Why the U.S. Need Not Fear a Sovereign Debt Crisis: Unlike Greece, It Is Actually Sovereign

Based on what I have seen, he won't. He'll ask another "simple" question or refer you to some Byron Dale teaching or production.

Flo,

I'm a busy person and I do have other things to do outside of posting here.  When I get a chance to answer these questions I'll get to it when it's possible.

Farmer,

Ah yes, I forgot that you believe that interest payments go under a banker's mattress never to re-enter the economy again.  So basically, your theory rests upon the erroneous assumption that interest payments on loans dissapear upon payment and therefore a net decrease in money compared to debt results due to time and interest kicking in.  Why do you believe this?  What do you think happens to interest payments?  Clearly you cannot believe it extinguishes money, since you've already stated only principal payments extinguish money. 

So you must believe something else happens to interest payment money which results in it forever and inextricably being unavailable to the economy again. Someone should inform GS, JPM, WF, C, BAC, and the thousands of other banks in the world and all their tens of thousands of shareholders of this development posthaste.

Please explain whatever it is you believe happens to this money

Some of the interest payments that a bank receives never enter circulation in the economy again.  Banks have a bad debt reserve account to cover bad loans.  When a loan goes bad, the bank uses that money pay off (destroy) the remaining principle on a loan.

So basically, your theory rests upon the erroneous assumption that interest payments on loans dissapear upon payment and therefore a net decrease in money compared to debt results due to time and interest kicking in.  Why do you believe this?  What do you think happens to interest payments?  Clearly you cannot believe it extinguishes money, since you've already stated only principal payments extinguish money.

We agree that when a principle payment is made that money is extinguished.  The question is where is the money created to pay all this interest if only principle is created?

Please explain whatever it is you believe happens to this money

Please explain where this money is created and what exact is used to pay all this interest.

Thank you for taking the time to consider this, as well as research it by means of posing your question to Mr. Keen.

This issue is very much at the crux of the matter, and cannot be simply dismissed if your argument has any hope to change minds here. I hope to gain additional understanding from your response, and will remain as open minded to your input as I am asking of you. If you can come up with a strong position that makes sense (and most likely will refute, at least partially what Keen says) you will have made significant progress with your arguments here. If you cannot, the basis for your entire argument is on shaky ground, at least from my perspective.

Again, thank you for your careful consideration.

Ahh, yes. My post above and this post were hung at the same time, so I did not have the benefit of your latest post during my response.

This is exactly what I predicted you would do. Answer the question with a question.

Frustrating - and I'm done with that. Good luck to you sir.

Let me ask you this:  what happens to the money that was originally lent against the loan that defaulted?  That's right, it stays in the economy, offsetting whatever interest payments the bank absorbs to cover the loss.  In point of fact, however, the interest portion that is so-called absorbed by the bank does not leave the economy.  It stays on the bank balance sheet as reserves  and could be liquidated eventually.  The point is, it is not "extinguished", but the greater point is that the money originally created against the defaulted loan, stays in the economy, offsetting even the reserve reduction required of the bank.

That has been answered above.  The interest payments circulate through the bank, to expenses, shareholders and investments.  The notion that interest payments dissapear from the economy or cause a net reduction in the money supply is patently and demonstrably false.

Edited:  I mixed up my use of "interest" and "principal"  in my original post and this has been corrected.

Ashnvip,

I'm not sure if I'm agreeing with you, because I'm not really sure what your argument is. I was under the impression that you believed inflation was not a concern if we simply started printing money to erase debt. I was saying that it should be a concern because more money chasing the same amount of goods/services leads to higher prices, and that this process can spiral out of control if enough money is printed. If we are talking about a relatively free market, then the manufacturers don't have much of a choice in pricing their products - either raise prices or go out of business.

Does this article help you understand?

http://www.wealthmoney.org/articles/Hamburger-Stand.html

If not, please explain where you are in disagreement, or what you think needs to be clarified.

The problem with understanding how pricing works is that most people have no business experience and haven't considered the huge burden businesses in america face to service all this interest.  The total debt loan on private business in America is around 40 trillion dollars.  The only reason I know of that businesses go out of business is that they simply cannot service their debts.

Do you know of a single business in America that adjusts their prices off of the available money supply?  Every business I know of adjusts their prices off of their costs(obligations that must be met or they go out of business) and projected future earnings (profit).

How silly would it be to adjust your prices based on the available money supply and ignore your costs and what you need to charge in order to make show a profit?

Businesses simply do not base their prices off of the available money supply.  This is a complete deception pumped out by the banking system to convince the people that their problem is "too much money" in hopes that the people do not look at the fact there is too much debt and no way to service this debt other than going deeper into debt generation after generation compounding the problem.  This is what Chris Martenson shows when he talks about the exponential growth of debt.

The "only" reason?!!!   You've got to be kidding me.  I do run a business and a rather large one at that, and I can assure you there are many businesses that go out of business for all sorts of reasons having nothing to do with debt service. 

Who is even arguing that businesses adjust prices against the money supply?  Or is this an argument you assume is being made by banks?

Sorry, but I have never seen a bank commercial, bank propaganda, or any other kind of bank communication that seeks to promote the idea that businesses should base their pricing based on measurements of the money supply.

Let me ask you this:  what happens to the money that was originally lent against the loan that defaulted?  That's right, it stays in the economy, offsetting whatever principal the bank absorbs to cover the loss

This is simply not a true statement.  When loans go bad the bank has pay off the remaining principle part of those loans.  When this process occurs it destroys money and dries up the money supply even faster.

In point of fact, however, the principal that is so-called absorbed by the bank does not leave the economy.  It stays on the bank balance sheet as reserves  and could be liquidated eventually.  The point is, it is not "extinguished", but the greater point is that the money originally created against the defaulted loan, stays in the economy, offsetting even the reserve reduction required of the bank.

Can you source this information please from a creditable source.  When principle is extinguished it is simply destroyed.  It gets written off the books.  It does not get transfered anywhere else.

That has been answered above.  The principal circulates through the bank, to expenses, shareholders and investments.  The notion that principal payments dissapear from the economy or cause a net reduction in the money supply is patently and demonstrably false

But I asked you where was the money created to pay all this interest, not what is used to pay interest.  Do you read what I type or only read it for what you want it to say?

The notion that principal payments dissapear from the economy or cause a net reduction in the money supply is patently and demonstrably false.

Its a well known fact that when a principle payment is made that money is extiguished and does not exisist anymore.  I'm willing to have a discussion but we both have to try to be as honest as possible.

If money was created and never destroyed there would be no debt because final payment would exsist within the system.

The "only" reason?!!!   You've got to be kidding me.  I do run a business and a rather large one at that, and I can assure you there are many businesses that go out of business for all sorts of reasons having nothing to do with debt service.

I'm listening.  Please explain.

Sorry, but I have never seen a bank commercial, bank propaganda, or any other kind of bank communication that seeks to promote the idea that businesses should base their pricing based on measurements of the money supply.

Are you trying to tell me that you've never been told an increase in the money supply devalues the rest?

You read and responded to my original post which had all instances of "interest" and "principal" backwards by accident.  That has been corrected.