How the banks create money

[psionl0]

psionl0, you are awesome!

Awwwww! don't you have anything nicer to say?

If you want to really expand your mind on matters economic I suggest looking into the following authors: <---snip--->

I will probably read these authors in due course. However, I prefer to see where my own analysis takes me first so that I have a frame of reference to go by. The authors might either confirm my analysis, give me pointers on how to improve my analysis or be dead wrong. (For example, many authors incorrectly imply that the government borrows all of its money from the fed. The US would be synonymous with Zimbabwe if that were the case).

I did study Mike Montagne's PEOPLE For Mathematically Perfected Economy a while back but found his arguments so unconvincing (and his website had so many pages) that I lost interest. He also argues about the destructive effects of usury so maybe it's time to have another look.

There are three main problems with the current banking system.

The first problem is they charge interest but do not create the money to cover that interest. Possible solution: create the money to cover the interest!

You are aware that this would increase the banks' reserves and trigger a new round of loans. As a matter of fact this is already being done. The fed monetizes a portion of the government's debt. It certainly causes inflation but whether this stops debt increasing as a proportion of GDP is doubtful.

The second problem with the banking system now is they charge too much interest. It is ridiculous. You know that most loans today (car, home) are what are called front-end loaded. Most of the initial payments are interest.

This is a much harder problem to deal with. Lending money is a risky business and a lender is entitled to charge interest for taking that risk. Since money can be used to make money (or buy things earlier), people will always be willing to borrow at interest.

As for the "front-ended" nature of interest, that is just the nature of the beast. You can only charge interest on what a person currently owes - not on his expected average debt over the next few years.

In the days before credit cards became common, many things were bought on "hire-purchase". The vendors invariably charged a "flat" rate of interest. This was a simple way to calculate the cost of a loan because all you had to do was multiply the term of the loan by the interest rate to get the total interest bill.

You would think that under a flat rate of interest, you are paying the same amount of interest every time you make a payment instead of making interest payments up front. That used to be the main criticism of flat interest - that you are paying the same amount of interest whether you still owe $500 or $5000.

However, it turns out not to be the case. If you wanted to pay the balance of your loan in a lump sum then the vendor would work out what you owe by asking, "How much could you borrow if you were going to make N payments of $X and the flat interest rate is r%"? The answer to that question was your payout figure. If you do those sums it turns out that (you guessed it!) in the early stages of the loan, you are paying almost pure interest - just as with the reducible case.

So, it seems that we either have interest or we don't. There is no real way to mitigate the worst aspects of interest. Individuals can still protect themselves from the ravages of usury by not taking on debt unnecessarily and paying down debt as much as possible when they can. (I know a lot of banks penalize borrowers who do this and that is criminal!)

The third problem is banks can collude (and have colluded) to bring economies down. Solution: always have at least some government run banks with strict rules on them that never change.

Agreed but let's make sure we know what the rules should be before we let politicians run off half cocked.

 

[tensordyne]

some notes.

Awwwww! don't you have anything nicer to say?

Sorry, I am just glad someone else understands how this all works is all.

I will probably read these authors in due course. However, I prefer to see where my own analysis takes me first so that I have a frame of reference to go by. The authors might either confirm my analysis, give me pointers on how to improve my analysis or be dead wrong. (For example, many authors incorrectly imply that the government borrows all of its money from the fed. The US would be synonymous with Zimbabwe if that were the case).

Hmmm, not sure about Zimbabwe and US comparison. I find it understandable trying to do your own analysis first but I think for at least one of the authors I listed named Henry George his insights would be amazingly hard to reproduce on your own. He analyzed how land and rents on land lead to prosperity for the few and poverty for the rest of the unwashed masses. The problem is how do you know in your own analysis if you are not missing an interesting question you have not considered to date?

Oh well, you said you will read them eventually so that alone makes me happy. Maybe check out The Renegade Economist now because they have vids and for what the crooks are up to Max Keiser (saddly he is a Austrian gold bug, but his interviews with insiders are awesome!).

I did study Mike Montagne's PEOPLE For Mathematically Perfected Economy a while back but found his arguments so unconvincing (and his website had so many pages) that I lost interest. He also argues about the destructive effects of usury so maybe it's time to have another look.

Yeah, looked at his website, wall of text comes to my mind. Stephen Zarlenga's book is one of the best I have seen on exploding so many monetrary myths. There are quite a few movements out there. Regional Currencies, whole alternative systems (such as Montagne's), etc.

I think maybe just having the government spend into existence the interest earnings of banks and then through taxes take out of circulation the same interest the system we have now would ballance out quite a bit more then it is now.

You are aware that this would increase the banks' reserves and trigger a new round of loans. As a matter of fact this is already being done. The fed monetizes a portion of the government's debt. It certainly causes inflation but whether this stops debt increasing as a proportion of GDP is doubtful.

I have not yet completely figured out what the fed monetizing debt (QE32 coming to a store near you) does but I think I definitely disagree with the idea of government spending the interest into the economy would increase bank reserves (I think I forgot to add that the government would also through taxes take that money out of circulation).

In the admittedly simplified view that MMM gives it does not talk about interest so far as I have seen (that would show the ponzi aspect of their supposedly perfectly 'ballanced' system) if you include interest and another source ballances that interest then things get ballanced out. It is like plumbing, there are sources and sinks. Plus, something like this was done in the past with Pensylvania Banking. It supposedly worked pretty well from what I have read (Ellen Brown).

This is a much harder problem to deal with. Lending money is a risky business and a lender is entitled to charge interest for taking that risk. Since money can be used to make money (or buy things earlier), people will always be willing to borrow at interest.

Well, lending your own money is risky. Lending money created from nothing is much less risky. Prof. William K. Black makes it clear that control fraud exists (making loans to people who can not repay it) because it is always profitable for bank CEO's at least.

As for the "front-ended" nature of interest, that is just the nature of the beast. You can only charge interest on what a person currently owes - not on his expected average debt over the next few years.

Eh, just set the rate at 2% or less, period, and if a borrower can not pay some agreed upon periodic payment then that ammount gets added up and put into the next bill's interest upfront payment with the rest always being flat. Solves that little conundrum.

In the days before credit cards became common, many things were bought on "hire-purchase". The vendors invariably charged a "flat" rate of interest. This was a simple way to calculate the cost of a loan because all you had to do was multiply the term of the loan by the interest rate to get the total interest bill.

Sounds good to me.

You would think that under a flat rate of interest, you are paying the same amount of interest every time you make a payment instead of making interest payments up front. That used to be the main criticism of flat interest - that you are paying the same amount of interest whether you still owe $500 or $5000.

Well, it is a criticism of the banksters but I do not want them making any more then a decently paid accountant would make (in the end banking is just moving numbers around anyways). Money in any system will always be time based (you have to pay your bills after all), but the solution is something like I gave above and also as a converse, each loan should come with default conditions that have maximum time/money-default limits set by law.

If a borrower defaults then the money comes out of the bank's reserve account with the government (as a sink for those who will not pay back to society what is owed back to society). Then you will not have liars loans like we have now because banks would actually loose their own money.

However, it turns out not to be the case. If you wanted to pay the balance of your loan in a lump sum then the vendor would work out what you owe by asking, "How much could you borrow if you were going to make N payments of $X and the flat interest rate is r%"? The answer to that question was your payout figure. If you do those sums it turns out that (you guessed it!) in the early stages of the loan, you are paying almost pure interest - just as with the reducible case.

Yeah, maybe, but then maybe it is our own apathy in allowing bankers to dictate general terms to us instead of the other way around.

So, it seems that we either have interest or we don't. There is no real way to mitigate the worst aspects of interest. Individuals can still protect themselves from the ravages of usury by not taking on debt unnecessarily and paying down debt as much as possible when they can. (I know a lot of banks penalize borrowers who do this and that is criminal!)

Indeed. Zarlenga wants a system that would actually run something like Sceptic-PK actually thinks how banking works now. I myself have no problem with money that trully is ballanced and expands and contracts as needed (contra Zarlenga because I think he does not trust bankers at all with the power of creating money which given history can't say as I blame him).

The problem is how to have a banking system that is ballanced, expands and contracts the money supply dependent on need for credit, all the while making sure bankers make a decent living but not an exhorbitant one like they do now.

Agreed but let's make sure we know what the rules should be before we let politicians run off half cocked.

Politicians are so hopelessly in the pocket of, in order of precedence: Banks, Oil, Agra, Pharma, ... that the only way to change them is to replace the lot of them. About the only person I have seen that really knows the score pretty much all around is Dr. Michael Hudson. "We have one who can see!"

Fantastic. Of course this particular conversation should be in the "Monetary Reform" thread started a while back but that thread got crowded by Apologists (Sceptic-PK) and Goldbugs (Michael Suede) some while back. The only people who annoy me more then Apologists for the current system are the Austrian types. An economics cult if I ever saw one.

The Austrians know that the current system is insane, they just want to replace it by another one that is destined to fail for different reasons. Gold is money after all! Even if you can not use it to buy bread at the local store. Why, because they defined it to be so!

btw, here is my take on what money is: Money is a token (defined in the anthropological sense of an object or process that abstractly represents something else) used for the exchange of goods and services as sanctioned by law or custom. If you really think about it, that is how money really works.

All the best to you all!

 

[psionl0]

It looks like the subject of interest on individual debts is gaining a life of its own. So I will see if we can put the issue to bed before it derails this interesting discussion.

Interest is pretty much like any rental situation (after all, you are effectively renting money). It is the cost of having a debt. Decrease your debt and your interest bill goes down. Increase it and your interest bill goes up. Tamper with this simple relationship and you are likely to create unintended loopholes and other consequences.

Bankruptcy laws offer a minuscule protection for borrowers. Thanks to these laws, an debtor never has to worry about spending the rest of his life as a slave (or in a debtor's prison).

Anyhow, that is my personal opinion and I don't intend to say any more about it for now although I might come back to this topic later (you can have the final word on this matter for now if you like).

I will return to the topic of interest at a national level tomorrow.

 

[tensordyne]

Let it begin.

I will return to the topic of interest at a national level tomorrow.

Sounds good to me. Sceptic-PK, I am waiting for you! It is good sport to demolish naive notions. Sharpens the mind and all that.

 

[tensordyne]

Interesting interest.

It looks like the subject of interest on individual debts is gaining a life of its own. So I will see if we can put the issue to bed before it derails this interesting discussion.

Hmmm, derails it from what exactly I wonder. The issue of interest and how it works in banking, I would argue, is very relevant when it comes to "How the banks create money" because every time a bank makes money, it also makes interest payments necessary.

Interest is pretty much like any rental situation (after all, you are effectively renting money). It is the cost of having a debt. Decrease your debt and your interest bill goes down. Increase it and your interest bill goes up. Tamper with this simple relationship and you are likely to create unintended loopholes and other consequences.

The current banking system we have has tampered with the rental relationship. Banks create money from nothing. The more money they create, the more interest they charge for the excercise of this privilege. I have no problem with any company or person charging interest for something they can loose, but this is not the kind of relationship banks have to use now.

I mean, look at how banks handle defaults on home loans. They sell the house as soon as they can, even if it is below market value. The reason is they want to clear the loan and they have a legal obligation to zero out the loan prinicpal first. Once they sell the house, this can be done. They do not care about any value that might be in a given house, they care about making money on loan notes.

Think about it, if you could create money from nothing (with matching debt and then some) would you care about recovering any value from a house? If I lent you $250,000 to buy a house (with some interest perhaps) and you did not pay it back in a timely fashion, I am going to go after getting the house
legally speaking, sell it for the best price I can and leave it at that.

If, on the other hand, I could do what banks do, which is to create the amount of the loan from nothing and ballance it out with a loan note, then when you do not pay back the loan, I would rather just get rid of the note and move on to someone else I could loan to in this way that will be a good payer.

Bankruptcy laws offer a minuscule protection for borrowers. Thanks to these laws, an debtor never has to worry about spending the rest of his life as a slave (or in a debtor's prison).

Yeah, I am sure I would have been in some debtors prison by now.

Anyhow, that is my personal opinion and I don't intend to say any more about it for now although I might come back to this topic later (you can have the final word on this matter for now if you like).

I will return to the topic of interest at a national level tomorrow.

Sounds good.

All the best to you all!

 

[psionl0]

I will return to the topic of interest at a national level the day after tomorrow.

Hmmm, derails it from what exactly I wonder. The issue of interest and how it works in banking, I would argue, is very relevant when it comes to "How the banks create money" because every time a bank makes money, it also makes interest payments necessary.

True, but you are combining a number of issues here.

At a personal level, it makes no difference whether the banks create the money they lend or if they lend their own money. You still get stuck with a debt. It should also be remembered that banks don't get a free lunch when they create money, they get a liability. And if the borrower defaults, the liability remains and the bank has to cover it from its undistributed profits.

There are a number of unreasonable banking practices that I don't like regarding loans. In particular, I hate how they add a never ending series of charges to your loan in an attempt to disguise the true interest rate you have to pay. The most pernicious of these is the "exit fee" - a penalty for paying your loan off early. CRIMINAL!

Now back to the bigger picture.

I think maybe just having the government spend into existence the interest earnings of banks and then through taxes take out of circulation the same interest the system we have now would ballance out quite a bit more then it is now.

I don't see how these measures will deal with the underlying problem as long as we have FRB. Whatever money the government creates the banks create many times that. Ditto for when the government reduces base money. At the end of the day, almost all new money is created as debt which will only accelerate the "bleeding" rate. You can't solve your debt problem by borrowing more money.

Of course this particular conversation should be in the "Monetary Reform" thread started a while back but that thread got crowded by Apologists (Sceptic-PK) and Goldbugs (Michael Suede) some while back. The only people who annoy me more then Apologists for the current system are the Austrian types. An economics cult if I ever saw one.

I know it can be frustrating when no-one sees the elephant in the room. (Makes you wish you could gore some of them with the elephant's tusks! ) However, it is more useful to identify problems with a particular point of view than to judge the viewpoint holder.

One problem with interest is that even under a full reserve system, the banks can still bleed money away from the community and replace it with debt. (You pay the bank some gold coins to pay your interest bill and the bank lends those coins out again. After all, it is now the bank's money). I don't know what would happen once the bank owned the last gold coin in the community but I bet it isn't a pretty picture.

Clearly, under a fixed supply commodity based system, the way banking works would have to be radically restructured so that money can not be bled away from the community. Maybe some sort of money-market scheme where people who put their money in share in the profits.

Perhaps Tippit would like to explain how it would work.

Of course, for greenbackers, the problem is much easier to deal with. Under a full reserve system, the government can create debt-free money to replace that which was lost through interest payments and the banks can't make debt based money out of it.

Of course, the banks would still be re-lending the net interest they collect (since it is their own money) so the money supply would expand (ie inflation). However, debt as a proportion of the money supply would not increase.

So it seems that inflation is a necessary consequence of allowing interest to be charged on bank loans but only under a full reserve system can we avoid the breakdown that would otherwise occur as debt grows to unmanageable levels.

In an open economy there are more sources and sinks of money and the relationship between them is hard to determine. So the analysis is probably a lot more complicated than I have made it out to be so far.

However, I suspect that the conclusion would still be the same.

 

[stevea]

I'm not going to respond to this post line by line because it is mostly arguing semantics. You might say "loan", I might say "money" and we might even compromise and both say "liability" (or not - the choice is yours). The name we give it has nothing to do with whether we can make purchases or not.

We can't discuss any matter till we define terms - settle the semantics. The title of YOUR thread is "How banks create money". This clearly is an inflammatory title that implies something untrue, and incites all sorts of incorrect thinking. Banks only "create" M1 and M2, which is to say liabilities or loans. If your title was "How banks create loans or liabilities" then this thread could have died gracefully with a yawn on page 1.

Your "fish" argument is puzzling. We both agree that when you write "IOU X fish" that we are only creating an IOU (what I call "money"). Yet you then turn around and argue as if I believe we are actually creating fish. I can't debate "double-think".

No we don't both agree until and unless you say WHICH SORT OF MONEY is created. My $20 IOU creates some m1-like 'money'. My fish IOU in some cultures might create some 'm1-like' money. What was clearly created was an obligation or promise of some good or else M0 money.

It's your the conflation and vague use of the term 'money' that is central to this threads long life. You reference M0, M1, M2, and fish-IOUs as "money". You need to be more precise in the term you use.

I talk of the government creating money and you immediately change the statement to "managing loans". If you don't want to be accused of making strawman arguments then you should read more carefully.

There is no strawman - it's just YOU conflating M0 and M1 & M2 again. Once again you use imprecision and vagueness to keep a point alive. What you actually said was this .....

I just believe that the government should have the sole power to create money and banks shouldn't.

But you fail to be precise - you don't indicate which sort of money you want the government to control. We all agree, I hope, that only the Central Bank (typically part of the government) creates M0. Therefore your statement can only be interpreted as suggesting that the government should also control creation of M1 and M2, which are loans, liabilities, obligations. Banks (aside from the Central Bank) only create M1 & M2 as they originate loans, obligations. Again this goes to the point of the thread title being a vague and misleading.

A bank that can't create M1 or M2 'money' necessarily can't originate loans and isn't a bank in the modern sense - it's just a vault, a repository.

So what could you have possibly meant other than suggesting the government control creation of M1 & M2 and therefore loans ?

Puzzling ! It's almost unthinkable that you don't recognize the 1-1 relationship between loans and similar obligations to M1 & M2 creation.

 

[psionl0]

We can't discuss any matter till we define terms - settle the semantics.

Then just use the definitions used in MMM where M0, M1, etc are defined as "money".

MMM is an official publication by the Federal Reserve Bank of Chicago and as such, carries some weight in this matter. If you disagree with the meaning of a term used in MMM then I am going to side with MMM - every time!

You can argue that the title of the thread should be, "How banks create loans or liabilities" but that is just an attempt at obfuscation. You appear to know exactly what is going on but just want to muddy the waters.

And yes, I believe that the banks should not have the power to create M1 money and if you can't deal with that without changing it into some nonsense about governments managing individual loans or something then that is your problem.

 

[Tippit]

Hmmm, not sure about Zimbabwe and US comparison. I find it understandable trying to do your own analysis first but I think for at least one of the authors I listed named Henry George his insights would be amazingly hard to reproduce on your own. He analyzed how land and rents on land lead to prosperity for the few and poverty for the rest of the unwashed masses. The problem is how do you know in your own analysis if you are not missing an interesting question you have not considered to date?

Doing your own independent, honest analysis of the monetary and banking system is the only way to understand the scope and the true nature of a system shrouded in deceit, ignorance, and obfuscation.

I have not yet completely figured out what the fed monetizing debt (QE32 coming to a store near you) does but I think I definitely disagree with the idea of government spending the interest into the economy would increase bank reserves (I think I forgot to add that the government would also through taxes take that money out of circulation).

I don't get how you can bash Max Kaiser, Austrians, and "goldbugs" while simultaneously confessing ignorance of the specifics of quantitative easing. QE is simple - it is the direct subsidy of whatever asset the central bank is purchasing, government bonds, in most cases. This is funded by monetary inflation, which like all forms of counterfeiting, legal or not, constitutes a regressive expropriation of real wealth.

When you understand that this is true, and weigh it in the context of human nature as it applies to bankers and politicians, you might be a little more open-minded towards goldbugs.

Fantastic. Of course this particular conversation should be in the "Monetary Reform" thread started a while back but that thread got crowded by Apologists (Sceptic-PK) and Goldbugs (Michael Suede) some while back. The only people who annoy me more then Apologists for the current system are the Austrian types. An economics cult if I ever saw one.

The Austrians know that the current system is insane, they just want to replace it by another one that is destined to fail for different reasons. Gold is money after all! Even if you can not use it to buy bread at the local store. Why, because they defined it to be so!

If you think the Austrians are worse than apologists for the status quo, then you have an odd sense of justice. Money is primarily defined by force or the threat of force. Though you may not be able to buy bread with it, gold has other monetary properties that fiat currency does not. If that isnt obvious at this exact moment in history to you, it may never be.

 

[Aber]

In particular, I hate how they add a never ending series of charges to your loan in an attempt to disguise the true interest rate you have to pay. The most pernicious of these is the "exit fee" - a penalty for paying your loan off early. CRIMINAL!

Why?

The biggest problem for banks is matching liquidity. Early repayment of a loan therefore causes a problem for the bank, and they charge a fee to discourage it.

 

[psionl0]

Why?

The biggest problem for banks is matching liquidity. Early repayment of a loan therefore causes a problem for the bank, and they charge a fee to discourage it.

Banks crying poor? POPPYCOCK!

At worst, a bank will miss out on an interest payment or two while it processes a new loan application. Since it doesn't take months to process a new loan application, even this is doubtful.

The main reason that banks charge "exit fees" (apart from profit gouging) is to eliminate the threat of competition. A borrower would not be able to take advantage of a bank competitor's lower interest rate because it would be too expensive to get out of his existing loan.

 

[tensordyne]

So much, so little time!

Doing your own independent, honest analysis of the monetary and banking system is the only way to understand the scope and the true nature of a system shrouded in deceit, ignorance, and obfuscation.

Agreed. In fact, debating Sceptic-PK allowed me to see from one of the graphs in MMM exactly how FRB works. It is very simple, banks 'loan' out (create money in a deposit liability and equal in value loan contract as an asset, while contractually asking for more money back, thus creating in the end, assuming a loan is paid off, a small debt black hole) some percentage of the money that is left when you subtract already existing loans and investments from deposits.

Actually, Steve Keen says banks have for a while now not even cared about fractional reserves. They just cook the books to always be able to loan so long as there is a sucker willing to take the loan. Why not, it makes them lots of money, no?

I don't get how you can bash Max Kaiser, Austrians, and "goldbugs" while simultaneously confessing ignorance of the specifics of quantitative easing. QE is simple - it is the direct subsidy of whatever asset the central bank is purchasing, government bonds, in most cases. This is funded by monetary inflation, which like all forms of counterfeiting, legal or not, constitutes a regressive expropriation of real wealth.

Read Stephen Zarlenga and then you will be able to understand why I hold such a dim view of Austrian Cultists/Libertarians. I am afraid, that particular knowledge did not tell me what quantitative easing was about though. I hope that solves your conundrum.

Thanks for the info though about QE. Plus, I did not totally lambast Max Keiser, I think he has people on his show that do not necessarily agree with his own analysis (thus showing intellectual honesty, something I prize very highly in any commentator), plus he knows where the skeletons are hidden in the investment world, which is a definite plus. I watch his show daily. I like the guy as a person. His outbursts are great. Hope that clears up that issue.

In general, when I hear complaints from 'goldbugs' about the current system, I find the arguments are often well informed and informative. The goldbug offered solution though, like many other 'solutions', is bast-sh** crazy, return to using actual gold (or silver) to trade in?!? Are you guys trying to crash our economy on purpose, or is it sort of an after-thought kind of thing? Make us slaves of gold producing economies like South Africa, or wherever it is gold is made. Yeah, that is a great idea, really! { bitcoin is interesting though }.

Plus, it just won't work. Out of Trade and Services, Services is more important (or if you want, human labor). The fact that banks act like minders for how much a person owes back to society (in the act of zeroing out the loan principal) is A-OK by me. Things are finite in number, work is potentially infinite, you have to have a money/banking system that reflects this or it will fail. Period.

It is the interest; it is the unmatched debt; It is the outrageous and exorbitant service fees banks charge; It is the fact that the economy in terms of money is not a zero-sum game; those are the the real problems. Solution: keep what is good about our economy, change the rest, and make sure everything in the end is a zero-sum game (that sounds like a pretty conservative position maybe?). All Created Money = All Created Debt. If you want to know how to do this, look at the Pennsylvania Banking model (which you can read about in Ellen Brown's book 'Web of Debt').

I am not a goldbug, not a monetarist (apologist for the current system), I do not think having some fixed or government controlled currency supply that is debt free is the solution either (Greenbacker). Local currencies help to ameliorate some of the nastiness of the current system, but they do not change anything in a fundamental way because they are often too small in scope.

I do not follow any crazy schemes for moving to some utopian system either. I just think that economic systems are man made, and therefore can be what we want them to be to a large extent, so let's make our next economic system, as best as this is possible, rewarding to those who deserve it, zero-sum in terms of money creation and with no free lunches!

I am an ultra-capitalist and ultra-laborist because they are the same thing. Should we have corporations? No. Should corps be classed even remotely the same as persons? No. Henry George and Dr. Michael Hudson (maybe Steve Keen) are some of the few economists I have read that made any kind of scientific sense at all (Zarlenga is pretty keen too). The rest is mostly just rampant Pseudo-scientific nonsense of the worst kind. That includes the Austrian Cult as well. Oh yeah, and I hate software and business practice patents (yuck!).

When you understand that this is true, and weigh it in the context of human nature as it applies to bankers and politicians, you might be a little more open-minded towards goldbugs.

Now that you know what I think, more or less, I am curious though, since often I am open to the criticisms of goldbugs (assuming you are one) of the current system, is there any way you could go into more detail about quantitative easing? I readily admit, I am coming at this fresh as it were (I like to understand things in terms of basic mechanics, Sally paid the bank Y, the bank then... kind of thing).

So aside for now what implications it might have vis-a-vis politicians and banksters, what do you mean by subsidy? Who owns what and for how much is my main question on this. Maybe just flesh this out for the rest of the class as it were...

If you think the Austrians are worse than apologists for the status quo, then you have an odd sense of justice. Money is primarily defined by force or the threat of force. Though you may not be able to buy bread with it, gold has other monetary properties that fiat currency does not. If that isnt obvious at this exact moment in history to you, it may never be.

Oh, it is more than obvious. Gold and silver are going through the roof right now. The more money the Fed pushes out, the higher commodities in general go. You would have to be retarded not to notice. Does that mean gold or silver should be money (in my definition of money, the really only sensible definition of what money is that I have seen)? NO! Does it mean you should buy gold to get out of the debt-inducing fiat currencies now in existence? YES! Confused?

If you are confused it is because you are stuck in the false dichotomy of we can only have what we have now, or ... wait for it ... 100% Gold Standard money. NO! There are tons of other possibilities to consider and almost all of the more well-known ones are preferable to the two options listed above. They are still wrong, but markedly better all the same.

Unfortunately, doing justice to the observations and conclusions I have seen and made thus far in matters economic would take a long time. If I was to classify myself, I would say I am a well-regulated market, Henry George cooperativist ultracapital / ultralabor / share all rents (labor, capital and rents in definitions agreeing with Henry George, the first Economist to truly define these terms) advocate, with some libertarian urges where appropriate, who enjoys the math of 0 = 0 money. Everyone else is crazy. Sorry, unless you are in my camp, you are crazy. You can gain sanity though if you slough off all the nonsense ideas you might have picked up, but the chances of that are probably pretty slim, religions holding such sway over the minds of people and all.

My sense of justice was brought up so let me address that now. The matter at hand to judge, as fairly as I can, is whether apologists for the current system are more or less in a Cult then the Austrian Schoolers. So far as I have been able to tell, the more cult-like behavior is from the Austrian crowd. It is too bad too, because many of them see quite clearly the problems as they now stand, but together they take the words of Murray Rothbard like they came from Mount Olympus, the burning bush and are also inscribed in human DNA, all at once. How pathetic. Think for yourself.

All the best to you all!

 

[tensordyne]

liquid money

Why?

The biggest problem for banks is matching liquidity. Early repayment of a loan therefore causes a problem for the bank, and they charge a fee to discourage it.

That is about the most nonsensical entry I have seen on JREF. Matching liquidity? Matching to what supposedly? If a loan is paid off early the banks get money earlier and are therefore more liquid for it.

No, the real things banks do not like about people paying off loans early is because it reduces profits, pure and simple.

All the best to you all.

 

[Tippit]

Read Stephen Zarlenga and then you will be able to understand why I hold such a dim view of Austrian Cultists/Libertarians. I am afraid, that particular knowledge did not tell me what quantitative easing was about though. I hope that solves your conundrum.

Why should I read Zarlenga? What's the essence of his argument against Austrian economics? "Cultist" is an ad hominem. I just gave you a brief and accurate synopsis of what QE is, and you don't understand it (or you disagree). If you don't understand QE, then you aren't qualified to be a critic of sound money because QE is the essence of the problem.

In general, when I hear complaints from 'goldbugs' about the current system, I find the arguments are often well informed and informative. The goldbug offered solution though, like many other 'solutions', is bast-sh** crazy, return to using actual gold (or silver) to trade in?!? Are you guys trying to crash our economy on purpose, or is it sort of an after-thought kind of thing? Make us slaves of gold producing economies like South Africa, or wherever it is gold is made. Yeah, that is a great idea, really! { bitcoin is interesting though }.

"******* crazy" is an ad hominem, it's not an argument. There are ways to return to sound money without "crashing the economy". The economy is "crashing" from decades of the use of a fiat world reserve currency, whether you like fiat currency or not. I reject the premise that we would be slaves of gold producing countries. The above ground supply of gold dwarfs what is produced in any given year.

Plus, it just won't work. Out of Trade and Services, Services is more important (or if you want, human labor). The fact that banks act like minders for how much a person owes back to society (in the act of zeroing out the loan principal) is A-OK by me. Things are finite in number, work is potentially infinite, you have to have a money/banking system that reflects this or it will fail. Period.

The "there just isn't enough gold" argument is fallacious. I've heard it many times, yet never has it made any sense. First of all, I'm not advocating for a gold standard, I'm advocating strictly for freedom in money, with the knowledge that history has dictated that this will result in gold and silver being used as money. Second, the argument stems from a fundamental misunderstanding of deflation as being some cataclysmic economic event. It is not. It's the central bank's artificial creation and destruction of money and credit, coupled with FRB, that result in recessions and depressions. Sound money makes the central bank and men like Ben Bernanke irrelevant, as they should be. As more goods and services are produced, sound money is merely revalued up. Nominal price "stability" isn't the goal, it's the stability of final demand that makes for a stable economy. The only potential wrench in this process is the "sticky" nature of wages, but as long as wages are allowed to fall in tandem with other prices there is no problem. The argument that deflation will disincentivize investment is similarly bunk. Businessmen will seek business returns, which will always far exceed those of merely saving. Deflation is a good thing, you've just been brainwashed to think otherwise by the people who profit from inflation.

It is the interest; it is the unmatched debt; It is the outrageous and exorbitant service fees banks charge; It is the fact that the economy in terms of money is not a zero-sum game; those are the the real problems. Solution: keep what is good about our economy, change the rest, and make sure everything in the end is a zero-sum game (that sounds like a pretty conservative position maybe?). All Created Money = All Created Debt. If you want to know how to do this, look at the Pennsylvania Banking model (which you can read about in Ellen Brown's book 'Web of Debt').

This completely overlooks the highly regressive nature of the inflation tax, and the arbitrary and corrupting influence of the central bank, and who it chooses to loan its trillions too. The interest rates in this case are as irrelevant as they are low - it's free money for insiders. Until you understand exactly what QE and ZIRP are, then you aren't qualified to call anyone "******* crazy".

I am an ultra-capitalist and ultra-laborist because they are the same thing. Should we have corporations? No. Should corps be classed even remotely the same as persons? No. Henry George and Dr. Michael Hudson (maybe Steve Keen) are some of the few economists I have read that made any kind of scientific sense at all (Zarlenga is pretty keen too). The rest is mostly just rampant Pseudo-scientific nonsense of the worst kind. That includes the Austrian Cult as well. Oh yeah, and I hate software and business practice patents (yuck!).

I agree with much of that. Capitalism was never supposed to be about the oligarchical rule of banks and corporations.

Now that you know what I think, more or less, I am curious though, since often I am open to the criticisms of goldbugs (assuming you are one) of the current system, is there any way you could go into more detail about quantitative easing? I readily admit, I am coming at this fresh as it were (I like to understand things in terms of basic mechanics, Sally paid the bank Y, the bank then... kind of thing).

It's not complicated, I explained it in the first post. The Fed creating money out of thin air and monetizing bonds is a tax on the poor that goes directly to supporting rich bond-sellers/holders, the proceeds typically winding up in other financial assets like stocks. It's just that simple.

So aside for now what implications it might have vis-a-vis politicians and banksters, what do you mean by subsidy? Who owns what and for how much is my main question on this. Maybe just flesh this out for the rest of the class as it were...

By maintaining a perpetual bid on government debt with endless fiat money, the central bank serves to keep debt prices artificially high, and interest rates artificially low, which is another way of saying it's stealing from the poor wage-earner and giving to the rich bond holder - a subsidy of bond holders.

Oh, it is more than obvious. Gold and silver are going through the roof right now. The more money the Fed pushes out, the higher commodities in general go. You would have to be retarded not to notice. Does that mean gold or silver should be money (in my definition of money, the really only sensible definition of what money is that I have seen)? NO! Does it mean you should buy gold to get out of the debt-inducing fiat currencies now in existence? YES! Confused?

If you are confused it is because you are stuck in the false dichotomy of we can only have what we have now, or ... wait for it ... 100% Gold Standard money. NO! There are tons of other possibilities to consider and almost all of the more well-known ones are preferable to the two options listed above. They are still wrong, but markedly better all the same.

There are a lot of reforms that aren't based on sound money that would result in a far more equitable and fair monetary system - for a while. But they don't avoid the fundamental problem of institutional counterfeiting, the profits of seigniorage and how they relate to human nature.

Everyone else is crazy. Sorry, unless you are in my camp, you are crazy. You can gain sanity though if you slough off all the nonsense ideas you might have picked up, but the chances of that are probably pretty slim, religions holding such sway over the minds of people and all.

If you think everyone who disagrees with you is crazy, then you're probably unreasonable. I haven't seen as much crazy on these forums as I have stupid and ignorant. I would put you firmly in the ignorant category, as you put me in the "crazy" category.

 

[psionl0]

I am not a goldbug, not a monetarist (apologist for the current system), I do not think having some fixed or government controlled currency supply that is debt free is the solution either (Greenbacker). Local currencies help to ameliorate some of the nastiness of the current system, but they do not change anything in a fundamental way because they are often too small in scope.

You appear to be implying that you believe there is no solution to the P/P+i dilemma. I suspect that this is because you are combining a number of social/moral issues with the purely economic one. I would rather deal with fixing the flaws in the current system from an economic viewpoint and deal with the moral issues separately.

I am rather surprised that you reject the "greenbacker" approach. Money can be based on one of three things: debt (FRB), fiat (created by the government and based on nothing) or based on a highly desired commodity like gold. I am taking it as a given that you still believe that FRB should be abolished. (Economies will always go through boom/bust cycles depending on when debt becomes unsustainable under FRB). That leaves either fiat or hard gold standard as the two possible alternatives.

It seems to me that there are only two ways to deal with banks siphoning off the money supply:
1) Use inflation to counteract the rising value of debt.
2) Do away with interest altogether.

The first option is doable. Sure, it is the "inflation tax" but that is a moral consideration. (It must be better than waiting for an economic collapse to steal everything you have).

I don't see how we can implement the second option (without a black money market emerging). We could possibly have some system of self-issued credit (IOUs) eg digital coin. However, I don't see how that would work when it comes to the big ticket items like a house.

I worked hard to pay off my house in a timely manner. I now own it outright. If I sell it, I expect to receive full market value for it as a lump sum. I don't want to depend on the purchaser making a steady stream of payments for the next 30 years or so. (OK that is a moral issue ).

 

[Tippit]

You appear to be implying that you believe there is no solution to the P/P+i dilemma. I suspect that this is because you are combining a number of social/moral issues with the purely economic one. I would rather deal with fixing the flaws in the current system from an economic viewpoint and deal with the moral issues separately.

The economic unsustainability of modern banking is directly related to the fact that it is immoral. I'm not sure why they need to be separated.

I am rather surprised that you reject the "greenbacker" approach. Money can be based on one of three things: debt (FRB), fiat (created by the government and based on nothing) or based on a highly desired commodity like gold. I am taking it as a given that you still believe that FRB should be abolished. (Economies will always go through boom/bust cycles depending on when debt becomes unsustainable under FRB). That leaves either fiat or hard gold standard as the two possible alternatives.

In my view, there are essentially three types of money. Fiat money represents no promise to pay anything, fiduciary money represents a promise to redeem something of intrinsic value, and commodity money is intrinsic value. The Federal Reserve note is not, strictly speaking, based on debt. The Federal Reserve could, if it wanted to, monetize anything it wanted, from houses, to comic books, to baseball cards, to pizza. It is not based on debt as it is not redeemable for debt, the best you can do is redeem it for other FRNs. Obviously this has nothing to do with whether or not you can purchase or satisfy debts with FRNs, you can. The value of the FRN is ultimately based on the supply of and the demand for FRNs, which is remotely related to debt only in the sense of how it may affect the future supply of FRNs.

Debt doesn't make FRB unstable, FRB is inherently unstable as it is designed, both because easy credit leads to malinvestment, and because of the inevitability of bank runs as malinvestment is liquidated. Fiat money lends itself to FRB because it enables the central bank to socialize these risks indefinitely, while enabling the banks to privatize the gains.

It seems to me that there are only two ways to deal with banks siphoning off the money supply:
1) Use inflation to counteract the rising value of debt.
2) Do away with interest altogether.

This is a false-dilemma. If FRB were abolished, banks would have to lend their own paid-in capital and term deposits exclusively, so their profits would immediately be checked, and all forms of lending would be on an equal playing field. Credit availability would be reduced, and interest rates would be higher. This would serve to curb malinvestment, and insure that only creditworthy borrowers and good investments were funded by lending. The rising value of public debt and its impact is largely a political issue, as public debt issuance is done by politicians, not banks. Interest is not problematic in and of itself.

The first option is doable. Sure, it is the "inflation tax" but that is a moral consideration. (It must be better than waiting for an economic collapse to steal everything you have).

The pending economic collapse of the US is the result of plutocratic fiscal policy (runaway debt and government spending) financed mostly by the inflation tax, with demographics and the gutting of the US manufacturing base all playing roles. Not only has inflation stolen from us on the way "up", but deflation or hyperinflation will steal on the way down as well. You haven't proven how economic collapse is inevitable given sound money and 100% reserve banking.

I don't see how we can implement the second option (without a black money market emerging). We could possibly have some system of self-issued credit (IOUs) eg digital coin. However, I don't see how that would work when it comes to the big ticket items like a house.

We don't have to. Interest is paid for a number of legitimate reasons. Once again, the problem is interest charged on capital that isn't yours, or more specifically, the large disparity between what lenders charge and what depositors are paid, as well as the tendency towards malinvestment, and socialized bank risk.

I worked hard to pay off my house in a timely manner. I now own it outright. If I sell it, I expect to receive full market value for it as a lump sum. I don't want to depend on the purchaser making a steady stream of payments for the next 30 years or so. (OK that is a moral issue ).

There is no reason why you should have to expect otherwise. You could also obtain a reverse mortgage which allows you to do precisely what you wanted to avoid, and still have the utility of actually living in your house. I'm not sure what this has to do with the above though, which I believe is a false dilemma based on a misconception.

 

[stevea]

You can argue that the title of the thread should be, "How banks create loans or liabilities" but that is just an attempt at obfuscation. You appear to know exactly what is going on but just want to muddy the waters.

No - you are the obfuscator when you use the generic term instead of the specific term. You are avoiding the discussion of what exact type of money is created and this impinges on it's meaning. STOP THE VAGUENESS !. You seem to pointedly avoid precision.
.

And yes, I believe that the banks should not have the power to create M1 money and if you can't deal with that without changing it into some nonsense about governments managing individual loans or something then that is your problem.

We apparently just hit the core of your misunderstandings. You don't understand that LOANS and M1 creation are two sides of the same coin !

The bank creates M1 precisely when it originates a loan. You CAN'T control M1 creation without controlling LOAN ORIGINATION. A bank without the power to create M1 also lacks the power to originate loans.

I did NOT switch topics or introduce nonsense as you claim. I am directly addressing your point. If you want the government to control M1 creation this means they control loan origination.

I've explained this now three times - either address it or admit you are in some sort of contest for the longest and most pointless thread on the forum.

BTW - that have a name for nations where banks can't create M1 & M2, it's called "third world". Clearly indicated by high levels of poverty and low per capita GDP.

 

[tensordyne]

Dilemmas and Catastrophes

You appear to be implying that you believe there is no solution to the P/P+i dilemma. I suspect that this is because you are combining a number of social/moral issues with the purely economic one. I would rather deal with fixing the flaws in the current system from an economic viewpoint and deal with the moral issues separately.

You are a person after my own heart. I agree definitely that it is important to separate moral and economic matters as much as it is feasible to do so. In essence, there is no solution to the P/P+i dilemma, if that is what it is. What is meant by that though? Let me see if I can flesh it out some.

Let's say you want an economic system that does not crash. This problem is akin to designing a car that works well. Since every loan creates more debt then money to cover that debt (assuming that that is not open to debate for the moment), then there will need to be ever more loans, ever more people taking on loans, ever increasing percentages of debt to money in existence, and thus, inevitably, crashes. The crash can be accelerated, it can be slowed down, but it will always happen eventually.

Now, one could do some spin on the debt issue. One could say that by having always more debt then money this drives the economy. Fortunately there is no need to have debt to drive any economy. Economies can expand in a zero-sum money system just as well, if not better, is my guess. The drawback of our system now is that the debt to money ratio grows exponentially. In nature, any exponential curve is bound to either plateau out or simply crash. There are not any other options.

I agree with the idea of fixing the flaws in the current system over taking some more radical approach for a number of reasons. The first reason is people are more apt to take one or two large fixes to any existing system then replacing wholesale everything. The other reason is there are parts of the current system I agree with. It is a good thing that under the current system credit can expand and contract. That is good market based mechanics.

The most egregious aspects of the way things are done now could be fixed by a few judicious changes. The most important change is that the money supply should be zero-sum. Now, I do not have any problem with a pool of non-debt based money in the mix (as per Greenback ideas). History shows that when governments order X dollars of non-debt backed money into the system, that is what happens in general (contra the dundering beliefs of Neoclassical and Austrian types, read Zarlenga's book "The Lost Science of Money" for details), but in general if one were to set up a system where "All Debt" = "All Money Created", there would be balance.

Some people complain, "if there is no debt then there is no money, and this is immoral." But who is the debt owed to? Society as a whole is who. We all owe each other in a million little ways for the things we do for each other. If there were no debt there would be no society, and I like people doing things for each other in a general sort of sense called society. I have no problem with the fact that we all owe a debt to each other, because we do!

The Achilles heel of the Greenback position is that some central authority would have to determine how much money to spend into existence. I do not trust that for too long. I think I have lost my way in another thicket of thoughts.

Morals, hmmm, yeah, that is a hard one. Morally speaking banks really do not do much work compared to everyone else. They are glorified accountants. They should make some money for their labors, but at any junction of deciding between bankers making more profits and average everyday people having less of a burden, I say the moral choice is to go with the people pretty much every time. Banking and money is not the fuel of any economic engine, it is the lubricant. Let them earn in general what a mechanic makes. Anything more would be immoral. They have been pretty bad mechanics to date as well.

I am rather surprised that you reject the "greenbacker" approach. Money can be based on one of three things: debt (FRB), fiat (created by the government and based on nothing) or based on a highly desired commodity like gold. I am taking it as a given that you still believe that FRB should be abolished. (Economies will always go through boom/bust cycles depending on when debt becomes unsustainable under FRB). That leaves either fiat or hard gold standard as the two possible alternatives.

Yeah, the Greenbacker position seemed pretty nice when I first saw it. First off though, I want to dispel one myth about money, ALL MONEY IS FIAT (or in some civilizations CUSTOM based, which is pretty near the same thing). I do not care if it is Gold, Debt based, Non-debt based, copper axes or something even more exotic. Money gets its existence because of laws or customs, period. How could it not?

Gold people say gold is money because of various properties and yet you can not buy a gallon of milk with it. If you could buy a gallon of milk with it, it is probably going to have some stamp on it saying what value it is. Even if that value is just how much it weighs as certified by a trusted source, and no law exists to say it is money, the law of custom would be what makes people take it, and in that sense the gold 'money' would still be fiat money.

Money gets its very existence because of the use in society. My favorite idiotic canard from the goldbugs is Gold has intrinsic value. Hello morons, values are human aesthetic based and things that are intrinsic are aesthetic free, such as the mass of an electron in some given units. The Ferrengi and everyone else would say the mass of an electron is X in some given units, Ferrengi though might not value gold very much because it just holds Latinum, which is what they really value. Yay, A Star Trek reference!

FRB in its current form should be abolished, or more precisely, amended. Have the government spend into existence whatever interest banks create, either through projects or as a dividend, and then delete the same amount back again through taxing rents but not wages or interests (I am using the terms rents, wages, interests as well as the terms that give rise to these profits which in turn are: land, labor and capital in the Henry George sense of the six words just given). Make it illegal to tax wages and interests (interests here are not the type that bankers have, the word has subtly changed its meaning over the years). The government should only effect taxes on monopolies and land rents (which is a form of monopoly profit). (of course your own labor is a form of monopoly, but leave that one alone!) Tax artificial monopolies and rents!

It seems to me that there are only two ways to deal with banks siphoning off the money supply:
1) Use inflation to counteract the rising value of debt.
2) Do away with interest altogether.

The first option is doable. Sure, it is the "inflation tax" but that is a moral consideration. (It must be better than waiting for an economic collapse to steal everything you have).

I don't see how we can implement the second option (without a black money market emerging). We could possibly have some system of self-issued credit (IOUs) eg digital coin. However, I don't see how that would work when it comes to the big ticket items like a house.

I agree that the second option is untenable. The first option is not necessary. Again, just spend into existence and tax out of existence the interest (taxing on monopolies and land rents. Land by the way, is any nature provided resource, in Henry George speak, so it should include things such as the land giving rise to rent checks to stay in an apartment for instance).

I worked hard to pay off my house in a timely manner. I now own it outright. If I sell it, I expect to receive full market value for it as a lump sum. I don't want to depend on the purchaser making a steady stream of payments for the next 30 years or so. (OK that is a moral issue ).

That is your prerogative. I do not hold it against you in the least. Part of the point of banking is getting something now by paying for it later. Nothing in itself wrong with that (I have met online some who would disagree). I guess I could bring up Henry George again, but I would rather you read him for yourself then get him second-hand from me. He is worth the read.

All the best to you all!

 

[tensordyne]

Ad nominem ad nauseum.

Why should I read Zarlenga? What's the essence of his argument against Austrian economics? "Cultist" is an ad hominem. I just gave you a brief and accurate synopsis of what QE is, and you don't understand it (or you disagree). If you don't understand QE, then you
aren't qualified to be a critic of sound money because QE is the essence of the problem.

You should read Zarlenga because he directly challenges many of your positions. Unless that is you do not like having your foregone conclusions challenged, but that is a rather lazy position to hold, and very intellectually dishonest. Your choice.

Cultist, yeah, it would be an ad hom if I used it as an argument instead of my own opinion/conclusion. My reasons I said are in Zarlenga's book, so it is not a fallacious argument and your calling it such IS a fallacious argument. That is unless the book is full of fallacious arguments. Good luck on that one.

As to the QE/ZIRP, wow you love trying to hold that over my head. What ungentlemanly behavior. I have had time to review both. I know what they are and have formed some initial thoughts on them. Let me use the same logic you have tried to hold against me concerning QE/ZIRP knowledge. Say the following with a musty air of arrogance and you will get the right feel for it.

"If you don't understand the works of Henry George, Stephen Zarlenga, Steve Keen and some others, then you aren't qualified to be a critic of current economic policies because the essence of the problem will not be understood by you."

Yawn.

"******* crazy" is an ad hominem, it's not an argument. There are ways to return to sound money without "crashing the economy". The economy is "crashing" from decades of the use of a fiat world reserve currency, whether you like fiat currency or not. I reject the premise that we would be slaves of gold producing countries. The above ground supply of gold dwarfs what is produced in any given year.

Well, again, ◊◊◊◊◊◊* crazy is my own take. Interesting response though about the above ground supply. Maybe so, not really certain. I am certain there are tons of other arguments against a gold standard and I am certain that Austrian types treat their own ideas with a sort of religiousness akin to
various holy sacraments.

The "there just isn't enough gold" argument is fallacious. I've heard it many times, yet never has it made any sense. First of all, I'm not advocating for a gold standard, I'm advocating strictly for freedom in money, with the knowledge that history has dictated that this will result in gold and silver being used as money. Second, the argument stems from a fundamental misunderstanding of deflation as being some cataclysmic economic event. It is not. It's the central bank's artificial creation and destruction of money and credit, coupled with FRB, that result in recessions and depressions. Sound money makes the central bank and men like Ben Bernanke irrelevant, as they should be. As more goods and services are produced, sound money is merely revalued up. Nominal price "stability" isn't the goal, it's the stability of final demand that makes for a stable economy. The only potential wrench in this process is the "sticky" nature of wages, but as long as wages are allowed to fall in tandem with other prices there is no problem. The argument that deflation will disincentivize investment is similarly bunk. Businessmen will seek business returns, which will always far exceed those of merely saving. Deflation is a good thing, you've just been brainwashed to think otherwise by the people who profit from inflation.

Sound money, Hard money. Let's not use those terms please. They are loaded to the gills with extra meaning. I must admit, I guessed you wrong. I thought you were an Austrian when really you are a Libertarian (really Anarchist) with Austrian leanings. Good to know.

Deflation versus inflation. Why not have neither? Or more realistically, a minimum of either. I can tell you have read too much of the Libertards because you are quoting them hook, line and sinker. "Sticky" wages. P-shaw.

Oh yeah, history shows that commodity based money sucks. Alexander Delmar also thought that gold money was best, that is until he took a look at the actual history! Read Zarlenga. Oh yeah, Read Zarlenga. It would be a good idea for you to read Stephen Zarlenga I think, maybe starting out with some of his free essays. I think you get the picture.

Let me stay with FRB and its supposed problems though, since that is what I know best. The biggest problem by far of the current system of FRB is there is more debt created than money created. We as a whole are awash in a sea of debt, quadrillions of dollars of it (Derivatives too are bad!).

I am not sure what exactly is meant by final demand, or even if this is not some pseudo-scientific term. My solutions I have already stated more or less.

How to end this section is now my conundrum. Let's divide some country in half with basically equal resources and so on. Then you can do your ideas and I mine and see who the people will favor. As your economy crashes due to market crashes in gold, as your people starve for lack of credit because
various players are hording the gold, just make sure you keep your part of the country open to people who want to leave.

This completely overlooks the highly regressive nature of the inflation tax, and the arbitrary and corrupting influence of the central bank, and who it chooses to loan its trillions too. The interest rates in this case are as irrelevant as they are low - it's free money for insiders. Until you understand exactly what QE and ZIRP are, then you aren't qualified to call anyone "******* crazy".

1. I want to abolish forthwith any taxes on labor wages and non-monopoly based capital interests. I want taxes only on monopolies (state created or otherwise) and land rents, which in your speak means profits due to owning some natural resource. I agree that inflation tax is highly regressive and
unconstitutional in practice, as well as being highly immoral. End The Fed! Buy Silver and Crash JP Morgan!

2. I do not want a central bank. In the system I advocate there is simply no need for one. Central banks destroy real markets. I would have governments spend into existence money, which could admittedly be made into a corrupting influence (it already is a corrupting influence, look at all the highway projects which are jobs for the boys), but then, when the gov spends the money and taxes it back into nothing, the problem of systemic corruption would be with the government spending, not the government borrowing. These are very different things.

If you want, you could put some cap on the spending and require the rest to be a dividend. No politician in their right mind would want to touch the dividend (trust me, that is how it works with the Alaska Permanent Fund Dividend).

3. I understand what Quantitative Easing is and what Zero Interest Rate Policy is. Am I now qualified in your estimation to call anyone ◊◊◊◊◊◊* crazy, or is that supposed to occur at a later date?

I agree with much of that. Capitalism was never supposed to be about the oligarchical rule of banks and corporations.

Oh good, I knew we shared some points in common.

It's not complicated, I explained it in the first post. The Fed creating money out of thin air and monetizing bonds is a tax on the poor that goes directly to supporting rich bond-sellers/holders, the proceeds typically winding up in other financial assets like stocks. It's just that simple.

By maintaining a perpetual bid on government debt with endless fiat money, the central bank serves to keep debt prices artificially high, and interest rates artificially low, which is another way of saying it's stealing from the poor wage-earner and giving to the rich bond holder - a subsidy of bond holders.

Very interesting information. I am in general inclined to agree with the above. I take my time in coming to conclusions though so I hope you won't mind if I just add one piece of information.

I agree with Max Keiser that the problem according to the banksters is seen as a liquidity problem (so they do QE), but the real problem is insolvency of the major banks (best answer within the confines of the current system is to have the bank stockholders take a haircut by getting rid of those banks, and for goodness sake, outlaw short selling and derivatives!).

There are a lot of reforms that aren't based on sound money that would result in a far more equitable and fair monetary system - for a while. But they don't avoid the fundamental problem of institutional counterfeiting, the profits of seigniorage and how they relate to human nature.

Sound money, the kind that vibrates the air and makes it hotter. Let me put it this way, you do not think they avoid those problems more from a lack of imagination and knowldge on your part then anything to do with whether for any given system they do or not.

Let me give an example to make this more clear. How could one make sure banks would only lend responsibly if they are allowed to create and destroy money (as I do advocate) in equal measure? I will just leave that as an open question and give my own ideas after you state yours, if you want to. Let's see if we can get that imagination of yours rolling.

If you think everyone who disagrees with you is crazy, then you're probably unreasonable. I haven't seen as much crazy on these forums as I have stupid and ignorant. I would put you firmly in the ignorant category, as you put me in the "crazy" category.

Unreasonable people are the ones who get their way. I am not reasonable when it comes to having reasonable policies. Oh well. Thanks for categorizing me as ignorant. I admit, I am ignorant of probably a great many things. I work on it as best as I can. Between being crazy (in the sense of mind-controlled, a dido-head, cult-like follower of some set of ideas, etc.) and ignorant, I choose ignorant. It is much more easily cured.

All the best to you all!

 

[tensordyne]

stevea and psionl0, what in the heck are you two arguing about really? Sorry, I just can not tell and want to know.