Gubernatorial candidate's revolutionary money plan holds the key to solving the looming financial disaster

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darbikrash's picture
darbikrash
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Re: Gubernatorial candidate's revolutionary money plan ...

I frequent another unrelated website whose members of late have taken to offering totally unqualified opinions and ideas on how to address the oil spill in the Gulf. This spill has only a tangential relation to the forum subject matter and stated purpose, but nevertheless, we have all sorts of crackpot ideas, and to be fair, a few good ones too, thrown out for due consideration.

The reason of course is that everyone sees in the spill a tragic situation, and is frustrated, frightened, and wants desperately to have some type of permanent solution, which clearly is not forthcoming. The natural reaction is to invent all kinds of schemes, half baked solutions and suggestions with the implied philosophy of fixing the perceived incompetence on the part of our country’s leadership.

Something, anything, is better than nothing right?

Concerning money creation, much of the same responses are evident on this forum.

Around the beginning of the last century, the US Patent office was deluged with technologists and con men submitting patent requests for all manner of devices and inventions, in pursuit of investment dollars made possible by the newly budding expansion of capitalism and the nascent industrial revolution. Many of these schemes were perpetual motion devices, that purported to export more energy than what was put in. Most of the schemes were so complex that the examiners at the USPTO could not review these in any meaningful fashion, as the flowing words, intricate technical drawings, and wild claims made for a formidable obstruction of the more or less mundane laws of physics, which elegant prose aside, really do govern the efficacy of these inventions.

So the USPTO did something very smart, they made a requirement that all patent filings referencing perpetual motion  claims be submitted with a working prototype of the device seeking patent protection.

This practice is still in force today, and suffice to say, the number of claims challenging conservation of energy laws or related perpetual motion  has dropped down to near zero.

I propose a similar approach to monetary theory. Got an idea, great, let’s see some numbers and a working prototype.

As the field of economics and finance is considered by some to be a science, I would submit the following to would be “inventors” of any proposed reconstructed monetary system:

-       Operate in a thorough “Test and Prototype” methodology.

-       Write a set of performance objectives, define acceptable and  unacceptable outcomes. Use numerical methods, not words, to describe the core functionality.

-       Develop a written test protocol, governing how the system is intended to work, the scale and construction of the prototype, and the expected outcome of a small scale test.

-       Implement a simple, small scale methods development phase, wherein various measurement techniques, and concept refinement are explored to add fidelity to the aforementioned written protocol.

-       Submit for peer review.

-       Implement the prototype scale proof of principle test.

-       Record the results, and conduct a through post mortem analysis of the test results.

-       Submit for peer review.

-       Adjust operating theory, measurement techniques, and performance expectations based on test results. Overlay with original performance specifications and objectives to insure the project is still in compliance with initial claims and goals.

-       Repeat above steps for a larger scale test.

-       If results are still acceptable, begin construction of a large scale implementation strategy.

-       Scale to suit.

-       Use feedback mechanisms, and measurement loops to monitor performance in real time. Have documented procedures in place to adjust, redirect, and if necessary, shut down the system if data suggests unanticipated consequences. 

These types of techniques are used in development for things as simple as a toothbrush, yet arguably the most important “product” in our country is an ad-hoc assemblage of political infighting and professional second guessers?

As we say in my business, let’s see a prototype.

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Re: Gubernatorial candidate's revolutionary money plan ...

Thomas – Regarding your post 19

I appreciate your well considered response.  You have obviously taken the time to study this issue.  I encourage you to pursue this further.  I think you have made a good start, but you’ve missed a fundamental point.

The principles all banks are based on are best illustrated by a small community bank.  If they could create all the money they wanted, to write any loan they thought would be paid back, then they would have no limit on their size.  The tree could grow to the sky so to speak.  Your neighborhood bank could meet the credit needs of every person, company, and government in the nation, or the world.

Banks do create money, but they have to play by the rules to do so.  If they don’t they get closed down by the markets or the regulators, unless the get a bail-out.  Under the fractional reserve system the dollars in loans must be offset by equal amounts in reserves (including capital), and deposits (or equivalent sources of funds).  If this is not true, then what prevents your local bank from providing all the loans for everybody all by itself?  If deposits are not the limiting factor, than what do you think is?

 When I said banks create money by counting the same money twice, that was a figure of speech to keep it simple.  If I deposit $10,000 and the bank lends $9,000 to someone else we each effectively have the money.  I agree that $9,000 more was added to the total money supply.  Some examples say the new money creation only happens when the loan money is paid to someone else or deposited in another bank.  These are technicalities.  You and I are on the same page here, it is just a question of semantics that is causing confusion.

I’m not saying fractional reserve banking is alright, but it does require that a reserve is maintained for some portion of the deposits.  I’m just trying to point out that the Davis plan in the original post doesn’t even understand how banks work and a flawed premise cannot lead to a sound conclusion.  He wants to have Minnesota create a bank that can issue unlimited amounts of money.  The Federal Reserve has a monopoly on that privilege, and even the Fed maintains a fig leaf of deposits with treasury bonds (or bad mortgage securities from the banks they bailed out).

Money creations is deliberately made mysterious and the concepts are alien, so it is not easy to understand.  I am not an expert, but I have studied this subject, and I too have talked to several bank executives.  My knowledge is limited but I am confident of what I have said in my posts.  If we could sit down together with a balance sheet for a half hour I could demonstrate this clearly.  I doubt I can convince you online.  The time and effort is too much and I don’t think further exchange will be helpful to other readers.  But I’m glad we had this exchange of ideas.  It should motivate both of us to study further, and perhaps inspire a few others as well.

Citations

The Creature From Jekyll Island, G Edward Griffin - Page 197, start with Commercial Bank Deposits

 The Mystery Of Banking, Murray N Rothbard - Start with page 94 on Fractional Reserve Banking to see how this practice got started, and why current rules were implemented to tame the beast somewhat.

 Best regards

 Travlin

 

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Re: Gubernatorial candidate's revolutionary money plan ...

This Davis Plan will never fly because it removes base monetary creation from the sole control of the Federal Reserve and places a portion of it into the hands of state legislatures.

You're entitled to your opinion but up to fifteen legislators have signed onto the bill (10 house members and 5 senators) in a given year.  Obviously they thought it would fly, but what facts do you have to back your opinion that it will never fly.

A near identical bill has been introduced in Arizona and legislators over there clearly think it would fly.

How does this bill remove the base monetary creation from the sole control of the Federal Reserve?

What do you mean by base monetary creation? 

Can you imagine if each state got into the game and began out racing each other to create more money than the next state in order to attract businesses, subsidize tourism, have the most well-funded educational system, and a thousand other "essential" things?

When did you rewrite the davis plan?  Have you ever read the bill that the Davis plan is based upon?  The bill never says says anything about attracting businesses, subsidizing tourism, or funding education.  The Davis plan specifically prohibits the state from doing those things.

It would result in a complete currency failure within a few short years.  Things are dicey enough without such tom-foolery added to the mix.

Why would an increase of money without debt result in currency failure? 

Can you explain why if we created money without debt (this would lower the costs of doing business because it would eliminate some of the interest costs) result in a currency failure?

Is it not you that has complained the exponential growth of debt is what is killing everyone?

You've done a excellent illistration to show this.

If exponenetial growth of debt is what is killing the economy why would money without debt hurt anything, and in fact wouldn't an increase in money supply without increasing the debt slow, stop, or reverse the exponential growth of debt?

It's clear we cannot go without a monetary system in our society.

Further, recall, if you will, what is printed at the top of every piece of paper currency - "Federal Reserve Note".  That means what Davis is calling "money" is something far different....it's really an obligation of the Federal Reserve system.

You obvisioulsy do not understand the concept of the bill.  The state is not going to produce any written notes, Federal Reserve or otherwise.

What Davis calls the money supply is just exactly what it is, check book money.  In fact you can't even get Federal Reserve Notes into circulation until you buy them from the banks with check book money.  All money is created by adding numbers to a checking account.  This is what Davis's plan calls for.  Creating check book money as a payment, not as a promise to pay, which by the way the banks never pay anyway.

How could a state chartered bank produce such a thing?  They couldn't anymore than Pepsi can start selling Coke.

What do you think the state chartered banks are going to produce?

Do you actually think they intend to produce Federal Reserve Notes?

At a minimum it looks to me like you should at least engage a meaningful discussion so that you clearly understand exactly what the bill will do before you critcize it.

The state banks are going to produce exactly what they produce right now.  Entries in a checking account except they spend it for benifit of the people, instead of loaning it for a personal profit for the bankers.

The exact intent of the bill is to stop the exponential growth of the debt and still supply the people with a workable monetary system.

I though that is what you wanted.

At least not legally according to the law of the land and, trust me on this one, the feds would strangle such a scheme before it could breathe it's first breath.

Where do have any proof of that?  It's clear the FDIC already in writing has said any law passed by a state to regulate or control state banking activities would be binding on FDIC audits which is the only federal agency that has any juristiction at all over state chartered banks.

Are you aware that we have we have a dual banking system in the United States?

One that is chartered and regulated by federal legislation and one that is chartered by the states and regulated by state law.

but what you can legally do and what the feds will allow you to do are two separate things when it comes to money.  Especially  when it comes to money.

Do you believe in the rule of law or has the United States completely forgot about the rule of law.  Maybe thats the problem here.

What do you mean by the feds?  Do you mean the Federal Reserve banks?  The Federal Government, FBI, Treasury, Federal Reserve Board of Governors?  Who or what agency are you exactly reffering to?

In then end, while I applaud the new thinking involved, I don't see this plan as very well thought out.

Do you understand there is close to two decades of research put into this plan?

There is no man blinder than a man who refuses to see.

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Re: Gubernatorial candidate's revolutionary money plan ...

cpkj,

However, the intricate details of our monetary system aside, I can think of nothing scarier than any government (Local, State, or Federal) having the ability to create money without consequence.  Look what has happened under our current system!

And i agree with you here.  Under our current system banks are the only creators of money.  The government does not create and money, and you are correct that it would be scary if government could create money for anything they wanted.

Everything has consequences, be it weather those consequences are good or bad.

Right now all money is created for the benifit of the bankers as a loan.

Money should be created and spent into circulation for the benifit of society without debt.  Only this type of money can serve to benifit society.  Debt money will always in time destroy a society.  I'm sure its no secret to anyone.  All we have to do it look around.

To have good consequences money should be spent into circulation on something that everyone can use or benifits from.  Infrastructure is probably the best way to do it because everyone can benifit from a good infrastructure system.  Plus this moves the money into the base level of a society, instead of just a few fat cats at the top.

On the other hand, if we allowed government to spend money into circulation for anything at all, the people in control of the government may only end up spending in new money to benifit themselves, and nobody else.

Or build prisons and put us all in them, or only spend money on war ect ect.

 

All the ideas for currency reform that I have see/heard/read all seem to lack one thing.  Accountability.  Relying on the political process to punish fiscal rogues seems naive at best.

This thread isn't about currency reform it's about monetary reform.

Accountability is key.  This is why we need to have legslation that restricts the creation of new money only to those things that benifits everyone as equally as possible, and pays the producers first for production done with final payment, debt free money.

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goes211
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Re: Gubernatorial candidate's revolutionary money plan ...
Thomas Hedin wrote:
Chris Martenson wrote:

This Davis Plan will never fly because it removes base monetary creation from the sole control of the Federal Reserve and places a portion of it into the hands of state legislatures.

You're entitled to your opinion but up to fifteen legislators have signed onto the bill (10 house members and 5 senators) in a given year.  Obviously they thought it would fly, but what facts do you have to back your opinion that it will never fly.

A near identical bill has been introduced in Arizona and legislators over there clearly think it would fly.

How does this bill remove the base monetary creation from the sole control of the Federal Reserve?

In my opinion Chris Martenson is entitled to a little more respect that just his opinion.Smile Is it really that surprising that a bunch of STATE house members and STATE senators, would endorse a program that allows them to spend nearly without limits?  If the program was harmless, what would be surprising is if 100% of STATE reps and senators did not support a program that gave them a massive increase in spending power.

Do you understand what statement  "sole control" means?  If the state could make base money it would be a rivial to the Federal Reserve system.  Seems logical to think that the FED and their co-conspirators in the Treasury might oppose such a plan.

Thomas Hedin wrote:
Chris Martenson wrote:

Can you imagine if each state got into the game and began out racing each other to create more money than the next state in order to attract businesses, subsidize tourism, have the most well-funded educational system, and a thousand other "essential" things?

When did you rewrite the davis plan?  Have you ever read the bill that the Davis plan is based upon?  The bill never says says anything about attracting businesses, subsidizing tourism, or funding education.  The Davis plan specifically prohibits the state from doing those things.

The only info about the Davis plan is what we have seen in this thread but it seems clear from what has been written, how it would work.  Most of us read the original MTA bill and thought it was a bad idea.  How is the Davis plan different?

Thomas Hedin wrote:
Chris Martenson wrote:

It would result in a complete currency failure within a few short years.  Things are dicey enough without such tom-foolery added to the mix.

Why would an increase of money without debt result in currency failure? 

...

It's clear we cannot go without a monetary system in our society.

I can't speak for Chris but I assume it has to do with the belief that you can't get something for nothing.  Also keep in mind that opposing the Davis plan does not mean we oppose all monetary reforms. 

I think my feelings on this plan can be summarized by the old saying "For every complex problem their is a simple solution, that is WRONG."

Thomas Hedin wrote:
Chris Martenson wrote:

Further, recall, if you will, what is printed at the top of every piece of paper currency - "Federal Reserve Note".  That means what Davis is calling "money" is something far different....it's really an obligation of the Federal Reserve system.

You obvisioulsy do not understand the concept of the bill.  The state is not going to produce any written notes, Federal Reserve or otherwise.

What Davis calls the money supply is just exactly what it is, check book money.  In fact you can't even get Federal Reserve Notes into circulation until you buy them from the banks with check book money.  All money is created by adding numbers to a checking account.  This is what Davis's plan calls for.  Creating check book money as a payment, not as a promise to pay, which by the way the banks never pay anyway.

Chris Martenson wrote:

How could a state chartered bank produce such a thing?  They couldn't anymore than Pepsi can start selling Coke.

What do you think the state chartered banks are going to produce?

Do you actually think they intend to produce Federal Reserve Notes?

At a minimum it looks to me like you should at least engage a meaningful discussion so that you clearly understand exactly what the bill will do before you critcize it.

The state banks are going to produce exactly what they produce right now.  Entries in a checking account except they spend it for benifit of the people, instead of loaning it for a personal profit for the bankers.

The exact intent of the bill is to stop the exponential growth of the debt and still supply the people with a workable monetary system.

I though that is what you wanted.

You obviously ignore the fungibility of money.  If this new checkbook money can be converted into FRN's it seems pretty logical to say that the creationg of this check book money is equivalent to creation of FRNs.

Thomas Hedin wrote:
Chris Martenson wrote:

In then end, while I applaud the new thinking involved, I don't see this plan as very well thought out.

Do you understand there is close to two decades of research put into this plan?

There is no man blinder than a man who refuses to see.

Nice to see you treat Chris with the same respect you treat everyone else that disagrees with your proposals.

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Re: Gubernatorial candidate's revolutionary money plan ...

I don't understand how this "Davis Money Plan" would be of benefit, even if politically obtainable. Admittedly, there is much about monetary and fiscal policy that I am still trying to comprehend, however. Please feel free to correct (in a pleasant and easy to understand manner) any defects to my understanding:

In the ideal system, I understand money to be an exchange medium, little more. The money I earn reflects some good or service I have provided, and which therefore serves as a reservoir of work performed that I may exchange at a later date for some good or service another may provide. Money is, in essence, a middle-man, in a temporally-distorted barter system.

Debt occurs when I obtain a good or service in the present, for which I intend to pay money in the future (which in turn represents a good or service that I intend to provide in the future).

Inflation is the expansion of the supply of money relative to the total sum value of goods and services in a society.

Ideally, when a community wishes to invest in an infrastructure product that would better its community, it taxes, or otherwise raises money, from its members to pay for said project. In essence, the members of the community set aside a small proportion of the products of their past labors to pay for a new project. Alternatively, the community may fund the project through debt, with the community members paying for the project out of the products of their future labors.

In the Davis Plan, a bank could create money "out of thin air" to fund the infrastructure development. This funding does not come from the products of community members past labors, or from the products of future labors. This "money" seems, then, to violate the essence of the idea of money, which is a reflection of some good or service (either provided in the past, or promised in the future).

True, the "money" created is supposed to be destined toward the creation of a tangible good for the community, so I can understand (what seems to me to be) the misperception that there has been no inflation, as while the money supply has increased, so has the overall value of the community. But, the "money" created still had no basis in an actual or future product of the community. Further, the money created does not end with the completion of the project, but continues on as wages to those supplying the labor and supplies for the project. Wouldn't this "money", existing within the world with the banking system we all know and love, continue to expand?

I fail to see how that could not be inflationary. It seems no different from what the Federal Government has done for years, beginning most noticeably with the "New Deal".  For Thomas and Larry, can you explain, clearly and succinctly, how the Davis Plan differs substantively from the WPA of the 1930s and 1940s, albeit on a smaller, state-sized, scale?

To me, funding community infrastructure projects from actual revenues based upon a fraction of the products of the goods and services already provided by its members is the most prudent fiscal course. Funding such projects based upon debt, to be reimbursed by the products of the goods and services to be provided in the future, is perhaps defensible, but much less fiscally prudent. Funding such a project on "money" that is created without reference to either past or future production, seems to me to be the height of folly.

I'll mention only in passing that I fail to believe that a system that allows state government officials and state banks to create money "out of thin air" would not lead to rampant waste and abuse, as we have come to expect at the federal level.

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Re: Gubernatorial candidate's revolutionary money plan ...

ccpetersmd,

I just want to understand where you're coming from a little better so I have to ask one question.

Who do you think is the creator(s) of money today?

A.  Banks

B.  Banks and the federal government.

C. Federal Government.

 

How do you think money is put into circulation?

A. Spent into circulation.

B. Loaned into circulation.

C. Gifted into circulation. 

 

If you can form a simple short answer for those two questions I'll know better how to address the paragraph you wrote.

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Re: Gubernatorial candidate's revolutionary money plan ...

Thomas,

Money in the U.S. today is created by both banks and government, but that portion created by government is a very tiny fraction. Money can enter circulation by any of the three mechanism you mention, but most is loaned into existence.

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Re: Gubernatorial candidate's revolutionary money plan ...
goes211 wrote:
Thomas Hedin wrote:

Do you understand there is close to two decades of research put into this plan?

There is no man blinder than a man who refuses to see.

Nice to see you treat Chris with the same respect you treat everyone else that disagrees with your proposals.

Thomas,

Rereading what I said, I think that my statement might not have come out the way I meant.  What I meant by this was, if you can say something like this to Chris, at least I know that your harsh responses to others that disagree with you, are not personal.  Cheers!

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Re: Gubernatorial candidate's revolutionary money plan ...

Thomas,

I'm thinking ahead, based upon your questions. First, recognizing the truth that most money is already loaned into existence, whether through fractional reserve banking, government debt spending or quantitative easing, I anticipate that you agree that this "Davis Money Plan" would also be an example of money being "loaned into existence" (albeit without the expectation that the "loan" would be repaid)? Second, is your argument that this plan is a good idea based upon the presupposition that it would supplant the existing means of money creation, such as fractional reserve banking? If so, then I might be able to understand how this plan has merit, but would have to think more about it. If, however, you are suggesting that this plan would be of benefit even within the current paradigm, I would respectfully disagree. 

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Re: Gubernatorial candidate's revolutionary money plan ...

Double post.

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Re: Gubernatorial candidate's revolutionary money plan ...

ccpetersmd wrote:

I fail to see how that could not be inflationary. It seems no different from what the Federal Government has done for years, beginning most noticeably with the "New Deal". For Thomas and Larry, can you explain, clearly and succinctly, how the Davis Plan differs substantively from the WPA of the 1930s and 1940s, albeit on a smaller, state-sized, scale?

Chris,

Let me take a stab at responding to your points.  First, I agree that there is a similarity with the WPA and the "Davis Money Plan" (brainchild of Byron Dale and Greg Soderberg) in that both are intended to stave off great depressions.  If something is not done, unemployment will continue increasing and our civilization may well collapse.  The big difference is that we borrowed money from banks that had none under the WPA and defaulted while the Davis plan reasserts our sovereign authority to create our own debt free money.

If you go back to my Post #3 you will see that our money supply is contracting at an alarming rate.  "The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history."  The money supply contracted by around 1/3 between 1929 and 1933 which resulted in the not so "great depression."

I think it is important to recognize that "we the people" solely back up every Federal Reserve "note" that the banks create for free.  Their notes are "promises to pay" which we ignorantly accept as money and then we submit to theft by paying interest.  So, we come to the million dollar question...if we are backing the money, why are we borrowing it as a nation?

We are committing national suicide by continuing their debt money system as it is a mathematical certainty that the debt is growing exponentially - it simply cannot be sustained.  The terminally flawed private debt system is a monument to man's stupidity.

You mentioned inflation as a concern but I suggest that deflation and default are the things that should worry us.  The term inflation, as defined in neoclassical economics, "too much money chasing too few of goods" simply isn't in the cards as we are fast approaching "peak debt."  Everyday banks destroy money (repayment of principal extinguishes money) making our debt money system inherently deflationary.  There simply aren't enough new willing and worthy borrowers to offset the growing rate of destruction.

It may well be that the price of many things will increase but I suggest that it will be the result of shortages and the debauching of our currency.  It will not be because we have too much money.  We use promissory notes as money and it is only as good as our finite ability to repay debt that is growing exponentially.  The currency is being debauched as we are exceeding our ability to make good on our promise.

A common theme that I find troubling in this thread is that many people have given up hope that government can actually govern our finances.  America was founded on the principle that people could govern themselves as a constitutional republic without a ruling monarch or dictatorship. 

While I agree that Washington is rotten to the core I also recognize that this was inevitable under a private debt based monetary monopoly.  Our federal government is subservient to the banking monopoly; we are totally dependent on them to rent us the means to conduct trade and commerce.

One of the great things about the "Davis Money Plan" is that it appears to actually be doable.  We can start to take back our country and national sanity at the state level.

Larry

Note: Byron Dale's Modern Money Secrets is a must read book in understanding money systems

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Re: Gubernatorial candidate's revolutionary money plan ...

darbikrash post 31-- You have precisely identifiled the problem and proposed the solution.  Any reform of the money system has to be based on a realistic understanding of how things work today, and the proposal has to be based on fundimental principles that transcend any particular system.  This doen't mean that we have to always defer to the so called "experts".  But you do need extensivel knowledge to change things for the better.  It is too easy to fall into the trap that, "A little knowledge is a dangerous thing."

ccpetersmd post 36 -- Kudos.  You have done an excellent job of explaining a complex topic in an understandable and accurate manner.  You have hit the nail on the head.

History is full of schemes to get money for nothing in unlimited amounts.  Reality is that wealth must be produced by people.  How it is allocated it the eternal problem.

 

 

 

 

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Re: Gubernatorial candidate's revolutionary money plan ...

Larry,

I was wondering if you give some additional clarification.  You say...

It may well be that the price of many things will increase but I suggest that it will be the result of shortages and the debauching of our currency.  It will not be because we have too much money.

Can you explain the distinction between "not be because we have too much money" and "debauching of our currency"?  Are you saying that if the Davis plan is implemented and "the price of many things increase", the cause will not be the Davis plan?  If so then by what standard can the Davis plan be judged?

-------------------------------------------

Another more general question I have is about statements like this...

We are committing national suicide by continuing their debt money system as it is a mathematical certainty that the debt is growing exponentially - it simply cannot be sustained.

I actually mostly agree with this statement.  My question is if the Davis plan works, and it allows the current ( P < P+I ) system to continue, do you really consider this a favorable outcome?   What I mean by this is, if the current unsustainable system enables value to unfairly flow upward to those that don't deserve it,  won't adding this debt free money just allow this injustice to continue.  Without the injection of debt free money, wouldn't the system need to be replaced by a more equitible system sooner due to a collapse?

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Re: Gubernatorial candidate's revolutionary money plan ...

Larry,

Thank you for your response. I think I understand what you are saying, although I don't necessarily agree with some of your premises.

Am I correct in assuming that you would propose the "Davis Money Plan" in lieu of our current system, rather than in addition to it? If so, I think it might have some merit, but, again, I am not expert enough to judge.

I also agree that deflation is a more immediate concern than inflation, but suspect that at least some of this "deflation" may be useful "resetting" of an inflated system. I think most of us on this site agree that continued growth is neither sustainable nor desirable. Our only hope may be that this necessary unwinding occurs as smoothly as possible. Trying to re-inflate the system, whether through the Fed, the government, or this plan, seems to me a bad idea. Thoughts?

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Re: Gubernatorial candidate's revolutionary money plan ...

Our minds jump through crazy hoops to justify to ourselves why we shouldn't be free.

Over a couple years, besides an occasional call for the old gold standard (which didn't work), I've never seen anyone propose anything to solve the 1st E...including CM I think for obvious reasons.  But the few people who do try to tackle the 1st E get shouted down like nothing else on this site.  And they get shouted down with nothing but theoretical talking points from Ivy League economists everyone had pumped into their heads...like the ridiculously simplistic quantity theory of money...debunked but still cherished in our minds as much as something like the virgin birth.  Clearly views on inflation and money are a religion. 

Quote:

But you do need extensivel knowledge to change things for the better.  It is too easy to fall into the trap that, "A little knowledge is a dangerous thing."

Saying nothing in a sophisticated way is still not saying much.  Along with the labels "tom-foolery" "crackpot" "simplistic," this quote reveals the elitist bias of this site when it comes to money.  Speaking of dangerous, I can't imagine anything more dangerous than those with "extensive knowledge" who have repeatedly brought America to the economic brink.  How about the Nobel prize winners who founded Long Term Capital Management?  How about Greenspan, Summers, Rubin, Paulson, Geithner?  How about all those most brilliant financial engineers who brought us derivatives and have now guaranteed decline because their "extensive knowledge" caused them to assume Gaussian distributions (darbi, they had a crapload of peer review, they did a lot of testing and modeling...none of that mattered of course because it was all built on false assumptions and all the peers doing the reviewing were just as ignorant, in an Ivy League sort of way)? 

This aristocratic bias for erudition vs. simple Jeffersonian common sense is maddening. 

 

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Re: Gubernatorial candidate's revolutionary money plan ...
strabes wrote:

Our minds jump through crazy hoops to justify to ourselves why we shouldn't be free.

Over a couple years, besides an occasional call for the old gold standard (which didn't work), I've never seen anyone propose anything to solve the 1st E...including CM I think for obvious reasons.  But the few people who do try to tackle the 1st E get shouted down like nothing else on this site.  And they get shouted down with nothing but theoretical talking points from Ivy League economists everyone had pumped into their heads...like the ridiculously simplistic quantity theory of money...debunked but still cherished in our minds as much as something like the virgin birth.  Clearly views on inflation and money are a religion. 

Quote:

But you do need extensivel knowledge to change things for the better.  It is too easy to fall into the trap that, "A little knowledge is a dangerous thing."

Saying nothing in a sophisticated way is still not saying much.  Along with the labels "tom-foolery" "crackpot" "simplistic," this quote reveals the elitist bias of this site when it comes to money.  Speaking of dangerous, I can't imagine anything more dangerous than those with "extensive knowledge" who have repeatedly brought America to the economic brink.  How about the Nobel prize winners who founded Long Term Capital Management?  How about Greenspan, Summers, Rubin, Paulson, Geithner?  How about all those most brilliant financial engineers who brought us derivatives and have now guaranteed decline because their "extensive knowledge" caused them to assume Gaussian distributions (darbi, they had a crapload of peer review, they did a lot of testing and modeling...none of that mattered of course because it was all built on false assumptions and all the peers doing the reviewing were just as ignorant, in an Ivy League sort of way)? 

This aristocratic bias for erudition vs. simple Jeffersonian common sense is maddening. 

 

I was under the impression that those that created CDS, and other derivative types of financial transactions did so acting outside of the banking system with the motive of profits at the expense of the rest of us. I draw a distinction (perhaps unwisely) between the Central Banks, the Federal Reserve, and the brokerage houses such as Goldman Sachs. I do not think any of these mechanisms was designed to do anything but enrich the elites who designed them but it is noteworthy to look at who was hired to create them, mostly PhD level mathematics and physics guys who most certainly did use scientific methods including peer review (within the brokerage houses) to create the utilities that generated untold wealth for the elites and financial managers that dreamed these schemes up. And if your objective is to create vastly complicated and hugely profitable financial scams to separate the rest of us from our money then you have to consider the results to be a complete success- if your goal is criminal behavior- which it was and still is.

Ironically, I think it makes the point at just how effective the use of the scientific method is, as we can see the success at creating  a perverse and convoluted system-when the motive is for profits. Rest assured the architects at Goldman Sachs did not rely on ad hoc methods and internet forums to design these multi-trillion dollar utilities.

Why is it such a reach to propose that this approach be used in a beneficial way ?

The other point that I struggle with is the rather easy association we seem to have in jumping from debt based currency creation to the multi-trillion credit default swap debacle. They are not the same thing and should not be lumped together in the same discussion. They are created and implemented by different entities. Neither is an acceptable practice, but the magnitude of the CDS and derivative scam is at a scale that is way beyond issuing currency as a debt instrument- and reform of the former does not necessarily mean destruction of the latter- a very significant point that is glossed over with great regularity on these pages.

I don't see this approach being in any way elitist, in fact, quite the opposite.

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Re: Gubernatorial candidate's revolutionary money plan ...

Yeah I muddied the waters by bringing derivatives into the discussion.  My goal was to just show how the idea of financial "science" replacing common sense, morality, philosophy, etc is BS. Real simple in my mind...should we be able to have money that's an asset?  or should we only be able to have credit by being in debt?  Americans should rally around a state official who pushes for the former instead of playing into the hands of our JPM/GS rulers.

But now that it's a topic...derivatives were about far more than making profit.  They stem from having a debt-based system...they were the mechanism for further increasing leverage to further inflate the bubble and for keeping JPM and GS at the top of the imperial kingdom they rule.

They were not just designed in the profit-driven basement of GS.  They came with Harvard Business School backing.  They were pushed by Summers and facilitated by Greenspan, not just Rubin serving his GS buddies. And all 3 of them worked against all attempts to regulate.

Yes it's a mistake to draw a distinction between the different players.  This is a racket that involves Wall St, Fed, Treasury, financial academia, and financial media.  It's all centered around CFR.

 

 

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Re: Gubernatorial candidate's revolutionary money plan ...

ccpetersmd,

Money in the U.S. today is created by both banks and government, but that portion created by government is a very tiny fraction. Money can enter circulation by any of the three mechanism you mention, but most is loaned into existence.

If the government has the ability to create money, then why would it ever have to borrow in the first place?

If you had the ability to create money legally, would you ever borrow from your neighbor in order to do business?

"...the actual creation of money always involves an extention of credit by the private commercial banks" -Russel L. Munk General Counsel United States Treasury

One of the head guys at the U.S. Treasury says they do not create any money.

The Federal Reserve Purposes and Functions third edition verfifies this, and so does the U.S. Congressional Research service.

Byron Dale was just interviewed on the Voice of Reason radio show today and you may find this to be interesting.

http://podcast.gcnlive.com/podcast/voice_of_reason/0613101.mp3

In short, I know we've all been lied to about the government creating money.  In fact most people I know really believe that the government is the only creator of money, when the government creates no money at all.  All money, 100% of it is created by the banking system.  None of the other forms of money can enter circulation until the bank created money exsists.  Modern Money only enters circulation today when someone, be it a business, government, person, ect....goes into a bank and gets a loan.

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Re: Gubernatorial candidate's revolutionary money plan ...

I have tried to answer most of your questions and concerns and request that people visiting this thread answer three fundamental questions:

  1. If the people and property of the U.S. are solely backing up all of our money, why are we, as a nation borrowing it from private banks that create it for free?
  2. The U.S. money supply (M3) is around $13.9 trillion and our combined private and public debt totals around $58 trillion.  We are around $44 trillion short - how will we make up this shortage?
  3. Why aren't the above two questions addressed in neoclassical, Keynesian, Austrian, et al, economics?

Larry

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Re: Gubernatorial candidate's revolutionary money plan ...

Chris

I am still waiting for you answers.  I sure hope that the reason you have not answered is because you are a very busy person.  I know how that is I am also a very busy man.  But it should not take you very long to give short honest answers to a few questions on a very important issue that affect this whole nation.

Byron

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Re: Gubernatorial candidate's revolutionary money plan ...

Byron,

I will assume in your post above, addressed to "Chris", that you meant Chris Martenson, not me; correct?

 

Thomas and Larry,

I don't mean to be disrespectful, but I feel that most of my questions have been left unanswered (see below). I am not arguing in favor of the status quo; far from it, in fact. But, I and others are trying to honestly assess this proposal that has been posted here for our consideration, and it is not possible to do so without direct answers to questions.  Here are excerpts from some of my previous posts, with emphasis to questions added:

True, the "money" created is supposed to be destined toward the creation of a tangible good for the community, so I can understand (what seems to me to be) the misperception that there has been no inflation, as while the money supply has increased, so has the overall value of the community. But, the "money" created still had no basis in an actual or future product of the community. Further, the money created does not end with the completion of the project, but continues on as wages to those supplying the labor and supplies for the project. Wouldn't this "money", existing within the world with the banking system we all know and love, continue to expand?

I'm thinking ahead, based upon your questions. First, recognizing the truth that most money is already loaned into existence, whether through fractional reserve banking, government debt spending or quantitative easing, I anticipate that you agree that this "Davis Money Plan" would also be an example of money being "loaned into existence" (albeit without the expectation that the "loan" would be repaid)? Second, is your argument that this plan is a good idea based upon the presupposition that it would supplant the existing means of money creation, such as fractional reserve banking? If so, then I might be able to understand how this plan has merit, but would have to think more about it. If, however, you are suggesting that this plan would be of benefit even within the current paradigm, I would respectfully disagree.

Am I correct in assuming that you would propose the "Davis Money Plan" in lieu of our current system, rather than in addition to it? If so, I think it might have some merit, but, again, I am not expert enough to judge.

 

I also agree that deflation is a more immediate concern than inflation, but suspect that at least some of this "deflation" may be useful "resetting" of an inflated system. I think most of us on this site agree that continued growth is neither sustainable nor desirable. Our only hope may be that this necessary unwinding occurs as smoothly as possible. Trying to re-inflate the system, whether through the Fed, the government, or this plan, seems to me a bad idea. Thoughts?

Respectfully,

 

Christopher Peters

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Re: Gubernatorial candidate's revolutionary money plan ...

ccpetersmd,

 

I don't mean to be disrespectful, but I feel that most of my questions have been left unanswered (see below).

In the next couple days I'll be putting a posting on here that should answer your questions properly.  I think you'll feel that this will do an excellent job.  You'll really have to thank Byron Dale when I make this posting though.  I'm just going to do the posting for him because it contains a lot of graphics, and really lays it out well and he is good at using a computer, but some of us younger folks can do a better job on certain things.

 

It's not that anyone forgot your questions, it's just taking some time to put this all together. 

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Re: Gubernatorial candidate's revolutionary money plan ...

Thanks, Thomas! I'll look forward to your answers!

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Re: Gubernatorial candidate's revolutionary money plan ...
strabes wrote:

Our minds jump through crazy hoops to justify to ourselves why we shouldn't be free.

Over a couple years, besides an occasional call for the old gold standard (which didn't work), I've never seen anyone propose anything to solve the 1st E...including CM I think for obvious reasons.  But the few people who do try to tackle the 1st E get shouted down like nothing else on this site.  And they get shouted down with nothing but theoretical talking points from Ivy League economists everyone had pumped into their heads...like the ridiculously simplistic quantity theory of money...debunked but still cherished in our minds as much as something like the virgin birth.  Clearly views on inflation and money are a religion. 

Quote:

But you do need extensivel knowledge to change things for the better.  It is too easy to fall into the trap that, "A little knowledge is a dangerous thing."

Saying nothing in a sophisticated way is still not saying much.  Along with the labels "tom-foolery" "crackpot" "simplistic," this quote reveals the elitist bias of this site when it comes to money.  Speaking of dangerous, I can't imagine anything more dangerous than those with "extensive knowledge" who have repeatedly brought America to the economic brink.  How about the Nobel prize winners who founded Long Term Capital Management?  How about Greenspan, Summers, Rubin, Paulson, Geithner?  How about all those most brilliant financial engineers who brought us derivatives and have now guaranteed decline because their "extensive knowledge" caused them to assume Gaussian distributions (darbi, they had a crapload of peer review, they did a lot of testing and modeling...none of that mattered of course because it was all built on false assumptions and all the peers doing the reviewing were just as ignorant, in an Ivy League sort of way)? 

This aristocratic bias for erudition vs. simple Jeffersonian common sense is maddening. 

Hello Strabes

 I share your view probably more than you think.  In my post 43 that you quoted I also said, “This doesn’t mean that we have to always defer to the so called "experts".  And check out my signature line.

 As I’ve said before I’m tying to learn more about money and my knowledge is limited.  What I  have seen in similar threads is people struggling to get a handle on this subject.  They often seem to go astray because they know some concepts, but don’t have the framework to hang them onto to make a coherent whole.  This is part of the learning process, and with enough work it can lead to a better understanding for all of us.  With our language, words and thoughts can be strung together in a way that sounds plausible, but doesn’t hold together in the real world.  This is common among philosophers, even the good ones.

 Here is where I take exception.  When a candidate for the highest office of a state makes a proposal to dramatically change the monetary system, yet he doesn’t even understand how the present system works, then I think he should be challenged.  These quotes are taken from the Davis for governor website.  http://www.lesliedavis.org/index.shtml

“To understand the “remedy” you must first know that our current “fractional” banking system allows state-regulated banks (not National banks such as Wells Fargo and US Bank) to create, and lend, nine times more money then they have on deposit.”

Wrong -- National banks and state chartered banks have the same limits on how much they can lend.

Wrong -- Their lending limit is 90% of their deposits, not nine times deposits.

“Banks are allowed, by law, to create as much “new money” as they want as long as their deposits are 10% (a fraction) of their loan totals. Therefore the term “fractional” banking.”

Wrong -- Their RESERVES are 10% of DEPOSITS, so their loan limit is 90% of deposits, not 9 times deposits.

The Davis Money Plan has three factual errors that are fundamental in importance.  I can’t have any confidence in his proposal.

Chris’s message it threatening to many people, but his credibility is high because he has done the research and uses sound data.  Anyone making serious proposals to change the money system needs to meet that same high standard.  When they don’t they leave themselves wide open to be dismissed as “simplistic” as you mentioned.

I too am a big fan of common sense.  A lot of things aren’t as hard or complex as experts want us to think.  But there are limits.  Common sense is based on many people having the same experience and distilling wisdom over time.  How many of us have ever created money?  If you did it without working at a bank then Uncle Sam would like to offer you free room and board for a long time.  I share your contempt for the financial “experts” who are ruining us now.  But to find a better way to run our monetary system you have to really understand how it is has been done in the past and how it is being done now.  That takes knowledge that the Davis plan doesn’t demonstrate.

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Re: Gubernatorial candidate's revolutionary money plan ...

If anyone has any questions they would like to ask Byron Dale directly there is a teleconfernce happening in 30 minutes at 1pm CST

Dial-in Number:

1-218-936-4700 (Midwest)

Participant Access Code

452413

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Re: Gubernatorial candidate's revolutionary money plan ...

Thomas,

I truly appreciate your efforts in preparing the above link! Unfortunately, I didn't really feel that it answered all of my questions. If I had to boil those questions down to two, they would be these:

Do you envision this plan as a replacement for our current system of fractional reserve banking, or an addition to that system?

If this plan was an addition to our current system, rather than a replacement for our current system, do you not think it would exacerbate, rather than alleviate our problems with debt and expansion of our monetary supply?

Christopher

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Re: Gubernatorial candidate's revolutionary money plan ...

What in interesting conversation, I see plenty of passion here.

I also see some confusion about some basic terms so before I address some prior questions I feel we need to be on the same page.

  1. "Base money" originates in direct proportion to the POMO operations of the Fed and can be tracked in aggregate on the Fed balance sheet.  When the Fed buys some form of debt from the market (formerly exclusively Treasury obligations but now including all sorts of stuff such as Maiden Lane CDO junk and MBS paper).  The control of the base money amounts is among the most important of all Fed functions.  Base money is so called because once it is 'out there' in the system it's only corresponding liability is safely and permanently tucked away on the Fed balance sheet never to be seen again.  Base money is also called "hot money" because it can be pyramided extensively in the banking system.  Hot money, if not carefully controlled, is rocket fuel for inflation.  To answer Byron's earlier question the answer is "no" not all money is bank accounts is credit money.  Some of it is base money.
  2. All other money is actually credit money and it has offsetting liabilities (debts) that need to be repaid at some point.  So credit money is absolutely, completely, entirely different in its effects than base money.

As I understand the Davis Plan, the idea is to essentially create base money at the state level by having state banks issue credits that are not intended to be paid back.  Ergo the plan calls for state banks to effectively operate like the Fed POMO operations.

While I cannot tell you if this will fly based on whether or not state legislatures will support the plan, or whether it is constitutionally legal, my very strongest position is that the Fed and the Treasury will just simply not allow such a plan to fly.  No way. 

Why?  because it removes base money creation from the sole province of the Fed and places a portion of it in the hands of state legislatures.  Also it is my opinion that once MN or any of 49 other states had safely used such "free money" to fund a few transportation projects without anything bad seeming to happen then the programs would be expanded to include every other possible thing they could think to spend money on.  This is my view of how politics and politicians work.

I've never seen a successful program remain small - they all expand.  Every time.  I'm confused how anyone could see this differently.

And what happens once states are creating base money?  The rocket fuel does what it always does - it creates massive inflation thereby ruining the currency.

Lastly, the Davis Plan, by effectively creating base money is effectively creating FRNs.  No, obviously and clearly, I am not saying the MN would "print" actual hard FRNs. 

But if I am a bridge contractor and I am paid in these Davis Plan dollars, which land in my bank account, they are FRNs.  I could take out actual hard currency if I wanted to, or not, it doesn't matter.  Bank accounts, by definition, hold FRNs.  Period.  Nothing else.  I am unaware of any rules in the Federal Reserve Act that authorizes states to create FRNs and I don't see the relevant parts in the constitution either.  The legal ability does not exist.  Imagine if the Davis Plan called for intaglio presses to be bought and for actual FRNs (hard currency) to be produced.  Do you think the feds would have a problem with that?  Yes?  Me too. 

So why would we expect a plan to create their permanent electronic equivalent be met with a different response?  I'm really stuck on that one.

But there's nothing preventing a state from issuing its own currency either.  So I wasn't kidding when I said that a "MN buck" might stand a better chance of being allowed to exist (politically, legally and theoretically) than a plan to create FRN-denominated base money.  There's almost no chance that the Fed/Treasury combo will sit by and let that happen. 

And knowing what I know about how my state legislature works, I really, truly think that giving them the ability to print money would be a very bad idea because the privilege would surely someday (soon) be abused.  For the record, as you must certainly know by now, I am a quite harsh critic of the federal government's ability and tendency to print.

I am, however, a big supporter of the idea that states issue their own money.  Let this money compete with FRNs, let it exist side by side, let people choose their preferred money, let the market decide.  Maybe even back state money with something substantial.  Let people pay their state and local taxes with it.  Let the better money win!  Competition is a good thing - it sorts out the wheat from the chaff.

But effectively allowing states to issue FRNs?  I see that as something that would appear to work for a little while but then failing as human nature does what it always does.

So, great discussion, let's see if we can keep it civil.  :)

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Re: Gubernatorial candidate's revolutionary money plan ...

ccpetersmd,

Thank you for writing back but I do have to ask did you read the entire article? I tried to answer both of your above questions in it.  If the answers I provided are not clear enough in the article I'll clarify those, but you'll have to take the time to read the entire article.

 

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