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Re: debt free fiat currency – a solution to deflation and …

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  • Tue, Dec 14, 2010 - 12:44am

    #33
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: debt free fiat currency – a solution to deflation and …

[quote=rhare]

 First you ask what some alternative solutions might be, and when I put forth that we need less interference and more market driven competitive systems, you go off on a rant about how Reagan was the great Evil one who broght all this on us.  Then above you worry about “supply decision made not by the market demand, but by some type of external command structure”.  So, let’s see you want regulation and government control, but not really?

[/quote]

I did read your response fairly thoroughly, and I think I can understand your point of view a little better and can respond accordingly.

The main point I am trying (quite unsuccessfully!) to make is related to the need to have oversight and regulation, not on the money supply, but on the people who seek to abuse it. This simple sentence contains the jist of the differences here, as I have gone to great pains to point out, I am impressed by the self modulating affect of debt based currency, but discouraged by the (obvious) catastrophic results which we can all observe.

And yes, I am quite concerned about any alternative theories of monetary supply that seek to change this self modulating mechanism and replace it with a command structure system. Aren’t you?

So, with respect to our current system, I would seek to retain the attributes that are working, and are effective, and discard the elements that are not working. How to do this? Not so hard really, at least intellectually, but it does require something that may be distasteful to those that wish to embrace a free market system- and that something is regulation.

Not regulation of the money supply, and the mechanics of same, but regulation of the financial predators that seek to “game the system” to the advantage of the few at the expense of the many. It’s not the same thing.

This takes a management structure to implement such regulation. Not a command structure, not some huge and bloated top heavy government which neither of us want, but really some rather simple rules that are followed by all players. Have you stopped to consider at least in the hypothetical, what exactly would the rules look like that are necessary to insure that we do not have a financial collapse, if our current system was to be retained? (Not suggesting that this is the best option, just a hypothetical here)

I think about this, perhaps more than I should, and the conclusion that I have come to is that there really are not that many regulations needed to nip this sort of disaster in the bud. How about a couple of easy ones that might well knock down 80% of the most egregious examples of financial malfeasance. If you study post Keynesian economists, such as Steve Keen, you will find that the measures necessary to avoid financial collapse are not that onerous. You will find that for example, if you eliminate Ponzi borrowing, this singular act will likely knock down the vast majority of the financial failures. There is strong mathematical evidence that this phenomena alone is the root cause of much of our problems, yet the notion that this practice should be banned, with strong regulation is apparently a subject that cannot be broached by reasonable people. You could carry this way of thinking forward into derivatives markets, if so inclined.

Would it not make sense to ban Ponzi borrowing rather than throw out our entire system of debt based currency? I realize it is heresy, but come on, is this not a simple common sense example of something that can be done? If it doesn’t work as expected, than what exactly have we lost? Going on, how about the fractional reserve ratio? As I understand it, it is effectively at around 2%. Is this not inherently risky to have the ratio this low? Are these examples not the beginnings of criminal behavior just waiting to happen, and what a surprise, they really do happen.

These measures however, do suggest that free market capitalism is ineffective at policing actors that are motivated by greed and determined to cheat. This conclusion is already accepted by many of us, and vigorously rejected by certain ideological positions that are hell bent on trying to insist that we really are better off with no management whatsoever. In my view, even the most basic of predictive skill sets will show the obvious vulnerability to any unmanaged system, and this is not a risk that I am willing to take.

I do not believe any one can manage a system as complex so the best solution is not to try. 

Sorry, I cannot agree. That is what is means to be a citizen, if you give up and capitulate the leadership and management of our society because “it’s too hard” than what you will receive in return is not some idealistic, utopian free market system, but rather control and governance by those can manage, and manage to their interests, not yours. Nature abhors a vacuum. Giving up is not the answer and is not an option.

[quote=goes211]

I guess I just am not buying your deregulation bugaboo.

[/quote]

Goes211, I’m glad your not buying it, because I’m not selling it. Smile I made the point earlier that the size of government is decoupled from regulation. I’ve also made the point that the efficacy of regulation is not contingent on how many rules that we have, rather, you have to judge by the results, not the quantity.

 

Can you actually point to a example of a legal or regulatory code that has shrank is size or complexity over this period?  There may be one somewhere but I am certainly not aware of it.

How about Glass-Steagall?

Link

The Banking Act of 1933 was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation.[1] It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Carter Glass and Henry B. Steagall.

Some provisions of the Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act. [2][3]

The repeal of the Glass–Steagall Act of 1933 effectively removed the separation that previously existed between Wall Street investment banks and depository banks and has been blamed by some for exacerbating the damage caused by the collapse of the subprime mortgage market that led to the Financial crisis of 2007–2010.[4] The potential to make enormous profits trading mortgage-backed securities with artificially high ratings[5] encouraged banks to take on otherwise intolerable risk in the form of bad loans. The ease with which people were obtaining home loans contributed to an artificial housing boom and exacerbated the inevitable decline. The banks did not make the huge profits they anticipated, but obtained “bailouts” from the federal government to compensate them for their losses of funds invested and much of their losses of anticipated substantial profits. Many felt it was unfair that the bank executives who chose to take the investment risks in the housing market, attempting to make outrageously high profits by repackaging and reselling bundles of mortgages back and forth, were able to then obtain bailouts and fund, among other things, their own yearly salary and bonuses packages, which were in most cases several million dollars per executive.[6]