Our financial solutions are right in front of us if we take the time to look...

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DrKrbyLuv's picture
DrKrbyLuv
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Our financial solutions are right in front of us if we take the time to look...

Let me give you something that has become very rare, some great news regarding our economy.  Necessity is truly the mother of invention and we are at a point where reform isn't enough.  Our monetary system is usurious and it has a terminal flaw - debt must continually grow which becomes an exponential function (Crash Course Chapter 8: The Fed - Money Creation).

   

So the banking system must continually expand – not necessarily because it is the right (or wrong) thing to do, but, rather, simply because that is how it was designed. It is a feature of the system, just like using gasoline is a feature of my car’s engine.   Chris Martenson Crash Course Chapter 8

We are at the end of our monetary system as there are no longer enough willing and worthy borrowers to sustain the required growth.  Government has stepped in as the borrower of last resort in an effort to "artificially sustain" the system.  The problem is that every dollar the government borrows is backed by "We the People."  When the ship sinks; and that is inevitable with our current system, we are going to pay through huge losses of our national and private wealth and assets (collateral).

Government and the Fed know this and they have already made the choice - save the Fed and it's banking system at the expense of "We the People."  There's only room for one in the lifeboat.  You can forget any notion you may hold that our federal government and the non-federal fed are working towards the best interests of the people.  Our federal government has been usurped at the highest levels by the federal reserve banking cartel.  Solutions must come from others as they are the problem.

The Fed's plan at this point is to steal as much as they can from the sinking ship.  After our economy collapses, we are going to lose what remains of our national sovereignty.  The central banks are consolidating under the mother of all greed - the Bank of International Settlements located in Switzerland.  A global bank to usher in global governance.  We may have already celebrated our last day of independence this past 4th of July.

Now for the good news...California may create their own currency (H/T investorzzo).

Schwarznegger to Obama: Watch and Learn, by Marshall Auerback: According to the San Diego Union-Tribune, Republicans and Democrats alike embraced legislation last Friday that would make California IOUs legal tender for all taxes, fees and other payments owed to the state.

Effectively, California is using its IOUs to create a currency. If this bill passes it would allow California to deficit spend just like the Federal Government and with the IOU's acceptable as payment of state taxes, it instantly imparts value to them. In effect, what you have is a state of the union creating a sovereign currency right under the noses of Treasury, Fed. They are stumbling their way into it...

It will be viewed as a stop gap measure at first, and then could very well become entrenched as states realize they have a way to escape balanced budget requirements..

The ... Federal government retains this monopoly under our existing monetary arrangements. If California is successful here in allowing its IOUs to pay tax, it has profound constitutional ramifications.  It will be interesting to see how this plays out. As California goes, will the nation follow?

The solution right in front of us.  Over 130 years ago, Abraham Lincoln said "The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity."

It is time to take back our supreme prerogative and greatest opportunity.  The California idea of creating IOUs is only one of the many creative opportunities that we have to restore our financial freedom and security.  Here are several examples that could take place at the state level (I will use California as an example, but this applies to every state):

  • California could buy or establish their own "private" state bank.  This would enable them to create money through the fractional system that is held as a "money-making-monopoly" by private banks.  California's 2009 projected revenue of $128 billion falls short of their budget requirements by $23 billion.  Assuming a 10% reserve requirement, if they deposited $2.3 billion in their own bank, they could loan out the $23 billion instead of running a deficit.  North Dakota is doing something similar now (Ellen Brown's explanation).
  • If they deposited the full $128 billion in revenues, they would have the potential to issue $1.28 trillion in loans!  They could use this money to rebuild their infrastructure or for special purposes.  For example, they could provide 0% loans for all qualified state residents to get out of predatory private mortgages that are destroying the state.
  • They could charter a state bank to advance funds for legislatively-approved projects in the same way that banks make commercial loans – simply by "monetizing" the projects.  Our entire money supply is now created by banks in the form of loans - banks create all the money they lend. This was confirmed by the Chicago Federal Reserve in a booklet called "Modern Money Mechanics," which states:

Of course, [banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise [by the same amount].

Projects could be simply monetized without adding any debt!  The money could be used to purchase goods and services, benefiting business.  It could be used to eliminate or greatly reduce state taxes. And it would flow back into the state reducing the number of loan defaults, increasing employment and benefiting every segment of society. Byron Dale has written the Minnesota Transportation Act (It has not yet passed) which explains this in greater detail.

But is this inflationary?  Inflation results when the money supply increases faster than the amount of new goods and services.  The key is to increase goods and services as the money supply is increased, maintaining a balance between the two.  The federal reserve system system is inflationary because banks create the principal but not the interest necessary to pay back their loans. Additional loans must therefore continually be made just to service existing debt.  Loan profits go into the pockets of private banks rather than contributing to the productivity of the community. 

Our nation faces many problems but money should not be one of them, in fact, money is the tool to help solve or minimize all other problems.  This is getting exciting as people will now begin to look at alternatives to the rotten federal reserve.  We still hold our sovereign destiny but that power is being taken from us...let's take it back before it's too late. 

Larry

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Re: Our financial solutions are right in front of us if we ...

Larry,

Good point in that this rases constitutional questions.  I reckon the Feds will put a quick end to it.

While as you must know, I am totally opposed to the Fed, I fail to see how the concepts put forth here would solve anything.  California state IOUs would just be another form of fiat money, backed by nothing.  It would be a CA version of the Fed and nothing more, with a few differences existing in how control is exerted.  Ultimately though, the IOUs would have no more value than fiat money because that is all it would be. 

I am for a decentralized money supply, but it would have to be backed by a raw material or finished good.

 

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Re: Our financial solutions are right in front of us if we ...

Hello Patrick, thanks for stopping by...

Patrick said:  I am for a decentralized money supply, but it would have to be backed by a raw material or finished good.

We have agreed on this point in the past and that is exactly what I am talking about.  The money would be backed by the assets (finished goods as you said) that collaterlize it.  The federal government is not going to fix our problems, this is now up to the states which goes toward your well founded concern with centralization.

The California IOUs would not be my proffered way of doing things but once states figure out that the money monopoly that is the federal reserve cartel, they will begin to take a very close look at alternatives.  We either go bankrupt or de-couple from the system incrementally, state by state.  

North Dakota has been doing this for over 90 years.  Charles Fleetham observed: 

“North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”

In my initial post I described how they pulled it off.  They are playing the fractional lending game on their own terms with their own bank.  All state revenue goes into the bank which builds reserves for future money needs.  They have the autonomy to do their own planning and to establish their own priorities without paying interest to the private federal reserve banks or begging Washington.

This also gives states a revenue stream without taxes as they may choose to lend with interest that is profitable.  For example, states could decide that saving energy is a key and in response, they could make 0% loans (there would be transaction and qualification fees) to fund the huge costs in upgrading as many homes and commercial buildings as possible.

Byron Dale's plan (described above) could augment the program by monetizing large state projects, like mass transit systems, without incurring any debt.  None of the money would need to be paid back and it would help fund the interest payments from other loans (Crash Course #8).

You asked if this was constitutional.  This gets complicated, so I will refer you to Ellen Brown's argument that, yes, it is constitutional (scroll down page).  Beyond that, North Dakota is already implementing their program.  As a side note, our current system is not constitutional as I understand it.

There are limits to this like anything else.  All money issued would need to be fully backed by collateral (maybe 110-120% of what is borrowed), as you said "finished goods."  It would allow us to add to our infrastructure, productivity to grow our wealth without growing the government debt.

Government would pay for itself while still providing the money and credit needed to satisfy the spending power of the state and the buying power of consumers.

Larry

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Re: Our financial solutions are right in front of us if we ...

 Larry, Patrick,

Fascinating conversation!  Please keep it going.  I have to run to a meeting, then off line tomorrow, but can hardly wait to get back to this thread tomorrow evening.  Thanks to you both, for your thoughts.  Always learn from what you post.

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Re: Our financial solutions are right in front of us if we ...

Our dollars are NOT backed by debt, they are backed by all the property in the United States of America, even the government debt. 

 If you get a loan, all the 'money' is backed by your property.

If your federal, state, local, city, ect....puts up a bond, that is mortgaged on your property.  Yes, there are several mortgages on your property to the banking system, which is by and large not known by the mass public.

To Patrick,

97% or more of our money supply is not fiat money. I'm confused as to why you are so hung up on fiat money when it only represents 2-3% at most of our money supply, and which before the debt can be paid off at the bank that terrible awful fiat money must be converted out of fiat money and back into check book money.  Who told you that fiat money is the problem?  Can you give me any logical reason why having a law passed stating something is to be accepted as money would be bad?  Are you suggesting that we get rid off all the paper and coin currency in circulation and go with a cashless society, which really isn't much different that what most people do right now.  If we got rid off all of our fiat money (pocket cash) wouldn't that force us into a cashless society?  Who are the people pushing so hard for this and why?  Who would it benifit?  I'm confused as to why anyone would want a cashless society.

 If you're in favor of having money backed by a raw material or finished good then how about we monetize the production of our nations infrastructure as a wealth, and not as a debt, free of taxation?  Do you really care what we use for money, or what it represents? 

 

Back to the post,

Is it constitutional?  Yes.  States are prohibited from creating money, but banks have been creating money in this country long before the constitution was signed, for better or worse.  Byron's proposal would regulate the banks to create a debt free, wealth based PAYMENT for production.  That production being permanent infrastructure that would benefit all of society, without giving any direct special benefit to any particular group.  If we get the Minnesota Transportation Act passed up in Minnesota you'll see me in the forefont pushing all sorts of projects to make Minnesota the first 100% energy independent state in the USA.

 

California's IOU's....They should just go one step further and just make them the final payment for production.  They they would cease to be a debt instrument and become a wealth instrument that would benefit the people, instead of a tool to deprive the people of all of their property.

 

The way I see it, we need to introduce massive amounts of money into circulation to destroy the principal plus the interest, otherwise in time, the debt will grow so large, it will absolutely destroy any nation.  Right now we would have to SPEND (not lend) around $60 trillion dollars into circulation just to get rid of the debt and leave us with zero money. 

 

Can anyone imagine the economic freedom we could all enjoy if there was zero debt, and enough money in circulation to to allow our economy to function at full steam?  No more boom and bust cycles created by the banking system which they create to consolidate the property of the people into fewer and fewer hands.  No more foreclosures.  Poverty greatly reduced, taxation(by and large) a thing of the past.  The average citizen being able to decide his or her own economic destiny, instead a banker!   Honestly what more could you want? 

 

P.S.  The North Dakota Bank is just another bank.  It still only puts the people of north Dakota into a mathematically un-payable debt owned to the banking system.

Inflation of the credit supply is bad, inflation of the money supply is good.  Unfortunatlely we don't have any way under U.S. Law to inflate our money supply, there is only a way to inflate the credit supply.  Clearly money and credit cannot be the same thing because money is supposed to be something you can make final payment with, and if our money only represents what we owe at the bank it is clealy impossible to make final payment in any transaction.  I think it's impossible to borrow from Peter to pay Paul and expect to get out of debt.

 

Is anyone out here good great at making video introductions?  My software isn't very good at doing that stuff, and I could really use some help if someone is willing to help.

 

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Re: Our financial solutions are right in front of us if we ...

 

Thomas wrote:

 Inflation of the credit supply is bad, inflation of the money supply is good

While I agree with most of your post and your attempt to clarify misunderstandings, I'm wondering if more clarification is needed to support this quote.  The former is the monetary system we've had in this country...you're right it's bad because it eventually deflates (though despite the painful transition, deflation in the end is a good thing as it destroys the credit inflation, resets the economy, sets up the next growth phase). But the latter is what they did in Weimar...printing more money...that's even worse as it destroys the very foundation of the economy...all savings evaporates.  

 

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Thomas and Larry:

I fail to see how either of your solutions solve anything.  You are both trying to fit a square peg into a round hole.  There is no such thing as a monetary system that has at its core the propensity for someone (either government or private banking) to create more money at will that would be any better than our current system.  To think otherwise is a fairy tale.

When I say our money is fiat, I am not talking about 97% of it or 3% of it.  I am referring to 100% of it.  It doesn't matter if it's cash or digital, borrowed or spent into existence.  If it is backed by nothing and exists only because the law says it does, it is fiat money. 

Requirement for Money Growth not Limited to Type of Money System

The Crash Course argues that our current system requires an ever-increasing amount of money in order to operate.  Since our monetary system also happens to be debt based, that also means that our system requires an ever-increasing amount of debt just to pay the interest on the prior year's principal.  Fair enough - no arguments there.

However, let's suppose we did not have a debt-based system, and that we had sound money.  I can prove to you that we would still need more money every year to support the debt incurred by the market participants.  The only difference is that a sound-money-based system would self-regulate the interest on money and therebye minimize booms and busts, and it would self-regulate money production and therebye eliminate inflation.

Debt is Always Greater than Money

I borrow 1,000 monetary units (MUs) from you to buy a motorcycle.  The seller of the bike lends it to his sister who buys a new stereo system.  The seller of the stereo system lends it to his niece to buy a new crib.  The seller of the crib lends it to his unle to buy new lawn equipment.  There, we just created 4,000 MUs of debt with 1,000 MUs of money, without any banks, and irrespective of the nature of money.  Is there anything wrong with any of these transactions?  Would it make any difference what the monetary system was, sound or fiat, debt-based or not?  Of course not.  Debt exists as a condition of human nature and the total in a society always exceeds the money supply.  Debt, by definition, is based on the belief that the future will provide the time and resources to pay for present consumption.  In order for the debt to be paid, more money, i.e., production, must be created to pay the principal and interest on the pre-existing debt.  It is not a characteristic of fiat or debt based money!  It is a characteristic of human nature and the belief that the future will always be greater than the past.  I agree with Dr. M and the Crash Course that our society, regardless of the money system, is based on the belief that our future will be greater than the past, but that is not a requirement of our money system.  It is a requirement of all money systems! 

The difference with sound money is that since it is production-based, its quantity will be regulated by free-market forces, and the interest rates would also be free-market-driven.  We would still have more debt than money.  We would still, in all likelihood, have FRBanking.  But, we would not have interest rates and money supply set by the "magicians" at the Federal Reserve, and we would not have to risk having the value of our life savings reduced to nothing by fiat-money printing.  I think by now we all would agree setting interest rates and regulating the money supply is as beyond the human ability as regulating any other market phenomena.  All booms are caused by mismanagement of money (and therebye credit) and all busts are the natural result of all booms.  So why not take that power from the Federal Reserve, or any other central bank or government and leave it to free-market forces?

 

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 Hi Patrick, I don't want to restart our old discussion in the FRB thread, but it's not correct to suggest that in a sound money system we'd still have debt levels like today or that we'd have an economy of debt-laden over-consuming folks (borrowing for bikes, stereos, cribs...). That's because in sound money, the cost and price of debt is clear.  Did your grandparents have any debt? Mine had zero their whole lives.  They consumed out of savings and income.  That's because in a sound system, debt is not costless, and people know quite intimately the disaster that debt can be. Only in a system like we have now where debt is purposely inflated over time will people figure "oh what the heck, let's borrow more!!" and banks will think "yeah what the heck, let's handout the money!!"  In sounder money systems historically, the majority of debt was banks loaning to businesses, i.e. it's used to fuel production.  The systemic overleverage we have today is a result of the Fed, not basic human nature.  Basic human nature (without the systemic distortion from the Fed) has a lot of fear...causes avoidance of debt.

I think Thomas' argument with the term fiat is that it technically has nothing to do with what's behind the money.  For example, even the old coinage from the days of a gold standard was technically fiat money...government decrees it as money.  

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Thomas Hedin said:  If your federal, state, local, city, ect....puts up a bond, that is mortgaged on your property.  Yes, there are several mortgages on your property to the banking system, which is by and large not known by the mass public.

I did not know this...are you saying that even if we own our property, it may still be used as collateral for multiple levels of government borrowing?  What if the US defaults on it's debt, will we lose our property?  A reference or link would be most helpful.

I agree that the North Dakota route is not the best but I really like the idea of them gaming the system by owning their own bank.  This gives them lots of creative power that they could expand.  For example, they could issue loans without any interest for special projects like increasing their energy independence while moving to sustainable sources.

I wrote about the possibility of building a sustainable society by providing zero interest loans (ZIRP) to home and building owners - ZIRP for the People and by the People to help solve our energy & environmental dilemma  

Thomas wrote:  Inflation of the credit supply is bad, inflation of the money supply is good 
Would the word "expansion" better explain your position than inflation? 
strabes said:  But the latter is what they did in Wiemar...printing more money...that's even worse as it destroys the very foundation of the economy...all savings evaporates.

strabes, according to Hjalmar Schacht's "The Magic of Money" (Schacht was the currency commissioner of the Wiemar Republic), the Reichsbank (private bank like the federal reserve) was responsible for the hyper inflation along with foreign intervention, not the government. According to Schacht, "what drove the wartime inflation to hyperinflation was speculation by foreign investors, who would sell the market short, betting on it's decreasing value."

The Reichsbank could not keep up and soon other private banks began creating marks to lend at a profit. More interesting than the Wiemar story is what followed. Germany was hopelessly broke and mired in debt to the international bankers when the Nazis came to power in 1933. Stephen Zarlenga "The Lost Science of Money" said that Gottfried Feder had studied Lincoln's "greenbacks" (debt free money issued by the government) and explained to Hitler how to break free from the English system of private central banks.

While the rest of the world was deep in depression Germany began to grow and prosper under Hitler's greenbacks, at least for a time, he was a hero to the people. Tragically, many in Germany blamed their long suffering on an ethnic group that they saw as responsible for the predatory private banking scheme. From 1935 to 1945 Germany financed it's entire war efforts and government without any debt. Zarlenga goes on to say that Germany was expected to borrow internationally and that was one of the reasons for WW2.

According to Dr. Henry Makow, C.G. Rakovsky, one of the founders of Soviet Bolshevism, was tried by Stalin. Rakovsky said that Hitler had been funded, prior to his greenbacks, by international bankers through their agent Hjalmar Schacht in order to control Stalin. But Hitler became an even bigger threat when he took the step of creating his own money. I think the bottom line is not fiat money, but rather money based on debt is the culprit. 

Patrick said:  Debt, by definition, is based on the belief that the future will provide the time and resources to pay for present consumption.  In order for the debt to be paid, more money, i.e., production, must be created to pay the principal and interest on the pre-existing debt.  It is not a characteristic of fiat or debt based money!
 

Patrick, I think you are correct in saying that debt is a claim on future productivity and the amount to be paid back usually entails principal and interest payments, P+I > P.  People should not qualify for loans unless they back it with collateral and show the mens to be able to repay the loan. 

But what you describe above may or may not be part of a "debt based" money system. My understanding is that debt based money requires government to incur debt and interest in borrowing virtually all of it's money. The borrowing needs of the people are a different matter.

In a wealth based system, the government would incur no debt or subsequent interest on it's monetary needs. This means that there would be no national debt. Interest payments alone this year may reach $700 billion.

Private loans would continue to go through private banks.  Private banks would borrow newly issued money through the U.S. Treasury with interest applied.  Banks would operate off the spread between the interest rate that they borrow and lend at.  This would eliminate any need for fractional loans while providing the government with a cash stream so that it may operate with-out taxes. 

If for example, a mass transit system is needed, it could be built with money that is debt free to directly benefit the people with a more productive and efficient life. All federal taxes could be eliminated and state and local taxes could be greatly eliminated - all while having an adequate money supply to produce all that we are able.

As you mentioned earlier, loan repayments would be higher than the Principal on private loans. The difference is an eventual mathematical problem unless money is added to the system as discussed above, So, we stabilize and grow our economy simultaneously.

Larry

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Larry, thanks for those details on Weimar.  I'm now even more amazed at how we are in precisely the same situation they were in and bankers are taking us through the same process.  The silence of the masses is eerie.  The ability of elite bankers to somehow ensure the history books stick all the blame on politicians (Hitler) for the problems the bankers cause is eerie.  The ability of people to be unaware of the Matrix within which they live is eerie.  The ability for the bankers to keep the masses completely ignorant of how their lives are controlled by those who control their money is eerie.  The ability of bankers to stay hidden while millions fight/kill each other after the production engine has run out in particular geographies is eerie.

That's a lot of eerie.    Once again I find myself wondering why, to escape the next phase of Weimar here, I'm not immediately moving to an area of the world that lives more sustainably (Costa Rica) or an area that is in the beginning phase of real economic growth (Asian centers around China) which is where the elite bankers have moved / will move their capital for the next generation of extracting value from working masses.  The reason I'm not moving is because I want community. Hmm...not sure that's a sane reason.     

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Re: Our financial solutions are right in front of us if we ...
Thomas Hedin wrote:

97% or more of our money supply is

not

fiat money. I'm confused as to why you are so hung up on fiat money when it only represents 2-3% at most of our money supply, and which before the debt can be paid off at the bank that terrible awful fiat money must be converted out of fiat money and back into check book money.  Who told you that fiat money is the problem?  Can you give me any logical reason why having a law passed stating something is to be accepted as money would be bad?  Are you suggesting that we get rid off all the paper and coin currency in circulation and go with a cashless society, which really isn't much different that what most people do right now.  If we got rid off all of our fiat money (pocket cash) wouldn't that force us into a cashless society?  Who are the people pushing so hard for this and why?  Who would it benifit?  I'm confused as to why anyone would want a cashless society.

  

From www.dictionary.com

www.dictionary.com wrote:
Financial Dictionary

Fiat Money

Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.

 

I think Thomas Hedin misunderstands the definition of fiat money.  All US dollars are fiat money, and have been ever since the US took its monetary system off the gold standard.  Our money does not have a standard value fixed to any one specific asset. 

Thomas Hedin wrote:

 If you're in favor of having money backed by a raw material or finished good then how about we monetize the production of our nations infrastructure as a wealth, and not as a debt, free of taxation?

 

What does this mean?  I can't make sense of how we would even do this.  Seems to open to manipulation and too hard to quantify. 

 

Thomas Hedin wrote:

 Do you really care what we use for money, or what it represents? 

 

Very much so.   

 

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Re: Our financial solutions are right in front of us if we ...
propamanda wrote:
Thomas Hedin wrote:

97% or more of our money supply is not fiat money. I'm confused as to why you are so hung up on fiat money when it only represents 2-3% at most of our money supply, and which before the debt can be paid off at the bank that terrible awful fiat money must be converted out of fiat money and back into check book money.  Who told you that fiat money is the problem?  Can you give me any logical reason why having a law passed stating something is to be accepted as money would be bad?  Are you suggesting that we get rid off all the paper and coin currency in circulation and go with a cashless society, which really isn't much different that what most people do right now.  If we got rid off all of our fiat money (pocket cash) wouldn't that force us into a cashless society?  Who are the people pushing so hard for this and why?  Who would it benifit?  I'm confused as to why anyone would want a cashless society.

  

From www.dictionary.com

www.dictionary.com wrote:
Financial Dictionary

 

Fiat Money

Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.

 

I think Thomas Hedin misunderstands the definition of fiat money.  All US dollars are fiat money, and have been ever since the US took its monetary system off the gold standard.  Our money does not have a standard value fixed to any one specific asset. 

Thomas Hedin wrote:

 

 If you're in favor of having money backed by a raw material or finished good then how about we monetize the production of our nations infrastructure as a wealth, and not as a debt, free of taxation?

 

What does this mean?  I can't make sense of how we would even do this.  Seems too open to manipulation and too hard to quantify. 

 

Thomas Hedin wrote:

 Do you really care what we use for money, or what it represents? 

 

Very much so.   

 

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Re: Our financial solutions are right in front of us if we ...

 hi propamanda, I've seen others disagree with Thomas over this issue and I want to try helping clear up the confusion because for some reason it never gets specifically addressed.

What it seems most people still don't understand is that most of the money in the US is not fiat money but rather fictional money sitting in electronic digits in banks.  That is what Thomas is referring to...97% of the money in the US is not fiat at all but rather banking fiction that no government law has decreed to be money. Government law supports the FRN, not the electronic digits that give us access to a few FRNs.

Fiat money is what the government declares to be money.  That can be gold, that can be paper, that can be my hair as it rapidly falls from my head.  This is a semantic issue but we need to be clear about the definitions as we debate these things.  To say fiat money has existed ever since we removed the gold standard is true, but it existed BEFORE we removed the gold standard too.  The coinage under the gold standard was in fact the government decreed fiat money.  That was a GOOD thing.  The problem is money created by bank computers...not under any fiat standard at all.

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strabes said:  The silence of the masses is eerie.  The ability of elite bankers to somehow ensure the history books stick all the blame on politicians (Hitler) for the problems the bankers cause is eerie.  The ability of people to be unaware of the Matrix within which they live is eerie.  The ability for the bankers to keep the masses completely ignorant of how their lives are controlled by those who control their money is eerie.  The ability of bankers to stay hidden while millions fight/kill each other after the production engine has run out in particular geographies is eerie.

strabes - wow, as always, you really hit some interesting observations that are hard to explain - and you do it damed well! 

It's like the old adage; if a tree falls in the forest, and the corporate media doesn't cover it...did it really happen?

Enough said!  At that point, though, finally armed with the whole truth on one side, and face to face with the political classes' intransigence on the other, the American people will be forced to decide whether they are sheep or men, whether they can mount a grass-roots political movement to throw these elitists out of office once and for all and reassert self-government in this country, or accept the other alternative.   Dr. Edwin Vieira, Speech at the National Press Club, June 2000

Larry

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Strabes, 

Fiat money has no value without the government decrees that enforce its acceptance.  Real money holds value regardless of whatever laws call it money or not.  Even with laws that enforce fiat money acceptance, just in the case of the dollar for example, it's depreciated 95% since taken off the gold standard whereas an ounce of gold can buy today what it could buy 100 years ago or 500 years ago.  

This isn't semantics in my opinion.  Fiat money holds value only by force of law.  Real money may require law to be accepted as legal tender, but it holds its value regardless.  I guarantee you I could walk into any mom & pop store in America today and they would accept my gold in payment for goods or services.  If I walked in with Continentals, they'd laugh me out of the store.  

Also, I can guarantee you the government will never bother confiscating dollars from private accounts.  They can just print more because it's fiat money.  Only real money fears confiscation by the government because it is, well, real money.  

 

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Patrick,

 

According to the Federal Reserve, Congress, and the Treasury, ONLY private banks create money, not the government.  They say the creation of money always involves an extention of credit by a private for profit commercial bank.

 

Can you show me any entity of the government that creates money? 

If the government just prints this money, why does the government have any debt at all?

 

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Thomas,

I refer to the government and to the state in general terms.  As it applies to the US, you're right, only the Federal Reserve can create money - through an exclusive charter granted by the government.  Can you tell me why it makes any difference whether the government or a government-chartered banking cartel controls the printing press?  Also, according to the Federal Reserve Act, Fed profits go to the Treasury, although I grant you that private banks make lots of money borrowing cheap money from the Fed.

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The massive bulk of the money creation does NOT occour at the FED.  It happens on every street corner in America every time someone gets a loan from a bank.  Every time a person gets a loan from a bank (any bank) that is brand new money, not created by the fed. 

Until recently, the Fed hasn't put any money into circulation.  The FED as it is known is 'the lender of last resort'.  Remember that the FED only controls the reserve requirement, and the reserves are never lent out to for you or I to use. I do suspect though that the Fed has put some money into circulation here recently with Fanny and Freddy, but they are remaining tight lipped about that whole process.

Have you ever known anyone to get a loan directly from the FED?

P.S. The private banks actually ''make'' all the money we have in circulation but when they ''make'' it they do it by loaning it to the public and private sectors at interest, and once time and interest kick in, the debt has grown but the money supply has not, which automatically creates a shortage of money and devalues our money.

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Can you tell me why it makes any difference whether the government or a government-chartered banking cartel controls the printing press?

I think I can.

 

Because if we had the government doing it for the benifit of the people, the government would spend the money into circulation as a benifit to the people.  Currently the banks only loan money into circulation for the benifit of the banking system, and no one else.

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They loan it into existence in order to create a cost for the money.  That's one of the problems of fiat money that central banking attempts to solve.  It has no inherent value, so they have to imbue it with value by lending it into existence.  If the government simply printed all it wanted whenever it wanted, the system would be even worse.  I am no fan of the Federal Reserve or any Central Banking mechanism that centralizes the creation and cost of money.  However, a fiat money system not based on debt is based on even less than the nothing that debt-based fiat money is already based on.  I'm sorry, but I just don't see how that would be any better.    I guess you could call it the "Seinfeld" system.  

If you think the government would use it "to the benefit of the people" I believe, with all due respect, that you must be deeply naive.  Maybe if you were in charge, it would be used to the benefit of the people, but if history is any guide, governments and the ability to create money is akin to a kid in a candy store.  They would use it to pay for multitudes of un-fundable promises, drive inflation through the roof, wage war, and who knows what else.

The concept of the Constitution, that being, that it is a negative document - detailing not what the government can do, but what it cannot, is how we should seek to design a new monetary system.  

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Patrick, I was just trying to define the term "fiat money" to be sure we're all on the same page as we debate it. That's what I meant by semantics.  I know the larger discussion is critical...one of the most important things to get right as we make it through the collapse and hopefully replace the current establishment.  

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Patrick,

Would you be willing to have a phone conversation?

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Thomas Hedin wrote:

The massive bulk of the money creation does NOT occour at the FED.  It happens on every street corner in America every time someone gets a loan from a bank.  Every time a person gets a loan from a bank (any bank) that is brand new money, not created by the fed. 

And any time you lend money to a friend as well is money creation in the same way

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Quote:
Thomas Hedin wrote:

 

The massive bulk of the money creation does NOT occour at the FED.  It happens on every street corner in America every time someone gets a loan from a bank.  Every time a person gets a loan from a bank (any bank) that is brand new money, not created by the fed. 

 

 

And any time you lend money to a friend as well is money creation in the same way

Whoa!  OK guys, hold on.  If I promise to pay you X amount of money over the next year in exchange for some service or product you gave me, that is NOT money cretaion.  It is debt creation. 

Market participants in any society can theoretically create all the debt they want, regardless of the monetary system being used.  That is not money creation!  It is just debt, and humans can and do promise all sorts of things to each other irrespective of the money supply or the actual possibility of the debt ever being paid.

It is only money creation when an intermediary (bank) steps in and gives/creates the money I promised I'd pay you and then that debt obligation I owed you is transfered to the bank.

The question is, where did the bank get the money?  If it was deposit money, no money created.  If it was a FRBanking loan, only more debt was created, not money.  If it was money they themselves borrowed from the Federal Reserve, then bingo, yes, money was created.

We are not going to get anywhere unless we understand what is truly going on.  Hope this helps.

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Patrick Brown wrote:

Whoa!  OK guys, hold on.  If I promise to pay you X amount of money over the next year in exchange for some service or product you gave me, that is NOT money cretaion.  It is debt creation. 

 

If it was money they themselves borrowed from the Federal Reserve, then bingo, yes, money was created.

 

Hmm  If me lending you money is not creating money, then the fed doing it is not creating money either, they are just creating more debt

Because how can US dollars be considered money when part of wiki's definition of money  is " is a store of value"  as it  lost 96% of its value in a single lifetime

My apologies for slack use of the word "money" but it is a bit of an ingrained habit to think in daily usage of those silly bits of paper as money

 

Cheers Hamish

 

 

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Quote:

Hmm  If me lending you money is not creating money, then the fed doing it is not creating money either, they are just creating more debt

You didn't lend me any money.  You lent me a product or service and you extended me credit, by allowing me to pay you over time.  No money was created, only debt.  I owe you the money, which you hope I will produce through my endeavors.  You're out a product or service, whose value equals the debt I owe you, before interest.

When the Fed lends money to a bank, that money was printed or digitized out of thin air, and literally created.  The Fed doesn't owe that money to anyone, or create a product or service worth the value of the money, they just willed it into existence.   

Quote:

Because how can US dollars be considered money when part of wiki's definition of money  is " is a store of value"  as it  lost 96% of its value in a single lifetime

No arguments there!  Cheers,

Patrick

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Money can be created as debt or as a simple token. Money created as debt is supposed eventually to be paid back and hence not, in the long run, inflationary if all goes well. Money created as base tokens with no attached debt is inflationary.

However we have witnessed an extraordinary decline in the demand for credit, and as long as that represents a secular and not a temporary change then I can't see the problem with filling the gap left by evaporating credit money with base money.

The debasement of the medium of exchange, either through quantitative easing (increasing quantity of money), or through qualitative easing (debasing the money by reducing the quality of collateral that back it) makes sense if demand for money, or more specifically, demand for liquidity (i..e the medium of exchange unencumbered by debt) is going up, the debasement leaves us more or less where we were. However if demand for liquidity declines, then we have a problem.

Here's the key question - is the decline in demand for credit secular and likely to accelerate, or is it temporary?

 

 

 

 

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And any time you lend money to a friend as well is money creation in the same way

Gyrogearloose,

All that would happen when you do that is you would be loaning someone else's borrowed money that was created somewhere in the system by another loan.  There is no new creation of money in that scenario, unless you're a bank, and you've made your friend sign a promisory note.

If you loaned his that money at interest to your friend now that same money is being charged interest twice.

 

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Thomas Hedin wrote:

And any time you lend money to a friend as well is money creation in the same way

Gyrogearloose,

A There is no new creation of money in that scenario, unless you're a bank, and you've made your friend sign a promisory note.

 

 

The ONLY difference between me lending money to someone and a bank doing is SCALE.

When I lend money out, I am acting as a bank. The fact that with a friend I rely on Honor rather than a signed bit of paper makes no difference to the mathematics..

If I do it with 10 dollars or 10 million dollars, all that is different is the scale.

Nothing mathematical stops me from borrowing more money than I have from some friends at a low interest rate and lending it out to others short of cash at a higher rate.

Think of street a loan shark backed by drug dealers with a problem with excess cash . He is acting as a bank. If he  gets bigger, and ends up with a large loan book he may come to the attention of the authorities who will then try and force him to comply with all sorts of regulations because he is now a "bank" ( and incidental enquirer where all the "capital"came from ! )

 

Cheers Hamish

 

 

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Re: Our financial solutions are right in front of us if we ...

It is a very good sign that after 60 years of silence, every day people like us, are beginning to challenge conventional monetary theory and practices. 

propamanda said: www.dictionary.com wrote, Financial Dictionary, Fiat Money - "Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves."

Patrick said: Fiat money has no value without the government decrees that enforce its acceptance. Real money holds value regardless of whatever laws call it money or not.

Hamish said: Because how can US dollars be considered money when part of wiki's definition of money is " is a store of value" as it lost 96% of its value in a single lifetime.

I offer another definition of money that I think is equally accurate: money is an incremental token of value for the exchange of goods and services.

All of these definitions can be supported, so instead of discussing the "correct" meaning we should probably specify what exactly it is that money should do - the definition is really a specification.  For clarity, I am talking about a national currency - there could be alternative currencies used in parallel to the national currency. 

I think we are diverging into two groups that seem to prefer one of the following types of money:

  • Commodity Money should hold intrinsic value, backed by one or more commodities, typically gold and sometimes silver
  • Greenback Money is a medium for exchange, backed by the productivity and assets of the people

I've already rambled on enough to bore everyone in this thread supporting the "greenback" system.  So, I'll shift gears in explaining why I think a commodity backed dollar is the wrong way to go in designing a monetary system.

What's wrong with a commodity backed dollar?

We have very little gold and silver  - The US may have as much as 5,200 metric tonnes of gold. At $1,000/troy oz, that works out to be around $167 billion.  Is $167 billion enough?

Not even close when you consider that our 2005 M1, M2 combined was $9.7 trillion. By these numbers, our $167 billion - each dollar would be backed by less than 2 cents of gold. And we have considerably less silver.

It would be very difficult to launch such a system as you would de-value all of our money that is out there already unless you were willing to swap.

We don't own enough commodities to back up a currency -  First, what other commodities would you suggest to back up the currency?  You would have to buy the commodities by borrowing which makes the system debt based exactly as we have now.

Don't forget, after we use all of our gold and silver; we would still need to back up the other 98 cents of every dollar?  We would still need over $9.5 trillion more commodities.

How would you assure that the banks are maintaining an adequate amount of commodities? - we've been down this road before, it doesn't work.

Lending money would virtually stop as banks could not leverage with fractional reserves - banks would have to have 100% backing for every dollar they lend, this would stop virtually all lending in crushing the economy.

How would you trade with the rest of the world? - if we, or one country alone, went to a commodity based currency; trading partners would have the benefit of trading a "debt-based fiat" currency against our commodity currency that holds some intrinsic value.  And a commodity based currency would be susceptible to speculative manipulations.

The value of the money would fluctuate with the value of the commodity - if you're looking for stability, you won't find it with a commodity system.  Here is an extreme, but real example:  A 1 oz. US Golden Eagle has a legal tender value of $50 but by commodity value, it is worth close to $1,000.

You already free to store your wealth in the commodities of your choice - we may buy gold, silver, uranium, oil, etc., anytime we want if we prefer storing our wealth in that manner.  We don't need, or want, banks or government deciding how to invest our money.

Larry

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Re: Our financial solutions are right in front of us if we ...
DrKrbyLuv wrote:

 

We have very little gold and silver  - The US may have as much as 5,200 metric tonnes of gold. At $1,000/troy oz, that works out to be around $167 billion.  Is $167 billion enough?

Not even close when you consider that our 2005 M1, M2 combined was $9.7 trillion. By these numbers, our $167 billion - each dollar would be backed by less than 2 cents of gold. And we have considerably less silver.

 

But still there is the mindset the "the dollar" is the important unit. Throughout history, gold as currency can be debased once a there is a label which becomes to represent the item.

A one ounce gold coin became to be called 20 dollars in the USA, then traded along side a 20 dollar note with "may be exchanged for one ounce of gold" printed on it. Then the govt printed 20$ notes without the "may be exchanged for one ounce of gold" and now ounce of money can be used to buy $950 FRN's.........

In the end every one believes the the "dollar" is the important unit of money and that gold is just a commodity that you can buy with it rather than the other way around.

Imagine a currency of gold where the unit of account was the "gram" and items were priced in grammes, milligrams or kilograms.

The wealthy might become known as heavyweights

 

The existing electronic banking system lends itself well to this, your deposit could be displayed in grammes,and used for small transactions.

Once a label other than a mass is stamped on a gold coin, the door to slippery path of debasing the currency has been opened. and once the government gets in charge of minting the coins, it is only a mater of time before it happens.

 

Cheers Hamish

 

 

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