You can't regulate pirates

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You can't regulate pirates

This thread was inspired by reading many threads on the economy and money creation.  In This Time Is Different, Reinhart and Rogoff make a strong case that all systems that have been tried eventually self-destructed.  I have observed repeatedly in my life that a system is only as good as the people who run it.  There is no mechanical design that will solve this problem as long as powerful people have the capacity to subvert it to their advantage.  Here is a quick sketch of some of the issues that brought us to our present state and frustrate ideas for improvement.

1 - Short term thinking  –  People are hard-wired by evolution to grab the quick reward and let the future take care of its self.  Individuals and cultures that have the discipline to defer gratification and plan for the long term will do better overall, but only if they are not overwhelmed by the short-term thinkers.

2 - Mature economy  –  As our economy matured and basic needs were readily met, we created demand for new products and services that were not productive, but consumed wealth instead.  Buying imported oil and shipping our manufacturing capacity overseas compounded the problem.

3 - Complexity  –  As cultures mature their increasing complexity no longer provides benefits, but becomes a detriment.  (The Collapse Of Complex Societies, Joseph Tainter, 1988)

4 - You can’t regulate pirates  –  Some people have a consuming drive to acquire power through money.  When those with no scruples are the most successful, then corruption spreads throughout the system as others adopt these destructive ways out of self defense.   No amount of bureaucratic micro-management will contain them.  They must be driven from the system or broken into small units as was done with the anti-trust laws over 100 years ago.  This can’t be done when they can buy Congress.

5 - Sovereign control  –  Some people have a consuming drive to acquire power through politics.  Again, when those with no scruples are the most successful, corruption spreads throughout the system as others adopt the winning strategy of the political pirates.  The American constitution was designed to stop this, but it has been systematically subverted over the years to reward those with power.  Any economic or money system you can create is vulnerable to sovereign power.  “Who guards the guards?”

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.”  –  Alexis de Tocqueville, 1835

6 - Decadent citizens  –  When life was hard and people struggled to get by, there were brakes on our government.  Citizens voted out politicians that did not acknowledge their reality.  With prolonged affluence people came to expect unsustainable ways to continue working because they appeared to be successful.  Comforting beliefs that are not realistic flourish without a reality check.

The dilemma  –  Most people just want to get on with their private lives.  Making a living and raising a family consumes most of our energy and attention.  The people who run our economy and government are consumed by their drive for power.  They do this all day everyday, all their lives, and are well rewarded.  Their inside knowledge allows them to rig the system in innumerable ways and paint their actions with a veneer of respectability.  You can’t beat an expert at his own game.  No matter what system you devise those without scruples will find a way to subvert it if allowed.

So we have the corporate and wealthy elites bribing Congress with campaign contributions.  And Congress bribing the citizens with benefits they aren’t paying for.  And everyone passing the bill to “the future”.  We were all fat and happy.  Now the bill is due, and as Chris says, “The future is here.”

Realistically, I can’t see much changing until things fall apart and hard reality forces everyone to be more responsible.  Then the cycle starts all over again.  In my view, any proposed solutions have to contend with all the issues above to have any chance of success.

What are your thoughts?  Feel free to disagree, but please explain why.  I think we can have a good discussion about this and all learn from it.

Travlin

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Re: You can't regulate pirates

Pretty concise summary of how it is.

Realistically, I can’t see much changing until things fall apart and hard reality forces everyone to be more responsible.  Then the cycle starts all over again.

I agree. Things have to fall apart for it to change but what comes after it all falls apart? This just maybe the time that the global-powers-that-be decide to wrest control from a helpless world population and usher in a new feudalism. Whats to stop them? Once the military, government and banks meld together as one entity, protecting and supporting one another, the outlook could be grim.

History shows we tend to not have much of a collective memory.

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Re: You can't regulate pirates

Travlin wrote:

What are your thoughts?  Feel free to disagree, but please explain why.  I think we can have a good discussion about this and all learn from it.

Travlin

I don't think anyone here would disagree. This pretty much tells us where we are. And it's so easy for politicians to use wedge/hotbutton issues to divide us and divert our collective attention. Where do we go from here?

Poet

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Re: You can't regulate pirates

Where do we go froom here? I've been trying to figure this for years.  "Waltons" or "Mad Max" which will it be.

robie

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Re: You can't regulate pirates

Fits and spurts and fits and spurts and dying gasps and fits and spurts as we move towards Waltons.

I think we'll end up with our very own Sulla with proscriptions and then a strong Imperator before it really all falls apart and opens the door for ?Mandarin? to become our Mad Max language in about 60-80 years.

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Re: You can't regulate pirates

I agree with every word travelin.  My only caveat would be that of the Fall of Rome versus the descent of the British Empire.  Rome managed to keep things together with bread and circuses and our bread and circuses are so much more compelling and fun than theirs were!  We have entertainment and diversion for every taste,  and a system which creates a compelling sense of importance to these diversions.  And, we have a food system designed to keep us moody, soporific, and unhealthy.   The combination is marvelous at dampening uprisings.

That is why I suspect, that barring outside intervention the US will slide into genteel decline with an ever worsening standard of living and declining rights but few will notice until it is all gone and our grand children wonder what the hey we were thinking. 

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Re: You can't regulate pirates

Reminds me of my favorite passage from Frédéric Bastiat's "The Law" (1848)

Property and Plunder

Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.

It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.

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Re: You can't regulate pirates

Great post Travlin, you pose some very important questions.

"You can't regulate pirates" - I don't disagree with this statement but I would suggest that our big problem is that the pirates are the regulators. 

Travlin wrote:

This thread was inspired by reading many threads on the economy and money creation. In This Time Is Different, Reinhart and Rogoff make a strong case that all systems that have been tried eventually self-destructed. I have observed repeatedly in my life that a system is only as good as the people who run it. There is no mechanical design that will solve this problem as long as powerful people have the capacity to subvert it to their advantage.

No doubt, there is no perfect system.  There will always be some amount of fraud, inefficiency and abuse.  But some systems are infinitely better than others in achieving a fair and sustainable economy.

You mentioned that "Reinhart and Rogoff make a strong case that all systems that have been tried eventually self-destructed."  I disagree, and I'll use our system as an example.  The coming collapse of the American economy is not "self destruction" - it is being intentionally destroyed by a small subversive group who have usurped the government with the ultimate power to create and control money.

We know that debt grows exponentially in our system and that it is destined to collapse.  We know we are very close to peak debt - the end of our economy.  As the first act of citizenship, newborn Americans are strapped with over $300,000 debt.  Deep down, we know that it is thoroughly immoral to allow our children to be born into debt bondage.  But yet we continue down this road to hell.

It doesn't have to be this way...there are alternatives.

Larry

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Re: You can't regulate pirates

land2341 wrote:

That is why I suspect, that barring outside intervention the US will slide into genteel decline with an ever worsening standard of living and declining rights but few will notice until it is all gone and our grand children wonder what the hey we were thinking. 

+1

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Re: You can't regulate pirates

That's an excellent post Goes211.  It kind of cuts to the core of our problem.

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Re: You can't regulate pirates

Well, so far it looks like I’m preaching to the choir.  Thanks for the responses.  We’ll see what the evening crowd has to say. 

Goes211 – That is a remarkable quote.  It succinctly states what I was trying to say in a much more eloquent manner.

Travlin

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Re: You can't regulate pirates

DrKrbyLuv

To give credit where it is due, among other people, your various posts about sovereign money were a major inspiration for this thread.  Particularly your posts 6 and 9, and my post 7 here http://www.peakprosperity.com/forum/kotlikoff-were-doomed-scroomed-and-unboomed/43288#new.  Your thoughts challenged me to think hard about this question. 

Your message is essentially “The bonds we print are backed by the people and property of the United States.  The banks use our bonds as collateral against money they create for virtually free.  They are using our credit to back their money which they lend back to us (nation) with interest added.  The banks should be borrowing the new money they issue from the Treasury since they are using our sovereign credit.  They use our credit and they give us debt that can only increase and never be fully repaid.”

My concern is this – “Under the current system when the government spends more than its income it officially acknowledges a debt that supposedly should be repaid, and incurs the penalty of interest payments. … If the government printed the money directly we would indeed avoid interest and the obligation to repay the debt, so there would be no brake at all on  government spending.”

What it comes down to is that you think we can devise a sovereign money system that won’t get out of control, so we can eliminate the bankers’ cut.  I think we would just create a whole new problem for the reasons stated in my original post of this thread.  I am in good company on this point.  As I understand it, the Constitution specifically limited the federal government to issuing coins of precious metal, because many of the founding fathers witnessed or had disastrous experiences with government issued paper money, particularly the Continental dollars used to finance the revolution.

But here is what I keep coming back to.  Debt has its price, but as a nation we are never forced to borrow, except for a major war.  Even the huge debt of WWII was paid down in a few years because we had a truly productive economy that generated real wealth.  Today, in contrast to the USA, some countries even have a sovereign wealth fund of savings they invest in behalf of their nation.  China’s is around 2.4 trillion dollars and growing.  It is a failure of leadership and citizenship that got us into this mess.  Unless we solve that problem I can’t see how any system fixes will work.

The same is true on the individual level.  Judicious use of debt can be beneficial.  Improvidence and lack of discipline cause a lot of the problems.  Most debt can be avoided or at least kept manageable if people really want to.  The addict can’t blame all his problems on the drug dealer.

I think you’ll understand that I did not start this thread to “bait” you DrKrbyLuv.  You have raised important points in a thoughtful way.  The Federal Reserve and how money is created are components of our situation, but they are just part of the problem and I don’t think they can be fixed in isolation.  I see them as symptoms of a deeper problem.  Thinking about them has pushed me to look at the bigger picture and I don’t like what I see.

So help me out here folks.  Show me where I’ve gone wrong.

Travlin 

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Re: You can't regulate pirates

Travlin, et al,

First off, I do not feel "baited" in any way - it is welcome and refreshing to be engaged in a friendly discussion on such an important issue.  Unlike the other 2Es, our monetary system is man made and can be changed by man.

Travlin wrote:

My concern is this – “Under the current system when the government spends more than its income it officially acknowledges a debt that supposedly should be repaid, and incurs the penalty of interest payments. … If the government printed the money directly we would indeed avoid interest and the obligation to repay the debt, so there would be no brake at all on  government spending.”

I don't think that interest obligations or debt have curtailed government over-spending.  The tacit agreement between our country and the banking monopoly has been that the principal on the national debt never needs repaid.  As a result, the national debt is growing exponentially.

I contend that under our current system, government MUST run deficits.  As I mentioned before, all money is temporary...it is created by debt and destroyed upon principal debt repayment.  If the private sector is not borrowing enough to at least offset the amount of money being destroyed; then the government must act as the borrower of last resort to keep the money supply from diminishing.

We find ourselves at a point where the private sector cannot borrow enough as there aren't enough willing and worthy borrowers.  Government deficits have become a necessity as can be observed by the fact that our money supply is the national debt (both just over $13 trillion).

I think a "brake" on government "over spending" can only be achieved if a system is implemented that no longer makes the government the borrower of last resort.  The U.S. Treasury should create all new money but I don't think they should be the distributors of that money.  Private and state chartered banks should fulfill that role.  I would prohibit the federal government from running a deficit, it would be bound by the revenues it receives.

If an emergency arises, and a deficit is required, congress should be compelled to levy taxes to pay for the deficit.  Currently, there is no cost accountability or restraint as we simply push our deficits to future generations.

Travlin wrote:

As I understand it, the Constitution specifically limited the federal government to issuing coins of precious metal...

I think the constitution falls short of clearly articulating monetary principles.  But we have what we have, so I'll try to respond to your concern. 

Section 8, Powers of Congress, "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures...To borrow money on the credit of the United States."  One thing that seems clear to me is that only congress may create money, not private banks.

Congress has the power to mint coins which is different than "issuing paper money, checkbook money, accounting-entry money, or electronic money – the forms of money used most often today."  And, congress alone has the power to borrow against the credit of the U.S. - this may be done by printing bonds or paper money, both are forms of credit.

It does not say that coins must be made of precious metals.  We assume that because of different clause, Article I, Section 10, Clause 1, States Rights, No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt."  Clearly, states  are required to pay all debts with gold and silver...but I don't think it has ever happened. 

An argument can be made that the state provision implies that congress must make all coins from silver and gold but it doesn't say that.  And, we know that the U.S. has minted coins made of nickel, copper and zinc.  

Regardless, coins are different than credit forms of money; most notably paper and checkbook money.

Travlin wrote:

...because many of the founding fathers witnessed or had disastrous experiences with government issued paper money, particularly the Continental dollars used to finance the revolution.

Yes, there were problems with Continental dollars.  The Continentals were PM backed, they were to be redeemed in gold and silver.  The problem was that the U.S. didn't have any gold or silver in which to redeem the money.  Had they been "credit dollars" (incorrectly called fiat) it would not have been a problem.  Well, it may have been a problem as the Brits counterfeited large volumes of money in successfully diluting the money.  So, I guess I should say it wouldn't have been as big a problem.

I should note that Colonial scrip is different than the "Continental dollars" (called continentals) that were quickly printed to back the war effort.  Colonial scrip was hugely successful, especially in Pennsylvania and Massachusetts.

Whoever controls the volume of money in any country is absolute master of all industry and commerce.  - James A. Garfield

Larry

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Re: You can't regulate pirates

DrKrbyLuv

I think you are a gentleman and a scholar.  You have obviously studied these issues thoroughly compared to my beginning efforts.  But I’m game.  Since you are willing to invest your time to enlighten us here, I’ll try to hold up my end of an intelligent discourse.  First though, I’ll have to ponder your last post and compose a worthy reply which will take some time.  Nobody ever called me Light’nin.

Meanwhile I have a technical question.  I like the slick way you have your comments between multiple quotes from my post.  Do you edit by copying the codes

DrKrbyLuv wrote:
and

to do that?  Have you ever tried that while composing in Word and then copying back to the site?  My spelling is too atrocious to use the site box for composition.

EDIT - Well I just answered my own question about the quotes.  It worked.

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Re: You can't regulate pirates

Travlin wrote:

Have you ever tried that while composing in Word and then copying back to the site?  My spelling is too atrocious to use the site box for composition.

I can't spell my way out of a wet paper bag.  Here is one trick you can use on CM.com.  Before sending hit the "Disable rich-text" button.  It is not very readable but for some reason, when looking at your post in raw format, it will do a spell check for you.

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Re: You can't regulate pirates

Travlin wrote:

Meanwhile I have a technical question...Do you edit by copying the codes

You can spell check by putting the cursor over any text and right clicking the mouse, then you select "check spelling."  I rarely use a word processor to format text.  It may be a good idea but I'm too lazy.  

Look forward to coming response.

Larry 

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Re: You can't regulate pirates

Thanks guys.  Those techniques worked too. 

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Re: You can't regulate pirates

DrKrbyLuv

Let’s continue this discussion in two parts.  This post is primary as it deals with issues of your proposal.  The second post will deal with historical issues, which you and I find interesting, but are not critical to the utility of your proposal.  It may require some effort, but to the extent we can keep them separate, I think our discussion will be more productive.

Primary topic – Regarding your proposal for the federal government to issue money.

DrKrbyLuv wrote:
  Unlike the other 2Es, our monetary system is man made and can be changed by man. 

That’s a very important observation and grounds for hope.

DrKrbyLuv wrote:
  I contend that under our current system, government MUST run deficits.  As I mentioned before, all money is temporary...it is created by debt and destroyed upon principal debt repayment.  If the private sector is not borrowing enough to at least offset the amount of money being destroyed; then the government must act as the borrower of last resort to keep the money supply from diminishing. 

Lets go back to an earlier time before we had a massive national debt.  Do you think the system forced the government to run deficits then?  I understand that debt expands the money supply and repayment will shrink it.  If  national debts were temporary and repaid promptly I see no problem.  Even if we experienced mild short term deflation as a results, I doubt that would be worse than the permanent inflation we have had the last 97 years.

Now that we have amassed a huge national debt I agree that paying it down would have to be done very carefully to avoid big problems with the money supply, but I see no technical reason it couldn’t be done.  It was a lack of leadership that got us into this mess, not the system itself.  I didn’t have to be this way.

DrKrbyLuv wrote:
  I think a "brake" on government "over spending" can only be achieved if a system is implemented that no longer makes the government the borrower of last resort.  The U.S. Treasury should create all new money but I don't think they should be the distributors of that money.  Private and state chartered banks should fulfill that role. 

Please explain how the creators of money can be prohibited from spending it outright.  The lure of buying votes by providing goodies without taxes is an overwhelming nectar to politicians, as we see today.  This just eliminates the bankers as middlemen.

How would it be distributed without being “spent”?  All private banks today are charted by either the national or state governments.  The unique state chartered Bank of North Dakota is owned and operated by the state government.  It acts much like a central bank at the state level, but it doesn’t print money.  Is that what you mean?  How would this help?  http://en.wikipedia.org/wiki/Bank_of_North_Dakota

DrKrbyLuv wrote:
  I would prohibit the federal government from running a deficit, it would be bound by the revenues it receives.  If an emergency arises, and a deficit is required, congress should be compelled to levy taxes to pay for the deficit.  Currently, there is no cost accountability or restraint as we simply push our deficits to future generations 

I agree wholeheartedly.  I would further add a maximum revenue cap based on something like a percentage of the gross domestic product, or personal and business incomes.

The critical problem here is my original point about sovereign control.  Any prohibition on debt must have an exception for an emergency and Congress can always declare an emergency.  No power can make Congress behave.  At best, we can vote our own representatives out of office, but the other candidates are playing the same game.  Unless we turn the rascals out in mass it has little effect.  (November should be interesting in that respect.)  How can a law (or constitution) force congress to behave when they write the laws (or subvert the constitution)?  Even my revenue cap can be exceeded by changing how the numbers are defined or compiled

Here’s a current example.  As I understand it, Congress is required to pass an annual budget for the fiscal year starting September 1.  This year they have passed a continuing resolution to fund operations, but they won’t make a formal budget which sets the amounts and allocates where the money goes until after the November elections.  Cute huh?

I see the advantages of eliminating the bankers’ cut.  But if we can’t trust congress not to borrow like drunken sailors, with all the attendant penalties, how can we trust them with the power to create money directly?  Please explain how you would do this.

You bring up interesting points and I’m learning a lot from our discussion.  I look forward to your reply

Travlin

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Re: You can't regulate pirates

DrKrbyLuv

Secondary topic -- Regarding history, the constitution, and money powers

Your excellent response made it clear that the money powers seem ambiguous.  I acknowledge my error about the precious metals.  I don’t think it would be productive to go deeply into this area, but I’d like to make a few points.

DrKrbyLuv wrote:
  Section 8, Powers of Congress, "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures...To borrow money on the credit of the United States."  One thing that seems clear to me is that only congress may create money, not private banks. 

I see here the power to mint coins and regulate all coins in circulation.  The value of the coins would presumably be based on the intrinsic value of whatever metal they were made of.  This is not creating money, merely certifying it.  To borrow money presumes it came from someone else.  The power, “to emit bills of credit” that had been in the Articles of Confederation, were stricken from the draft constitution by an overwhelming margin.*

In general, the Constitution defined the powers of the federal government, set a few specific limits on the states, and said all other powers were reserved to the states or the people.  I don’t see that a private bank is prohibited from creating money through the fractional reserve system by the constitution.  Indeed for many years after the constitution was enacted banks commonly printed their own currency.  On this site you can find examples of private citizens doing the equivalent today

DrKrbyLuv wrote:
  Article I, Section 10, Clause 1, States Rights, No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt."  Clearly, states  are required to pay all debts with gold and silver...but I don't think it has ever happened. 

I think the founding fathers did not trust any government to create money.  That’s why they specifically prohibited that power from the states.  It is reasonable to conclude they meant the same for the new federal government, but did not specifically prohibit it, because the constitution defined what powers the new federal government would have, so it was prohibited by omission.*

I stand by my statement that this was, “… because many of the founding fathers witnessed or had disastrous experiences with government issued paper money …”.  I  concede the part about the Continental dollars.  This statement is based, among other sources, on the book The Creature From Jekyll Island, by Edward Griffin, which was seminal to Chris’s awakening.  You probably have a copy.  Page 310 has a section on Paper Money In the Colonies.  He reports that by the late 1750s state issued money resulted in inflation of 800% in Connecticut, 900% in the Carolinas, 1,000% in Massachusetts, and 2,300% in Rhode Island, and cites his source.

If I remember correctly, Thomas Jefferson inherited from his father-in-law one of the wealthiest estates in the land.  Under the terms of the contract by which he sold it he agreed to accept installments of paper money that later lost most of its value while he was still receiving installments.  I think the money was state issued.  He lost a fortune on the deal.  You are probably familiar with the facts so please correct any errors on this as I’d like to know the true story.

What is beyond question is that many of the founding fathers were unalterably opposed to any government issuing paper money, and publically said so.  For examples see the quotes in Jekyll Island page 315 and the preceding page.  The last paragraph of page 316 explains this prohibition clearly.

Here is a question for you.  Many of them also hated banks.  Yet they still allowed them to function and did not give the federal government a clear power to create money.  Why do you think this happened?

DrKrbyLuv wrote:
  I should note that Colonial scrip is different than the "Continental dollars" (called continentals) that were quickly printed to back the war effort.  Colonial scrip was hugely successful, especially in Pennsylvania and Massachusetts. 

See my remarks above.  By the way I’m following your new thread with interest.  It is very educational.  http://www.peakprosperity.com/forum/hidden-history-according-benjamin-franklin-real-reason-revolutionary-war-has-been-hid-you/4358?page=1#new

I had intended to keep this short but I got carried away.  I’ll try be more brief next time.  Beyond this I don’t think I’ll have much of anything productive to say on these secondary topics.  But I’d like to see your thoughts. 

Travlin

* The Creature From Jekyll Island, Edward Griffin, page 316  

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Re: You can't regulate pirates

Section 8, Powers of Congress, "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures...To borrow money on the credit of the United States."  One thing that seems clear to me is that only congress may create money, not private banks.

To coin Money is an action.  It does not mean that one has to mint Coins.  At that time all sort of things had been coined into money, metals, land, paper, leather, musket balls, tobacco, ect....  And yes at at time they used the terminology of "coined land".

Larry is correct.  Congress should be creating money but in our present time the only creators of money is the banking system.  They create money when someone goes into a bank and signs a promisorry note.

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Re: You can't regulate pirates

Secondary topic -- Regarding history, the constitution, and money powers

Travlin wrote:

In general, the Constitution defined the powers of the federal government, set a few specific limits on the states, and said all other powers were reserved to the states or the people. I don’t see that a private bank is prohibited from creating money through the fractional reserve system by the constitution.

Section 8, Powers of Congress, "...To borrow money on the credit of the United States."

This power is uniquely relegated to congress and I suggest that we are violating this provision by allowing banks to use the credit of the United States in creating money.  Ultimately, all privately created Federal Reserve Notes are backed by the people and property of the United States.  Our credit is being used by private member banks of the federal reserve system. 

If banks simply recycled the money they lend, then they would not be using our national credit.  For example, a bank could pay depositors for the use of their money in re-lending it to others as is traditionally done with savings and loans (thrifts) and credit unions.  Or a bank could lend their own money.

Congress draws from our credit when they print bonds.  If these bonds were used to buy something tangible, like natural resources from another country or entity, then it would be logical as we are receiving something of equal value in return.  But it makes no sense to issue bonds to borrow our own money from private banks.  Instead of printing bonds, we should be printing dollars.

Congressman Wright Patman, a champion monetary reformer, explains:

“When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money… I am saying to you in all sincerity, and with all the earnestness that I possess, it is absolutely wrong for the Government to issue interest-bearing obligations. It is not only wrong: it is extravagant. It is not only extravagant, it is wasteful. It is absolutely unnecessary.

Now, I believe the system should be changed. The Constitution of the United States does not give the banks the power to create money. The Constitution says that Congress shall have the power to create money, but now, under our system, we will sell bonds to commercial banks and obtain credit from those banks.

I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.”

Travlin wrote:

I stand by my statement that this was, “… because many of the founding fathers witnessed or had disastrous experiences with government issued paper money …”. I concede the part about the Continental dollars. This statement is based, among other sources, on the book The Creature From Jekyll Island, by Edward Griffin, which was seminal to Chris’s awakening.

Byron Dale, Modern Money Secrets, puts a needed perspective on our nations first attempt at issuing money.  

"The Continental Congress did not have any authority to tax (only states held the power to tax).  On May 11, 1775, John Hancock of Massachusetts placed before congress a plan to raise funds for the colonies' fight for independence.  The plan revolved around the idea of printing and issuing continental currency promising to pay Spanish Milled Silver dollars.

Why would honest men issue the paper promise to pay gold and silver if they had the gold and silver?  [If they had the coins, wouldn't they have used them instead?]  The Continental Congress did not have the Spanish Milled dollars or the gold or silver bullion to give to the holder."

This has been a problem that has plagued redeemable paper currency since our beginning - there has never been enough gold and silver available to back up our currency.  The fraudulent system works until people become suspicious and begin attempting to redeem the currency.  We saw this in the 1930's when the gold standard was dropped by the United States and most of the world.  Unfortunately, paper money was associated by some to fraud but they are two separate issues.  

Perhaps the bigger problem with the continentals was British counterfeiting.  In the 1770's, paper money was easy to duplicate.  The value of the money could be easily diluted and the British used this tactic, economic warfare, against the colonies.  According to Ellen Brown "Thomas Jefferson estimated that counterfeiting added $200 to the money supply, effectively doubling it: and later historians thought this figure was quite low."

Continental paper money was condemned by many not because of it's potential, but rather, it had been fraudulently backed and ripe for counterfeiting.

Benjamin Franklin claims that he offered a superior plan but congress did not accept it.  Instead of backing the money with precious metals that the government didn't have, he suggested that land was a much better means to back a currency.

One critical point missed by Griffin is that the colonies fought the Revolutionary War primarily over the right to issue and control their own money.  For more info, see my post "Hidden History: According to Benjamin Franklin, the real reason for the Revolutionary War has been hid from you."

Travlin wrote:

This statement is based, among other sources, on the book The Creature From Jekyll Island, by Edward Griffin, which was seminal to Chris’s awakening.

Many wake up to our predatory, privately owned, banking monopoly called the Federal Reserve, through Griffin's "The Creature From Jekyll Island" but I would suggest that the seminal work was done by Eustace Mullins much earlier.  Yamaguchy (unfortunately his "historical resource" website is gone) explained "Mr. Mullins was about the only conspiracy writer/bookseller who set foot and spent time in the library. All those booksellers of the past 50 years who blab about Jekyll Island and the Federal Reserve are living and making money off Eustace Mullins' work.  Not one of the 20th century conspiracy booksellers knows anything about the Greenback Party, its two election campaigns, Peter Cooper, Weaver, Berkey, Emery, Donnelly, the “Anti-Monopolist” and the 20 year war with the money power after 1865. And they know even less about what went on in the Congress in the 1830s."

He makes his point harshly but I agree, Mullins was a diligent researcher and his work was largely plagiarized by others without recognition.  His books "Secrets of the Federal Reserve" and "A Study of the Federal Reserve" are still the best books on the history of the Federal Reserve.

Travlin wrote:

Here is a question for you. Many of them also hated banks. Yet they still allowed them to function and did not give the federal government a clear power to create money. Why do you think this happened?

The private banking powers of England began attacking the United States even before the Revolutionary War was decided.  They have used every form of treachery imaginable, from bribes to wars in their quest to control governments.  The bigger goal is to eliminate nation states and bring on a new world government run by them.  Is this a conspiracy theory?  No, it's a conspiracy fact as the evidence is overwhelming...but that's another story.

Thanks for the great discussion...I'll try to respond to your Primary topic – Regarding your proposal for the federal government to issue money post shortly.

Larry

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Re: You can't regulate pirates

This statement is based, among other sources, on the book The Creature From Jekyll Island, by Edward Griffin

That book is among the worst books anyone could read when it comes to understanding the monetary system in the United States.  It's just a consiracy book filled with blatent lies and condridictions.

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Re: You can't regulate pirates

DrKrbyLuv post 7 wrote:

As the first act of citizenship, newborn Americans are strapped with over $300,000 debt.

This is from your post 7. Can you document this statement?  It sounds accurate to me, and I would like to use it myself if I could back it up.

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Re: You can't regulate pirates

DrKrbyLuv

Secondary topic -- Regarding history, the constitution, and money powers

Thank you for your thoughtful reply.  I appreciate the effort you put into it.  It is clear that we view these issues from very different perspectives.  We could argue them endlessly, but I doubt that would be productive for either of us.  We have each stated our case and any other people still reading this thread can decide for themselves.  I do have a couple of comments.

The Creature From Jekyll Island was a very interesting book and I had mixed reactions to it.  His conclusions about a conspiracy for a New World Order seemed way over the top to me.  However, his factual presentation of historical events struck me as accurate  They were supported by other books I have read, and were well documented by sources that seemed credible.  The section I cited seems sound to me. 

Your observations on Jekyll and information about Mullins was helpful.  Having informally studied history for decades I know that honest scholars write books with very different conclusions.  The veil of history can get murky indeed. 

I am slowly reading The Mystery of Banking, by Murray Rothbard, and Money, by John Kenneth Galbraith.  I would appreciate any thoughts you may have about those books.  Regardless of whether they support your position, what is their overall quality and accuracy?

Travlin wrote:
  Here is a question for you. Many of them also hated banks. Yet they still allowed them to function and did not give the federal government a clear power to create money. Why do you think this happened? 

DrKrbyLuv wrote:
  The private banking powers of England began attacking the United States even before the Revolutionary War was decided.  They have used every form of treachery imaginable, from bribes to wars in their quest to control governments.  The bigger goal is to eliminate nation states and bring on a new world government run by them.  Is this a conspiracy theory?  No, it's a conspiracy fact as the evidence is overwhelming...but that's another story. 

I think you’ll agree that you answered a question, but not the one I asked.  You and I differ in our interpretation of the power to create money as established by the framers of the constitution.  However, I think you will agree that it is a historical fact that ordinary banks were allowed to legally operate and create money after the constitution was ratified.  (Establishing a central bank was a separate issue.  That is not what I am talking about, so please don’t go there.}  Is it not also a historical fact that the US government did not issue any money directly until the Greenbacks of the Civil War and that act was very controversial?  Both of these points directly contradict your position.   I would still like to see your answer to my question if you would care to give it a another try.

This has been a good discussion.  I look forward to your response to part 1.

Travlin 

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Re: You can't regulate pirates
Hello Travlin and others!
DrKrbyLuv post 7 wrote:
As the first act of citizenship, newborn Americans are strapped with over $300,000 debt.

Travlin wrote in response:
This is from your post 7. Can you document this statement?  It sounds accurate to me, and I would like to use it myself if I could back it up.

I based this estimate on a total U.S. debt and unfunded liabilities of around $100 trillion which I thought was a little low but the math was easy.  Recently, Bloomberg ran an article "U.S. Is Bankrupt and We Don't Even Know It" by Laurence Kotlikoff: 

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

If $202 trillion is accurate, then each new born American would be on the hook for $673,333 dollars (202 Trillion / 300 million Americans).  Over double my estimate.

I had a few questions for you...

1)  Would it be safe to say that you fear that if government exercised it's power in directly issuing money, they would over-spend?  The alternative is to provide a "brake" in spending by making the government borrow to cover deficits which is what we have been doing for the past 100 years.  Given the amount of debt and liabilities, do you think the current system has restrained government spending - if so, by how much?

2)  The federal government may use our credit in issuing bonds or dollars.  Both are equally backed by the people and property of the United States.  Why on earth would we borrow our own money by issuing bonds?  The national debt is optional.  Most of our income tax is needed to pay unnecessary debt, how can you justify this?

3)  The banks are using the credit of the United States to back the money they create for virtually free (along with a borrower's IOU and collateral).  Why don't they pay us a usage fee if they are using our credit?

4)  I think you would agree that the United States is insolvent and close to bankruptcy.  If you were in charge, would you allow the U.S. to go bankrupt under this system, or would you directly issue the money, debt free, to start digging us out of this hole?

On a different note, you mentioned you've had a keen interest in history for several decades.  Me too, I was a civil war buff for many years.  Do you have any periods of history that you enjoy the most?

Larry

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Re: You can't regulate pirates

DrKrbyLuv wrote:

On a different note, you mentioned you've had a keen interest in history for several decades.  Me too, I was a civil war buff for many years.  Do you have any periods of history that you enjoy the most?

Are you referring to the War of Northern Aggression?  A civil war is between political factions or regions within the same country.  The Confederate States of America was a separate nation composed of states that had peaceably withdrawn from the union, which the constitution did not prohibit by the way.  Some consider it the second American revolution which unfortunately did not succeed.  As you well know the victors write history.  Cool  Here is an interesting short summary of the first battle of Fort Sumter.  Note that Lincoln had already sent a fleet of warships to enter the harbor.  http://en.wikipedia.org/wiki/Fort_Sumter

My area of expertise is World War II.  I have some knowledge of the technology and principles of warfare from ancient times.  I am fairly well informed in American history, particularly after 1850.  I know a little of world history in general.  I firmly believe you have to know some history to really understand human behavior and current events.

The questions you raised are good ones.  However, I need to ask that we defer that discussion until later.  I’m still waiting for your response to the primary topic - your proposal.  We may not yet be finished with the secondary topic - history, constitution, money powers   I’m open to a third topic of more philosophical matters after we have digested the first two.  I can’t handle any more topics at one time at this level of discourse.  You are keeping me on my toes.

Thanks for the info on the debt for newborns.  I had already seen the Kotlikoff article.  It is very good. 

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Re: You can't regulate pirates

DrKrbyLuv

Travlin post 23 wrote:
  It is clear that we view these issues from very different perspectives.  We could argue them endlessly, but I doubt that would be productive for either of us.  We have each stated our case and any other people still reading this thread can decide for themselves.

It occurs to me I may have caused some confusion with this statement.  If so, I apologize.  I meant that only for the Secondary Topic – history, etc.  However, I did invite you to address my question again.  In fairness you should feel free to offer another issue on this topic if you wish.  I just don’t want to endlessly debate the points we already covered.

To me the important matter is the Primary Topic – your proposal.  I am interested in the nuts and bolts of how it works, and how you would implement it.  What are the specific features?  What are the safeguards?  How will they be enforced?  I really want to know.  So please reply when you are ready.

Like I said, I’m open to a third topic covering the questions you asked in post 24, after we have digested the first two.  I hope you find this agreeable.

Travlin

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Re: You can't regulate pirates

As we have agreed, the constitution is not clear on the money issue.  It may be that the most important thing not addressed in the constitution is a definition for money.  I have made a strong case for the historical precedent for the revolutionary war in my separate post, Hidden History: According to Benjamin Franklin, the real reason for the Revolutionary War has been hid from you."

I'll try to address your last questions before moving away from your "secondary topic - history, constitution."

Travlin wrote:

However, I think you will agree that it is a historical fact that ordinary banks were allowed to legally operate and create money after the constitution was ratified.

Banks were not always free to "create money."  Early on, money printed by banks was redeemable with PMs and banks were required to keep other capital to back the money they printed.  They were not creating it, they were recycling what already existed.  But like the goldsmiths of feudalism, they printed more money than they had backing.

Travlin wrote:

Is it not also a historical fact that the US government did not issue any money directly until the Greenbacks of the Civil War...

No, government had been issuing coins since at least 1792 (coinage act).  And bonds are money drawn from the credit of the United States.  There is scant difference between bonds and dollars.  On to Primary topic – Regarding your [my] proposal for the federal government to issue money...

The underlying questions seems to be "can a safe system be designed for the government to issue money?"  I'm sure it can and I refer you to an earlier post I made about such a plan that was actually put forth as legislation in the early 1930s - "Hidden history of the great depression: A major monetary reform initiative that no one seems to know about."  I think there may be better plans but the point is that it can be done.

Any good plan begins with a scope of what it is that you are trying to accomplish.  That is why I asked for you to share your logic on several key issues:

1) Would it be safe to say that you fear that if government exercised it's power in directly issuing money, they would over-spend? The alternative is to provide a "brake" in spending by making the government borrow to cover deficits which is what we have been doing for the past 100 years. Given the amount of debt and liabilities, do you think the current system has restrained government spending - if so, by how much?

2) The federal government may use our credit in issuing bonds or dollars. Both are equally backed by the people and property of the United States. Why on earth would we borrow our own money by issuing bonds? The national debt is optional. Most of our income tax is needed to pay unnecessary debt, how can you justify this?

3) The banks are using the credit of the United States to back the money they create for virtually free (along with a borrower's IOU and collateral). Why don't they pay us a usage fee if they are using our credit?

4) I think you would agree that the United States is insolvent and close to bankruptcy. If you were in charge, would you allow the U.S. to go bankrupt under this system, or would you directly issue the money, debt free, to start digging us out of this hole?

The basic logic and justice of any monetary system is a key.  Hopefully, you will respond to the above.  If we can find some agreement, it would then make sense for me to define the scope of good monetary reform.  Or, maybe someone else will address the above issues?

Larry

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Re: You can't regulate pirates

DrKrbyLuv

Secondary topic -- Regarding history, the constitution, and money powers

DrKrbyLuv wrote:
  Banks were not always free to "create money."  Early on, money printed by banks was redeemable with PMs and banks were required to keep other capital to back the money they printed.  They were not creating it, they were recycling what already existed.  But like the goldsmiths of feudalism, they printed more money than they had backing. 

I accept this argument.  You know more than I about this period and this sounds reasonable to me in light of other things I have read.

Travlin wrote:
  Is it not also a historical fact that the US government did not issue any money directly until the Greenbacks of the Civil War... 

DrKrbyLuv wrote:
  No, government had been issuing coins since at least 1792 (coinage act).  And bonds are money drawn from the credit of the United States.  There is scant difference between bonds and dollars. 

Yes, I knew about coins.  What I meant was paper money, specifically fiat money not back by gold or silver.

The fact that you equate bonds and money leaves me flabbergasted.  Yes bonds may be bought and sold, as may stocks, futures contracts, loan notes, commodities, cattle, land, and any number of other things representing value.  That doesn’t make them “money” in the sense that they can circulate as currency that people use in ordinary trade.  A bond is a debt by definition.  It represents the borrowing of a fixed sum of money from another party, to be repaid with interest by a certain date.  Your statement reminds me of people who don’t understand the difference between a purchase with cash and credit.  To say they both spend the same is folly.

To get back to my original question, that I have asked you twice –  If the framers of the constitution thought it was okay for the federal government to issue paper money why didn’t the new government do so?  You did not answer this.

The supporting example I cited later, that you quoted above, can be restated as –  Why wait 73 years until it was first done with the Greenbacks of 1862, out of desperation to fund the Civil War?  You did not answer this either.  If you are implying that federal bonds were literally money in the sense of currency, then as I said above, I don’t accept that as valid,  and I think very few people would.

I think we have pretty well covered the historical aspects.  Regarding the Primary Topic: I am studying the thread you linked.  My time is short right now but I expect to reply within a couple of days.

Travlin

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Re: You can't regulate pirates

Primary topic – DKL proposal for the federal government to issue money

DrKrbyLuv

My apologies for the long hiatus.  Personal matters had to take priority.  Thank you for your conversation regarding the historical aspects of this topic.  It is clear we see things differently, but that is okay, it was interesting and educational to me.  Let’s say for the sake of discussion that there was no question that the federal government had the power to issue paper money directly so we can move on to the primary topic.

In numerous threads you have adamantly and repeatedly proposed that the federal government issue “sovereign money”.  I am skeptical of this course, but I am open to persuasion so I asked you to explain how this would work.  I expected you to present the outline of a well thought out plan.  Here is what you said.

DrKrbyLuv post 27 wrote:
  The underlying questions seems to be "can a safe system be designed for the government to issue money?"  I'm sure it can and I refer you to an earlier post I made about such a plan that was actually put forth as legislation in the early 1930s - "Hidden history of the great depression: A major monetary reform initiative that no one seems to know about."  I think there may be better plans but the point is that it can be done.

Any good plan begins with a scope of what it is that you are trying to accomplish.  That is why I asked for you to share your logic on several key issues:  (Four questions followed.) 

I am quite puzzled by your response.  First you directed me to a link for a proposal from 71 years ago when global finance was very different.  Then you asked me a series of questions.  If you have a plan why do you ask me to define the goals it is to accomplish?  My opinion is irrelevant to the formulation of a plan that already exist.  I have to conclude you don’t have a plan at this point, but you think one could be developed.   Please correct me if I am wrong about this. 

You said above, “I think there may be better plans but the point is that it can be done.”  I agree that a plan can be made.  That does not mean that it will actually work in the real world.  I agree that a radical change may be required, but I want to have a high level of confidence that it won’t be worse than what we have now.

Burden of proof – As the person who repeatedly says we need to do this, and that it can be done, the burden of proof is on you to explain how.  I would really like to know more though, so let’s continue the discussion.  I agree our present system is broken, but I don’t want to argue philosophical questions of whether banks should make a profit off of money backed by federal bonds.  I’m asking you to show me how an alternative system could work.  That’s what really counts.

The 1939 Program for Monetary Reform  http://www.peakprosperity.com/forum/hidden-history-great-depression-major-monetary-reform-initiative-no-one-seems-know-about/42988

1939 proposal wrote:
  The document then proposes the establishment of a Monetary Authority to control the quantity of money and keep it at arms length from the political tides of direct Congressional manipulation. But the Monetary Authority would be subject to strict guidelines established by law by Congress to manage the quantity of the American money supply to achieve the above objectives. 

We already have “a Monetary Authority to control the quantity of money and keep it at arms length from the political tides of direct Congressional manipulation.”  It’s called the Federal Reserve and we agree it hasn’t worked out so well.  Yes it is a cartel owned by banks, but the people who run it are confirmed and strongly influenced by Congress.  We have already covered this ground thoroughly.  Congress makes the laws.  Congress changes the laws.  Congress doesn’t have the discipline to make hard choices for our long term benefit.  Reading the entire post, I found a lot of commentary but little solid discussion of the mechanics of how reform would work.

Your four questions and comment

DrKrbyLuv post 27 wrote:
  1) Would it be safe to say that you fear that if government exercised it's power in directly issuing money, they would over-spend? The alternative is to provide a "brake" in spending by making the government borrow to cover deficits which is what we have been doing for the past 100 years. Given the amount of debt and liabilities, do you think the current system has restrained government spending - if so, by how much? 

Yes they would overspend.  The brake of borrowing clearly hasn’t worked over the last three decades, though it seemed to slow things down previously.  Was that enough to have a sustainable system?  I don’t know.  Would letting Congress mainline money have been better?  I don’t see how.

DrKrbyLuv post 27 wrote:
  2) The federal government may use our credit in issuing bonds or dollars. Both are equally backed by the people and property of the United States. Why on earth would we borrow our own money by issuing bonds? The national debt is optional. Most of our income tax is needed to pay unnecessary debt, how can you justify this? 

Debt and cash are not the same.  Why should the government borrow money at all when it can tax?  How do your assertions differ from the system of the former Soviet Union?  Seriously.

DrKrbyLuv post 27 wrote:
  3) The banks are using the credit of the United States to back the money they create for virtually free (along with a borrower's IOU and collateral). Why don't they pay us a usage fee if they are using our credit? 

How would you make this happen?

DrKrbyLuv post 27 wrote:
  4) I think you would agree that the United States is insolvent and close to bankruptcy. If you were in charge, would you allow the U.S. to go bankrupt under this system, or would you directly issue the money, debt free, to start digging us out of this hole? 

I agree we are nearly bankrupt, and it may be the only way to clear the debts and start over.  Issuing fiat money in excess of productive wealth is what got us into this mess.  How would having the government issue it directly prevent bankruptcy without devaluation our hyperinflation?

DrKrbyLuv post 27 wrote:
  The basic logic and justice of any monetary system is a key.  Hopefully, you will respond to the above.  If we can find some agreement, it would then make sense for me to define the scope of good monetary reform.  Or, maybe someone else will address the above issues? 

If you can define good monetary reform you don’t need my agreement first.  It should be able to stand up to vigorous challenges.

DrKrbyLuv I respect you.  I like discussing these topics with you.  You are obviously intelligent and knowledgeable.  I’ve challenged you to explain this because I want to know how you would implement your ideas.  Also, because I find that by writing on a subject I have to think and understand it, clarify my thoughts, find gaps in my logic, etc.  I’m sure it works the same for you.  Even if we don’t agree we can both learn something, and anyone else still following this thread.  I would really like to see a way out of our current economic dilemma.  But I require a high standard of evidence to persuade me that an alternative will be better.  Please show us what you’ve got.

Travlin 

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Re: You can't regulate pirates

DrKrbyLuv

Primary topic – DKL proposal for the federal government to issue money

It has been nine days since I last asked you to tell us how a system using sovereign money could be implemented.  I am disappointed that you have not responded.  I have tried hard to be polite and respectful in this discussion so you should have no reason to have taken offense.

I don’t expect everyone to back up everything they say.  But you have repeatedly and strongly advocated sovereign money in many threads at this site.  I think it is reasonable to expect that you could explain how this would actually work in practice. I answered your questions as you requested.  So please tell us how you would implement this.

Travlin

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