5 ms·

Very interesting article, However I don't know enough about global economy to assess whether he is right or not. He does make some pretty big assertions and acc

• admoin 19y ago
  near-total bs with a moderate grounding in fact
  • mixmax 19y ago
    That's what I thought ;-)
  • dreish 19y ago
    That's pretty much what I was going to say. To be more specific, though, the author is right that there are a lot of dollars out there being hoarded because the USD is the global standard currency, and that its fall from that status will have some interesting consequences. Pretty much every other factual claim of the article is nonsense. His explanation of fractional reserve banking is upside-down. He pulled the conjecture "if the interest rate is 4%, then 4% of all credit will default" from the deepest recesses of his rectum. The assumption that the economy will revert to the state it was in just before the end of Bretton Woods reads more like the lazy premise of a short story than an economic theory.
    • admoin 19y ago
      Yep. I actually was somewhat credulous until he got fractional reserve banking backwards (getting a $1000 deposit with a 10% reserve requirement means you can lend out $900 of it, not that you can magically lend out $9000 that you don't have), and then it was all downhill from there. There are a lot of relatively decent arguments that the US economy is in for a prolonged recession, but I would group the article with the crazy goldbug paulites rather than with legitimate, usually fairly well-reasoned economic criticism with which I disagree (Krugman, etc).
      • anewaccountname 19y ago
        That actually isn't strictly true; you could loan out that 900, which gets spent by the person you loaned it to, and can then could be redeposited by the person who sold him something, in the same bank. And this can be repeated up until it asymptotes off, which (from memory), with a 20% reserve requirement, would occur at $5000. You can do the math on your own for a 10% reserve (I'm guessing it happens at $10,000, which minus the original $1000 is the author's $9,000).
        • michaelneale 19y ago
          sorry for the meta comment: but the above comment thread is why I think news.YC is the greatest at the moment. Compare this sort of conversation to reddit, or anything really. Doesn't compare.
        • ashu 19y ago
          fascinating. thanks for your insight.
        • admoin 19y ago
          Right, that assumes the proceeds of the loan are redeposited into the banking system. If instead the money remains in circulation or is otherwise kept in physical form, the multiplication stops.
        • maximilian 19y ago
          Its a geometric series. In math: Let r=(1-reserve requirement) and Total = 1000 * sum(1-r^n,n=0,infinity) = 1000 * 1/(1-r) Now I'm probably wrong with my indices because I'm a little confused about connecting my infinite sum to people running around at the bank. If I plut in .8 for r (the same as the comment above used, I get 1/(1-.8)=5, or $5,000 so I'm right that far. For 10% its: 1/(1-.9) = 10 or $10,000. So the author is right in numbers, but arguing against this would be ridiculous. How could any bank guard against this? Why would they want to?
          • anewaccountname 19y ago
    • elai 19y ago
      If you believe that all money is just loans, then that 4% interest has to either to be defaulted on, or another loan has to be created to cover the original interest on a global scale. If you take out another loan to cover interest, then money will balloon to infinity. It's internal logic is consistent.