Well after spending the past several days day and night studying and analyzing Montagne's "math", spreadsheet and his so called "collapse" I can not find any evidence to support his theory of systemic collapse. His math basically just proves that once reserves are all "pledged as collateral" you can NOT initiate new lending, which does not necessarily translate into systemic failure as far as I can tell. Without additional math explicitly outlining "collapse" it ain't there.

However I did come up with some really cool Asscruiser math and theorems that caused me and Gen. to spend several hours on the phone and IM yelling at each other...

The A$$cruiser "Unified Finance Theory" is still congealing in the mold. It might turn out to be a work of art or a pile of ****. Time will tell.

Montagne is the math perfected economy yes?

Yes, the perfect economy is his idea of replacing fractional reserve lending. I have no idea about that. However I did look at his spreadsheet and the underlying math.

http://www.perfecteconomy.com/pg-probabi....

Well since no one responded I'll implement one of my favorite theories. It's called the "bisquit theory", if you wanna cook bisquits you gotta turn up the heat.

Montagne, Nothing, Steph and anyone else calling for the ultimate systemic failure of our way of life (monetary system) are full of ****. There isn't one ******n bit of evidence to support the "full systemic collapse" bull**** statements.

SUCK MY REBEL DICK.

I've got 10 pages of math, derivations, definitions, etc. sitting right here on my desk and there is not ONE variable in any of it that points to systemic failure.

Enjoy your bisquits.

hehe

i personally dont buy the mad max scenario either.

look forward to your debates if u can start one :D

Hell I have no idea about Mad Max. However I do know what I saw on Buttheads web site. I saw him claim the end of the world just because all the money that could be lent out given a finit amount of reserves were lent out with a given reserve ratio. He made an assumption about the amount of principle as a percentage of loan value paid over some period and also the interest payment. With those assumptions you can make the numbers do whatever the hell you want them to do and monkeys "might" fly outta my ass.

I've derived the equations for the PURE fractional reserve lending system and in fact they can be found on line. As far as I can tell there is absolutely Nothing in those equations that prognosticate "systemic failure". He is simply pulling his comment about systemic failure right out of his ass at the point at which the maximum amount of money has been "created" from a finit reserve amount.

Until anyone can PROVE his "hypothesis" it's a load of HORSE****, because he didn't prove a ******n thing about systemic collapse, merely that as the velocity of money goes to infinity the limit of fractional reserve lending is limited by the relationship of the reserve requirement.

Funny how no one is stepping up to the plate of A$$cruiser is full of ****. BWAHAHAHAHAHAHA...

When I watched the Money As Debt video, a couple of things struck me as wrong. I was in the process of writing a paragraph or two about it to post and watched parts of it a couple of more times to get the facts straight. There is some truth to it, but key areas have been distorted and have undoubtedly led more than a few people to see evil where none exists.

I went through the exercise on paper of starting and running a bank and here are a few conclusions:

1. A bank cannot lend money it does not have. A new bank with $1,111.12 cannot make a $10,000 loan.
2. Banks have no magic power to conjure money into existence. Anyone can do what banks do.
3. It is easier to understand banking if you equate a unit of money to a promise. Anyone can create money, an IOU is a promise to pay, so it is money. Some kinds of money are more liquid than others. Banks exchange one kind of money for another. They can trade liquid government fiat money for personal IOU money, and they call that lending.
4. Although a bank can't lend money it doesn't have, it can lend money that doesn't belong to it. Money loaned by the bank may belong to depositors, or investors, or another bank, or a central bank.
5. By repeated depositing of money loaned by banks back into banks, the total money supply grows, which is where the concept of money creation comes in. In reality there is still a promise behind every unit of money in the system, it's just that not every unit is backed by the government's promise.
6. Without fractional reserve banking, our economy would be tiny and our productivity and technology would be a century behind where it is today.
7. When a bank is not careful about what promises it accepts in exchange for its money, it risks default and ultimately insolvency.
8. When multiple megabanks are not careful about what promises they accept in exchange for their money, they risk default and insolvency on a scale that threatens to topple the economy.
9. The current crisis is not the result of a fiat money interest-bearing fractional-reserve monetary system. It is the result of the abuse of that system.

Let me add to Careby....

1. If you are unable to pay the debt service on your debt, you become insolvent.

2. The debt service charged to you is entirely dependant on the perception of how likely it is you will not pay. The more likely you will not pay (as perceived), the higher the interest rate demanded (see subprime .vs. prime, etc) As the economy deteriorates this "risk premium" rises, thus, credit becomes harder to access.

3. IF you default you as debtor are likely wiped out. The Creditor also will take a loss, but it is not total. Their loss is dependant on how much the collateral they got as security (if any) is worth. If it is worth all that you owe, then there is no loss. It is rarely worth zero, except in the case of unsecured loans (e.g. credit cards)

4. Defaults on PRIVATE debt cause GDP to fall, as does inability to access credit. However, the precise amount that GDP will fall is indeterminate, because the willingness of a person to produce is indeterminate. If a person's response to defaulting is to become a drunk, their GDP contribution might go to zero. On the other hand if they get ****ed off and really put their nose to the grindstone, it might actually rise! This factor cannot be determined with certainty or using mathematics, however, it is critical to the outcome of PRIVATE credit.

5. If sufficient damage is done in PRIVATE credit it is possible for the private credit-creation system to collapse. This, however, DOES NOT doom the currency OR the government, provided the government ring-fences the private credit system, which it has the right and ability to do.

6. IF and only IF that fall in GDP causes the government's ability to cover its debt service via tax collection to fail, then a systemic collapse ensues. However, as private credit collapses the cost of government debt may actually FALL because the government will be perceived as the only safe place to lend money! This is the infamous "flight to safety" and governments can and WILL refinance existing obligations into cheaper bonds in order to take full advantage. As such a private credit-collapse is largely mitigated in its impact on GOVERNMENT debt service costs. Treasury is, in fact, doing exactly this right now, which is why huge rollover supply is hitting the markets, along with new supply - "get it while its cheap".

7. The most likely way for such a collapse to initiate (systemic) is for the government to attempt to prevent the damage to the private system by contaminating its own credit book. If that causes a perception of rising default risk among creditors to the government, then the risk of systemic failure rises significantly.

8. There is an impossible-to-determine in advance "knee point" beyond which risk premia begets more risk premia. The reason this cannot be determined in advance is that it is entirely a perception issue - that is, one of confidence, beyond which an extremely rapid acceleration in demanded coupon occurs.

9. Credit is essentially a "CALL" option on future productive output. If you extend $100 in credit to someone @ 6% interest, they must produce $6 of new output to be able to pay you. You have thus effectively acquired a CALL option on their future output, and they have written same. This is not an exact parallel, but its close.

More later, but this is enough to get people started.

Gen. I agree with everything you said except two points.

The first has to do with "indeterminate" impact to GDP (item 4 above). I don't think it matters how much **** the guy that couldn't pay his bills produced if he can't sell the stuff because there is no money to buy it with. In other words all reserves have been leveraged to the max and no new debt can be initiated to include the sale of his new stuff, therefore no inclusion in GDP is possible. Note, by DEFINITION GDP is the "MONETARY" accounting for all goods and services produced denominated in dollars. According to the "FISHER" equation (Equation of Exchange)

M x V = P x T <-------> money supply x velocity of money = avg price of goods x number of transactions

I think that P x T translates into P x T = GDP (note a transaction must occur from the money supply to be counted in GDP)

I'll wait on this assreaming before I comment on the other issue.. My ass can only take so much pain.

"Money" is defined as a medium of exchange.

Whether we're using pieces of paper, electronics, or seashells doesn't change my ability to produce.

You're getting hung up on being hung up

give me last years GDP and how it was calculated.

well since all production degenerates into "brain activity" see how much $$$$$$$ you have after thinkin all this **** up.

production != $$$$$$$$$

If Montagne's math proves "that once reserves are all "pledged as collateral" you can NOT initiate new lending," doesn't this mean the banks become insolvent?

It seems to me that insolvent banks would require massive .gov intervention via Gen's "call options" on future productivity (future taxes on the populations' ability to produce)...and since we know that the Fed is now allowing it's balance sheet to be polluted with bad assets, the perception of its ability to repay its debts will be reduced, eventually leading to foreigners not investing in us anymore (because they KNOW the Treasury will be backstopping the Fed) eventually forcing the .gov to default on its debts (due to lowered GDP...BK companies produce NOTHING, BK people search for work that isn't there anymore, etc.).

Wouldn't this be the exact scenario that WOULD cause systemic collapse?

Rj..

I still don't understand the whole thing fully but I think what Gen is saying is YES, the possibility exists under the right conditions and actions. However "
some" have postulated that the system is inherently doomed to destruction by it's very nature that MUST result in a finite LIFETIME and then blow itself apart. There in lies the rub. Certain failure != "might" fail and this is the reason I have been busting my ass trying to figure out if doom is CERTAIN or just a possiblity, of which always exists.

Montagne, as far as I can tell, and "others" are postulating that the system is inherently flawed and doomed to failure. I call BULL****. I can't find any "math" in his analysis that indicates "supercriticality" and the non-linear exponential explosion of the system, yet.

I've been working the math for days now and at present it appears yes, there exists an abstract "wall" and even Gen acknowledges the existence of the wall. Quantitfying the "wall" is ongoing and open to debate on the exact definition of when it occurs. My present thesis is that the wall is reached when aggregate defaults and redemptions exceed the banking systems liquid assets plus reserves becuase no new credit can be generated. Note this is different than the other thesis of "debt service exceeds circulation", similar but different by causality since private debt service can exceed by private production and cause "default". This may degenerate into them being the same phenom. I just haven't thought that far ahead yet. For documentation purposes the preliminary math suggests the ripple effect of default through the system is non-linearly exponential as function of f(r) ~ 1/(r^2), where r is the reserve ratio as defaulted debt has been multiplied by the credit lever (1/r) and a reduction in corresonding reserves diminishes the available credit by the current reserve ratio (1/r')------> f(r) ~ 1/(r^2).

Does the system "contract" (meaning begin the reset PROCESS when the "wall" is reached, PROBABLY YES, does the system reach supercriticality and blow itself apart, probably NO. If I could get the "higher" ups to talk to my dumbass enuf for me to undertand what they understand about the money/debt system I can probably mathematically formulate the model of the system. Unfortunately "human" traits are getting in the way of finding the TRUTH.
The "wall" has been reached -----> MY IGNORANCE > "others" PATIENCE

Unfortunately "others" IGNORANCE and their abitlity to derive a closed form systemic model doesn't allow for rigorous analysis over the entire space which translates into a TF

"2. Banks have no magic power to conjure money into existence. Anyone can do what banks do."
Yep - worked for Enron and Worldcom.

Seriously, please explain this finding so I can quit my job.

"9. The current crisis is not the result of a fiat money interest-bearing fractional-reserve monetary system. It is the result of the abuse of that system."
A fiat money interest-based fractional reserve monetary system is, by it's very nature, easily abused. Hence, the current crisis IS the result of the fractional reserve system.

Quote:

Seriously, please explain this finding so I can quit my job.

HAHAHAHA...

1) Quit your job.
2) Start a bank.
3) Define the reserve ratio as 0.
4) Write checks to people to buy worthless ****.
5) Collect the interest
6) Move to the Cayman's
7) Bankrupt.

It's easy.

where can I sign up for an account at AssCruiser's Bank of Sealy.

Quote:

"2. Banks have no magic power to conjure money into existence. Anyone can do what banks do."
Yep - worked for Enron and Worldcom.

Seriously, please explain this finding so I can quit my job.

1. Decide how much money you want to create. Keep in mind you have to personally guarantee it.
2. Cut a 2.5 by 6 inch slip of high quality paper.
3. Write on the paper "Landshark Money", IOU $______ (fill in the amount), and sign it. Adding your picture is optional, but I think it makes for a classier note.
4. Anyone who trusts your promise to repay the money should accept it with no problem.
5. If you have trouble getting it accepted, exchange it for Federal Reserve Notes at your local bank. You'll probably have to use their preferred form, you may have to post collateral to back up your promise, and they will certainly want to charge you a little something.

Or, as LC said, start a bank. Really. You don't have to be a Rockefeller or know any secret handshake to do it.

Quote:

A fiat money interest-based fractional reserve monetary system is, by it's very nature, easily abused. Hence, the current crisis IS the result of the fractional reserve system.

A fiat money, NON-interest-based, NON-fractional reserve monetary system is also easily abused. A NON-fiat money, interest-based, fractional reserve monetary system is also easily abused.

Cornucopians. Yep, all will be well if we just keep on issuing new debt.

Those chickens never get to come home, because there is always a greater fool. I used to think that way - hell, I thought Chindia would rescue the system - they're developing a middle class. Problem is, it's not just debt that's peaking.

Post this thread in General - might get some bites.

All won't be well - far from it. Banks abandoned conservative lending practices and loans are defaulting at an accelerating rate. There is going to be hell to pay, no doubt, and we can't borrow our way back to solvency. There is plenty of blame to go around, from the bankers to the Federal Reserve to the Congress to the White House to the borrowers to the voters (and non-voters). Some were criminals, some were stupid, and some were just lazy.

But to say "if only we hadn't had fractional reserve banking none of this would have happened" misses the mark by a mile.

Well since Gen. hasn't been around to clean up my mess where I've **** all over the carpet I'll attempt to smear a little more on the carpet in an attempt to do some more "house" cleaning.

If my hypothesis, derivations and modeling are correct, Nothing's premise is indeed partially correct but potentially fatally flawed, which we all know she has been anyway. It appears that in the limit the fractional reserve system degenerates (unwinds) into that from whence it came "the currency" used to start the fractional lending process. As defaults and redemptions destroy the existing "debt" the destruction of the debt transfers back to the banks balance sheets and can eventually eat the reserves and destroy further debt creation, which causes additional defaults, thus unwinding the system until all debt is destroyed, assuming injections of "reserves" or capital are not produced to bring the system back to equilibrium. We are talking about the theoretical limit hear WITHOUT external "shock absorbers" such as liquidation of assets or currency injections or new production.

The good news is if the music were to stop the ones holding the FRN's would be in the cat birds seat. Again, from a "limit" perspective as long as .gov doesn't consume ALL FRN's the system unwind process should STOP with the monetary system's value = CURRENCY in circulation instead of monetary value = currency in circulation x (1/r -1) (ie. the limit of debt created in fract. reserve lending) (the two boundary condtions of fractional reserve lending).

Note the final outcome is determined by what .gov does (debt service > circulation). In other words if the "system" were to completely unwind such that the only monetary value left was the original currency, the system can be restarted as long as the government does not consume all the currency.

Hmmmm. That sounds familiar as hell. However the premise that debt service = currency in circulation initiates the process may be flawed.

If this is indeed the case then RESET would occur AFTER the wall was hit and the theoretical complete unwinding took place. This would be the point where the .gov debt service consumed the entire currency base and ZERO dollars existed to restart the lending process.

I think I found the answer that "I" was personally looking for. Can the unwind process be STOPPED? I believe the answer is YES, it can be stopped. Will it be? I have no idea.

Claiming the complete destruction of the fractional reserve lending system is inherently destined to self destruction I believe at this point is a MYTH and has been perpetuated based on a personal agenda. I repeat, Montangne is FULL OF ****.

"Oh what a tangled web we weave when we practice to deceive."

Lcruiser wrote..

Can the unwind process be STOPPED? I believe the answer is YES, it can be stopped. Will it be? I have no idea.

That's what keeps me from getting too caught up in the details. I have explored the theory behind the system just a little, as an interested layman, to satisfy my own curiosity and to help me decide what kind of chair I want to grab before the music stops - if it stops. I don't any longer think the structure of the system is as intentionally ****ed up as some say, but it has damn well been run into the ground. But proving that it isn't inherently doomed would do little to make me optimistic that it will be successfully repaired and go on as before. It doesn't have to get to Mad Max or even 1930's bad to justify all sorts of drastic steps to try and save us, and I am skeptical enough to think just about anything done has a better than 50/50 chance of making things worse instead of better.

DING!!!!

Well I've either proven mathematically what Gen has been saying or we are both wrong. Although the comments by "some" seem appropriate for the unwind process, such as stocking up on FRN's and US Treasuries, I have no immediate plans for Mad Max, just a nasty ass DEFLATIONARY period as this DEFAULT based process unwinds. I could be wrong.

@El and others if your listening. This scenario does not absolutely portend the ultimate confiscation of DEEDS, which is where some of us, including me, were very concerned.

Bottom line for me is to get as many CHAIRS as I can for when the music gets REAL distorted and the rest in US Treasuries and debt free assets.

LC, to me, it's the legalized whoring by the uber rich feeding off people in a democracy that rankles.

6. Without fractional reserve banking, our economy would be tiny and our productivity and technology would be a century behind where it is today.
Why is this necessarily true, and if it is, the cost is greater when you consider the peripheral wreckage of capitalizing efforts that never should have been.
7. When a bank is not careful about what promises it accepts in exchange for its money, it risks default and ultimately insolvency.
Should be true , but not when you own the lawmakers.
8. When multiple megabanks are not careful about what promises they accept in exchange for their money, they risk default and insolvency on a scale that threatens to topple the economy.
Remember, it's not their money and it's all of our economy their being allowed to **** and topple (after which, they profit some more due to "rule of law").

So, it's not the fract'l reserve system that will cease, but that the newly created 'Army Of The Homeless' that will become our new .gov.
If some f#*king Banker turns one of mine into that Army, I'll join it in a heartbeat.

Pcwise wrote..

6. Without fractional reserve banking, our economy would be tiny and our productivity and technology would be a century behind where it is today.
Why is this necessarily true, and if it is, the cost is greater when you consider the peripheral wreckage of capitalizing efforts that never should have been.

Are "efforts that never should have been capitalized" less likely to be capitalized if loans come from the government loan bureau rather than private banks?

Pcwise wrote..

7. When a bank is not careful about what promises it accepts in exchange for its money, it risks default and ultimately insolvency.
Should be true , but not when you own the lawmakers.

Then the owning of the lawmakers is the real problem, and we needn't argue about what kind of system we would most like to have perverted.

Well I was trieing to keep this topic specifically about the apparently false premise that our monetary system has a systemic flaw that will ultimately lead to the destruction of our .gov as "some" have postulated thru distortions of facts.

However the comment "rich feeding off people" requires some further attention.
I'll spell it out in plain Engrish. ****** don't mean black. ANYONE feeding off of someone else is a ****** in my book regardless of race, creed, color, national origin, sex, religious affiliation, economic status, etc., etc. etc. and this includes the "uber rich" as well as the lazy ****s that want to suck off the US Taxpayer Tit.

I'll leave the rest of the econometric philosophy for you guys to figure out. I'm a 5th grade autistic retard.