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The Fed can absolutely set interest rates below 0%. However, elites can't collect Seigniorage rents if they aren't creating new money. There's also the issue of

The Fed can absolutely set interest rates below 0%. However, elites can't collect Seigniorage rents if they aren't creating new money. There's also the issue of creating so many loans that people can't pay them back without new money entering the system. Our system is based on ever expanding money and debt. It will be painful when we're no longer able to expand these things.

nine_zeros 5y ago
This is one thing I've never understood. If all the money is loaned out to the limits of fractional reserve, more money for interest can only come into existence by printing more. So we basically always need to print money.
- rsj_hn 5y ago
  > If all the money is loaned out to the limits of fractional reserve, more money for interest can only come into existence by printing more. "Fractional Reserve" banking is not a thing, as banks do not lend out reserves (except overnight to other banks). It does not and has never accurately described how banks lend, nor does it accurately define limits to bank lending. The limit to bank lending is capital. Bank capital consists of trusted assets (e.g. IOUs that central banks are willing to discount or which other banks accept as collateral for overnight loans) that are believed to be risk free. Generally this means government debt. Government debt is the sole constraint on bank lending as well as loan growth. Reserves have nothing to do with this in a modern system, and were only incidentally important in earlier systems. > more money for interest can only come into existence by printing more. Please define what you mean by "money". When most people think of money, they think of demand accounts, and these are not created by the government but by the private sector. Clarity in definitions can explain almost all of these misconceptions. A good rule of thumb is that someone who doesn't know what they are talking about mentions only "money". If you know what you are talking about, you specify the asset and matching liability, and so you distinguish between bank reserves, vault cash, deposit accounts, bank bonds, and different bank assets, knowing which meet capital adequacy requirements and which do not. A good description of how the monetary system works is provided by the Bank of England report "Money Creation in a Modern Economy". https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... That article does a good job at dispelling myths of "fractional reserve banking", "money printing", and the like, and it accurately describes how modern banks work and what central banks actually do. It is required reading for anyone who goes off about "money printing" or whoever thinks that banks lend out reserves.
  - billytetrud 5y ago
    > Government debt is the sole constraint on bank lending as well as loan growth. Are you saying that government debt is the primary asset that banks balance loan liabilities against? I don't quite follow this. Can't a bank simply loan someone money by creating deposits for that person, and balance that against the asset that is the loan instrument? Why does government debt have anything to do with it?
- billytetrud 5y ago
  Yup, that's absolutely true. However, there is a limit to this, because debt grows faster than the ability to pay it back, so debt to GDP rises over time. Eventually there is a breaking point.

nine_zeros 5y ago

This is one thing I've never understood. If all the money is loaned out to the limits of fractional reserve, more money for interest can only come into existence by printing more. So we basically always need to print money.

rsj_hn 5y ago
> If all the money is loaned out to the limits of fractional reserve, more money for interest can only come into existence by printing more. "Fractional Reserve" banking is not a thing, as banks do not lend out reserves (except overnight to other banks). It does not and has never accurately described how banks lend, nor does it accurately define limits to bank lending. The limit to bank lending is capital. Bank capital consists of trusted assets (e.g. IOUs that central banks are willing to discount or which other banks accept as collateral for overnight loans) that are believed to be risk free. Generally this means government debt. Government debt is the sole constraint on bank lending as well as loan growth. Reserves have nothing to do with this in a modern system, and were only incidentally important in earlier systems. > more money for interest can only come into existence by printing more. Please define what you mean by "money". When most people think of money, they think of demand accounts, and these are not created by the government but by the private sector. Clarity in definitions can explain almost all of these misconceptions. A good rule of thumb is that someone who doesn't know what they are talking about mentions only "money". If you know what you are talking about, you specify the asset and matching liability, and so you distinguish between bank reserves, vault cash, deposit accounts, bank bonds, and different bank assets, knowing which meet capital adequacy requirements and which do not. A good description of how the monetary system works is provided by the Bank of England report "Money Creation in a Modern Economy". https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... That article does a good job at dispelling myths of "fractional reserve banking", "money printing", and the like, and it accurately describes how modern banks work and what central banks actually do. It is required reading for anyone who goes off about "money printing" or whoever thinks that banks lend out reserves.
- billytetrud 5y ago
  > Government debt is the sole constraint on bank lending as well as loan growth. Are you saying that government debt is the primary asset that banks balance loan liabilities against? I don't quite follow this. Can't a bank simply loan someone money by creating deposits for that person, and balance that against the asset that is the loan instrument? Why does government debt have anything to do with it?
billytetrud 5y ago
Yup, that's absolutely true. However, there is a limit to this, because debt grows faster than the ability to pay it back, so debt to GDP rises over time. Eventually there is a breaking point.