Foti Issue

I can agree with all of that. But in the case of mortgages it isn't a false course at all but very germain to the individual who is losing or has lost their homes through court actions that have not been procedurally correct. Yes, it is a complicated twist indeed but if thoroughly researched, understood and properly explained it isn't at all difficult to explain so that even most people can understand it and be able to argue it in court if need be. Problem is that most people are simply too frightened and too nervous in court to do an effective job of it even if they do understand it.

Good explanation. Your point about pulling a bad debt from the pool and replacing it with a new and supposedly good debt is also interesting. Just as I thought in fact. Example:Sam defaults on his mortgage and is foreclosed on. John buys a home and his note replaces Sam's note in the pool. They don't have to buy Sam's note from the pool but just replace it with another.
Right?

Don't think so. Don't think that is correct. Money deposited in the bank is not lent out because that money is only held in trust for the depositor. For instance, I have one account in one bank that if and when money is deposited I immediately draw it out. I never deposit any money in that bank but only draw it out. The money never stays in that bank for more than a few hours. I know exactly when that money is going to be there and I'm there to get it out immediately and never leave more than $10 in the account and that is just to pay a monthly fee to keep the account open. I never write checks against the account except at the teller's window and never use the debit card from it. So how are they going to lend that money out?

I really appreciate your comments.

 

I'm not a banker, but that's not how I understand it. As I understand it, the bank only holds a fraction (50%?) of its actual deposits in cash. That way, it can lend out the rest to make some money and pay the depositors interest on their funds.

The reason you can put your money in and then withdraw it 20 minutes later is because there are a bunch of other people who AREN'T doing that. They are putting it in and will come back for it at some time in the future. If everyone came in at once and wanted to make a withdrawl (i.e. there was a "run" on the bank) the bank would not be able to pay everyone.

The only reason it works is because we continue to believe that our money will be there when we ask for it (at some point in the future). If we didn't believe it worked and tried to collect, then it wouldn't work. (How's that for confidence inspiring?!)

The bank's goal, of course is to keep as little as possible in the bank and as much as possible out earning interest (for the bank). In the 1920's, that ratio was very high and the bank-failures that occurred during the "crash" caused some stricter laws to be enacted that would hopefully prevent future bank failures.

Of course now they have much more creative ways to make money...

 

Pretty good take on the monetary system.....think of Jimmy Stewart in "It's A Wonderful Life"..... "the money's not in the bank, it's in Joe's house..."

As for the "crash" of 1929...there will very little laws governing banking, and lending practices. The SEC hadn't been created yet, and the two worked off each other.

Related to the credit card business of today, banks must "set aside" the credit limit of your CC (based upon the reserve requirements). The higher credit limits tie up available funds for lending to other investments.

As a note here for a historical chuckle, if you understand how the banking system works, then you begin to appreciate how Providian could make so much money! "Secured credit cards" are worth about 20 times the held deposit to a lending instiution!

 

Did you ever look up the dictionary definition of the two terms "money" and "cash" ???

 

I'm going by the technical definitions, as defined by the Federal Reserve System.

 

Now that's interesting indeed. I thought congress was the only entity having the power to define money.

 

The Federal Reserve System is charged with regulating the "money" supply in the U.S. economy. I'm referring to the categories of "M1, M2, M3" etc.. These definititions cover those items accepted for exchange and trade.

 

Quite correct, of course.

But a couple of messages ago you talked about the definitions of cash and money but not about who regulates it.

As you may well know, M3 is no longer publicized.

 

Okay, to start the "Fed" (Federal Reserve System) was created by Congress under the Federal Reserve Act, back in 1913 (if I can remember back far enough to my freshman year in college). The "Fed" is ultimately "regulated" by Congress, though it does function under the Treasury department. It was also established to act as an independent entity to monitor banking activity and control the money supply and influence economic activity.

The "definitions" of money are commonly set by the Fed, and there is some tolerance used in defining the categories of money. Overall, the definitions have been based in the economics studies, and the evolution of "money". Economists will expand and contract their definitions of it also. When I speak of "money versus cash" (or more accurately currency), money includes all spendable deposits held, as well as cash/currency.

In short, most people do not cash their paycheck and use all cash. There is much, much more "money" in the economy than cash/currency. Physically if there were actually "cash" for every dollar held in deposit, it would not fit in all the bank vaults in the world. We have evolved into newer defintitions with the advent of debit cards, electronic payments, etc.

Relating back to this forum, credit cards become very close to money (and yes the definition of money based upon required attributes for money) except for the function of storing value.

And yes I am aware of the what definitions are no longer publicized and circulated, as I didn't mention "L" either.

 

Here is Carl Klang's take on the Federal Reserve system.

Carl Klang and the Federal Reserve

Getting back on track, we have no money or cash at all. None of us do. We have nothing but negotiable instruments of debt. The reality is that there is no such thing as money or cash. Those are nothing more than common usage terms used to define a certain type of negotiable instrument of debt.

Notes on real estate are negotiable instruments of debt. The mortgage is not an instrument of debt. The note is what is sold on the securities market or sold to another lender or foreclosed upon. The mortgage is the security for the note.

Notes on automobile loans are the negotiable instrument of debt and the title is the security for the note.

Checks are negotiable instruments of debt until such time as they are presented to and honored by a bank.

Credit and debit cards are negotiable instruments of debt as well. Of course, they operate a bit differently than checks do because of the ability to process them electronically. In a very few years we will not have plastic credit cards anymore. Our cellphones will take away the need for them as we will be able to make a connection to the store's machine, choose which account (card) we want to present, enter the amount and confirm the transaction and all done on our cellphones. We will most likely also be able to accept credit or debit cards using our cellphones and maybe we won't even need a merchant account to do it. There are credit card machines available to merchants right now that use cellphone technology instead of land lines to process credit card transactions. Those are mostly used by merchants who frequent trade shows, gun shows, state and county fairs and other such events. Those will become much more common in the near future.

People in South Africa and other places now do all their banking via cellphone. Their paychecks are direct deposited and they spend it using their cellphones too so that will be coming to the U.S. in the next year or so.

I have heard that one of the South American countries is now a totally cashless society but I forget which one it is. Today there are far more card transactions than paper transactions. People are not using paper checks so much anymore. Of course, EFT payroll and government benefit transactions probably comprise the majority of such transactions but people are also using cards rather than writing checks as well.

So, in reality we have no money or cash. What we commonly think of as cash or money are really federal reserve notes. Any note is an instrument of debt and that includes our federal reserve notes. Many people still believe that federal reserve notes are backed up or "secured" by gold or silver or something. They are backed up by "something" and that something is nothing more than the full faith and confidence of the people.

So long as people can buy groceries, shoes or whatever they want with those federal reserve notes they are happy and couldn't care less what we call them.

 

You are correct in some of your points, but "money" is not a negotiable instrument of debt".

To be "generally accepted" as money an item must meet four functions/definitions:

1) Readily accepted "medium of exchange"

2) "Standard of Value" or "unit of account" ( a generally accepted standard of worth to equate values across services and goods)

(Note: 3 & 4 are considered the secondary functions of money)

3) Standard of deferred payments: a standard for calcultaing debt

4) Store of value (i.e. savings, held cash, "value" of assets)

 

Hmmmm! Well, it says right on the front of every federal reserve note that it is a federal reserve note and a note is an instrument of debt by definition.

Federal Reserve notes meet are readily accepted as a "medium of exchange".
If that were not so then you couldn't even buy a candy bar with them.

Federal Reserve notes also meet that requirement easily.

Federal Reserve Notes also meet that requirement quite easily.
I believe that you have just proved my point.

If you do not agree with my reasoning then please point out which of those requirements Federal Reserve Notes do not meet.

The only potential problem is that they are only backed by the full faith and confidence of the American people and not by any solid medium such as gold or silver or other precious metals.

That's not a real problem either until such time as economic conditions erode so badly that the people no longer have confidence in the money.

That only occurs when the money becomes virtually worthless such as it did in China a few hundred years ago. When inflation became so bad that they burned the money instead of using it to buy firewood. The reason they did that was because the paper money would generate heat more economically than firewood did.

Another example of money becoming worthless was in Germany when prices were rising so fast that the factories and workplaces had to pay every hour. The wives would wait at the factory door to get the next hours pay of their husbands in order to run to the store and buy whatever was needed before the prices rose again.

An example of that possibility occurring here in the U.S. is beginning to show up at the stores now. Three weeks ago I could buy a 2 liter bottle of coke for 78 cents at Wal-Mart. Today it is $1.18 for the same 2 liter bottle.

Three weeks ago I could buy a gallon of gasoline for around $2.40. Today it is over $3.00 per gallon. We will probably see $4.00 a gallon before summer is over.

The fuel required to deliver the products is driving the costs of everything higher and higher every week and before long it will be every day and then who knows, maybe every hour as well.

Hourly price increases was the driving force which led to the rise to power of Adolph Hitler. He blamed the Jews for the woes of the nation and used it in his mad scheme to conquer the world.

Who will some future leader blame for the inflation yet to come and an excuse to try to conquer the world in order to control our ever spiraling inflation?

OH, that can't happen in America???? Well maybe not. None of us have any crystal balls into which we can peer darkly but current conditions can certainly cause one to ponder the possible outcomes.

 

Your blanket statement of your previous post, that "instruments of debt" are money is not correct.

Okay, first off, yes our currency (a Federal Reserve Note) is money. The problem with your argument is that it is not fully associative. Yes, all Federal Reserve Notes are money, but not all "notes or instruments of debt" are money.

The definition of "note" also encompasses a written direction, sharing the root with "notice". That is esentially what is applicable for Federal Reserve Notes. You will not find "Note" on coins, though they hold the same commensurate value.

So, to your argument, please define the "debt" behind a Federal Reserve "Note".

As for U.S. currency of Federal Reserve Notes, the "note" term originated with the U.S. currency being based on gold and silver standards. If you can find one, older "currency" had labels of "certificate" also. The "note" came into play to "standardize" the value (see defintition of money), and the "debt" of the Federal Reserve Note was that you could present it to a Federal Depository and they would "exchange" it for gold (or silver). Today, if you "present" a "Note" you will just be given another "Federal Reserve Note".
But, the common sense of not having to carry around large quantities of gold gave our currency its acceptance as "money".

To your point, if I HELD a mortgage on property, I could not walk into Wal-Mart and readily "exchange" it for the two liter bottle of Pepsi, nor could I purchase the gasoline regardless of price (readily). To a more specific example, I cannot take a U.S. Treasury Certificate and "purchase" anything. Though it also has all the same terms as a Federal Reserve Note (barring time).

Your inflation scenarios are examples of the erosion of "confidence, faith and acceptance" of a medium of money. These situations happen when there is "too much money" chasing too few goods", and this is why the Fed controls the money supply in an economy.