[thaumasiotes]

Counterfeiting is one way of creating money and is generally unpopular.

But making loans is a more mainstream way of accomplishing the same thing, and is in fact often considered to promote growth.

[skookumchuck]

Loans don't make people wealthier. The loans are backed by collateral, and have to be paid back. It is not at all the same thing as counterfeiting.

[opwieurposiu]

We use a fractional reserve banking system. Currently the reserve ratio is 10% for large banks. Therefore when you get a loan, 90% of the money you get from the bank the bank conjured from thin air. Loans are backed by 90% nothing.

[skookumchuck]

Loans are not made to people who do not have collateral. That's what backs them.

[cinquemb]

When I remember applying for student loans from the government, nothing that would be considered collateral by a bank was asked for from the government. Not surprisingly, we see ever increasing NPL rates and larger nominal balances…

Though there was some stuff about having to agree to be enlisted when the draft is made, but you know… metadata drone strikes these days may not always hit the desired target… ;)

With regards to having to pay back a loan, there is always that saying about trying to extract blood from stone…

[skookumchuck]

Student loans are either guaranteed by the government, or there are special rules like you cannot discharge those loans via bankruptcy. Otherwise, banks would not make such loans.

Ultimately, if the loan is not repaid, and there is no collateral nor assets to seize, it comes out of the assets of the bank.

This is still fundamentally different from counterfeiting.

[cinquemb]

>Student loans are either guaranteed by the government

>Ultimately, if the loan is not repaid, and there is no collateral nor assets to seize, it comes out of the assets of the bank

Which bank in this case (since we're talking about government student loans, not private ones…)? Federal Reserve Bank of (NY, St Louis, Cleveland, etc)? Where do they get the money from?

Increasingly more (because seriously how much does yearly tax revenues pay the bill in full?), the government getting private (other central banks/ institutions/very wealthy individuals) buyers to buy their treasury notes/bills at record breaking supply auctions with currency that originated somehow from central banks…

Although the textbook definitions of counterfeiting and debt monetization may differ, I suspect there will be those who will never even question how the two could be perceived to be similar by anyone without dismissing them as completely insane and incapable of logical thought…

And somehow in the midst of this, we loose sight on resource allocation in general…

[thaumasiotes]

Do you by any chance have a credit card?

Furthermore, while there are economic models in which loans are collateralized by goods of value exceeding the amount of the loan, modern American loans are generally not that way.

[skookumchuck]

Yes, I do. And my assets will be seized by the credit card company via legal proceedings if I refuse to pay.

[thaumasiotes]

You've got an odd focus on loan recovery.

Issuing a loan creates money where there was no money before.

Paying back that loan in the normal way is neutral, preserving the money that was created.

Defaulting on the loan and having value recovered, in whole, in part, or not at all, from your property, destroys money.

[thaumasiotes]

Sure, making loans is not the same thing as counterfeiting.

However, viewed in terms of effect on the money supply, it is the same thing as counterfeiting. They both increase the money supply.

[notfromhere]

Loads generate lots of wealth if they're used effectively, and great at creating problems if used irresponsibly.