct (minus the "" that make it look fake). Money actually IS created in the transaction. There's 20k sitting in the account the bank took in to make the loan possible AND 20k sitting in the account of the logging company. BOTH are "real" money.
This adds the 20K minus the reserve requirement to the GDP...since they create the money and call their own act of creation a positive for the GDP even though no-thing of value exists at that point and the only 'thing' created is debt. Ok, ignore the "reserve" part of the sentence and that's close. Though it does NOT register as GDP growth (that circular argument again), IF the person takes out a loan and DOESN'T buy the logs, then you've increased the supply of money without any corresponding increase in the total of goods and services in the economy. This IS inflation. The problem is that it doesn't happen that way. Bob goes to the bank to borrow 20k and they say "what for?". When he says "logs for my business to build a home" they make the logs the collateral on the loan and the check is made payable to the logging company - so you can't separate the financing from the economic production.
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.
Ok, a couple mistakes here. The increase in GDP is based on value added - You don't get $20,000 AND $5,000 counted. You get $5,000 of natural resources tapped and $15,000 value added to the transaction by the logger (some of which is profit/beer), for a total of $20,000. You also ignore the production of the logging company. Your story sounds a lot like there are just these logs hanging around and nobody has to do anything to sell them to Bob. In fact, the logger paid salaries to dozens of employees to produce the logs - employees that would have no jobs otherwise (in the aggregate). So the $20k loan is REAL money creation that results in REAL economic activity (the production of the logs) that also would not have occurred without the loan. THIS is what credit-based growth is supposed to do. You also make a couple trivial mistakes with the velocity of money. The money spent on beer is the same dollar being used more than once (as is anything the logger's employees spend their salary on). That's not money creation, that's velocity. On top of this, remember that GDP is supposed to measure sale of finished goods, so none of this actually counts at this point because this isn't the end of the product chain.
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.
Sorry, you have the 20k (+/-) in log production and 25k of value added into the home that is sold, for a total of $45k and a hole of 25k until you tell me how the house was paid for in (4). You also make the same mistake you made above. You conveniently assume "a bunch of guys" just got together and built this thing. In reality, these are Bob's employees who also get paid.
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'.
Alright, I'm presuming that's $45k to Bob to build the house and $40k for the land. Some of that counts toward GDP (like if Mike had to pay Tony to grade the land and install sewer/power/water), some of it doesn't. But HERE is where we have the sale of a finished good and a final impact on GDP.
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....
Sorry, sale of previously sold goods does NOT count toward GDP, so don't think of kicking 130k in there. But you ARE correct that it still impacts GDP in several areas. The realtor provides a finished service that represents around $8k, then you've got the services provided by the bank, inspector, surveyor, any subs who help fix up the property for sale, escrow agents, etc etc etc. Call it $10-12k or more. But not the 130k. Nothing was "produced" in reselling a previously produced product. It CAN impact GDP in that Mike is likely to do SOMETHING with that $30k+ profit on the sale of the house. If he buys a new Dodge with it he still adds to GDP from the "new money" created by the $130k loan. Something else to consider is that Mortgages don't really "create" money in the way the bank does. mortgages are almost never backed by deposits in a bank that still belong to the depositor. They are almost always "securitized" by Fannie Mae or the like. Those securities cannot be withdrawn over their lifetime, only sold to another investor. So the money doesn't really exist in two places at once - hence no money creation. But I've assumed these were all bank loans for simplicity.
Issue #2 : 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?
Skipping all the things you got wrong AND the circular reasoning, we can still look at how things are "backed out" (even if we assume your premise that the fed is somehow tracking the loans). When Mike sells the house, he doesn't get the $130,000. He MUST repay the 85k loan used to by the house (so that "reserve" wouldn't exist anymore) and BOB HAD to repay the money HE borrowed when he sold the house in the first place (along with the line of credit or seasonal loan used to carry his payroll while the house was under construction). The logger is also paying back his seasonal line of credit that he drew to log the natural resources in the first place.
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.
I suspect you have an unusual definition of "paraphrased". I've already demonstrated that loans are not tracked at all. I'd love to see the original language you "paraphrased". Since I've taught "principles of banking" in the past, I'm fairly familiar with how the fed describes money creation. Your religious clinging to an incorrect underlying assumption is closer to the definition of 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.
I'd be happy to. I own it (as a consumer, not as the banker) by any definition I've seen. I can sell it, the bank can't (and that's the central point of ownership). I can paint it, the bank can't. Are there limitations? Sure. But only if I don't make my payments. But all ownership has limitations, the state can take it away from me to build a bypass (of course, the bank can't). There is a difference between collateral interest and ownership (that's why it's called "collateral").
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