Ron Paul Economics-for-Dummies Website

I posted this in "economics" too, but i think it could potentially help bring people over to our side.

This site does a really good job of laying out an overview of the system in a easy to understand way. Might help some people understand what Paul is trying to say when he gets the 30 seconds to explain the economy in the debates.

www.hmscoop.com

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thanks

Infinite Geometric Series

When you start with \$1000 deposit and 90% (\$900) of this is loaned out and an IOU is held by the bank as asset, the bank reports now \$1900 (\$1000 + \$900) asset it holds. Of the \$900 loaned out IOU asset, 90% (or 9/10) of this is loaned out to a 3rd person and a 2nd IOU is posted as asset in the bank's book. The bank now has \$1000 + 900 (=\$1000 x 9/10) + \$810 (=\$900 x 90%) = \$2710 total. Do this many times and we have the sum of the infinite geometric series with:
ratio = 9/10
principal \$ = \$1000

1000 + 900 + 810 + ...
or
1000(1 + 9/10 + (9/10)^2 + (9/10)^3 + (9/10)^4 + ...)

The formula for getting this sum in Algebra is simply = principal/(1-ratio) = \$1000/(1 - 9/10) = \$1000 X 10 = \$10,000 (in the economy);

giving a theoretical maximum expansion of 10 times (x 10).

If you like a different ratio, then substitute that new ratio into the formula in lieu of "9/10" and use any simple calculator to see what the "multiplier" will be.

Example at an 8/10 ratio instead of 9/10, the multiplier is 5. Try it.

http://en.wikipedia.org/wiki/Geometric_progression

This is fantastic

Bump!

"He did not come into the world to condemn it, but to save it." - John 3:17

"Well, you know it's like I always say 'it ain't government work if you don't have to do it twice.'" - Jerry Gergich

I read the first chapter and have a question.

The page states that if I put \$1000 in the bank, they keep a reserve portion, for argument's sake, \$100, and loan out the \$900. The paper says that this \$900 is not taken from my original \$1000 but is printed and increases the money supply. So, this means, if I want my \$1000 back, no matter how bad the investment made was, the bank should still have it. Maybe the example is too simplified but I really don't follow the logic.

I think what is trying to be described is not that an individual gives a bank \$1000 but that the govt. puts its money supply in the bank and spends on the projected profits and increases in money supply?

LivingTheDream

I think it's trying to say

I think it's trying to say that the 900\$ is taken from your \$1000 and lent out to someone else, even though it keeps \$1,000 as assets on its books it really only has \$100 of your money in the bank. Then it loans this 900\$ to someone else, but it considers this loan an asset on its books too (even though only \$1,000-\$900 or \$100 of your money is physically at the bank). So the bank puts on its books that it has \$1,000 in assets from what you deposited even though it's not all physically there, plus an IOU from the person it ended up loaning the \$900 to, which it also considers to be an asset on its books. So now the banks total assets are \$1,000 + \$900 = \$1900...which expands the money supply by \$900. Then the \$900 that was loaned out gets put into another bank and the process repeats over and over again....expanding the money supply with each iteration.

I think i've read that anytime the fed injects money into the system....fractional reserves can actually increase that newly injected money by 5-10x....depending on where the reserve ratio is at. It's like a pyramid of debt.

Hi LTD

I think the way it works is just that the bank keeps the full \$1000 on their books as a deposited asset (meaning can be withdrawn at will, as you mention), but even though they still only have \$1k and have to pay it out on request (making up the shortfall from other deposts/assets they have on hand as needed), they still proceed to loan out another \$900, which goes on their books, and is where the inherent inflationary angle comes into play.

Fractional reserves, lenders of last resort, and fiat - it's a big shell game.

Excellent

Very simple. I put it on facebook

"We don't need a Department of Energy; we need a Department of Freedom" - RP
"We need to defend liberty.. and liberty!" - RP