The power to create and issue money.

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Thomas Hedin's picture
Thomas Hedin
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The power to create and issue money.

The power to create and issue money as an interest-bearing debt owed to the creator and the lender is the greatest tool on the face of the earth to produce a super rich elite and keep them in power.

There is an old saying that, "it takes money to make money."  If one man or a group of men are allowed to have a monopoly over the creation of money for their own personal profit, they will have an advantage over all other men that is impossible to over come until that monopoly is revoked and that privilege is destroyed.

There is no subtler, no surer way to destroy a nation than to DEBAUCH the currency (create money as loans), the laws of compounding usury will always strip all the wealth from the producers and give it to the issuers of the loans.

I see so many people complaining over what we use for money but rarely do I see anyone here talk about how money goes in and out of circulation, and what the consequenses of those actions are.

How about we start talking about how money is manufactured (created) and put into circulation, and what we can do to restore morality and rightousness to our monetary system.

strabes's picture
strabes
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Re: The power to create and issue money.

 

thomas wrote:

The power to create and issue money as an interest-bearing debt owed to the creator and the lender is the greatest tool on the face of the earth to produce a super rich elite and keep them in power.

hear hear!

Thomas I think we've talked about this a lot...perhaps not in a focused enough way.  I recently wrote a post explaining how a national banking system creating debt-money that has a seemingly modest 3% spread between assets and liabilities (what they pay on deposits vs. what they make on loans) will inherit the entire value of the economy (at year 0) in a short 23 years based on interest alone.  Yes folks, you can pick your jaw up off the floor when ready.  

Say the economy at year 0 is $100 billion and it grows at 3% per year and the banking system has a 3% spread.   Then in 23 years, the banking system will have $100 billion in its pocket via interest, and the economy will then be required to be $200 billion in order to support the debt.  Another 23 years later, the banking system will have $300 billion (100+200) in its pocket via interest and the economy will be $400 billion.  This works initially based on production (a high-growth economy say 8% can afford a 3% interest spread).  As the economy matures and production ROI goes below 3%, then the bankers need to find ways to creatively inflate credit to create the illusion of growth in order to keep their machine running (a slow-growth economy say 2% can't support a 3% spread so bankers will find a way to create another 1%...that's what has occurred since 71...that's what made Wall St go crazy).  Eventually it doesn't work anymore...deflation sets in...bankers need to find a new developing economic engine that has high-growth potential...CHINA...and they need to lay the blame for the situation in the old country on the politicians so their game isn't exposed.     

There's your exponential growth.  There's your basis for banking royalty.  There's why the rich/poor divide is worse than ever.  There's why the Rockefeller family and others become dynasties...the sons/grandsons have unbelievable incentive to spend all their time scheming how to maintain the system, and they can spend all their time doing it because they don't need to do anything else, like uh get a job, because they just take the interest from everybody else who works as little servants in their controlling/ruling banking engine.  

We must end the Fed.

jneo's picture
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Re: The power to create and issue money.

 

End the Fed and End our Insane Tax Structure.  

Flat 15% sales tax.  5% Goes to Federal Govt, 5% goes to State and 5% goes to Local Govt.  

If any level of govt needs more money that means they are spending to much and WASTING.  

 

gyrogearloose's picture
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Re: The power to create and issue money.
strabes wrote:

 I recently wrote a post explaining how a national banking system creating debt-money that has a seemingly modest 3% spread between assets and liabilities (what they pay on deposits vs. what they make on loans) will

inherit the entire value of the economy

(at year 0) in a short 23 years based on interest alone. 

Did not see the post but your explination here looks good from a mathematical standpoint, but in real life the banks don't get to keep the entire 3% spread, they have to pay wages to workers etc.

This does not change the overall picture, just increases the time to inherit the entire value of the economy.

And the 3% spread seems high. At my bank you can borrow for a house at 5.99% and get 4.6% on deposit, a 1.39% spread.

With the portion of spread going to wages, maybe 70 odd years to inherit the entire economy, Hmmmmm about 70 years since it was gold as money around the world, any connection ?????

 

Cheers Hamish

machinehead's picture
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Re: The power to create and issue money.

gyro is right, I think, that the typical interest margin of the commercial banking system -- meaning return on assets, not equity -- is around one percent. A sea change which occurred recently is that the higher-margin investment bankers -- Goldman Sachs, Morgan Stanley, et al -- were allowed to become 'commercial banks' with no public debate; without even the required 30-day waiting period. The newly consolidated 'commercial banking' sector will be even more dominant.

Michael Hudson, an economist, has expounded on the concept explained by strabes. The FIRE (Finance, Insurance and Real Estate) sector -- paper shuffling, if you will -- tends to outgrow the productive sector. This is particularly true when the leader of its cartel -- the Federal Reserve -- can actually manipulate the money supply and interest rates to serve the needs of its clients.

With Usgov some 60 trillion dollars in the hole, the florid overgrowth of the FIRE sector is dangerously advanced here. Frank Roosevelt -- jaunty scion of the yachting class -- claimed that 'we owe it to ourselves.' He would. But the ownership of that debt, largely concentrated in the official and FIRE sectors, is radically different than the composition of those who have to service it. Ultimately the payors are the U.S. middle class. Because, as Willie Sutton said, that's where the money is. Or at least the 'above ground' money which is easily plundered via withholding.

In his day, Frank R. used to rake the 'economic royalists' over the coals. Today, they run this place. And we are not impressed, are we? Long term, this is not a stable set-up. It's a tertiary-phase Ponzi scheme. Look at all the anger over Bernie Madoff's Ponzi scheme. Usgov's is ten thousand times larger. People tend to assume that the big, bad government knows what it's doing. But plenty of governments have gone bankrupt, plenty of times. And the 'full fiat' global currency era celebrates only its 38th birthday next month. I would be very shocked if it reaches its 100th anniversary. Maybe it has a 50-50 shot at turning fifty, though.

scepticus's picture
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Re: The power to create and issue money.

Guys, there are some myths here that need to be cleared up.

Firstly debt itself is not an evil concept - in fact its vital to an economy based on division of labour. The more specialised people get, the more they need to save against the possibility that their specialism may become obsolete or against a temporary decline in demand for their skill. Saving can only be accomodated at a macro society level if the saving is lent out again - as a debt. Otherwise the saving just becomes hoarding - and throttles the desire to advance technology by creating new specialisms.

Secondly, interest has several components - supply/demand, risk premium, and liquidity preference. In general it is the liquidity pref part of interest that is the difficult/evil part. The reason interest rates have been coming down throughout recent times is mainly due to oversupply of savings wrt loan demand at a global level.

Thirdly, the 23 years to inherit the economy is only true if the economy is not growing. Add to this the point above about the 1% typical rate on financial assets, which also explains the reason why savings must be lent several times over - otherwise there would be no workable business model in being a financial intermediary.

It follows from all of the above, IMO, that what needs to happen now due to savings supply vs loan demand, and the fact growth is now zero or negative and will remain so for decades or even centuries, that the only way the system can continue is with negative rates of interest. This makes both financial and moral sense from the standpoint of a simple market clearance between savers and borrowers, but makes less sense with regard to the way our economy currenly operates and hence with established business concepts and moral understandings of money, and the relative 'merits' of saving and borrowing.

 

 

scepticus's picture
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Re: The power to create and issue money.

Oh yes, forgot to say, the inflation of recent years was required such that the 'real rate of interest' was set at an appropriately low level consistent with growth trends and all my points above.

It's easy to see that as theft, however in general unless the interest rate is set at the right level wrt growth and cost of capital the result will be unemployment. Consider that the alternative is severe eceonomic contraction, and that this would also hold under a gold money supply, and that the contraction under this latter system would also result in debasement of gold's purchasing power (i.e. inflation) as the economy shrinks.

So IMO the central banks have been right to inflate, at least from the point of view of the working man or woman, but I do think that there are many ways of getting new money into the economy and that the one that has been used the past 30 years has unfairly benefitted the elite, which achieves the exact opposite of the moral excuse for inflation.

 

strabes's picture
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Re: The power to create and issue money.

 

scepticus wrote:

 The reason interest rates have been coming down throughout recent times is mainly due to oversupply of savings wrt loan demand at a global level.

What do you mean by "recent times?"  Interest rates have steadily declined since 81 while savings rates have plummeted and loans became the mega fuel for fake growth. 

Sounds like you're citing neoclassical theory rather than historical facts.  We know neoclassical macroecon is worthless now. Hopefully economics can save its science by incorporating risk, debt, behavior...which have amazingly been basically assumed away.

scepticus wrote:

It's easy to see that as theft, however in general unless the interest rate is set at the right level wrt growth and cost of capital the result will be unemployment. Consider that the alternative is severe eceonomic contraction, and that this would also hold under a gold money supply, and that the contraction under this latter system would also result in debasement of gold's purchasing power (i.e. inflation) as the economy shrinks.

So IMO the central banks have been right to inflate, at least from the point of view of the working man or woman.

What?  You're using neoclassical theory to justify central banks, then saying that you think they did the right thing for the working man to avoid unemployment and economic contraction.  Um...what do you think we're going through now thanks to all the neoclassical theorists who thought they could manage interest rates sitting at central banks who kept the inflation machine going as long as they could?  

It was decidedly NOT right for the central banks to inflate, which gave the working man and woman a false impression that they were productive and making real wealth (the wealth was fake...inflated asset prices) while at the same time putting them under impossible debt loads that the banks were telling them were a good thing.  

strabes's picture
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Re: The power to create and issue money.

I wish we could stay focused on the big picture...a structure that allows a few people to profit from creating/controlling money.

Debating 3% or 1% is irrelevant.  I know 3 is high for the US.  I picked it because it's more average for the globe.  Banks in developing countries have a spread of 7, 9, 11....  

Looking at this from the perspective of your local bank down the street is irrelevant.  We're talking macro...system-wide...the Fed and it's network that controls/creates our money.

And it doesn't matter that they pay workers...the point isn't that the 3% is pure profit.  The point is that the banking industry (includes the workers) sucks that much value for doing nothing but being an intermediary...it's not production...it's not real value creation.  But you can't have a long-term model where being a middle man is more profitable than production.  

Most importantly, it MUST be realized that they aren't just middlemen.  They are creating/controlling our money.  It's a pyramid relationship with them on top, not an equal intermediary.

The point is the structural model.  The system must be changed.  The Fed must be dissolved in its current form.  

Intermediation should be a utility at this point.  But the people behind the private system have way too much wealth/power to let that happen.  Those people are reality.  Economic theory doesn't cover them...it assumes away human reality, assumes away the exorbitant power/wealth of people behind the banking system and the corruption that results.  

scepticus's picture
scepticus
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Re: The power to create and issue money.

What do you mean by "recent times?"  Interest rates have steadily declined since 81

Interest rates have declined steadily, if you zoom right out, since usury was invented.

The fact is that now the installed base of capital equipment and productive capacity is so large in relation to the labor value of us meat machines that the things produced must ber very cheap in order for us to buy them. At the same time, the increasing intesification of specialisation has created a very strong pressure to save (and would have done in the US if it were not for the great ponzi). These facts combined push the marginal return on all the capital equipment and processes below the rate of interest on money - even when it's as low as it has been.

Sounds like you're citing neoclassical theory rather than historical facts.  

The scenario I have outlined above, regarding the declining marginal efficiency of capital (as distrinct from money), is a theory much more from the minds of marx and keynes, against both of whom the neoclassical school has aligned itself.

My point about inflation was that the only way our society could continue to grow in terms of technological specialisation and production was to push the money rate of interest below the rate of return on stuff. When the money rate of interest is approaching zero, the only way to move forward is to either have negative nominal rates on money, or to simulate that effect with monetary expansion faster than the rate of growth. This is what has been going on since 1971, but badly implemented and with the process having been abused by the top.

 

 

 

 

DrKrbyLuv's picture
DrKrbyLuv
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Re: The power to create and issue money.

Thomas,

Thanks for this great thread - like strabes and the other fine contributors, I think it is a valuable exercise to step back and review how and why we are in this mess.  And more importantly, this allows us to discuss and specify the fundamentals required to build a sustainable monetary system.

I agree with Thomas, the key question is who should issue new money - private banks or government?  If private banks issue our money (as they do now) then they will be monetizing our debt.  If the government issues our currency, then we are monetizing our national wealth and productive capacity. 

If government issues the currency, there will be no national debt or interest payments.  I think this is why the framers of the constitution specified that only the government may issue new money.  

strabes said:  

I recently wrote a post explaining how a national banking system creating debt-money that has a seemingly modest 3% spread between assets and liabilities (what they pay on deposits vs. what they make on loans) will inherit the entire value of the economy (at year 0) in a short 23 years based on interest alone.  Yes folks, you can pick your jaw up off the floor when ready.

There's your exponential growth.  There's your basis for banking royalty.  There's why the rich/poor divide is worse than ever.  There's why the Rockefeller family and others become dynasties...the sons/grandsons have unbelievable incentive to spend all their time scheming how to maintain the system, and they can spend all their time doing it because they don't need to do anything else, like uh get a job, because they just take the interest from everybody else who works as little servants in their controlling/ruling banking engine.

oui, absolument! 

In case anyone is not familiar; there is a quick way to estimate an investment's doubling time - the rule of 72 (compound interest).  You use the constant of 72 as the numerator and divide by the annual interest rate (denominator).  In strabes example, we divide 72 by 3 (%) the math works out to be 24 years (strabes probably used a spreadsheet for better accuracy and rounded off at 23 years).

By injecting debt free money into the system as suggested by Thomas, we provide the added funding needed to pay both principal and interest on private loans.

It is estimated that in 2009, the interest on our national debt alone will be around $700 billion dollars.  This is huge when you consider the following:

2009 Budget

  • $68 billion, Department of Health and Human Services
  • $63 billion, Department of Transportation
  • $59 billion, Department of Education
  • $25 billion, Department of Energy
  • $20 billion, Department of Justice
  • $18 billion, NASA
  • $10.6 billion, Department of the Interior

Most of the federal government's budget needs could be paid through interest savings alone. 

In 2006, M3 (broadest measure of the money supply) was nearly $10 trillion. Of that, treasury securities were around $1 trillion which means that banks expanded the money supply by a factor 10:1 through fractional lending.  And they are collecting interest on every penny while "We the People" provide all collateral.

Had the U.S. government issued the expanded money, by loaning it to banks at 3% interest, we would have made $270 billion in interest for just one year's new money.  When you add multiple year carry-overs, that number gets much bigger.

Larry

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