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Where Economists Agree

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Saturday, February 14, 2009

 

News Flash: Economists Agree

 

 

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

 

(you are not allowed to post links yet)"you can't post links until you reach 50 posts_you are not allowed to post links yetthomsonedu(contact admin if its a beneficial link)/economics/mankiw/index.html"]My favorite textbook[/url] covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.†(79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

Note that the proposition about fiscal policy (#4) does not distinguish between taxes and spending as the best tool for purposes of macro stabilization. Maybe that question should be added in a future poll. I doubt, however, that the answer would make it onto this list of widely agreed upon propositions.

 

(you are not allowed to post links yet)"you can't post links until you reach 50 posts_gregmankiw.blogspot(contact admin if its a beneficial link)/2009/02/news-flash-economists-agree.html"]you can't post links until you reach 50 posts_gregmankiw.blogspot(contact admin if its a beneficial link)/2009/02/new...ists-agree.html[/url]

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Salaams peeps,

 

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

 

If we could get the American public (or any public) to understand the reality that the richest 10% own 85% of the world total wealth and the bottom half of the world population ownes barely 1% with distribution become more concentrated, I am sure their leaders will have no choice but to change and public policy would be much improved.

 

Does your favourite text book explain the ramifications of scrapping the store value of money and adopting a fractional-reserve system to bring about money creation along with perpetual debt? If we could get all economists to agree that the system does not work and causes untold misery in the world then maybe we can start to make the world a more just place.

 

Peace

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Salaams peeps,

 

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

 

If we could get the American public (or any public) to understand the reality that the richest 10% own 85% of the world total wealth and the bottom half of the world population ownes barely 1% with distribution become more concentrated, I am sure their leaders will have no choice but to change and public policy would be much improved.

 

Does your favourite text book explain the ramifications of scrapping the store value of money and adopting a fractional-reserve system to bring about money creation along with perpetual debt? If we could get all economists to agree that the system does not work and causes untold misery in the world then maybe we can start to make the world a more just place.

 

Peace

 

People already know about the first one, but they note that free trade and globalization has brought more people into the middle and upper classes then at any other time in history- you just need to make sure the poor aren't being screwed over by it.

 

As for the second one, most economists agree with money creation as a valid tool of monetary policy, and it's actually quite useful.

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It's worth pointing out that you would get different poll results if you polled economists from different kinds of economies - I doubt that such high percentages of Italian or Chinese economists (for example) would agree with some of those.

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It's worth pointing out that you would get different poll results if you polled economists from different kinds of economies - I doubt that such high percentages of Italian or Chinese economists (for example) would agree with some of those.

 

I think this was culled from worldwide polls...

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Possibly, although I doubt that many (say) Australian economists have an informed opinion on the US Social Security system. And if it is a reflection of the worldwide opinion of economists it helps the argument that economists should not run countries, IMHO.

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Possibly, although I doubt that many (say) Australian economists have an informed opinion on the US Social Security system. And if it is a reflection of the worldwide opinion of economists it helps the argument that economists should not run countries, IMHO.

 

Actually, real life data has proven most of the things in the list true.

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I think that most of them are sensible and I wish governments would implement most of them. I don't see, though, that most of them would help the US and the world much in its current predicament - not subsidising professional sports teams in the US, for example, isn't going to stop the GFC.

 

The reason that economists shouldn't run countries is that even if (say) abandoning a mimimum wage would lower youth unemployment, it would cause other social problems, solving which would cost the GDP more than it loses because of the minimum wage. A society is more than its economy.

 

Australia's minimum wage is far higher than the US's (A$14.31/hr in 2008 - A$ has approx same purchasing power in Australia as US$ in US). The Australian unemployment benefit is very roughly A$6.50/hr, plus rent assistance, plus additional money for children. There is no time limit on receiving unemployment benefits. Yet Australia is suffering less than the US from the GFC. Australia also has fewer social problems than the US (compare murder rates, illiteracy rates, infant mortality rates, prison populations, etc). A society is more than its economy.

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I think that most of them are sensible and I wish governments would implement most of them. I don't see, though, that most of them would help the US and the world much in its current predicament - not subsidising professional sports teams in the US, for example, isn't going to stop the GFC.

 

The reason that economists shouldn't run countries is that even if (say) abandoning a mimimum wage would lower youth unemployment, it would cause other social problems, solving which would cost the GDP more than it loses because of the minimum wage. A society is more than its economy.

 

Australia's minimum wage is far higher than the US's (A$14.31/hr in 2008 - A$ has approx same purchasing power in Australia as US$ in US). The Australian unemployment benefit is very roughly A$6.50/hr, plus rent assistance, plus additional money for children. There is no time limit on receiving unemployment benefits. Yet Australia is suffering less than the US from the GFC. Australia also has fewer social problems than the US (compare murder rates, illiteracy rates, infant mortality rates, prison populations, etc). A society is more than its economy.

 

Note it says untrained, young workers. Most Western countries are far better then the U.S at training their workers.

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Note it says untrained, young workers. Most Western countries are far better then the U.S at training their workers.

 

 

So in fact sensible economists would advocate spending more on education to offset the problems caused by removing the minimum wage; in fact they might argue that without this they would not agree that removing the minimum wage would be good for the country. It would be misrepresenting them to just say that they advocated removing the minimum wage.

 

I'm not really arguing here, it's just that bald statements advocating the removal of humane but superficially inefficient social services and safety nets on the grounds of economic efficiency always make me suspcious.

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Australia and the US cannot be compared , Australia has a population of 21million as opposed to 307 million in the US . The work force in Australia is 11 million as opposed to 155 million in the US . Australia has twice the per capita agricultural economy as the US , but roughly the same in Services , the US is slightly higher in heavy industry .

Australia has a more or less balanced trade showing a deficit of about 3 - 4 billion . But it has far less actual partners in trade .

 

Infrastructure comparisons between the two is meaningless , perhaps maybe Australia and California ? Therefore expenses are not properly represented in any attempt at comparison . Minimum wage has nothing to do with the training of any workers , for the degree of any training is commensurate with the particular sectors of an economy and that sectors demand for workers . So any training is directly related to the degree of difficulty or complexity of performing specific jobs , and the availability of such jobs .

Although in percentiles the two countries have roughly the same proportion of their economies based in services , those services are vary widely in diversity .

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Salaams peeps,

 

People already know about the first one, but they note that free trade and globalization has brought more people into the middle and upper classes then at any other time in history- you just need to make sure the poor aren't being screwed over by it.

 

But the poor (the majority) are being screwed over, that's what the figures demonstrate. How can this system continue when the majority own the smallest fraction of the overall wealth? The system does not work.

 

As for the second one, most economists agree with money creation as a valid tool of monetary policy, and it's actually quite useful.

 

The second one is caused by the first one, hence it's only a useful tool for the rich to continue to hoard the wealth. Woiuld you agree that money creation in the West has set up the IMF and similar institutions, which loans out money to poorer countries who cannot pay back the crippling interest payments, which lead them to privitising national institutions to multinationals who originate from...wait for it... the rich West? Like I said, money creation using a fractional-reserve policy is very useful to the rich but amounts to robbery and pillaging against the poor.

 

Peace

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There are many poor throughout the world . And the least cause of their poverty is loan interest . It sounds nice , but simply is not true .

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Australia and the US cannot be compared , Australia has a population of 21million as opposed to 307 million in the US . The work force in Australia is 11 million as opposed to 155 million in the US . Australia has twice the per capita agricultural economy as the US , but roughly the same in Services , the US is slightly higher in heavy industry .

 

Maybe they can't be compared (although differing population size is meaningless when we are talking about statistics). However the assumption behind "the great majority of economists worldwide agree that a mimimum wage harms the economy" is that all economies CAN be compared.

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Salaams peeps,

But the poor (the majority) are being screwed over, that's what the figures demonstrate. How can this system continue when the majority own the smallest fraction of the overall wealth? The system does not work.

 

How, then, do you account for the success of India, China and Brazil?

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Salaams peeps,

 

How, then, do you account for the success of India, China and Brazil?

 

What success? How do you account for what I mentioned in my first post i.e. the richest 10% own 85% of the world total wealth and the bottom half of the world population ownes barely 1%. Is that a success story?

 

Peace

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Salaams peeps,

What success? How do you account for what I mentioned in my first post i.e. the richest 10% own 85% of the world total wealth and the bottom half of the world population ownes barely 1%. Is that a success story?

 

Peace

 

At a national level, yes. If you're talking about economic inequality within individual economies, then blaming the IMF will not account for the problem in the US, for example.

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Poverty in any given society , is a product of that society , as well as any regime or government ruling that society .here will always be the poor , however when such poverty is the norm for a society , or country , there are many underlying causes far more causal in their effects than the IMF .

The IMF bails out and finances economies not individuals . If it is a practice in any society to deprive its citizens from education , or if that society is involved in civil strife , tribalism , poor land management practices , overuse of natural resources or even natural effects due to flood , drought etc . , there will be deleterious effects to those societies or countries , and those at the lower rungs will always suffer most . Alleviating such suffering also depends on the resources and nature of said society or country . If anything , that is the main purpose ofthe IMF , and should it's rules be followed , no society or country would fall through the safety net , that is if they are not involved in the afore listed poor practices , and if they are exercising good governance .

Obviously in many of the poorer countries and societies ,the factors for success are absent , and all the pre-requisites for failure can be found .

 

To blame the IMF or Western -style loan /interest practices , is more ideological rhetoric than reality .

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Note it says untrained, young workers. Most Western countries are far better then the U.S at training their workers.

 

 

I'm not too sure about that. If they are, they start lagging right away.

 

 

 

 

We work hard: U.S. at the top in productivity

 

The average U.S. worker produces more wealth per year than those in other nations — and spends more time on the job than counterparts in Europe.

 

By BRADLEY S. KLAPPER

 

The Associated Press

 

 

World leaders

Wealth produced by the average worker each year, according to the U.N. report:

 

United States

 

$63,885

 

Ireland

 

$55,986

 

Luxembourg

 

$55,641

 

Belgium

 

$55,235

 

France

 

$54,609

 

Source: Associated Press

 

GENEVA — American workers stay longer in the office, at the factory or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year.

 

They also get more done per hour than everyone but the Norwegians, according to a new U.N. report that says the United States "leads the world in labor productivity."

 

The average U.S. worker produces $63,885 of wealth per year, more than their counterparts in all other countries, the International Labor Organization (ILO) said in its report.

 

The productivity figure is found by dividing the country's gross domestic product by the number of people employed. The U.N. report is based on 2006 figures for many countries, or the most recent available.

 

Wages are another story

 

Even though worker productivity has increased dramatically in the United States since the brief recession of 2001, wages haven't always kept pace, and the share of national income going to corporate profits has dwarfed the amount going to workers' paychecks.

 

A recent Census Bureau report said that in 2006 the median household income — half make more, half make less — of $48,200, adjusted for inflation, was higher than in recent years partly because there were more full-time workers per household, suggesting more people were working longer hours to make ends meet.

 

But only part of the U.S. productivity growth, which has outpaced that of many other developed economies, can be explained by the longer hours Americans are putting in, the ILO said.

 

The U.S., according to the report, also beats all 27 nations in the European Union, Japan and Switzerland in the amount of wealth created per hour of work — a second key measure of productivity.

 

Norway, which is not a member of the European Union, generates the most output per working hour, $37.99, a figure inflated by the country's billions of dollars in oil exports and high prices for goods at home. The U.S. is second at $35.63, about a half-dollar ahead of third-place France. Until a few years ago, France led the U.S. in hourly productivity.

 

The U.S. employee put in an average 1,804 hours of work last year, the report said. That compared with about 1,407 hours for the Norwegian worker and 1,564 for the French.

 

It pales, however, in comparison with the annual hours worked per person in Asia, where seven economies — South Korea, Bangladesh, Sri Lanka, Hong Kong, China, Malaysia and Thailand — surpassed 2,200 average hours per worker. But those countries had lower productivity rates.

 

America's increased productivity "has to do with the ICT [information and communication technologies] revolution, with the way the U.S. organizes companies, with the high level of competition in the country, with the extension of trade and investment abroad," said Jose Manuel Salazar, the ILO's head of employment.

 

Poor nations far behind

 

The report warned that the gap between leaders such as the U.S. and poorer nations has widened even more dramatically.

 

Laborers from regions such as Southeast Asia, Latin America and the Middle East have the potential to create more wealth but are being held back by a lack of investment in training, equipment and technology, the agency said.

 

In sub-Saharan Africa, workers are only about one-twelfth as productive as those in developed countries, the report said.

 

"The huge gap in productivity and wealth is cause for great concern," ILO Director-General Juan Somavia said, adding that it was important to raise productivity levels of the lowest-paid workers in the world's poorest countries.

 

China and other East Asian countries are catching up quickest with Western countries. Productivity in the region has doubled in the past decade and is accelerating faster than anywhere else, the report said.

 

But they still have a long way to go: Workers in East Asia are still only about one-fifth as productive as laborers in industrialized countries.

 

The vast differences among China's sectors tell part of the story. Whereas a Chinese industrial worker produces $12,642 worth of output — almost eight times more than in 1980 — a laborer in the farm-and-fisheries sector contributes a paltry $910 to gross domestic product.

 

The difference is much less pronounced in the United States, where a manufacturing employee produced an unprecedented $104,606 of value in 2005. An American farm laborer, meanwhile, created $52,585 worth of output, down 10 percent from seven years ago, when U.S. agricultural productivity peaked.

 

Information from Seattle Times archives is included in this report. The Washington Post, Christian Science Monitor and McClatchy Newspapers contributed.

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Salaams peeps,

 

My mentioning of the IMF and similar institutions was to simply highlight one of the unjust realities of the current system. I wasn't assigning complete blame to the IMF, but what I am saying is that the global inequality of wealth and even within economies is due to the interest based money creation practises adopted by almost all economies in the world. Talking about the IMF, there are definitely examples of IMF practises causing the poor to get poorer, particularly in South America where countries like Bolivia and Venezuela were forced to privitise gas/water under the guise of 'good governance', i.e. debt repayment. You would perhaps say that this was due to poor management of the money by the governments involved and you would be right, but my point is that the crippling debt hurts the poor the most, who are not at fault.

 

Why doesn't money have store value anymore? Why is money created by central banks at debt? Alistair Darling, the Chancellor of Exchequer in the UK recently announced the government would be borrowing £175bn to try and escape the claws of recession. The term 'borrowing' means to print more money. The Bank of England 'prints' £175bn (obviously this isn't really printed, it is all done electronically) and gives it to the government with interest attached to it. So money that was created out of thin air (no store value) is then given to the government with interest attached. How can this be right?

 

I'm not an expert in economics but this seems a ridiculous concept because the debt is clearly perpetual - the only institution allowed to create money (the central bank) is creating it as debt. Therefore it can never be paid back because the money to cover the interest doesn't exist.

 

Have I understood this correctly?

 

Peace

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Why doesn't money have store value anymore? Why is money created by central banks at debt? Alistair Darling, the Chancellor of Exchequer in the UK recently announced the government would be borrowing £175bn to try and escape the claws of recession. The term 'borrowing' means to print more money. The Bank of England 'prints' £175bn (obviously this isn't really printed, it is all done electronically) and gives it to the government with interest attached to it. So money that was created out of thin air (no store value) is then given to the government with interest attached. How can this be right?

 

If a government raises bonds it is borrowing money on those bonds, so of course it pays interest on them. If the money was actually worthless, the interest would be worthless as well, in which case no-one would buy the bonds. The money obviously DOES have "store value", because the money can be (and is) used to buy things. Your money can buy things, can't it? Your money is the same as any other money.

 

By the way, there was far greater inequality of wealth in England prior to the 20th century in just about any century you care to name since 1066.

Edited by rubida

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Josh ....look at it like this , if I can open a buisines or indeed perpetuate my buisiness with a loan , and in fact pay interest on that loan , it becomes a compatable practice when I inturn make a profit from that buisiness . These loans come in many forms and finance many good things ...and in the case of cities , states and countries ....we call them bonds and bond issues . For individuals we call them personal , buisinessd , and mortagage loans .

Bonds are an integral part of the financial world today , and it is practiced by everyone , and for varying reasons and financial objectives .

The I M F for the most part ,operates according to widely accepted, sound ,monetary and financial doctrine .

 

When countries like those you mentioned find themselves in trouble , it is usually due to their own doing .

 

If the IMF bails them out , that bailout comes with prescribed actions a given economy must make in order for the process to be successfull . This is usually a painfull but necessarry process as bad financial practices are what put said economies in stress to begin with . Cities pay for infrastructure with "bond issues " which pay a return [ interest ] to investors , who finance the ventures which inturn they are expecting to be successfull on the part of those cities who upon realizing such expansion of infrastructures , then operate more efficiently ,or profitably , and thus realize reduction of debt and balancing to the plus side in their budgets .

 

When IMF prescribed practices are not followed , for whatever reasons , the subsequent failures are not the fault of the IMF . The IMF is a most certainly positive institution in global financing .

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Salaams peeps,

 

If a government raises bonds it is borrowing money on those bonds, so of course it pays interest on them. If the money was actually worthless, the interest would be worthless as well, in which case no-one would buy the bonds. The money obviously DOES have "store value", because the money can be (and is) used to buy things. Your money can buy things, can't it? Your money is the same as any other money.

 

What are bonds exactly?

 

What the money can buy, or what its value is is determined by inflation, correct? And the money supply is controlled by the central bank, the same institution which creates it from thin air and attaches interest to it. There is no store value of modern money.

 

What does the central bank do with the interest it earns on money it has created?

 

By the way, there was far greater inequality of wealth in England prior to the 20th century in just about any century you care to name since 1066.

 

So?

 

 

Bonds are an integral part of the financial world today , and it is practiced by everyone , and for varying reasons and financial objectives .

The I M F for the most part ,operates according to widely accepted, sound ,monetary and financial doctrine .

 

That doesn't make it right.

 

When IMF prescribed practices are not followed , for whatever reasons , the subsequent failures are not the fault of the IMF . The IMF is a most certainly positive institution in global financing .

 

I disagree with this. The IMF is an American institution. USA is its biggest contributor, and as such looks out for American interests. The ideas of good governance are essentially practises which make sure the investors make a profit, regardless of the situation of those countries' populations. As I said earlier, this leads to privitising essential institutions such as water supplies, education and healthcare to American companies or multinationals. This is not positive.

 

Having a central bank working on a fractional-reserve policy essentially makes the government and the people of a country slaves to the bank. The way the system is built does indeed allow people to become wealthy, but will ultimately also lead to poor pockets in a society. There is not enough money in an economy to pay the debt back, because only the central bank is allowed to create money. This means that businesses going bankrupt and homes being seized by the banks is built into the system. The people that benefit from this system the most are those who run the system, the banks and the corporations that support them. Don't you think it's unjust that a bank can seize my home because I can't keep up repayments on money created from thin air, and then sell my home on and make a profit?

 

You may say that this is my fault for not managing my money better or something to that effect, but what I'm trying to highlight is that this is part of the system itself - there is not enough money in the economy to pay for the perpetual debt.

 

Unless, of course, I've completely misunderstood the system!

 

Peace

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What the money can buy, or what its value is is determined by inflation, correct? And the money supply is controlled by the central bank, the same institution which creates it from thin air and attaches interest to it. There is no store value of modern money.

 

I don't know what you mean by "store value". If you just mean that the money isn't backed by anything, you're wrong. If the money markets (the people who invest in bonds and trade currencies) decide that a country's money is overvalued - compared to what the country is worth and can produce, essentially - they will not want the bonds and will not buy the currency. The value of the currency will then fall.

 

What does the central bank do with the interest it earns on money it has created?

 

The central bank's interest (if any) on the bonds is negligible. I'm not sure why you think that central banks earn interest on government loans. The government raises loans by selling bonds to anyone who wants to buy them, via the central bank. You can buy government bonds if you want, and receive interest on your loan. Any time you pay someone in a different economy than yours (eg Amazon(contact admin if its a beneficial link), if you aren't American), they are in effect lending your government (ie, you) money.

 

You might want to do some research on the charters of the various central banks (almost every country has one). In the case of the US central banking system (12 Federal Reserve banks), they are controlled by a board appointed by the President and ratified by the Congress. The board is obliged to (braoadly) follow the economic policies of the government of the day, and it would be sacked if it didn't.

Edited by rubida

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Salaams peeps,

 

So money is backed by bonds? What is a bond?

 

The central bank's interest (if any) on the bonds is negligible. I'm not sure why you think that central banks earn interest on government loans.

 

So what happens to the interest the banks place on new money created?

 

Peace

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