Money as Debt

[bart]

Re: Money as Debt

FWIW, gold Holdings by the public are overtaking holdings by the Central Banks.

True, although do be a bit cautious since it reflects ETFs and non allocated accounts too. In other words, it does not reflect gold in hand and fully unencumbered.

[Charles Mackay]

Re: Money as Debt

True, although do be a bit cautious since it reflects ETFs and non allocated accounts too. In other words, it does not reflect gold in hand and fully unencumbered.

It would be nice to be able to track how much of ETF gold is real vaulted and allocated gold. CEF, GTU, and the digital gold like BullionValut and Turk's GoldMoney are real ounces bought and paid for but the big one GLD isn't. I'm not sure how India is handling their two new gold ETFs (Gold BeES and the other one)

[Charles Mackay]

Re: Money as Debt

Paul, take a look at these successful currency systems.

http://www.peakmoment.tv/conversations/49.html

http://www.4thcornerexchange.com/

[wegorkie]

Re: Money as Debt

Thanks guys, I watched the film carefully and read the whole discussion.

Well the film seems to answer my previous questions and the next I wanted to follow with. Looking at the rules of money creation it seemed like it was absurd process that has to lead to:

- grow overall debt to infinity
- steal goods from people that trust in saving the currency
- ... and some other more minor issues like mega-crisis somewhen in the future

Now the film clearly confirms these conclusions are correct. This is so strange to me that I want to have just one question more: is there any source that claims opposite? Is the film conclusion controversial in some way? I would like to know if it is really solid knowledge or a matter of faith in any way.

[Rajiv]

Re: Money as Debt

You can read up more about money at http://appropriate-economics.org/

Many resources at Complementary Currency Resource Center

From Introduction to the foundation and practice of appropriate economics

Since the publication of “Small is Beautiful” by E.F. Schumacher in 1973, his presentation of the need for an intermediate and appropriate technology has grown to become a significant movement in development worldwide. Although his calls for an appropriate application of economics in development were equally revolutionary and realistic, only rarely have we seen them put into practice. Many microfinance programs still rely on external loans from big banks at high rates of interest rather than developing the capital from within through a program which encourages borrowers to also save their money. Many economic and technological development programs follow models of economic development that are inappropriate to their particular situation.

Some economists have begun to realize that resources are not being allocated properly. Herman Daly and Joseph Stiglitz, both former heads of the World Bank, have outlined[1] the destructive effects of the present economic system on cultures and environments around the world. Many join them in criticizing the negative impacts of economic globalization and the subjugation of third world economies to the global marketplace. Other renowned economists such as J.K. Galbraith along with philosophers Fritjof Capra and E.F. Schumacher show great concern for the impacts of economics on people, environment and culture. Meanwhile, all major religions have expressed their concern, in the strongest terms, about the effects of an interest-based economic system on a harmonious way of life, calling for the inclusion of values and ethics in economics, and their opposition to the charging of interest and usury in moneylending. It sounds good, but how do we put it into practice?

We have heard it many times already that some 1.3 billion people live on less than 1 US dollar a day, and many survive on no monetary income at all. This over-simplification of the issue of monetary poverty obscures many important questions. How do people get what they need without money? Can we get what we need without having to first have money? Is the lack of day-to-day pocket money the real problem, or is it a lack of access to capital, a lack caused by dependence on external money and the charging of interest on access to it which limits its supply?

From the Principles of Complementary Currency Systems

Despite the rapid spread of democracy, and the corresponding political enfranchisement granted to more individuals than at any time in history, these gains are being undermined as the world descends into two camps, those who are economically enfranchised, and those who are not.

Economic instability has been a permanent feature of the global economic system in which we all live. Rather than deal with these problems before proceeding with the process of globalization, the very visible hands that control the global economy continue their breakneck pace of opening up domestic markets, and societies, to market penetration.

The democratic political systems that humans have created for the betterment of society have not yet been extended to the economic system. There is growing unease among a very large sector of society the world over that globalization is forcing us to live in an economy, rather than live in a society.

In order to develop appropriate responses to economic crises, and strategies for dealing with the process of economic globalization and the decentralization of government, we must begin to understand economics. Rather than subscribing to the dominant methodology and ideology of economists, with their formulas and abstract language, we must start from our communities, and from our own lives, using normal language to express what we know to be true.

The following is a brief, simple introduction to money and the economy, presented in a way we hope will help you to understand how it functions, what the problems are with it, and what we can do to change it.

You will also find the book "A History of Money and Banking in the United States" useful.

From its Introduction

In this volume, Murray Rothbard has given us a comprehensive history of money and banking in the United States, from colonial times to World War II, the first to explicitly use the interpretive framework of Austrian monetary theory. But even aside from the explicitly Austrian theoretical framework undergirding the historical narrative, this book does not “look” or “feel” like standard economic histories as they have been written during the past quarter of a century, under the influence of the positivistic “new economic history” or “cliometrics.” The focus of this latter approach to economic history, which today completely dominates this field of inquiry, is on the application of high-powered statistical methods to the analysis of quantitative economic data. What profoundly distinguishes Rothbard’s approach from the prevailing approach is his insistence upon treating economic quantities and processes as unique and complex historical events.

[Guest]

Re: Money as Debt

Rajiv -

Thank you for bringing this thread back as I for one had never read it. This thread, and the sum of it's contributors is a jewel. This is the very best of iTulip by it's contributing readers / members. All regular contributors seem in rare form here.

[quigleydoor]

Re: Money as Debt

I think the credit is due to new member wegorkie for bringing this thread back to the top! And of course thanks to all the contributors. So much to learn from this one conversation.

[Guest]

Re: Money as Debt

Ooops! Thanks must go to Wegorkie! (Sorry Rajiv - I'm evidently asleep here).

[wegorkie]

Opposite view - to read and think of

Answering to my own question, I have found the opposite view analysis. This is quite detailed and very interesting to read.

The author, Specialist in Macroeconomics, explains all conjectures and controversions about FED and monetary system, and as bottom line claims the system is correct and best of all possible.

I will try to dig into it, you guys can too if you are interested, we can talk it:

http://home.hiwaay.net/~becraft/FRS-myth.htm

[wegorkie]

Re: Money as Debt

Thanks guys! The topic is fundamental issue for many folks.

I am an investor and want to dig into it deeply as it affects the way we should consider our investment decisions I believe.

[Rajiv]

Re: Money as Debt

A good review of the video by Carolyn Baker

[Charles Mackay]

Re: Money as Debt

You have to pay your taxes in FRNs. Nothing else is accepted.
The income tax is the mechanism by which the government creates artificial demand for an otherwise worthless currency. Is it a coincidence that the income tax and the Federal Reserve were both created in the same year - 1913? Emphatically I say, it is not. As Ron Paul says, '1913 was a bad year. We need to repeal that entire year!'

[wegorkie]

For now I support the current system !

Ok guys, I rethinked the whole issue carefully many times, and I have to surprise you with the opinion that it seems to me that current system is ok (!!!)

I think I understand more and more about it. I can now answer myself for my own doubts, i.e.:

Looking at the rules of money creation it seemed like it was absurd process that has to lead to:

- grow overall debt to infinity

No, it has not to. With one assumption: that interests on debt certificates could be paid without currency. Or with currency that is not generated using debt. I am sure there is a way - this is only technical issue. For example I know that in the USA coins are not generated as debt instruments.

- steal goods from people that trust in saving the currency

Of course it has, but this is rather time that steals value if you keep currency without interest. The main point is that currency is for exchange not for keeping value.

- ... and some other more minor issues like mega-crisis somewhen in the

Not really. The debts can be paid if economic activity slows. Paying off all debts is possible if economy stops and currency can disappear. The baseline is that with working economy debt would rise together with exchange speed and volume (i.e. money supply), but it will not have to rise exponentially but together with economy activity and be not harmfull.


Now, to explain why I consider above statements true, please imagine the system that for me shows very clearly that monetary system has sense.

Imagine we have no currency at all and there is only barter. We have persons and one produces apples, second milk and third one cars. The apple producer goes to buy car he needs. The car producer wants something in exchange but the buyer has only 50kg apples which is to small. So car producer says: "You can take a car but have to promise me that you will in exchange bring me 50kg apples every year for ten following years". Then car producer wants to have milk. He gets milk the same way. He has an agreement that he can take milk for 5 years but has to give a car in exchange after 5 years.

So is the system ok? But this is exactly the monetary system based on debt-money. By exchanging goods with promises they generated debt - apple producer is in debt for car and car producer is getting more debt every year with milk. The current monetary system is just the same. You just get the same promises but in the form of banknotes - or cash.

We can notice important conclusions:
1. With increasing economic activity overall debt is growing - and it seems to be ok and logical.
2. Debt do not have to rise to infinity - is decreases as apple producer gives apples and car producer gives car to milkman. But then economic activity stops.
3. It is true that without debt, money disappears. Because promises disappear. What is wrong with that? It will never happen.
4. Keeping currency (i.e. promises) gives always loss, cause "time is money".
5. In real world - the gov and banks stockholders have some earning from issuing currency (seignorage?), but this is not so large - the money in circulation is not about whole national assets but only about what is needed for current trade.

So, iTulip experts - I am very interested in talking this out. Have I missed anything?

[Rajiv]

Re: For now I support the current system !

The primary flaw in this thought process is that continued real exponential growth is not possible. All scenarios that you outline lead either to hyperinflation, or the debt outstrips the capacity to pay and the declaration of bankruptcy by the debtor -- and a net transfer of assets from the debtor to creditor.

see Margrit Kennedy's Why Do We Need Monetary Innovation? Three common Misconceptions - Three threatening Results - Three possible Solutions.

1. The Growth Misconception

Money with interest and compound interest can grow forever

2. The Transparency Misconception

Interest is paid only when we borrow money

3. The Fairness Misconception

Everybody is treated equally in the system

[bart]

Re: For now I support the current system !

For example I know that in the USA coins are not generated as debt instruments.

There is no difference by the Fed or Treasury in their treatments of currency and coin, although coins do have an intrinsic value where paper has virtually zero.

I'll leave the rest of it up to others, other than to say we'll have to agree to disagree on your conclusions.