Monopoly Men

[boloboffin]

 

[JonnyFive]

If a free market chose, then why was it needed for government to:

1. Create the Federal Reserve System (snip)

What? That didn't have anything to do with what CurtC posted.

If you've got the time and inclination, could you please explain these two hanging issues:

1) Why is fractional reserve banking bad?

2) How does gold backing prevent economic deflation?

Be using with the economic details, please. I am not an economic super genius, but I have studied more than enough of it to not be lulled with platitudes and obvious falsities.

 

[JonnyFive]

Also, TruthSeeker, if you feel the need to unload your worthless fiat dollars, I can provide you with a PayPal address by PM that you can wire the (worthless fiat) money to.

 

[TruthSeeker1234]

It's funny that the authors of that site blame inflation on the government, when the government could very well radically deflate the economy. All they'd need to do would be to remove currency from circulation, or radically increase the reserve ratio for the banks. Ultimate cost of controlling inflation: Unknown. Learning the inflation isn't the only possible economic problem: Priceless.

Now, TS, that site is interesting, but you're not really answering questions from your own point of view. What say you about fractional reserve banking? Economic deflation?

You stated earlier that you believe gold backing prevents economic deflation (I'm talking abuot the deflation that is the reverse of inflation, not deflation as in the dropping value of money associated with economic inflation). Could you please explain why you believe this to be the case using specific economic reasoning?

A sustained rise in prices can only result from a reduction in the supply of goods, or an increase in the money supply. (The quantity theory of money).

Thus inflation is correctly defined as:

An increase in the money supply beyond the increase of the supply of goods and services (paraphrasing Rothbard).

I have stated my view on fractional reserve banking. It originated as a secret, fraudulent method of self-enrichment on the part of bankers. At its heart, it is fraud to print paper titles to money without real money, the same way that it is fraud to print paper titles to cars without real cars.

On a free market, if a bank wanted to honestly and openly offer fractional reserve banking to their customers, customers would be free to choose that. What happened in history, however is quite different. See my article.

http://www.strike-the-root.com/4/baker/baker2.html

A sustained drop in prices can only be explained by an increase in the supply of goods, or a decrease in the supply of money.

Free market money prevents inflation, because on the market, money is a commodity. There is just as much incentive to expand the supply of money as there is any other good, no more no less. The rate of profit tends to be equal in all industries. Whenever any industry becomes more profitable than average, capital is withdrawn from less profitable industries and invested there.

Free market money prevents deflation, because once money comes into existence, it stays in existence.

Any money supply is optimal (see Reisman, Hoppe). You can reason this out for yourself. If increasing the money supply could increase real wealth, then all any nation had to do to make itself rich, is print paper money. Give everyone a million dollars and be done with it.

 

[TruthSeeker1234]

Yes, the government could deflate the money supply if it chose to, but it is inflation which is the method of self-enrichment. That is the whole point of any monopoly, especially the money monopoly.

Read my example about counterfeiting in this article.

http://www.strike-the-root.com/4/baker/baker1.html

Suppose you had a printing press in your room . . .

 

[TruthSeeker1234]

Also, TruthSeeker, if you feel the need to unload your worthless fiat dollars, I can provide you with a PayPal address by PM that you can wire the (worthless fiat) money to.

I'll give you $40 dollars for every $20 gold piece you want to trade. You'll double your money. Let's go!

 

[chipmunk stew]

Any money supply is optimal (see Reisman, Hoppe). You can reason this out for yourself. If increasing the money supply could increase real wealth, then all any nation had to do to make itself rich, is print paper money. Give everyone a million dollars and be done with it.

Yes, the government could deflate the money supply if it chose to, but it is inflation which is the method of self-enrichment. That is the whole point of any monopoly, especially the money monopoly.

Explain why these two ideas are not contradictory.

 

[JonnyFive]

I have stated my view on fractional reserve banking. It originated as a secret, fraudulent method of self-enrichment on the part of bankers. At its heart, it is fraud to print paper titles to money without real money, the same way that it is fraud to print paper titles to cars without real cars.

Except that's not what fractional reserve banking is about. The bank loans money from its deposit reserves to others to, say, create businesses, they pay for the loan plus interest from the profits from those business, and the interest payments are split between the bank and the account holders.

As mentioned before, without this system the bank would likely charge you to hold your money, and not offer interest on your deposits.

The "evil greedy bankers" thing is largely a self-serving myth on the part of conspiracy theorists. You're free not to put your money in the banking system. I do because it provides security, easy access, and earns me a reasonable rate of return. I understand that some of "my" money is, at a given time, being lent to people for various reasons. I also understand that some of the interest will go to make the bank some money, which is how they stay in business.

Without that profit motive, why would anyone want to run a bank? Similarly, if you feel you can do better lending your money yourself, you could always start lending it. Others have done so, sometimes very profitably.

Your talk of a free market does not mesh with your apparent desire to eliminate fractional reserve banking. Do you have any proof it hurts the customer?

Again, it is not simply "printing money" as you seem to believe. Your understanding of the process is flawed.

On a free market, if a bank wanted to honestly and openly offer fractional reserve banking to their customers, customers would be free to choose that. What happened in history, however is quite different. See my article.

Uh, you are free to choose. If you want banking without fractional reserve, then buy a safety deposit box or safe and lock your money up. Everything else about banking is basically the product of fractional reserve and banking investments.

A sustained drop in prices can only be explained by an increase in the supply of goods, or a decrease in the supply of money.

It can also be explained by decreased costs involved in production, or through competition. A decrease in the supply of money will not necessarily result in reduced prices, at least not at first. Prices of goods move a bit differently than the money supply, because they tend to "stick."

Free market money prevents inflation, because on the market, money is a commodity. There is just as much incentive to expand the supply of money as there is any other good, no more no less. The rate of profit tends to be equal in all industries. Whenever any industry becomes more profitable than average, capital is withdrawn from less profitable industries and invested there.

Please cite a source for the bolded statement and clarify. Do you mean average rate of return?

The money supply doesn't quite function like "any other good" because the supply and demand factors are different. Yes, the money supply is valuable because people are willing to pay for it, but that value is underwritten by the backing of the government that issues it - their ability to control the supply so that the market isn't flooded with privately issued currency.

Of course, this is beside the point as our money supply is traded on the free market. The government regulation comes in with controlling the initial supply. I'll assume that you mean "gold backed" when you say "free market," as that's what you've been talking about up until now.

Backed currency doesn't prevent inflation because it's a commodity, it prevents it because you can't easily create more currency, as long as you play by your original rules about gold backing.

However, inflation is caused not just by having more physical money, but by having more on the market. If, for example, banks release gold-backed currency from reserves, it will cause inflation.

Free market money prevents deflation, because once money comes into existence, it stays in existence.

I will again assume you mean "gold backed" when you say "free market."

You appear to be conflating real existence with "existence" on the market. As I alluded to above, the market value of something is based on how much of it is on the market, not in physical existence. The reason that inflation reduces when the Fed increases reserve ratios is because money is being pulled out of the market and into the bank reserves, reducing the actual money supply available on the market.

There is nothing in a gold backed currency that stops a bank, individual, or government from taking the currency off the market and holding it in reserve.

Ironically, what you said before about it "coming into existence" would, if true, mean that your ideal currency would be highly inflationary in nature. You really can't have it both ways. If a currency is impossible to "create" more of through printing (as with a controlled backed currency), then it will be highly subject to deflationary pressure through reserve holding. If it is easy to create more through printing, it will be potentially subject to inflationary pressure.

Any money supply is optimal (see Reisman, Hoppe).

Only using an overly simplified, naive model. I'm quite familiar with the ways that a free market will adjust to any money supply, through value and supply adjustments, blah blah blah. Unfortunately, the market doesn't react instantaneously, and the supply is never perfectly distributed.

You can reason this out for yourself. If increasing the money supply could increase real wealth, then all any nation had to do to make itself rich, is print paper money. Give everyone a million dollars and be done with it.

I never said increasing the money supply would increase real wealth. However, due to discrepencies in terms of prices, wages, money value, etc. it is useful to have a money supply that is protected against catastrophic market failures.

But don't think that I am demonizing backed currency, or saying that either form of currency is immune to problems. Like I said, non-backed currency tends to inflate more, and backed currency tends to deflate more. Either one can do either... you need to understand that the money supply (in any meaningful sense) doesn't just refer to how much currency has been physically printed, it primarily refers to how much is actually in the economy.

 

[JonnyFive]

Yes, the government could deflate the money supply if it chose to, but it is inflation which is the method of self-enrichment. That is the whole point of any monopoly, especially the money monopoly.

Read my example about counterfeiting in this article.

http://www.strike-the-root.com/4/baker/baker1.html

Suppose you had a printing press in your room . . .

That's odd. If I wanted to get rich, I'd much prefer deflation. I would want the currency I had to be worth as much as possible, and I could hoarde it to make a fortune. Then I would buy a large amount of something that tends to resist market fluctuations (e.g. some material that tends to display consistant indexed values), wait for the economy to stabilize from my tinkering, and sell off the goods I'd acquired.

The problem with just printing more money is that the purchasing power of that money goes down. Remember Germany, TruthSeeker; remember Germany.

 

[JonnyFive]

I'll give you $40 dollars for every $20 gold piece you want to trade. You'll double your money. Let's go!

Actually, I was hoping you'd be interested in purchasing this nice bridge near where I work. It can be yours for only five hundred thousand fiat dollars.

 

[Magic 8 Ball]

Magic,

If I were you I'd look very very carefully at the information being backed by Ron Paul. I'm not going to elaborate all that much since it's a discussion much better suited to the Politics forum, but Mr. Paul has held any number of beliefs designed to cater to fringe elements.

I'll refer you to a recent Orcinus post which, while it doesn't adress this particular topic it does cover his beliefs wrt the NWO and many other far-right conspiracy theories.

http://dneiwert.blogspot.com/2007/06/ron-paul-vs-new-world-order.html

Thanks for the link. Looks like this is a smear website, so I'll take it with my usual skepticism.
P.S. I'm not endorsing Ron Paul, but he does seem more rational than the other Republican candidates. I'm a Libertarian so generally I lean towards anyone who shares those view points.

 

[TruthSeeker1234]

Explain why these two ideas are not contradictory.

Suppose you had a printing press in your bedroom and you could create counterfeit $100 bills that were so realistic that not even a bank manager could tell they were bogus. And let’s say that you cranked out a cool $1,000,000. You haven’t built a house, or grown food, or made any clothes, or anything else that people actually need. So while you have created new and additional money, you have not created any new and additional wealth. The total amount of real wealth in the world is exactly the same as before you printed the money.
Now let’s say you take the million bucks and buy yourself a nice little condo at the beach. At this point you have certainly increased your own personal wealth dramatically. Yet since there is no more wealth in total, then logically somebody, somewhere must be poorer as a result. But who? The guy you bought the condo from is O.K., he’s happy with the $1,000,000 which he can turn around and spend on something new for himself.
At first glance it might appear that no one was hurt by your counterfeiting scheme. But this is not true. Because there is now more money being spent on the same amount of goods and services, the prices of those goods and services must go up. Which is another way of saying that every dollar is worth less now than it was before. Prices don’t go up all at the same time, of course. Instead, price increases ripple through the economy in waves, affecting some people sooner than others. This is key to understanding who benefits and who is hurt by the creation of new money. The early receivers of the new money benefit, because they have a chance to spend it before prices go up. The late receivers of the new money get screwed. By the time they get their hands on the new money, it’s too late, prices have already increased.
In the real world of central banking, the chief beneficiaries of the creation of new money are:

• The federal government itself
• The commercial banks
• Government contractors

The creation of new money “out of thin air” takes many forms. One of the most common is that the Federal Reserve prints up pieces of paper called “Federal Reserve Notes” while the Treasury Department prints up pieces of paper called “Government Bonds.” The Fed then “buys” the bonds with the new money, which the government then spends on whatever strikes its fancy, usually guns and missiles and warheads and submarines and jets and satellites. But use your imagination. It could be anything. $500 toilet seat? No problem! These wonderful things use resources that could have otherwise been put to different uses, and this lowers our standard of living. You have less stuff than you would have had if the government had not created any new money. How much less? The loss to our economy is truly incalculable, but I don’t think it is unreasonable to guess that living standards would easily be double what they are now, if not for central banking.
Money creation can also take the form of bank credit expansion. Besides being an inherent fraud and theft, bank credit expansion is the best explanation for the dreaded “business cycle,” the alternating periods of boom and bust we have experienced since around 1750, when fractional reserve banking first became widespread.

 

[rwguinn]

Money is just a way of keeping score.
Whether it is pounds of gold, piles of leaves, pieces of paper with pictures of dead presidents on them, 1's and 0's on a computer, or encoded on a magnetic strip--its just how we keep score.

 

[CurtC]

Ace, it seems you're getting the ideas of a gold-backed currency, and fractional reserve banking, all scrambled together. You do realize that they're independent? You could have currency redeemable immediately in gold, and the banks would still operate on the fractional reserve system (unless you thwarted the free market by outlawing it).

 

[JonnyFive]

I was doing some reading for a history course I'm taking last night, and came across something I hadn't considered before:

Population growth.

Given a backed currency with a backing amount that is fixed (which is really the only way something like TS1234 proposes is any different than the "fiat" money he's so upset about), the fact that the population grows and work force tends to expand will exert a strong deflationary pressure on a strictly controlled backed currency.

This is similar to the wage increase/price increase inflationary cycle seen... well, seen in any economy, frankly... but more serious when more money can be created to represent additional capital.

One of the problems with the "fiat money" argument is that it appears to assume a fixed amount of capital in the world. However, due to increase efficiency, technology, and discovery of new resources and markets, the amount of capital on the market actually tends to grow. Again, with a fixed money supply, this tends to exert deflationary pressure (same amount of money, more capital represented by it, the issues I've mentioned several times with regards to price and wage stickiness).

The introduction of new unbacked money, which is ironically "backed" by the strength of the issuing country and its economy, can control this deflation by introducing more currency into the market as more real capital is developed.

If TS1234 thinks the government (or the banks, or whoever) is simply printing money to make itself rich, rather than printing money and removing it from circulation to try to balance inflation and unemployment, he is welcome to try and prove that. However, interestingly enough, none of his links have provided any solid evidence that this is happening.

His belief that printing currency enriches government contractors or banks is contradicted by his belief that fiat money loses its value. Government contractors don't get to go to a special NWO store where their money never loses value, and creating inflation would only reduce their purchasing power just like everyone else... unless efficiency, technology, wages, or prices adjust to the inflation so that purchasing power remains unchanged or, God forbid, actually increases (as it has remarkably in the last hundred years or so, despite the "evils" of inflation).

Banks have a distinct interest in increasing the amount of real capital on the market so that they can benefit from the interest payments made by those developing capital. TruthSeeker's belief that banks issue loans as a way of "printing their own money" is not particularly based in the reality of how financial institutions conduct business.

I suppose you could argue that the government prints money to pay off its debts to other countries, and therefore benefits from printing money. Unfortunately, this simply isn't the case. The US government has shown remarkable restraint in choosing not to take this fairly simple path to hyper inflation. Anyway, that takes us into the realm of fiscal policy and deficit vs. no deficit budgets, which is at least as complex as monetary policy, and takes us pretty far afield of the original topic.

Lastly, the buying of securities by the Fed is only one part of the picture. Actually, the Fed doesn't buy the securities from the government, they buy them from private holders. This has the effect of inflating the economy, because the Fed is moving money from their reserves to the market. It doesn't always, contrary to what TS said, mean they have printed more money.

The other part of the picture is that the Fed also sells securities, which has the effect of removing money from the market.

The securities are just promises to pay x amount in y years. The money comes from what the government collects as taxes, along with any kind of government investments (such as, say, lending to other countries).

However, although our currency isn't currently backed by anything in any real sense, Gravy was correct that there is some collateral behind it. Our government has to justify the creation of completely new currency (as opposed to replacing notes), through the pledging of collateral. This isn't the same as backing the currency with the collateral, and government securities can be used as collateral, but it puts the power of the US government behind the money. That isn't just paper, the US government has assets and collects taxes, and has a substantial financial presence. That is what is "backing" government securities.

Inflation can lower the standard of living, but that doesn't always mean it does. As I pointed out, inflation isn't just caused by the government, it's caused by a lot of different factors on the free market. Not only that, but inflation is only a small piece of the whole. By obsessing over the government's creation of money, TS seems to be missing the bigger picture of the current global economy.

 

[JonnyFive]

I would just like to expand on something I said to Gravy, to clarify:

Gravy mentioned that US currency is backed by government securities and gold certificates. While this isn't strictly true, it is true that currency is secured by securities and certificates.

When a currency is "backed" by something, there is a direct correlation between the amount of currency and the amount of... whatever. So if a dollar is backed by, say, an ounce of gold, that dollar is always worth one ounce of gold.

However, when currency is "secured" by something, the "something" is offered as collateral. It could be real capital owned by the government, or it could be a promise to pay some amount in the future (a security). It doesn't mean that a dollar is directly backed by x amount of whatever, but it does mean that there is some security to the currency, as the stability of the government and its resources are pledged to secure the viability of the currency. It doesn't control it the way backing does, but it does help to protect the value of the currency being issued.

What Gravy said would be correct if you switch the wording, so it was a nit-picky point. I should've been much clearer about that, and I apologize.

 

[TruthSeeker1234]

None of you has addressed the salient point:

1. The exclusive right to print money = the right to steal real wealth.

I have explained quite clearly how this works.

 

[TruthSeeker1234]

Money is just a way of keeping score.
Whether it is pounds of gold, piles of leaves, pieces of paper with pictures of dead presidents on them, 1's and 0's on a computer, or encoded on a magnetic strip--its just how we keep score.

Money is a generally accepted medium of exchange.

The monopoly power to create it is theft.

Guinn, let me manufacture those 1's and 0's, at no cost to myself, while everyone else is forbidden, and I'll end up with a huge mansion, my own private jet, and a staff of 10,000 people just to do my errands. Those resources will have come to me at the expense of others, as explained above.

Deal with it.

 

[JonnyFive]

None of you has addressed the salient point:

1. The exclusive right to print money = the right to steal real wealth.

I have explained quite clearly how this works.

Ace, I've been addressing this point since you raised it.

It isn't a right to steal real wealth, because it doesn't steal real wealth. It's a very complicated process designed to try to even out the economy against major currency fluctuations, but you're trying to simplify it down to some conspiracy BS talking points.

The government currency isn't, contrary to what you've stated, the only way to conduct market transactions. It isn't, contrary to what you've stated, printed just to enrich bankers. It isn't, contrary to what you've stated, just printed at a whim when the government wants to bail itself out of debt.

If you really think the real wealth of this country has been declining since the inception of the Federal Reserve, you're living in a fantasy world and most likely nothing I or anyone else says will change your mind.

You may have "explained how this works," but your explanations are littered with misconceptions, factual errors, and possibly with lies.

The very fact you state that inflation "steals" real wealth shows the extent of your bias. Inflation, in many ways, can erode wealth held in the form of currency (savings, bonds, loans, etc.), but it doesn't steal it from anyone because no one receives the "stolen" wealth. The bankers don't make millions when inflation skyrockets, they lose money because their reserves and loans aren't worth as much. The government loses face in the world economy, and its bonds become less valuable. That prevents them from obtaining loans to buy the various things they want. Government contractors suffer from that because they receive less business from the government, and the money they get is worth less. Do you even know any government contractors?

How about you address some of the issues I've brought up? How about you address some of the issues others have brought up in this thread? All you've done so far is link to some stuff you wrote, and that one set of articles written from a very biased and one-sided viewpoint.

 

[JimBenArm]

None of you has addressed the salient point:

1. The exclusive right to print money = the right to steal real wealth.

I have explained quite clearly how this works.

Yeah, so who has stolen this? I want names, mister, not vague accusations against shadows. Along with proof that they did steal.

Pony up, or shut up.