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Austrian & Keynesian Theories Vs. Mathematical Facts

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  • Sun, Nov 08, 2009 - 04:11pm

    #1

    DrKrbyLuv

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    Austrian & Keynesian Theories Vs. Mathematical Facts

George Orwell’s classic 1984 describes “doublethink” as holding two contradictory beliefs simultaneously and accepting both.  To do so denies the existence of objective reality. A good example is the belief in economic theories that contradict mathematical facts.

Both Austrian and Keynesian economic theories hold fundamental beliefs that do not square up with math.  The exponential growth of debt in our debt based money system is ignored and refuted by both theories.  In place of math, we are offered beliefs such as the “quantity theory of money.”

To deny the exponential growth of debt cuts to the very core and credibility of monetary theories.   If the exponential growth can be proven, then equally, Austrian and Keynesian theories are dis-proven.  Economic theories hide the fact that a debt based money system is usury by definition and neither Austrian nor Keynesian theories are sustainable.  Both systems create bankruptcies and defaults while enriching banks at the expense of the people.

The inherent and terminal mathematical flaw of debt based systems can be proven anecdotally.  Our total money supply (M3) is around $15 trillion while our national and private debt total around $55 trillion.  How do we pay an existing $55 trillion in debt with a total of $15 trillion?  We are short $40 trillion, where will that money come from?

In our debt based monetary system there is only one way to add money and that is through new debt.  Eventually, the $40 trillion must be borrowed.   If the money is borrowed, it will add new debt of over $40 trillion (principal + interest).  The debt can only grow, it can never be repaid as the gap between money and debt will continue to increase.

The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions.  This is true when we spend money but it is not true when we repay debt.  When debt is repaid it is extinguished, that is that the money ceases to exist which means that money can only be used to repay principal debt once.  Most of the interest debt returns to circulation but never the less, the gap between money and debt will still increase since only the principal is created through new debt which brings new interest.

The specie of money doesn’t matter.   If our money were backed by gold, the gold would simply be transferred to those who collect the interest.  We saw this in 1933 when the gold standard collapsed and we lost most of our gold.

The two prevailing economic theories give us a false sense of choice just like the two party system of Democrats and Republicans.  The science of money has been replaced by a belief system just like in the dark ages when science was dominated and defined by religious beliefs.  If the next renaissance is to happen, it will come when the science of money displaces unfounded beliefs.

We are suffering from an intellectual amnesia.   The Babylonians of antiquity understood the destructive power of debt interest and at one time Christianity and Judaism forbid it as sinful usury.   The Islamic faith still forbids debt interest and perhaps that is a reason that we are clashing. 

Our debt based monetary system is a form of usury that will result in the transfer of all wealth from the many to the few.   The intended outcome is debt slavery and tyranny under the cruel boots of oligarchs – a financial aristocracy. 

People are becoming discontent and they sense that something is terribly awry.  To rebel against the status quo invariably leads to another tyranny as we have seen through democratic elections and third world rebellions. 

If a successful peoples revolution is to happen it will really be an awakening.  A higher consciousness where we come to understand how and why the game has been rigged by flawed monetary theories.

Larry

Note: For real solutions stop by Money Talk$ by Byron Dale and Thomas Hedin – discover the difference between debt and wealth based money – take the red pill.

  • Sun, Nov 08, 2009 - 10:42pm

    #2
    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

 At the risk of appearing under the influence of the blue pill I’d like to ask a question regarding the debt vs. money supply. Please be patient as all this macro econ stuff is new to me.

If you owed me $1,000, and your brother owed you $1,000, and his neighbor Fred owed him $1,000, and I owed Fred $1,000 would the total debt of our “economy” be calculated at $4,000 when in reality it’s really zero? If so then this might offer an alternative explanation how $15 trillion in money supply might satisfy $55 trillion in debt.   For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Just a thought.

  • Mon, Nov 09, 2009 - 01:43am

    #3
    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

earthwise,

Interesting question – let me try to answer.  Personal loans to others does not create new money.

The $1,000 was created as an electronic entry on a banks computer.  The repayment of that debt is what will cancel the bank entry.   Before it is repaid, it can be personally lent or spent over and over.

All of our money is temporary as it must eventually be repaid or written-off through default.  If new loans are not created, the money supply will decrease every day by the amount of principal repaid (or greater).  Money is being destroyed constantly which means that new loans are required to offset the “leakage.” 

Eventually, there will not be enough wanting and worthy private borrowers.  That’s when the government steps in to act as the borrower of last resort.  That’s where we are today.  If the government stops running huge deficits, the system will contract, that is how depressions happen.

BTW, what you were describing is exactly what banks do.  They create money for free to lend out to others and expect to be paid back with interest.

Larry 

  • Mon, Nov 09, 2009 - 01:52am

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    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thanks Dr.

So if I understand it correctly the M3 money supply is the remainder of what was loaned into existance but not yet repaid and so is yet in circulation. What happened to the other 40 trillion that was loaned into existance (55 trillion in debt minus 15 trillion still extant) that constitutes the debt? If it was loaned into existance and not repaid to extinguish the debt where did it go? (I sure as heck didn’t get any of it!!)

  • Mon, Nov 09, 2009 - 03:33am

    #5
    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

earthwise wrote:

So if I understand it correctly the M3 money supply is the remainder of what was loaned into existance but not yet repaid and so is yet in circulation.

Yup, that’s the way I understand it. 

earthwise wrote:

What happened to the other 40 trillion that was loaned into existance (55 trillion in debt minus 15 trillion still extant) that constitutes the debt? If it was loaned into existance and not repaid to extinguish the debt where did it go? (I sure as heck didn’t get any of it!!).

Hahahah, I didn’t get any either! 

The $40 trillion shortage is the result of years of debt growth.  The gap grows slowly at first but the growth isn’t linear – it grows exponentially  (H/T CM Crash Course).

One way to reduce the gap is to incur lot’s of bankruptcies and defaults.  This creates a great deal of hardship and high unemployment but it helps to “reset” the system.  We are beyond the point of canceling the debt out through defaults.  For example, most of our private debt is in mortgages (residential and commercial).  And, at the end 2007, the total private mortgage debt was around $14.5 trillion.  So, if every private mortgage in the country defaulted, we’d still have a $25 trillion shortage.

Below are a couple charts borrowed from CM, they help show the exponential growth of debt:

   

1) Money supply growth (see chart above). It took us from 1620 until 1973 to create the first $1trillion of US money stock (measured by adding up every bank account, CD, money market fund, etc). Every road, factory, bridge, school, and house built, together with every war fought and every other economic transaction that ever took place over those first 350 years, resulted in the creation of $1 trillion in money stock [1]. The most recent $1 trillion? That has been created in only 4.5 months. The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. The fit is nearly perfect (with a correlation of 0.98, for those interested). Data from the Federal Reserve.

3) Total credit market debt (that’s all debt) had finally exceeded $5 trillion by 1975, but has recently increased by $5 trillion in just the past 2 years (from 2006 – 2008), and now stands at nearly $50 trillion. In order for the next twenty years to resemble the last twenty years, debt would have to expand by another 3 to 4 times, to somewhere between $150 trillion and $200 trillion. How likely do you think this is? Data from the Federal Reserve.

Larry

  • Mon, Nov 09, 2009 - 04:45am

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    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Here is a radio interview with Byron from Saturday November 7th, 2009.

http://podcast.gcnlive.com/podcast/erskine/1107093.mp3

If you owed me $1,000, and your brother owed you $1,000, and his neighbor Fred owed him $1,000, and I owed Fred $1,000 would the total debt of our “economy” be calculated at $4,000 when in reality it’s really zero? If so then this might offer an alternative explanation how $15 trillion in money supply might satisfy $55 trillion in debt.   For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Just a thought.

If I owed you $1,000 dollars and you were a private individual then the only way you could have gotten that money in the first place is for you or someone else to go to a private commercial bank and get an interest bearing loan.  Now if you loaned me the 1k at interest that same money is now drawing interest twice and when I paid you back, that money would not be extinguished.

If I owed you 1k and you were a commercial bank as a pay back the principle part of the loan that part of the loan is written off the books and destroyed.  The biggest problem here is that as soon as time and interest kick in, the debt grows but the money supply does not making it impossible for that loan to be repaid, if that loan has to stand on it’s face.  It’s true that individually we can get out of debt, but only by capturing somebody else’s borrowed principle, leaving them even shorter on money to get out of debt.  Eventually this system transferes all the property of the people over to the banking system.

Indivually we can owe each other money, but currently ALL money is owed to the banking system as the banking system owns all the money all the time.

 

For if a retail bank lends money it has borrowed from another lender, then when the loan is paid, it would actually extinguish two debts.

Banks don’t lend money they get from anyone else.  Banks lend brand new ‘money’ every time there is borrower available and the bank wants to create new money.

 

  • Mon, Nov 09, 2009 - 05:24am

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    Peak Prosperity Admin

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thanks DrKrbyLuv and Thomas Hedin

Your posts were quite helpful, depressing but helpful. Now I know why ignorance is bliss. We’re screwed.

  • Mon, Nov 09, 2009 - 05:44am

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

We aren’t screwed.  There is legislative tools in action right now to put debt free, wealth money into circulation as we speak.  What we need is for people like you to demand that our legislators start passing laws to benifit the people, instead of laws that only benifit the banking system.

The MTA is a great first step and it’s a bill i’m personally lobbying for.  Read from the bottom to the top if you’re interested.  I would love to hear your opinion some day.

  • Mon, Nov 09, 2009 - 11:06pm

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Hello Thomas,

I greatly enjoyed the Erskine interview with Byron Dale.  It’s always great when the interviewer has read the book and Erskine sure did his homework with Byron Dale’s “Modern Money Secrets.”

  Link to Book 

I urge anyone who wants to learn about money to listen to this interview.  It will open your eyes and give you some hope that there are solutions.

In the interview gold backed money comes up and Byron Dale references a “Harvard Journal” that evidently discusses the amount needed; which greatly exceeds what we have – do you have a link for that publication?

Byron gives an interesting answer to the question “if the banks create money, how can they go under?”  That answer alone is worth the listen.

One thing that never ceases to amaze me is how little economists, accountants, investors and policy makers understand the mechanics of money.  I agree that things can be fixed IF people start to understand that they are being fleeced.  Many spend a lot of time preparing for the inevitable but no time in understanding how and why we are deep in crisis.

Larry

  • Tue, Nov 10, 2009 - 12:09am

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Here is a link to the document from Harvard.

http://www.wealthmoney.org/documents/CoinageClause.pdf

Also here is the link to the Erskine Overnights Radio Interview.

http://www.wealthmoney.org/ErskineNovember0709.html

Here is a video series from the same day he did the Erskine Interview.  Very informative.

http://www.youtube.com/watch?v=ZQWK2SPMdGo If you have the time to watch all the parts it’s a must see.

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