Fractional Reserve Lending and Risk Taking.

[Ryan Rudolph]

Here is a wikipedia link explaining how one of the key components of hyper-inflation can be a drastic increase in the money supply, a spike that does not correspond to economic growth, or the general economic activity.

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

Cory,

So there's that issue, but I'm also not convinced that prices would be marked up very quickly. I remember not too long ago when the Nintendo Wii was selling so much that it was often out of stock, but it's price remained fixed, even when they had their competition Playstation 3 priced at double the amount. Nintendo couldn't keep enough units on the shelves, but the price of the unit never went up.

yes, but I think that was a decision by the company to keep the price fixed. Perhaps they did that to have a competitive advantage over the other consoles, so that in the long term they would have more sales. The price of the playstation 3 is also more because it has a built in blu-ray player, and the Xbox360 has a lot of processing power, its as powerful as most PCS, although poorly engineered I hear. I heard it keeps burning out due to the improper cooling.

Businesses have the choice not to inflate their prices to meet the demand. However, many times, companies will charge the most for their product when it first comes out because they know the hype will be high, demand will be high, and many times, these companies want to quickly recoup any R&D investments they have in the product for years of development.

But overall, companies are greedy, if their product and service is in higher demand than what they can produce, that is a sign that they can make much more from it so they will inflate to increase profits. Or if there is a universal consenus, that the value of the money is dropping for whatever reason, they will inflate to try to prevent loss.

[Cory Duchesne]

yes, but I think that was a decision by the company to keep the price fixed.

Of course. Inflation (or the lack thereof) is largely the result of company decisions. Inflation is about the decisions of companies to both increase prices and replenish or even increase stocks.

Perhaps they did that to have a competitive advantage over the other consoles, so that in the long term they would have more sales. The price of the playstation 3 is also more because it has a built in blu-ray player, and the Xbox360 has a lot of processing power,

I realize the Wii is quite a bit less powerful than PS3 and Xbox360. But when you can't keep your console stocked on shelves, you'd expect at least $20 to $100 price increase. However, the videogame industry, especially when you focus on consoles, might be an exception to the general rule. I remember hearing something about how videogame companies make the most money through selling games, not through selling consoles. So the more consoles you can sell, the more that you secure the chance that people will buy your games in the future. So it's in your best interest to value quantity of consoles sold over the mere efficiency with which you bring in money from console sales.

So yeah, the logic of videogame console sales might not be the best example to help understand inflation, because it is rather anomalous. It's not the efficiency of console sales that matter, but rather, the sheer quantity of units sold. To a point - if you lower the price of the console too much, then that's just foolish.

[Animus]

From what I understand XBox loses money on console sales, probably because they pump so much resources into marketing, trying to corner the market.

That's Microsoft's MO though; Don't worry too much about making a profit, a multibillion dollar company can absorb some losses, but try to gain a monopoly then stick it to the customer.

I think MS has gone to great lengths to secure exclusive titles and bonus material which leaves PS3 owners wondering why they bought such an expensive Blu-Ray player. Wii owners knew they weren't getting a Nextgen console so no expectations there. This might screw Sony over for a PS4, I'm sure there will be plenty of unwavering PS fans, but I don't see much value coming out of the Cell Processor or RSX GPU because games are primarily being developed for XBox compatibility.

[Cory Duchesne]

It's the quantity and quality of games that make or break a console. Video Game history has shown that being technically inferior doesn't matter much when you've got good games. Xbox360, as a console, is terribly unreliable and the hardware is noisy, but it's doing quite well in the market, due to having some great games.

The Nintendo Wii isn't even a next-gen console, it isn't an improvement on their previous console, you just have the motion controls tacked on to what is essentially a GameCube. But it's games meets/satisfies the demand of a certain demographic, so it's doing amazingly well.

PS3 is the technically superior console, but it's lagging.

If I was interested in playing videogames on a consistent basis, I would get an Xbox360. Greater library of mature and in depth titles. Although I really like Metroid games.

Actually, it might make more sense to be a PC gamer. Almost anything worth playing on the Xbox seems to be available on the PC, plus you get the patches that improve a game months after it's release.

[Nick]

That's why I was wondering who you want to target, the masses, or do you want to go to the roots of the economy (e.g., the people purchasing/bidding for the most basic raw commodities that make all products possible). If you can figure out how to drive up the price of the crude materials and labor needed to make all the final products, then the actual products that end up on the shelves, and thus the currency, will inflate.

Well I guess we can say countries already do this to each other in the form of economic sanctions. The process is different, but it ultimately has the same end result by making it difficult or even impossible for a country to purchase and consume the products and resources they need. So unless that country has enough internal resources and infrastructure to sustain their economy, they are screwed.

[guest_of_logic]

Wait a minute Laird, I thought that was just about exactly what the video we both saw said.

Yes, but I've done some research and reading since watching that video, and I now think that it sensationalises and misleads somewhat. I don't have the bandwidth to watch it again right now, so I won't make a more specific comment than that for the moment.

I've taken the time to debunk at least some of the claims in that video, in a post at another forum, KIR.

[1456200423]

I've taken the time to debunk at least some of the claims in that video, in a post at another forum, KIR.

In my opinion Atraxia debunked your post very well... after you debunked your own claims with a spreadsheet. :-)

Highlights:

Code: Select all

Total Reserves:
	89.26

	Total Amount of Deposits:	Total Amount Lent Out:	Total Amount Deposited:
	457.05	                                     357.05	          100

This is utter baloney. A bank cannot loan $10,000 dollars unless it has $10,000 worth of capital - and more, since it must retain its 1:9 reserves.

Looks like some form of neurosis/mental block... Very curious. Keep posting.

[guest_of_logic]

guest_of_logic: A bank cannot loan $10,000 dollars unless it has $10,000 worth of capital - and more, since it must retain its 1:9 reserves.

1456200423: Looks like some form of neurosis/mental block... Very funny. Keep posting.

No, seriously, banks make loans out of their capital, which includes deposits. What's your explanation? That they just magic up loans out of nowhere? Come on, man, get real. If banks could just conjure up a loan out of nothing, then what would be the point of credit checks? Even if a borrower paid a single cent of a payment, it would be money for nothing, right? Nah, dude, that's not the way it is. Banks owe liabilities to their depositors, which is what loans are made out of.

[1456200423]

What's your explanation? That they just magic up loans out of nowhere? Come on, man, get real.
Banks owe liabilities to their depositors, which is what loans are made out of.

Their "promise to pay" is not worth the paper/water it is written on.
They are performing a juggling act with abstraction in order to increase profits.

Total Amount Deposited:
100

Total Amount Lent Out:
357.05

Total Reserves:
89.26

[guest_of_logic]

Their "promise to pay" is not worth the paper/water it is written on.

Nonsense. Other than when there's a run on the bank, it's perfectly reliable.

Total Amount of Deposits:
100

Total Amount Lent Out:
357.05

Total Reserves:
89.26

Yeah, I know that the bank's reserves are only a proportion of its deposits. In the normal course of affairs, that's just fine, because not all of the bank's customer's will withdraw their funds at once. But even in a bank run, the reserve bank will often temporarily loan the necessary funds.

By the way, you misquoted me. "Total Amount of Deposits" should be 457.05.

[1456200423]

Their "promise to pay" is not worth the paper/water it is written on.

Other than when there's a run on the bank, it's perfectly reliable.

But it's inevitable... You can't keep borrowing in order to pay debt... for ever. You don't see the correlation between public debt, the 90* angle in global wealth distribution *curve* and fiat economy?

In the normal course of affairs, that's just fine, because not all of the bank's customer's will withdraw their funds at once. But even in a bank run, the reserve bank will often temporarily loan the necessary funds.

Where do you think FED gets the money from, to make the loan? (BTW FED Reserve Bank is privately owned company engaged in maximizing profits ie. business. )

The Federal Reserve Bank hires the US Treasury to print up some money. The Federal Reserve only actually pays the treasury for the cost of the printing, they do NOT pay $1 for each 1$ printed. But the Federal Reserve turns around and loans out that money (or credit line) to banks at full face value, those banks which have exhausted their deposits then loan that Federal Reserve fiat money to you, and you must repay it in the full dollar value (plus interest) in work product, even though the Federal Reserve printed that money for pennies, or created it out of thin air in a computer.

As the Federal Reserve overprints more money, the money supply inflates, and too much money starts chasing too few goods and services, which means prices go up. But contrary to the charade put on by the Federal Reserve, inflation doesn't just come and go due to some arcane sorcery. The Federal Reserve can halt inflation any time it wants to by simply shutting down those printing presses. It therefore follows that both inflation and recession are fully under the control of the Federal Reserve. This means the cycle of inflation and recession is an intentional one; a gigantic heartbeat that pumps paper certificates out to the working class, while pumping real wealth in to the owners of the banks.

Source

Ron Paul on Federal Reserve.
http://www.youtube.com/watch?v=thSioPmHfL4

By the way, you misquoted me. "Total Amount of Deposits" should be 457.05.

True. I meant to quote "Total Amount Deposited".

[McKyle025]

Yes, Ryan Rudolf has a great insight. However, this is the principle of economics. Companies become greedy because of the principle of supply and demand and it is usually the backbone of the economy especially nowadays.


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