lol, dude you and I live in Minnesota... everywhere gets less snow ;)

The south island can get a little cold in the winter time, but where I am looking to live (outside Wellington) will be a high in the 50's in the winter time, and the 80's in the summer.

So perfect weather. I was there in the fall, and it was mid 60's to low 70's.

Right now it's 52 degrees there.

Ah, but thats not the way it always works, Mafoo.

Here is the way I see it:

• Mafoo deposits $100 in the bank of Mrstickball
• The bank of Mrstickball loans out $90 to Final-Fan to buy a house
• Final Fan uses that $90 to buy a house from Akvod
• Akvod puts that $90 in the bank of Richardhurtnik
• The bank of Richardhurtnik then loans out $81 to Rath for a business loan

Ect, ect, ect. On down the line, it then may equal up to, but not always, 1000% of the base deposit value. That is not saying that every dollar you put in the bank will, invariably, equal 1000% every time, but that it has the potential to do that over time.

Now, in such a scenario, it would lend creedence to the inflation rate being very tied into interest rates by the federal reserve. Why? Because banks usually base their lending habits on prime interest rates set by the fed. Therefore, if interest rates are very low, there will be a greater desire by potential borrowers to get the money out of the bank via  a loan, thus increasing the supply of money, and increasing inflation (since inflation is tied to the amount of money available).

You defined circulation. The same thing can happen if I don't use a bank. I could buy a house from Final-Fan with cash, who could in turn buy a house from Akvod with cash, who could in turn invest that cash in Rath's business, all without a bank.

Now I agree that throwing a bank in the mix makes transactions so much easier, as you now have someone who can broker this transfer of money. For example Akvod might not know about Rath's business, so he just puts the money in an interest earning CD, and the bank then in turn loans the money to Rath. The cost of that service, is Akvod makes 2-3% interest on his money, while Rath pays 10% on the loan. The other advantage, is if Rath defaults, Akvod still keeps his money. So there is value in it for both end users.

I can see how banks improve circulation (so because of banks, there can be 10x amount of money being spent/earned), and I can see how there is something earned per dollar from banks, but I still don't know how you can contribute a 10X return on a dollar because you put it in a bank instead of spending it.

Maybe I misunderstood the statement. Are you saying there is a 10X improved total economic gain putting money in a bank vs storing it in your house?

That I agree with, but because banks help improve circulation. I think there is a very small total economic gain however, from putting money in a bank vs investing it yourself on something.

Spend more money through Economic Stimulus or implement harsh Economic Austerity measures? Both measures will result in much bigger debts. What is the lesser of the two evils?

How will austerity lead to bigger debts? Please explain.

Let's assume that we aren't looking at unsustainable malconsumption in the economy and spending generated by an economic stimulus goes towards buying news houses or basic needs and wants.  Doing this generates growth, and causes an increase in tax revenues.  In the case where people don't spend money, then the economy can contract and there is insufficient tax revenues generated.  Thus, you run up larger debts.

What is a problem here is presuming that larger debts are an unavoidable norm.  In this, you are setting a spiral into doom to happen.  Eventually the debts do have to be paid, irregardless if you keep telling yourself that "the debt is only X% of GDP and is sustainable".

One of the core elements that led to this current economic crisis was the market was manipulated to create artificial demand in the housing market to create the illusion of economic growth; how is what you’re suggesting any different from the situation we’re still recovering from?

That is an element.  Also included in this to is a consumer driven economy with people maxing out their credit cards. 

That's not as much of a problem. Credit card debt is a drop in the bucket compared to lost imaginary value in the housing industry.

There are millions of people in this country with houses that they owe $20,000 more then the house is worth. Some as much as $200,000-$300,000 (hell, some in the millions), and this all happened quickly, to people banks weren't expecting it to happen to.

Plus most debt on peoples credit cards by the time they file bankruptcy and don't pay it back, is lost revenue, not a direct loss. People don't understand the dangers of interest. So buy the time they default, they have paid the principal off long ago, and there maxed credit card is nothing more then interest.

I am talking about a level of consumer spending used to sustain the economy.  If the amount of activity based on consumer debt isn't going to be there, then the economy isn't going to function at levels people are used to.  Hiring won't happen either.  Throw in also the home equity loans people were doing.  The vehicles to drive economic activity won't be there.  People say the government should replace this spending.  How exactly does government IOUs make things sustainable, unless the borrowing funds research (and they get lucky) or infrastructure developments that enable economic activity that hadn't happened prior?