MORE THAN ONE WAY TO RECLAIM THE POWER TO CREATE MONEY, August 28, 2009
Sirs: This is in response to the entry posted on your American Monetary Institute blog on August 16, 2009, which references my articles on a state-owned bank solution to the credit crisis. I was disappointed to read that you thought my proposal was “an insult to humanity,” as the idea was actually drawn from the AMI’s book The Lost Science of Money. I do quite a bit of writing and speaking, and I always follow your lead in saying the ideal monetary model is that established in Benjamin Franklin’s colony of Pennsylvania, which not only spent but lent money into the economy, through its own publicly-owned bank. The Lost Science of Money calls it “Pennsylvania’s Superior Money System.” On pages 370-71, your book quotes Pennsylvania Governor William Keith, who wrote of the province’s founding of a publicly-owned bank:
“It is inconceivable to think what a prodigious good effect immediately ensued on all the affairs of that province . . . . The poor middling people who had any lands or houses to pledge, borrowed from the loan office, and paid off their usurious creditors. The few rich men who had before this [quit] the trade – except that of usury – were obliged to build ships, and launch out again into trade.”
It is submitted that our proposals aim for the same thing – reclaiming the money power for the people themselves. We would just get there by different routes. My public bank would create credit on its books, lend it, and charge interest on it. You would have a public entity create money and lend it to private banks at interest, which would then lend it to consumers and businesses at interest. The private banks in your scheme would no doubt tack their interest costs onto the interest charged to the end borrowers, since banks are in the business of making a profit, and that is the only way they could make a profit in your system. My proposal would just eliminate the profits to the private banker middlemen. Banking would become a non-profit public service, with the interest returned to the public purse.
You maintain that publicly-owned banks are “mainly a distraction from genuine reform of the system, as encapsulated in the proposed American Monetary Act.” Indeed, much in that Act is excellent; but it would leave the determination of how much credit is available in the economy to a central planning board, when the money supply needs to be flexible, expanding and contracting organically in response to the needs of trade. The American Monetary Act gives the final word on the money supply to the Secretary of the Treasury, under the guidance of an independent monetary board. Today, that would be Timothy Geithner. Trusting Timothy Geithner to determine the day to day credit needs of the country would be the equivalent of trusting the Russian Soviet to accurately determine how many size 9 shoes its population needed. When the pot of available funds decreed by the Treasurer ran out, creditworthy borrowers would be turned away, and the economy would falter.
Ready credit is what makes an economy run smoothly, and its availability should not be subject to the whims of a political body. Credit-money is created when creditworthy borrowers take out loans. Banks merely “monetize” the borrowers’ promise to repay. As The Lost Science of Money makes clear, “money” is not a commodity but is created by legal agreement. Credit-money is created when the “full faith and credit” of the community is advanced to the borrower. The function of the banker is just to oversee the agreement, acting as the middleman who advances the funds and collects them back. Publicly-owned banks are the most efficient and cost-effective way to get ready credit into the economy. They are not a temporary stopgap measure, any more than the land bank of the colony of Pennsylvania was.
You have divided your objections to state-owned banks into two groups, “moral” and “technical,” with separate numbering for each. I will follow your numbering in addressing these points.
Moral Objections
1. You state that for a public bank to engage in “fractional reserve” lending – that is, to create credit on its books – is immoral. That appears to me to be a mischaracterization of the problem. What is immoral is the private creation of money. Both our proposals are attempting to overcome that flaw. I am just suggesting that publicly-owned banks are the most direct and practical means to that end. Congress is now owned by Wall Street, as Congressmen themselves are complaining. States, on the other hand, still have some autonomy.
2. You state that banks cannot create credit on their books but can make loans only against 90-95% of their deposits. This is no longer true. Federal Reserve data establishes that the reserve requirement is now essentially obsolete. For a detailed discussion, see Jake Towne, “Yes, Virginia, There Are No Reserve Requirements (Part 2),” August 12, 2009, establishing that “reserve requirements are effectively not in existence and easily avoided by accounting tricks in the U.S. banking system.” See also Eric deCarbonnel, “US Banks Operating Without Reserve Requirements” (March 29, 2009), stating, “Although, under current regulations, all depository institutions are required to maintain reserves against transaction (checking) deposits, the reality is they don’t.” Both articles are supported with Federal Reserve data.
What limits bank lending today is chiefly the capital requirement, and states are in a far better position to meet that requirement than private banks are. Banks must have Tier 1 capital equal to 4% of loans and other risk-weighted assets, and they must have combined Tier 1 plus Tier 2 capital of 8% of risk-weighted assets. Tier 2 capital includes several things, but the most interesting here is the appreciated value of unencumbered real assets. For a private bank, that typically means only the building that houses it; but a state has buildings, prisons, parks, etc. peppered all over the state. It has a HUGE asset base, so it basically does not have to worry about Tier 2 capital at all.
That just leaves Tier 1 capital, which is essentially the bank’s own money. For a private bank, that generally means the capital contributed by shareholders and the interest earned on loans. Again, a state has a huge amount of money of its own. A friendly regulator could count the state’s whole revenue base as Tier 1 capital. But let’s say that the state wants to dot all the i’s and cross all the t’s by actually setting aside enough Tier 1 capital to please the regulators. At 4%, $1 billion would be enough to create $25 billion in credit – virtually enough to meet California’s $26 billion budget deficit in one fell swoop. You say that this would just be a loan, which has to be paid back; but that is not necessarily the case. The state owns the bank, so it can roll the loan over as long as needed; and the interest returns to its own coffers, so the loan is essentially interest-free. The federal government has been rolling over its debt since the days of Andrew Jackson. For a state to create interest-free money on its books and roll the loans over indefinitely produces the same result you wish to achieve – an interest-free government-issued money supply. In both our schemes, the government gets the money interest-free, while private borrowers get it with an interest charge attached.
You say that only the federal government, not the states, can create money under the Constitution; but this is not true. The Constitution forbids states only to issue “bills of credit,” which has been interpreted to mean paper money. U.S. Supreme Court case law holds that a state can own a bank, and that the banknotes issued by the bank are not the sorts of “bills of credit” forbidden to the states by the Constitution. Banks no longer issue banknotes, but the principle still holds: bank-created money is not forbidden to governments any more than to private banks. We know that private banks create money. In fact, they create virtually all of our money. The ownership of the bank will not affect the bank’s ability to create credit on its books. Rather, it will just achieve our mutually desired end of transferring the power to create money from private to public control.
3. “The problem is being misidentified as interest,” you maintain, “when the problem is debt.” You argue that all money could be created interest-free by the government, just as coins are today; and that this would save the taxpayers money. I totally agree with that: Congress should issue money outright. That was the model followed in the colony of Pennsylvania, which we agree was the ideal model. Congress should create not just coins but paper dollar bills and accounting entry money. But that is a completely different issue from consumer credit or debt. You are not proposing to eliminate banks that charge interest to borrowers; you would just tack an extra interest charge on by making banks borrow from the government as the ultimate creator of credit. Under my proposed system, as in yours, the government would be the ultimate issuer of credit; but with a bank that was state-owned, the extra interest drawn off by private banker middlemen would be eliminated.
Technical Objections
1. You state that “no bank’s an island . . . If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.” Today, the other banks are not lending because they are not able to meet the capital requirement for additional loans; and this is because the “shadow lenders” have disappeared – the investors who were taking loans off their books, making room for more loans. A state-owned bank would have huge capital and deposit bases and a clean set of books, and therefore would have a huge capacity for lending as and where needed. It would not be dependent on other banks to meet its reserve requirement, which as noted above is now essentially obsolete.
2. You caution about following the model of the Bank of North Dakota, which you warn is playing with fire because it is not FDIC insured and could be subject to a bank run. In fact, the FDIC is now broke – literally. Its own funds offer little if any protection. In a few months it will have to start borrowing from the government. If the banks were owned by the government in the first place, this problem would have been obviated.
3. You say that a state bank would take deposits away from other banks, reducing the lending ability of those banks. However, the overall credit capacity of the system would not be reduced; the business would just move to the state-owned bank, as well it should if the latter can provide superior service at cheaper rates. The State of California has $17.6 billion in demand deposits and NOW deposits, which could be moved at will; and most of the banks it has them at actually turned down California’s request to honor its IOUs. Some of those banks got taxpayer bailout money specifically to keep credit flowing to the states and consumers, an obligation they have clearly failed to fulfill. California owes them nothing and has every right to remove its deposits from those banks into its own. That is free-market capitalism. More than that, it is a matter of survival. Why should we be feeding parasitic out-of-state banks that aren’t helping us in return? The Bank of North Dakota was set up in exactly those circumstances: the farmers were losing their farms to the Wall Street bankers, so they set up their own credit system to escape the Wall Street maelstrom — and it worked, brilliantly well.
4. You state that the meager benefits of forming a state-owned bank would not be worth the costs. However, you are looking at a very limited range of benefits. Let’s consider again California. With its enormous capital base, California could generate enormous amounts of credit, which could be used to refinance its existing debt; and since the state would own the bank, it would pocket the interest. California pays $5 billion yearly in interest alone — as much as some states’ whole budgets. Just that savings would make a state-owned bank worth the trouble; but a state-owned bank could serve more purposes than that. It could eliminate the cost of borrowing for income-generating projects such as infrastructure, low-cost housing, and alternative energy development. On average, interest has been calculated to compose 50% of the cost of every project. Moreover, the state wouldn’t have to scramble around looking for a loan when it needed one, knuckling under to inflated interest rates. On the question of costs, today a bank can be set up on the Internet, without even the cost of a physical building.
5. You suggest that negotiating better terms with existing banks would be more cost-effective than setting up a new bank. Again, you are overestimating the costs and underestimating the potential benefits of a state-owned bank.
6. You write, “We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.” I agree with that. The economy is in an emergency state. We cannot afford to wait for a Congress that has been captured by the same private money-creating monopoly from which we are trying to free ourselves.
Your plan represents a far more radical diversion from the status quo than mine and is therefore a harder sell to make to basically clueless politicians. A state-owned bank has already been operating very successfully for 90 years in one pioneer state, and following that model would require doing nothing different from what banks do now. How can regulators object, when we’ll be satisfying all their requirements? In fact, the shift will seem so minor that its significance is liable to be missed. Even committed monetary reformers like yourselves have apparently missed its implications and potential. Through state-owned banks that create money on their books, we can achieve what Benjamin Franklin, Thomas Jefferson, Abraham Lincoln and William Jennings Bryan all aimed to achieve: a publicly-created money supply issued by the people for the people.
WEB OF DEBT BLOG 
Back to the subject: AMI, Stephen Zarlenga, and the money reform conference for which I was denied registration…
I’m still scratching my head over being unwelcome at the AMI conference this year.
Here is just one among hundreds of favorable plugs I’ve given SZ and his book over the years. This was a review I wrote on Amazon.
(Quote)
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8 of 8 people found the following review helpful:
A “Must-Read” for All Citizens
By Jere L. Hough “Truthseeker” (Kansas City, MO, USA) –
Why does this priceless masterpiece remain “unavailable”? I happen to personally know the author and publishers and they assure me that it IS available to Amazon, or any other bookseller.
It appears to me that this book is simply being “blacklisted” because the truths it contains are simply “too inconvenient” for certain powerful financial interests.
I agree with the 5 most favorable reviews already here, and only disagree partially with Mr. Greco’s, the critical portions. He is simply wrong about the book not offering solutions. The solution is to take back our monetary system from the usurped control of the private international central bankers and return it to a government of, by and for the people. The other big step in the solution is that all money, whether paper or commodity metals like gold, silver, copper or bronze are given legitimacy by “fiat”, or the force of law, i.e., the currency must be accepted as payment, especially of taxes. He also gives the all-important recipe for correcting the fractional reserve problem in a non-disruptive and peaceful manner.
The true importance of Mr. Zarlenga’s unparalleled work on this subject is his noble effort to make this subject plain enough for the masses to understand. He demystifies the subject that has been so deliberately obfuscated for so long by those who wish to entrench their power by the very lucrative, and exploitative, control of a nation’s money supplies.
Corrective change will be impossible until a “critical mass” of citizens realize exactly how and why they have been exploited, and act to free their economic chains. The resulting benefits to society will be immense, and immediately felt by a middle class that will expand and prosper, rather than shrink and diminish as its now doing.
Indeed, this book will be in the realm of money what Henry George (“Progress and Poverty) will someday be in the realm of land and raw materials, or Carrol Quiqley (Tragedy and Hope) is in the uncloaking of the Anglo-American power elites (some would call them “Illuminati”). In other words, it will be a classic in our hope of understanding the present and of correcting the mistakes that have kept us from achieving our destiny, as a nation and a world.
Read this book, even if you have always been intimidated by the deliberate mumbo-jumbo of technical micro-economics, and the likes of Alan “What did he just say?” Greenspan.
You will be amazed at what you learn.
Jere L Hough
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That was my review – one of eleven the book has received. It can be seen here:
http://tinyurl.com/lg79bv
I guess that is what Zarlenga thinks is hypercritical, or unsupportive of his positions.
If Stephen Zarlenga wants to consider me an “undesirable” at his money conferences, then I’d hate to see what he considers “desirable”. I am certain that if Ellen Brown had called him about registering, as I did, she would have received the same cold and rude response that I did.
The only thing I can think of that might actually be going on is that I later gave Dr. Brown’s book, Web of Debt, an even better review on Amazon. How dastardly. Shame on me! 😉
Jere,
I think you should have just registered with PayPal (no phone call) and come to the AMI conference!
Thanks Ann, With hindsight, that might have been the best thing for ME to do. However, the circumstances leading up to my first calling AMI and speaking to Stephen Zarlenga by telephone were fully discussed above, on Sept 16th, and in other places.
It was about a month prior to the conference when AMI, Zarlenga and Walton published their critical and insulting paper on the harmful and distracting effects of Ellen’s “State Bank Solution”. Ironically this was about the same time that I had decided I needed to make up my mind about attending, in order to line up airline and hotel reservations at favorable rates.
My wife, a former director of critical care nursing who is nearing retirement, and who has taken an interest in money reform over the years I’ve been involved, had expressed an interest in attending the conference along with me this year. Yet this would double our financial outlay, and… well, nowadays money is tight.
So before making a decision, I decided to write Ellen to see if she was going. or might even be speaking. (I had been disappointed that Steve did not ask her to speak last year, and even more disappointed at his negative reaction toward her when I brought the subject up to him.) The emails turned into phone call, as I had nailed some favorable airline rates and wanted to pull the trigger on them.
Ellen’s initial reaction was that she would probably not go, since after AMI’s publication of that scolding article about her and the state banking option, she would probably not be welcome. If that were the case, I would not want to go either. So I told Ellen I would give him a call to find out. My relations with SZ had always been friendly and cordial, so I hardly expected the cool and rude rebuff and brush-off I got when I called, or the hang-up when I asked him about Ellen.
I relayed this sad turn of events to Ellen by email. Meanwhile Ellen had been asked by Dr. Michael Hudson, (a speaker) and others, if she were going to attend. She told Hudson what had happened and he asked her to go anyway and support her position on public state banking. Hudson also wrote Zarlenga expressing his negative opinion on SZ’s position.
So Ellen decided to try the credit card registration route without talking to SZ or AMI, and it went through, so …..
She is going and I am not. 🙂
Certainly, as is pointed out above, we did discuss my registering in the same manner, but my wife had already hit the roof, and made her position clear; she wasn’t going. (I wonder why she lost her interest?) The low fare was now lost on the airline tickets. But most importantly, I had been personally insulted by Steve Zarlenga, someone I had praised and supported all over the internet, along with the cause of money reform.
After the rude treatment, refusal to answer a simple question, and abrupt hang-up by Stephen Zarlenga, the idea of registering or continuing to support HIS causes with MY money is laughable. It will remain laughable until I receive some sort of reasonable apology. I’m more than will to entertain one. I’ve sent AMI an email asking for an explanation. No answer. I’ve tried posting a response (two, actually) to the “comments” section of his blog. They were not posted. No reason, no explanation, they were just not posted.
It appears that Stephen Zarlenga thinks that he owns the money reform cause in the USA. Not true. Money reform is MY cause. It is OUR cause. It is the cause of all who seek justice and understand how our monetary system is perhaps the greatest source of misery and injustice on this planet. AMI and SZ do not own the causes and great movements for social and economic justice.
SZ’s book greatly advanced my understanding of monetary issues. Ellen Brown’s book further advanced it, but more importantly, gave the cause a far superior teaching tool: a book with an entertaining story line that could educate the masses about money and economics.
Ellen’s book can reach masses, while Stephen’s rambling tome is of limited appeal and value. After the first time I read TLSOM I was equally elated to find such a treasure of information about money and dismayed at the shabby manner that information was presented. My main thought was that it had the makings of a masterpiece if only it was edited and properly repackaged, even entirely rewritten and/or rearranged to make it more readable.
Even the title is awful. The Lost Science of Money? Money has almost nothing to do with “science”, and almost everything to do with philosophy, law, culture, and civilization. Money is a philosophical “abstraction” of “law”. It is an official substitute for real wealth. Science has nothing to do with such concepts, until we get into the micromanagement, or microeconomics of money supply, flow, velocity, and demand.
So, I actually started to write a book I thought would fill that gaping need for a book on money that would appeal to the masses, and then Ellen’s book came to my attention and stopped that project in it’s tracks. I couldn’t hope to top Web of Debt any time soon. And even if I could, it would not be a productive use of my time, in terms of achieving money reforms. Instead I use my time here, and on my website, writing articles on money reform.
So, thanks for the sentiment Ann, but “no thanks” to conferences where my support is neither wanted or accepted. If Zarlenga wants to elevate his own ego over the far larger cause of achieving money reforms, I’d rather go another route. Steve did not stutter when he told me that since I’d already been to two Chicago conferences that it would be better to allow “new faces to attend”. Would YOU show up after such a direct insult? Would anyone?
[…] MORE THAN ONE WAY TO RECLAIM THE POWER TO CREATE MONEY, August 28, 2009 by Ellen Brown, Web of Debt […]
Ok I got a message from Ellen saying that my post was of topic. I’ll take my part of the blame if my presentation was hard to follow but my post was very on topic. I’ll try to explain my point and it’s a pure mathematical approach – so there’s no need for emotional outbursts. Just show mathematically and logically that my objections are flawed and I will accept it.
When new credit is created in a debt based money system an asset and a debt on the same amount are created. Someone is holding an asset on X dollar and the counterpart is holding a debt on the same amount (X dollar) – together they cancel each other (=0).
Let’s divide the population into two parts:
1) One part holding the debts
2) The other part holding the corresponding dollar assets
These two parts are, in mathematical and monetary aspect, equal in size since all created credit equals the total amount of debt. If all debt are paid all the created dollar will cease to exist (=0).
Now lets say an additional amount of dollars (Δx) are going to be created. This can only be done by putting someone in debt in a debt based system (obviously). But those already holding enough dollar assets don’t need to borrow any money so the only option is to indebt those with small dollar assets or those already in debt. If those already holding debts take loans they will get deeper into debt. If those with small dollar assets take a loan they will move from the asset part of the population to the indebted part of the population. Hence: fewer people will be left on the asset side and more people will be on the debt side even more indebted.
If additional debt money is created the scenario above repeat itself creating a situation where more debt leads to greater an greater inequalities (which is also empirically easy to show).
Further more:
Lets say a politician wants to redistribute (by taxation, “trickle down” or what ever) so that the indebted part of the population can pay their debts by taking Δx dollars from rich people. But this means that an equal amount (Δx) of the money supply will be destroyed (since killing the debt equals killing the same amount of money). Hence: any attempt to redistribute in the debt based money from those who have to those in debt would destroy part of the money supply. So politics is trapped in an undemocratic situation where it can’t do anything about the inequalities without destroying the money supply.
All this is avoided by the permanent money AMI suggest. Permanent money (as Lincolns Greenbacks) don’t need anyone going into debt – it should avoid dividing the populations into debts slaves and those holding corresponding assets (where the debt slaves are desperately trying to get hold on the fewer and fewer rich peoples money in order to pay their debts). Permanent money can also be redistributed without destroying the money supply.
As I said. I only want a strict mathematical formal argumentation showing where my logic slips (or how this can be avoided in a well planed debt system) and no emotional outburst.
Thanks for trying Michael, but your basic assumptions used in your formulations are wrong. By that I specifically mean your division of the money supply (population) into 2 parts, one holding assets and the other borrowing them.
Modern bank created money simply doesn’t work that way. Anyone who read Ellen’s book, Web of Debt, or Stephen Zarlenga’s The Lost Science of Money would understand that.
The confusing part (to me) is that you do appear to understand that Lincoln’s Greenback dollar (or something similar) issued by the government is the correct solution. You also make a number of accurate statements.
What is missing, from my point of view, is the purpose of your mathematics. What are you trying to show? What are you attempting to prove? What points were incorrect in Paul Grignon’s Money as Debt I or II? Where are you going with all this?
Jere,
I couldn’t watch 10 seconds of Michael’s videos. I could not make sense of the first one so I did not bother with the second. I agree with you.
Well I wasted 15 or 20 minutes watching parts of 4 or 5 of his videos. All I got was a headache for my efforts. He’s obviously invested HIS time and effort in putting all that together, but the question remains, for what? To what purpose? One clear sentence should answer that question.
Does the ‘In Duplum Rule’ apply in the United States?
Not as far as I can tell.
Gregory, sorry if I’m bad at describing my point in a clear way.
It’s seems like nobody understood my previous post either (sorry again, and sorry that I happened to use my second name, Nils, instead of Michael).
Let’s see if a can make my point clear by stating it as a questions instead.
Ellen’s suggestion is that a state own bank should create credit instead of private banks and that would solve the problem (or at least make it better). People would get work and they would be able to pay of parts of their debts.
Good so far. But what happens to the other side of the equation? A debt at an equal amount is created at the same time as the credit is created. Who is going to hold it? The rich guys don’t need to take any loans. Isn’t the only way to indebt someone who is already indebted ? (Or someone with small dollar assets but the pool of potential debt slave have reach it’s mathematical limits -as Ellen elegantly use to point out – almost everyone is indebt). Wouldn’t the credit (no matter who is creating it) just be a way to move around the debt within the system? Isn’t a debt write off the only solution and start a system that don’t indebt people (Greenback style)?
So, I guess my question is who’s going to take the corresponding debt on an equal amount as the created credit?
Michael,
The AMI platform is that the BANKS themselves will have to “take on the debt” that they helped create by making loans under the ‘Fractional Banking System’. How this will occur is that the BANKS will have to borrow REAL money from the federal government who will in turn create that money either by accounting book entry (electronic) and or simply by printing/coining it. The entire banking system (BANKS) will have to borrow enough money to cover 100% of their customer’s deposits. This is the Irving Fisher concept of 100% reserves, developed by him and Henry Simons and others back in the 30s called the “Chicago Plan”.
The purpose of forcing the banking system to borrow real money from the government is to first correct their mismanagement of society’s money supply by stripping them of their profits from said misuse and abuse. The second and perhaps the most important purpose, is to entrench the idea that the government is the ultimate creator of money not the banks. Forcing banks to borrow money from the government, instead of the other way around, flips the paradigm and positions banks in their rightful place; entities subservient to the legal sovereign power of the state. Right now, in spite of so called regulations, the banking system is running the show.
So you ask, “who’s going to take the corresponding debt on an equal amount as the created credit?” The people who borrowed the money from the banks will still of course have to pay it back, but the banks will have to pay all that interest back to the government.
It is assumed that as the people pay their loans that the principle will be withdrawn from the money supply and thus the money supply is reduced. This is the standard belief with respect to the fractional banking system. However, I have not seen a working model depicting this outcome from AMI under a 100% model. I don’t think they have one yet.
I have worked on this myself and I have my own views that I won’t elaborate on here.
The final outcome is basically the same as the State-Model of Banking that Ellen is backing. As the people pay their loans back the interest flow will pass right through the banking system back to the federal government. AMI requires the banks to borrow from the government, the State-Model simply nationalizes the banks. The endgame is basically the same except in the first instance the banks graft ‘some’ profits from the system in which they have for so long exploited to the extreme. I am assuming that the banks will borrow at a lower rate from the government than they loaned at, thus yielding a profit on the spread in rates. Well, a profit if they can cover their costs and interest payables on their customer’s deposits.
Is it all clear?
“So, I guess my question is who’s going to take the corresponding debt on an equal amount as the created credit?”
Answer: The borrower. That should be obvious to anyone.
Once again you appear to be laboring under the misconception that when banks loan money they are doing so with an existing stock of money that already exists. Everything written about money reform by anyone I respect or trust understands that bank loans are different from all other forms of private loans, in that they do not have to have money on hand in order to lend it. It is created by making the loan. All our current money is now created as a loan. There does not have to be “a lender” with actual capital or wealth, or money involved.
Now Michael, Nils, or whomever, I am weary of repeating the obvious. Your points are no more clear as “questions” than they are as statements.
Apparently I am not alone when I say I simply don’t understand the point(s) of your posts. I appreciate your good intentions, but I just do not have time to continue trying to figure out what you are getting at.
The only way Debt can be payed off and cancelled from the system over all is for money to be injected with no Debt obligation.
That is real Credit, nothing else.
The annual earnt Price – Wage price gap in an industrial economy (no matter how ludricously askwed or un-naturally coercive the wage allocation setting may be is irrelevant for this point) is the origin for real Credit injection, anti-inflationary. Price rebates and Citizen dividends being the distribution means ‘Social Credit’ literature promotes in regard to this annually Earnt Credit cycle in an industrial economy.
This approach will eventually wittle down over all Debt back to equilibrium with the dynamic of legitimately incurred Debt used in the process of wealth production and distribution, while also reducing price levels.
Economists would also be out of jobs to a great degree and have to hobnob in philosophy or learn the arts or something…last bit was a joke, kind of.
A recent post by Gregory recommended a book called “The Dollar Crisis.” I went to Amazon to order. Fortunately, I read the negative comments as well. The lesson here is we need to be very careful to identify just who is offering opinions here and what their motivations are. Just because they can get on Ellen’s page, doesn’t mean they are in our camp.
Here is the review that I think is especially telling:
“This book was a big disappointment. It is very poorly written and the “solutions” the author proposes for fixing what’s broken with the USD & international trade border on economic lunacy. You think I’m exagerating? You decide:
“In the last chapter of this unfortunate book, the author proposes two “solutions” for the weak dollar and international trade imbalances. Here they are:
1. Global Minimum Wage
2. Global Money Supply Control
“I’m not sure these two ideas would fix USD & international trade woes, but they would undoubtedly result in massive global unemployment & inflation, and they would serve as a very solid foundation on which to establish global tyranny on a scale that is hard to imagine today. The foolishness and potential destructiveness of these ideas raises grave questions, in my mind, about Mr. Duncan’s competence in the economic sphere.
“On every page you will find international trade and monetary policy jargon and vague chains of reasoning that are never adequately explained. This sort of writing may be fine for an experienced international trade professional, but it doesn’t help lay readers seeking to learn more about the serious issues involved. I think many readers will find this book produces CONFUSION rather than clarity.
“One of the main theses in the book is that rising central bank assets cause inflation. While an argument can be supported that there is a “connection” between the two, one would be hard pressed to show that the connection is directly causal. Rather than clearly establishing a rational foundation for this claim, the author succeeds only in doing a lot of handwaving on the point. Inexplicably, the book focuses on reserve asset levels as the cause and ignores the inherently inflationary effect of fractional reserve banking systems & paper reserve assets. Hmmmm, I wonder why?
“Concerning the same thesis, the book offers up many, many charts and graphs displaying all sorts of statistics tangential to the point, but somehow, the author never quite gets around to displaying any stats that explicitly show the US rate of inflation increasing in step with the Fed’s total reserve asset level. Hmmm? What a puzzler, Mr. Duncan. Seems like you’d want to back up the major contention of your book (which you repeat mantra-like ad nauseum) with just such statistics, yet none is presented. Curious indeed.
“Also, several graphs of central bank reserve assets are displayed, “…without gold”, with no explanation as to why gold central bank assets are not included. Again, I wonder why?
“Every chapter is awash with unstated assumptions and vague chains of reasoning. Also, a large proportion of the statisics and studies on which the author bases his assertions & conclusions are from the IMF, for which Mr Duncan worked for years. In summary, the book appears to be nothing more that a global central banker proposing global central government “solutions” “
I agree , more about social justice than free enterprise solutions in that book .
Balance in terms of tapping into the creativity of labor by rewarding labor for advancements in all needs categories as a way to appropriate the means to supply the needs of a society should be debated more . This would bring about more advancements and efficiencies in supplying the means for the needs , because who better to tap into for on the job training of how to make a system better than the people doing the jobs , in a majority sense , then you have satisfied labor and neutralized the need for social justice , and stabilized the redistribution of wealth , thus balancing the need for cash and credit .
Sounds pretty simple right up to when Politics get involved , huh ?????
Did you even read the book? Am I the only one that read this book? I don’t know about the “free enterprise” solutions you speak of, but the Dollar Crisis is about an imminent system failure. It is immaterial what the author may suggest we do to fix the system. Whatever Duncan may prescribe as a solution does in no way discredit his incontrovertible analysis of the problem.
But on a light note, I think you make some really good points. I absolutely agree we need to “reward labor”. How about a global minimum wage for starters? That would start to meet needs. And yes this would help reduce the need for credit and redistribute wealth. Sounds good to me. How about it? Does anybody else agree that we need to end slave and child labor around the world?
Thanks Bill, I had not looked at the book, or the reviews until now. I find myself in harmony with your assessment. I think your pointing out that Duncan has long worked for the IMF raised red flags for me. Also that fact that he was an “Austrian” in his philosophic orientation sounded the alarm bells.
In the end, although I haven’t read the book, I think your assessment is probably accurate. Any book on money that lacks the essentials of shifting money issuance from private to public authority is simply more “smoke and mirrors”, IMO.
I never buy a book without reading all the top rated reviews on both sides. That’s the only way to get to the heart of what a book is really about.
Thanks for some good detective work, Bill.
Jere,
Duncan takes a neutral position in his analysis of the Dollar Reserve System. I don’t know how you guys inferred that Duncan has “Austrian” philosophic bias? Correct me if I am wrong….but isn’t that more or less the gold bug camp? You might say it the camp of very low growth in the money supply. I know they speak to that point.
In my reply I speak to that point too. But ONLY in the context of out of control expansion of the money supply. This expansion is a direct effect of trade imbalance. If we made goods to sell back to the Chinese then our dollars would reflux (come back). But instead our government has to go into debt in order to absorb that flow of cash back from China and then has to find ways to spend that credit somewhere overseas. Try two wars and tons of wasteful spending outside our own country.
Finally, I wrote the original post in the context of trade flows not shifting the money power. It is true that Duncan doesn’t mention this. However, it may be a subject he hasn’t considered. In any case, the book is great at what it discusses.
I would read the book before I dismissed it.
I haven’t read it either, but I’ve read Richard Duncan’s articles; I think he’s pretty insightful. I quoted him in Web of Debt. There will always be negative reviews around. I think Gregory was citing this for Duncan’s understanding of capital flows, a tricky subject.
Bill,
First, you can be assured that I am a true monetary reformer. I was involved with the AMI Act from its early days!!! You can trust me when I say Richard Duncan’s book is spot on accurate. All I can suggest is, what can it hurt to risk the $15 bucks to find out for yourself. Make up your own mind.
More, I don’t put much stock in people’s reviews considering how many armchair economists we have running around with some axe to grind. I must say, your reviewer went off the edge. The review was more filled with bile than insight on Duncan’s work. More the review is full of technical mistakes. I seriously doubt that the person who wrote this review…..knows what they are talking about.
Right off the start your reviewer proves they know nothing of economics let alone monetary reform. See point two. Control of the money supply is paramount to monetary reform. Is it not our position as reformers that money creation has gone out of control? Ben Dyson shows on his page, growth in money supply statistics, Ellen has made plenty of comments on money supply growth. You yourself have lamented about inflation from MONEY SUPPLY GROWTH. So it is quite clear that controlling the money supply is of tremendous importance not “lunacy” as your reviewer put it.
Next, a global minimum wage is KEY to the notion of a balance of trade. The main reason China owns so much of our debt is because we allow them to use near slave labor. Because they have such a cheap labor force they really don’t need to buy much from us. They can make what they need as it is much cheaper for them. Thus they don’t buy from us.
So what do they do with all that cold hard American cash? They buy the most liquid U.S. Securities….U.S. Bonds. That is our national debt. Who buys this debt? China’s central bank. How does China’s central bank get the American cash? It is obtained when the Chinese central bank swaps newly created Yuan for American dollars from its own Chinese merchants who sell to the U.S. This is how China stabilizes its own currency expansion policies. This is called a “Currency Board System”. This technique has been used around the world. http://en.wikipedia.org/wiki/Currency_board
A global minimum wage would balance labor inequities and re-establish the notion of specialization on a balanced playing field. In other words trade would be based on nations trading the goods they are best at producing with other nations who are the best at what they do. Right now we buy inferior goods that have been proven dangerous and maliciously dangerous only because they are cheap. We mistakenly call this “efficiency”.
The result of a global minimum wage would be that instead of China buying our debt they would buy our products. This would help solve our massive financial surplus (China buying our debt) and trade deficit (America buying Chinese goods). Your reviewer is ridiculously ignorant of basic economic theory if they can’t grasp this simple model of trade flows. One might ask if this reviewer was born in the 90s or simply slept through the 80s when Japan was buying up every piece of land and commercial building they could get their hands on. Just wait until we allow Chinese direct investment (the buying up of domestic infrastructure both commercial and public). They will grow tired of our low yielding bonds and are already threatening to dump the dollar as their reserve currency. A global minimum wage is a great defense against wholesaling what is left of our nation to a communist state.
The following statement by your reviewer is astonishingly absurd. “I’m not sure these two ideas would fix USD & international trade woes, but they would undoubtedly result in massive global unemployment & inflation, and they would serve as a very solid foundation on which to establish global tyranny on a scale that is hard to imagine today.”
Wow! Sounds a little paranoid to me. First, the main thesis of “Dollar Crisis” is that our system of credit expansion (i.e. fractional lending) has been used to expand credit which has then been exported overseas through our trade policies. In other words we create credit to buy foreign goods. We export our INFLATION. The Crisis part is that in time this inflation will not be tolerated by our trading partners and they will dump the U.S. dollar and U.S. dollar denominated assets. This would END the U.S. as a global financial power!!!
Your reviewer has NO grasp on the idea of inflation. Maybe he or she should do some reading about the stagflation of the 70s. Remember how Nixon closed the gold window on Aug 15 1971? Why did that occur? Our trading partners were getting stuck with more and more and more dollars which were devaluing. We were exporting our INFLATION! Just like we are doing now. Except the Chinese can’t exchange dollars for gold. They are left to buy mainly U.S. debt. http://en.wikipedia.org/wiki/Nixon_Shock
“The foolishness and potential destructiveness of these ideas raises grave questions, in my mind, about Mr. Duncan’s competence in the economic sphere.” I have grave concerns about this reviewer’s ability to understand Duncan’s excellent book.
“On every page you will find international trade and monetary policy jargon and vague chains of reasoning that are never adequately explained.” This statement is PATENTLY FALSE!!! Duncan’s book is probably the best book I have ever read with respect to walking a reader through the process of international trade and consequences thereof from untended imbalances. Duncan is the only author that I have ever come across who explains what a liquidity trap is. Our media whitewashes this reality by calling it a “Japan style recession”. Japan is in a liquidity trap and they have been there going on 20 years almost. Duncan as well clarifies the other legs in the liquidity trap: overcapacity, synthetically low interest rates, lack of profits, lack of investment, and accruing national debt to GDP. All this is made crystal clear for the reader. The value of understanding these concepts alone is worth ten times the cost of the book!
This statement from your reviewer speaks volumes. “This sort of writing may be fine for an experienced international trade professional, but it doesn’t help lay readers seeking to learn more about the serious issues involved. I think many readers will find this book produces CONFUSION rather than clarity.” Seems to me your reviewer simply can’t understand the book. For me, the last thing I would do if I didn’t understand the book I just read……is PAN the book I just read. It smacks of petulance derived from feelings of inadequacy.
Your reviewer wonders sarcastically why Duncan doesn’t explain how fractional banking causes inflation but rather focuses on asset accumulation by central banks as the cause of inflation. Again this is patently false!!! The fact is, Duncan is quite clear that the growth of CREDIT which is used to buy foreign goods, which is thus then COVERTED to foreign central bank assets as CASH or U.S. Treasuries is the cause of inflation. Your reviewer not only missed the self-evident causal relationship between credit expansion (i.e. fractional reserve lending) and the subsequent growth in assets (cash and bonds) in foreign central banks, your reviewer’s claim as to Duncan’s position on the matter is totally backwards!!!! Your reviewer is either purposely misleading review readers or is totally unqualified to be speaking on this subject.
Again this statement from your reviewer totally misses the mark on the main thesis of the book. “Concerning the same thesis, the book offers up many, many charts and graphs displaying all sorts of statistics tangential to the point, but somehow, the author never quite gets around to displaying any stats that explicitly show the US rate of inflation increasing in step with the Fed’s total reserve asset level.” As I stated prior, the book teaches us how America is EXPORTING our inflation by expanding the credit of this nation through our purchases of foreign goods. The book speaks plainly about how foreign central banks hold our cash and bonds. The fact that the FED has such items on its balance sheet play a less important role in the string of logic that the book is presenting. Federal Reserve assets are an entirely different ballgame and if one was inclined, one could do more research on the subject. I would suggest learning about what the Fed did in the 08/09 crisis.
“Also, several graphs of central bank reserve assets are displayed, “…without gold”, with no explanation as to why gold central bank assets are not included. Again, I wonder why?” For me, I think it has been like 5 years since I read Dollar Crisis so don’t quote me here. But I do believe that when Duncan outlines central bank assets he does have an “other” line item. Central banks hold a myriad of assets beyond gold, cash and bonds. They hold foreign currencies for one, SDRs, loan receivables etc . All total, central banks hold trillions of dollars worth of assets. Gold is a small pittance hardly worth mentioning anymore. Why gold is such a concern for this reviewer speaks volumes about which camp this reviewer comes from. This reviewer is obviously a gold bug. Decide for yourself what that implies.
The only thing this reviewer got right is that the author does believe that the various federal not “central” as the reviewer snidely puts it, that federal governments act to assuage the trade imbalances before the whole system crashes. Hence the title of the book “Dollar Crisis”. How this is off the mark for the monetary reform community is unknown to me.
This book is a crisp, rational, step-by-step explanation of the global ramifications of a U.S. Dollar global reserve system and what could bring it down. It talks about credit expansion, currency boards, foreign expansion of their own currencies on the back of the U.S. dollar, liquidity traps, devaluing U.S. Treasuries (low yields high credit expansion) which some bond traders are now calling junk, and wraps it up by saying that the sum effect of said trade imbalance is that we SWAP DEBT FOR GOODS, and it can only last as long as our trading partners are willing to hold falling assets in trade for real goods.
If you want a real education on how money moves around the world, read this book. It puts all the major pieces into place and will make any information you hear about trade after reading the book more sensible to your reasoning. In fact I would go so far as to say, that without reading this book or one that is just like it, one would not be equipped to have a rational conversation about trade, trade policies or the economic ramifications of prolonged trade imbalances.
Hmmmm, I’m afraid I don’t read well enough to read such a long post. You do have a way of talking down to folks that makes me not want to read this anyway. Everybody knows something and no one knows it all.
Maybe the USA and the Swiss could work together to solve their currency problems and develop a model …..
http://www.forexblog.org/2009/09/snb-could-intervene-again.html
Jere,
I can’t seem to find my post on my review of Jamie’s criticisms of Ellen’s State-Model of banking. I am sure I put it up here.
Did you guys decide to take it down for some reason? Just curious. I have a copy that I can repost. I think it does a good job at explaining errors of AMI’s solutions.
Or maybe I am just remembering this wrong. I know there was some discussion about your posts not being put up on AMI’s board and you and Ellen were curious as to whether or not my post was allowed on their site.
Has a treaty been signed at the Chicago Accords of 09 or something? LOL If so, let me know and I won’t repost.
Click on “older comments” below. Yours was dated 4 Sept 09.
Here’s the link:
https://webofdebt.wordpress.com/more-than-one-way-to-reclaim-the-power-to-create-money-an-open-letter-to-the-american-monetary-institute-august-28-2009/comment-page-1/#comment-4489
Brian and Jere,
Thank you.
Greg. It was on an earlier page, as Brian said. I changed the numer of posts per page so that it might be displayed now.
I can’t do anything about the censorship on AMI’s site though. I can’t even get anything posted there, and I’ve given up trying.
I think bad karma cost Chicago the 2016 Olympics. 😉 Only half kidding.
Admittedly, I’m not an expert in monetary policy and I’m only now learning about all of this. I understand the basics though. Call me the scarecrow, I suppose. I’ve been reading through Ellen’s Book, Modern Money Mechanics, and on the history of central banking.
I am a convert.
I’ve found that when I try to explain this people, I get both a light bulb and a blank look all in one. Been thinking about facilitating discussion forums in my garage to teach/learn the basic to friends, family, neighbors, etc.
Before I start sharing this with people, I need a question answered.
All money, it seems, requires the same ingredient: belief in its power and value. Change the perception and you change the value, do you not? So, perhaps monetary reform through official channels is the wrong approach to attaining the end state we want, which is equitable and fair distribution and access to goods and services. Any good strategist will tell you that you to fight on your enemy’s terms is perhaps the least preferred position to fight from. So, perhaps we should take a lesson from the politics of recent years: discredit the messenger and the message won’t matter.
I realize money fuels all economic activity, but perhaps its time to start thinking of an alternative energy source? Is there a way to conduct transactions without the need for money as a medium or the scarcity it produces? When it comes down to it, its all about resources, production, and distribution isn’t it? Those are mechanical problems that we can solve.
Based on the banking history Ellen describes, it seems money was created for the express purpose of being easily controlled, as a choke point of sorts, where economic acitivity that MUST filter through the “goldsmiths.” I can’t help but think of the office techno-geek who refuses to teach anyone how to power-on their computers for fear of losing his power and clout. Free up the rest of the employees to learn for themselves, and the sycophant becomes irrelevant, does he not?
Just wanted some professional opinions on that as I continue to learn.
Money becomes money when the reigning government declares it “good for the payment of taxes”.
To me, the “end state” is not the equitable and fair distribution of stuff. The end state is to have a medium of exchange where the value thereof is regulated, and that serves all citizens equally. Forget about this store of value stuff. Not necessary for money. As I say, gold can be money, but money cannot be exclusively gold.
As far as scarcity goes; doesn’t scarcity make people be productive? If everyone had all the money they needed, why would they get up and go to work? Nothing would get done. That’s another reason why it would be a good thing to let this system crash. America would be returned to a work ethic.
As far as the choke point goes, I think you are exactly right. Why put a golden ring around the neck of your money system so the plutocrats can pull the chain whenever they want?
Very good points, Bill. Allow me to play devil’s advocate for a spell if you will.
I would have to ask if we are not interested in the fair and equitable distribution of goods and services, but a medium of exchange that “serves all citizens equally,” are they not one and the same? Money=Goods Services, does it not? And if we’re not talking about a more equitable distribution, what’s wrong with the system now (other than me not being on top)?
If we’re using money to spur producivity, are we to presume that our motives are any more altruistic than the present masters of it? One man’s productivity is another man’s shackle. If it weren’t, we wouldn’t be here. I would argue that productivity is a) too often defined in terms of cooptation or coercion, and b) often undermined by the realities of scarcity. Should we continue to beat the horse because we refuse to ponder a better way to train it?
Before I charge down this path, I’d like to know where it leads. If we’re talking about building a real economy where technology and productivity actually improve the quality of our lives, as opposed to the gadgetry of a standard of living, count me in. However, if I can expect another 1000-fold increase in “productivity,” and the continuance of a 40hr+ workweek, as we saw from the IT boom, why bother? Seems an Animal Farm scenario if we don’t first stop and ask ourselves what we want out of this deal.
Hi Rick. Welcome, and do continue your study. Overcoming a lifetime of “the Goldsmith’s story” takes considerable time and effort. Your questions require a better understand of what money IS and IS NOT. Bill Still started a pretty good answer. We have devoted much discussion of this topic on Ellen’s Web of Debt Forum, linked at the top of this blog page.
Anything can be used as “money”, i.e., in place of direct barter, but that does NOT make it “money”. “Money” is “official” within a given political and economic boundary, and MUST be accepted as taxes, fees, and settlement of debts, public and private. It is “official” by decree of the issuing sovereign government. That “decree” is called a “fiat” in Latin. Fiat does not mean paper money, as most people are wrongly taught; it means that the money, whether coin, paper, or bookkeeping entry, is legal tender in that jurisdiction, state, or nation.
Modern Fiat Money is a man-made creation, and an abstraction. It is a social invention that facilitates the exchanges of goods and services (real wealth). It is a “PROXY” for that real wealth, not the wealth itself.
It is an artificial and unneeded level of complexity and obfuscation to say money must be a “store of wealth”. That is rubbish put out by those (bankers, accountants and economists and others) whose aim is to confuse the subject, and they are in the vast majority. Stable money in a stable economy will always serve well as a “store of wealth”, but that is not the main function of money.
However money is and must be some kind of measure or standard of value, or price, in the marketplace. This does not mean that a potato will not rise or fall in price from one year to the next. That would be based on scarcity or availability of potatoes that season.
Most “money”, by far, is neither coin nor paper, but simply ledger entries of debits and credits, whether on a ledger page or a computer.
When I use my debit card to buy groceries no coin or paper money is actually changing hands. It’s all done though an electronic clearing house. My checking account is debited the amount of the groceries and the grocer’s account is credited. No interest is charged, although there may be a small fee to the merchant or myself for that transaction. That is really how most money should work within a given economic (money) system.
Difficulties only arise when transactions are made outside of the economy, where our local money has no standing, or value. Then money exchanges come into play. Gold, silver, and other precious commodities may be useful or desirable for trading outside of one’s own economy with that that use other money units. But gold, silver, and other precious metals are not money – they are forms of commodity wealth that are themselves bought and sold on the commodity markets just like peas or corn, and whose prices fluctuate with supply and demand.
My own view is that the basic value of money should be tied to work or productivity – labor. I refer the reader to Henry George, Progress and Poverty, and secondary works about his ideas. Land (resources) and labor are the two essential ingredients of all economics. I use “land” here in the sense that George did, meaning “the earth, and all that is on or in it”. All wealth is produced from some combination of these two essentials. What about “Capital” you ask? Capital is nothing more than stored wealth that is set aside to produce more wealth – i.e., not intended for consumption.
Enough for now. Sorry for the length.
Hi Jere and don’t worry about length. I enjoy reading everyone’s comments.
Between you and Bill, I’ve yet to receive a better explanation of economics.
My first question/concern (directed toward both of you) is primarily based on the labor side. It seems labor is being negated at rates faster than we can retrain the workforce. While outsourcing removes entire markets, automation removes multiples of workers. We do not replace each cashier with a technician. While I do not know the exact ratio, let’s assume that one technician can repair up to 100 automated checkout systems. 99 people, now need a new position and must go through some level of retraining. To thrive, however, most will need significant retraining. Yet, with each new profitable market, we are seeing the same phenomenon. Hi level, highly educated jobs, once thought secure, are no longer so. Even stock trading is being automated. I realize that outsourcing is often thought of as cyclical redistribution in the new global economy and that eventually our labor prices will drop to a level that will be attractive for business again. However, I can also see automation overtaking outsourcing as the primary loss of employment by the time that happens or soon after.
I see the trend only continuing and accelerating. Sooner or later, do we not reach a point of impenetrabilty to basic goods and services? With money representing both value and scarcity, if our access to money itself is cut off, so is our access to goods and services.
I see two options here: 1. abandon money so that access cannot be controlled through labor alone, or 2. submit to a single currency and regulating authority throughout the world, which may or may not include democracy.
Second question: how does monetary reform alleviate that in an open system and an open economy? Granted, we will alleviate untennable pockets of debt that are being deposited throughout our economy when we borrow, but we must still be able to repay it. If we are being made, “redundant” (as the Australians put it) faster than we can earn, then we are still left with borrowed access to goods/services and an unrealistic assumption of return, aren’t we?
My third and final question revolves around the market manipulation that comes with money. To borrow your potato example, I can grow a bushel of potatoes, but may choose to destroy some of them in order to articifically inflate the value. Subsidies that favor one crop over another are yet another form of this. All we sacrifice with that is our self-sufficiency and reliance. The moral and social implications of this are profound. To me, its akin to a parent purposefully withholding food from one of his or her children merely to maintain a value for the food among the siblings. Money streamlines that process, ability, and practice 1000 times over by people 10 degrees removed from the direct market.
How do we justify such a waste of resources when those resources can be used to garner additional assets or alleviate very real problems?
I would hope that the recent economic meltdown has taught us that our fates are all bound, even when we think they are not.
I agree , Gold is only a alternative to the Political manipulation of currency use for political favors , that lead to events like economic volatility causing inflation , and interruptions in economic stability using fiat based financial instruments to advance society needs .
No, we are not redistributing the spoils. We equalizing the means of getting them — one notch earlier. We are using the system to remove the impediment to incentive driven competition — namely monopoly.
Redistribution schemes — the “isms” don’t work — have never worked. As the great British historian, Nesta Webster said:
“…ownership of property … is not peculiar to the human race. The bird has its nest, the dog has its bone that it will savagely defend… if everything were divided up today all would be unequal again tomorrow. One man would fritter away his share, another would double it by turning it to good account, the practical and energetic would soon be more prosperous than the idler or the wastral. The parable of the ten talents perfectly illustrates the differing capacity of men to deal with money.”
Perhaps more importantly, the main difference is that you removing the ability of government to borrow. In the current fiscal year the US gov. will spend north of $700 billion — on interest payments — mostly to bankers. Yet we argue whether or not to fund NASA to the tune of $14 billion. Total receipts from federal income taxes is only $1,100 billion. In a $3,000 billion federal budget, only $500 billion is discretionary spending.
Now that’s just the spending by the feds. Then there are the states….
Now in Ellen’s world — and I’ll refrain from speaking for her in other than generalities lest I misrepresent her view — but she would reduce a substantial portion of consumer interest payments as well by federalizing some portion of the current consumer debt market as well.
Either way you do it, you are removing crushing debt loads from the system.
Please don’t take my skeptism as disagreement. As I posted earlier, I am a convert. From an incrementalist perspective, I consider it a healthy reform. Though to view scarcity through a purely machiavellian systems approach I think is to miss the point of the market as liberator. What is debt if not an extreme expression of scarcity? Under that theory, we should presently be more productive and prosperous, not less.
That said, I do feel that we are in uncharted waters and sailing as if the old rules still apply. If anything, the tech bubble proved that technology was not our primary export, but markets themselves were. Two trends are accelerating at previously unseen levels: automation and market outsourcing. Humanity has never seen this before, at least not at present levels and pace.
Nor are we in a production-based economy any longer. Our labor no longer produces hard assets that we can turn to. Without those assets, credit will continue to be the driving impetus that only encourages larger trade deficits.
Finally, while environmental concerns may temporarily provide a boost in domestic job opportunites, the science suggests that the only real solution is to produce and consume less while populations continue to grow. As environmental concerns and threats increase, production and consumption will need to follow suit in reciprocal fashion. Some would argue that a time when constraints are needed most is also the worst time to abandon the constraining power of money. I would argue though that money and markets from an environmental perspective are counter intutive, and instead drive baseless production and consumption that is often very wasteful from a resource prespective. We need look no further than the mountains of un-recycled electronic debris growing abroad whose market usefulness and personal utility had a lifespan of only year or two before it was discarded.
Even in uncharted water, we can reasonably surmise that if the channel is narrowing and the current accelerating that a waterfall lies ahead. GDP growth in no longer tied exclusively to job growth. In fact, we may be seeing a dramtic shift in the polarity of that relationship. Economic downturn always drives innovations in automation and efficiency. Traditional thinking suggets that automation will drive down prices, reinvigorate buying power and open up new markets. However, we are now seeing the workforce displaced by automation or outsourcing at rates faster than it can be retrained. In the mean time, the Dow is still able to grow.
There is a theoretical absolute zero when it comes to automation. A company could be imagined to employ only one person, its owner. If that company represents the whole of the economy, it goes without saying that things collapse long before then. Simply changing the creator of money is like jumping inside a falling elevator believing that we can negate the force of the impact.
In times like these, I find its good to have a healthy sci-fi imagination. Let’s conduct a thought experiment.
Imagine I am a freshman in college 30 years from now. My federally subisdized student loans have been approved and I sit down at my computer to begin my first lesson in a self-paced college algebra course. I log-in to my class and download the video of an algebra lecture recorded 30 years earlier. I am quickly overwhelmed by a concept and turn to my classmates for help. The class consists of 5000 fellow on-line students. I blast my question out to the forum and get my question answered within a matter of time.
This process continues for nearly every course throughout my scholastic career–the exception being those “cutting edge” courses that require up to date thought and analysis. Those lectures were recorded only 2 years ago.
I graduate after x-number of years and charge out into the workforce with my student loan debt only to find that the field I trained for has a greatly decreased job abundance or has been rendered obsolete altogether.
What are my options?
1) Compete for what jobs exist with the 5000+ other students from my class, and possibly every other graduate in the world.
2) Go back to school and incur more debt.
3) Take out another loan and try to start my own business, provided the market can sustain the additional business.
4) Borrow enough money to relocate to the country my market went to, most likely at a wage that is insufficient for my debt load, where I work until my job moves to another cheaper market yet again. Once more, I am forced to move and I quickly find myself in a system of self-defeating nomadism.
5) Go on the dole, assuming there is still sufficient tax revenue to provide one.
6) Engage in criminal activity to achieve sustenance or prosperity.
7) Seek out an alternative market of those similarly affected, such as a barter community.
Some jobs of course will not be outsourced, but is mere speculation to assume that well-rooted jobs will be sufficient to prevent a tipping point. It is also very difficult to forsee which jobs will automatable in the future. Theoretically, the only limit is the number of jobs itself.
What I am suggesting is that we are fast approaching a point where the concept of money could prove the ultimate albatross. I certainly cannot forsee a timeline, but I can sense the acceleration. The nightmare scenario is that we either abandon money and consumerism on our terms or let the jungle do it for us.
On Squawk Box this morning I listened to Steve Liesman talk about Inventory numbers being down year over year for an over extended period , and ……the One thing that is being lost in this translation is the Fact that ” Just-in-Time ” Manufacturing capability with today’s manufacturing worldwide has never before been this HUGE !!!!!! Plus all the Specialized Tooling in the Field , that construction workers have to create structural components is astronomical in that say for instance the time it takes to build a house relative to work force available as Primary Jobs being a sustainable unit of the economic growth indicator , the market has no growth sustainability when you factor in the Speed in which the number of workers armed with today’s tooling can flood a inventory so fast that in retrospect it shows on the Inventory charts as a Decline because growth in terms of value has never a chance to register before the market becomes saturated , this is true in all inventory sectors !!!!!!!!!!!!!!!!!!!!!
The ability to produce products in Mach 10 lighting speed with High Tech innovative processes has rendered the industry overall with no need of Inventory build ups , it just ends in surplus and saturation of markets before any fundamental growth can be established .
The New era of Growth is going to come from the Raw materials resource supply inventories and how they are valued into the future on the Future demand that anticipates population growth , at a pace of a Billion people per 10 years , the Inventory on raw materials and Commodities in general are the inventories we need to be focusing our understanding of supply-demand fundamentals on !!!!!!!!!!!!!!!!!!!
The world is growing the population the size of the USA every 3 years ……so go figure out what that demand on Natural Resources will be in the very near future .
Its all about the Population growth and future supply of raw materials , thats why we see this action going on ……
China muscles deeper into global commodity markets
China’s building muscle in the commodities markets, active in countries from Canada and Australia to…
http://www.marketwatch.com/story/china-muscles-deeper-into-global-commodity-markets-2009-10-30
Normally I try to discourage long posts that aren’t about monetary reform, but in this case — since I was just puzzling over my stock list myself — I’m making an exception! So what would you recommend? Dump everything but commodities?
Personally, I have completely withdrawn from the stock market, even commodities. I expect gold and silver to continue to appreciate in the short term, but not enough to get in beyond what I am physically holding. The Money Powers control it all, lock stock and barrel, and they shake out the little guys with short-selling even when they know that particular commodity is going up.
What I want to know is the 12 or 13 richest families in the world are investing in, and to a lesser degree the 300 or so families that are all interconnected with that top 12 or 13 giga-google-richest bunch. Those guys and the biggest central banksters are going to profit, whether the markets rise of crash.
I see local investments as the best, or safest. Investing in a crop of potatoes or corn many not be a big payoff, but at least you can watch it, up close and personal.
Michael Moore thinks local Credit Unions or non-profit Banks (in you can find one) are the way to go. I’ve believed that for many years, only they really have to be built from the ground up in most places.
Actually, our entire economy is going to have to be rebuilt from the ground up on the basis of “sustainability”. Counting on perpetual growth is beyond insane. Counting on perpetual exponential growth is like jumping from a plane in flight without a parachute…. an exhilarating ride before oblivion!
What is your vision of sustainability?
You’d have to narrow down your question a bit before I’d tackle that one. The dictionary definition of “sustainable” would do for starters.
I guess to me sustainable would mean living within our means without exhausting our resources, human or natural.
Truth be told, I’m tired of competition. And I think a lot of people are. I’m tired of being pitted against my neighbor for sustenance or security. I’m tired of the selfish and self-absrobed culture it produces, the political problems it causes, and the montary and human costs we must endure for competition’s sake alone. I’m tired of waking up everyday where I have to go into an environment that expects me to perform as such. Competition drives an over consumption of resources and does so quite disproportionately.
The problem I have is that I see a lack of any thought being put into new systems that actually improve the human condition and quality of life. The country’s founders were obsessed with that type of philosophical ponderance and put it into application. I see very little of that today. For example, what good is a rise in productivity when we see neither a rise in compensation nor an alleviation of our burden to labor. So if we’re going to overhaul how we attain sustenance in this life, I would prefer to develop a new way so that we may have time to enjoy an experience as opposed a never-ending quest for one. Markets and automation, in my opinion, should work to free the human condition of forced or coerced labor, but to date they have primarily served as merely another force to compete with. Anything short of that is not sustainable in my opinion and only further rot us from within.
Rick, I think it is good to think about the big picture, such as the environment and sustainability.
However I think there are a lot of big-picture items that have not been mentioned, and should be.
One way of looking at things is haves and have nots. What would an economic map of the world look like? The few rich countries Europe, Japan and the US, versus most of the rest of the world. The economic disparity is staggering.
Even here at home the disparity is mind-boggling. The 400 richest people in the US own as much wealth as the bottom 150 million combined. If we do the math, it means that one of these top 400 is, on average 375,000 times as rich as a person belonging to the bottom half of the population.
That is a staggering number. If we are seeking answers we have to start with the facts that slap us in the face.
Another slap in the face is that the rich countries (Western World) have been dominating and exploiting most of the rest of the world for 500 years. This is going stronger today than at any time in the colonialist past.
Yet another slap in the face is that we the people in the so-called democracies are actually so powerless that we are basically serfs. Ninety percent of the population is in the debtor class, while 10 percent is the creditor class. If you want to exist in this society you have to sign on to a lifetime of debt-bondage.
You have to accept unconditionally the diktat of corporate giants on which your existence depends — the bank, the insurance company, the phone company, the oil company, the car company, etc.
At some point in your dealings you realize that you are just a heifer that has no choice but to walk down that narrow chute that is fenced in for you. There is no other way to go. One foot forward…on to the abattoir.
When you have taken these slaps to the face and the blood starts circulating, you ask yourself, “How exactly have the great mass of humanity been so thoroughly enslaved?”
Well the answer is quite simple. Money is a choke point, although that is not its natural function. It is simply a medium of exchange. Just like the airwaves are a medium for the transmission of radio signals. The power-hungry long ago realized that if they seized control of money, they would have all the power.
Now all of that is very well known to us. But there is one exceedingly simple device that is the cause of all of our economic misery — and at the same time, all of the economic inequity. This is also the single device by which the plutocracy accumulates and holds on to power.
That one little thing is called INTEREST. It is not debt itself, nor the creation of new money by debt. Both of those are perfectly natural means for the economy to introduce new “tokens” of exchange, as required (when more goods and services are created by our labor).
The only unnatural thing about debt is interest, as Aristotle so wisely pointed out more than 2000 years ago. Btw, the ancient Hebrews, and before them the Mesopotamians also knew this and forbade interest. So did our own rulers in centuries past: “If a man is found taking usury, his lands will be confiscated. It is like taking a man’s life and it must not be tolerated.” — King James c. 1566.
The appearance of banking and interest lending is a very recent phenomenon. It is also responsible for most of humanity’s ills, because it allows a small group of individuals to systematically seize control of the lifeblood of human existence, the medium of exchange called money.
It is pointless to talk about things like productivity, automation, scarcity and other variables as if they actually have any bearing in the mathematics of the economy. They don’t — because the economy is controlled by plutocrats pulling strings.
I’m an engineer by profession. I know very well the mathematics of Newtonian mechanics. But if some godly figure were to take control of all the “strings” of the physical world, what use would my formulas be. When this deity can make gravity go backwards, what good is my math?
This is the case with economics today. There is no sense trying to think about theory and abstract. There is only one reality that is created by those whose power shapes events — political, military, cultural, etc.
As for the current economic crisis, it is the result of only one thing, interest. The reason is that interest means the economy MUST get bigger each year, in perpetuity — in order to pay last year’s interest. The problem is that economic activity is a physical thing, with physical limits. The economy, like anything else in the physical world, starts off growing, but then reaches its limits and stops. Is there such a thing as a 10 foot tall human, or a 500 lb mosquito?
Creating money with interest tacked on means the economy MUST continue to grow ad infinitum. In fact it’s growth rate must ACCELERATE year over year. That is a physical impossibility. That is why we are in a bind.
Please think this through. Let’s say you borrow one million dollars to buy a house. By the time you pay that mortgage off you will have paid back three times that amount. Once for the principal and double that for the interest. (Typically).
Everyone else in the economy is also borrowing to buy houses, cars, etc. The companies making those products are borrowing too. So is the government (In fact now we have the situation of the government borrowing from the same banks to which it is giving that cash as a bailout). We also have poor countries borrowing money from the rich banks.
All of those loans come with interest. Where will that money come from? It will have to be created through economic growth. But all that new money that is created through economic growth comes with interest added too — because that is how new money is created as loans (with interest). So now, you need even more growth, in order to create more new money, which means even more new debt (with interest), and on and on…
Eventually, a point comes where no more growth is possible. We reached that point during the last decade when, against all odds, traditionally poor countries like Brazil, India, China and Russia all stopped borrowing money from the banks of the West.
That was the growth that kept the West going. Call it colonialism which is what it is, but for five centuries it provided for the absolutely necessary growth that interest lending demands.
With that source of growth drying up, what would happen? What happens to a Ponzi scheme when new money — growth — stops coming in? It collapses. And the people running it go broke.
That’s what our economy really is, Bernie Madoff writ large. A giant Ponzi scheme, because it MUST have growth. If the economy was not a pyramid scheme it would not need to grow. Nothing bad would happen if it did not grow.
But in a Ponzi scheme, as soon as the growth stops, it collapses — it defaults on payments to investors and that causes a domino reaction. That is what awaits our economy. (not to mention that continued, accelerating growth is not sustainable ecologically).
Seeing that this was about to happen sometime in the previous decade, the bankers, led by Greenspan, opened up the floodgates of cheap money in order to create a debt bubble on purpose. Yes it worked, temporarily. All that new money provided the growth fix for a few more years.
But all of that new debt comes with its own interest, which requires even more growth — which in turn requires even more new money-debt (with interest, etc..
At some point the chickens come home to roost.
That is where we are. Where we need to be is one simple solution that only requires a pen. Written into law: Interest is from now on prohibited.
That’s it. the abolition of interest means the power of the money men is vaporized. The economy is unchained from the Ponzi-scheme need to grow. The hoarding of money as a choke point by which the plutocracy exercises control is removed, and every man woman and child on this planet sees their economic condition improve and tastes economic freedom for the very first time.
Even more important is that there is now fairness and economic justice. Let’s listen to ancient wisdom. Interest is the only problem. This is the very fortunate part. It is one single thing and it is a single target to attack. It can easily be excised from the body politic just as a pimple is squeezed.
It does not require social upheaval or any ideological conversion or “isms.” It does not even require any overhaul of the existing system. Banks would continue to give loans, principal only, as required by law.
Lenders who have cash could charge interest, but that could not apply to new money created as debt. As a result, this interest lending would be just a tiny fringe for bad credit cases and the like. Even then the interest rates would have to be very low due to low demand for this product.
People who save and invest, which is only one out of ten anyway, can invest in shares as before and earn dividends. Those who put their money in the bank would provide the cash for the small amount of cash lending, where interest is allowed, and would thus earn some on their savings.
Let’s keep in mind a final slap in the face. The contribution of the financial sector to GDP today stands at 43 percent. How is this even possible? Money giving birth to money?
What this really means is that the financial parasites are siphoning off nearly half of the productive worth of the real economy. That is doing huge damage.
And that’s on top of the damage that they do by hoarding money as if it has some intrinsic value of its own. It doesn’t of course, and their hoarding of money only means that real production and earning by the people is kept down.
Bill mentioned the interest burden of the US government. Yes we could be on Mars by now if it wasn’t for the government paying hundreds of billions a year to bankers as interest. And now we have the ultimate idiocy with the government borrowing trillions from the same banks, only so they can gift them this cash.
It is time to adopt a simple message. Abolish Interest Now.
Gordon:
Thank you for your thoughtful reply. I”m all for it. Interest sounds like the best place to start…
Gordon, please keep your posts confined to 500 or so words, and two or three main ideas. Long rambling posts do not get read, and are an impediment to conversation.
As for abolishing interest, we agree with you that it is absurd for our governments to pay trillions in interest charges to central banksters in order to “borrow” money that have a constitutional, legal and moral right to create without interest.
However our solution to that is to have our governments reclaim (take back) the money-creation powers they gave away to private banksters in 1913. It is NOT to abolish interest per se.
Please read Ellen’s book and/or related money reform works from similar sources such as the American Monetary Institute (AMI) at http://www.monetary,org .
Eliminating the interest on new money creation is as simple as having our government rescind the Federal Reserve Act of 1913, and bring the Federal Reserve Banking system under REAL federal control and supervision.
Btw, don’t take my word for it that interest needs to be abolished.
Take it from none other than Ben Bernanke. What is the interest rate he is charging on the several trillion he is printing under the “quantitative easing” program designed to refloat the banks and stock market?
That’s right, ZERO percent. Bernanke has already abolished interest — at least temporarily. As soon as they can get the Ponzi scheme economy back on its feet, it will be back to interest as usual.
Also note that if we take into account the inflation rate of a couple of percent, the zero-interest debt-money actually has a negative interest rate. The The lender is PAYING the borrower to borrow.
This points up the connection between interest and inflation. An interest-based economy MUST have inflation. That is because the economy must not only grow year over year, but the growth rate must actually accelerate year over year.
It is difficult enough to have perpetual growth. But perpetual, accelerating growth is simply impossible for even short periods of time. The result is that inflation takes up the slack.
In an economy without interest — at least on new debt-money creation — inflation would not be necessary. We could have full employment without inflation.
The reason full employment causes inflation in an interest-based economy is because more people working means more people borrowing. Each of those new loans comes with built-in interest, which means the money supply must expand in order to pay that interest. For the money supply to expand, there must be new money-creation. The only way to create new money is through additional debt, which adds even more interest that needs to be payed with even more interest bearing debt-money creation. etc…
Also to tie up one other loose end. If we have a small amount of cash lending where interest is allowed, we still have the problem of having to create new money to pay for that interest next year. A simple way to fix that is for the government to inject that amount of new money directly into the economy by way of credits and subsidies.
This would perfectly balance the books and take care of the new money needed to pay the interest on the cash lending. It would also be of great social value because those money injections could help the most vulnerable in society.
The bottom line is that the extractive (parasitic) effect of the financial sector would be completely eliminated. The situation we have today is that the financial sector absorbs a hugely disproportionate amount of society’s wealth.
What is that money used for? The 43 percent of GDP that is siphoned off by the financial sector? That money is used mostly for large-scale gambling. The financial sector is simply stealing huge chunks of the productive output of the real economy and using that money to gamble on derivatives and other games.
A significant amount of the money is also splurged on extravagant living — the entire luxury goods sector, private jets, high-priced prostitutes, servants, chauffeurs, etc.
Without interest, all of this wasteful activity — the casino gambling and a lot of the high living — would simply stop. Interest is the single mechanism by which the financial parasite extracts the lifeblood of the host economy.
Don’t believe me? What is securitization? It is the bundling and reselling of mortgage and other debt, all of it interest bearing. It is directly skimming off the money created as interest. Nothing more.
Until securitization came along quite recently, the skimming off of interest took a more circuitous route, but it still ended up in the same place — in the hands of the parasites.
Bottom line is that a simple law prohibiting interest on new money created as debt, would eliminate completely the parasitic extraction of the financial sector. We are at 43 percent people. I don’t even know of any parasite in nature that sucks off nearly half of the hosts blood. It is impossible in nature, but not in our society.
Gordon, These long, rambling posts are a detriment to conversation. Please limit them to 500 or so words and a couple of ideas.
The way to eliminate interest on new money is by having our congress reclaim their constitutional authority to create it, rather than to borrow it from the banksters.
You cannot outlaw interest on privately created money without multiple layers of chaos and pandemonium, not the least of which would be government intrusion into private business and property.
The proper solution is to rethink and redraw the lines between public and private enterprise, and thereby return money-creation to the sovereign authority it has always held up until the Bank of England and the US banking syndicates usurped it. Money creation should be a sovereign right and function.
I think most us are in agreement here and to continue further disucussion centered on defining the problem is wasted energy. Ellen has already done that. My intent over the next couple months is to hone a presentation and to begin holding local meetings on the matter.
I think this forum would very useful for honing that message and for coaching each other in same. I also think that his forum has yet to tap its true potential. It could be used to disseminate such things as presentations that we all can use and updates on our progress. It can become a central organizing mechanism for similar efforts from around the country.
As for me, I am tired of talking about it. Its time to start doing something and I think top-down politics alone is a dead end. We can have these things, but they will have to be built organically.
If there is anyone out there who can build an easy to follow, persuasive media presentation, such as a short film, I believe your country is calling.
In the mean time, I’ve got some friends to contact who might be useful.
“It takes a network to defeat a network.”
–Gen Stanley McChrystal
I agree because this is a problem with no solution …
The Fed just passed $2TRILLION in their printing business (monetary base), up from $850Billion last year.
http://alfred.stlouisfed.org/series?seid=WSBASE&cid=124
Still not feeding though to Money supply (MZM), but the spring is being wound ever more tightly
“If there is anyone out there who can build an easy to follow, persuasive media presentation, such as a short film, I believe your country is calling.”
See my reply to Gordon below. Bill Still and Paul Grignon have put out two of the finist video teaching tools on our money problems imaginable. Ellen Brown has video presentation on You Tube. Google them.
My website and Ellens, Grignons, The Money Masters, and http://www.monetary.org (AMI) have tons of info and links.
The problem is, of course, that we have the entire mainstream media system, educational system, and most elected government representatives, all under the control and direction (carrot or stick) of the Money Elites. Only the most independent of thinkers are going to pay any attention — at least until more calamities come down the pike. Then they will all be grasping at the wrong solutions – because they won’t understand the problem.
Good luck with your garage workshop. 🙂
Yeah, and I see McChrystal is “winning” the war in Afghanistan.
I think local presentations are a good idea. people need to know some basic facts, which they don’t right now.
I suggested earlier that getting organized religion behind monetary reform and economic justice would be helpful too.
My own idea is to simplify the message to something EVERYONE can understand and get behind:
ABOLISH INTEREST NOW
we have got to deal with the corruption too , or it won’t matter like this stuff ;
http://www.businessinsider.com/nj-taxpayers-paying-goldman-sachs-nearly-1-million-a-month-2009-10
New Jersey Taxpayer Paying Goldman Sachs $1 Million Month For Bonds That Don’t Exist (GS)
http://www.goldmansachs666.com/search/label/GoldmanSachs%20and%20Corzine
1. All of the mainstream planetary religions are already serving their chosen masters. Sure, it would be great to recruit spiritually minded people into economic and monetary truth, but that process will probably take a long time…. at least to approach the power of the existing entrenched religious authorities who are now serving Mammon.
2. It is totally meaningless, and even counterproductive, to say “ABOLISH INTEREST NOW”.
First, it’s an impossible task. Second, it’s not even desirable. Third, it doesn’t address the central problem with money: who issues or control it!
Other than that, doing away with interest might be something to dicuss someday.
Gordon Arnault wrote: “My own idea is to simplify the message to something EVERYONE can understand and get behind:
“ABOLISH INTEREST NOW”
__________
Einstein said that it was important to reduce complex ideas to their simplest terms, but NO SIMPLER.
That is what you are doing here, and in so doing distort not only the diagnosis, but any chance of applying the correct treatment.
Jere, I respectfully disagree about abolishing interest.
First of all, it is entirely possible. Necessary in fact. Witness Bernanke’s temporary suspension of interest.
In fact the entire decade of the debt bubble the interest rate was very low. It was an attempt to forestall the inevitable Ponzi collapse of an interest-based economy.
Abolishing interest would in fact be the easiest reform to implement. All it takes is a law that say no more debt-money with interest. Nothing more. No new government bank, no complex regulations, nothng.
So where is the impossible part?
And abolishing interest is in fact the ONLY way to unchain the economy from an unsustainable pyramid scheme. It is simple mathematics. I will post shortly a table that proves this.
Anyway, I am absolutely open to someone poking holes in my argument. So by all means, please expand on your argument.
Gordon, Interest is NOT the problem with our monetary system. The problem is WHO receives the interest, which is the same as who “issues” or controls the money.
Have you even read Ellen’s book yet? It’s clearly explains the point you seem to be stuck on.
Now “excessive” interest is a problem in many areas of the economy. Inappropriate interest is a problem, and needs to be dealt with though legislation.
But there is no need for me to “re-invent the wheel”, or re-debate this entire question of what is at the root causes of our monetary malaise. That has been done scores or more times here on this one website, and in “Web of Debt” and in Zarlenga’s “The Lost Science of Money” , or in Soddy’s “The Role of Money”, in “The Money Masters”, a video by Steven Still, or “Money as Debt” a video by Paul Grignon. Google any or all of these sources for more info.
The root cause of our money-malaise is indeed interest, but it is who gets the interest, NOT that there is some interest attached. Fair and justifiable interest is just the fair return on the “rent” or use of something of value. You can call it interest or a “fee” or a “use charge” or whatever. The label doesn’t change what it is.
Our money problem is privately created money that is generated by loans (i.e., money created out of nothing but a promissory note), and the compounded return on that interest that is being sucked out of the nations blood (money) supply like vampires are supposed to do.
I repeat, it is that all this “compounded interest” goes into the vaults of private banksters that is the problem. If the return on the creation of new money went to the taxpaying public, i.e., the government, there would not be a problem, and never would have been one.
Just calling “interest” per se the culprit is not only an oversimplification, but outright disinformation, and only compounds the already comples problem.
Misdiagnosis always prevents or delays proper treatment of true causes.
Always!
“Interest is NOT the problem with our monetary system. The problem is WHO receives the interest, which is the same as who “issues” or controls the money.”
So if the government creates the credit that I need to buy a house, and I pay them 3 times the principal instead of the banks, then somehow I’m better off? The debt problem is solved?
“But there is no need for me to “re-invent the wheel”, or re-debate this entire question of what is at the root causes of our monetary malaise.”
Wow! Isn’t that what this blog is supposed to be about?
“Fair and justifiable interest is just the fair return on the “rent” or use of something of value.”
The “fair” return (or rent) would be nothing more than the real depreciation cost that resulted from a person borrowing or using the asset.
utopian, on November 1st, 2009 at 5:42 am Said:
(quoting Jere)
“Interest is NOT the problem with our monetary system. The problem is WHO receives the interest, which is the same as who “issues” or controls the money.”
________________
I’m sorry to see you take the bad side of this critical issue on money reform, Utopian.
That is what I said. That is what I meant to say, and it is the essential truth that those who hope to understand this unfolding train wreck had better understand, and right NOW! It is time to Xavier Onassis! … Or not.
____________
“So if the government creates the credit that I need to buy a house, and I pay them 3 times the principal instead of the banks, then somehow I’m better off? The debt problem is solved?”
_______________
It is beneath you to put false words in my mouth, or argue straw men. Everything I have every written, or Ellen has written, would shout out the injustice of such a monstrous accusation. NO! I have never said or meant anything close to that – precisely the opposite! And the government is not now creating any credit at all that is going to finance houses for consumers. That is ALL privateering at work by the money marauders.
_______________
“But there is no need for me to “re-invent the wheel”, or re-debate this entire question of what is at the root causes of our monetary malaise.”
Wow! Isn’t that what this blog is supposed to be about?
____________________
No. Not in my opinion. Not when it has already been done from Franklin, Pain, Jefferson, Madison, Jackson, Garfield, Bryan, Henry George, Lincoln, FDR. Frederick Soddy, Alexendar Del Mar, Zarlenga, Helen Brown and even myself, along with untold others who correctly perceive and comprehend the problem.
At some point we have to say “this is the ROOT of the problem, and THIS is what me must fix.” Unless we can reach that point we are dead, as a culture or a civilization. And that point is now.
I said: “Fair and justifiable interest is just the fair return on the “rent” or use of something of value.”
Utopian replied: The “fair” return (or rent) would be nothing more than the real depreciation cost that resulted from a person borrowing or using the asset.
Me: I can’t believe you said that. That’s the hogwash. If you haven’t thought things through any further than that then you need to be reading and learning, not issuing prescriptions for money and economic reform. The fair return or rent from the use of any real productive asset must certainly take into account “depreciation” but soooo much more than that. Among other thinks it must take into account the loss of revenue the asset provides the owner or his family by his using it himself.
Or perhaps you would do away with private ownership of property all together, and revert to communism or socialism? If so, that is ultimate folly.
The bottom line here utopian, and Gordon, is that society can NOT abolish interest without destroying the basic incentives that drive industry and hard work, and productivity. INTEREST must be regulated and controlled by society, but to abolish it would be to abolish most of industry itself, and the growth of REAL (not illusory) prosperity and wealth.
But then perhaps you think the destruction of all real wealth would be a good thing? That would not be a debate in which I would participate.
I really thought from all your posts here and you website that you were further along in your thinking than this.
One more time:
“Interest is NOT the problem with our monetary system. The problem is WHO receives the interest, which is the same as who “issues” or controls the money.”
Cheers,
Jere:
At the risk sounding marxist, what do we do when automation and outsourcing reach such levels that access to the money itself begins getting cuttof for a majority of the population? Its happening now, and quickly. Every person cannot be an entrepreneur. Money lent or spent today, even interest free, does not necessarily create the same number of jobs it used to. The internet is a perfect example of this. What good is sound currency and lending if the stimulative effect is decreasing faster than access to it?
This a real question I have and I don’t know the answer. Does money not become more of a barrier than a vehicle for healthy transaction?
Rick, “Sounding Marxist” should not be a concern of anyone on this forum. Only sounding foolish, contradictory or irrational should be a concern. Marxism, socialism, communism… these are all terms that inhibit the free discussion of ideas, and almost always distort meanings rather than clarify them.
I have posted long articles on my website discussing how these terms are used to mislead and confuse vital issues. Even “capitalism” is almost universally grossly misunderstood, and a word that obfuscates, rather than illuminates.
I believe firmly in most kinds of private property, if it is honestly obtained. I don’t think you can do better than a “free market system”. Too bad we don’t have one. I think we need to rethink the centuries of propaganda that tell us private monopolies and cartels are good for us, and can manage public utilities and infrastructure better than communities, states or governments.
Automation is one problem. Outsourcing of productive industries are another. Money creation is another. Your question(s) indicates a conflagration of these disparate ideas and concepts.
We do not have a “sound currency” so your question about what good it would be is hard to read. Money creation as it is practiced in most of the world today is the biggest criminal enterprise the planet has ever known, or ever will know.
We are moving into and (hopefully) through the most dangerous era our planet and its inhabitants will ever face. I’m talking SERIOUS here folks.
And its all tied to the Money Vampires having tea and crumpets at G-20 conferences and secret Bilderberger meetings.
Oh, and my best answer to your question is that we have already reached that point… and many decades ago.
Cheers,
Hi, Jere asked me to jump in here, but I haven’t had time to read the whole thread. I’ll just give my view on interest: I can see the merit of the Biblical and Sharia refrain against it as “usury,” and I think it might be possible to create a system that was interest-free. However, interest serves some useful purposes. Besides covering the costs of the bank and potential defaults, it slows people down from borrowing too freely and prevents carry trades. If people were able to borrow from the government interest free, they would get heavily into speculation — borrow at zero percent and invest at a higher percentage and keep the spread. So you’d have to put limits on what you’re going to allow the money to be borrowed for. But then, even assuming government-owned banks, you’d have to leave it up to government bureaucrats to decide what projects were worthy and what weren’t. And how would you stop people from pretending to borrow to create a business and in fact using the money to speculate? The oversight and record-keeping could be worse than taxes!
In terms of mathematical sustainability, you can overcome the pyramid scheme problem (always having to pay back more than is created in the first place) by making the banking system publicly-owned, and allowing the government to issue some interest-free money for its own expenses to cover the excess. You would only have to do this once: issue $105, spend $5, and lend $100 at 5% interest. Then collect it all back in as principal and interest, and lend the same $100 and spend the same $5 all over again. That’s assuming one year loans, no defaults, and no growth of GDP. To allow for those things, you would want to keep the parameters flexible.
I’m glad to see everyone taking an interest in these things, and I think discussion is important. On the issue of these discussions coming to blows and personal vendettas, I would plead for everyone to discuss only issues and not use any loaded name-calling sorts of words. If I had time, I would edit those out, but I don’t. Best, Ellen
Thanks Ellen, Good answer, as far as it goes, especially your first paragraph. The problem here was that “abolishing interest” was being discussed far beyond the banking system, and extended to the economy as a whole. In addition, interest itself, and its abolition is being argued as THE solution to our monetary problem… a la Mike Montagne and his crowd.
They were also talking about eliminating interest on ALL lending, public or private. Which is, of course, suicidal to a productive and health economy.
Cheers, but I fear little is going to be settled by your comments.
Jere/Ellen,
Ceratinly didn’t mean to sound as if I was backing one side or another. I thought the argument was about interest on money creation all along. If we’re talking about abolishing interest on all lending, I agree that is not only harmful but deeply unfair to the lender. The lender is voluntarily relinquishing a portion of his or her wealth to help the borrower and in doing so incurs both cost and hardship. To do away with all interest is not sound. Plus, we will all end up paying for a bank’s sevices rather than receiving any kind of interest on our deposits. We will end up with cash in mattresses again and crime run amok.
My sticking point is with the long term viability of money as a vehicle itself. As I asked above, is money not losing its stimulative capability over the long haul? (ie 100 cashiers replaced by 1 technician.)
Rick, No apology needed. Most reasonable people will eventually agree that a modern complex economy cannot be sustained or maintained without some form of interest, or return on capital investment. The interest or “use charge” on the origination of “money” is altogether another matter. The two should not be conflated.
As for ending up with cash in the mattress, what else will happen if all the banks collapse or go bankrupt? Of course the FDIC will pick up the tab for all losses under $250K, but who is the FDIC? US – the taxpaying public! As usual it is the taxpayer that is on the hook for all the crimes of the banksters.
What good is worrying about the “stimulative capacity” of money, when the total value (buying power) of money goes to almost nothing? That is what is happening, and it is happening by design. It is being carefully and deliberately planned by those whose intent is to rule over our planet.
Difficult to believe? Perhaps, to those who have not studied these matters for decades. Yet it is the plain truth, and a truth that will be laid bare soon enough.
You should probably read Henry George. It sounds to me like you may be ready for what he has to say to our world. This even though he said it over 130 years ago. His message is timeless.
Advancing technology is only a problem in systems that are run by predators who swallow up the gains that should flow to society for the resulting increased productive capacity. That means the kind of system we have now. It needs to change.
(quoting Jere)
“Interest is NOT the problem with our monetary system. The problem is WHO receives the interest, which is the same as who “issues” or controls the money.”
Here is a classic example of what you said …….
http://www.businessinsider.com/nj-taxpayers-paying-goldman-sachs-nearly-1-million-a-month-2009-10
New Jersey Taxpayer Paying Goldman Sachs $1 Million Month For Bonds That Don’t Exist (GS)
That article is only one of hundreds of the scams on credit and interest being conducted by Goldman-Sachs – one of the largest criminal enterprises ever conceived by the mind of man.
Here is a summary from the article itself:
“This is just one of several stories of interest-rate swaps gone bad. But bear in mind a few things. Everyone seems to have been caught off guard by the decline in interest rates over the past few years. This isn’t just a matter of banks foisting bad deals on state and municipal governments — Larry Summers (no fool) got burned when serving as the President of Harvard. … the fact that the bonds don’t exist anymore is a red herring. The state chose to replace the bonds, voluntarily, from floating to fixed. There’s no reason that should get them off the hook from a side bet.
These are derivatives games (high stakes gambling) with improperly originated interest on imaginary money. In other words – monopoly money – money that only has value in a make=believe game of Monopoly.
Except that the “monopolies” are real, and all the profits are going to the banksters.
Also, abolishing interest does in fact completely take away control of money from the financial overlords.
Interest is their goose that lays the golden egg. Without interest they have nothing. No power, no money, nothing. They become simply bookkeepers — harmless eunuchs who earn a fair wage for their business of conducting fair transactions.
I will say the opposite in fact, that abolishing interest is the ONLY way to reign in the money masters.
As for not being beneficial, how so? The money that the financial sector currently siphons off and diverts to casino gambling among themselves, would stay in the real economy. How much would everyone benefit if that 43 percent of GDP that they extract is distributed throughout the productive sector of the economy?
Jere,
I wish you would explain to me why interest is not the problem. I have read through the first few chapters of Ellen’s book and it does not deal with the problem of interest chaining the economy to the requirement of accelerating growth.
I just posted on the think take page a column from my spreadsheet on the Ponzi scheme. Unfortunately the page formatting took out all of the spaces and jammed all the columns of numbers together so it is hard to read.
The upshot is that an economy that creates money by way of new debt with interest attached is a recipe for disaster.
Please think this through Jere. If you loan out a trillion dollars over the course of 10 years at even a low interest rate, you will have created the necessity to increase the money supply over and above the money already created by those loans — in order for money to exist to pay back the interest.
Let’s make a reasonable assumption that each of those loans was for something productive and added real goods and services to the economy. In other words, all of the new money created as loans is linked to an increase in economic output.
That is perfectly natural. A business asks for a loan if it needs to expand production. A family asks for a loan if it needs to buy something, which “something” also needs to be produced.
But now at the end of this 10 year cycle, you need expand the money supply by another $500 billion, just so that there is enough money so that the debtors you loaned to can pay the interest.
What happens then? This benevolent government bank has to print up some money and give it away. There is no other choice.
But this money is not linked to any new goods or services, like the loaned money was. therefore it simply dilutes the value of the money — inflation.
That is why our economy has had inflation for the last 100 years.
But inflation is not even the real worry. The real worry is what happens when growth inevitably slows down. It doesn’t even have to stop completely, it just needs to slow down.
The whole thing inevitably collapses like a Ponzi scheme. Which is what an interest-lending bank is, a Ponzi scheme in reverse. Instead of taking in investment and paying out interest, it lends out money and expects interest back.
It is the exact same thing. A vacuum cleaner can either suck or blow, depending on how you arrange it.
Also I do not agree that there can be such a thing as “rent” on money. Money is only a medium of exchange. It has no intrinsic value.
You see, there is the trap and you just walked into it. As soon as money is allowed to be a commodity in and of itself, instead of simpoly an abstract symbol of an underlying commodity, then the game is finished.
Then anyone can profit from hoarding it, manipulating it, breeding it, etc.
You have just defeated the whole idea of monetary reform when you assign intrinsic value to money. It a token only. It can have no value in and of itself.
That is why if you allow it to collect “rent,” you have made it a thing of value. Why because simply having it means it will beget more. With nothing else than the act of possessing it, you are assured that it will multiply.
Ahh there is the fatal flaw.
Conversely, if you take away the possibility of money to be able to beget more money in and of itself, with no other activity whatsoever. Then money can only be the neutral medium of exchange it is meant to be.
And then it does not matter who or what creates it or handles it or does whatever they want with it. It has become worthless in and of itself because it cannot give birth to new money, in and of itself.
That is the beauty of it. It can be so easily policed. No interest. Period. That’s the law. You don’t need to put in an elaborate system where only a government priesthood could be allowed to handle money.
No money hoarding, no usury, no inflation, no incentive to siphon it off. What would be the point of hoarding it? It can’t get you any more.
Gordon, Most of your argument has absolutely NOTHING at all to do with my positions on money, and falsely attributing positions to me that are not mine, and which I vigorously oppose, does me (and you) a great disservice. You speak of me “walking into a trap” of thinking money is a commodity, when that is entirely false. I have taught for years that money is nothing but a token, or proxy, for real wealth. I fully know, understand and teach that money has no “intrinsic value”. Not even gold has “intrinsic value”. You speak simplistically as if those of us here had no clue about what a “Ponzi scheme” is, or how it works, when exactly the opposite is true. We have understood your “Ponzi scheme” mathematics for longer than you could imagine, and have been trying to educate people about the dangers of them. I’ve been blogging about this stuff since the mid 90’s, and predicting this crash since before the tech-wreck of 2000-2001 and the housing bubble that followed that.
It is YOU who need to think this through, not those of us who have been studying and writing on this problem for years. When YOU have read or seen all the references I’ve given you, or read the rest of Ellen’s book, and if you STILL don’t comprehend the real nature of the interest problem, perhaps I will devote more time to it. For now it is a dead issue, and a waste of everyone’s time.
You simply cannot outlaw interest without destroying the economy, and that is NOT the objective. What is needed is to shift money creation to the sovereign governments that represent the people that elected them. That is THE ONLY solution. It is not to abolish interest, but to RE-DIRECT and properly regulate it. It must become a part of a sustainable economic system.
We all understand your mathematics, and the impossibility of continuing (sustaining) an infinite interest growth model in a finite system.
What you are proposing is akin to saying the way to stop theft is to outlaw property. No property = no theft. Simple huh? Or so you would have us think.
No. It isn’t that simple, but close. The first thing that needs to be done is to mentally separate the charge for creating private money (interest on something that did not previously exist) from that charged on the loan of existing wealth. Charging a fee or return on the use of existing wealth is not only sound, ethical, moral and sensible, but indispensable to a prosperous society or culture. What is suicidal is the charging of compound interest on money created by the stroke of a pen, or a keystroke – money that never existed before it was borrowed.
Can’t you grasp this vital distinction? It is crucial to any understanding or comprehension of our impending money collapse, and the resulting takeover by the new world financial order – i.e., the Fed, IMF, BIS, Bilderbergers, etc.
The problem is an economy that allows privateers, pirates and thieves to usurp (steal) it’s money-creation authority and thereby redirect the seniorage and benefits (profits) from the money-creation process is the real problem. THAT is the real culprit. SOMEBODY has to create (originate) money, and SOMEONE has to bnefit (profit) from that money-creation process. The only remaining question is:
WHETHER THAT SOMEONE WILL BE AN ELITE OVERCLASS OF MONEYMASTERS – AN ARISTOCRATIC MONEY ELITE – OR IT WILL BE THE TAXPAYING PUBLIC – THE GREAT MIDDLE CLASSES, VIA THEIR ELECTED GOVERNMENTS?
Someone is going to profit from the money-creation (origination) process, be it financiers of the people.
Take your pick.
“You simply cannot outlaw interest without destroying the economy…
Charging a fee or return on the use of existing wealth is not only sound, ethical, moral and sensible, but indispensable to a prosperous society or culture.
SOMEBODY has to create (originate) money, and SOMEONE has to benefit (profit) from that money-creation process.”
__________
All of the above is simply hogwash. I can’t believe that you said it Jere. Credit is as essential to a modern trading society as the air we breathe, so ALL credit must remain in the public domain and be interest free.
If credit is only issued for productive purposes, then the total amount of credit in existence will match value of the asset wealth that it creates exactly. As the assets are used and wear out, the outstanding credit that was issued initially to make their production possible, should be reduced (paid back) at the actual rate of the asset’s depreciation.
In such a case, the only fair fee or return on the use of existing wealth would be the amount that the borrower’s use depreciates the value of the asset. There should be no additional profit earned by the lender because he has not contributed anything productive to the process. He may have given up the right to depreciate the asset himself, but he has done nothing productive to increase the value of it either, so he has no legitimate claim to a reward. Demanding one, however, throws the delicate balance of credit (money) supply and demand out of the window.
As Gordon has properly sensed, the rest is just the same old smoke and mirrors of circular thinking.
utopian, on November 1st, 2009 at 6:52 am Said:
Jere: “You simply cannot outlaw interest without destroying the economy… Charging a fee or return on the use of existing wealth is not only sound, ethical, moral and sensible, but indispensable to a prosperous society or culture. SOMEBODY has to create (originate) money, and SOMEONE has to benefit (profit) from that money-creation process.”
__________
utopian wrote: “All of the above is simply hogwash. I can’t believe that you said it Jere. Credit is as essential to a modern trading society as the air we breathe, so ALL credit must remain in the public domain and be interest free.”
____________
And I can’t believe YOU, untopian, are not only missing the point, but are twisting my words and positions here, as above. OF COURSE CREDIT IS ESSENTIAL TO A MODERN COMMERCIAL ECONOMY!!! THAT IS MY POINT. That is the reason interest cannot be abolished. No interest, no lending, no lending, no economy.
HOWEVER, IT IS NONSENSE TO SAY ALL CREDIT MUST REMAIN IN THE PUBLIC DOMAIN, AND BE FREE OF INTEREST!!! That statement is simply wrong, and not only wrong, but really dangerous and destructive of things you and Gordon want to keep and cherish in our world – good things – productive things. Most credit comes from “Capital”, private capital. Or at least it should in a properly run economy. If you eliminate private capital investment and the right to change a fair rate of interest on that investment, you wipe out the majority of our productive economy. Again you continue to advocate shooting the host to kill off the parasites. Overkill is not the solution, and never will be the solution.
_________________
“If credit is only issued for productive purposes, then the total amount of credit in existence will match value of the asset wealth that it creates exactly. As the assets are used and wear out, the outstanding credit that was issued initially to make their production possible, should be reduced (paid back) at the actual rate of the asset’s depreciation.”
The above is nonsense. Who is going to determine what is or is not a “productive purpose”? Think how many of our modern conveniences would not exist today is “credit” was only issued for someone’s idea of a “productive purpose”? No transistors, microchips, internet, personal computers, cell phones … the list is endless. Risk is essential to invention and innovation – progress.
utopoan continues:
“In such a case, the only fair fee or return on the use of existing wealth would be the amount that the borrower’s use depreciates the value of the asset. There should be no additional profit earned by the lender because he has not contributed anything productive to the process. He may have given up the right to depreciate the asset himself, but he has done nothing productive to increase the value of it either, so he has no legitimate claim to a reward. Demanding one, however, throws the delicate balance of credit (money) supply and demand out of the window. As Gordon has properly sensed, the rest is just the same old smoke and mirrors of circular thinking.”
_______________
What Gordon has properly sensed is that confusion about the issues will indefinitely delay vital solutions. Those that foisted this pernicious system upon us are clever beyond the imaginations of most humans. Only those who have long been “disconnected from the Matrix can see the clear reality. Talking about doing away with all interest in order to take down the banksters is an RX for destroying the entire world economy. That is exactly what the NWO-moguls want! Then “they” get it all on a platter, lock, stock and barrel, without a peep of protest.
Is that what you want? Do away with all interest and that is what you will get.
utopian, The circular reasoning here is yours and Gordon’s , not mine. Under your scenario, most private lending would simply cease, eventually bringing down the economy. But your big mistake is in not separating out (in you mind) that interest which is charged of the phony private creation of imaginary money – money that is backed somehow by the full faith and credit of the US citizen/taxpayer (Ponzi-scheme INTEREST) – from other forms of interest on loaned REAL wealth. Please read some stuff by David C Korten, especially the Great Turning, or even more to the point, “Agenda for a NEW Economy.”
300 years of false programming about money, interest and economics have poisoned our minds to the truth – they have filled our minds with so much “sludge” that it appears we can’t think clearly or logically.
ABOLISHING ALL INTEREST WOULD DESTROY OUR CIVILIZATION! THE ONLY REAL SOLUTION IS TO RECLAIM THE MONEY AUTHORITY FOR THE PEOPLE.
I’m sorry Jere, it appears that I mistook you for being someone else. No hard feelings I hope.
The issues that I have tried to raise here are far too complex to be explained in tiny blog bites. I assumed that you had read and understood the bigger picture that I present here: http://www.monetaryreform.com/MR/betterWay.htm but obviously I was wrong.
I love you brother, and I’m sure the world will be a better place if you and Ellen are successful at implementing the monetary reforms that you recommend. At least, our taxes should go down.
best of luck,
utopian
utopian, your apology is accepted and appreciated.
However, you were not wrong. I have looked over your material on your website extensively, although I do not profess to recall every detail. That you favor abolishing all interest was something I apparently missed.
This debate over interest, and the “gold standard” are the two issues I’ve spend most of my time debating with people over the years, and even decades. Once “money”, “currency”, “legal tender”, “fiat” notes, drafts, bills, coin, credit, debit and so on, are properly defined and comprehended in their ideal forms, these semantic debates will no longer be a problem, except for those whose intent is to deceive, or mislead, For now we will have to agree to disagree on the issue of interest, and its proper (or improper) place in our economy, and/or monetary system.
Cheers… and the love and respect is mutual.
I have thought, and believe I have stated, that I think your website is among the premier ones on money reform that I’ve seen, laying aside this one issue of apparent contention.
I agree that these complex issues cannot be addressed properly in small sound bytes. That is why we have asked those who post at length here be familiar with the basics of money reforms as outlined by Ellen H Brown, Stephen Zarlenga of the American Monetary Reform Institute, and other leading edge thinkers and authors on these issues.
Otherwise we are just burying essential truths under tons of words, and confusing people rather then educating them.
Jere, tell me one thing. Why is usury “indispensable to a prosperous society or culture?”
If you cannot explain that in a sentence or a paragraph then there is no point reading a book. It does not take a book to give a simple answer to a simple question.
You say you understand that money is just a token. Yet you do not understand that if you allow interest-taking or “rent” on money, then it is no longer a token. It becomes a commodity in itself.
Jere that is a huge disconnect. If you cannot see that simple fact, then I must assume that the rest of your theory is fatally flawed.
What you and Ellen seem to be advocating, replacing the entire lending system now in place with a government-controlled entity that is going to do the exact same thing — only they are going to be more ethical.
Really? You are replacing one caretaker of a commodity of supreme value, with another.
This is the same idea the communists had when they decided to take the means of production away from the elites and replace it with a government elite that would be more benevolent.
True, the system did end up hugely more fair to the average person. I traveled and worked in the Soviet bloc during the 1980s and stayed with people and saw how they lived. In a lot of ways they had advantages that we don’t, namely being free of the stress that comes with being a debt-slave.
So I am sympathetic to the idea of socialism, actually. But 99 percent of the people in the US are not. All anyone has to do to stop this entire project, if it ever even picks up steam is to shout, “Socialists.”
Look at the health care debate and the tea partiers. Do you think these people are going to stand by and let you evict the bankers and Wall Street. They won’t even let you take on the health insurance companies.
But the simple fact is that a socialization of the banking system is not necessary. And it is not the solution, IF you insist on carrying on with usury. It will just be the same thing run by an entirely new elite. That’s why your system needs the punishment of death hanging over anyone who cheats inside the system.
None of this is necessary if interest is abolished. It is a perfectly self-regulating system. No one CAN cheat. It is impossible precisely because money cannot breed more money.
If you can put in a socialized banking system WITHOUT usury then sure, no problem. More power to you. Good luck with getting it past the tea partiers and the bought and paid for Congress.
It is your idea that misses the real diagnosis and the real cure. I’m sorry to resort to your aggressive tone, but I am growing tired of your ungracious manner.
Gordon Arnaut, on November 1st, 2009 at 12:28 pm Said:
Jere, tell me one thing. Why is usury “indispensable to a prosperous society or culture?”
_____________
Gordon, Why would I try convincing you of something I think is absurd?!? But what is more absurd is that you could imagine I could think such a preposterous thing! I have been writing and teaching against “usury” all of my 71 year life! What sewer are you dredging this stuff up from?
You lurch from one misrepresentation of my positions to another, and I will not tolerate it much longer. You may find value in wasting your time. I do not.
INTEREST is indispensable to a prosperous economy (society) NOT usury! Stop twisting words and their meanings.
You accuse ME of “huge disconnect”, yet apparently can’t see the “huge disconnect” in your reasoning above:
“You say you understand that money is just a token. Yet you do not understand that if you allow interest-taking or “rent” on money, then it is no longer a token. It becomes a commodity in itself. Jere that is a huge disconnect. If you cannot see that simple fact, then I must assume that the rest of your theory is fatally flawed. What you and Ellen seem to be advocating, replacing the entire lending system now in place with a government-controlled entity that is going to do the exact same thing — only they are going to be more ethical. Really? You are replacing one caretaker of a commodity of supreme value, with another.”
___________
First you say money is not a commodity,(which is partly true in some cases, and not in others) and then you say “we” would replace one commodity of supreme value (money) with another. This is extreme gibberish, nonsense. You can’t have it both ways. I do not believe in commodity or commodity-backed public money.
In the first place “we” (money reformers) are talking about transferring to public authority and control ONLY those banking functions that involve the creation/origination of money. That is a sovereign right, or authority, delegated to governments by the people, or citizen-taxpayers that governments are supposed to represent, and our government representatives had no right or authority to give that sovereign authority to banksters, as they did in 1913 with the Federal Reserve Act.
Let’s get this straight: We propose to take back the money-creation functions of banking, and restore it to the people, where it rightly belongs. Any interest derived from the issue of money should be returned to the people in lieu of taxes – taxes which mostly are the result of interest paid to the private bankster bloodsuckers that now suck our lifeblood (using interest) with every dollar circulated or created bearing compound interest.
I am also going to address another point Ellen brought up, about the possibility of carry-trade springing up.
That is the situation where someone borrows money at a low interest and lends it somewhere else where the prevailing interest rate is higher.
This situation has been been going on for quite some time with Japan. Moneylenders borrow money in Japan because their interest rates are low, convert the money into US dollars and lend it out at higher interest.
I will just note that the Japanese obviously realize that pushing interest rates down is the right way to go. I suspect they would prefer to have a zero interest rate, if they weren’t already getting beaten up with this carry trade.
So yes, the carry trade question is a genuine concern. If the US did abolish new money interest-lending, it would be a boon for the global carry trade.
Or would it? Financial companies that borrow money at low interest rates, in order to speculate have one fatal flaw. If they make the wrong bet, they go kerplunk.
The formula for carry trade involves not just relative interest rates, but also currency values. Let’s say they borrow interest free in the US and lend it in Japan. They have to trade US dollars for yen. The more they do this, the higher the yen rises. pretty soon, the interest that they get back in Japan is not enough to buy back the dollars they need to even pay back the principal.
Yes, there will be a few billions to be made at first. But it will not last long and it will not have a big impact. Again we have to get our minds around the idea that 5 or 10 percent is not a huge deal. It is not enough to sink the ship.
What about illegal carry trade in the domestic market? Let’s say a chiseler borrows money interest free from the bank and then, after some clever paper shuffling, offers that same money for lend at interest.
Well, who is going to take him up on it when you can go down to your bank and get an interest free loan? But let’s say you are maxed out on lending. the bank won’t lend you more. Or you have bad credit. Either way you now need to go the secondary lending market, where cash can be lent at interest.
Again, the bad credit pool is only a small percentage, so only 5 or 10 percent at most will take advantage of this market. Not a big deal.
But here again, natural market forces come into play. There are still people saving. Now this illegal carry-trader has to fight for a limited market with legitimate folks who are saving. The interest rate they can charge goes down. Plus there is the risk of defaults; we are talking about bad credit risks here. Get enough defaults and how are you going to pay back the principal that you borrowed for this criminal scheme in the first place?
Plus there is always the chance you will be caught and go to jail.
Bottom line is that illegal carry trade will be practically negligible.
So all told, we sum everything up. ON the plus column we have every single consumer diving a pie that amounts to over 40 percent of GDP. That is the amount extracted by the financial sector.
On the negative side we have a few folks who choose not to save money, but invest in stocks. There is also a troublesome international carry-trade that will siphon off some money. But it too is a drop in the bucket. Illegal carry trade at home. Maybe a few small time fringe players here and there. After all there are still mafia loan sharks operating.
Thank you Gordon, for completely making my case about the impossibility of “abolishing all interest”. Ellen was raising her example as only one of a literally endless number os similar cases where attempting to abolish interest simply will not work. I myself was going to bring up the black market, and loan-sharking as other examples, but you have kindly done that for me.
All of which brings me to the point, which is, what is your point? You’ve just negated your previous point that all interest should be done away with in order to fix our money problems. So what is the point of all the above?
I am also going to talk about the benefits of abolishing interest on new money lending. (Again, because I have covered the possible downsides already, but not the benefits.
What would happen if interest (on new money lending) was abolished tomorrow?
Everyone would be at their bank the day after tomorrow and refinancing their mortgage. My mortgage payment would be cut by more than half. (Others might be more than half, or less, depending on how close they are to paying off their mortgage).
Overnight, the discretionary income of practically all consumers would increase significantly. What would they do with the extra money? Some of it might be put aside, but a lot of it would be spent.
I don’t think I need to connect the dots and point out what a huge jump in consumer spending would do for this economy.
What about businesses, which also borrow money? Every business would likewise see an infusion of cash flow, just like consumers — by way of the interest saved.
In order to compete, each would have an incentive to lower prices. The net result: consumers with more money in their pockets; a marketplace of goods and services that now cost less.
Put those two together and we have REAL PROSPERITY.
We add to this the fact that inflationary pressure caused by the need for the money supply to expand more and more every year, in order to pay the interest on previous years, is gone.
The money supply need only expand by the amount that new production is introduced. No new production? No problem. No new money needed. No need to create more debt-money simply to pay the last year’s interest (and the accumulated interest on the previous 10 or 20 years that is still demanding payment).
So what is the problem?
When we add everything up, we see that the only real downside to abolishing interest on new money creation is the possibility of a cross-border carry trade opening up.
The effect of this is not that big in the overall picture. In engineering we often ignore variables that have an impact of less than 10 percent, in order to simplify our model. We distinguish between things that have a major effect and those that don’t.
I would also bet that if the US did away with interest on new money, the major economies would quickly follow suit. The US is the center of the world financial empire and basically dictates the rules of the game.
What I see with Japan’s low interest rates is that they are sick of this game (and have been for the last 15 years), but they have no choice but to go along. If the US abolished interest on new money, they would jump right in too.
In that case, there is no chance for a carry trade.
In fact, I think the move to zero-interest new money will be inevitable. Even the bankers realize they must do this now, which is why they are doing it. At least among themselves.
They still want to hold on to the old flawed interest-lending paradigm, but the forces of nature are against them. Inevitably, interest-lending MUST collapse (for new money creation). Time will tell that this is so.
Gordon Arnaut, on November 2nd, 2009 at 11:24 am Said:
I am also going to talk about the benefits of abolishing interest on new money lending. (Again, because I have covered the possible downsides already, but not the benefits.
What would happen if interest (on new money lending) was abolished tomorrow?
Everyone would be at their bank the day after tomorrow and refinancing their mortgage. My mortgage payment would be cut by more than half. (Others might be more than half, or less, depending on how close they are to paying off their mortgage).
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With all due respect, Gordon, you are dreaming here. You haven’t begun to cover all the possible downsides or the upsides of abolishing interest on privately created new money.
You ask, “What would happen if interest (on new money lending) was abolished tomorrow?”
The 800 lb gorilla, in-your-face answer is that there would be no new money lending. What private banker is going to loan out money, even to the most credit-worthy borrowers, at 0 percent interest?
None! Nada, zip, zilch, zero… how many ways can you say “nobody”?
Your answer to your question is, “Everyone would be at their bank the day after tomorrow and refinancing their mortgage. My mortgage payment would be cut by more than half. (Others might be more than half, or less, depending on how close they are to paying off their mortgage).”
Where is all this new money at zero percent interest going to come from, Gordon? What private banker or financier is going to refinance trillions of home loans (mortgages) at zero percent when they are already getting 6 or 7 or 8 percent?
Do you really think legislation can force private bankers or lenders to loan money to all takers at zero percent interest?
What planet did you say you were from?
Only sovereign (government) entities could properly loan money at zero interest, and then only to certain other sound state, county or municipal entities who are “too big to fail” in the only real sense of the word that makes any sense. And then it would be in the public interest, or common good, (commonweal) to do so. Roads, bridges, water and sewer facilities, communications, airports, shipping ports, public parks… all these would be proper candidates of zero interest financing IF, repeat, IF the money was created by the public government authority without interest attached to it.
There are some other municipal, state or national projects that might qualify for zero financing, such as student loans (most could actually be grants) or schools, playgrounds, libraries, media centers, performing arts theaters, arenas, and town halls. But only if the money were created without interest by a sovereign public authority under the transparent watch-care of the public and their elected representatives.
Enough of this foolish talk of legislating interest out of existence. There may be a day in the distant future where such an idea might be possible, but it will be far, far away, and the profit motive will have been replaced by the “service motive” by a large portion of humanity.
We are not close to that yet.
Jere:
(Starting a new thread. Last one was getting a little too squashed.)
To pick up where we left off, you said:
“What good is worrying about the ‘stimulative capacity’ of money, when the total value (buying power) of money goes to almost nothing? That is what is happening, and it is happening by design. It is being carefully and deliberately planned by those whose intent is to rule over our planet.”
Allow me to summarize the problem as I understand it.
1) Money is a symbol, or as you put it, a “token” of the exchange of goods and services. It is merely a vehicle for conducting transactions. In short, it has value because it has been assigned value by either a state or financial mechansim and is accepted by the market as the common medium of exchange.
2) Reward or compensation for labor has been defined in monetary terms. Our labor translates into money which becomes the ticket granting access to goods and services.
3) Money is being used as a control mechanism by financial elites through manipulation of currency.
As debt bubbles are deposited at the lowest possbile levels of the economy and grow to consume entire nations, that control grows along with it. We soon reach a point, and perhaps already have, where it becomes a numerical impossiblity to get out of hock.
4) As the debt bubbles grow, we as individuals and as a nation are forced to borrow larger amounts of money and to dedicate larger portions of wealth to social spending to maintain social order and stability. As this happens, the ability of the currency to represent fair and just reward for labor diminishes in reciprocal fashion through currency devalutaion.
In the mean time…
5) Automation is accelerating beyond our capacity to retrain the workforce for new postions. Automation differs from economic downturn because jobs that go away do not return.
6) As automation matures, the ability and impetus to outsource labor grows. Markets themselves become exports.
So where does this leave us? It means that the population is being squeezed on multiple fronts with one common result: access to goods and services is being snuffed out by not only currency but the translation of labor into goods and services. Both labor and currency are being rendered irrelevant.
It seems to me that the shortest distance between two points is a straight line. What is hurting us is nothing more than our original belief in currency by equating it to goods and services. Fixing currency, therefore, is ultimately a stopgap measure at best. It is temporary. Whether we use Reserve Notes or baseball cards matters little. It is easy to manipulate via political machinations, bank scares, etc. And, short of a constitutional amendment, we will likely see the policy usurped again as it has been throughout our history. Even then, I’m not sure it will prove impenetrable.
Let’s assume for a moment that the masters of money are able to realize their vision tomorrow. There is a single world currency, they have complete control of it, and are able to puppet populations at their whim.
At the same time, let’s assume that tomorrow also sees automation grow to levels that negate the worforce beyond the levels needed to sustain access to goods and services for a majority. In that brave new world, money becomes the sole lock on the door to goods and services for which we no longer have a key.
My guess is that we would see barter economies spring up long before that point. Whether that’s 20 or 100 years from now, I don’t know.
(Note: I’m already seeing a resurgence of second-hand stores and bartering in and around my community. Stores with a “Buy, Sell, Trade,” theme are having no problem staying in business.)
What would we do then? We cannot challenge the world. Our only option, it seems to me, is to forego the dogma of money. If money no longer represents access to goods and services, doing away with it is the quickest, and perhaps only way, to free ourselves. Any new currency would likely be met with an insurmountable resistance.
Recalling that the central message of Oz was that each had the power to overcome their deficits all along. Dorothy needn’t have defeated the witch. She merely needed to will herself home.
I’m not suggesting that a barter system is the ideal solution, but I am suggesting that all slavery is rooted in one dogma or another and that same dogma is used to enable the servitude. Remove the dogma and the slavery dissolves.
Perhaps the problem is that we are limiting ourselves to a singular solution which only lends itself to control. The only constant requirement is access to goods and services. If we diversify the way we exchange goods and services now, neither the pain nor the learning curve will be very severe. What about hybrid economies with strong communal, barter, resource-based, and/or multiple currency sectors? Just brain-storming here.
Well you have a good brain for “storming” Rick. Problem is, your post covers too much ground for detailed reasoned responses.
IMO, you start off great for the first quarter, start tacking off course a bit with the automation stuff, and then lose your way before regaining your compass at or near the end.
Your piece would make for a great dialogue between us, if I only had the time.
Just remember that although Dorothy could have just “willed herself home” at any time, (had she known that) it would not have done anything to help the citizens of Oz, who were freed from their oppressors by destroying the wicked witches.
Helping oneself is good, but helping ones community, state, nation, or even one’s world is far greater and more noble.
I’ll try to return to specific parts of your post as time permits.
Cheers, Jere