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

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

These measures however, do suggest that free market capitalism is ineffective at policing actors that are motivated by greed and determined to cheat.

darbikrash wrote:

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.

I think you are still missing the theme here.  Any regulation based on the decisions of a small group or one will ultimately be manipulated.  Why are you so against just letting the market (participants) determine what they want to use as money?  Why not allow competition in the monetary space just as we do in other products?  To say that "free market capitalism is ineffective" seems to be a rather hollow claim since we haven't had free market capitalism in at least 100 years (since the founding of the Fed and legal tender laws).

Trying to regulate those who would abuse the system is a band-aid.  Any monetary system that is forced upon it's participants is flawed.  It's only competition and/or physical limits (commodity based-gold/silver/?) that can limit manipulation.  I really don't understand how people can have this naive belief that if we just had "the right regulations" or "the right people regulating" that things would be better.

It is in our nature to try to gain advantage over others - survival instincts.  Systems that require limiting those instincts will fail.  Gold/Silver are good because the limits are not set by man - rather by the scarcity and difficulty of mining the material.  While I like gold/silver if they are then declared the only system they can be manipulated by hoarding/limits imposed by large players.  So the only answer I can see that is valid is to let anyone who wants to trade with another be allowed to freely choose what if anything they want to use as money.  This allows the market (people) to quickly thwart any manipulator.  If you really want to have regulation, call this "distributed regulation" or "market-place regulation". Smile

darbikrash wrote:

How about Glass-Steagall?

A flawed law put into place to try and right an already flawed system.  Just look at FDIC insurace and the moral hazard that has produced? Glass-Steagall and Gramm-Leach-Bliley are perfect examples of "regulation" trying to control natural acts and failing miserably - both were inacted to empower those in power or those who were politically connected.   Pointing to one broken law trying to change another broken law does not sway me, instead I believe it nicely proves the point!

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plato1965
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Re: debt free fiat currency - a solution to deflation and ...

rhare.. I salute you. The core issue is freedom. Voluntary choice.

 I don't mind if you voluntarily choose a marxist utopia... or an ayn rand solipstocracy.... as long as each individual is free to choose !

 Either you're for it.. or against it. The true dividing line... not a particular metal, or a particular policy..

 but VOLUNTARY vs COERCED. That is the question..

example: The internet... voluntary submission to protocols and RFC's  for the communal/network good.. you're free to set up any other system you wish,

you're free to create higher layers of standards.... HTML specs.. and adopt freely where the benefits of standardisation beat the benefits of better(?) functionality .

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

sosMsos,

"the fractional reserve banking is not the problem, it's essential"

Could you explain that?

scepticus's picture
scepticus
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Re: debt free fiat currency - a solution to deflation and ...

gentlemen, the point about FRB is not whether it is essential or it is not. The fact is we have it, and unquestionably it is part, a key part, of the corpus of human technology. Institutions are technolgies.

The fact that we have it, and that it is so deeply entrenched suggests to me that (like any other deeply entrenched human technology) that:

1. It has evolved over many years

2. People in the past must have found it a useful technology, otherwise it could never have become entrenched.

3. Given the above, I would say that FRB has been selected by the market over many many centuries.

Now, as with any other technology, it has the capacity to harm us as well as help us. That is all there is to it, morally speaking.

Libertarians and goldbugs will come up with any number of fancy theories about shadowy elites and imperialists to explain the ubiquity of the FRB model but it is obvious to those not infected by dogma that it only takes one wave of occams razor to discard these arguments.

FRB is essential in the same way that oil is essential. Because that's how we do things, and by and large it has worked quite well. And the fact it has grown and persisted for 500 years suggests that I am right and the populist ideologues who want to (and imagine it is possible to) delete a 500 year old technology are wrong.

My final point relates to the terrible, dire misunderstandings about money in these arguments. Money as we understand it in historical terms is an artefact of arbitrary scarcity, made possible by a huge deficit of communication bandwidth and information between humans. Money as it what it must ultimately become is pure information. Now we are some way through that transition, and it is not something that can be stopped.

Fiat money is an attempt to make something scarce which fundamentally cannot be scarce (a number decreed and then entered in a computer). Gold is a collective delusion that something with is intrinsically not useful is valuable. Both propositions are, with the progression of time and technology, unviable. So fiat money is trending towards its equilibrium which is to offer no yield and to be backed by as much of the only thing that gives it meaning - debt. This is especially key in an age in which demographic aging means that labour will become more scarce than capital for the first time in 500 years.

Arguing about the rights and wrongs of FRB seems rather pointless to me, when what will be will be (due to deep currents of culture and demographics  not politics or activism) and people would be better off trying to discern the road ahead through the mist than arguing about what the road we have been walking along recently was called.

 

 

 

rhare's picture
rhare
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Re: debt free fiat currency - a solution to deflation and ...
scepticus wrote:

Given the above, I would say that FRB has been selected by the market over many many centuries.

This is where you are wrong!   It was not selected by the market.  It was forced on the market by a government (at least here in the US).  Without forced use through taxation of alternative currency transactions and legal tender laws, the current fiat money system with FRB (not really since there is not reserve) would not be standing today.   Remember the whole reason the dollar was accepted as a reserve currency was because the dollar was supposed to be tied to gold.  When it was discovered it wasn't the world started to reject it by redeeming dollars for gold until the US defaulted and failed to honor that promise.  At that point it was so well estabilished that it has continued to function for a few decades, however, now the USD is on the verge of collapse precisely because the market is changing it's preference.

scepticus wrote:

People in the past must have found it a useful technology, otherwise it could never have become entrenched.

No, bankers find it quite useful because it allows them to make more loans.  While I (have argued with CM on this) believe that a FRB system can work as long as all participants understand the rules and they are not changed randomly, it is clear that the current FRB system with no reserves and a Fed willing to debase the currency is not functional.  The only reason people accept it is because it's functioning is largely done in secret and the prosperity it brings has not yet be revealed as an illusion. Once the populous realizes the level of deceit by the federal government and the banking institutions, I suspect we will be back to a hard currency (with no FRB) for quite sometime.

 

scepticus's picture
scepticus
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Re: debt free fiat currency - a solution to deflation and ...

"This is where you are wrong!   It was not selected by the market."

Well, the dutch, swedes and British at least, were all using it long before the Americans setup any kind of banking system for themselves.

And FRB had evolved independantly in the native Mughal Empire of India from the 18th century onwards. And of course Italian and German bankers were employing a fractional reserve approach to funding european monarchs and, ironically, the discovery and exploration of America.

FRB may be dangerous at times but it is far more efficient than any kind of full reserve approach and therefore one would expect markets to pick it. The losses associated with various financial crisis have been more than offset by the increase in efficiency of the economy for the last 500 years.

 

 

 

 

 

rhare's picture
rhare
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Posts: 1324
Force by govenrment does not a market make.
scepticus wrote:

Well, the dutch, swedes and British at least, were all using it long before the Americans setup any kind of banking system for themselves.

And FRB had evolved independantly in the native Mughal Empire of India from the 18th century onwards. And of course Italian and German bankers were employing a fractional reserve approach to funding european monarchs and, ironically, the discovery and exploration of America.

FRB may be dangerous at times but it is far more efficient than any kind of full reserve approach and therefore one would expect markets to pick it. The losses associated with various financial crisis have been more than offset by the increase in efficiency of the economy for the last 500 years.

None of this shows that it was chosen by the market, in fact far from it.  It will always be chosen by governments and bankers, because when you have a FRB system it greatly benefits the financial and political sector at the detriment of others.

As I have said many times, I have no problem with FRB being an option, but no currency is "valid" IMO if it is not subject to competition.  Until you have competition in money just as you must have in everything else you will never know if it is serving it's purpose of being a measuring stick of the value of products and capital.

scepticus wrote:

The losses associated with various financial crisis have been more than offset by the increase in efficiency of the economy for the last 500 years

And how do you know that? This is just like all the politicians saying it would have been worse had we not done X.

 

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Robbrian
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darbikrash --- reply

Snap Snap!!! Thanks for the response to an otherwise undefensible position in light of modern government's role in an ever growing social democracy.

Some remain in cognitive dissonance of the world the way it is rather than the way they would like it to be.  Caught in that contradiction leaves little room for objectivity.

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