debt free fiat currency - a solution to deflation and inflation?

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scepticus's picture
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debt free fiat currency - a solution to deflation and inflation?

I posted this on mish's blog recently. I got a few thumbs up but no real discussion. I'll see if there is any more interest here.

The proposal outlined below is for the issuance of a debt-free fiat currency to run alongside existing debt-money, as a way of creating a partial reinflation of the economy without risking inflation, while at the same time starting to step in the right direction of debt-free money.

Here goes:

Treasury to issue a new currency,
called, say 'tarps'. Tarps and dollars are alike with the single
exception that tarps cannot be used as bank reserves, and hence cannot be loaned out by the practice of fractional reserve banking. That is, a tarp
is a 100% reserve, debt-free currency. The two are kept separate in
different accounts. Tarps can be used to buy goods and pay loan
interest. Loan principal issued in dollars via fractional reserve banking must always be repaid in
dollars.

Tarps are printed and spent into existance domestically by
the gov via welfare payments, instead of printing more dollars. Also
may be spent into existence as federal stimulus programs for things
like pot-hole filling.

Since tarps can be used for loan interest payments, tarps
will start piling up at banks, but banks are not allowed to lend them
out except at 100% reserve. Banks may however use their tarps for
salary, bonuses, or paying back the taxpayer for the original bailouts
(i.e. buy back their pref shares).
This means that tarps can never be 'inflated'.


International settlements would still need to be in
debt-dollars, or perhaps a floating international exchange rate could
establish exchange between debt-dollars and tarps.

Obviously there are now two currencies but heck, how
difficult can that be to administer? Would this result in reflation
without fear of runaway inflation? I'm sure there are lots of problems
with this but in principal, what is to stop a government printing
debt-free money that can't find its way into bank reserves instead of
printing more leveragable debt-currency? It would be very easy to top
up the money supply by printing tarps or to drain it by discarding
tarps received as payment in taxes or for bailout paybacks.

There are still the issues that production is misallocated,
but this provides a way to drain debt over time without creating future
inflation. The banks are the loosers here since loan interest being
repaid in tarps can't be lent out again, but hell, the sector needs to
shrink. Could a system like this ever work?

Longer term, once the money supply contains enough tarps to cover all outstanding debt-money interest payments, then the need for perpetual expansion of the money supply is removed, and static or shrinking economies can be safely accomodated even while some of the beneficial aspects of the fractional reserve banking system are retained.

Note that gold is a non issue here. A debt-free currency can be backed or fiat. If the debt-money currency were gold backed then probably the debt-free currency should be backed in gold. However if the debt-money is fiat like we have now, then the debt-free version should also be fiat.

Thoughts??

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Re: debt free fiat currency - a solution to deflation and ...

I like your idea, i guess your "Tarps" are much the same as a voucher, we have Capitol Bonds vouchers in the UK that can be redeamed for good's and so on but cannot be traded in any other way. i would be happy to be paid in them as long as they can be used as freely as other paper currencies.

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Re: debt free fiat currency - a solution to deflation and ...

The compounding, unpayable debt resulting from all of our money being created as loans finally caught up with us. Banks create all of our money as loans, but only the principal. When the principal is repaid it is uncreated. There is no way to create the money to pay the interest on the loans. As the unpayable debt continues to grow, the private banking industry finds it increasingly difficult to find borrowers that can cash flow more debt.

 

With fewer and fewer borrowers, the banks make fewer and fewer loans; create less and less money and starting calling loans. Simultaneously, as borrowers make their bank payments the banks extinguish money. This caused and continues to cause the growing shortages of money and liquidity now referred to as a ‘recession’ and soon to become the most destructive, painful and unnecessary depression our America and the world has ever seen! When new money is not created and, at the same time, old money is destroyed when repaid we feel the pains of a diminishing money supply.

 

The solution is in understanding the problem. The problem is a money shortage, nothing else. We have no cash flow. We can have money without banks but not banks without money. The proof is in the fact that people created, traded and possessed mediums-of-exchange long before there were depositories or banks.

 

Americans and most of the world’s people are convinced that all money must come from banks.  To the contrary, we do not need the banks to dictate our lives and destiny through the creation or non-creation of money. Now is the time to realize that our Treasury can create book entry money but not as loans we pay back to ourselves with interest but rather as debt-free money created in amounts equal to the value of new goods produced and spent into circulation to pay for the new goods. The money supply increases with productivity gains, no inflation can result.

 

The condition of this production is that it must be of a form that benefits all of society equally and that the people are free to use it in lieu of taxation, bonding or fees of any kind. 

 

 

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Re: debt free fiat currency - a solution to deflation and ...

If money is debt-free, why does it need to be backed? When Americans were able to mine raw gold or silver from the ground with their labor and the Mint, weighed it, assayed it and formed it into coins free-of-charge for the producer it was not backed. It was simple traded into circulation for other production. The money supply grew debt-free based upon the people's production. The socially equal benefit was a totally debt free medium of exchange representing wealth-labor and raw resources combined. 

We can do the same thing right now. It doesn't really matter' what' we use for money. What matters is how that new money is put into circulation. 'Spend it! Don't Lend It!

www.wealthmoney.org  wealthasmoney.blogspot.com

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Re: debt free fiat currency - a solution to deflation and ...

Scepticus,

I have put more thought into your TARPS proposal. So that none will think I am picking on the banks, let me preface my thoughts with, "It is not who's doing it. It's what's being done." If 'Plumbers' created all the money as interest-bearing loans, we'd have the same problem. It just so happens that entities called "banks" are doing it and they resist any change even though they know the destruction their actions cause. 

No plan can work that allows someone to create money and charge interest while someone else spends it in debt free as the lender will get all the new money, in this case TARPS, as interest payments on the loan created money. The charging of interest must be outlawed as in time the one charging interest would own all the money. Interest doesn't work.

If banks are allowed to keep creating loans, the banks would end up with all the TARPS as profits thru interest payments. Then, although they could not lend the interest TARPS out, TARPS would give them all sorts of unjust purchasing power; for what, entering some numbers on a keyboard?  

We can not just let them keep making loans and at the same time create another money as a profit to them (TARPS) on those loans. Banks have never done any production to earn anything they have. They produce nowealth, only debt.They simply steal from the producers thru theft by deception. Debt money drives out wealth money. Bad money drives out good.

If banks are allowed to loan out tarps, even at 100% reserve and charge interest, we would simply be duplicating the process we have now. Where would the interest come from for the TARP loaned 100% reserve money? More Tarps?  What's the point?

If TARPS were spent in for Welfare payments it would create a huge welfare system. If no production is tied to the payment we would actually be 'gifting' the money into circulation destroying the incentive to produce. 

The need for 'perpetual debt expansion' will always be there if money is created and placed into circulation at interest. 

Bank bailouts should not be considered and do not need to be considered to solve our problem. Bailing out the banks is like saying, "Hey! We want you guys to survive so you can keep doing it to us." Where is the Peoples' bank, the Treasury, in all of this?

The solution is to outlaw interest, create book entries just like the banks do now but 'spend' them into circulation for the value of production that benefits all of society equally (punlic roads and bridges) and place an excess profits tax on the banks as the new money will come to them in undeserved interest payments when people make their bank payments. Recycle the excess profits tax to again pay for maintenance and building of roads and bridges. This will basically 'launder' or 'pay' the interest debt out of the system. 

We may also need to provide an interem way to bring in additional debt-free money as the debt is compounding so fast that we probably cannot produce our way ahead of it. Perhaps, in the interem, also 'spend' new money in for Social security and Medicare??

 

 

 

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Re: debt free fiat currency - a solution to deflation and ...

The creation and control of money is the most important topic for people to explore and discuss.  Within this topic, you will discover why the world is as it is and more importantly, it holds the solutions to all of our economic problems.  The money creating and controlling monopoly is the greatest power on earth and those who wield this power literally run our lives, society and government.  Even governments and kings are subservient to the money monopoly.

Our debt based system was designed to destroy nation states and to enslave their populations in perpetual debt.  We are nothing more than client states of the real power, the money monopoly.  Imagine having the ability to create all the money you want, for free.

Keynesian, Austrian, Marxist, neoclassical economic theories are all concocted to obfuscate this most fundamental - where does money come from and how is it put into circulation.  All of these economic theories were bought and paid for by the international banking cartel.  Consider this...none of these theories question or comment on how money should be created...apparently it doesn't matter.  And, none of these theories begins to explain the exponential growth of debt that is taking place today in our system as we are fast approaching "peak-debt."

A private money making monopoly greatly concerned our founding fathers who were careful to warn us and to include in our constitution a provision that requires that the creation of money is a function and responsibility of government.  They understood that whoever creates the money will ultimately control everything else.

Larry 

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Re: debt free fiat currency - a solution to deflation and ...

Great thread.  I love the idea of the slow migration into a new form of a monetary system.  While the perfect system is always debated, the implementation ideas all fall short as they are just too dramatic.  The idea to inch into this by paying whats owed to ourselves makes a ton of sense to me.  Pay social security and medicade with the new currency.  Spend it into existance debt free/without interest.  Our current debt holders should actually like this as it makes our future ability to pay much higher.  The backing of both currencies is the same - full faith and credit.

What else is great about this idea is the ability to inch into it and not rock the boat too much if it goes wrong in any way that was not forseen.  Very interesting ideas guys.

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Re: debt free fiat currency - a solution to deflation and ...

I'd be surprised if  there is anything that we and our country needs to discuss more than what to do about our monetary system. And I am happy to blame the bankers - not the rank and file working folks - I refer to the top end heads of the major banks who have formulated and perpetuated the system that we currently have that is designed for their benefit and enslavement of everyone else. I posted the following on another thread, but think is belongs here now.

As the vise of economic failure closes, more of us will come to the point of ceasing to bicker about our differences and actually begin to work on real solutions. The solutions will kill the sacred cows of many and create many anew. I suspect that we are on the edge of our next step in creating a new economic structure that is a major part of our growth towards becoming civilized as a society. While many will be offended and angry in the process, it is part of a Darwinian-like evolution that we are facing whether we like it or not - so we might as well get used to the fact that much of the familiar will die and be replaced (I hope) by better even handed fairness system for all. IMO, our current banking/monetary system qualifies for extinction at this time

Dr K wrote:  "The creation and control of money is the most important topic for people to explore and discuss"

I completely agree with Dr K -- How our monetary system should be structured is a complex and difficult subject and deserves a great deal of thought and discussion. Each time the topic is broached, it seems to me to get little interest. Possibly because not many understand (I include myself) even how we could proceed from here.  scepticus has suggested a good starting point. I suspect it may be impossible to create and install a new system overnight without either having a collapse first of creating one, so it may be that one of the critical parts of a new system is its ability to work with the existing system and gradually take over in time.

Dr Martenson wrote: I just don't see any realistic way to fashion a workable system out of debt-based money. Instead, I would support thinking about creative ways to use debt-based money while we transition to a mélange of other monetary systems that can operate in a stable and sustainable fashion.

I'd like to hear more of what Dr M. has to say on the subject - could the "scepticus concept" work? Seems to me that with some refinement it could. 

By the way, Damon V has a great mini course on some of the background of our monetary system at  http://csper.org/renaissance-20.html -- worth the time if you haven't seen it.

Jim

 

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Re: debt free fiat currency - a solution to deflation and ...

Hi jpitre,I have covered this exact point - the inevitable transition to a new money system (it is not designed by anyone, it just happens, and is happening right now) - on my blog below. In particular, you might like to review this post:

 

http://liminalhack.wordpress.com/2010/11/22/sublimation/

and also the one entitled 'the philosophers stone'.

All the best,

 

Scepticus

 

 

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Re: debt free fiat currency - a solution to deflation and ...

 Hasn't a debt free fiat currency been tried.. endlessly.. ever since the Chinese invented the idea ?

and failed.. every .. single... time.. ?

 Those who refuse to learn from history... etc.

 

btw. Agree with this paragraph on your blog scepitcus

One World Fiat Currency? We had one already for 40 years…

The above leads to the interesting conclusion that in fact the regime of global floating currencies in an open global currency market is in fact a single currency, distorted by arbitrary monetary policy in different zones which sets up visible but ultimately fleeting differences that leads to the notion that the various currencies lead separate lives controlled by their respective central banks.

 ...

 

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Re: debt free fiat currency - a solution to deflation and ...

plato I agree - debt free currencies don't work.

My original post was made in 2009 and since then I have come a long way in my understanding of matters, and in any case the OP was speculative even at the time.

The only way a fiat currency can work long term is to maintain peak debt and zirp, these two together are a stable equilibrium for fiat money, and probably could only be realised in the kind of instant electronic financial system we have today, which is why it always failed in past historical attempts.

 

 

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Re: debt free fiat currency - a solution to deflation and ...

Scepticus

Thanks for the post & link

Jpitre

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Re: debt free fiat currency - a solution to deflation and ...

The problem is not the fiat money. Money is a claim on human labor thus it doesnt matter wether it is paper or gold.

The shortage of a ressource based money  is no solution at all, even if we abolish intersts. Gold based currency with interersts is even worse than what we have now. How should that ever work globally? That will lead into the habbit  best described as "why does American oil lays under arabian sand?".

Everything what counts is to control the money in circulation to guarantee enough moneysupply, to guarantee a natural economic order without forced growth.Thus needing also to redefine the word property - public and private property, as ressources should always be public property that cant be piled in your backyard.

Thus we need a serving monetary system not one that determines our actions as market participants, that symbolizes a store of value, as the  money system that only compounds positive does.

An only  positive compounding money is always superior to the goods that are produced and loose value over time! Also an interest free money or gold currency is not a solution as it is still superior to most goods that loose value over time  but the currency not.

Check out Silvio Gesell " The natural economic Order".  Thats a midway between Kapitalism and Socialism (It also shows why Keyensianism is a big lie!) , with negative compound on the circulating money and 0-slight positive compound on long term investments. No one was able to to refute that his concept would not work.

In fact it was already in use after wwII in Austria during a  transition process.

The language is pretty old but there might be alot of secondary literature on this even in English:

dl here: Silvio Gesell " The natural economic Order"

http://www.humanwirtschaftspartei.de/module/huwi/info/anlagen/18/neo-nd.pdf

 

ps: @ DrKrbyLuv

You missed Silvio Gesell as his focus is spot on on money creation, and he outlines that to overlook moneycreation  was the biggest mistake Marx did!

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Re: debt free fiat currency - a solution to deflation and ...
sosMsos wrote:

The problem is not the fiat money. Money is a claim on human labor thus it doesnt matter wether it is paper or gold.

This is somewhat true but not the whole story.  I look at using PM's for money as being akin to a down payment on a loan.  It assures the seller that is giving up his/her property, that he/she is likely to get something of similar value back in the future.  In a high trust environment an unbacked promise works fine.  However in low trust environments, a lack of collateral can paralyze trade.

sosMsos wrote:

Everything what counts is to control the money in circulation to guarantee enough moneysupply, to guarantee a natural economic order without forced growth.Thus needing also to redefine the word property - public and private property, as ressources should always be public property that cant be piled in your backyard.

Who gets to "control the money in circulation"?  Do you really think these controllers will use their power for the common good and not for their own personal gain.  Sounds a lot like what we have now but with different "special" people in control.

How about a system that does not require force?

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Re: debt free fiat currency - a solution to deflation and ...
goes211 wrote:

How about a system that does not require force?

In the hopes that I may better understand this premise, can you explain a monetary system where there is no form of management, no force needed to administrate said management, and no danger of simply shifting beneficiaries from one group to another?

I have read claims that gold backed systems may impart these types of benefits, and have also read very convincing rebuttals that PM backed money simply shifts control to alternate beneficiaries.

Just as aside, none of the arguments on this forum that I have read for alternative currencies have made much sense to me. To a fault, they do not even seem to agree on how the existing system operates with any degree of clarity, and certainly, if we cannot agree and understand the existing system, then advances and improvements are out of the question.

As a counter point, I would make the comment that we have a effective currency system, with structurally corrupt and deficient regulatory oversight. The latter part of this is quite clear, the former will no doubt raise controversy. Is it not easier to pull the plug on a corrupt and captured fractional reserve system, and stop, and I mean stop, speculative borrowing practices? When will we see a legitimate summary of the benefits of debt based currency, what, precisely, are the attractive components that enabled our society (and most others) to prefer this structure since time immemorial? Is it really Rothschild’s sinister plot? Is the Bildebergs? Or was there some intrinsic advantage to using debt based currency that had a profound benefit to a post industrial revolution economy? If so what?

It strains believability to suggest that there is no intrinsic benefit in something so widespread and universally accepted as debt based currency. When I hear arguments that refuse to recognize an opposing view, without acknowledging any strength and weaknesses, and then move to build and present a better solution I get suspicious.

How might a plan where fractional reserve banking ratios are reset to something more meaningful than the (effective) reserve ratio of around 2%-5%, say 90%? How about a regulatory environment where speculative lending is just not allowed. The math is quite clear on this. I do not find it objectionable to subscribe to common sense regulation –backed by verifiable mathematical calculation- that would serve to allow use of a monetary system without worry that the system has been rendered unstable by pillaging and irresponsible financial predators.

I find it ironic that perhaps a debt based system, properly regulated, would have the least amount of “force” and “control” as compared to most, if not all of the systems that I have seen proposed on this board. I say this because to my way of thinking, the driver to monetary supply, and directly to the question of  “control of the supply” is self metering in a debt based system. The population is growing exponentially, and so is commerce, and so is the need for monetary supply. Somehow this has to be modulated, and it would seem to my layman’s understanding the system we have does a decent job of this- when functioning correctly, which it clearly is not now doing. The alternatives all seem to center on a supply decision made not by the market demand, but by some type of external command structure, and I’d worry about this. (as I know you would)

The use of (properly regulated) debt based currency is intrinsic to the design and functionality of capitalism. I cannot see how you can have one without the other. If debt based currency cannot be effectively regulated, there is an argument you cannot have capitalism. It would seem that while this issue specifically is not addressed by the Crash Course (post crash political structure) the description of commerce post crash is generally described as barter, trade, and a good measure of self sufficiency.

That is not capitalism.

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Re: debt free fiat currency - a solution to deflation and ...

@goes:211

i think you have cherry picked  my post above.

1. as i stated there is a the same problem with gold regarding your first answer. Gold currency causes the same problems even faster.

2. If you read Gesell, you would see what i mean, and that there would not be a force.

 

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Re: debt free fiat currency - a solution to deflation and ...

sosMsos:

Gesell envisioned an authority that will keep people from "hoarding" money, and regulate interest rates to keep the natural "economic order".

The Federal Reserve System is the embodiment of his vision.     

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Re: debt free fiat currency - a solution to deflation and ...

So why should an instituition hoard money in such a system, where fiat money looses value over time where moiney does not represent a store of value...a system without positive compounding!

There are no bad or good central banks, the money system dictates the action of the market participants not the market participants dictate the charracters of money!

Thats a complete different technology than the fed is controlling right now!

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Re: debt free fiat currency - a solution to deflation and ...

Todays money system and the creation of central banks evolved after World War 1 whereby the British pressed other countries to create a central bank that would "cooperate" with the Bank Of England.    This was done via their influence with the League Of Nations.   

Gessell influenced Keynes and he in turn influenced world governments.  

   Keynes  provided  a welcome political cover for FDRs desire to implement his New Deal.    The only thing that really impeded FDR  was the US dollars convertibility to gold (Federal Reserve notes had 40% gold backing).  The simple reason was US Treasury bonds were payable in US Dollars which were in turn convertible to gold.   

The dollar's convertibility to gold also exposed bankers to bank runs.    The final solution was to stop gold from circulating as money by confiscation (Executive Order 6102, forbidding the "hoarding of gold coin")  and surrendered to the federal reserve.    The following year, Gold Reserve act titled all gold held by the federal reserve to the US Treasury.    This paved the way for the incredible borrowing and spending that  followed until this day.  

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Re: debt free fiat currency - a solution to deflation and ...

I know where you come from, but let me try to explain it again. i just posted it in another thread, so its not directly aiming your above post but summarazing what i think its all about :

someone posted:

"At an individual level, the creditor sometimes has to take the loss for being foolish enough to make a high risk loan in the first place."

i replied:

...Its not about wether to decide giving insolvent people a loan or not. The money system due to compound interest forces the market participants to do that. Everyone is forced to expand in this system to outlast the pressure that compounding interests puts on us. And to expand only works through loans. You dont need to be a debitor to feel the effects of compound interest, its all priced in your every day spendings, rent, goods you buy...

The FEd is not the evil part, as there is no evil bank. If there were evil banks than our goal has to be to create good banks. But thats not  logical.

Market participants like the FED and the banks aswell are forced to act like they do now, because the mathematics of our money system dictates them. They choose the optimal strategy for them. Mathematics cant be good or evil thus market participants cant behave good or evil when mathematic law determines how to act optimally.

The thing is we need a complete different money sytem. gold currency is not a solution, as to abandon central banking also is not a solution, as the money system determins the action of market participants!

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Re: debt free fiat currency - a solution to deflation and ...
Gregory D Soderberg wrote:

The charging of interest must be outlawed as in time the one charging interest would own all the money. Interest doesn't work.

Never happening - any currency or even barter systems will have interest.  For example, say I have no bread, but I have chickens.  I go to the baker and tell him I really would like some bread but I can't pay him right now, but I do have some chickens and expect to have some eggs in the near future.  I promise I will give him a dozen eggs in the future for a loaf of bread right now.  The baker may take this deal, but only if what is being offered is more valuable than it's present value to offset the risk the baker is assuming.  So if a loaf of bread is currently equal to 6 eggs, the baker may decide the risk of losing a loaf of bread for the future profit of 6 eggs is a good deal.  That right there is "interest".

Interest is what determines what resources should be used today for future benefit.  It is the measure of risk.  It works fine as long as those that collect the interest also face the loss if they make a poor choice.

rickets wrote:

The idea to inch into this by paying whats owed to ourselves makes a ton of sense to me.  Pay social security and medicade with the new currency.

The problem is you are spending future production which you don't have.  It doesn't matter what currency you are using.  If you are providing benefits such as social security and medicaid and you don't have or aren't likely to have extra production in the future, it's going to fail.  The problem isn't the money, the problem is we are overspending our resources on non producing items.

scepticus wrote:

The proposal outlined below is for the issuance of a debt-free fiat currency to run alongside existing debt-money

Gregory D Soderberg wrote:

create book entries just like the banks do now but 'spend' them into circulation for the value of production that benefits all of society equally

jpitre wrote:

How our monetary system should be structured is a complex and difficult subject and deserves a great deal of thought and discussion.

sosMsos wrote:

Everything what counts is to control the money in circulation to guarantee enough moneysupply, to guarantee a natural economic order without forced growth.Thus needing also to redefine the word property - public and private property, as ressources should always be public property that cant be piled in your backyard.

IMNSHO all of these miss the point! This is just more social engineering (especially the last one) which will result in ruin, just as the current social engineering paradigm called the US dollar standard is failing.  All of the solutions that get proposed in these discussions are simply attempts to provide benefit to one set of participants over another.  It may be done for altruistic reasons, but all require coercion to work.

darbikrash wrote:

In the hopes that I may better understand this premise, can you explain a monetary system where there is no form of management, no force needed to administrate said management, and no danger of simply shifting beneficiaries from one group to another?

darbikrash wrote:

It would seem that while this issue specifically is not addressed by the Crash Course (post crash political structure) the description of commerce post crash is generally described as barter, trade, and a good measure of self sufficiency.

That is not capitalism.

I would say that is exactly capitalism, if we look at Wikipedia we get this definition:

Wikipedia wrote:

Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the free market; profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses and companies.

There is no consensus on the precise definition of capitalism, nor how the term should be used as an analytical category.[1]

However, I would say this can be reduced down to a very simple statement:

  • Capitalism - A voluntary system of trade based on self interest.

As long as two (or more) parties are free to choose how they interact, it is capitalism and I believe the best solution.  As soon as you start placing restrictions on that interaction you are tilting the playing field in favor of one of the parties.  This may include a third party that is providing "money" as a form of intermediary for the trade.  If  If it has ceased to be 100% voluntary then it is no longer capitalism.

So what do I think the solution should be, very simple:

  • Goverment shall make no restrictions on trade, money, or what is used as money.

Now, many of you may say but we have to have protections, yada yada yada....  I will concede that this type of system is unlikely to ever be fully acceptable, or at least not without many generations of less and less government involvement.  We have had multiple generations of government nannydom to bring us to our current situation and it may take many to get us to a mindset that you have to be responsible for yourself (self sufficiency).  That means no SEC, FDIC, FDA, no FED.

But as an intermediate step I think removal of the legal tender laws, removal of taxes on monetary exchange, remove any laws that stop competing currencies from existing and allow parties to a transaction the ability to choose what currency they wish to use is a good first step.  There doesn't have to be one currency or system, many can co-exist and participants can be free to chose what they want to use.

Ron Paul has some comments on competing currencies.

 




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darbikrash
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Re: debt free fiat currency - a solution to deflation and ...

Within the umbrella of this discussion, which has contextual meaning with more specificity than a generalized Wikipedia definition, I take capitalism to reduce to the following:

-       The mechanism to allow those with capital, to loan money to those desiring to borrow, primarily for the purpose of creating value. The intrinsic underpinnings go further to define this: The lender receives an interest payment in exchange for accepting risk, the borrower is granted the right to all profits realized as a result of deploying the borrowed capital. The pragmatic results of this arrangement are profound, and extremely useful; 1.) The borrower is entitled to unlimited profit if the borrowed money is deployed effectively. The lender is entitled to none of these profits above his interest income. 2.) The lender exchanges some risk for “effortless” income, he need perform no labor to receive income. However, his income is capped at the agreed upon interest rate.

These attributes transcend simplistic and idealist examples of trading bread for fruit for example, this is the very essence of venture capital, start-up companies, small business, large businesses, and even retirement strategies, operating at scales not conducive to simple barter constructs.

I’ve long suspected that the attraction to abolishing debt based currency is a deep rooted desire by Libertarians and like minded conservatives, to come up with some type of plausible explanation for the recent financial crisis (as well as the ’29 crash) that does not point the finger squarely where it belongs, which is insufficient, captured, and therefore substandard financial regulation. To blame the currency mechanism is to absolve the system of de-regulation and government downsizing that has been prevalent since the Reagan administration, from responsibility for the disastrous consequences evident today. This convenient contrivance allows the utopian notion of a world without government to continue unchallenged, as a plausible scapegoat has been interjected.

This would have a little more believability if we had not the experience (and supporting data) from the last 30 years to directly counter the “advertised” benefits of de-regulation (and it’s Objectivist principles) as first advanced by Reagan in 1980. In light of the history, one can only groan and remark how we’ve seen this movie before.

Blaming debt based currency as the cause of the crisis dovetails nicely with the ideological notion that we need less, not more regulation (a euphemism for government).

At its essential root, you either believe that the recent(and historical) failures are caused by unreasonable government intervention, and that corrective action is only possible by further reducing this intervention in pursuit of a “pure” free market…

-or-

You believe that the financial collapse was caused by greedy, predatory actors who have captured the regulatory and legislative arms of the government, and to further reduce the regulatory oversight is tantamount to a complete capitulation of our sovereign country to the corporatists, of which the financial sector is only a subset, and that unregulated free markets have been unequivocally debunked for what they are, utopian visions of the unattainable.

And never the ‘twain shall meet.

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Carl Veritas
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Re: debt free fiat currency - a solution to deflation and ...

  The  risk posed by the leveraged nature of fractional reserve banking  can hardly be overcome by some  "better management practices" theory.   

Todays governments  from Athens to DC  cope with them using a tried and true method.    They're called bail outs.     

 

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Re: debt free fiat currency - a solution to deflation and ...

the fractional reserve banking is not the problem, its essential. The only positive compounding interest on fiat money (book money) is the problem and thats  causing the leverage, not the fractional banking system causes the leverage.

Also fiat money (book money) is not = reserve money. Thats a hughe misconception most economist just oversee, and thus lead to lots of mistakes when analyzing the system. Thus  book money cant be reloaned and cant be part of fractional banksystem!

Read Karl Walker  ( Buchgeld "book money" 1951).

Thats all has Gesell analyzed.

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Re: debt free fiat currency - a solution to deflation and ...
darbikrash wrote:

the finger squarely where it belongs, which is insufficient, captured, and therefore substandard financial regulation.

You are still missing the point.  Your assuming that you can have good financial regulation.  That it won't always end up being captured and therefore beneficial to some over others.  It's not the lack of regulation, as we clearly have not de-regulated as you claim since the Regan years.  If we had we would have smaller government, fewer laws, and less spending and a better climate for small business.  We have clearly done exactly the opposite, and have always continued to grow government. 

darbikrash wrote:

At its essential root, you either believe that the recent(and historical) failures are caused by unreasonable government intervention, and that corrective action is only possible by further reducing this intervention in pursuit of a “pure” free market…

-or-

You believe that the financial collapse was caused by greedy, predatory actors who have captured the regulatory and legislative arms of the government, and to further reduce the regulatory oversight is tantamount to a complete capitulation of our sovereign country to the corporatists, of which the financial sector is only a subset, and that unregulated free markets have been unequivocally debunked for what they are, utopian visions of the unattainable.

Why do you see these as opposites.  I see them as both the same.  We have had government corrupted (as it always is)  and used as a weapon against those not connected.  Anytime you can get a government to support your agenda and use force against others it's a problem.  You seem to think we can have a benevolent government that will only do all those happy things you want.   Do you also still believe in Santa Clause?

The only way is to remove the power from the government and give it back to the individual.   Perhaps you need to stop drinking the progressive kool-aid or perhaps you should try to start a business, I think that is the best cure for this government-itis you seem to have - just look at how even Dr. M has been ranting about it lately.

 

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Re: debt free fiat currency - a solution to deflation and ...

I’m certainly not here to evangelize my position, it’s factually accurate and logically constructed.         

Deregulation is not a word game and has no direct associativity to the size of government. They are de-coupled. A Byzantine collection of a large number of ineffective regulations does not mean we have effective regulation, quite the opposite. Reagan’s Neoliberal policies were deliberately packaged to deceive the American people and allow corporatist interests to relax legislation that impeded profits, at the direct expense of the American people. The result was the decimation of the middle class. And it is (currently) being repeated again in the context of the Tea Party and associated conservative anti-government “movements”, and will have the same conclusion.

I also have to chuckle over your (repeated now) suggestions that I start a business and “get over” my case of government-itis. It’s poor form on the Internet to rebut such comments with a resume, but suffice to say you might well be quite surprised to learn about the business (now a corporation) that I started, own, and currently manage for more than 23 years. Enough said on this.

On the subject of management, perhaps this is a better word to use than government. I am pro-management, and support the most streamlined (and smallest) management structure to effectively guide an organization. I do not approach business problems with the notion that I have to robotically decrease management to succeed, I am focussed on efficiency, which (fortunately) has many metrics, Using these metrics, I make changes to enhance the organizational performance, which at times include downsizing, and at times include incremental adds to employment – at the worker level and at the management level.

As a general remark, I have found that the first numerical checkpoint in appropriate sizing of a management team is simply the size of the team to be managed. I think most CEO’s will tell you that there is a proportionality to the size of the management team based upon the number of employees. If the employee base gets larger by any significant amount, so must the management team.

Let me add a few more discriminators. If the type of tasks that the organization undertakes increases in complexity, the nominal ratio of manager to employees goes up. To continue, there is also an inherent loss of scalability the larger the organization gets. Larger organizations require extra layers to manage the managers, which tends to head towards “top heavy” organizational structures.

Sure, the corporate world has initiatives that “empower” workers to make decisions on the shop floor, and remove bureaucracy from the decision matrix. These are effective, to a point. But no competent manager would propose to “turn over all the responsibility” to the rank and file, abandon leadership and most importantly, abdicate the collective responsibly to maintain order and civil society. Because anarchy sounds great in theory, but is nearly worthless once outside of the classroom. No business can run like this, and neither can a society.

Fact: The US population was 203 mm in 1980, and is 308 mm in 2010. What do you think has to happen to the size of the “management” team? Do you think the complexity of our society has increased in the 30 years since 1980?

Or is that the clink of the kool-aid glass that I hear?

 

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Re: debt free fiat currency - a solution to deflation and ...
darbikrash wrote:

I find it ironic that perhaps a debt based system, properly regulated, would have the least amount of “force” and “control” as compared to most, if not all of the systems that I have seen proposed on this board. I say this because to my way of thinking, the driver to monetary supply, and directly to the question of  “control of the supply” is self metering in a debt based system. The population is growing exponentially, and so is commerce, and so is the need for monetary supply. Somehow this has to be modulated, and it would seem to my layman’s understanding the system we have does a decent job of this- when functioning correctly, which it clearly is not now doing. The alternatives all seem to center on a supply decision made not by the market demand, but by some type of external command structure, and I’d worry about this. (as I know you would)

 First you ask what some alternative solutions might be, and when I put forth that we need less interference and more market driven competitive systems, you go off on a rant about how Reagan was the great Evil one who broght all this on us.  Then above you worry about "supply decision made not by the market demand, but by some type of external command structure".  So, let's see you want regulation and government control, but not really?

As you pointed out society is very complex and has continued to grow in complexity.  I do not believe any one can manage a system as complex so the best solution is not to try.  Just as many highly complex structures are self organizing and self regulating, so should be our monetary system.  So how to you get there?  You remove the government regulation over money and trade so that multiple competing systems come into play to work out the best solution(s).

darbikrash wrote:

The use of (properly regulated) debt based currency is intrinsic to the design and functionality of capitalism. I cannot see how you can have one without the other. If debt based currency cannot be effectively regulated, there is an argument you cannot have capitalism.

Perhaps because of your deeply held beliefs that money must be regulated and centralized, you can't accept that money is just like any other good or service.   Many different forms (brands) may exist and can compete for use - there is no requirement for capitalism that money be centrally regulated, all that matters is that the parties involved in a transaction agree on a currency in anything other than a barter situation.

I would also go farther and say that any time you try to centrally manage and regulate a monetary system it will always fail in the same way we see it failing now.  Those doing the regulating will rig the system in their favor.

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Re: debt free fiat currency - a solution to deflation and ...
darbikrash wrote:

Fact: The US population was 203 mm in 1980, and is 308 mm in 2010. What do you think has to happen to the size of the “management” team? Do you think the complexity of our society has increased in the 30 years since 1980?

So since 1980 the US population increased by 50%, complexity has increased significantly, and government increased by > 50% and yet we "deregulated" at the same time?  Could the confusion be because deregulation has different meanings to each of us?

Wikipedia defines deregulation as....

Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces. Deregulation does not mean elimination of laws against fraud, but eliminating or reducing government control of how business is done, thereby moving toward a more laissez-faire, free market. It is different from liberalization, where more players enter in the market, but continues the regulation and guarantee of consumer rights and maximum and minimum prices.

Are you really claiming that government has removed or simplified "the rules and regulations that constrain the operation of market forces" since 1980?  Can you actually point to a example of a legal or regulatory code that has shrank is size or complexity over this period?  There may be one somewhere but I am certainly not aware of it.

I guess I just am not buying your deregulation bugaboo.  <clink>  I think I will get back to my kool-aid.

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Carl Veritas
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Re: debt free fiat currency - a solution to deflation and ...

sosMsos,

http://en.wikipedia.org/wiki/Bank_run

Do you know why banks go bankrupt whenever a majority of its customers withdraw their money?

 

 

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darbikrash
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Re: debt free fiat currency - a solution to deflation and ...
rhare wrote:

 First you ask what some alternative solutions might be, and when I put forth that we need less interference and more market driven competitive systems, you go off on a rant about how Reagan was the great Evil one who broght all this on us.  Then above you worry about "supply decision made not by the market demand, but by some type of external command structure".  So, let's see you want regulation and government control, but not really?

I did read your response fairly thoroughly, and I think I can understand your point of view a little better and can respond accordingly.

The main point I am trying (quite unsuccessfully!) to make is related to the need to have oversight and regulation, not on the money supply, but on the people who seek to abuse it. This simple sentence contains the jist of the differences here, as I have gone to great pains to point out, I am impressed by the self modulating affect of debt based currency, but discouraged by the (obvious) catastrophic results which we can all observe.

And yes, I am quite concerned about any alternative theories of monetary supply that seek to change this self modulating mechanism and replace it with a command structure system. Aren’t you?

So, with respect to our current system, I would seek to retain the attributes that are working, and are effective, and discard the elements that are not working. How to do this? Not so hard really, at least intellectually, but it does require something that may be distasteful to those that wish to embrace a free market system- and that something is regulation.

Not regulation of the money supply, and the mechanics of same, but regulation of the financial predators that seek to “game the system” to the advantage of the few at the expense of the many. It’s not the same thing.

This takes a management structure to implement such regulation. Not a command structure, not some huge and bloated top heavy government which neither of us want, but really some rather simple rules that are followed by all players. Have you stopped to consider at least in the hypothetical, what exactly would the rules look like that are necessary to insure that we do not have a financial collapse, if our current system was to be retained? (Not suggesting that this is the best option, just a hypothetical here)

I think about this, perhaps more than I should, and the conclusion that I have come to is that there really are not that many regulations needed to nip this sort of disaster in the bud. How about a couple of easy ones that might well knock down 80% of the most egregious examples of financial malfeasance. If you study post Keynesian economists, such as Steve Keen, you will find that the measures necessary to avoid financial collapse are not that onerous. You will find that for example, if you eliminate Ponzi borrowing, this singular act will likely knock down the vast majority of the financial failures. There is strong mathematical evidence that this phenomena alone is the root cause of much of our problems, yet the notion that this practice should be banned, with strong regulation is apparently a subject that cannot be broached by reasonable people. You could carry this way of thinking forward into derivatives markets, if so inclined.

Would it not make sense to ban Ponzi borrowing rather than throw out our entire system of debt based currency? I realize it is heresy, but come on, is this not a simple common sense example of something that can be done? If it doesn’t work as expected, than what exactly have we lost? Going on, how about the fractional reserve ratio? As I understand it, it is effectively at around 2%. Is this not inherently risky to have the ratio this low? Are these examples not the beginnings of criminal behavior just waiting to happen, and what a surprise, they really do happen.

These measures however, do suggest that free market capitalism is ineffective at policing actors that are motivated by greed and determined to cheat. This conclusion is already accepted by many of us, and vigorously rejected by certain ideological positions that are hell bent on trying to insist that we really are better off with no management whatsoever. In my view, even the most basic of predictive skill sets will show the obvious vulnerability to any unmanaged system, and this is not a risk that I am willing to take.

I do not believe any one can manage a system as complex so the best solution is not to try. 

Sorry, I cannot agree. That is what is means to be a citizen, if you give up and capitulate the leadership and management of our society because “it’s too hard” than what you will receive in return is not some idealistic, utopian free market system, but rather control and governance by those can manage, and manage to their interests, not yours. Nature abhors a vacuum. Giving up is not the answer and is not an option.

goes211 wrote:

I guess I just am not buying your deregulation bugaboo.

Goes211, I’m glad your not buying it, because I’m not selling it. Smile I made the point earlier that the size of government is decoupled from regulation. I’ve also made the point that the efficacy of regulation is not contingent on how many rules that we have, rather, you have to judge by the results, not the quantity.

 

Can you actually point to a example of a legal or regulatory code that has shrank is size or complexity over this period?  There may be one somewhere but I am certainly not aware of it.

How about Glass-Steagall?

Link

The Banking Act of 1933 was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation.[1] It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Carter Glass and Henry B. Steagall.

Some provisions of the Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act. [2][3]

The repeal of the Glass–Steagall Act of 1933 effectively removed the separation that previously existed between Wall Street investment banks and depository banks and has been blamed by some for exacerbating the damage caused by the collapse of the subprime mortgage market that led to the Financial crisis of 2007–2010.[4] The potential to make enormous profits trading mortgage-backed securities with artificially high ratings[5] encouraged banks to take on otherwise intolerable risk in the form of bad loans. The ease with which people were obtaining home loans contributed to an artificial housing boom and exacerbated the inevitable decline. The banks did not make the huge profits they anticipated, but obtained "bailouts" from the federal government to compensate them for their losses of funds invested and much of their losses of anticipated substantial profits. Many felt it was unfair that the bank executives who chose to take the investment risks in the housing market, attempting to make outrageously high profits by repackaging and reselling bundles of mortgages back and forth, were able to then obtain bailouts and fund, among other things, their own yearly salary and bonuses packages, which were in most cases several million dollars per executive.[6]

 

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sosMsos
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Re: debt free fiat currency - a solution to deflation and ...
Carl Veritas wrote:

sosMsos,

http://en.wikipedia.org/wiki/Bank_run

Do you know why banks go bankrupt whenever a majority of its customers withdraw their money?

 

 

donno wether you are ignorant or not willing to listen, or dont like to learn somethin new, out of the box you are in:

Tell me what makes fractional banking dangerous when:

1. fiat money (book money) is not = reserve money  ( i posted a link that it proves,and told that having a misconception of reserve money and fiat money leads to hughe analytical mistakes of money system, also touches fractional banking)

2. thus book money cant be reloaned

3. when book money (fiat money) looses value over time throiugh negative interest rates

try to see things in relation to each other instead of isolating the things from the whole you dont like!

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