You'd be forgiven for saying that because thats always been the case. Until 2009.

http://research.stlouisfed.org/fred2/series/EXCRESNS

The banks don't spend the money, they stuff it in the Fed. The bankers dont spend the money (as you point out), they put it in bank, or in treasuries, or they buy stock (and then the seller puts it in a bank, or in treasuries, or they buy stock). Or they pay off some debt. Sometimes, rarely, the money is invested in a small company that actually creates jobs. However, if I was rich and didn't give a shit about my fellow citizens, I'd be investing in emerging economies, not the USA. Any evidence bankers are like that?

New jobs come from small businesses. $5t would jump start a lot of small businesses.

The irony is that if that $5t were invested in small businesses etc, the bankers would probably be making just as much if not more.

In that case, the money is actually being invested by the government in "roads, schools, and other long-term projects".

Or at least some portion of it is - the rest is given to favored classes of Americans (a big chunk of govt spending is redistribution, not investment).

The Fed has been doing this as a backhanded way of recapitalizing the financial sector (lending money at extremely low rates which banks then pour into liquid but higher-paying investments like Treasuries along with more speculative leveraged plays against the USD).

It isn't hard for players with privileged access to capital to print money in this situation, and this is what makes the exorbitant compensation rankle: if the unstated justification for the money pump is to recapitalize the financial sector the constant hemorrhaging of assets on personnel compensation is parasitic and abusive.

I think we as a society have to deal with the fact that the financial services industry is more and more about extracting wealth from the rest of the economy and that it is producing less and less of real value relative to its profits.

Defining value by the workings of the market is simply a circular and technical argument. It's no more useful than defining justice by actual outcomes of court cases. For one thing, markets define value rather simply: a simple majority vote where present and future votes are discounted. It's a pretty good rule with the nice feature that it's distributed requiring no central planning, but it is not magic and does have some less than desirable corner cases such as, say, the state of everyone at the lower end of the bell curve in western countries for the last four or five years.

> For one thing, markets define value rather simply: a simple majority vote where present and future votes are discounted.

Well it's a bit more fiddly than that. A better analogy is that markets integrate individual tradeoffs. That is, value is constantly established by exchange: I give up 2X for 4Y. I value X at 2Y at the moment.

Economists call this "subjective value". The point being that no objective measure can be thought of which isn't circular or ultimately subjective, relying on some exogenous assignment of value.

If I say 'value' is something like 'hours of labour', then I've just pushed back the definition. Why are labour hours valuable? If it's 'ability to support life', I've merely promoted life-support to a higher value and ignored all other considerations; but are all economic decisions so made with a singular objective? Again I've just made a subjective judgement about what is and isn't valuable.

But somebody may yet prove the economists wrong. So the first step in any discussion of the grandparent post must be to work out what he meant by 'real value'. What is it? How is it recognised? By whom?

This is simply the redistribution of tax revenue from the central bank of the US (which is itself privately held by a cabal of banks by way of owning the 12 regional feds forming the FOMC) to the banks themselves.

The question shouldn't be "what's real value", the question is are we okay with concentration of US wealth to a cabal of multinational banks that, in turn, distribute it to wherever they deem money-worthy? Because, increasingly, that hasn't been the US. Why would we be okay with that?

Value is determined by value added? How did you measure the difference?

> Simply, it's a fair price for a fair unit of work.

By labour? This just moves the question along to be "why is labour value?"

> The question shouldn't be "what's real value", the question is are we okay with concentration of US wealth to a cabal of multinational banks that, in turn, distribute it to wherever they deem money-worthy?

I raised the question of what value is because of the rhetorical assertion that banks don't create 'real value'. Before you can decide whether to be concerned about 'real value' it helps to establish what it is.

> Because, increasingly, that hasn't been the US. Why would we be okay with that?

I'm Australian and I'm OK with that. Do you suppose that when money is invested overseas it miraculously disappears, never to be seen again?

I guess there's just some political dissonance I perceive in the comments here: On one hand it's not okay if the government uses taxpayer revenue to "redistribute wealth" back to the people because, and I'm back-napkinning here, it'll fall into an endless void of unsustainable amounts of soulless feral children, big and flat screen TVs in every room including the bathroom, and shiny accoutrements for unaffordable cars. Oh, and let's ignore food and clothes because these savage poor and old people wear tatters to protect their shame and also eat their rims. But, miraculously, all those products and pharmaceuticals and adult undergarments and electric motor scooters for the mall are somehow not units of work exchanged for units of money. It's a pit -- a hungry, ceaseless, unending pit of despair that we should starve and force into servitude and submission rather than give a dime to.

On the other hand, it's okay if banks who form the FOMC distributed tax revenue to themselves because it'll get reallocated to other rich people across the globe, who as we all know are accountable for 100% of the jobs and job growth that has or will ever be made in the history of US commerce, Amen. Oh, and (jedi hand wave) forget the crash of 2008, the S&L bailout of the 80s, the Great Depression, and all the various major crashes in between all fueled by speculation and 20x margin accounts and other toxic assets. They'll always do good by the taxpayer. Always.

I didn't advocate any policy, I merely pointed out a logical error by the author.

edit: 'k' not 'ch'.

>Whatever they don't consume is reinvested in the economy.

This is true of all financial transactions. The question is, are resources being allocated efficiently? As the authors state - that 5 trillion is not going to build schools or hospitals.

It's almost certain that some chunk of it is being spent on (for-profit) hospitals and schools. But you are correct - some it is is spent on automotive manufacturing, telecom infrastructure, heavy equipment producers, sporting goods, etc.

Is there some reason to believe that schools and hospitals is a better use of the money than these other projects?

Is he aware that there is about $10 trillion dollars of money in the entire US? (M2 and lower money supply.)

So basically the personal accounts of bankers has half of all the money in the US?

Are we sure this isn't an Austin Powers movie?

Probably the reason you didn't get what he meant was because it's utterly nonsensical.

Lets say I make 100k but 30k goes to "taxes", meant to be spent on public utilities that (more or less) benefit me, such as roads, schools, infrastructure, etc.

However, of that 30k, 10k goes into the pockets of executive bankers (golden parachutes, salaries, etc) or privately held companies. This does not really benefit me - I was expecting that money to go towards things that benefit me.

That money will go back into the economy, but not to my (direct) benefit -- the bank execs will spend it on things that probably only benefit them. Only part of it will go back to taxes (whatever taxes the execs pay on their golden parachutes, salaries, etc).

So, not only is my money being spent on things that do not benefit me, but it is rewarding the reckless behavior of bank executives.

In shorter words: I am paying 30k to the government, I expect them to use that 30k to provide services that benefit everybody equally, not reward a few reckless bank execs.

http://www.usgovernmentspending.com/year2008_US.html

I'm not sure why you feel more valuable to to take money from the banker and give it to old people than to allow the banker to invest in Netflix/Walmart/other businesses that provide value to millions of people. Could you explain?

Lets say 10k goes to this banker, and he spends it on Netflix/Wallmart/etc. That mostly benefits HIM. Really, I should get to spend that 10k on Wallmart/Netflix/etc. so that it benefits ME.

Both cases benefit the economy, but the banker benefits more if he spends the money. In otherwords, money that I could spend on myself to boost the economy is instead being given to someone else who does not deserve it. Does that make sense?

In general, I am for a SMALL government - that means I would prefer that taxes be minimized, and whatever can be privatized should be. I do not support our government's excessive defense budget (although I do support the troops, who actually get very little of the overall defense budget).

If you are advocating for reducing taxation and redistribution, I agree with you.

I was merely arguing against the dichotomy implicitly put forth by the author - either the government spends the money, or else it is wasted.

I have to point out that a lot of Europeans were never very happy with being "defended" in the manner you describe.

If America wanted to removed bases from Europe to save money I think that would be sensible for both Europe and the United States.