The modern Jubilee method is for the government to pay off all debts using electronic checks. Inflation due to oversupply of money would be prevented by raising banking reserve requirements. Thus, all debts would be cancelled, without violating any contracts or causing inflation.
This week, China is demonstrating the technique of raising the reserve requirements to stem inflation. Most Americans are not familiar with this technique, because the Fed uses open market operations and interest rate adjustments to attempt to manipuate the money supply. These Fed methods are indirect methods, and used mainly because they involve huge financial transactions which enrich the Federal Reserve member banks who conduct those operations.
The Chinese method is direct, and doesn't enrich anyone. The Chinese government is not controlled by the bankers, but rather, the government controls the bankers, so they use the superior method for controlling inflation, not the superior method for enriching the bankers.
http://news.yahoo.com/s/ap/us_wall_street
Friday, November 19, 2010
Monday, November 15, 2010
Wednesday, October 6, 2010
Off-shoring Jobs is Official Federal Policy
It is really almost beyond belief. But, nonetheless true. Even in the midsts of a horrible economic depression, it is still the official U.S. governmental policy to reward companies for off-shoring jobs.
Not just be neutral about it. But to REWARD them.
"...a bill that would have ended certain tax credits and deferrals to companies expanding or moving overseas was voted down in the Senate last week." (from the LA Times, here, the very last sentence in the article)
This is the danger of handing government over to the money powers. The money powers then use government to advance their own interests, over those of the people.
It also speaks to the dangers of the handing the voice of the media over to the money powers. They will not bring these issues up to the public consciousness, and will, in fact, suppress any discussion of them.
Read the whole Times article. The pace of off-shoring, even in the midst of this depression, continues to increase. It is an economic truism that without a job, you have nothing to trade; i.e., productive jobs are the foundation of economic activity.
Thus, on the immediate horizon: long stagflation, meaning rising inflation along with shrinking wages and fewer jobs. In other words, we continue to get poorer and poorer.
And this is the official governmental policy.
That is all.
Not just be neutral about it. But to REWARD them.
"...a bill that would have ended certain tax credits and deferrals to companies expanding or moving overseas was voted down in the Senate last week." (from the LA Times, here, the very last sentence in the article)
This is the danger of handing government over to the money powers. The money powers then use government to advance their own interests, over those of the people.
It also speaks to the dangers of the handing the voice of the media over to the money powers. They will not bring these issues up to the public consciousness, and will, in fact, suppress any discussion of them.
Read the whole Times article. The pace of off-shoring, even in the midst of this depression, continues to increase. It is an economic truism that without a job, you have nothing to trade; i.e., productive jobs are the foundation of economic activity.
Thus, on the immediate horizon: long stagflation, meaning rising inflation along with shrinking wages and fewer jobs. In other words, we continue to get poorer and poorer.
And this is the official governmental policy.
That is all.
Monday, August 30, 2010
David Knox Barker Recommends Jubilee Cycle
Boxer has a nice consideration of the macro-economic effects of Jubilee (here). He correctly points out that a regular Jubilee cycle would eliminate the long wave Depression cycle, by preventing a toxic build up of debt. As he puts it:
"The Jubilee law was actually crafted astutely to prevent the buildup of excessive debt levels in the economy, and not primarily to justify its cancellation. Debts were only forgiven if banks violated the Jubilee law that prevented the buildup of excessive debt. The Jubilee was not a bank bailout or stick taxpayers with others bad debts. Consider the passage from Leviticus 25: 8-19. This ancient text provides remarkable insight into the current global financial crisis, which is at its heart a global debt crisis."
Barker rightly condemns any attempt to transfer the debts of some, such as mortgage owners, onto the public purse, as some form of dishonest debt forgiveness program.
A Jubilee Year, correctly done today by the federal government, would not violate any contracts, because it would pay all debts in full. The federal government would simply write checks on behalf of private citizens to pay off their debts.
The creditors would be paid, the contracts would be honored, and the end result would be the cancellation of all debt, the resetting of the financial system, and the freeing of the productive economy. As Barker describes the renewal process: "The only way to address a debt problem is to reduce the amount of outstanding debt and create conditions for a booming economy and new long wave spring season..."
"The Jubilee law was actually crafted astutely to prevent the buildup of excessive debt levels in the economy, and not primarily to justify its cancellation. Debts were only forgiven if banks violated the Jubilee law that prevented the buildup of excessive debt. The Jubilee was not a bank bailout or stick taxpayers with others bad debts. Consider the passage from Leviticus 25: 8-19. This ancient text provides remarkable insight into the current global financial crisis, which is at its heart a global debt crisis."
Barker rightly condemns any attempt to transfer the debts of some, such as mortgage owners, onto the public purse, as some form of dishonest debt forgiveness program.
A Jubilee Year, correctly done today by the federal government, would not violate any contracts, because it would pay all debts in full. The federal government would simply write checks on behalf of private citizens to pay off their debts.
The creditors would be paid, the contracts would be honored, and the end result would be the cancellation of all debt, the resetting of the financial system, and the freeing of the productive economy. As Barker describes the renewal process: "The only way to address a debt problem is to reduce the amount of outstanding debt and create conditions for a booming economy and new long wave spring season..."
Friday, August 27, 2010
How Hyperinflation Happens
Excellent article written by Gonzalo Lira, here, about how hyperinflation happens. His key point: hyperinflation is not to be confused with inflation, although most people think hyperinflation is just a case of normal inflation on steroids.
--Normal inflation happens because of growing demand, and growing credit, driving prices up.
--Hyperinflation happens because the currency is collapsing.
People commonly confuse the cause with the effect in economic events.
Like a) the common idea of blaming the Great Depression on protectionism. In fact, protectionism was a response to the Great Depression.
Or like b) blaming the German printing press for causing their hyperinflation of the early 1920s. In fact, the German money was collapsing in value, which led the government to print more money to help people cope with having less wealth. The political impetus to follow this line of action is almost irresistable, and we shouldn't be surprised to see our own government do the same thing.
In short, hyperinflation happens because money-holders start selling dollars to buy other commodities. The result is that the dollar collapses in value, while the cost of all goods shoots up quickly.
Although he doesn't talk about it in his article, I would point out that America is especially vulnerable to this type of inflation because we don't make any of our own goods anymore. Because all of our consumer goods are made in foreign countries, a sell-off on the dollar means that not just commodities, but also all consumer goods, will shoot up in price.
Note that this event would not necessarily be drawn out with dramatic scenes of barrels of paper money being exchanged for bread. That would only happen if the federal government attempts to alleviate our suffering by printing and distributing paper cash. If the government starts doing that, then the hyperinflation can be dragged on, and money can gradually shoot towards infinity.
Most likely, our government will not resort to printing out piles of cash. In that case, our hyperinflation would be short and sharp. Everything would rise 300-1000% in price, and we would also be tremendously poorer, but then things would stabilize. The new normal would us simply being much poorer with a greatly devalued dollar. The world would have to find a different country to be buyer of last resort, and the dollar would lose its status as reserve currency.
--Normal inflation happens because of growing demand, and growing credit, driving prices up.
--Hyperinflation happens because the currency is collapsing.
People commonly confuse the cause with the effect in economic events.
Like a) the common idea of blaming the Great Depression on protectionism. In fact, protectionism was a response to the Great Depression.
Or like b) blaming the German printing press for causing their hyperinflation of the early 1920s. In fact, the German money was collapsing in value, which led the government to print more money to help people cope with having less wealth. The political impetus to follow this line of action is almost irresistable, and we shouldn't be surprised to see our own government do the same thing.
In short, hyperinflation happens because money-holders start selling dollars to buy other commodities. The result is that the dollar collapses in value, while the cost of all goods shoots up quickly.
Although he doesn't talk about it in his article, I would point out that America is especially vulnerable to this type of inflation because we don't make any of our own goods anymore. Because all of our consumer goods are made in foreign countries, a sell-off on the dollar means that not just commodities, but also all consumer goods, will shoot up in price.
Note that this event would not necessarily be drawn out with dramatic scenes of barrels of paper money being exchanged for bread. That would only happen if the federal government attempts to alleviate our suffering by printing and distributing paper cash. If the government starts doing that, then the hyperinflation can be dragged on, and money can gradually shoot towards infinity.
Most likely, our government will not resort to printing out piles of cash. In that case, our hyperinflation would be short and sharp. Everything would rise 300-1000% in price, and we would also be tremendously poorer, but then things would stabilize. The new normal would us simply being much poorer with a greatly devalued dollar. The world would have to find a different country to be buyer of last resort, and the dollar would lose its status as reserve currency.
Tuesday, August 10, 2010
Does the Fed Create Money? A Clarification
Excellent comment by Ralph Sampson, over on Ellen Brown's blog, explaining exactly what is meant by the Fed creating money.
"From my perspective Ellen explains the monetary system well but she periodically injects points of confusion. Here is an example: she says the Fed prints federal resereve notes and lends them to the banks at interest and the banks in turn lend them to us. This is sort of true but not really.
The Fed creates some paper currencey (Federal Resereve Notes) but that is a small part of the money created by the banking system. (Even that is not true. The Fed orders the notes from the mint, more specifically the Burea of Printing and Ingraving, who creates them and charges the Fed for the service.)
The main concept is that the Fed authorizes, and sometimes creates, reserves that the member banks then use as an insurance pool to back the bookentry loans (making money out of thin air) they in turn make to legal entities which are made up of individuals and non flesh-and blood-legal entities.
To just casually say the Fed prints federal reserve notes which it lends is the principal paradigm of the monetary system is, again, just not true and confuses the readers trying to understand that system.
Most of the circulating money is credit, not currency and coin, where credit is the term for purchasing power in the form of entries in a financial journal that, these days, takes the form of computer bits in a digital memory somewhere."
"From my perspective Ellen explains the monetary system well but she periodically injects points of confusion. Here is an example: she says the Fed prints federal resereve notes and lends them to the banks at interest and the banks in turn lend them to us. This is sort of true but not really.
The Fed creates some paper currencey (Federal Resereve Notes) but that is a small part of the money created by the banking system. (Even that is not true. The Fed orders the notes from the mint, more specifically the Burea of Printing and Ingraving, who creates them and charges the Fed for the service.)
The main concept is that the Fed authorizes, and sometimes creates, reserves that the member banks then use as an insurance pool to back the bookentry loans (making money out of thin air) they in turn make to legal entities which are made up of individuals and non flesh-and blood-legal entities.
To just casually say the Fed prints federal reserve notes which it lends is the principal paradigm of the monetary system is, again, just not true and confuses the readers trying to understand that system.
Most of the circulating money is credit, not currency and coin, where credit is the term for purchasing power in the form of entries in a financial journal that, these days, takes the form of computer bits in a digital memory somewhere."
Thursday, July 8, 2010
Steve Keen Calls for Debt Cancellation, or Does He???
Steve recognizes the solution to our debt-deflation-depression is to cancel debt. However, he seems to dispair that the politicians lack the will to do it.
Darn it, Steve, grow a backbone! Instead of fatalistically resigning yourself to defeat, ADVOCATE FOR CHANGE. Use your prestige and popularity to initiate the process of systematic debt cancellation.
This apathy is soul-death, it disgusts me. If even the man who has identified and quantified the problem, who has built up a world-wide following pointing out that DEBT IS THE PROBLEM, simply lowers his head and licks his own balls rather than speaking out for the positive solution, good lord, what hope is there.
It is clearly not a failure of intelligence on Keen's part. It is nothing short than a failure of COURAGE. The choice is plain: Be a ball-licking dog dragging your head in the dirt, whipped and whining... or stand up to our banking overlords and DEMAND FREEDOM from their debt enslavement trap. Which is it, Steve???
From the latest article over at Steve's blog, http://www.debtdeflation.com/blogs/2010/07/07/naked-capitalism-and-my-scary-minsky-model/:
The motive force driving the crash is the ratio of debt to GDP–a key feature of the real world that the mainstream economists who dominate the world’s academic university departments, Central Banks and Treasuries ignore. In the model, as in the real world, this ratio rises in a boom as businesses take on debt to finance investment and speculation, and then falls in a slump when things don’t work out in line with the euphoric expectations that developed during the boom. Cash flows during the slump don’t allow borrowers to reduce the debt to GDP ratio to the pre-boom level, but the period of relative stability after the crisis leads to expectations–and debt–taking off once more.
Ultimately, such an extreme level of debt is accumulated that debt servicing exceeds available cash flows, and a permanent slump ensues–a Depression.
Its final stage emphasises a message that Michael Hudson, one of the very few others to see this crisis coming, puts very simply: “Debts that can’t be repaid, won’t be repaid”. As Americans now seem to be realising, the financial crisis has not gone away, because the debt that caused it is still there.
Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt–either directly by abolishing large slabs of it, or indirectly by inflating it away. I have very little confidence in the ability of the Federal Reserve to do the latter, while the former will take a level of political fortitude that is far beyond our current politicians.
Darn it, Steve, grow a backbone! Instead of fatalistically resigning yourself to defeat, ADVOCATE FOR CHANGE. Use your prestige and popularity to initiate the process of systematic debt cancellation.
This apathy is soul-death, it disgusts me. If even the man who has identified and quantified the problem, who has built up a world-wide following pointing out that DEBT IS THE PROBLEM, simply lowers his head and licks his own balls rather than speaking out for the positive solution, good lord, what hope is there.
It is clearly not a failure of intelligence on Keen's part. It is nothing short than a failure of COURAGE. The choice is plain: Be a ball-licking dog dragging your head in the dirt, whipped and whining... or stand up to our banking overlords and DEMAND FREEDOM from their debt enslavement trap. Which is it, Steve???
From the latest article over at Steve's blog, http://www.debtdeflation.com/blogs/2010/07/07/naked-capitalism-and-my-scary-minsky-model/:
The motive force driving the crash is the ratio of debt to GDP–a key feature of the real world that the mainstream economists who dominate the world’s academic university departments, Central Banks and Treasuries ignore. In the model, as in the real world, this ratio rises in a boom as businesses take on debt to finance investment and speculation, and then falls in a slump when things don’t work out in line with the euphoric expectations that developed during the boom. Cash flows during the slump don’t allow borrowers to reduce the debt to GDP ratio to the pre-boom level, but the period of relative stability after the crisis leads to expectations–and debt–taking off once more.
Ultimately, such an extreme level of debt is accumulated that debt servicing exceeds available cash flows, and a permanent slump ensues–a Depression.
Its final stage emphasises a message that Michael Hudson, one of the very few others to see this crisis coming, puts very simply: “Debts that can’t be repaid, won’t be repaid”. As Americans now seem to be realising, the financial crisis has not gone away, because the debt that caused it is still there.
Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt–either directly by abolishing large slabs of it, or indirectly by inflating it away. I have very little confidence in the ability of the Federal Reserve to do the latter, while the former will take a level of political fortitude that is far beyond our current politicians.
Tuesday, June 1, 2010
Preserving our Way of Life with a New Economic Policy
Jim brings up a great question over at his Great Depression blog. In the international race to the bottom in wages, can we do anything, or are we doomed to economic collapse as cheap-labor countries wipe us out? Here my thoughts on a rational economic policy in our globalized world.
Part of our high pay rate is definitely our social net. From environmental protections to health care costs to retirement benefits, our entire government-based social services safety net, in fact our entire quality of life, is build on the bedrock of our wages.
Because our entire quality of life, and the government itself is build on it, clearly, gov't policy should be to preserve our high wage jobs. But how to do so in a world of global capital flows and international communication as the basis of the information economy? We are no longer in the 1930's, so tarriff walls against imported products, while an important step, will not be sufficient
We need a new concept: call it a "foreign labor tarriff". Meaning, a company's percentage of foreign workers would determine its tax treatment. It is no longer enough to worry about imported goods. We also have to combat outsourincing in "knowledge work" service field, such as medicine, information technology, accounting, and education.
Companies whose path to larger profit lines is along the road of wage arbitrage need to be stimied. Wage arbitrage by global companies has one end result: greater concentration of profits for the parasitic global investment class, at the expense of the deteriorating American quality of life and impoverished American working class.
It is a basic economic law: you have to be a producer before you can enter the market as a consumer. If you aren't producing something, you have no basis of wealth to enter into an economic transaction. In short, JOBS HAVE TO COME FIRST.
This is common sense. Who exactly is distributing the crazy pills? Until our gov't forumates an economic policy that is based on preserving our quality of life, we will continue to get poorer and poorer.
Part of our high pay rate is definitely our social net. From environmental protections to health care costs to retirement benefits, our entire government-based social services safety net, in fact our entire quality of life, is build on the bedrock of our wages.
Because our entire quality of life, and the government itself is build on it, clearly, gov't policy should be to preserve our high wage jobs. But how to do so in a world of global capital flows and international communication as the basis of the information economy? We are no longer in the 1930's, so tarriff walls against imported products, while an important step, will not be sufficient
We need a new concept: call it a "foreign labor tarriff". Meaning, a company's percentage of foreign workers would determine its tax treatment. It is no longer enough to worry about imported goods. We also have to combat outsourincing in "knowledge work" service field, such as medicine, information technology, accounting, and education.
Companies whose path to larger profit lines is along the road of wage arbitrage need to be stimied. Wage arbitrage by global companies has one end result: greater concentration of profits for the parasitic global investment class, at the expense of the deteriorating American quality of life and impoverished American working class.
It is a basic economic law: you have to be a producer before you can enter the market as a consumer. If you aren't producing something, you have no basis of wealth to enter into an economic transaction. In short, JOBS HAVE TO COME FIRST.
This is common sense. Who exactly is distributing the crazy pills? Until our gov't forumates an economic policy that is based on preserving our quality of life, we will continue to get poorer and poorer.
Friday, May 28, 2010
Damon Vrabel on Nationalizing the Federal Reserve
Some excellent analysis from Mr. Vrabel, who perfectly understands what is going on, and what needs to be done. It was refreshing to read his erudite perspective on the need for Constitutional control of the Banking Branch just a day after I published my own views on the subject. From his latest article (here http://canadafreepress.com/index.php/article/23683):
"The fact is we are in the mist of a global chess game being played above the heads of national governments in which debt and leverage are used to restructure the world under a new global money and banking system. I suggest Bernanke’s sole purpose is to hide the real role the Federal Reserve has played in this game while also helping to keep Congress from asserting its power.
The media likes to claim that voicing opposition to the Fed is lower class populism. But of course the media doesn’t think. It just promotes left or right groupthink for the few corporate powers that own the media. They don’t want you thinking about the question of a central bank. If they did, we might better understand the pros and cons.
The first con of the Fed’s form of central banking—it puts currency control in private hands. Rather than the Fed having power over the banks, its structure actually gives the primary dealer banks (mega firms like JP Morgan Chase, Goldman Sachs, and many foreign banks) significant power to tell it what to do. Entrenched powers behind these firms working together in cartel groups like the New York Fed and CFR have far more leverage than the president, i.e. an individual with no financial experience who rotates into office for a short period of time completely surrounded by bankers and their allies. The entire purpose of the Constitution and having a republic, despite its flaws, was to put power in the hands of the public vs. a concentrated private oligarchy. But the Fed system creates such an oligarchy, as many Americans now see since the crash of 2008.
Oligarchic monetary systems tend toward a 2-tiered society, money pushing rulers vs. money using servants who scramble to pay the rulers back plus interest. The ruling financial class eventually takes over the productive economy and then parasitically destroys the host upon which it lives as gambling and speculation replace savings and production as the engine of growth. Such is the power of a monetary system based on nothing but debt.
A debt-based monetary system enshrines usury, i.e. living off the backs of others by doing nothing but subjugating a population to systemic interest-bearing debt. So the foundation of our monetary system under the Federal Reserve is built upon immorality.
An oligarchic monetary system forces the great mass of the population into servitude. It effectively creates a predator/prey structure in society. In a system based purely on debt, the banking powers are able to super-inflate the system to drive up asset prices, and then deflate the system sucking value and assets up the pyramid to consolidate power. We saw this over the last 10 years. This is the biggest and brightest example of why Jefferson said “banking institutions are more dangerous than standing armies.” It’s also the best example of why the Constitution demands that government regulate the currency.
So how can we get the one pro of a central monetary authority regulating the value of the currency without any of the cons above? Do precisely what Ben says we shouldn’t do—reestablish the republic by putting currency regulation in the hands of public officials as the Constitutions says. If a country doesn’t have a sovereign currency, it doesn’t have a sovereign government. We are learning that painful lesson now as we see Greece being attacked and taken over by financial institutions. The same thing has happened to many countries in the past and it will happen in the future if governments don’t take charge. At that point everyone will know the truth—governments are held hostage by private financial interests. But more and more Americans are realizing the truth now and pushing for change.
However, the change is not as simple as ending the Fed. Without a transition plan, that would cause a disaster since it is the basis for the money supply. The key is to nationalize the Fed, and possibly its primary dealers during the transition phase, to keep them from holding us hostage with the threat of collapse. Then with honest public officials in Treasury and other agencies that don’t represent Goldman Sachs and the rest of the financial cartel—people like William Black, Brooksley Born, Janet Tavakoli, Michael Hudson, Eliot Spitzer, Harry Markopolos—it will be possible to restructure the monetary system. Other components of the solution involve the US Treasury printing sovereign US notes, state banking systems like North Dakota to restore state power, etc. (see details at Freedom’s Vision)
"The fact is we are in the mist of a global chess game being played above the heads of national governments in which debt and leverage are used to restructure the world under a new global money and banking system. I suggest Bernanke’s sole purpose is to hide the real role the Federal Reserve has played in this game while also helping to keep Congress from asserting its power.
The media likes to claim that voicing opposition to the Fed is lower class populism. But of course the media doesn’t think. It just promotes left or right groupthink for the few corporate powers that own the media. They don’t want you thinking about the question of a central bank. If they did, we might better understand the pros and cons.
The first con of the Fed’s form of central banking—it puts currency control in private hands. Rather than the Fed having power over the banks, its structure actually gives the primary dealer banks (mega firms like JP Morgan Chase, Goldman Sachs, and many foreign banks) significant power to tell it what to do. Entrenched powers behind these firms working together in cartel groups like the New York Fed and CFR have far more leverage than the president, i.e. an individual with no financial experience who rotates into office for a short period of time completely surrounded by bankers and their allies. The entire purpose of the Constitution and having a republic, despite its flaws, was to put power in the hands of the public vs. a concentrated private oligarchy. But the Fed system creates such an oligarchy, as many Americans now see since the crash of 2008.
Oligarchic monetary systems tend toward a 2-tiered society, money pushing rulers vs. money using servants who scramble to pay the rulers back plus interest. The ruling financial class eventually takes over the productive economy and then parasitically destroys the host upon which it lives as gambling and speculation replace savings and production as the engine of growth. Such is the power of a monetary system based on nothing but debt.
A debt-based monetary system enshrines usury, i.e. living off the backs of others by doing nothing but subjugating a population to systemic interest-bearing debt. So the foundation of our monetary system under the Federal Reserve is built upon immorality.
An oligarchic monetary system forces the great mass of the population into servitude. It effectively creates a predator/prey structure in society. In a system based purely on debt, the banking powers are able to super-inflate the system to drive up asset prices, and then deflate the system sucking value and assets up the pyramid to consolidate power. We saw this over the last 10 years. This is the biggest and brightest example of why Jefferson said “banking institutions are more dangerous than standing armies.” It’s also the best example of why the Constitution demands that government regulate the currency.
So how can we get the one pro of a central monetary authority regulating the value of the currency without any of the cons above? Do precisely what Ben says we shouldn’t do—reestablish the republic by putting currency regulation in the hands of public officials as the Constitutions says. If a country doesn’t have a sovereign currency, it doesn’t have a sovereign government. We are learning that painful lesson now as we see Greece being attacked and taken over by financial institutions. The same thing has happened to many countries in the past and it will happen in the future if governments don’t take charge. At that point everyone will know the truth—governments are held hostage by private financial interests. But more and more Americans are realizing the truth now and pushing for change.
However, the change is not as simple as ending the Fed. Without a transition plan, that would cause a disaster since it is the basis for the money supply. The key is to nationalize the Fed, and possibly its primary dealers during the transition phase, to keep them from holding us hostage with the threat of collapse. Then with honest public officials in Treasury and other agencies that don’t represent Goldman Sachs and the rest of the financial cartel—people like William Black, Brooksley Born, Janet Tavakoli, Michael Hudson, Eliot Spitzer, Harry Markopolos—it will be possible to restructure the monetary system. Other components of the solution involve the US Treasury printing sovereign US notes, state banking systems like North Dakota to restore state power, etc. (see details at Freedom’s Vision)
Wednesday, May 26, 2010
Central Banks as a Branch of Government
As we learn from an early age, our Founding Fathers designed a system of checks and balances designed to safeguard liberty. From our contemporary vantage point, we can pinpoint a number of weaknesses and outright failures of their system.
One major failure was their failure to anticipate the rise of the supremacy of the judicial branch. The Founders were heir to a centuries-long political and military struggle that firmly established the Supremacy of the Commons, meaning the ultimate authority of the representative body of the common people. Today, the unelected, unaccountable, and permanently seated judges routinely throw out laws, as well as directly supervising legislatures and executives with various judicial orders. Were a new Constitution written today, the friends of liberty would need to reign in judicial power to prevent our current situation of Judicial Supremacy.
A good analogy for the power of the contemporary Judicial Branch is the medieval power of the House of Lords. The Lords were unelected and immune from popular censure, yet all laws had to be approved by them before they could be implemented. The commoners were simply petitioners to the Lords, they could do nothing without their approval. Such is our status vis a vis the judges today.
The other major failure of the Founders was their failure to anticipate the rise of the power of the banking class. Although the Founders failed to adequately limit the power of the judiciary, at least it was conceived as a branch of government that needed to be balanced. As we can see today, the Banking Branch is a real wing of power, exemplified in the Federal Reserve Banking system.
Unfortunately, their failure to limit its power has allowed the Banking Branch to grow into a "shadow government" that essentially controls the outlines of the entire political process, but without any checks or balances on its power. Central Banking policies are set and implimented with almost complete autonomy from oversight, even indirect oversight. They operate in almost total secrecy, with total immunity to any policy input or control.
Perhaps a good analogy for the power of the contemporary Banking Branch is the medieval power of the Church. The Church stood as a nominally separate power, yet was a repository of tremendous wealth and power. The siphoned a regular percentage of the people's money to themselves, enabling them to live in luxury as parasites on the working class. They had their own parallel power structure and hierarchy, which was internationalist in perspective, though they often interfered in the affairs of state. They invariably sided with the nobility and kings to preserve the status quo against commoner attempts at reform and empowerment.
Just as medieval commoners were forced to contribute their tithe to the church through forced taxation, we are forced to contribute our wealth to the Branking Branch through interest payments on perpetually floating debts. Popular government is an expression of the people's will, how could it possibly require "extra" financing? The concept is abhorrent, as well as abberant to a free-thinking mind that hasn't been brainwashed by the Banking Powers.
Creation of money and credit is a sovereign power, as has been recognized since the founding of the first central banks. As that renown scholar of banking history George Selgin demonstrates (http://www.independent.org/pdf/tir/tir_14_04_01_selgin.pdf), central banks have one purpose: the nationalization of credit and money creation for the advantage of the central government. Long gone, destoyed by the inauguration of central banks, is that superstitious era when men believed national wealth was measured by its stock of precious metal.
When used for the public welfare, such monetary power is a great blessing. When used to enrich the private interests of the Banching Class, such power is a curse, nothing short of a yoke of perpetual servitude chained around the common neck. The power to create and extinguish money is perhaps the greatest of all governmental powers, providing government almost unlimited power and influence.
If we were to design a Constitution again today, we would certainly need to specify and limit in greater detail the powers of the Banking Branch. Reformers now and in the future will find this a more daunting task, as their powers have been allowed to grow some pervasive and entrenched.
One major failure was their failure to anticipate the rise of the supremacy of the judicial branch. The Founders were heir to a centuries-long political and military struggle that firmly established the Supremacy of the Commons, meaning the ultimate authority of the representative body of the common people. Today, the unelected, unaccountable, and permanently seated judges routinely throw out laws, as well as directly supervising legislatures and executives with various judicial orders. Were a new Constitution written today, the friends of liberty would need to reign in judicial power to prevent our current situation of Judicial Supremacy.
A good analogy for the power of the contemporary Judicial Branch is the medieval power of the House of Lords. The Lords were unelected and immune from popular censure, yet all laws had to be approved by them before they could be implemented. The commoners were simply petitioners to the Lords, they could do nothing without their approval. Such is our status vis a vis the judges today.
The other major failure of the Founders was their failure to anticipate the rise of the power of the banking class. Although the Founders failed to adequately limit the power of the judiciary, at least it was conceived as a branch of government that needed to be balanced. As we can see today, the Banking Branch is a real wing of power, exemplified in the Federal Reserve Banking system.
Unfortunately, their failure to limit its power has allowed the Banking Branch to grow into a "shadow government" that essentially controls the outlines of the entire political process, but without any checks or balances on its power. Central Banking policies are set and implimented with almost complete autonomy from oversight, even indirect oversight. They operate in almost total secrecy, with total immunity to any policy input or control.
Perhaps a good analogy for the power of the contemporary Banking Branch is the medieval power of the Church. The Church stood as a nominally separate power, yet was a repository of tremendous wealth and power. The siphoned a regular percentage of the people's money to themselves, enabling them to live in luxury as parasites on the working class. They had their own parallel power structure and hierarchy, which was internationalist in perspective, though they often interfered in the affairs of state. They invariably sided with the nobility and kings to preserve the status quo against commoner attempts at reform and empowerment.
Just as medieval commoners were forced to contribute their tithe to the church through forced taxation, we are forced to contribute our wealth to the Branking Branch through interest payments on perpetually floating debts. Popular government is an expression of the people's will, how could it possibly require "extra" financing? The concept is abhorrent, as well as abberant to a free-thinking mind that hasn't been brainwashed by the Banking Powers.
Creation of money and credit is a sovereign power, as has been recognized since the founding of the first central banks. As that renown scholar of banking history George Selgin demonstrates (http://www.independent.org/pdf/tir/tir_14_04_01_selgin.pdf), central banks have one purpose: the nationalization of credit and money creation for the advantage of the central government. Long gone, destoyed by the inauguration of central banks, is that superstitious era when men believed national wealth was measured by its stock of precious metal.
When used for the public welfare, such monetary power is a great blessing. When used to enrich the private interests of the Banching Class, such power is a curse, nothing short of a yoke of perpetual servitude chained around the common neck. The power to create and extinguish money is perhaps the greatest of all governmental powers, providing government almost unlimited power and influence.
If we were to design a Constitution again today, we would certainly need to specify and limit in greater detail the powers of the Banking Branch. Reformers now and in the future will find this a more daunting task, as their powers have been allowed to grow some pervasive and entrenched.
Tuesday, May 25, 2010
Would Government Banks Be a Good Thing?
Ellen Brown makes a persuasive case for state government banks, in an article published over at Seeking Alpha.
http://seekingalpha.com/article/206606-the-mysterious-cafrs-how-stagnant-pools-of-government-money-could-help-save-the-economy
Her essential point: the state has billions of dollars in savings, which are deposited in private banks. Why not charter a state government bank and deposit state funds there instead?
In our current system, public money is deposited with private banks, and private bank owners pocket the profits. If that same money is deposited with a government bank, the profit would be used to balance the budget or lower taxes.
The main question she is answering is "Who shall benefit?" Right now, private banks get all the profit. We have no say in their policy, nor do we receive any advantage from it.
Why should the parasitic banking class receive all the benefit from the fractional reserve money power?
If a governmental body ran a bank, the people would have some influence on policy and receive some advantage from the interest income. The state, meaning the people, would gain the power and advantages of fractional reserve credit.
Private bankers do it, and profits go in their parasitic pockets. If states do it, profits go to reduce government spending and budgets. What is wrong with that?
The hyperinflation argument is a distraction, a red herring, not a real objection. The macro economic effect of a state bank would be no different than a private bank. The money is already being leveraged somewhere, the only question is "Who benefits?"
http://seekingalpha.com/article/206606-the-mysterious-cafrs-how-stagnant-pools-of-government-money-could-help-save-the-economy
Her essential point: the state has billions of dollars in savings, which are deposited in private banks. Why not charter a state government bank and deposit state funds there instead?
In our current system, public money is deposited with private banks, and private bank owners pocket the profits. If that same money is deposited with a government bank, the profit would be used to balance the budget or lower taxes.
The main question she is answering is "Who shall benefit?" Right now, private banks get all the profit. We have no say in their policy, nor do we receive any advantage from it.
Why should the parasitic banking class receive all the benefit from the fractional reserve money power?
If a governmental body ran a bank, the people would have some influence on policy and receive some advantage from the interest income. The state, meaning the people, would gain the power and advantages of fractional reserve credit.
Private bankers do it, and profits go in their parasitic pockets. If states do it, profits go to reduce government spending and budgets. What is wrong with that?
The hyperinflation argument is a distraction, a red herring, not a real objection. The macro economic effect of a state bank would be no different than a private bank. The money is already being leveraged somewhere, the only question is "Who benefits?"
Monday, May 24, 2010
Food Prices Spiking
Hmm, the beginnings of the inflation tsunami everyone has been expecting? Delivered in the usual high style of the inesteemable Mogambo Guru:
http://dailyreckoning.com/food-price-inflation-to-spur-zombie-takeover/
“US food prices jumped by 2.4 percent in March 2010 in the largest monthly leap in more than 26 years, and the sixth consecutive monthly increase.” Yikes! A 2.4% monthly leap! That’s a 28% annualized increase in the price of food! In One Freaking Year (OFY)! Yikes!
So I say to her, as I am sweeping by her on my way to the MBOPS and trying to keep a tone of incredulousness out of my voice, “Do you realize that the National Inflation Association says that fresh and dry vegetables are up 56.1% in price in the last year? How about that fresh fruits and melons are up 28.8% in price in that selfsame last year? How about eggs ‘for fresh use’ being up 33.6%, or beef and veal up 10.7%, or dairy products being up 9.7%? Does any of this inflationary horror mean anything to you?”
http://dailyreckoning.com/food-price-inflation-to-spur-zombie-takeover/
“US food prices jumped by 2.4 percent in March 2010 in the largest monthly leap in more than 26 years, and the sixth consecutive monthly increase.” Yikes! A 2.4% monthly leap! That’s a 28% annualized increase in the price of food! In One Freaking Year (OFY)! Yikes!
So I say to her, as I am sweeping by her on my way to the MBOPS and trying to keep a tone of incredulousness out of my voice, “Do you realize that the National Inflation Association says that fresh and dry vegetables are up 56.1% in price in the last year? How about that fresh fruits and melons are up 28.8% in price in that selfsame last year? How about eggs ‘for fresh use’ being up 33.6%, or beef and veal up 10.7%, or dairy products being up 9.7%? Does any of this inflationary horror mean anything to you?”
Necessary Regulations, Now and Forever
Here is a great summary of financial regular we need, What we are getting, of course, is just about the opposite. Great article overall, read it all by following the link.
If Congress really wanted reform, they would
--reinstate Glass-Steagall,
--regulate the OTC derivatives market,
--thoroughly audit and terminate the Fed while transferring its powers to the Treasury Department,
--terminate and disband the PPT,
--implement the "Volcker rule" against proprietary trading by banks,
--require that the FASB (Financial Accounting Standards Board) enforce mark to market rules for financial reporting,
--stop all black box front-running trading activities,
--fire and investigate for fraud and obstruction of justice virtually all of the regulatory heads who fiddled and watched porn while Rome burned,
--expand the funding and manpower available to all regulatory authorities,
--encourage the state regulatory agencies to intervene wherever and whenever they desire,
--insist on thorough policing of the system with full accountability for regulatory failure,
--thoroughly investigate and punish all past financial crimes, with plenty of jail time and humongous fines to be doled out to provide a deterrent against future criminality.
--And most of all, require full accountability for losses without so much as another dime going to bail out financial criminal fraudsters.
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/The_Morality_Of_The_Financial_Monetary_System_Is_Really_What_is_Broken
If Congress really wanted reform, they would
--reinstate Glass-Steagall,
--regulate the OTC derivatives market,
--thoroughly audit and terminate the Fed while transferring its powers to the Treasury Department,
--terminate and disband the PPT,
--implement the "Volcker rule" against proprietary trading by banks,
--require that the FASB (Financial Accounting Standards Board) enforce mark to market rules for financial reporting,
--stop all black box front-running trading activities,
--fire and investigate for fraud and obstruction of justice virtually all of the regulatory heads who fiddled and watched porn while Rome burned,
--expand the funding and manpower available to all regulatory authorities,
--encourage the state regulatory agencies to intervene wherever and whenever they desire,
--insist on thorough policing of the system with full accountability for regulatory failure,
--thoroughly investigate and punish all past financial crimes, with plenty of jail time and humongous fines to be doled out to provide a deterrent against future criminality.
--And most of all, require full accountability for losses without so much as another dime going to bail out financial criminal fraudsters.
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/The_Morality_Of_The_Financial_Monetary_System_Is_Really_What_is_Broken
Thursday, May 20, 2010
The New Command Economy: a Challenge to Libertarian Economists
Great progress in economics and monetary theory has been made in the last half century. However, precious few economic theorists today have accurately grasped the implications of our new monetary system.
Unfortunately, most of the few theorists who are popularizing the new monetarism are leftists, and are no friends of liberty or decentralization. Most of the right-wing monetary theorists who are concerned with liberty are stuck in the past, dreaming of a return to the gold standard. If the friends of liberty want to be effect positive changes for freedom in the 21st century, they need to update their theories.
Is it possible for paleo-libertarians to move beyond their hallowed canon? Probably not. Perhaps this is just The Way Thing Are, that progressives continually out-innovate conservatives. Encountering libertarian economists today is like being transported back to the year 1600AD, listening to traditional horse-mounted, heavily-armored, lance-carrying noblemen denounce the use of mass armies, polearms, and muskets. Sure, the noblemen had Honor, Right, and Good on their side, but the more they clung to those traditional standards of warfare, the more antiquated and irrelevant they made themselves, and the more they guaranteed their own defeat.
Such is the condition of libertarian economic theory today. Unless their update their arsenal to cope with today's economic weapons and tactics, they are simply irrelevant. Facts: Money is paper, money is credit, the money power looms as larger than ever, unleashing monetary weapons of mass destruction upon the body politic.
In the 20th century, the Soviet command economy simply told everyone what to do, and required their acquiescense. Today, the American command economy relies on the money power to get everyone to do what they want. The American command economy is, however, far more insidious than the Soviet version, because it is cloaked in the illustion of freedom and capitalism.
In fact, the power to print money gives the American economic elites almost unlimited power over the American and world economy. They don't have to force people to do their bidding, like the Soviets; they can just pay them to do it. There is no limit to their power to do so.
Worse off, there is no Second World to show such fraud for what it is. The Soviet system collapsed not because of its own failure, in fact, it was spectacularly successful. It failed because of its relative status versus the Free World. This power to co-opt free markets through monetary creation is leading to our own impoverishment, no less so than the Soviet command system. However, unlike them, we don't have an external comparison that will demonstrate our own failure.
Here is the theoretical problem: money is not a thing, and there is no constraint on its supply. By issuing its own money, government can co-opt whatever resources and labor it desires. Yet, we are compelled by the force of law to use nothing but this federal money. In short, we are kept unwilling slaves to the federal leviathan.
Here is the practical problem: because it is under no budgetary contraints, and can freely print it own money, the government can outbid any other market participant, for anything. As with traditional command economies, huge inefficiencies enter the system, and overall wealth levels constantly decline, a long slow death spiral.
The tax collection and budgetting routine is just a sham, a puppet show for the ignorant masses. The government could tommorrow cancel all tax collection and simply pay its budget by creating new credit money.
The more money it creates, the more it can outbid the free economy for labor and resources. There is no natural limit to the number of people who can work directly for the government or be dependent on government funding, since there is no limit to the government created money supply.
The money creation power is the ultimate power in existence. With it, there is no limit to the power or scope of government influence.
With every government job, we as a society get poorer, but who can realize it? Government can offer higher paying jobs, and jobs where no others exist, so all market participants are forced to take the poison bait. Government makes them wealthier than they were otherwise, but meanwhile decreases the wealth in the whole system.
We are trapped. Who shall point the way out?
Unfortunately, most of the few theorists who are popularizing the new monetarism are leftists, and are no friends of liberty or decentralization. Most of the right-wing monetary theorists who are concerned with liberty are stuck in the past, dreaming of a return to the gold standard. If the friends of liberty want to be effect positive changes for freedom in the 21st century, they need to update their theories.
Is it possible for paleo-libertarians to move beyond their hallowed canon? Probably not. Perhaps this is just The Way Thing Are, that progressives continually out-innovate conservatives. Encountering libertarian economists today is like being transported back to the year 1600AD, listening to traditional horse-mounted, heavily-armored, lance-carrying noblemen denounce the use of mass armies, polearms, and muskets. Sure, the noblemen had Honor, Right, and Good on their side, but the more they clung to those traditional standards of warfare, the more antiquated and irrelevant they made themselves, and the more they guaranteed their own defeat.
Such is the condition of libertarian economic theory today. Unless their update their arsenal to cope with today's economic weapons and tactics, they are simply irrelevant. Facts: Money is paper, money is credit, the money power looms as larger than ever, unleashing monetary weapons of mass destruction upon the body politic.
In the 20th century, the Soviet command economy simply told everyone what to do, and required their acquiescense. Today, the American command economy relies on the money power to get everyone to do what they want. The American command economy is, however, far more insidious than the Soviet version, because it is cloaked in the illustion of freedom and capitalism.
In fact, the power to print money gives the American economic elites almost unlimited power over the American and world economy. They don't have to force people to do their bidding, like the Soviets; they can just pay them to do it. There is no limit to their power to do so.
Worse off, there is no Second World to show such fraud for what it is. The Soviet system collapsed not because of its own failure, in fact, it was spectacularly successful. It failed because of its relative status versus the Free World. This power to co-opt free markets through monetary creation is leading to our own impoverishment, no less so than the Soviet command system. However, unlike them, we don't have an external comparison that will demonstrate our own failure.
Here is the theoretical problem: money is not a thing, and there is no constraint on its supply. By issuing its own money, government can co-opt whatever resources and labor it desires. Yet, we are compelled by the force of law to use nothing but this federal money. In short, we are kept unwilling slaves to the federal leviathan.
Here is the practical problem: because it is under no budgetary contraints, and can freely print it own money, the government can outbid any other market participant, for anything. As with traditional command economies, huge inefficiencies enter the system, and overall wealth levels constantly decline, a long slow death spiral.
The tax collection and budgetting routine is just a sham, a puppet show for the ignorant masses. The government could tommorrow cancel all tax collection and simply pay its budget by creating new credit money.
The more money it creates, the more it can outbid the free economy for labor and resources. There is no natural limit to the number of people who can work directly for the government or be dependent on government funding, since there is no limit to the government created money supply.
The money creation power is the ultimate power in existence. With it, there is no limit to the power or scope of government influence.
With every government job, we as a society get poorer, but who can realize it? Government can offer higher paying jobs, and jobs where no others exist, so all market participants are forced to take the poison bait. Government makes them wealthier than they were otherwise, but meanwhile decreases the wealth in the whole system.
We are trapped. Who shall point the way out?
Wednesday, May 19, 2010
Analysis of potential Idaho Silver Currency
Fascinating happenings in Idaho related to currency reform and local currency. A bill was killed in Senate committee that would have created a silver coin for Idaho that could trade as money. The currency was potentially the real deal in alternative currencies, and met all the requirements that trade tokens require to be considered legitimate and widely used as money.
As I have detailed before, the most important thing about a local currency is that its use should be tied to the health of the local economy, a fact explicitly recognized by the crafters of this money, as the silver mining to create the coins would help the Idaho economy.
The coins have been christened Idaho Gems. Interestingly, the bill will also allow the state treasurer to hedge its silver position in the financial markets. It also defines all state and local taxes as payable in this coin.
According to the bill, the state will sell the one ounce coins at the daily spot price for the one ounce American Eagle. The treasurer will also accept the coins for payment at the daily spot price. The bill guards against too much state loss by allowing the treasurer to suspend acquisition if the daily market price falls below the cost of minting. According to the bill, the state will issue silver as payment to any vendor who requests it.
Unfortunately, the bill appears to have died in a Senate committee:
http://www.examiner.com/x-16226-Boise-Economic-Policy-Examiner~y2010m3d24-Harts-Silver-Gem-Act-fails-in-Senate-committee
Alternative money needs to have a buyer of last resort, to guarantee its acceptance as general currency. The problem facing alternative currencies in general is, nobody wants to hold a currency if it is a burden to find someone who accepts it. However, if the state of Idaho accepts the medalions as payment for taxes, that would exactly fit the requirement as a surefire buyer of last resort.
The monetary value of the issue of the coins, at least at first, would be limited by the size of the Idaho budget. Anything beyond that would run the risk of non-redeemability. Especially in the early stages of an alternative currency, it is important to create the expectation of full redeemability, so that people become confident using the new coins. If redeemability became an issue, people would be hesitant to accept the coinage, and it would become little more than a gimmick or collector's item.
After a general confidence in the redeemability of the coins has been established, under the condition of wide circulation and usage in general commerce, the state could produce a excess of coins beyond the limit of the state's financial budget.
The state also faces the potential problem of seasonal deflation, as coins are removed from circulation to pay taxes. Encouraging general circulation and usage in non-tax-related commerce, would allow the state to mint enough coins so that the seasonal redemption would be less noticable.
The ultimate way for the state to overcome the issue of seasonality and limited usage would be for the state to not only take the coins as payment, but also distribute the coins as income, starting with its own state workers and welfare recipients. Afterall, the state's tax receipts exactly match the states outgoing payments. If the state agrees to receive the coins in payment, it has to have a method for redistributing them. Without a regular channel of distribution, the coins again fall into the gimmick/collector item category.
From the wording of the bill, the focus seems to be on silver money as a store of wealth.
And, as always with a commodity-based money, the state would have to be concerned with the value of the underlying commodity. If silver, as a metal, rises in price relative to the US dollar, the silver coins would be hoarded if they are fixed against the dollar.
So, the legislature is in a bit of a bind. In order to issue the money to its own workers, the coins would have to be exchangable for US dollars. If that exchange rate is fixed, hoarding could quickly become a problem. Especially given the problem of the rapidly inflating US dollar, the value of silver can be reasonably expected to rise, dragging the value of the coins up with it.
Lets say the coins are issued on par with dollars. The following year, the dollar inflates by 10%, but the silver coins remain stable. 100 coins originally bought the same as 100 dollars, but now 100 dollars only buys 90 coins. Which would you rather be paid in?
The coins! Think of the converse side: 100 coins now buy 110 dollars. Holding or being paid in coins means you are getting richer in dollars. This would actually increase the value of the coins, exactly as the Idaho legislature hoped, spurring their demand and thereby stimulating the Idaho silver economy. In order to meet the demad, and discourage hoarding, the state could prudently issue more coins.
In short, against the background of an inflating dollar, doing business in Idaho silver gems would naturally increase your own wealth. But this would only work if the silver coin was not fixed versus the dollar. If the Idaho legislature had the discipline to not inflate their supply, the demand would remain strong for their silver coins.
Notice that under these conditions, people would stop paying their taxes in silver coins, preferring to pay them in depreciating dollars.
Of course, if the price of silver fell, the conditions would reverse, and the state would see its monetary position wiped out. Under conditions of falling silver, people would flee the silver coins, as they'd be worth less and less relative to dollars. Citizens would pay their taxes only in the increasingly worthless silver.
The state, as a governmental agency, is thus put in a double bind. No matter which way the currency is going, by giving the citizens a choice in payment, the state will always be paid in the worse currency.
This is the whole point of legal tender laws and capital control laws. Without those expedients, the citizens will always work to make the state the loser in currency arbitrage. With legal tender and capital controls, the state can foist the currency costs off on its beholden citizens.
http://www.silverbearcafe.com/private/03.10/medallion.html
With only one state representative dissenting, the Idaho House State Affairs committee voted on Monday to endorse HB 633, a bill that would allow Idaho citizens to pay their state taxes with an official state silver medallion.
The news comes just a month after a South Carolina legislator introduced a bill seeking to ban Federal currency altogether, and replace the upstart greenback with gold or silver coins. A half-dozen other states have considered similar legislation, reports the Tenth Amendment Center. But there's a key difference between the Idaho plan and the bills proposed in other states, most of which fall somewhere on a spectrum ranging from Tea Party rage to Ron Paul goldbug-ism. (The South Carolina bill, for example, claims that "the State is experiencing an economic crisis of severe magnitude caused in large part by the unconstitutional substitution of Federal Reserve Notes for silver and gold coin as legal tender in this State.")
In contrast, the sponsor of the Idaho bill, Republican Phil Hart, seems to be marshalling wide support by crafting legislation that is straight out industrial policy aimed at boosting Idaho's silver industry. The text of the bill is quite clear.
The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho. It is the intent of the Legislature to create mining jobs in Idaho while giving the people of Idaho a means to store their wealth in a precious metal that is immune from the effects of inflation while complying with the mandates of our federal Constitution.
The Idaho bill therefore incorporates tax incentives for silver processors located in Idaho.
From The Idaho Reporter:
That, Hart believes, could bring hundreds, if not thousands of jobs to the state. In conjunction with the creation of the medallion, Hart's bill would also try to lure silver processing companies to Idaho, and in particular, north Idaho, which, according to Hart, was once called "the silver capital of the world." The bill would give companies that come to Idaho to process silver for the medallion a 10-year exemption from income taxes, as well as property taxes. The exemption would be open for 20 years and would sunset after that period of time.
Hart believes one of the advantages of silver is that it would resist inflationary pressure better than paper money. But since states aren't allowed to mint their own money, the value of the silver medallion will have to fluctuate according to market forces. In just the last ten years, the value of an ounce of silver has zig-zagged between four and twenty dollars.
As I have detailed before, the most important thing about a local currency is that its use should be tied to the health of the local economy, a fact explicitly recognized by the crafters of this money, as the silver mining to create the coins would help the Idaho economy.
The coins have been christened Idaho Gems. Interestingly, the bill will also allow the state treasurer to hedge its silver position in the financial markets. It also defines all state and local taxes as payable in this coin.
According to the bill, the state will sell the one ounce coins at the daily spot price for the one ounce American Eagle. The treasurer will also accept the coins for payment at the daily spot price. The bill guards against too much state loss by allowing the treasurer to suspend acquisition if the daily market price falls below the cost of minting. According to the bill, the state will issue silver as payment to any vendor who requests it.
Unfortunately, the bill appears to have died in a Senate committee:
http://www.examiner.com/x-16226-Boise-Economic-Policy-Examiner~y2010m3d24-Harts-Silver-Gem-Act-fails-in-Senate-committee
Alternative money needs to have a buyer of last resort, to guarantee its acceptance as general currency. The problem facing alternative currencies in general is, nobody wants to hold a currency if it is a burden to find someone who accepts it. However, if the state of Idaho accepts the medalions as payment for taxes, that would exactly fit the requirement as a surefire buyer of last resort.
The monetary value of the issue of the coins, at least at first, would be limited by the size of the Idaho budget. Anything beyond that would run the risk of non-redeemability. Especially in the early stages of an alternative currency, it is important to create the expectation of full redeemability, so that people become confident using the new coins. If redeemability became an issue, people would be hesitant to accept the coinage, and it would become little more than a gimmick or collector's item.
After a general confidence in the redeemability of the coins has been established, under the condition of wide circulation and usage in general commerce, the state could produce a excess of coins beyond the limit of the state's financial budget.
The state also faces the potential problem of seasonal deflation, as coins are removed from circulation to pay taxes. Encouraging general circulation and usage in non-tax-related commerce, would allow the state to mint enough coins so that the seasonal redemption would be less noticable.
The ultimate way for the state to overcome the issue of seasonality and limited usage would be for the state to not only take the coins as payment, but also distribute the coins as income, starting with its own state workers and welfare recipients. Afterall, the state's tax receipts exactly match the states outgoing payments. If the state agrees to receive the coins in payment, it has to have a method for redistributing them. Without a regular channel of distribution, the coins again fall into the gimmick/collector item category.
From the wording of the bill, the focus seems to be on silver money as a store of wealth.
And, as always with a commodity-based money, the state would have to be concerned with the value of the underlying commodity. If silver, as a metal, rises in price relative to the US dollar, the silver coins would be hoarded if they are fixed against the dollar.
So, the legislature is in a bit of a bind. In order to issue the money to its own workers, the coins would have to be exchangable for US dollars. If that exchange rate is fixed, hoarding could quickly become a problem. Especially given the problem of the rapidly inflating US dollar, the value of silver can be reasonably expected to rise, dragging the value of the coins up with it.
Lets say the coins are issued on par with dollars. The following year, the dollar inflates by 10%, but the silver coins remain stable. 100 coins originally bought the same as 100 dollars, but now 100 dollars only buys 90 coins. Which would you rather be paid in?
The coins! Think of the converse side: 100 coins now buy 110 dollars. Holding or being paid in coins means you are getting richer in dollars. This would actually increase the value of the coins, exactly as the Idaho legislature hoped, spurring their demand and thereby stimulating the Idaho silver economy. In order to meet the demad, and discourage hoarding, the state could prudently issue more coins.
In short, against the background of an inflating dollar, doing business in Idaho silver gems would naturally increase your own wealth. But this would only work if the silver coin was not fixed versus the dollar. If the Idaho legislature had the discipline to not inflate their supply, the demand would remain strong for their silver coins.
Notice that under these conditions, people would stop paying their taxes in silver coins, preferring to pay them in depreciating dollars.
Of course, if the price of silver fell, the conditions would reverse, and the state would see its monetary position wiped out. Under conditions of falling silver, people would flee the silver coins, as they'd be worth less and less relative to dollars. Citizens would pay their taxes only in the increasingly worthless silver.
The state, as a governmental agency, is thus put in a double bind. No matter which way the currency is going, by giving the citizens a choice in payment, the state will always be paid in the worse currency.
This is the whole point of legal tender laws and capital control laws. Without those expedients, the citizens will always work to make the state the loser in currency arbitrage. With legal tender and capital controls, the state can foist the currency costs off on its beholden citizens.
http://www.silverbearcafe.com/private/03.10/medallion.html
With only one state representative dissenting, the Idaho House State Affairs committee voted on Monday to endorse HB 633, a bill that would allow Idaho citizens to pay their state taxes with an official state silver medallion.
The news comes just a month after a South Carolina legislator introduced a bill seeking to ban Federal currency altogether, and replace the upstart greenback with gold or silver coins. A half-dozen other states have considered similar legislation, reports the Tenth Amendment Center. But there's a key difference between the Idaho plan and the bills proposed in other states, most of which fall somewhere on a spectrum ranging from Tea Party rage to Ron Paul goldbug-ism. (The South Carolina bill, for example, claims that "the State is experiencing an economic crisis of severe magnitude caused in large part by the unconstitutional substitution of Federal Reserve Notes for silver and gold coin as legal tender in this State.")
In contrast, the sponsor of the Idaho bill, Republican Phil Hart, seems to be marshalling wide support by crafting legislation that is straight out industrial policy aimed at boosting Idaho's silver industry. The text of the bill is quite clear.
The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho. It is the intent of the Legislature to create mining jobs in Idaho while giving the people of Idaho a means to store their wealth in a precious metal that is immune from the effects of inflation while complying with the mandates of our federal Constitution.
The Idaho bill therefore incorporates tax incentives for silver processors located in Idaho.
From The Idaho Reporter:
That, Hart believes, could bring hundreds, if not thousands of jobs to the state. In conjunction with the creation of the medallion, Hart's bill would also try to lure silver processing companies to Idaho, and in particular, north Idaho, which, according to Hart, was once called "the silver capital of the world." The bill would give companies that come to Idaho to process silver for the medallion a 10-year exemption from income taxes, as well as property taxes. The exemption would be open for 20 years and would sunset after that period of time.
Hart believes one of the advantages of silver is that it would resist inflationary pressure better than paper money. But since states aren't allowed to mint their own money, the value of the silver medallion will have to fluctuate according to market forces. In just the last ten years, the value of an ounce of silver has zig-zagged between four and twenty dollars.
Friday, May 7, 2010
Gold, the Dollar, and the Hidden Inflation Right Before Your Eyes
So, gold popped above USD1200 today, the first time in quite awhile. The last time it did so, it was seesawing with a falling dollar, sliding to 77 at that time.
Today, amazingly, dollar is holding strong, rising in the 84 range, and gold is rising anyway.
Basically, we are witnessing the drop of all currencies together, relative to gold, in other words, worldwide inflation.
The USD/FRN is rising relative to the crashing Euro, but it is still falling in an absolute sense.
Inflation is all around us. On the radio just two days ago I heard how airfare is over 30% higher than a year ago. Some for the price of gold, and the price of gas. If obvious measures like gold, gas, and airfare are up over 30-40% in one year, how do they expect us to believe inflation is flat. And the price of food such as bread lately? Good lord.
As I have endeavored to show in articles on this blog, economics is really common sense, and you should never be afraid to believe your own eyes.
Today, amazingly, dollar is holding strong, rising in the 84 range, and gold is rising anyway.
Basically, we are witnessing the drop of all currencies together, relative to gold, in other words, worldwide inflation.
The USD/FRN is rising relative to the crashing Euro, but it is still falling in an absolute sense.
Inflation is all around us. On the radio just two days ago I heard how airfare is over 30% higher than a year ago. Some for the price of gold, and the price of gas. If obvious measures like gold, gas, and airfare are up over 30-40% in one year, how do they expect us to believe inflation is flat. And the price of food such as bread lately? Good lord.
As I have endeavored to show in articles on this blog, economics is really common sense, and you should never be afraid to believe your own eyes.
Tuesday, April 27, 2010
The History of Free Banking and Alternative Currencies
The academic study of the history of free banking and the contemporary practice of alternative currencies are strongly related. It seems clear to me that the contemporary monetary reform movement should be based upon lessons of monetary history, but such a connection rarely seems to take place. Perhaps because monetary history is so obscure, and monetary theory so confusing?
A wonderful interview was recently published by the Daily Bell (http://www.thedailybell.com/975/George-Selgin-Austrian-Finance-Central-Banks-Free-Banking.html ), with an academic expert on the history of free banking, George Selgin.
One important takeaway: Dr. Selgin drives another nail in the coffin of the "100% non-fractional gold reserve" argument. He appears to conclusively demonstrate through the historical record that free market conditions will not result in a 100% gold standard. As I have argued before, we have moved onward, never to return to a gold standard, because our monetary theory has simply advanced to far. The idea of non-fractional gold as the only legitimate form of money is excessively retrograde, IMHO.
One important takeaway: Dr. Selgin drives another nail in the coffin of the "100% non-fractional gold reserve" argument. He appears to conclusively demonstrate through the historical record that free market conditions will not result in a 100% gold standard. As I have argued before, we have moved onward, never to return to a gold standard, because our monetary theory has simply advanced to far. The idea of non-fractional gold as the only legitimate form of money is excessively retrograde, IMHO.
Another important takeaway is the limitations of viewing pre-Civil War America as a true example of free banking. In that era, bank charters often contained onerous provisions related to capital requirements. As I have detailed elsewhere, any asset can be monetized, which is to say, used as collateral to create a money supply. In the Wildcat Banking Era (as in most eras), land and government debt were the primary collateral monetized by regional banks.
In Dr. Selgin's view, as I interpret it, it was the instability of land speculation in that boom-bust pioneer era which caused the instability of those banks, not anything inherent in the institution of free banking itself. In effect, our most popular idea of why Free Banks were a failure, is simply wrong.
In Dr. Selgin's view, as I interpret it, it was the instability of land speculation in that boom-bust pioneer era which caused the instability of those banks, not anything inherent in the institution of free banking itself. In effect, our most popular idea of why Free Banks were a failure, is simply wrong.
A third important takeaway is the history of free banking in early modern Scotland. Monetary reform advocates have over a century of history to plumb in their search for workable alternative monetary solutions. I look forward to researching more into this era myself, particularly with an eye towards how the Scottish Free Banking system was related to the real bills system and the gold standard system of the same era.
Tuesday, March 16, 2010
Social Security, Debt, Federal IOUs, Inflation
I wrote about this issue a couple months ago, and now it has been confirmed: Social Security is now bankrupt. Right now, not some 20 or 30 years from now, as you will sometimes hear repeated.
http://news.yahoo.com/s/ap/us_social_security_ious
http://news.yahoo.com/s/ap/us_social_security_ious
We, as the unwashed sheeple of America, are supposed to buy into the idea that the federal government is issuing IOUs for previous Social Security payments.
Here is the facts when boiled down to monetary reality: the Social Security tax no longer covers Social Security expenditures, so the government is going to print new money to make up the difference. These are the so-called IOUs, but the reality is the same: new money is being printed to cover the deficit.
For decades, the Social Security tax brought in more revenue than was needed for Social Security programs. The extra money went into the general fund all those years and was spent. An IOU was created (an accounting ledger entry, really, nothing more), meaning they general budget was saying to the Social Security fund: "Hey, thanks for the money, I'll pay you back later".
The money came in, it was spent, it is gone. In this time of exploding budget deficits, where is the government going to get the money to pay off these IOUs?
Tuesday, January 12, 2010
Using Reserve Requirements to Decrease Liquidity
Raising reserve requirements is a key component of the modern Jubilee plan. The idea of directly using reserve requirements does not occur to most Americans, simply because the Federal Reserve uses only open market operations to change liquidity levels.
But this week, China demonstrates the utility of reserve requirements as a tool to fight inflation (read more here).
In fact, China is demonstrating the real-world success of the Jubilee plan. After flooding the country with stimulus in the past year, the government is now counter-acting potential inflation by requiring banks to stockpile more money.
The Jubilee plan is slightly different, in that it would not randomly disburse stimulus. Rather, would unleash stimulus across the board by direct payoff of debt, simultaneously requiring banks to soak up the extra money by raising reserve requirements.
The total amount of money (currency and credit) in circulation would remain the same, but all debt payments would be eliminated, allowing the economy to restart itself without central government control.
But this week, China demonstrates the utility of reserve requirements as a tool to fight inflation (read more here).
In fact, China is demonstrating the real-world success of the Jubilee plan. After flooding the country with stimulus in the past year, the government is now counter-acting potential inflation by requiring banks to stockpile more money.
The Jubilee plan is slightly different, in that it would not randomly disburse stimulus. Rather, would unleash stimulus across the board by direct payoff of debt, simultaneously requiring banks to soak up the extra money by raising reserve requirements.
The total amount of money (currency and credit) in circulation would remain the same, but all debt payments would be eliminated, allowing the economy to restart itself without central government control.
Thursday, December 31, 2009
Why are We Facing a Jobless Recovery?
Most people view the economy in a primitive fashion, like a force of nature out of their control, as our ancestors viewed the fertility of the land. Unfortunately, this primitive conception of the economy is false in today's world. The industrial economy is a product of policy. Economic problems today require an informed political response, not just a "gee, sure hope it get's better next year" attitude.
For example, today we are being told that we face a jobless recovery, and we should expect to wait 5-10 years for unemployment to drop down to natural levels. But we are never told WHY this is so, why this recovery is so much worse than others.
Such obfuscation is not surprising, as the reason involves a deliberate exploitation of the masses by the parasitic financial elite. In plain terms, our governmental policy is to sacrifice the interests of the workers of America, for the sake of the interests of the bankers of America. Here's how:
It all starts with the price of land, residential and commercial property. In order for a general economic recovery to occur, those prices must fall. For job creation, quite simply, we need lower rents, which allows business formation, cost cutting, and economic expansion.
The big problem here is that if property values were allowed to fall, banks would be wiped out. Supporting property values props up banks, but keeps rents and costs high, preventing economic recovery.
But it is current economic policy to prevent banks from realizing their losses. Free market price discovery has been eliminated. Now, instead of mark-to-market, we have mark-to-fantasy, and instead of realizing losses on loans, we have extend-and-pretend. Debt is to be modified outward by rate reductions, deferral of reserves, deferral of amortization, or any method conceivable EXCEPT principal reduction.
This is a textbook example of how the parasitical banking class destroys the health of the larger economic body, as parasite bankers maintain their wealth while impoverishing the masses.
The solution is plain. Wipe out the debt, liquidate the banks, flush the parasites, and enable the real economy to get going again -- Jubilee! It is only a matter of political awareness and will.
For example, today we are being told that we face a jobless recovery, and we should expect to wait 5-10 years for unemployment to drop down to natural levels. But we are never told WHY this is so, why this recovery is so much worse than others.
Such obfuscation is not surprising, as the reason involves a deliberate exploitation of the masses by the parasitic financial elite. In plain terms, our governmental policy is to sacrifice the interests of the workers of America, for the sake of the interests of the bankers of America. Here's how:
It all starts with the price of land, residential and commercial property. In order for a general economic recovery to occur, those prices must fall. For job creation, quite simply, we need lower rents, which allows business formation, cost cutting, and economic expansion.
The big problem here is that if property values were allowed to fall, banks would be wiped out. Supporting property values props up banks, but keeps rents and costs high, preventing economic recovery.
But it is current economic policy to prevent banks from realizing their losses. Free market price discovery has been eliminated. Now, instead of mark-to-market, we have mark-to-fantasy, and instead of realizing losses on loans, we have extend-and-pretend. Debt is to be modified outward by rate reductions, deferral of reserves, deferral of amortization, or any method conceivable EXCEPT principal reduction.
This is a textbook example of how the parasitical banking class destroys the health of the larger economic body, as parasite bankers maintain their wealth while impoverishing the masses.
The solution is plain. Wipe out the debt, liquidate the banks, flush the parasites, and enable the real economy to get going again -- Jubilee! It is only a matter of political awareness and will.
Tuesday, December 22, 2009
Unavoidable Debt Trap Looms, According to Forbes
Clearly, the general awareness of the problem of debt is growing. Even Forbes is now proclaiming the inevitability of default. Forbes is only 1 or 2 layers away from the mainstream, so the idea has almost reached critical mass. More and more people are slowly realizing, the debt simply cannot be paid off, even if we wanted to.
Of course, to our banking class parasites, the point of the debt is not to pay it off, but to keep it floating, a perpetual yoke of slavery on the neck of the people. However, they have overplayed their hand, like all parasites, they cannot self-govern their own growth and now endanger the health of their host.
We are trapped between crushing debt payments that will literally devour the whole budget, crippling budget cuts that will destroy our governments, or onerous tax hikes that could destroy the economy.
Or..... Cancel the debt, destroy the parasites, and let the economy recover! It really is that simple. Repudiate the debt load, which will save our economy and way of life. In a word, JUBILEE!!!!
http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt.html
At all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
The world has not seen such debt levels in modern history. This debt is not serviceable. Imagine that total debt is 557% of GDP, without considering entitlements. The interest on the debt will consume all the tax revenues of the country in the not-too-distant future. Then there will be no way out but to create more debt in order to finance the old debt.
It assures a period of economic devastation. In a last, desperate attempt, politicians at the federal and local levels will raise taxes to astronomical heights to raise revenues. And that only assures destruction of the economy. Forget the fable of economic recovery. Unless there is a change in Washington by next year's election, there will be no way to turn back.
Of course, to our banking class parasites, the point of the debt is not to pay it off, but to keep it floating, a perpetual yoke of slavery on the neck of the people. However, they have overplayed their hand, like all parasites, they cannot self-govern their own growth and now endanger the health of their host.
We are trapped between crushing debt payments that will literally devour the whole budget, crippling budget cuts that will destroy our governments, or onerous tax hikes that could destroy the economy.
Or..... Cancel the debt, destroy the parasites, and let the economy recover! It really is that simple. Repudiate the debt load, which will save our economy and way of life. In a word, JUBILEE!!!!
http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt.html
At all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
The world has not seen such debt levels in modern history. This debt is not serviceable. Imagine that total debt is 557% of GDP, without considering entitlements. The interest on the debt will consume all the tax revenues of the country in the not-too-distant future. Then there will be no way out but to create more debt in order to finance the old debt.
It assures a period of economic devastation. In a last, desperate attempt, politicians at the federal and local levels will raise taxes to astronomical heights to raise revenues. And that only assures destruction of the economy. Forget the fable of economic recovery. Unless there is a change in Washington by next year's election, there will be no way to turn back.
Worker Co-Ops Gaining Traction in Cleveland
As I have written before (here), worker-owned businesses are the wave of the future, because they are a superior economic organization. This has been noted in a recent CNN article (here) discussing the application of the Spanish model in Cleveland. The advantages noted in this article include: educated and supported workers, reinvestment of profits into capital and human development, limitation of executive salaries, supply chain integration, and avoidance of external debt leverage.
Some Rust Belt planners and union leaders are feeling optimistic: they're taking inspiration from the Basque region of Spain, where a network of worker-owned cooperatives launched amid the rubble of the Spanish Civil War has grown to become the country's seventh-largest corporation, and among its most profitable.
The Mondragon Corp. (MCC), based in northern Spain, is a multilayered business group with 256 independent companies (more than 100 of which are worker-owned cooperatives) that employs more than 100,000 people. It has long been legendary among scholars and activists seeking to bolster workers' rights.
The Mondragon story began in 1941, when a Catholic priest, Jose Maria Arizmendiarrieta (often shortened to Arizmendi), found in the Basque town war-torn devastation where there had been a thriving manufacturing base. He opened a polytechnic school, which in 1956 spawned its first cooperative, a stove factory. Half a century later, the Mondragon enterprise encompasses firms making everything from machine tools to electronics to bicycles, along with a retail division, a university and a significant financial sector, with the large cooperative bank Caja Laboral at its core.
While many think of cooperatives as a small-scale hippie mainstay, the Mondragon Corp. is huge, hard-nosed business-wise and successful; in 2008, with Spain's economy in the doldrums, MCC's income rose 6%, to 16.8 billion euros. The Mondragon Corp. maintains its commitment to one-worker, one-vote democratic governance through a complex, carefully honed organizational structure in which the corporation serves as a kind of metacooperative for the individual companies. Through representatives and resources drawn from the larger network, it provides support for planning, research and generation funding for new businesses.
Several nonprofit and medical institutions in Cleveland have turned to the Mondragon model for a consortium of businesses that will provide needed services and bolster an impoverished community.
"There's a value in dealing with an informed workplace," says Kiel. In terms of problems that can arise, including safety, production and theft concerns, "if people feel a part of it, that makes solving the problem a lot easier."
He adds that the spread between the high and low salaries is limited so that the CEO earns no more than five times the lowest-earning entry-level employee. This follows the Mondragon template, which keeps the ratio down to 1 to 4 or 5
One hallmark of the Mondragon model is its use of capital. Rather than flowing into the pockets of executives and outside investors, a company's profits are distributed in a precise, democratic way; set aside as seed money for new cooperatives; distributed to regional nonprofits; or pooled into shared institutions like the university and research center. In other words, each individual cooperative gains long-term benefits from the financial assets of the whole.
The companies plan to develop more businesses and are researching possibilities "along the supply chain": trucking, retail, health and wellness, as well as a funding vehicle like Caja Laboral.
Arizmendi now employs 125 workers and annually generates $12 million in sales. Despite the economic downturn, the businesses remain strong and poised for growth. This in part owes to the collective decision-making model, says Hoover. "Worker-owned cooperatives are an innately conservative form. We didn't overleverage ourselves."
Some Rust Belt planners and union leaders are feeling optimistic: they're taking inspiration from the Basque region of Spain, where a network of worker-owned cooperatives launched amid the rubble of the Spanish Civil War has grown to become the country's seventh-largest corporation, and among its most profitable.
The Mondragon Corp. (MCC), based in northern Spain, is a multilayered business group with 256 independent companies (more than 100 of which are worker-owned cooperatives) that employs more than 100,000 people. It has long been legendary among scholars and activists seeking to bolster workers' rights.
The Mondragon story began in 1941, when a Catholic priest, Jose Maria Arizmendiarrieta (often shortened to Arizmendi), found in the Basque town war-torn devastation where there had been a thriving manufacturing base. He opened a polytechnic school, which in 1956 spawned its first cooperative, a stove factory. Half a century later, the Mondragon enterprise encompasses firms making everything from machine tools to electronics to bicycles, along with a retail division, a university and a significant financial sector, with the large cooperative bank Caja Laboral at its core.
While many think of cooperatives as a small-scale hippie mainstay, the Mondragon Corp. is huge, hard-nosed business-wise and successful; in 2008, with Spain's economy in the doldrums, MCC's income rose 6%, to 16.8 billion euros. The Mondragon Corp. maintains its commitment to one-worker, one-vote democratic governance through a complex, carefully honed organizational structure in which the corporation serves as a kind of metacooperative for the individual companies. Through representatives and resources drawn from the larger network, it provides support for planning, research and generation funding for new businesses.
Several nonprofit and medical institutions in Cleveland have turned to the Mondragon model for a consortium of businesses that will provide needed services and bolster an impoverished community.
"There's a value in dealing with an informed workplace," says Kiel. In terms of problems that can arise, including safety, production and theft concerns, "if people feel a part of it, that makes solving the problem a lot easier."
He adds that the spread between the high and low salaries is limited so that the CEO earns no more than five times the lowest-earning entry-level employee. This follows the Mondragon template, which keeps the ratio down to 1 to 4 or 5
One hallmark of the Mondragon model is its use of capital. Rather than flowing into the pockets of executives and outside investors, a company's profits are distributed in a precise, democratic way; set aside as seed money for new cooperatives; distributed to regional nonprofits; or pooled into shared institutions like the university and research center. In other words, each individual cooperative gains long-term benefits from the financial assets of the whole.
The companies plan to develop more businesses and are researching possibilities "along the supply chain": trucking, retail, health and wellness, as well as a funding vehicle like Caja Laboral.
Arizmendi now employs 125 workers and annually generates $12 million in sales. Despite the economic downturn, the businesses remain strong and poised for growth. This in part owes to the collective decision-making model, says Hoover. "Worker-owned cooperatives are an innately conservative form. We didn't overleverage ourselves."
Thursday, December 17, 2009
Ellen Brown Calls for National Debt Cancellation
Excellent article published yesterday by Ellen Brown, detailing the positive side of national debt cancellation. The banking class everywhere at all times attempts to load the commoners with heavy debt burdens. The commoners are starting to wake up.
Jubilee means freedom from exploitation!
http://www.truthout.org/1216097
Europe's small, debt-strapped countries could follow the lead of Argentina and simply walk away from their debts. That would shift the burden to the creditor countries, which could solve the problem merely by a change in accounting rules.
Local Currency for Local Development
Issuing and lending currency is the sovereign right of governments, and it is a right that Iceland and Latvia will lose if they join the EU, which forbids member nations to borrow from their own central banks. Latvia and Iceland both have natural resources that could be developed if they had the credit to do it; and with sovereign control over their local currencies, they could get that credit simply by creating it on the books of their own publicly-owned banks.
In fact, there is nothing extraordinary in that proposal. All private banks get the credit they lend simply by creating it on their books. Contrary to popular belief, banks do not lend their own money or their depositors' money. As the US Federal Reserve attests, banks lend new money, created by double-entry bookkeeping as a deposit of the borrower on one side of the bank's books and as an asset of the bank on the other.
Besides thawing frozen credit pipes, credit created by governments has the advantage that it can be issued interest-free. Eliminating the cost of interest can cut production costs dramatically.
According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable but profitable for the government, while at the same time creating much-needed jobs.
Government-issued money to fund public projects has a long and successful history, going back at least to the early 18th century, when the American colony of Pennsylvania issued money that was both lent and spent by the local government into the economy. The result was an unprecedented period of prosperity, achieved without producing price inflation and without taxing the people.
The key is to use the newly-created money or credit for productive projects that increase goods and services, rather than for speculation or to pay off national debt in foreign currencies (the trap that Zimbabwe fell into). The national currency can be protected from speculators by imposing exchange controls, as Malaysia did in 1998; imposing capital controls, as Brazil and Taiwan are doing now; banning derivatives; and imposing a "Tobin tax," a small tax on trade in financial products.
Jubilee means freedom from exploitation!
http://www.truthout.org/1216097
Europe's small, debt-strapped countries could follow the lead of Argentina and simply walk away from their debts. That would shift the burden to the creditor countries, which could solve the problem merely by a change in accounting rules.
Local Currency for Local Development
Issuing and lending currency is the sovereign right of governments, and it is a right that Iceland and Latvia will lose if they join the EU, which forbids member nations to borrow from their own central banks. Latvia and Iceland both have natural resources that could be developed if they had the credit to do it; and with sovereign control over their local currencies, they could get that credit simply by creating it on the books of their own publicly-owned banks.
In fact, there is nothing extraordinary in that proposal. All private banks get the credit they lend simply by creating it on their books. Contrary to popular belief, banks do not lend their own money or their depositors' money. As the US Federal Reserve attests, banks lend new money, created by double-entry bookkeeping as a deposit of the borrower on one side of the bank's books and as an asset of the bank on the other.
Besides thawing frozen credit pipes, credit created by governments has the advantage that it can be issued interest-free. Eliminating the cost of interest can cut production costs dramatically.
According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable but profitable for the government, while at the same time creating much-needed jobs.
Government-issued money to fund public projects has a long and successful history, going back at least to the early 18th century, when the American colony of Pennsylvania issued money that was both lent and spent by the local government into the economy. The result was an unprecedented period of prosperity, achieved without producing price inflation and without taxing the people.
The key is to use the newly-created money or credit for productive projects that increase goods and services, rather than for speculation or to pay off national debt in foreign currencies (the trap that Zimbabwe fell into). The national currency can be protected from speculators by imposing exchange controls, as Malaysia did in 1998; imposing capital controls, as Brazil and Taiwan are doing now; banning derivatives; and imposing a "Tobin tax," a small tax on trade in financial products.
Monday, December 14, 2009
Would U.S. Debt Default bring Armageddon?
Frankly, overblown rhetoric about the economy is perhaps the greatest obstacle facing economic and currency reformers. When a U.S. debt default is publicly declared by an Australian lawmaker to lead to Armageddon and the collapse of the world, it is hard to imagine a steeper wall to climb for Jubilee advocates.
To speak plainly, after a debt default, the main victims of economic collapse would be the banking classes, who profit obscenely from the current system of mass usury and financial manipulation, keeping massive debt loads piled on the backs of the common workers.
http://www.brisbanetimes.com.au/national/joyce-warns-of-us-armageddon-20091211-kmlu.html
THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ''economic Armageddon'' which will make the recent global financial crisis pale into insignificance. Senator Joyce said yesterday he did not mean to alarm the public but there needed to be a debate about Australia's ''contingency plan'' for a sovereign debt default by the US or even by a local state government. ''A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,'' Senator Joyce said.
Senator Joyce said that if the US recovered, global funds would flow back into North America. ''There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,'' he said. ''That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn't repay its debt - the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others - and then we are really nailed.
''The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight. It's the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.''
Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.
To speak plainly, after a debt default, the main victims of economic collapse would be the banking classes, who profit obscenely from the current system of mass usury and financial manipulation, keeping massive debt loads piled on the backs of the common workers.
http://www.brisbanetimes.com.au/national/joyce-warns-of-us-armageddon-20091211-kmlu.html
THE OPPOSITION finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an ''economic Armageddon'' which will make the recent global financial crisis pale into insignificance. Senator Joyce said yesterday he did not mean to alarm the public but there needed to be a debate about Australia's ''contingency plan'' for a sovereign debt default by the US or even by a local state government. ''A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,'' Senator Joyce said.
Senator Joyce said that if the US recovered, global funds would flow back into North America. ''There will be only one way Australia will be able to keep funds here and that is by putting up interest rates, which will therefore bring real costs back to households,'' he said. ''That is the first scenario, which is extremely bad for Australia. The worse scenario is where the US doesn't repay its debt - the $2 trillion in debt it owes to the Chinese, the $1 trillion in debt it has to the Japanese and the $US1 trillion in debt to others - and then we are really nailed.
''The outcome is a shift away from the US dollar as the international trading currency and a shift to the Chinese yuan, and China becomes an immensely powerful player overnight. It's the real financial crisis, and the real financial crisis will mean this preamble we have just had pales into insignificance.''
Asked what sort of contingency plan he would advocate, Senator Joyce said it was like trying to prepare for a tidal wave but the local economy should have more self-reliance.
Friday, November 13, 2009
Can the Whole World be Export-Driven?
News is all about the falling dollar causing panic across the world, as higher currencies undermine exporting efforts. Said the leader of Brazil's state development bank (source here): “We have to be careful that our exchange rate doesn’t appreciate too much as to deindustrialize the country. The capital goods industry has suffered tremendously.” Brazil's Finance Ministry says Brazil’s currency needs to weaken as much as 19 percent for sustainable economic growth. As another example, France’s Finance Minister also stated that her government favors a strong dollar as an appreciating euro threatens to hurt European exports.
Everyone wants to expor their way to prosperity, which begs the obvious question of how that could even be possible. Implicit is the obvious truth (obvious to everyone but brainwashed free-marketeers) that exports increase a country's wealth. Yet obviously, not everyone can be a net exporter!
The chief beneficiaries are, of course, Americans, for at least as long as the export-at-all-costs party lasts. Americans get access to the cheapest stuff on the planet, because everyone undercuts their own currency to keep their exports to America up.
Unfortunately, it also means that aforementioned and wisely despised deindustrialization occurs in America at the same time! woops
What are the foreigners even getting out of it? Rapidly depreciating dollars. The world is currently being flooded with dollars, pumping up developing economies. "An unprecedented net $47 billion flowed into equities in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand in the last three quarters." and this: "Chile’s peso has strengthened 26 percent this year versus the dollar, the second-biggest gain among Latin American currencies after the 33 percent rise in the Brazilian real."
As long as US rates stay low, money will flow out of the US into other countries, in what is called the carry trade. Cheap imports flow in, dollars flow out.
And we stare years of chronic high-unemployment in the face! It's no wonder, is it??? The whole process is just wacky.
The only sustainable solution is balanced trade based on policies of local development.
Everyone wants to expor their way to prosperity, which begs the obvious question of how that could even be possible. Implicit is the obvious truth (obvious to everyone but brainwashed free-marketeers) that exports increase a country's wealth. Yet obviously, not everyone can be a net exporter!
The chief beneficiaries are, of course, Americans, for at least as long as the export-at-all-costs party lasts. Americans get access to the cheapest stuff on the planet, because everyone undercuts their own currency to keep their exports to America up.
Unfortunately, it also means that aforementioned and wisely despised deindustrialization occurs in America at the same time! woops
What are the foreigners even getting out of it? Rapidly depreciating dollars. The world is currently being flooded with dollars, pumping up developing economies. "An unprecedented net $47 billion flowed into equities in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand in the last three quarters." and this: "Chile’s peso has strengthened 26 percent this year versus the dollar, the second-biggest gain among Latin American currencies after the 33 percent rise in the Brazilian real."
As long as US rates stay low, money will flow out of the US into other countries, in what is called the carry trade. Cheap imports flow in, dollars flow out.
And we stare years of chronic high-unemployment in the face! It's no wonder, is it??? The whole process is just wacky.
The only sustainable solution is balanced trade based on policies of local development.
Tuesday, November 10, 2009
Tokens as Alternative Money and Problems with Metallic Coins
What exactly is the difference between tokens and money? In many ways, none at all. Tokens are money. However, they are privately issued money. What we normally think of as money is just publicly-issued and government-controlled tokens.
For those wishing to start their own alternative currencies, keep in mind, there is nothing illegal about issuing your own private money supply, as long as your money does not look like government money (which would leave you open to charges of counterfeiting).
Tokens can also be seen as a subset of metalic money. When used for general trade, tokens were characterized by their composition from common metals like copper, rather than the standard precious metals used for official money like gold or silver.
The problem with using gold or silver for coins is that the metal itself has a value, and that value can change over time. Thus, if the value of the metal goes up, people will hoard the coin for its metal, rather than use the coin as money.
When people hoard coins for their valuable metal, the trade economy is affected by a shortage of money. As strange as it sounds, money shortages have plagued humankind since the dawn of history up into the modern era. Sometimes, when shortages of gold or silver money occur, people have often resorted to tokens (such as the fascinating case described here of privately-issued token usage in early modern England).
The use of multiple types of metal coins, such as in the system of bimetalism (using gold and silver) brings up the further problem of convertability. That is, in a multi-metal system, the coins have to be fixed in relation to each other (one gold piece equaling 17 silver pieces, for example). When one metal rises in price against the other, coins made of that metal will be hoarded, since their market ratio no longer equals their official exchange ratio.
Now, the advantage of tokens lies in their production from cheap and abundant metal. Tokens are also often stamped with money-denomination values below their metal value. That is, 100 dollars worth of copper might be used to create 200 dollars worth of tokens. This mass-production of cheap tokens helps meet the needs of daily commerce, alleviating the problems of money shortage.
A critical thinking question for the reader arises: what problem is created when coins are stamped with a greater value than their metal is worth?
The answer is: counterfeiting! If you can turn 100 dollars of metal into 200 dollars worth of coin, you can make a great profit by creating money. The production of paper money represents the ultimate spread between the cost of materials versus the value of the money produced, and so counterfeiting of paper money is a perpetual problem when it is used. Given our modern printing technology, the ability today to counterfeit paper money is much more widespread than the ability to counterfeit metal money.
The critical balance point which thwarts counterfeiting is when the cost of materials is exactly equal to the value of the money. Why counterfeit money, if the cost of the materials is equal to the value of money you'd produce? In that case, you wouldn't be making any money by counterfeiting, so why bother.
For anyone today considering the issue of an alternative currency, this balance point is key, since there is essentially no way to stop or punish counterfeiters when a private money supply is issued. The value of any currency issued should be carefully tied to the value of its underlying metal, thereby avoiding the twin problems of counterfeiting and hoarding.
Local artists can make tokens, like the Phoenix bux (pictured here). Or tokens can also be ordered from a number of private mints today, such as this one, which promises tokens of the same quality as government issued coins. The list of advantages of using tokens are parallel in many cases to the arguments made for using local alternative currencies, including promotion/advertisement/publicity, price discounting, seignorage (i.e. souvenir value), and captured/circulated/repeated business encouragment.
For those wishing to start their own alternative currencies, keep in mind, there is nothing illegal about issuing your own private money supply, as long as your money does not look like government money (which would leave you open to charges of counterfeiting).
Tokens can also be seen as a subset of metalic money. When used for general trade, tokens were characterized by their composition from common metals like copper, rather than the standard precious metals used for official money like gold or silver.
The problem with using gold or silver for coins is that the metal itself has a value, and that value can change over time. Thus, if the value of the metal goes up, people will hoard the coin for its metal, rather than use the coin as money.
When people hoard coins for their valuable metal, the trade economy is affected by a shortage of money. As strange as it sounds, money shortages have plagued humankind since the dawn of history up into the modern era. Sometimes, when shortages of gold or silver money occur, people have often resorted to tokens (such as the fascinating case described here of privately-issued token usage in early modern England).
The use of multiple types of metal coins, such as in the system of bimetalism (using gold and silver) brings up the further problem of convertability. That is, in a multi-metal system, the coins have to be fixed in relation to each other (one gold piece equaling 17 silver pieces, for example). When one metal rises in price against the other, coins made of that metal will be hoarded, since their market ratio no longer equals their official exchange ratio.
Now, the advantage of tokens lies in their production from cheap and abundant metal. Tokens are also often stamped with money-denomination values below their metal value. That is, 100 dollars worth of copper might be used to create 200 dollars worth of tokens. This mass-production of cheap tokens helps meet the needs of daily commerce, alleviating the problems of money shortage.
A critical thinking question for the reader arises: what problem is created when coins are stamped with a greater value than their metal is worth?
The answer is: counterfeiting! If you can turn 100 dollars of metal into 200 dollars worth of coin, you can make a great profit by creating money. The production of paper money represents the ultimate spread between the cost of materials versus the value of the money produced, and so counterfeiting of paper money is a perpetual problem when it is used. Given our modern printing technology, the ability today to counterfeit paper money is much more widespread than the ability to counterfeit metal money.
The critical balance point which thwarts counterfeiting is when the cost of materials is exactly equal to the value of the money. Why counterfeit money, if the cost of the materials is equal to the value of money you'd produce? In that case, you wouldn't be making any money by counterfeiting, so why bother.
For anyone today considering the issue of an alternative currency, this balance point is key, since there is essentially no way to stop or punish counterfeiters when a private money supply is issued. The value of any currency issued should be carefully tied to the value of its underlying metal, thereby avoiding the twin problems of counterfeiting and hoarding.
Local artists can make tokens, like the Phoenix bux (pictured here). Or tokens can also be ordered from a number of private mints today, such as this one, which promises tokens of the same quality as government issued coins. The list of advantages of using tokens are parallel in many cases to the arguments made for using local alternative currencies, including promotion/advertisement/publicity, price discounting, seignorage (i.e. souvenir value), and captured/circulated/repeated business encouragment.
Wednesday, November 4, 2009
Gold a Rising Force as Money
Gold is making a strong comeback as the international unit of account, as the world moves away from fiat paper dollars. It is actually quite amazing to watch monetary theory unfold before one's very eyes.
The fact is, fiat currencies are just fine for national/enclosed economies. It is only when trading between economies that a stable unit of account is a necessity. Gold, because of its relatively stable and constant supply, is the perfect solution to the need for this international unit of account.
Gold is undergoing a rapid international monetization to fullfill this role now, as the international community has decided to abandon the US dollar as reserve currency. As usual, the general public is generally clueless, because an Authority as not made an Official Announcement. But the game is on, albeit a secret game, played under the table, so as not to spook the markets in dollars and gold. Even played without Offical Announcement, the game is becoming obvious to the casual observer, with more open ackowledgements of central banks buying up gold and the price climbing a steep hill upward.
Obviously, central banks would prefer to purchase on dips, but there are no dips. The price is jump step climbing upward, relentlessly responding to demand, the demand which is trying to maintain itself as secretly and quietly as possible. There is an almost literal mad rush internationally right now to take physical possession of all gold reserves.
The abandonment of the dollar as the reserve currency is already starting to cause inflation in the US. That, along with continued record deficit spending, is going to ramp up inflation depite continued economic collapse and high unemployment. In other words, the worst of both worlds.
from http://news.goldseek.com/BullionVault/1257258074.php
Paul Mercier, a senior central banker [from the European Central Bank (ECB)] said official holders overall will no longer be net sellers of gold," said UBS analyst John Reade today, summing up the London Bullion Market Association's 2009 conference here in Edinburgh. "Given the Indian announcement overnight, that forecast's already true for this year. Central banks are now net buyers."
ECB markets manager, Mercier yesterday told the LBMA conference that although diminished from its early 20th-century role in the world's monetary system, gold continues to be an important asset in global reserves.
In private investor and institutional portfolios, "We've seen a move away from unallocated gold to allocated gold," said Neil Clift of J.P.Morgan Chase at a debate held at the LBMA's conference this morning. Commenting on the shift from unsecured credit accounts to physical positions held in secure custody, "[It means] the client owns their gold, there's no first lien over it, and they can come and take it away when they want."
"There will be a threat to the London market from overseas storage if we see the ETFs continue to grow, as we expect they will," Clift said, noting that Asian and Middle Eastern investors increasingly want exchange-traded products that vault in or near their home state – and are also priced in their domestic currency, rather than US Dollars.
Commenting on the much-discussed issue of bringing the different bodies representing London's bullion market together into some more formal organization – and which is likely to see "cleared forwards" for London gold offered by a formal exchange very shortly – "I think it's fantastic for the bullion market that the [Chicago Mercantile Exchange] is now accepting gold as collateral on other positions," said Key."We can expect to see other exchanges accepting gold as collateral over the next year, alongside dollars, currency, T-bonds."
The fact is, fiat currencies are just fine for national/enclosed economies. It is only when trading between economies that a stable unit of account is a necessity. Gold, because of its relatively stable and constant supply, is the perfect solution to the need for this international unit of account.
Gold is undergoing a rapid international monetization to fullfill this role now, as the international community has decided to abandon the US dollar as reserve currency. As usual, the general public is generally clueless, because an Authority as not made an Official Announcement. But the game is on, albeit a secret game, played under the table, so as not to spook the markets in dollars and gold. Even played without Offical Announcement, the game is becoming obvious to the casual observer, with more open ackowledgements of central banks buying up gold and the price climbing a steep hill upward.
Obviously, central banks would prefer to purchase on dips, but there are no dips. The price is jump step climbing upward, relentlessly responding to demand, the demand which is trying to maintain itself as secretly and quietly as possible. There is an almost literal mad rush internationally right now to take physical possession of all gold reserves.
The abandonment of the dollar as the reserve currency is already starting to cause inflation in the US. That, along with continued record deficit spending, is going to ramp up inflation depite continued economic collapse and high unemployment. In other words, the worst of both worlds.
from http://news.goldseek.com/BullionVault/1257258074.php
Paul Mercier, a senior central banker [from the European Central Bank (ECB)] said official holders overall will no longer be net sellers of gold," said UBS analyst John Reade today, summing up the London Bullion Market Association's 2009 conference here in Edinburgh. "Given the Indian announcement overnight, that forecast's already true for this year. Central banks are now net buyers."
ECB markets manager, Mercier yesterday told the LBMA conference that although diminished from its early 20th-century role in the world's monetary system, gold continues to be an important asset in global reserves.
In private investor and institutional portfolios, "We've seen a move away from unallocated gold to allocated gold," said Neil Clift of J.P.Morgan Chase at a debate held at the LBMA's conference this morning. Commenting on the shift from unsecured credit accounts to physical positions held in secure custody, "[It means] the client owns their gold, there's no first lien over it, and they can come and take it away when they want."
"There will be a threat to the London market from overseas storage if we see the ETFs continue to grow, as we expect they will," Clift said, noting that Asian and Middle Eastern investors increasingly want exchange-traded products that vault in or near their home state – and are also priced in their domestic currency, rather than US Dollars.
Commenting on the much-discussed issue of bringing the different bodies representing London's bullion market together into some more formal organization – and which is likely to see "cleared forwards" for London gold offered by a formal exchange very shortly – "I think it's fantastic for the bullion market that the [Chicago Mercantile Exchange] is now accepting gold as collateral on other positions," said Key."We can expect to see other exchanges accepting gold as collateral over the next year, alongside dollars, currency, T-bonds."
Tuesday, October 13, 2009
Jubilee as Protection against Fractional Reserve Banking
Imagine you had a $100 in your account, and your family needed some money. They all promise to pay you back, so you write a check for $400 to mom, $300 to dad, $200 to bro, and $100 to sis.
Inconceivable, right? Not if you call yourself a bank! Then it is perfectly legitimate. Welcome to the world of fractional reserve banking.
Fractional banking means that private parties can create money from scratch, then loan it out. Oh, yeah, AND require repayment on interest. On money they never had in the first place!
The money is made-up, but the debt is quite real! If you can't pay back their made-up money, with interest, they might just have the right to garnish your wages.
When looking at the big picture, the entire edifice of modern banking is a huge exploitation machine, run by the parasitic banking classes. Their method of operations is to create as much loan money as possible, because that means more profit for them. Thus, as you can see, it is the banks who are the primary drivers of unsustainable consumerism, perpetually encouraging and enabling debt burdens.
There is literally no end point, no natural limit to the amount of debt that banks will foist upon the commoners. The logic of competitive capitalism dictates the cut-throat competition to spread loan growth. The banking industry, just like biological parasites, will grow out of control until their host is destroyed. This is what Greenspan was referring to when he famously said his faith in capitalism was shaken: he naively assumed banks would regulate themselves to avoid self-destructive loan growth. The problem is, individual banks might want to restrict their own growth, but the banking system as a whole cannot. Banks who issue more debt simply crowd out and take over banks who issue less, thus ensuring out-of-control debt growth for the whole system.
The Jubilee cycle is like a regular innoculation and treatment, killing off the parasitic infestation of debt parasites. When bankers know that debt will automatically be forgiven, they will control their own debt-issuance. Why would they give out loans when they know the debt will be erased? At the beginning of the Jubilee cycle, long term loans, up to 50 years, are possible. As time gets closer to the Jubilee Year, loan terms are shortened. Naturally, banks would be far less likely to provide loans at all, as the risk of total loss is great if the debtor strings repayment out.
Under the fractional reserve system, banks are able to hoard wealth and power in a naked power grab. Jubilee offers protection against that power.
Now, some might suggest that we regulate banks, perhaps even eliminate fractional reserve banking altogether. Here is the problem:
As we know from history, money holders will attempt fractional reserve lending, getting away with it as much as they can. The proposal to regulate banks on that scale involves a massive state regulatory apparatus. As we know, bankers are expert at corrupting regulators, so even with the expense of a full regulatory regime, we cannot expect to ever truly eliminate fractional banking.
The Jubilee cycle would accomplish the best of all worlds: minimal government establishment, while leading banks to restrain themselves in accordinance with their own self-interests.
Inconceivable, right? Not if you call yourself a bank! Then it is perfectly legitimate. Welcome to the world of fractional reserve banking.
Fractional banking means that private parties can create money from scratch, then loan it out. Oh, yeah, AND require repayment on interest. On money they never had in the first place!
The money is made-up, but the debt is quite real! If you can't pay back their made-up money, with interest, they might just have the right to garnish your wages.
When looking at the big picture, the entire edifice of modern banking is a huge exploitation machine, run by the parasitic banking classes. Their method of operations is to create as much loan money as possible, because that means more profit for them. Thus, as you can see, it is the banks who are the primary drivers of unsustainable consumerism, perpetually encouraging and enabling debt burdens.
There is literally no end point, no natural limit to the amount of debt that banks will foist upon the commoners. The logic of competitive capitalism dictates the cut-throat competition to spread loan growth. The banking industry, just like biological parasites, will grow out of control until their host is destroyed. This is what Greenspan was referring to when he famously said his faith in capitalism was shaken: he naively assumed banks would regulate themselves to avoid self-destructive loan growth. The problem is, individual banks might want to restrict their own growth, but the banking system as a whole cannot. Banks who issue more debt simply crowd out and take over banks who issue less, thus ensuring out-of-control debt growth for the whole system.
The Jubilee cycle is like a regular innoculation and treatment, killing off the parasitic infestation of debt parasites. When bankers know that debt will automatically be forgiven, they will control their own debt-issuance. Why would they give out loans when they know the debt will be erased? At the beginning of the Jubilee cycle, long term loans, up to 50 years, are possible. As time gets closer to the Jubilee Year, loan terms are shortened. Naturally, banks would be far less likely to provide loans at all, as the risk of total loss is great if the debtor strings repayment out.
Under the fractional reserve system, banks are able to hoard wealth and power in a naked power grab. Jubilee offers protection against that power.
Now, some might suggest that we regulate banks, perhaps even eliminate fractional reserve banking altogether. Here is the problem:
As we know from history, money holders will attempt fractional reserve lending, getting away with it as much as they can. The proposal to regulate banks on that scale involves a massive state regulatory apparatus. As we know, bankers are expert at corrupting regulators, so even with the expense of a full regulatory regime, we cannot expect to ever truly eliminate fractional banking.
The Jubilee cycle would accomplish the best of all worlds: minimal government establishment, while leading banks to restrain themselves in accordinance with their own self-interests.
Thursday, October 8, 2009
The Necessity of the Jubilee Cycle in the Modern Economy
As detailed in my last article, the modern economic condition of primarily credit money creates a new economic dynamic:
Under traditional paper money schemes, the excessive issuance of money results in hyperinflation.
Under modern credit money schemes, the excessive issuance of money results in Minski moments of economic collapse because of unsustainable debt levels.
The ancient Jubilee cycle, extinguishing all debt every 50 years, is perfectly suited to this new modern condition. The Jubilee cycle would be the perfect restrictor and regulator of the Minski debt-collapse cycle, and is thus a necessity for economic stability in the modern world.
Many monetary theorists and reformers are looking backwards, and recommending that we reign in the Minski cycle by eliminating the fractional reserve banking system. However correct this proposal is on the theoretical level, it is impractical because time and knowledge cannot be undone. A similar critique faces those who would return us to the gold standard: it was tried, and abandoned, time has moved on. As much as we would like to return to a Constitutional system of limited government, Pandora's box has already been opened.
A debt-cancellation Jubilee is the best solution to our current economic situation, which was caused by excessive debt. The Jubilee system of periodic debt cancellation is the only way to keep it from happening again and again. The Jubilee cycle would be the bedrock of sustainable economic development, which is yet another long-range necessity which must be faced by forward-looking economic leaders.
Under traditional paper money schemes, the excessive issuance of money results in hyperinflation.
Under modern credit money schemes, the excessive issuance of money results in Minski moments of economic collapse because of unsustainable debt levels.
The ancient Jubilee cycle, extinguishing all debt every 50 years, is perfectly suited to this new modern condition. The Jubilee cycle would be the perfect restrictor and regulator of the Minski debt-collapse cycle, and is thus a necessity for economic stability in the modern world.
Many monetary theorists and reformers are looking backwards, and recommending that we reign in the Minski cycle by eliminating the fractional reserve banking system. However correct this proposal is on the theoretical level, it is impractical because time and knowledge cannot be undone. A similar critique faces those who would return us to the gold standard: it was tried, and abandoned, time has moved on. As much as we would like to return to a Constitutional system of limited government, Pandora's box has already been opened.
A debt-cancellation Jubilee is the best solution to our current economic situation, which was caused by excessive debt. The Jubilee system of periodic debt cancellation is the only way to keep it from happening again and again. The Jubilee cycle would be the bedrock of sustainable economic development, which is yet another long-range necessity which must be faced by forward-looking economic leaders.
Wednesday, October 7, 2009
The Dangers and Advantages of Credit Creation
Excellent article by Peter Warburton over at Gold Eagle, http://www.gold-eagle.com/gold_digest_01/warburton041801.html, that, although written in 2001, deals with many issues we are facing today. The central problem he addresses, especially as he came from a monetarist perspective, is the lack of connection between money expansion and inflation, the very issue at the center of the inflation/deflation debate today.
Warburton accounts for this puzzling phenomenon as due to the role of credit. The rise of the credit-based economy has radically changed the economic landscale since the 1980s. As he puts it, "On the one hand, it has enabled the monetary aggregates to grow much more slowly than the credit aggregates, helping to keep inflation lower. On the other hand, the non-bank credit avalanche has enabled a furious pace of fixed investment in physical assets that has promoted structural global excess capacity in virtually all manufactured products and exerted downward pressure on product prices."
In other words, credit is inherently non-inflationary, and it allows economic activity to the point of overproduction and oversupply, which is actually disinflationary.
Even though he was writting in 2001, Wharburton exactly describes the conditions of 2009, noting that monetary expansions are mainly caused by banking stress, as the troubled banks hoard the cash: "The more obvious are the system’s weaknesses, the greater is the fear of collapse and the larger the demand for liquidity within the financial markets. In these stressful episodes, it is the financial markets themselves that are the principal driving force behind the monetary expansion. Hence, there is relatively little monetary impact on the product and labour markets, that is, on prices and wages."
Thus, we have massive expansion of the monetary base without inflation, because the banks are just sitting on the money.
Wharburton posits that inflation due to monetary expansion is not to be found on the consumer price level, because it affects other sectors, especially in the value of the currency itself. The real price paid for over-expansion of credit is overproduction and malinvestment. The final outcome is debt deflation: "In the limit, the construction of excess capacity gives rise to debt default, as the idle portion of capacity does not earn an income and cannot service the debt that financed its construction." The result: "central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur." Again, we witnessed this precisely as described.
The real cost of this credit destruction is paid by the currency: "The latent losses in the credit system, emanating from non-performing loans and defaulting bonds, represent a charge against the value of the currency, as surely as if the edges of the notes and coins had been trimmed away. " The main obstacle to realizing it, is that the debasement of any one currency is kept hidden by the fact that all national paper currencies are being debased in the same fashion.
Jubilee Analysis:
Credit creation is a form of resource allocation, functionally equivalent to money. In other words, a credit line allows you to purchase real labor and resources, in direct competition with cash purchasers. Thus, credit creation can drive up prices just like cash creation can. The advantage of credit creation over cash creation is the avoidance of hyper-inflationary effects, as credit is created and extinguished. The downside is the tendency towards malinvestment and debt-deflation when credit levels become too high.
This is THE fundamental issue flying right over the heads of the Hard Money types. The majority of money is not centrally issued. Sure, our currency is issued by the feds, but most money is functionally created by banks in the form of credit. The only way to eliminate the issuance of credit money by banks is to eliminate the system of fractional reserve banking.
Warburton accounts for this puzzling phenomenon as due to the role of credit. The rise of the credit-based economy has radically changed the economic landscale since the 1980s. As he puts it, "On the one hand, it has enabled the monetary aggregates to grow much more slowly than the credit aggregates, helping to keep inflation lower. On the other hand, the non-bank credit avalanche has enabled a furious pace of fixed investment in physical assets that has promoted structural global excess capacity in virtually all manufactured products and exerted downward pressure on product prices."
In other words, credit is inherently non-inflationary, and it allows economic activity to the point of overproduction and oversupply, which is actually disinflationary.
Even though he was writting in 2001, Wharburton exactly describes the conditions of 2009, noting that monetary expansions are mainly caused by banking stress, as the troubled banks hoard the cash: "The more obvious are the system’s weaknesses, the greater is the fear of collapse and the larger the demand for liquidity within the financial markets. In these stressful episodes, it is the financial markets themselves that are the principal driving force behind the monetary expansion. Hence, there is relatively little monetary impact on the product and labour markets, that is, on prices and wages."
Thus, we have massive expansion of the monetary base without inflation, because the banks are just sitting on the money.
Wharburton posits that inflation due to monetary expansion is not to be found on the consumer price level, because it affects other sectors, especially in the value of the currency itself. The real price paid for over-expansion of credit is overproduction and malinvestment. The final outcome is debt deflation: "In the limit, the construction of excess capacity gives rise to debt default, as the idle portion of capacity does not earn an income and cannot service the debt that financed its construction." The result: "central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur." Again, we witnessed this precisely as described.
The real cost of this credit destruction is paid by the currency: "The latent losses in the credit system, emanating from non-performing loans and defaulting bonds, represent a charge against the value of the currency, as surely as if the edges of the notes and coins had been trimmed away. " The main obstacle to realizing it, is that the debasement of any one currency is kept hidden by the fact that all national paper currencies are being debased in the same fashion.
Jubilee Analysis:
Credit creation is a form of resource allocation, functionally equivalent to money. In other words, a credit line allows you to purchase real labor and resources, in direct competition with cash purchasers. Thus, credit creation can drive up prices just like cash creation can. The advantage of credit creation over cash creation is the avoidance of hyper-inflationary effects, as credit is created and extinguished. The downside is the tendency towards malinvestment and debt-deflation when credit levels become too high.
This is THE fundamental issue flying right over the heads of the Hard Money types. The majority of money is not centrally issued. Sure, our currency is issued by the feds, but most money is functionally created by banks in the form of credit. The only way to eliminate the issuance of credit money by banks is to eliminate the system of fractional reserve banking.
Tuesday, October 6, 2009
Dollar Replacement Rumbles Begin
Wow, what a night. The dollar falls sharply, with gold up up up, all due to the DENIED rumor of Gulf state movement to leave the dollar. The Independent yesterday released a bombshell of a report detailing a secret plot to abandon the dollar in the oil trade (http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html). The process is supposed to take 9 years, but markets reacted sharply in the following 24 hours!
The most amazing part of the story is the American press's complete lack of coverage of it. With today's movement in the dollar and gold, it seems they will have to cover it. We shall see.
Reuters India reports:
"...analysts said that while individual countries would find it relatively easy to stop using the dollar in settling oil trades, as Iran has already done, replacing the currency in which oil is priced would require a massive effort. The newspaper story did not make clear how the change would work, and many analysts doubted it would occur any time soon."
Frankly, this is assurance without substance. Why would it require massive effort? It could be done tomorrow! We are approaching the borderline between orderly and disorderly collapse of the dollar, meaning, how long will it take?
Every major non-NATO country has already come out and said they desire dollar replacement, and the Gulf states have already publicly stated their desire for a regional currency, so the latest denials ring hollow:
The most amazing part of the story is the American press's complete lack of coverage of it. With today's movement in the dollar and gold, it seems they will have to cover it. We shall see.
Reuters India reports:
"...analysts said that while individual countries would find it relatively easy to stop using the dollar in settling oil trades, as Iran has already done, replacing the currency in which oil is priced would require a massive effort. The newspaper story did not make clear how the change would work, and many analysts doubted it would occur any time soon."
Frankly, this is assurance without substance. Why would it require massive effort? It could be done tomorrow! We are approaching the borderline between orderly and disorderly collapse of the dollar, meaning, how long will it take?
Every major non-NATO country has already come out and said they desire dollar replacement, and the Gulf states have already publicly stated their desire for a regional currency, so the latest denials ring hollow:
But top officials of Saudia Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks. The two countries are the world's largest and second-largest oil exporters. Asked by reporters about the newspaper story, Saudi Arabia's central bank chief Muhammad al-Jasser said: "Absolutely incorrect." He repeated the same response when asked whether Saudi Arabia was in such talks. Kuwait's oil minister made similar remarks, while Russia's deputy finance minister Dmitry
Pankin said: "We did not discuss this at all." Algerian Finance Minister Karim Djoudi told Reuters: "Oil producing countries need to stabilise revenues but...I don't see a need for oil trade to be denominated differently."
Friday, October 2, 2009
Chartilist Monetary Theory Insanity
There is no doubt that operating under fiat currency introduces a new monetary theory that most people have not grasped, but the Chartilists have apparently jumped off the deep edge, as they have come up with a new theory of money that recommend larger government, zero interest rates, and expanding deficits.
Their basic argument appears to be that after the passing of the gold standard era in 1971, governments are no longer revenue-constrained, and thus, government money is free and goverment debt is just fine, better than fine, really, since government debt drives down interest rates and provides savings. To them, opposition to more government involvement and expanded deficits just boils down to "an ideological obsession that government is bad and private markets are good."
It seems we have run into another species of the modern Greenbackers, who believe that government money is now free, with the main difference being the Chartilists are based out of Australia. Frankly, these people are positively dangerous. I am tempted to attribute their lack of realistic thinking to the fact that they are leftists, and liberalism is defined as the substitution of fantasy for reality.
See, for example, this: "Imagine if the government saw through all the smokescreens and announced they were no longer issuing debt and would just continue to credit bank accounts as necessary to support full employment? The neo-liberals would scream inflation … but would soon run out of steam with that line of attack."
Also, this gem: "Why will inflation rise? With capacity utilisation rates so low around the world and spare labour capacity what will generate a widespread inflation? Perhaps oil prices? But that will be due to an olipolistic cartel (OPEC) and nothing to do with the deficits." (source quotes here: http://bilbo.economicoutlook.net/blog/?p=5219#more-5219)
The fundamental issue can be boiled down to the question: since fiat-currency issuing governments can print their own money, why collect taxes at all, why not just issue new money to pay for government expenditures? The proposition sounds simple and self-evident, but glosses over some very deep problems.
The most fundamental problem is this: a) money that is created without an accompanying creation of real wealth is inflationary and b) government action does not create wealth. Thus, governments that issue new money to cover current expenses quickly spiral off into an inflationary tailspin. Money created to fund a service is inflationary because once the service is performed, the money still remains and so we have an ever-expanding money supply.
Compare that with a pure credit clearing system, a la Thomas Greco, wherein mutual credit is spontaneously created and extinguished in a balanced fashion with every economic transaction. Such credit clearing is non-inflationary, since credit is created then extinguished. If money had to be created for each transaction instead of credit, the volume of money would quickly rise exponentially. This process accounts for such historical inflations as occured in colonial Canada when, in response to a coin shortage, playing cards became money (described here: http://www.micheloud.com/FXM/MH/canada.htm).
Thus, to balance government expenditures, taxes must be extracted in an equal amount. Any excess of government expenditure above the amount removed through taxation is, by definition, inflationary. That is the problem with government deficits. Deficit spending is inherently inflationary, as they introduce money into the system without the creation of wealth.
Now, some might object, government could theoretically introduce money to pay for wealth creation activities. That point is true, it could. But it doesn't. That is not that nature or function of modern government. We don't have a wing of government devoted to creating economic wealth, although the Chinese do, and it is working fantastically for them.
Our governments, like China's, could indeed create entire industries from scratch with fiat money, and produce no inflation. Such industries would be an economic positive if they competed with foreign industries, or created industries that otherwise did not exist at all. But the fact is, most of our government programs today fund only welfare programs, which are transfers of wealth, not wealth creating.
It is a standard Keynesian idea that in times of economic downturn, government ramp up spending to replace shrinking private spending. The idea makes perfect sense, and works wonderfully, when targetted on wealth-creating industry and not connected to the fact of high and increasing debt.
When stimulus money merely goes to filling budget gaps, while increasing the debt load, the treatment is worse than the disease, because the economic condition post-stimulus will be worse than it was pre-stimulus.
Their basic argument appears to be that after the passing of the gold standard era in 1971, governments are no longer revenue-constrained, and thus, government money is free and goverment debt is just fine, better than fine, really, since government debt drives down interest rates and provides savings. To them, opposition to more government involvement and expanded deficits just boils down to "an ideological obsession that government is bad and private markets are good."
It seems we have run into another species of the modern Greenbackers, who believe that government money is now free, with the main difference being the Chartilists are based out of Australia. Frankly, these people are positively dangerous. I am tempted to attribute their lack of realistic thinking to the fact that they are leftists, and liberalism is defined as the substitution of fantasy for reality.
See, for example, this: "Imagine if the government saw through all the smokescreens and announced they were no longer issuing debt and would just continue to credit bank accounts as necessary to support full employment? The neo-liberals would scream inflation … but would soon run out of steam with that line of attack."
Also, this gem: "Why will inflation rise? With capacity utilisation rates so low around the world and spare labour capacity what will generate a widespread inflation? Perhaps oil prices? But that will be due to an olipolistic cartel (OPEC) and nothing to do with the deficits." (source quotes here: http://bilbo.economicoutlook.net/blog/?p=5219#more-5219)
The fundamental issue can be boiled down to the question: since fiat-currency issuing governments can print their own money, why collect taxes at all, why not just issue new money to pay for government expenditures? The proposition sounds simple and self-evident, but glosses over some very deep problems.
The most fundamental problem is this: a) money that is created without an accompanying creation of real wealth is inflationary and b) government action does not create wealth. Thus, governments that issue new money to cover current expenses quickly spiral off into an inflationary tailspin. Money created to fund a service is inflationary because once the service is performed, the money still remains and so we have an ever-expanding money supply.
Compare that with a pure credit clearing system, a la Thomas Greco, wherein mutual credit is spontaneously created and extinguished in a balanced fashion with every economic transaction. Such credit clearing is non-inflationary, since credit is created then extinguished. If money had to be created for each transaction instead of credit, the volume of money would quickly rise exponentially. This process accounts for such historical inflations as occured in colonial Canada when, in response to a coin shortage, playing cards became money (described here: http://www.micheloud.com/FXM/MH/canada.htm).
Thus, to balance government expenditures, taxes must be extracted in an equal amount. Any excess of government expenditure above the amount removed through taxation is, by definition, inflationary. That is the problem with government deficits. Deficit spending is inherently inflationary, as they introduce money into the system without the creation of wealth.
Now, some might object, government could theoretically introduce money to pay for wealth creation activities. That point is true, it could. But it doesn't. That is not that nature or function of modern government. We don't have a wing of government devoted to creating economic wealth, although the Chinese do, and it is working fantastically for them.
Our governments, like China's, could indeed create entire industries from scratch with fiat money, and produce no inflation. Such industries would be an economic positive if they competed with foreign industries, or created industries that otherwise did not exist at all. But the fact is, most of our government programs today fund only welfare programs, which are transfers of wealth, not wealth creating.
It is a standard Keynesian idea that in times of economic downturn, government ramp up spending to replace shrinking private spending. The idea makes perfect sense, and works wonderfully, when targetted on wealth-creating industry and not connected to the fact of high and increasing debt.
When stimulus money merely goes to filling budget gaps, while increasing the debt load, the treatment is worse than the disease, because the economic condition post-stimulus will be worse than it was pre-stimulus.
Steve Keen Proves the People's Bailout Works Best
As I have been arguing all along, the only effective solution to debt deflation is cancellation of debt, and stimulus needs to go directly to the people, not to the banks. Perhaps Steve Keen cogitated over the comments I left on his blog, as he created a computer model to test the theory. Low and behold, his model proved the People's Bailout is correct: money given to banks is far less effective, even in theory, than money given directly to citizens.
As he puts it at his post http://www.debtdeflation.com/blogs/2009/09/19/it’s-hard-being-a-bear-part-five-rescued/:
I’ve recently developed a genuinely monetary, credit-driven model of the economy, and one of its first insights is that Obama has been sold a pup on the right way to stimulate the economy: he would have got far more bang for his buck by giving the stimulus to the debtors rather than the creditors.
The model shows that you get far more “bang for your buck” by giving the money to firms, rather than banks. Unemployment falls in both case below the level that would have applied in the absence of the stimulus, but the reduction in unemployment is far greater when the firms get the stimulus, not the banks: unemployment peaks at over 18 percent without the stimulus, just over 13 percent with the stimulus going to the banks, but under 11 percent with the stimulus being given to the firms.
The time path of the recession is also greatly altered. The recession is shorter with the stimulus, but there’s actually a mini-boom in the middle of it with the firm-directed stimulus, versus a simply lower peak to unemployment with the bank-directed stimulus.
When a credit crunch strikes, the pipes pumping the bank reserves to the firms shrink dramatically, while the pipe going in the opposite direction expands, and all other pipes remain the same size.
If you then fill up the bank reserves reservoir—by the government pumping the extra $100 billion into it—that money will only trickle into the economy slowly. If however you put that money into the firms’ bank accounts, it would flow at an unchanged rate to the rest of the economy—the workers—while flowing more quickly to the banks as well, reducing debt levels.
So giving the stimulus to the debtors is a more potent way of reducing the impact of a credit crunch—the opposite of the advice given to Obama by his neoclassical advisers.
Obama has been sold a pup by neoclassical economics: not only did neoclassical theory help cause the crisis, by championing the growth of private debt and the asset bubbles it financed; it also is undermining efforts to reduce the severity of the crisis.
This is unfortunately the good news: the bad news is that this model only considers an economy undergoing a “credit crunch”, and not also one suffering from a serious debt overhang that only a direct reduction in debt can tackle. That is our actual problem, and while a stimulus will work for a while, the drag from debt-deleveraging is still present. The economy will therefore lapse back into recession soon after the stimulus is removed.
As he puts it at his post http://www.debtdeflation.com/blogs/2009/09/19/it’s-hard-being-a-bear-part-five-rescued/:
I’ve recently developed a genuinely monetary, credit-driven model of the economy, and one of its first insights is that Obama has been sold a pup on the right way to stimulate the economy: he would have got far more bang for his buck by giving the stimulus to the debtors rather than the creditors.
The model shows that you get far more “bang for your buck” by giving the money to firms, rather than banks. Unemployment falls in both case below the level that would have applied in the absence of the stimulus, but the reduction in unemployment is far greater when the firms get the stimulus, not the banks: unemployment peaks at over 18 percent without the stimulus, just over 13 percent with the stimulus going to the banks, but under 11 percent with the stimulus being given to the firms.
The time path of the recession is also greatly altered. The recession is shorter with the stimulus, but there’s actually a mini-boom in the middle of it with the firm-directed stimulus, versus a simply lower peak to unemployment with the bank-directed stimulus.
When a credit crunch strikes, the pipes pumping the bank reserves to the firms shrink dramatically, while the pipe going in the opposite direction expands, and all other pipes remain the same size.
If you then fill up the bank reserves reservoir—by the government pumping the extra $100 billion into it—that money will only trickle into the economy slowly. If however you put that money into the firms’ bank accounts, it would flow at an unchanged rate to the rest of the economy—the workers—while flowing more quickly to the banks as well, reducing debt levels.
So giving the stimulus to the debtors is a more potent way of reducing the impact of a credit crunch—the opposite of the advice given to Obama by his neoclassical advisers.
Obama has been sold a pup by neoclassical economics: not only did neoclassical theory help cause the crisis, by championing the growth of private debt and the asset bubbles it financed; it also is undermining efforts to reduce the severity of the crisis.
This is unfortunately the good news: the bad news is that this model only considers an economy undergoing a “credit crunch”, and not also one suffering from a serious debt overhang that only a direct reduction in debt can tackle. That is our actual problem, and while a stimulus will work for a while, the drag from debt-deleveraging is still present. The economy will therefore lapse back into recession soon after the stimulus is removed.
Social Security Going Negative, Now
Add another log to the "inevitable inflation" fire: Social Security going negative now, not later. Because of our current debt deflation depression, revenues have fallen far, far faster than anticipated. Not only are revenues falling, many people are transferring their unemployment problem onto the Social Security system, as unemployment gets translated into early retirement and disability payments. The SS tax is not going to bring in enough to cover current SS payments, as soon as next year officially, probably right now in reality.
Remember, the SS Trust Fund is not a fund, and you certainly can't trust it. It is just an accounting trick. The SS tax money has been going into the general fund, helping mask the deficit, for years. The SS Trust Fund is simply a Treasury promise to pay.
Ok, so how will they pay, now that the SS tax is no longer sufficient to meet the SS payments? Raise the tax? Lower benefits? Those would take political will. Most likely: just print the money, driving up the debt and adding to the deficit, which is INHERENTLY INFLATIONARY!
It boggles my mind how the press stories continue to obfuscate and misinform. The AP article says, "The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion."
They continue to push the mistaken idea that there is a surplus of money somewhere, a build up of cash that is waiting to be drawn down. The whole thing is a complete scam, abetted by people's economic and accounting ignorance. The article says, " Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund."
So, how much sense does it make that the government can give a bond to another wing of government? It only seems to make sense as a linguistic sentence, it has no economic reality behind it whatsoever. Real translation: the money was taken in, it was spent, it is gone, there is no such thing as a trust fund. There is only a promise to pay, that is all, with no actual money to do the paying.
That is the psychology of hyperinflation. The refusal to cut budgets, the refusal to face reality. The money will be printed, there is no doubt.
http://www.google.com/hostednews/ap/article/ALeqM5h6BfoloJOnV0TeI7eIHC1ZWuBxygD9AVS0202
Remember, the SS Trust Fund is not a fund, and you certainly can't trust it. It is just an accounting trick. The SS tax money has been going into the general fund, helping mask the deficit, for years. The SS Trust Fund is simply a Treasury promise to pay.
Ok, so how will they pay, now that the SS tax is no longer sufficient to meet the SS payments? Raise the tax? Lower benefits? Those would take political will. Most likely: just print the money, driving up the debt and adding to the deficit, which is INHERENTLY INFLATIONARY!
It boggles my mind how the press stories continue to obfuscate and misinform. The AP article says, "The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion."
They continue to push the mistaken idea that there is a surplus of money somewhere, a build up of cash that is waiting to be drawn down. The whole thing is a complete scam, abetted by people's economic and accounting ignorance. The article says, " Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund."
So, how much sense does it make that the government can give a bond to another wing of government? It only seems to make sense as a linguistic sentence, it has no economic reality behind it whatsoever. Real translation: the money was taken in, it was spent, it is gone, there is no such thing as a trust fund. There is only a promise to pay, that is all, with no actual money to do the paying.
That is the psychology of hyperinflation. The refusal to cut budgets, the refusal to face reality. The money will be printed, there is no doubt.
http://www.google.com/hostednews/ap/article/ALeqM5h6BfoloJOnV0TeI7eIHC1ZWuBxygD9AVS0202
Wednesday, September 23, 2009
The Art of Not Seeing the Inflation Right in Front of Your Eyes
It is remarkable to me that analysts like the widely-read Mike Shedlock continue to miss the inflation that is going on all around us. It's like a passenger on a boat remarking on how slow the boat is going, when the engines are running 101 mph against a 100 mph current. [Of course, he also misses the obvious destruction unleashed by so-called free trade and is only just now hedging over to the side of debt-forgiveness, so it is probably accurate to say he is more clever than intelligent.]
Even the CPI, which is a misleading piece of junk when it comes to measuring total economy-wide inflation, is showing inflation. And this is in the face of the greatest destruction of household wealth in history, a worldwide industrial collapse, a worldwide credit collapse, and the highest levels of unemployment since the Great Depression. And inflation only took a couple months vacation!
The consumer price index peaked in August 2008 and bottomed in December 2008 (source). From then to August 2009, just a bit over half a year, the cpi has risen 2.7%.
To put this in perspective, from December 2000 to December 2006, the average increase in the CPI was 2.6% per year. So how is it that even during an historic collapse in consumer credit, household wealth, and employment, we are seeing higher than normal inflation on the consumer level???
And let's remeber, the CPI doesn't even measure the inflationary investment environment, aka bubblenomics, such as the bubble in stocks or the bubble in government bonds, or the previous inflation in home values prior to 2008.
Combine the above facts with the slow death spiral of the US dollar and the surging rate of federal debt spending, not to mention the monetization of the debt. The upcoming inflation is not going to be pretty.
Even the CPI, which is a misleading piece of junk when it comes to measuring total economy-wide inflation, is showing inflation. And this is in the face of the greatest destruction of household wealth in history, a worldwide industrial collapse, a worldwide credit collapse, and the highest levels of unemployment since the Great Depression. And inflation only took a couple months vacation!
The consumer price index peaked in August 2008 and bottomed in December 2008 (source). From then to August 2009, just a bit over half a year, the cpi has risen 2.7%.
To put this in perspective, from December 2000 to December 2006, the average increase in the CPI was 2.6% per year. So how is it that even during an historic collapse in consumer credit, household wealth, and employment, we are seeing higher than normal inflation on the consumer level???
And let's remeber, the CPI doesn't even measure the inflationary investment environment, aka bubblenomics, such as the bubble in stocks or the bubble in government bonds, or the previous inflation in home values prior to 2008.
Combine the above facts with the slow death spiral of the US dollar and the surging rate of federal debt spending, not to mention the monetization of the debt. The upcoming inflation is not going to be pretty.
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