Tuesday, July 17, 2012
In his words (http://michael-hudson.com/2012/07/the-weaponization-of-economic-theory/):
The term “neoliberalism” misrepresents and even inverts the classical liberal idea of free markets. It is a weaponization of economic theory, kidnapping the original liberal ethic that sought to defend against special privilege and unearned income. To classical economists, a free market meant one free of unearned income, defined as land rent, natural resource rent, monopoly rent and rent-extracting privilege. But to neoliberals a free market is one free from taxes or regulation of such rentier income, and indeed gives it tax favoritism over wages and profits.
Neoliberalism and neo-conservatism are complementary doctrines of power and autocracy combined with deregulation and dismantling of democratic law. The aim is to replace government power as used to protect the people with an oligarchic power to oppress the people.
Today, the neoliberal aim is to cripple government power, enabling a free-for-all for the financial sector. Protecting civil freedoms are also heavily signposted, but the high price of legal representation is a barrier for most. A doctrine primarily of the financial sector, the aim is to un-tax banks and financial institutions and their major customers: real estate and monopolies.
Neoliberalism is a doctrine of central planning, which is to be shifted from governments to the more highly centralized financial centers. This requires disabling public power to regulate and tax banking and finance. As a transition, ideological deregulators such as Alan Greenspan and Tim Geithner have been appointed to the key regulatory positions in the United States.
The result is a doctrine of financial war not only against labor but also against industry and government. Gaining the financial power to indebt economies at increasing speed, the banking and financial sector is siphoning resources away from the real economy. Its business plan is not based on employing labor to expand output, but simply to transfer as much of the existing flow of revenue as possible into its own hands, by capitalizing all such revenue into interest payments, on loans collateralized and pledged to creditors.
The effect is no more democratic than the Roman democracy, which arranged voting by “centuries” headed by the largest landowners – essentially an acre-per-vote, to make an analogy. In the U.S. case, votes are bought not by land as such, but by dollars – mainly from the financial sector. In the end, to be sure, most dollars come from rent extraction.
The result must be economic polarization, above all between creditors and debtors as in Rome. So the end stage of neoliberalism threatens a Dark Age of poverty/immiseration – most characteristically, one of debt peonage. And just as Rome’s creditor class and its predatory imperial expansion brought down the Roman Empire and reduced it to mere subsistence, so the combination of neoliberalism and neo-conservatism today seeks to globalize itself, spreading austerity even as it brings technological progress to sovereign debtors.
Friday, June 15, 2012
Liquidate the banks, preserve the depositors - a Populist/Libertarian alternative to our economic crisis
In this analysis, we see the unexpected intersection of Libertarian and Populist thinking. The Libertarians see it as plain as day, as well: the free market is being perverted and prevented from acting as it should. According to the working of the free market, the banking system should have already been liquidated and rebooted.
We can see clearly now that the current banking order survives for one reason: their control of the political process allows them to extract massive wealth transfers from the masses, in complete defiance of the rules of free market capitalism.
Henry Blodget, in Business Insider, writes of how the market should handle this type of massive banking failure: by allowing the market to punish the professional bankers and investors who sunk their money into this losing scheme.
His analysis is actually more Populist than Libertarian, since he accounts for keeping the economy afloat, and protecting depositors, using governmental power (ideas which a doctrinaire Libertarian would not countenance). His plan is, in fact, almost precisely what the Jubilee Solution would entail.
In his own words:
The U.S. started this string of bad bank bailouts--making a mistake that the country is still suffering from. And now Europe is following our lead.
The most annoying thing about this is that bank bailouts can work--and they can be done without costing taxpayers hundreds of billions of dollars or rewarding executives and investors for making bad decisions. They just have to be done the right way.
What's the right way?
--Seize the bank
--Write down the value of the bad loans to the amount they are actually worth
--Zero out the bank's equity (shareholders lose everything)
--Apportion the losses to the bank's subordinated debtholders (they lose something)
--Inject new capital in the form of senior debt and new equity
--Refloat the bank (by selling all or part of it).
In a restructuring like this, the bank doesn't stop operating--so the economy isn't screwed.
Meanwhile, the idiots who loaned the bank money and bought the bank's stock take the losses they deserve. And the bank is then immediately rendered rock-solid again, ready to make new loans to companies and countries that deserve it. (And, hopefully, the remaining loan officers are chastened by their prior stupidity and are more prudent next time.)
It doesn't matter how big the bank is--you can do this with any size bank.
And, if necessary, you can do it with lots of banks at the same time. You just need an entity--like the US government or ECB--that has the power to seize and restructure banks before they actually go bankrupt and that can write the massive checks necessary to recapitalize the banks.
That's the right way to bail out banks. And that's the only way to do it without rewarding stupid, reckless lending and failing to address the root of the problem.
Saturday, June 2, 2012
In reality, savings don't exist. You can't "save" the output of your current labor for future usage. After completing it, your current labor is gone, probably consumed by someone else.
In truth, what we think of as "savings" is just a claim on the value of someone else's production at a future time. This brings up a number of problems.
--If your "savings" is contractual, it can disappear instantaneously if that particular social contract breaks down. An example of contract-based savings is a pension, Social Security, or paper currency.
--If your "savings" is physical (such as gold, land, cars, bullets, whatever), its value depends on the market conditions of the future. [But, hey, at least it can't totally disappear, like contract-based "savings"!]
But in either case, the real value of your "savings" depends on the overall state of the economy in the future, when you cash in your savings. Seeing through the Money Illusion, we know that we cannot live off the wealth we created in the past ("savings"), only on the wealth created by others in the future.
The Inevitability of Austerity
In a contracting wealth base, the value of all savings plummets. With a smaller wealth base, there is less overall productivity going around, so "what you get out" (savings consumed) is going to be less than "what you put in".
Due to the demographic collapse caused by the retiring/dying Baby Boom generation, which is a worldwide problem, we face the inevitability of a contracting wealth base. Baby Boomers are switching from being a massively productive part of the wealth base to being a massively draining subtraction from the wealth base (due to retirement from work and the health care costs of old age).
This demographic problem is exacerbated by socio-cultural factors. One of which is crime, drugs, and an overall culture of slothfulness/non-productivity among young people (well, people of all ages really). Another is our preference for governmental regulation.
Those are clear examples of where the Money Illusion bites us in the ass. GDP numbers actually rise as dollars change hands in an economy of entertainment, police/security, health care, and regulators. The problem is, those "jobs" do little to increase our wealth base. In other words, we are getting poorer.
How Austerity Manifests - 0% interest rates, FOREVER
As previously stated, savings have no value outside the condition of the current economy, and the real value of savings is falling in a shrinking wealth base. Two economic/price adjustments will happen under these conditions, which we are already seeing.
One is a sustained attack on currency/contractual savings in the form of ZERO INTEREST RATE policy. Perusing contemporary economic analysis articles, you will see numerous jeremiads concerning the catastrophic effects awaiting us when interest rates rise. The fact is, interest rates will not rise, any time in the foreseeable future, I am thinking, 20+ years at the minimum, maybe until "the end of this age".
By running a low but steady inflation rate, combined with a zero percent interest rate, currency-based savings are being crushed. This is happening right now, and we cannot expect this to change. The retired people of today are not living in the social wealth base of a generation ago, i.e., their savings are not worth as much today as they were back then.
Seeing through the money illusion, we know that retirees are NOT living off the wealth they created in the past; they are living on the wealth created by others now. The problem is, wealth is not growing, wealth is shrinking, and our total standard of living is going down. The crushing of savings by inflation merely reflects that fact.
All contract-based savings will be forced to be revised downward. When they are currency-based, like pension funds, they are simply crushed via the inflation effect. When they are purely contract-based, like Social Security, they will be legally modified to pay out less and pay out later (pensions can also be modified this way).
The Reality of Deflation
Physical-based savings cannot be inflated away or contractually-canceled, so they are clearly the preferred form of savings in times of austerity. However, these assets will be assaulted by the problem of deflation. In a contracting wealth-base, everything goes down in value. There is no magic bullet (such as gold) to get around this.
Under the zero-interest rate, high-debt regime, all assets will be deflated, especially those dependent upon speculative value (such as gold). There will be no hyperinflation, just a long, slow grind of liquidation and austerity, as "savings" and asset prices are crushed.
The ultimate "wealth play" in a contracting economy is productive capital. In short, the ability to produce something. This will become especially clear when the US dollar loses its status as reserve currency, which will cause price inflation on the domestic economy on all imported goods. Under conditions of peace, this shift could take years, but it could happen quickly if given a system shock like war.
Friday, June 1, 2012
A huge step forward in the dollar replacement process is taking place today, as Japan and China begin bilateral trade without the dollar. The shift was just announced a couple days ago, and is being implemented immediately. (http://english.peopledaily.com.cn/102774/7833022.html)
The winding-down of the dollar's role will occur slowly over years, absent any major political/economic shocks, such as war or revolution. The dollar is also being strengthened currently (index value over 83) due to the problems in Europe. There is no doubt that once Europe gets a handle on its currency situation, the dollar will begin a more serious slide.
Wednesday, May 30, 2012
The Forbes article goes on to worry about the upcoming time when the Fed begins to unwind its position. Methinks that day shall never come, at least willingly. If markets will be crushed by the Fed action, logic indicates that the Fed will not take that action.
Clearly, the hammer poised above the US dollar is rising higher and higher, but the fact is, it will not fall until something else is capable of taking the USD's place. It is not looking like it will be the Euro.
Thursday, May 24, 2012
Total lending is down to levels last seen in 1984! As the WSJ puts it: "Net loans equaled just 70% of total deposits in the first quarter, according to the Federal Deposit Insurance Corp.'s quarterly banking profile released Thursday. That is the lowest level since 1984."
This quarter's numbers also provide a window into the obscene banking profitability model: for every dollar they lend out, they gain 62 cents in profit. Not a bad racket, eh? That is like a 62% interest rate earned on every loan! Earned, not charged, as it is earnings, pure profit. Obviously, they must be charging a much higher rate, to cover all their costs. That, my friends, is the magic of compound interest! Ha Plus various and sundry charges and fees, of course.
The math is pretty straight forward. Total profit: $35.3 billion. Total lending: $56.3 billion. For every $1.00 they lent out, they gained $0.62 in profit. Good time to be a banker.
After all, why would anyone invest in a zero percent bond? It is a reflection of the fact that everything else is falling in value. When EVERYTHING else is deflating, just holding even at zero percent looks pretty good. Conversely, if there is anything worth investing in, no one will take a zero percent bond.
In short, big money going into zero percent bonds is proof of monetary deflation and economic depression. More generally, low interest rates are a sign of low demand for money, which prevails in poor economic conditions.
This is a chronic condition among economies mired in debt. High debt loads turn an economic contraction into a deep depression. This effect is due to the mechanics of widening circles of forced liquidations/fire sales, to pay off old loans while asset values are falling, as well as widening circles of bad credit, credit destruction, and credit risk.
This is the exact time when central banks should be intervening with cash infusions to short circuit the deflationary spiral, but oddly enough, the Fed Reserve is not talking about it publicly. I guess that is mainly because it is a European problem right now. The ECB should be doing something, but all talk is on austerity and currency breakup instead.
Of course the best solution would be to cancel the debts outright, totally breaking the back of the debt-deflation process and allowing the economies to reset.
Tuesday, May 22, 2012
Seeing beyond the Money Illusion, we realize that money is nothing but a trick to gets us to cooperate. Money is both the stick and the carrott, in that it inspires both the fear and the greed to get us motivated.
The existence of money is not even necessary to the function of the economy. Just imagine what would happen if all money disappeared tomorrow: all cash, all plastic, all bank balances, everything, just magically erased. What would happen if everyone's wallet was completely empty, and every bank vanished? Most people agree, if it happened in the real world, human civilization would pretty much end rapidly in a violent conflagration.
But... what if.... instead of going Mad Max in collapsing economy... what if everyone just PRETENDED they were exchanging money. You go to the store, the cashier pretended to ring you up.... and you pretended to giver her money. You buy items from your vendors, and pretend to pay their invoices... Your clients pretend to pay you... so on and so on.
In other words, what if everyone just went on doing what they normally do, but WITHOUT the MONEY??? Viola, Mad Max apocalypse averted! If everyone would just fulfil their role in the economy as if money didn't matter, in truth, money wouldn't matter, and the economy would go on quite nicely without it.
Of course, the average listener objects, if you could just "pretend" to pay for stuff, why would you work? Well, yeah, that is the rub, human nature. Stands to reason, some people would shirk off and refuse to work, and if enough people did it, the economy would collapse.
But my point is not to suggest a model for a real-world working "cashless" economy. Rather, I just wanted to give a concrete example of the true depth of the Money Illusion. The fact is, money is totally unnecessary to the function of a real economy.
If people could just be trusted to do something productive everyday and give it away, we could totally dispense with money. THAT is the Money Illusion, the idea that money is anything necessary or worthwhile at all. In reality, it is just a big trick to get us to work together and limit our consumption. If we could agree to work together and limit our greed CONSCIOUSLY, we wouldn't need money.
Arguments about the Type of Money
The Money Illusion also manifests in our arguments about what TYPE of money to use, especially among the Austrians, who have an irrational attachment to the use of gold as money. What really matters when it comes to defining our standard of living is our overall level of PRODUCTIVITY. The type of money we use is complete incidental, and the only argument we should have about money is how to make it facilitate the highest level of communal wealth.
This is where the Austrian gold-fetish is revealed at its most primitive. A solid, stable, tangible FORM for money is all-important to this strange mindset. Whether it is most condusive to the creation of social wealth is totally irrelevant to the Austrian; the most important thing is its constancy, its permanency.
Ironically, it was the rise of the limited Money Illusion that proved the death knell of the modern gold standard. Modern workers in the early 20th century fought hard for union power, higher wages, and guaranteed contracts. All of these were totally incompatible with the operation of the gold standard, which required constant deflation of wages and prices (as greater productivity was piggy-backed into the static supply of money). Workers, however, would not be contented with falling nominal wages, even if they were assured that it was part of the natural process of economic balancing under the iron discipline of the gold standard! Deflation and mass unemployment are not a good combination in the modern, urban, industrial economy, and thus ended the gold standard era.
This is why Austrians are viewed as kooks and cranks in the modern economic milieu. Everyone ELSE sees through the Money Illusion and is discussing the advanced theories of wealth creation and social stability, EXCEPT the Austrians. It is like trying to make Christmas plans with someone who insists you have to be in bed at midnight for when Santa arrives. Or trying to make travel plans with someone who insists you can't travel too far across the ocean because the earth is flat and you don't want to go off the edge, do you??? I mean, really, there is nothing you can do with such a person but ignore them and go about your normal plans despite their irrational beliefs. Which is exactly how Austrians are treated.
In the end, Austrians are left alone in the corner, muttering about hyperinflation causing the collapse of the economy. We just pity the poor chaps, totally locked in to their irrational beliefs, unable to see through the Money Illusion. They honestly can't separate the collapse of a currency with the collapse of the economy itself, and are totally flummoxed trying to imagine that money is just a tool to be used for the social good. The very idea is offensive to them!
Mainstream economics is hardly better. In fact, it is probably even more odious, being used to obfuscate, beguile, and confuse the public, through a massive smoke screen of jargon and faux-complexity, serving only to mask the exploitation of the masses by the parasitic Money Elite.
Thursday, May 17, 2012
Watching for price trends is the best we have available for "real time" economic reports. When clear trends develop, not just daily up and down bounces, but clear trendlines, they are telling us something. When all of the clear price trends are going in the same direction, we are getting an obvious economic indicator.
Unfortunately, all of the clear price trends right now are screaming contraction, downturn, and deflation.
Milk - deflating (http://www.cnbc.com/id/47187994)
Gas - deflating
Gold - deflating
Stocks - deflating
Chinese real estate - deflating (http://www.economonitor.com/blog/2012/05/china-real-estate-unravels/). This one is especially troubling, because the price of land is usually the bedrock of the banking system. In American history, land-value deflation after a speculation boom always leads to economic depression.
European economies - contraction
Chinese economy - contraction
In short, world wide economic downturn. Add to it the continued budget woes of places like California, which will have to slash its budget, thereby damaging their economy.
Is this the calm before the storm? It appears that Big Money thinks so. They are liquidating to cash, preparing for the coming buying opportunities when the markets fall.
Wednesday, May 9, 2012
-- I was surprised at how few experts in the field of monetary theory there are (some 500 in total). I knew people (like myself) who are not only interested in economics, but in the monetary aspects of economics, are rare, but it was surprising to see how few experts exist.
-- Classic case of the problem of “institutional capture” of academy by big money.
For one, the “establishment institution” dominates employment in the field. Thus, everyone in the field has the natural incentive to conform their work to the interests of the establishment. Even aside from direct hiring, affiliation with and approval by the establishment confers status and opportunity within the field. These factors alone probably take care of 95% of the problem of conformity.
For two, the establishment captures all the gate-keeper positions in the field, thereby controlling hiring and advancement. When the majority of department chairs/journal reviewers are employed by the establishment, is there any question whose interests will be advanced throughout the publishing and hiring process?
-- The end result is a classic example of the problems of intellectual conformity. No one with a heterodox opinion is retained, and so, there is no check on the spread of false doctrine. This allows the establishment to be blindsided by unexpected events (such as the market crash of 2008), and leaves it unable to reform or adjust to new circumstances.
-- The Fed itself is not an “end point” or autonomous institution. The Fed itself suffers from institutional capture by Big Banking. Fed chairmen and governing board members are themselves placed in those positions due to their subservience to global banking interests. Thus, pointing out that establishment economists are beholden to the Fed, is the same as pointing out that they are beholden to the globalist banks.
--True diversity of economic theory has to be sought in the time before the Fed captured the profession, circa the 1970s. By all accounts, prior to that time, there was true diversity of opinion in the field, before everyone became “establishment men” beholden to the power of the Fed over their professional lives.
Monday, May 7, 2012
The article source: http://realcurrencies.wordpress.com/2012/04/19/the-swiss-wir-or-how-to-defeat-the-money-power/
For eighty years a major not for profit, private currency has been operating in the heartland of Europe. In Zurich, almost next door to the Bank of International Settlements in Basel, there is the WIR, turning over the equivalent of almost 2 billion CHF per year.
By Anthony Migchels for Henry Makow and Real Currencies
WIR was founded by businessmen Werner Zimmerman and Paul Enz in 1934. It was a direct response to the Great Depression. They built on the legacy of Silvio Gesell, whose thinking also was the basis for the famous Wörgl Scrip and today’s German Regional Currencies, like the Chiemgauer.
Silvio Gesell is in fact the Patriarch of what I suggest should be called ‘German Economics’ or ‘Interest-Free Economics‘, the theoretical basis for the anti-usury movement. His analysis of Usury inspired both Gottfried Feder and Margrit Kennedy, two other leading lights of the European anti-usury movement. He also had interesting and much needed ideas about land reform.
Where the Wörgl and the Chiemgauer were/are backed by national (banking) currencies, the WIR goes where nobody before dared to go: it is basically Mutual Credit. Mutual Credit based currencies are nowadays used in Barter organizations world wide. Barter in this sense is a misnomer, they do use a means of exchange but not the national currency. WIR is undoubtedly one, if not the first Mutual Credit facility in the world and most certainly the longest surviving one.
Nowadays WIR turns over a little less than 2 billion WIR (1 WIR = 1 CHF) per year. Because many transactions involve maybe 25 to 50% in WIR while the rest is settled in CHF (Swiss Francs), real turn over generated by WIR is maybe up to three times higher. It has 1 billion of WIR in credit outstanding.
Transactions are settled with the use of debit cards or with their on-line banking system.
WIR is operated for the common good and not for profit. About 62,000 small and midsized businesses participate. There are six regional offices through the Swiss republic.
WIR is especially important during downturns. Deflation and capital scarcity make businesses more creative and more willing to deal with WIR’s limitations.
For our purposes WIR is important because it proves that Mutual Credit facilities have a viable business model. It proves currency can be offered at very low cost while maintaining a prosperous and professional organization over the long term.
Notwithstanding its major achievements, WIR suffers from some significant limitations.
In the first place it is not convertible to other units. This is a common problem with Mutual Credit based currencies. Until recently, the technology was not available. Amazingly, many people are so used to this situation that they do not even consider it a problem. They will claim that non-convertibility is actually a strength, as it forces participants to shop within the network. However, this is a mistake. Non-convertibility damages the liquidity (what it will buy) of the currency and liquidity is everything. As a result, many businesses accept only certain percentages in WIR. This hampers liquidity even further.
Another problem is that consumers are not serviced. Only businesses can participate. This again badly damages liquidity: businesses cannot pay their employees in WIR, for instance.
Just think of what is possible for modern units leaving these limitations behind them.
Money Power Subversion
Obviously, WIR is very important opposition against the Money Power. The Money Power can be expected to keep a keen eye on it and there are serious indications it has been resisting WIR actively.
There is a persistent rumor suggesting the Banks have told WIR that things are fine as they are, but that they should not vie for further growth. This may explain why they have not developed a comprehensive strategy for consumer participation.
Also, in the 1950′s WIR started to price its credit with interest. Even today interest rates are very low, with 1% rates for mortgages, for instance, but still. Interest is an affront to Gesell’s ideas. It hinders circulation, which was one thing very much on Gesell’s mind. The price for credit, even at 1%, is somewhat high for collateralized (and thus risk free) long term loans. It also lessens the power of the message: that interest free credit is not only possible but a fact.
The last few years WIR has been starting to focus on more traditional banking activities, including ordinary loans in CHF.
This has led Thomas Greco, a leading expert on Mutual Credit, to state that the Banking Cartel has probably found a way of getting its henchmen on WIR’s board of directors.
WIR is a leading example for the entire world. It has proven that interest free mutual credit can be offered on a large scale. Its superior management was a key factor to its success: it was not a couple of dreamers that built it, but down to earth businessmen understanding the issues and the solution.
It is not convertible and it has no comprehensive strategy to compete outright on a full scale with the Banking Cartel and yet it turns over billions per year. These limitations can nowadays be solved. Convertibility for Mutual Credit is now possible. A comprehensive strategy including consumers not difficult to devise.
In this way the Money Power monopoly on currency can be assaulted. Regulators, inimical as they may be to these schemes, are left empty handed: there are no laws against Mutual Credit and they are very difficult to develop, especially against determined market players who understand what they are up against.
Even though today WIR seems to have been subverted, it took the Money Power eighty years. It is fully possible for just a few thousand ambitious people world wide to open up their own initiatives and the Money Power could easily become overwhelmed.
It goes directly at the heart of the matter: the Money Power’s control over the money supply and extortion through usury and the boom/bust cycle. In this day and age of deflation and stagflation, additional working capital is desperately needed by small and mid sized firms. Now, more than ever, are they willing to take a chance when they are offered a real alternative.
The German Regional Currency Movement shows that it can be done even today. In Britain, too, many regional currencies are now starting, most recently in Bristol. This unit is not even circulating yet, but already 100 small businesses have signed up. They desperately need additional cash and new customers and Regional Currencies supply both.
It is no use to wait until the Government cleans up its act. It never will. It is completely controlled by the enemy. Private initiative is the only hope we have. In fact, let’s face it: why would children of the One expect to have their lives be run by sugardaddies like Government? Private initiative is all there is.
Private currencies, competing with the Money Power in the market place are the way forward.
The world was conquered by a few ambitious men serving the Adversary.
It is now time for it to be liberated by a few ambitious men serving the One.
“THERE IS NOTHING MORE DANGEROUS THAN PERSONAL INITIATIVE: if it has genius behind it, such initiative can do more than can be done by millions of people among whom we have sown discord.”
Regional Currencies in Germany: the Chiemgauer
Mutual Credit, the Astonishingly Simple Truth about Money Creation
Mutual Credit for the 21st century: Convertibility
Financial Warfare 2012: Boycott All Banks
Saturday, May 5, 2012
For, you see, the GSI is perfectly upfront about the fact that direct trade in gold is not practical. As they put it, for example: "Gold on its own cannot support international trade; Bill circulation is essential for a viable Gold Standard."
The gold standard only works, then admit, when actual trade is in paper. The paper, which they call Real Bills, is backed by gold, but the paper is essential.
Real Bills vs Money
Now, the question becomes, what are Real Bills??? Unlike a paper money supply backed by gold, real bills are not issued by a central bank and are not permanent. Rather, they are issued by private parties, and they have an expiration date.
They are most like a personal check with an expiration date. They would say something like "Redeem this bill of sale for $100 worth of gold on July 31st 2012 at XXX Bank". In practice, that bill could then trade hands among various people right up until the redemption date.
This is the meaning of Real Bills being "self liquidating". Unlike a permanent paper money supply, Real Bills are created in response to real economic activity, and are liquidated at the commencement of that activity. Here is how they describe it: "Bills are drawn against real goods, the goods are delivered, the Bills net out the trade. Then, after doing their job, after being paid off on their due date, the Bills disappear."
The Necessity of a Clearing House
The only thing they left out of their description is the necessary role of a clearing house. The clearing house keeps track of accounts upon expiration of the bills. If necessary, on the date when accounts are settled, actually physical gold would then trade hands. But the whole point of Real Bills is to allow multilateral trades in paper certificates, rather than actual gold.
The clearning house has to function as the gold storage vault, as well as an accounting service, to clear and pay accounts of settling day. If Real Bills are drawn on multiple banks, the individual banks would have need of a central clearing house to clear their accounts. In practice, that would work like the way cheques are cleared by multiple banks.
Advantages of Real Bills
Because they aren't permanent, Real Bills can't be used to fund speculation. It is also nice because they don't disrupt the productive economy with the inflationary or deflationary effects of a permanent money supply. Real Bills are always matched perfectly to the real productive economy.
Nor are they centrally-controlled. Real Bills are like a democratically-issued money supply. People issue Real Bills on the wealth they possess. Under this system, the function of banks is simply accounting and wealth transfer. Presumably, the banks are funded on a fee-for-service basis.
Friday, May 4, 2012
That is, of course, the first absurdity. Government which is determined to be authoritarian will do whatever it takes (such as seizing all gold and declaring a new economic order, which has been done before), so obviously a gold-standard has no ability to limit government power. Anyone who publicly suggest that a gold-standard can limit government power should be slapped across the face for their ignorant display of ignorance.
But even worse, Austrians posit the gold-standard as some kind of economic good of its own, in a crypto-religious fashion defining gold as the only "real money", as opposed to all the paper "fiat money" which is thereby ontologically illegitimate. But... If government declares via legal fiat that gold is now money, doesn't that make gold "fiat money"? if you don't think so, you need to review the definition of the word "fiat".
Or maybe the problem is with the Fractional Reserve system? Welll......Ooops, it turns out a fractional reserve system could rest quite comfortably on a gold-standard money base. No ontological collision there, sorry. If your mind has trouble grasping this, you need to familiarize yourself with monetary history.
Some seem to imply the ultimate goal should be a full reserve system based on nothing but the possession of bags stuffed with gold coins. The very system that was phased out, what, a millennia ago? Even under the historic "full reserve, gold standard" systems, various non-gold means are invented to conduct commerse, such as bills of credit, cheques, silver and copper, etc. The pure "gold-based system" is a complete fantasy.
The real problem is, what then, central banking? But a central bank, in the sense of a bank that does business with the central government, is inevitable, literally impossible to avoid. The government has to put its money somewhere, doesn't it? The banking institution in which the central government places its deposits and makes its withdrawals is by definition a central bank.
Is the problem then that government shouldn't be able to "create money from nothing"! Well, then, I am left wondering, who? Who gets to create the money? Someone creates the money, it must be admitted.
Ah yes, this is where the rubber hits the road, where the naked truth steps out into full light. Austrian economic theory is nothing less that pro-banking-class propaganda.
It is no accident that Austrian theory places such a high rhetorical value on the "sanctity of private property". Their whole argument boils down to the idea that rich people should have the exclusive right to create and profit from money, and they shouldn't have to share it with anyone!
Fortunately, the fact is, there is no reason at all that people should put up with this absurd assertion. It is an offense to common sense to assert that the government should have to pay any private parties to conduct its monetary business.
Government is an expression of the people, for the general benefit of the people, and government is perfectly capable of operating its monetary transactions for the benefit of the people, rather than for the profit of a banking elite. The profits that come from the creation of money, the holding of money, and the lending of money, when done in the name of general government, should accrue to the general populous. In practice, we should have MORE public banking, not less.
Didn't you ever wonder why Austrian economic theory is so well funded? Why it has so many essay-writing and magazine-publishing mouthpieces and gets so much publicity? Austrians would return all the profits of money to the wealthy banking class. The wealthy banking class are more than happy to fund this propaganda which so clearly advances their interests.
General confusion surrounds the internet discussion of "Austrian" alternatives. Another red herring is bandied about concerning "legal tender laws". In fact, there is no law mandating the use of the USD/FRN. You are free to use any money you want. You are required to pay TAXES in USD/FRN, but that is all. People have "free banking" right now if they want it.
End the Fed?
As for the current Fed Reserve, the problem with "ending" it, according to Austrian recommendations, is that it would return all the profit and power of money control to private banking interests.
In reality, the main problem with the Fed today is that it is not under enough public control. My critique is that by basing the system on Presidential appointees (and that, only in part), it serves to amplify the influence that the money powers have over government. In short, by buying off one man (the Pres) and a few key other men (committee heads and key confirmation votes), the Moneyed Elite can retain an absolute choke hold over policy and potential reform.
Thus we see the incredible incestuousness of the current climate, in which Goldman Sachs insiders, for example, are simple recycled throughout the system, which, not coincidentally, is used to advance their interests. With policies like "too big to fail" and "zero interest loans for member banks", it essentially results in "Socialism for the rich, harsh capitalism for the rest".
If monetary policy makers were subject to popular approval, it stands to reason they would be more likely to enact policies which benefitted the general populous. I fail to see how that would be worse than now, a situation in which the general population is fleeced for the enrichment of the banking elite
Thursday, April 26, 2012
His country's strength came from recognizing the problem was not just an "economic and financial challenge", but a "profound social, political, and even judicial" challenge. After the crisis, the country held a full judicial investigation, and went against "the prevailing economic orthodoxies of the American, European and IMF model."
"It was absolutely very tough indeed," Ólafur says. "Every big financial institution, both in Europe and in my own country was against me, and there were powerful forces, both in Iceland and Europe, that thought my decision was absolutely crazy."
The results have been impressive:
"Iceland is repaying its IMF loans early, unemployment is down, and growth is above average. The crisis remains front page news in Greece, Italy and Spain — countries that followed a very different response from Iceland's."
His problem isn't Europe, but the European and American banking system. He says Iceland's lesson is that "If you want your economy to excel in the 21st century [...] a big banking sector, even a very successful banking sector, is bad news. You could even argue that the bigger the banking sector is, the worse the news is for your economy," he adds.
"I have never understood the argument — why a private bank or financial fund is somehow better for the well being and future of the economy than the industrial sector, the IT sector, the creative sector, or the manufacturing sector".
Wednesday, April 18, 2012
Reformed Capitalism is the name for a set of economic rules that preserves the core benefits and strengths of free-market capitalism, while eliminating or lessening the weaknesses and downsides of that system.
Reformed Capitalism seeks to preserve the key elements of private property, open markets, and entrepreneurial reward which drive the success of the capitalist system.
Reformed Capitalism seeks to end the elements of exploitative rent-seeking, usury, and wealth disparity which exhibit the downsides of the capitalist system.
Reformed Capitalism is not intended as a political platform for any given contemporary nation-state, although in the course of exhibition of Reformed Capitalist principles, historical and contemporary examples are mined copiously. The problems of any specific country’s economic system are complex and variable, and will not necessarily be addressed directly.
Rather, Reformed Capitalism is intended as an expression of general principles and policies, which can be applied to any present or future circumstances. If a country is starting from scratch, theoretically the entire body of Reformed Capitalism could be implemented at once. Or, more likely, single planks of Reformed Capitalism could be implemented one at a time by an existing nation.
The point of Reformed Capitalism is to establish a body of economic knowledge and practical rules which can be applied to all, to the benefit of our collective unity, justice, peace, welfare, and liberty.
For the Benefit of Whom?
Any economic policy must first determine for whom the economic benefits are intended. The primary critiques of traditional capitalism mostly boil down to the way in which it facilitates the economic exploitation of the masses for the benefit of the few. Reformed Capitalism takes the opposite course, explicitly defining its target as the benefit of the masses over the benefits of the few.
The exploitative features of traditional capitalism are a direct result of its origins in ancient conquests and the feudal governments set up to secure the benefits to the conquerors. While much political reform of the modern era has succeeding in eliminating feudal ideas in government, the feudal legacy has not been eliminated from our economic system. That feudal legacy is summed up in one word: rent.
Rent was invented as a fruit of conquest. Basically, rent developed from the practice of tribute. The ancient tribute system was simple enough: “We, your conqueror, allow you to live, in exchange for a regular payment.” Rent developed from that basic concept, except as applied to the land, rather than to the people directly. A tribute was what we would call a capitation tax, a tax directly “on the head” of the person: “pay or die!” Rent is a tax directly on the land of the person: “pay or be kicked off!”
Absentee Ownership of Land
The theoretical basis of rent is found in the concept of absentee ownership. This is the idea that, though someone lives far distant, and has nothing to do with the activities on the land, they nonetheless have the right to claim the produce of those activities.
Obviously, the idea that someone can be totally absent, yet claim ownership of the land and its produce, is also based on the ancient practice of conquest. No one would voluntarily pay a portion of their hard-earned produce to some far-off stranger who contributed nothing. Rent was originally a forcible extraction from a subjected population by a deadly invasion force.
Unfortunately, this ill-begotten concept of absentee ownership survived into the modern era. In fact, it provides the basis of much of our economic practice today. In the medieval economic world, absentee ownership was largely confined to the question of land ownership. With the development of industrialized mass-production techniques, absentee ownership took on a new, more virulent form.
Absentee Ownership of Production
These absentee owners of factories are the proverbial “capitalist pigs” of the Industrial Era. Like their absentee landlord predecessors, these absentee owners claimed the wealth produced by others. The concept of absentee ownership is codified through the legal fiction of the business corporation, the main function of which is to protect absentee owners from liability.
Under this system, absentee owners are created solely by virtue of their possession of the money to finance some productive economic activity. This exposes the ugly underbelly of the traditional capitalist system: with money, it is absurdly easy to make lots more money. Conversely, without lots of money to start with, it is almost impossible to make lots of money. In short, the possession of money itself is self-perpetuating and self-reinforcing.
Absentee Ownership of Money
This keystone role for the power of money is further strengthened by the changing nature of banking. They concept of absentee ownership plays a key role here as well. Lending on interest, known as usury, is nothing less than the idea of absentee ownership applied to money. Interest is the rent charged by the absentee owner on the possession of the money by the borrower. Like all absentee owner rent-seeking, the act is exploitative, as the person doing the actual economically-productive work is forced to share the profit with someone who has done nothing.
The worst part about modern banking is that today’s bankers don’t even have to acquire the money before they lend it out! It is incredible, but true, and it is called fractional reserve banking. Banks can literally lend out money they don’t even possess.
Imagine you have $100, and your family needs some money. So you loan out $500 to your mom, $300 to your brother, and $200 to your sister, plus you get to keep the original $100 in your own wallet. THAT is fractional reserve lending on a 10% reserve ratio. The 10% means you have to keep cash on hand equal to 10% of your outstanding loans, which means you can lend out 10 times the amount of money you actually possess. The weird part is, you get to charge interest on the money that you loaned out, that you never even possessed in the first place.
Obviously, under the fractional reserve banking system, the power of money has been multiplied exponentially, at least, for those who have it. For those who don’t have it, things are business-as-usual: a life of wage-labor, struggling to stay ahead while suffering numerous exploitations at the hands of various rent-seeking absentee owners, such as land owners, business owners, and bank owners. Even the effort to save for the future is undermined by the moneyed powers, who crush savings through planned inflation of the money supply.
Ending Absentee Ownership
Reformed Capitalism seeks to end all this exploitation, by doing away with the various forms of absentee ownership. The base principle of Reformed Capitalism is that no person is entitled to the profit in work of which they had no part. Under the rules of Reformed Capitalism, a free market in wages for labor is still perfectly legitimate. Thus, there is no silliness about government interference with wages or income levels. Indeed, a man is perfectly entitled to the full fruits of his labors, and in a free market, some labor is worth far more than others, and rightly so.
However, profits are illegitimate that come from the exploitation of the labor of others. In Reformed Capitalism, the basic rule of thumb is that if you have no part in the productive activity, you have no right to part of the proceeds. The motto of Reformed Capitalism is a phrase that strikes terror in the heart of every member of the rentier class: you are only entitled to profit from the work you actually do. In short, sitting back and profiting off the work of others will no longer be allowed.
Protecting True Ownership
A key distinction should be made here on this concept. Unlike in Marxism, in Reformed Capitalism, not all forms ownership or contract labor is considered illegitimate exploitation. An owner who is risking his own capital and actively managing an ongoing concern is fully entitled to the full profits thereof. That is true ownership, and Reformed Capitalism affirms and supports it as a vital element of a free and prosperous economy. The concepts of private ownership and a free market for wages are fully supported.
Thursday, March 29, 2012
For years these countries made vague plans about economic cooperation. Recent events have spurred their efforts, which are nearing completion. This spells bad news for the average resident of the U.S. These were all countries that were happily abiding by the structures of the U.S.-led international economy, with its privileged position for the U.S. dollar.
Though they are called the BRICS countries now, interestingly, they have a history of common interests and alliances dating back to the Cold War Era: Brazil, Russia, India, China, South Africa. There is no J in the name, but I would add Japan to the list, as they have also been part of numerous currency and bilateral trade deals with China and others recently.
Their new economic union portends a sea-change in the economic affairs of the world, though these events are gaining barely a mention in the U.S. press. They are establishing trade relationships using their own currencies and central banks, dispensing with the U.S. dollar and the Anglo-American banking establishment, embodied in such institutions as the IMF and the World Bank.
They are spinning these moves as a form of risk management, which is true to a degree, but the main point of the moves is financial and economic independence from the rapidly sinking U.S. economic order, and freedom from the dictates of U.S. foreign policy.
--The biggest event to get their ball rolling was the ongoing banking bailouts begun in 2008, which have had the effect of exporting a massive amount of inflation to the rest of the world.
--Ballooning debt levels, which no one can reasonably believe will ever be paid off, have done their part to undermine foreign faith in the US dollar.
--Iranian sanctions this year are the acute problem which has led to so much recent frenzied alternative economic-planning activity.The rest of the world doesn't particularly want to go along with U.S. policy on Iran, but they are forced to by their subservience to the Western financial system, such as the SWIFT payment clearing house.
Nor does the rest of the world want to subsidize our continued war-mongering, but they are forced to by their need to reinvest their US-dollar trade surplus into government debt. Basically, everyone knows the US dollar is going down, and earnestly wants to see it do so, but because everyone is holding a massive surplus of dollars, they are all treading lightly, trying not to completely destroy the value of their dollar investments.
For U.S. residents, the process of dollar replacement most directly involves massive inflationary pressures. The international demand for dollars is shrinking, meaning the domestic supply is rising. The cost of everything will continue to rise, not only because of a swelling of the dollar supply, but also because the US will be deprived of its position as "buyer of last resort". In practical terms, that means that foreigners will no longer be dumping their goods cheaply on the U.S. market. The costs of everything will rise for that constriction of supply.
There are some positives to this development, however. For one, the high dollar acts as an impetus to immigration. As the dollar falls, people will no longer want to move here to work or live. Another benefit of the falling dollar is that American produced things will become more competitive, thus allowing the rebuilding of our productive economy and the expansion of our employment base. The transition period will be the killer, though.
Right now, the U.S. economy is totally dependent upon government expenditures. If the federal government had to balance its budget tomorrow, the U.S. economy would collapse the day following. Restoring domestic production, employment, and prosperity will be a painful process. The longer we drag out the adjustment through the distorting effects of government debt spending, and the more we disrupt international trade (especially in oil) with our war mongering, the worse it will be.
Wednesday, March 21, 2012
What is "Sound Money"
The ideal money would be perfect at both roles. Unfortunately, money that is good at one function is bad at the other. Consider the characteristics of dollars versus gold.
Dollars are excellent at enabling trade. The Fed Reserve releases a bunch of them at the drop of a hat to stimulate the economy or to bail out a member bank. Trade and consumption are constantly stimulated by flooding the economy with dollars.
However, this makes the dollar an extremely poor store of value. Inflation is a regular and desired part of the system, a feature not a bug! Under the Fed Reserve system, value has to be stored elsewhere, usually in stocks or bonds. Storing money in dollars means you are quickly losing purchasing power, because of the inherent inflation built into the system.
The function of banks in this system is to create more money, and distribute it to the consumer economy on easy terms. This is known as fractional reserve banking, as banks create new money through loans, backstopped by the Fed Reserve, which will make sure they never run out of money.
Gold is often called "the only sound money" because it is such an excellent store of value. Gold itself never rusts or corrodes, it can't go bankrupt or be overthrown like companies or governments, it strongly resists counterfeit, and it has a relatively strict limit on supply.
However, it is very poor at facilitating trade. Indeed, precisely because it is such a good store of value, people tend to hoard it. Under the gold regime, anytime people save money, monetary deflation is unleashed on the economy, stifling trade.
Under this system, the function of banks was to get money out of savings and back into circulation. Other people's savings became the basis of new loans, as banks could not, themselves, create new money.
Historically, because of its limitations, gold money was never used as a primary means of exchange, that was left to more common metals like copper or silver, or paper certificates, bills of exchange, and cheques.
The Commodity Problem Facing Money
A fundamental problem facing any money supply is also brought about because money itself quickly takes on the traits of a commodity. Money in too great or too lean a supply can wreak havoc upon the productive economy. There is also the problem that economic activity is wasted when it is concerned with the supply of money itself, since manipulating the money supply itself is not a productive activity.
Thus, the ideal type of money would have three traits: excellent at trade facilitation, excellent at value storage, and not treated as a commodity. A created-on-demand, credit-based, electronic monetary supply appears to be able to meet these conditions, and represents the next major advance in monetary development.
In my next essay, I will detail how this money supply can come into existence and be used to build up the economic health of a community.
Monday, March 19, 2012
Turns out, a functioning economy doesn't need money, it just needs an accounting system. The system in Greece uses some special device to attach to cell phones. The JubileeNet doesn't need a special device, you can just enter the transactions directly on your internet-connected phone.
Just like in my JubileeNet, in Greece, the same system also functions as a store-front and help-wanted page. It both advertises its own market and tracks balances of the market participants.
If you have not yet signed up for a JubileeNet listing, you can do so here: http://www.jubileenet.com/register-form.php
See the article on the Greek system here:
Friday, March 9, 2012
Of course this whole thing is prompted by the U.S.'s heavy-handed use of forcing everyone who uses dollars to participate in the U.S. economic boycott on countries like Iran. Rather than have their foreign policy highjacked by U.S. decision-makers, these countries are sensibly setting up their own alternative trade arrangements, which will be immune to U.S. bullying.
Forcing other countries out of the U.S. dollar is like shooting our own feet, i.e., totally self-defeating. We will continue to see powerful inflationary effects as more and more dollars are displaced from international trade. The dollar becomes worth less and less, and everything we import becomes more and more expensive. Our cost of borrowing goes up as well, and eventually we will have to balance our government budget. This is not going to end well.
China is reportedly to begin extending loans in yuan to BRICS countries in another step towards internationalizing the national currency and diversifying from the US dollar.
The Chinese Development Bank wants to sign a memorandum of understanding with the country's partners from BRICS group of developing countries on increasing yuan-denominated loans, while partners increase loans in their national currencies, The Financial Times reports, citing people familiar with the talks.
The move aims to increase trade volumes between the five nations and diversify from using the US dollar.
Brazil and South Africa were quick to react to the proposal, saying they expect the lending pledge to be included into a master agreement to be signed in New Delhi on March 29.
“We will discuss the creation of structures and mechanisms for lending in local currencies in order to maximize economic and financial transactions between the countries that are members of the accord,” Brazil’s development bank BNDES said.
China, with 54 per cent of its foreign reserves in US dollars, has been trying to diversify from the currency it believes will weaken soon and for a protracted period.
China agreed to use national currencies with Russia, Belarus and Japan for bilateral trade. The country also decreased its foreign reserves in dollars recently in favor of the Australian and Canadian currencies.
more details about the participants:
LONDON, March 7 (Reuters) - China is planning to extend renminbi loans to other major emerging BRIC countries, in another step toward the expansion of the yuan's role in foreign exchange, the Financial Times reported on Wednesday.
The China Development Bank (CDB) will sign a memorandum of understanding at a meeting with its BRICs counterparts - Russia, South Africa, Brazil and India - in New Delhi on March 29, the newspaper reported, citing people familiar with the talks.
Under the agreement CDB, which lends mainly in dollars overseas, will make renminbi loans available, while the other BRICs nations' development banks will also extend loans denominated in their respective currencies, the FT said in an article published on its website.
The renminbi is the official currency of China and its primary unit is the yuan. Of the six largest economies in the world, China is the only one whose currency does not have reserve status.
The initiative aims to boost trade between the five BRICs nations and promote use of the renminbi, rather than the U.S. dollar, for international trade and cross-border lending, the FT said.
In the past few years Chinese authorities have begun to gradually internationalise the currency before fully liberalising China's capital account. Much of China's banking system, however, remains regulated, and lending is largely controlled.
BNDES, Brazil's development bank, and South Africa's Finance Ministry were cited by the FT as saying they expected an agreement to be signed at the New Delhi meeting, which would include the lending pledge, with details to be ironed out during a summit.
"We will discuss the creation of structures and mechanisms for lending in local currencies in order to maximise economic and financial transactions between the countries that are members of the accord," BNDES was quoted as saying.
Other signatories would include Russia's Vnesheconombank, the Export-Import Bank of India and the Development Bank of Southern Africa, according to the article.
Tuesday, January 24, 2012
Of course, that is assuming Iran isn't destroyed by US-Anglo-Israeli weapons in the next 6 months....
It is interesting to note that the latest EU sanctions on Iran prohibit EU contries from selling gold or other precious metals to Iran, either. In other words, it specifically closes down the possibility of trading on the gold standard with Iran to avoid the central bank clearing prohibition. (see: http://www.presstv.ir/detail/223260.html)
As reported on the PressTV website:
'India to buy Iran oil in gold not dollars'
India has agreed to pay the price of crude oil it imports from Iran in gold, which makes it the first country to drop the US dollar for purchasing the Iranian oil.
According to a report published by DEBKAfile news website, unnamed sources have stressed that China is also expected to follow suit.
India and China take about one million barrels per day (bpd), or 40 percent of Iran's total exports of 2.5 million bpd and both of them have huge reserves of gold.
The report added that by trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its Central Bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose on Monday, January 23. The EU currently buys around 20 percent of Iran's oil exports.
On the other hand, experts say the vast sums involved in these transactions are expected to boost the price of gold and depress the value of the dollar on world markets.
“An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept [in the] dark,” the report stated.
India is Iran's second largest customer after China, and purchases around USD 12-billion-a-year worth of Iranian crude, or about 12 percent of its consumption. Delhi is to execute its transactions, the report said, through two state-owned banks: the Calcutta-based UCO Bank, whose board of directors is made up of the Indian government, the Reserve Bank of India representatives, and Halk Bankasi (Peoples Bank) -- Turkey's seventh largest bank which is owned by the government.
Monday, January 9, 2012
Just read that list, wow. China, Japan (all of east Asia really), India, Russia, Iran.
All avoiding the dollar.
For now, they are expanding bilateral and trilateral trade swaps, but it is only a matter of time before a common currency unites them. Given their cultures of corruption and non-transparency, such a common tradting currency will almost certainly be based upon a gold standard.
Iran, Russia Replace Dollar with National Currencies in Trade Exchanges
"During the last two years, Iran has been replacing dollar with other currencies in its trade with the outside world. Iran has replaced dollar in its oil trade with India, China and Japan."
Tuesday, January 3, 2012
Read it, within his Manifesto http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/
Bravo to you, Steve!