Our "Catch-22" Monetary System...There is No Way Out

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Our "Catch-22" Monetary System...There is No Way Out

Catch-22 may be defined as an "illogical, unreasonable, or senseless situation; a situation presenting two equally undesirable alternatives."  When no other options are available, one may mitigate the situation by choosing the route with the less grievous outcome. 

The only way to resolve a Catch-22 by avoiding it altogether.  Of course, this is not always possible as the Catch-22 may be the result of an act of nature totally outside of our control.  There are times when we create our own Catch-22 scenarios, for example, one might commit a serious crime and be confronted with the options of going to prison or shooting it out with the police. 

Money is the life blood of commerce and the media used for exchange.  It is not a stretch to say it represents the sinews of civilization and is a catalyst for social harmony and cultural development.  Unfortunately, our private debt based monetary system is a Catch-22 in that there is no way to avoid it's collapse and the degeneration of our society.  The Catch-22:

  1. Borrow money to have some money (unsustainable, debt grows exponentially)
  2. Don't borrow any money and have no money (everything stops)

These dire alternatives can be proven mathematically; they are not based on conjecture or beliefs.  First, let's listen to Mary Hobart as she proves the fallacy of alternative #1:

"Our present monetary system was established by legislation, without any reference to the mathematical science of numbers.

To make entirely sure that our reasoning upon the impossibility of paying interest when the principal is all loaned without the production or coining of money is logically and mathematically true, we will apply to our problem the test of higher mathematics. In examining the credit system we find that it must be composed of a definite number of interest-bearing contracts. By analyzing one of these contracts we shall find two parties are concerned in them, the borrower and the loaner. The loaner loans a stipulated sum of money called the principal; the borrower receives it and agrees to return a like sum together with a premium called the interest, which is estimated at a legal rate per cent on the sum loaned for a given time. Failure of the borrower to comply with these conditions calls for the forfeiture of his securities. This comprises all the quantities and considerations of an interest-bearing contract. It may be algebraically expressed thus:

Let a = the amount of a contract (which is the sum of the principal and interest)
p = the principal
r = the rate per cent
t = the time

Now p = a at the date the contract is drawn, and p+prt/100 = a at the time the contract expires. Quantities that are equal to like quantities are equal to each other. Hence p = p+prt/100 which is impossible

This formula shows that the contract is impossible, that prt/100 calls for a production of money and cannot be canceled by a production of values. Neither can it be eliminated by a contraction of t, which constantly increases pr/100. This being true of one contract it must be true of any number of contracts with the credit system may contain. This formula solves one of the important problems of the age and is presented to the scientific people of America for inspection.

The mathematical conclusion which must be drawn from this formula is that the interest on our circulating medium is imaginary and impossible, and under our present system must be satisfied by securities, which is legalized robbery."  - Mary E. Hobart, A Scientific Exposure of the Errors in Our Monetary System, Published in 1891

Please note that Mary Hobart wrote this in 1891 when virtually all of our money was backed by gold and silver.  The obvious point is that the species of money has no impact on the equation.  So, we can see that it is impossible to sustain our system by borrowing money.  Let's listen to Robert Hemphill explain what would happen if we actually repaid all of our debt (impossible) or simply stopped borrowing:

"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation.  This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve.

We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."  - Robert Hemphill, Credit Manager of Federal Reserve Bank, Atlanta, 1935

Our debt based money system is a classical Catch-22, there is no way to avoid the eventual financial collapse and degeneration of society.  Massive default and untold human suffering is inevitable.  Bail-outs and more regulations may extend the life of system but they cannot alter the course we are on.  

You may wonder why a private debt based money system, like ours, was selected when it had already been mathematically proven to be unsustainable.  The answer is that it is functioning as intended.  It was designed to be a tool of slavery.  

The good news is that it is not difficult to remedy through real monetary reform.

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out

1739 Posts Larry 

I would hazard a guess that 1000 are in relation to our monetary system and those in control.

Does anyone one hear think we can do something about it ? Are we all just waiting for the total failure of the system with the hope that something will take its place that is better? Is that a vain hope? Does anyone think that those who crafted the current monetary system  will just go away?

Does anyone think that those who crafted our current monetary system will allow any kind of competition?

Does anyone know why the American Revolution was fought?

V

Great post Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out
V wrote:

1739 Posts Larry 

I would hazard a guess that 1000 are in relation to our monetary system and those in control.

Does anyone one hear think we can do something about it ? Are we all just waiting for the total failure of the system with the hope that something will take its place that is better? Is that a vain hope? Does anyone think that those who crafted the current monetary system  will just go away?

Does anyone think that those who crafted our current monetary system will allow any kind of competition?

Does anyone know why the American Revolution was fought?

V

Great post Larry

Larry,

In what way does this justify creating a new forum topic?  I am not disputing the infomation that you bring but you have posted about Mary E. Hobart in several other threads.  Couldn't you have just added this info to an existing monetary thread because this hardly seems worthy of another topic in the forum?

The monetary discussions must be like thread spam to those that are not interested in the discussion.

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Re: Our "Catch-22" Monetary System...There is No Way Out

 

  "Does anyone think that those who crafted our current monetary system will allow any kind of competition?"

  No.   Legal tender law and a 28% capital gains tax on gold coins  (classified as "collectible" by the IRS)   is proof of that.

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Re: Our "Catch-22" Monetary System...There is No Way Out

Egalitarian communities did not use money, and they survived.  They're are other ways to run society, not just money.   We are pathetic if we need 75% cotton and 25% linen to get motivated.  We need a new emerging value and culture system.  Until then, money will not work until we get some Debt free money in the system.  

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Re: Our "Catch-22" Monetary System...There is No Way Out

I’ll no doubt step in it with these comments, but at the risk of unleashing of storm of disapproval, I have tried to follow these monetary threads, and I find a central component lacking.

What of the premise of increasing value by way of proper utilization of a business loan? I don’t think I have ever seen or heard anyone bring this up, I’m not trying to advocate for debt based economics, but the (above) simple algebraic expression does not capture the reality of value increasing in the economy by the judicial application of capital. It would seem that additional unrealized value in an economy can be used to offset the necessity of printing more money to satisfy the unstable equation.

Although Mary uses time as an input, and recognizes this a factor, this is really being looked at as a static equation, and all static equations must solve for equilibrium, e.g. all factors must sum to zero and balance. But cash economies are forever being represented as being static (or quasi-static in Mary’s example) implicit equations, they are not, they are dynamic systems, and must be represented by dynamic explicit equations. In these types of equations, time must be factored, and as such, it is no longer necessary to solve for static equilibrium. So in fact, it is not necessary to have all the cash at time zero, as  the equation attempts to demonstrate. This seems to me to be simply an inappropriate use of an overly simplistic equation trying to describe a dynamic system.

Now, there are unstable dynamic systems in any field, and there are occasions when even well behaving dynamic systems become unstable (too small or too large a time step for the motion imparted) and the analog in economics would be a run on the bank, wherein too many depositors try to draw out too much money simultaneously.

This doesn’t mean dynamic systems are inherently bad or flawed, but it does mean that such systems must operate under strict laws to maintain stability. And it certainly does not mean that all principal and interest must be accounted for at time zero.

Surely this is known and understood?

 I am well out of my wheelhouse with this subject, but is not one of the justifications and mechanisms for dynamic balance the aforementioned increase in value by prudently applying loan proceeds to business ventures that create more value than they expend in capital, therefore providing a component of future value that newly printed cash can expand in to, and absorb? Of course, this does not bear fruit if one borrows money to take a vacation, or buy a car, but for commercial purposes, cannot the application of capital provide robust benefits to the economy by creating additional value even factoring in the interest payments?

Are we not simply witnessing the misuse and overreach of money, to impossibly high levels, and utilizing credit in a way that is in direct conflict with the laws of stability? Is it not possible to contain dynamic systems with external balancing factors such as limiting capital growth to the growth of value in the economy?

Sorry for all the questions, but it is not plausible to conclude that for 200+ years no one has noticed that the basic calculus of debt based currency is an impossibility. A more logical conclusion would be to take the position that such systems exhibit instabilities, and must have close regulation and tightly managed rule based oversight to insure longevity, which we clearly do not have.

In the end, the conclusion may well be the same, as an analogy, a nuclear reaction is basically unstable, but can be controlled by professionals with a great deal of effort and precision. If a group or organization becomes  unwilling or unable to perform this critical oversight, than you can no longer use that technology. The consequences are inevitable and too severe.

 

Perhaps that is where we are.

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Re: Our "Catch-22" Monetary System...There is No Way Out
darbikrash wrote:

 Is it not possible to contain dynamic systems with external balancing factors such as limiting capital growth to the growth of value in the economy?

The short answer: No, it is not possible, since the fuel in our system is basically confidence and trust levels rather than unambiguously determinable value.

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Re: Our "Catch-22" Monetary System...There is No Way Out

Excellent and well thought out post darbikrash. The problem of course is that it is far easier to quote a static equation of state and shout 'unsustainable' than calculate the far more difficult time-dependent flows. For what it's worth I completely agree that the current problems reflect dynamic instability due to the size of the imbalances rather than any embedded problem with interest-bearing debt.

Looking at the nature of our money system as the source of our problems is the wrong way round IMO. One needs instead to look at containment of animal spirits within whatever financial structure is prevalent. Cart, horse and all that.

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Re: Our "Catch-22" Monetary System...There is No Way Out

Our Catch-22 situation is untenable over the long term as Mary Hobart illustated above.  And, there is no natural equilibrium or balance between the money supply and debt. 

As we know from the Crash Course, there will always be more debt than money which means not all the debt can be repaid.  And, the gap between the money supply and debt grows exponentially.

The system inherently contracts as the money taken out through debt repayment (P+I), is greater than the amount of money created (P).  Money is destroyed everyday when we repay the principal on bank loans.  For example, let's make the numbers easy and say that 10,000 million people bought cars on credit and the average monthly payment is $500 at 5%.

Mos/Payment  $500
Mos/Principal  $475
Mos/Interest  $25

Mos/Payment Total  $5 billion
Mos/Principal Total  $4.75 billion
Mos/Interest Total  $250 million

So, in this example, the $4.75 billion dollar principal payment is destroyed (extinguished) every month and much of the interest is spent back into circulation.  If nothing else happens, the money supply contracts which is why I mentioned that the system inherently contracts.  

To prevent the money supply from contracting (deflating), people and government need to keep borrowing more and more.  Economists and pundits are constantly getting worked up worrying about inflation but the natural force is towards deflation.  And that is where we are now as the amount of new debt needed is exceeding our ability to take on more - there just aren't enough willing and worthy borrowers.

Let's look at the news to see this actually occurring:

US money supply plunges at 1930s pace as Obama eyes fresh stimulus

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 M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression.

They will be looking to get more money into circulation, one way or the other, but as Mary Hobart taught us, it won't solve the problem as all new money is debt.  Let's revisit Robert Hemphill's comments:

"We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."

Once we understand the "defects" it becomes easy to prescribe the "remedies."  

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out

darbikrash - I suggest you at least suspend your belief in Austrian economics and just look at the math.  Mary Hobart explained:

"Kind reader, before perusing this little work, you are earnestly requested to lay aside all prejudice and preconceived ideas, and examine the facts and demonstrations herein set forth in the spirit of a truth seeker...The author of this work does not depend upon the legerdemain of words, but relies entirely upon logical reasoning and mathematical demonstrations to discover the errors which have been so long imbedded in our monetary system...If any criticism are to be made on this work, let them be made in the name of science and supported by logical and mathematical demonstration."

Lets discuss this without buying into any economic denomination.  The Mises, Marx, et al, bibles and belief systems should not be used as a substitute for math, science and logic.  If you are saying Mary's static equation is irrelevant, please demonstrate the "dynamic" variable and how it changes the outcome?

I think Mary Hobart has already explained the dynamic element when she wrote:

"This formula shows that the contract is impossible, that prt/100 calls for a production of money and cannot be canceled by a production of values. Neither can it be eliminated by a contraction of t, which constantly increases pr/100. This being true of one contract it must be true of any number of contracts with the credit system may contain."

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out

 

Larry- I really do not want to get caught up in one of these discussions of Keynesian vs. Austrian economics, truth be told I could not tell you the difference between them, and I have no real idea what Austrian economics means or is.

I think Mary Hobart’s prose is eloquent, and it is indeed attractive to consider that a failed simple linear equation is the smoking gun to all that ails us, but this is just not true. The answer is indeed in science and mathematics,  and it is continually evident that using static equations to define dynamic problems is never going to work. Anyone who has ridden a bicycle will tell you that what is an impossibility as a stationary (static) event is very effective under controlled motion.

Please understand I am not advocating for debt based currency systems. I am not advocating for Keynesian or Austrian or any other type of economic model.

The use of interest based capital for the creation of additional value in a capitalist system is well documented and well understood. The example and subsequent conclusion you cite concerning consumer purchasing of cars (or vacations, or yogurt cups) is very likely correct. But let us not confuse a capitalist economy and capitalist endeavor with consumerism. Although these terms are considered interchangeable these days, they are not the same thing, and in fact, are very different. Benjamin Barbers’ excellent book “Consumed” goes a long way to describing these very differences, and suggests that in a society dominated by oversupply, the opportunities for true capitalism are diminishing very rapidly, and are being replaced by consumerism. Simply put, borrowing money for consumption is not the same thing as borrowing money for legitimate business use, the dynamics and flow of money through the economy are completely different if borrowed money is used to consume rather than create. Consumerism is not sustainable.

This is not capitalism, and some would argue that capitalism has not existed for a very long time.

Back to the challenge of science and mathematics. If one is to insist that any dynamic system be stopped mid stride, one has to expect instability. If you stop riding a bicycle, the system becomes unstable, This does not mean that riding a bicycle is foolhardy, it is just more complicated that sitting in a chair. You cannot say that an economic system must be discarded because you cannot describe it with static equations. You certainly can say that such a system must be discarded because it has been corrupted, disconnected from first principles, and morphed into something to benefit a few elites (or corporations) at the expense of others, and I would agree with this.

The tool that must be used to make this determination is differential calculus. I believe the work of Steve Keens goes a long way to demonstrate this, and he has created a systems engineering approach to this question using differential calculus to arrive at some interesting conclusions.

You may have seen this already, and I do realize it is a full hour in length, but it does a good job explaining the fallacy of applying static equations to economics, and goes on to present his own work. If you do have time to view, I’d be most interested in your comments.

 

http://www.debtdeflation.com/blogs/2010/01/22/google-lower-bandwidth-version/

 

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Re: Our "Catch-22" Monetary System...There is No Way Out
darbikrash wrote:

The tool that must be used to make this determination is differential calculus.

Darbikrash, I think there’s no need to obscure obvious common sense with differential calculus. Any (debt) money existing at any time requires maintenance at any time, i.e. debt service. At any interest rate > 0 this requirement establishes exponential growth. Exponential growth in a finite world is doomed by definition.

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Re: Our "Catch-22" Monetary System...There is No Way Out
DrKrbyLuv wrote:

I think Mary Hobart has already explained the dynamic element when she wrote:

"This formula shows that the contract is impossible, that prt/100 calls for a production of money and cannot be canceled by a production of values. Neither can it be eliminated by a contraction of t, which constantly increases pr/100. This being true of one contract it must be true of any number of contracts with the credit system may contain."

Larry

Help  me out here, as a non economist- isn’t this statement where it all goes horribly wrong?

How can this not be canceled by a production of value? In a simplistic example, if you borrow money on a debt based system, it seems to me, you absolutely have to ask “what is the borrowed money used for”?

If you borrow and light the money on fire, it is impossible to solve for this equation static or otherwise, and Mary is correct. If you borrow, and spend it on consumption, than one or more of the esteemed economists such as Keynes et. al will have to weigh in to describe the complex time dependent trajectory of money injected into a consumer based system- but I believe she would also be correct, as this is unsustainable.

But, if you borrow money in a debt based system, and use that money to fund a business proposition that creates value in excess of the principal, (this is, or rather used to be, quite common) than you have done something fundamentally different than the two previous examples, and have provided a justification for an expansion of the money supply. If she does not believe this, than we can go no further, as this is the very essence of capitalism. Whether or not this is sustainable is a matter of magnitude not of concept. If the magnitude of “printing” exceeds the capacity to absorb the newly created value, than you have a crash. And who governs the velocity of this printing press- well, who knows, but rest assured they are not acting in the best interests of the general populace nor society in general.

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Re: Our "Catch-22" Monetary System...There is No Way Out
darbikrash wrote:

Whether or not this is sustainable is a matter of magnitude not of concept.

Isn’t this statement where it all goes horribly wrong? The requirement for new debt cannot be canceled by a production of value. Sooner or later the system will run out of acceptable debtors in time. Financial leverage becomes unbearable and the system must suffocate by finally lending against its own feces (death by debt-poisoning/quantitative easing).

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Re: Our "Catch-22" Monetary System...There is No Way Out

darbikrash wrote  - I think Mary Hobart’s prose is eloquent, and it is indeed attractive to consider that a failed simple linear equation is the smoking gun to all that ails us, but this is just not true.  The answer is indeed in science and mathematics, and it is continually evident that using static equations to define dynamic problems is never going to work.

darbikrash - Mary Hobart's equation is representative of a typical interest bearing loan contract.  The amount to be repaid is greater than the amount borrowed (P + I > P).  Virtually all of our money is created by monetizing debt contracts that basically fall under this equation.  I agree that this equation is totally inadequate to do even primitive modeling but the sum of these loans reflect the individual in that we end up with more debt than money:

  From the Crash Course           

We can see this in our economy as our +$14 trillion money supply (M3) is over $40 trillion short of our combined private and public outstanding debt which is around $57 trillion.  I think the relationship shown in Mary Hobart's formula is adequate to express the problem in simple terms.  In our debt based system, the only way to make up the $40 trillion shortfall, other than default, is to borrow more money which of course adds more interest and on and on in a perpetual loop that looks a lot like an exponential function.

My original point was that we are trapped in a Catch 22, if we borrow, we run into the debt spiral that will exhaust all sources and if we don't borrow, we have no money. 

darbikrash wrote:

The tool that must be used to make this determination is differential calculus. I believe the work of Steve Keens goes a long way to demonstrate this, and he has created a systems engineering approach to this question using differential calculus to arrive at some interesting conclusions.

Thank you for posting the Steve Keen video, I haven't viewed it yet but will definitely give it a watch.  I've read Steve Keen's "Debunking Economics" (H/T JAGS) and enjoyed reading his careful dissection of a number of economic denominations.  I totally agree that we should be able to model micro and macroeconomics.  Keen brings a scientific approach sorely lacking in economics. 

I always learn a lot from Keen and will be back with some comments on the video in the next few days.  Thanks for the chat

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out

Baywork - good to see you again, I really enjoy your posts!

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out
darbikrash wrote:

But, if you borrow money in a debt based system, and use that money to fund a business proposition that creates value in excess of the principal, (this is, or rather used to be, quite common) than you have done something fundamentally different than the two previous examples, and have provided a justification for an expansion of the money supply.

Uncle Remus borrowed $10,000 from the bank at 5% annual interest. He then went and spent all this money with Brer rabbit and his friends who helped him to build a magnificent boat. Uncle Remus then went fishing and caught so many fish that he had enough left over for sale. Eventually he sold enough fish that he had the $10,000 from Brer rabbit and his friends who were happy that they had enough fish to eat. Now Uncle Remus could pay back the bank but "where wiil I get the $500 interest?" he cried. "I know" said Brer rabbit, I'll borrow $10,500, buy $500 of fish from you and build my own boat".

After 10 years Uncle Remus, Brer rabbit and his friends had a total of 10 boats but Brian the Badger, who had the newest boat, still owed the bank over $16,250 and the fishing was not so good anymore as there were too many boats. "What shall I do?" Brian cried. "I know" said Uncle Remus, "we'll go and exploit a new fishing ground so that you will be able to repay the bank. "But where shall I find the interest?" said Brian. "We'll have to convince those folks in the New World to take out a bank loan to buy our fish", said Uncle Remus.

So the folks in the New World got stuck with bank loans and Uncle Remus, Brer rabbit and friends lived happily ever after.

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Re: Our "Catch-22" Monetary System...There is No Way Out
darbi wrote:

How can this not be canceled by a production of value?

Because production of value has nothing to do with production of money...it doesn't change the instability of the money system.

You need to separate the economic system (value creation) from the monetary system (money creation).  They are 2 different things.  The monetary system is basically an overlay on top of the economic system that determines who captures the value created.

I didn't understand the problem with 100% debt-based money until I separated these two in my head.  Only then can you understand how production of value produces no money.  The "science" of economics assumes away this issue.  It basically doesn't address the truth of our monetary system.  The production system described by economics is useful, but that system could run under sovereign money (silver certificates, gold nuggets, other forms of non-debt fiat) with incremental bank loans of real value, or our current 100% debt-based system where banks loan nothing except a promise to pay.  The former is not a system that depends on exponential growth.  The latter is.  It's guaranteed to eventually fail/reset like Mary's math says...it's inescapable.  It has been reset, and reset, and reset at failure points over the last 30 years in ways that further expanded leveraged liquidity, so now we're facing a horrific failure.  Everyone except ivy league economists working for the Fed acknowledges that it can't be reset with further leverage at this point. 

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Re: Our "Catch-22" Monetary System...There is No Way Out
strabes wrote:

Because production of value has nothing to do with production of money...it doesn't change the instability of the money system.

You need to separate the economic system (value creation) from the monetary system (money creation).  They are 2 different things.  The monetary system is basically an overlay on top of the economic system that determines who captures the value created.

I agree that creation of value and creation of money are two different things.  I also agree that a debt based monetary system is unstable but I think this misses the point.  All monetary systems are unstable, be they commodity, debt, or fiat based because they are all based on faith.  There are no guarantee's that the value of any money will remain stable.   Gold historically has been the best because it is rare and has value but certainly is not perfect.  A fiat system could also work but it would have to be managed and management usually enables corruption.

That is what bothers me about these simplistic P < P+ I equations.  All that this equations proves is that the monetary system MUST GROW.  We live on a finite planet but in theory there is no reason a fiat money system cannot grow forever.  After all, what is a few extra digits among friends?

It seems to me the real problem with our current system is moral.  As Damon points out in his videos, in the current system value flows upward towards an undeserving elite.  The productive middle class is effectively slowly being fleeced of their productive efforts via neo-feudalistic system that is rapidly changing into a dystopian nightmare.  The people at the top ( the FED, Wall St, Bankers, Major Corporations, ... ) milk the system like the money changers that Jesus threw ouf of the temple.

To me the good news is that the current system is unsustainable and will come to an end shortly (in my lifetime).  This is a great opportunity for humanity if we can keep from being bamboozled into wars or some IMF global currency that will continue the global fleecing for a few more generations. 

That is what I find so frustrating about most of our current arguments.  We all know how and why the current system is broken and corrupt.  We just seem to disagree about how to fix it.  It would be nice if we could keep this discussion working on two levels.  One where we mostly agree that critiques the current system and educates the general population about the predicament that we are all in.  The other level where we discuss the pro and cons of various alternatives ( Austrian hard money, sovereign fiat, digial coin, ... ) in ways that are not divisive to the community.

Just my thoughts....

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Re: Our "Catch-22" Monetary System...There is No Way Out

wasn't trying to be divisive.  just pointing out an uber-critical mental shift that has to happen to understand how creating value through production has nothing to do with creating money, and therefore has no effect on Mary's equations.

Quote:

P < P+ I   All that this equations proves is that the monetary system MUST GROW

I wish I would've made that video differently.  I now realize it was a mistake because people focus on the math rather than the symbolic meaning...clearly that equation is not a model of our modern economy!  the point I made in that video was that the debt-based system (symbolically represented by p<p+i) means you don't have wealth, but a conditional liability, because for every P you have, somebody somewhere has a claim on P+I.  when hedge funds attack, we'll see our bank digits disappear...they aren't wealth.  if we all had gold or some sovereign system instead, hedge funds and JPM Chase couldn't do that...in fact hedge funds would never have existed in the first place and JPM wouldn't be the WMD that it currently is sitting on top the economy.

 

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Re: Our "Catch-22" Monetary System...There is No Way Out
strabes wrote:

wasn't trying to be divisive.  just pointing out an uber-critical mental shift that has to happen to understand how creating value through production has nothing to do with creating money, and therefore has no effect on Mary's equations.

Damon,

I did not mean that you were being divisive.  Quite the contrary.   Although I think we may disagree upon the solution, I always find your comments to be inclusive and positive.  I was refering to the tone of other threads on monetary topics.  I was only trying to point out that I think we are ALL far more in agreement than disagreement and it is a real downer when the discussion degrades into a partisan bickering.

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Re: Our "Catch-22" Monetary System...There is No Way Out

got it.  I appreciate the dialogue goes.

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Re: Our "Catch-22" Monetary System...There is No Way Out
goes211 wrote:

It seems to me the real problem with our current system is moral.  As Damon points out in his videos, in the current system value flows upward towards an undeserving elite.  The productive middle class is effectively slowly being fleeced of their productive efforts via neo-feudalistic system that is rapidly changing into a dystopian nightmare.  The people at the top ( the FED, Wall St, Bankers, Major Corporations, ... ) milk the system like the money changers that Jesus threw ouf of the temple.

To me the good news is that the current system is unsustainable and will come to an end shortly (in my lifetime).  This is a great opportunity for humanity if we can keep from being bamboozled into wars or some IMF global currency that will continue the global fleecing for a few more generations. 

That is what I find so frustrating about most of our current arguments.  We all know how and why the current system is broken and corrupt.  We just seem to disagree about how to fix it.  It would be nice if we could keep this discussion working on two levels.  One where we mostly agree that critiques the current system and educates the general population about the predicament that we are all in.  The other level where we discuss the pro and cons of various alternatives ( Austrian hard money, sovereign fiat, digial coin, ... ) in ways that are not divisive to the community.

Just my thoughts....

Goes

I agree with both you and Damon. I would also ask both of you this question.

Do you think that those who have had the money flowing up to them for centuries will in any way allow the current system to fail without a failsafe mechanism to ensure that human resources continue to be mined for their benefit?

V

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Re: Our "Catch-22" Monetary System...There is No Way Out

The Robert Hemphill quote is really quite startling when you think about it:

"We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.  It is the most important subject intelligent persons can investigate and reflect upon.  It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."

The fact that virtually all of our money is temporary makes people, businesses and government dependent and subservient to the private banks.  Our monetary system is essentially rented.  We are like junkies waking up each day desperately needing a fix. 

Our leaders, economists and scholars dare never mention this curse other than a few like the brave Wright Patman who are simply ignored.  People cannot accept that such an important key fundamental could be hidden from our view.  Surely, if this were so it would be on the 6 o'clock news.  When you first encounter this anomaly there is a natural tendency to reject it. 

What is permanent money?

  • Byron Dale (Modern Money Secrets) refers to permanent money as "wealth money" because of the mechanics involved in creating it.  He suggests that we begin to monetize "wealth" instead of "debt" in building and repairing much needed infrastructure. The important distinction is that the money would be created debt free by monetizing specific projects.
  • Henry C. K. Liu uses different terminology in describing "sovereign debt" versus "sovereign credit."  Like Mr. Dale's wealth money, sovereign credit would entail money issued free from debt though he is ambiguous as to exactly how the money would be spent into the economy.
  • Tally sticks represent an historical example of permanent money.  "The tally stick system worked really well for 726 years. It was the most successful form of currency in recent history and the British Empire was actually built under the Tally Stick system, but how is it that most of us are not aware of its existence?"

I could go on and list many different ideas and historical models but the point of this post is to flush the BS that we have been fed all our lives regarding our perishable monetary system.  And to assure you that there are alternative solutions available. 

Larry

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Re: Our "Catch-22" Monetary System...There is No Way Out

Just a little humor... CoolHow the Economy Works

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Re: Our "Catch-22" Monetary System...There is No Way Out
V wrote:

I agree with both you and Damon. I would also ask both of you this question.

Do you think that those who have had the money flowing up to them for centuries will in any way allow the current system to fail without a failsafe mechanism to ensure that human resources continue to be mined for their benefit?

V

I am sure that they have plans, but in a paradigm shift like the one that I think is coming can be quite dangerous to them because they may not be able to really control the outcome.  I also wonder if at some point they will lose their legitimacy because it will become self evident to the masses that their parasitic behavior is killing the global economy.  Then again, maybe I am dreaming....

DrKrbyLuv wrote:

What is permanent money?

  • Byron Dale (Modern Money Secrets) refers to permanent money as "wealth money" because of the mechanics involved in creating it.  He suggests that we begin to monetize "wealth" instead of "debt" in building and repairing much needed infrastructure. The important distinction is that the money would be created debt free by monetizing specific projects.
  • Henry C. K. Liu uses different terminology in describing "sovereign debt" versus "sovereign credit."  Like Mr. Dale's wealth money, sovereign credit would entail money issued free from debt though he is ambiguous as to exactly how the money would be spent into the economy.
  • Tally sticks represent an historical example of permanent money.  "The tally stick system worked really well for 726 years. It was the most successful form of currency in recent history and the British Empire was actually built under the Tally Stick system, but how is it that most of us are not aware of its existence?"

I could go on and list many different ideas and historical models but the point of this post is to flush the BS that we have been fed all our lives regarding our perishable monetary system.  And to assure you that there are alternative solutions available. 

Larry

I believe that "wealth money" or "sovereign credit" may be prove to be necessary in the future to continue the current monetary system and would not be surprised if TPTB actually gave it limited support.  After all it may allow the current system to continue, when under other circumstances it would deservedly fail.  It would be like quantitative easing without the additional debt.  This seems dangerous to me unless we first take away their money creation abilities, otherwise we will just enable the upward value transfer to continue.

I also have a question about tally sticks?   In what way do you consider these to be full monetary system that lasted 700+ years?  The tally's represented monetary amounts that were denominated in PM's.  This seems far from the pure fiat system that you and Bill Still are advocating for.  Seems to me they worked more like gold certificates in pre-FED days.

Do you have any examples of a pure fiat system, like the one you would like, that did not implode in short order?  I guess I am far less optimistic that these ideas of wealth money would work long term but I admit the idea is very seductive.

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Re: Our "Catch-22" Monetary System...There is No Way Out
Baywork wrote:
darbikrash wrote:

The tool that must be used to make this determination is differential calculus.

Darbikrash, I think there’s no need to obscure obvious common sense with differential calculus. Any (debt) money existing at any time requires maintenance at any time, i.e. debt service. At any interest rate > 0 this requirement establishes exponential growth. Exponential growth in a finite world is doomed by definition.

 

I think it 's been said by those smarter than I, that for every complex problem there is a simple answer- that is wrong.

This PDF download is written by Dr. Steve Keen, an economist who understands numerical analysis. I realize it's a bit tedious, but if you can muster the patience to forge through the simple "common sense" problems of a basic population growth chart, he'll treat you to a model that illustrates a credit based economy with one or two "simple" entries- and the steps and calculations necessary to get the right answer.

http://www.debtdeflation.com/blogs/wp-content/uploads/lectures/bf/Lectur...

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Re: Our "Catch-22" Monetary System...There is No Way Out

V

Does anyone think that those who crafted our current monetary system will allow any kind of competition?

The people who crafted this money system have long since passed.  But their strucures will work hard to maintaine their control over the creation of the medium of exchange as interest bearing loans, and they do work very hard at this.  They are successful, organized, and enjoy all of the benifits over the new money which only they are the creators of.

The only competition they face is the people understanding that money can be created as a payment (debt free) instead of only having money created as a promise to pay (as it is today).

The only thing they fear is the people puting so much organized pressure on their elected represenatives that we force laws to be passed that destroy their monoply over the creation of the medium of exchange.

They have clearly been sucessful at maintining control but it's time we the people forge a new era of prosperity and forget about what we thing "they" will allow and start worrying about creating a money system that benifits everyone, instead of just the banking system.

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Re: Our "Catch-22" Monetary System...There is No Way Out

JK121,

Egalitarian communities did not use money, and they survived.  They're are other ways to run society, not just money.   We are pathetic if we need 75% cotton and 25% linen to get motivated.  We need a new emerging value and culture system.  Until then, money will not work until we get some Debt free money in the system.

I 100% agree that we need some Debt free money in the system.  Absolutely spot on.

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Re: Our "Catch-22" Monetary System...There is No Way Out

darbikrash wrote:

 

But, if you borrow money in a debt based system, and use that money to fund a business proposition that creates value in excess of the principal, (this is, or rather used to be, quite common) than you have done something fundamentally different than the two previous examples, and have provided a justification for an expansion of the money supply.

Darbikrash,

All money is created when someone goes into a bank and gets an interest bearing loan.  All that the borrower receives is simple numbers in a checking account representing how much the bank owes the borrower and the promisory note represents how much the borrower owes the bank.

All that the borrower recieves in the principle but the borrower is expected to pay back the principle plus the interest.  The only thing that the borrower can use to pay the interest on his loan is money that is created somewhere else in the economy through another loan.

The banks will only accept numbers created by the banking system in payment of these debts.  They will not accept anything else in payment.  You cannot give your production to the banks to pay off this debt.  The only way you can do that is through forecloser.

Its a real good scam.  First the bank doesn't loan anything, then they expect you to pay back more than what is created(numbers in a checking account) or they come take all that "extra added value" that someone had to work hard for.  "extra" added value being the peoples homes, property, cars, livelyhood, time, and anything else they can get their hands on.

Then they scream there is no such thing as a free lunch and the people just need to work harder and longer hours.  For the life of me I can't understand why anyone with a single functioning brain cell would defend this system.  I hope my post helps you.

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Re: Our "Catch-22" Monetary System...There is No Way Out

Goes211

I agree that creation of value and creation of money are two different things.  I also agree that a debt based monetary system is unstable but I think this misses the point.  All monetary systems are unstable, be they commodity, debt, or fiat based because they are all based on faith.

Why would a wealth money system that benifits everyone be unsustainable, be it fiat or not?

Gold historically has been the best because it is rare and has value but certainly is not perfect.

In your own personal life when you're 'rare' on money has it improved your life or made things worse?  My life has always improved when I've had more money.  Why would you want a shortage of money in a society?

To me the good news is that the current system is unsustainable and will come to an end shortly (in my lifetime).

You really under estimate the power of manipulation that these bankers have.  I really doubt they are going to just throw this money system overboard.

The other level where we discuss the pro and cons of various alternatives ( Austrian hard money, sovereign fiat, digial coin, ... ) in ways that are not divisive to the community.

There is only two basic types of money.  Wealth Money and Debt money.  All other forms of money (fiat, commodity, or fudicairy) must fit into one of those catagories.  Believe it or not the mises actually is admiting that banks create money now, but they are saying that debt money is the only way a money system could ever function.

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