Forum Post: The Short, Unhappy Lives of Fiat (paper) Currencies
Posted 12 years ago on July 17, 2012, 8:42 a.m. EST by john23
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Don't know why anyone would argue for this type of currency (4 minutes):
http://www.youtube.com/watch?v=gY1EcCUu5nw&feature=youtu.be
Not only do they fail...they redistribute wealth - you can see this process by watching this short 2 minute video:
http://www.youtube.com/watch?v=hx16a72j__8&feature=player_embedded
There hasn't been a gold, silver, or commodities based currency that has lasted either. All currencies have inherent problems.
"I think the problem is that we are dealing with two systems that have internally correct logic for each system.... its not that we aren't listening to each other. When we try to judge one against the other, using the system we favor as a benchmark it doesn't work. You can't judge baseball games using football rules. The writings of Mises, Rockwell, Paul, and Rothbard all advocate for a gold standard. The reality is that we as a country rejected that idea 40 years ago, for good or bad. If we are to go with the currency system we have, then lets do it by the most consistent rule set for fiat - which is MMT. Superimposing other systems upon fiat and expecting success will only lead to failure. For the record fractional reserve banking should be outlawed, along with derivatives trading. I do happen to like minimum standards for things like building codes. The market does not eliminate the shoddy, inferior, or for that matter the fraudulent. They just pack up, create new business names and move on. Codes on the other hand give consumers recourse, even if they raise the cost for market entry. MMT rules have not been seen in history before, so going back and comparing other fiat systems, with their short comings to MMT is not valid either. As long as you hold on to the concept that gold is real wealth, you may never see the merits in this system. Owning the means of production is real wealth.... you wan the Goose that lays the golden eggs.... and not be an egg collector. With the Goose you will always have product to sell, with just a pile of eggs you will have nothing over time."
Agree with you on fractional reserves and derivates. "all advocate for a gold standard. The reality is that we as a country rejected that idea 40 years ago". I don't think that you can say we as a country rejected that idea forty years ago. It wasn't even given a shot, as the government was actively increasing the money supply during this time period which led to the cashing in of dollars by foreign countries for gold. This was not the gold standard...or anything close to what the austrians would call a sound monetary system. They even predicted in 1945 that it would collapse because of its faults...which it did. Much like they are calling fort he same collapse of our current dollar.
The reason that i don't agree with MMT is because of its artificial credit. If you really understand the Austrian theory you would understand that artificial credit creation creates an imbalance....savers don't save adequately before investors invest in projects that the savers are supposed to purchase later on down the road. This coupled with malinvestment from easy credit will lead to an inevitable collapse or recession later on....which they will then want to inject more money into and worsen the problem. It doesn't allow the inefficient businesses to fail either. Foundational savings must take place by the people..before these investment projects are to be pursued. And if the investors pursue these projects with their own savings (rather than easy credit) they are more likely to put them towards projects that will succeed as well.
The reason that i don't agree with MMT is because of its artificial credit. If you really understand the Austrian theory you would understand that artificial credit creation creates an imbalance....savers don't save adequately before investors invest in projects that the savers are supposed to purchase later on down the road. This coupled with malinvestment from easy credit will lead to an inevitable collapse or recession later on......Foundational savings must take place by the people..before these investment projects are to be pursued.
What you are describing is bad monetary policy which no currency is immune from. Simply adding currency volume doesn't make for easy money or pressure which direction savings will happen, however, by manipulating interest rates it does.
In addition, the unleashing of the banks has done more to attack private savings than any one factor. You can graph the increase in consumer debt directly to the legalization of the Credit Card (which should be called the Debt Card). Our shift to consumerism is because of this change.
A banks primary business is selling debt, and they have devised hundreds of debt instruments to attack private savings and provide money for investments through debt rather than savings.
To blame the currency for this is like blaming a hammer for breaking a window, instead of pounding nails - what its designed for. Any currency can be manipulated through bad policy.
The only reason gold standards are abandoned is to allow easy inflation by the government....to spend more than what is taxed and erode your earnings through inflation..it's beneficial for the banks as well...they get easy credit at the expense of your savings. Look at gold right now..still holding that value incredibly well....1oz = $1,560 USD...while the dollar has lost 95% of its value since 1913
Not true. Commodity based currency gets undermined by the fact that the commodities are open to speculation. What happens to a gold based commodity when there is a speculative push in the gold market? The currency collapses.... one of the major reasons the Bretton Woods agreement failed.
speculation only becomes a problem when artificial bubbles are created in the market. Debt pyramiding which majorly exacerbates speculation isn't aloud under a true gold standard.
The definition of speculation is one of artificially creating a bubble. The speculation that killed Bretton Woods didn't happen in the US, but in Europe. Where the dollar was tied to $32/oz gold, but gold was selling in Europe for $125/oz..... the Europeans were cashing in their US dollars for our gold reserves. Fort Knox was almost bled dry before Nixon closed the gold window.
Okay, I take my mining company to probe under the now gone sea ice in the Arctic. Like the large diamond strikes that have occurred in Canada, I hit a tremendous gold strike. The price of gold just took a major downward hit. If you don't like a made up story, this is true.... The USGS has determined that there are over $1 Trillion dollars in precious and rare metals in Afghanistan (wonder why we are still there?)
http://www.nytimes.com/2010/06/14/world/asia/14minerals.html?pagewanted=all
There are trillions of dollars worth of gold, silver, copper and iron in asteroids. This isn't far fetched either:
http://article.wn.com/view/2012/04/24/Tech_billionaires_bankroll_gold_rush_to_mine_asteroid/
The point is, there is no stability in gold. As a currency it sucks because of its commodities value which will always undermine its value as a currency.
"Where the dollar was tied to $32/oz gold, but gold was selling in Europe for $125/oz..... the Europeans were cashing in their US dollars for our gold reserves. Fort Knox was almost bled dry before Nixon closed the gold window."
You bet they were cashing it in....and do you know why? Because the US had inflated its way to a crappy currency, it wasn't honest with its dollar peg. What happens when you're left with a depreciating currency because someone is devaluing it by printing more of it? People flock out of it. So it was completely logical for europe and other world governments to redeem their devaluing currency into gold...something that would hold its value. So once again, it was not the gold standard that caused the problem...but the lack there of. How do you think the Austrians predicted that the Bretton Woods agreement would collapse? They know the temptation to print is too great....this is what got Ron Paul interested in Austrian economics...the accurate prediction that the Bretton Woods system wouldn't last.
The USGS found 1 trillion in mineral deposits...some of which includes gold. This was not all precious metals. Lets take a look at one of the most gold rich areas over there "The southern regions of Afghanistan is believed to contain large gold deposits, particularly the Helmand Province.[26] There is an estimated $50 billion in gold and copper deposits in Ghazni province.."
50 billion...spread out of a good deal of time because they aren't going to dig all that up at once. Lets look at what the fed does.....some months they increase the $$ supply upwards of $190 billion....per month!
Gold is absolutely the most stable currency we have found...history proves this. It isn't reproducible and isn't found at very fast rates....it is incredibly durable in that it doesn't rust or deteriorate. I mean the argument that it isn't stable is kind of ridiculous....look at the stability of it over the last 100 years compared to the dollar (that you're arguing for)...absolutely no comparison.
" Like the large diamond strikes that have occurred in Canada, I hit a tremendous gold strike. The price of gold just took a major downward hit."
This assumes that we would need to convert gold to dollars.....that's not really a gold standard. The thing that would add value to gold in the market is the amount of it circulating. A mine strike does not increase the amount of gold in circulation.
A 'real' gold standard, that is gold itself as currency would hinder the US Govt from doing it's Constitutional job..... looking out for the general welfare of its citizens and defense. I like clean air, clean water, clean soil, food that meets minimum quality standards, homes that meet minimum construction standards, safe toys for my kids.... etc, etc... these things require a government of size. Sovereign governments, that issue their own currency, can never become insolvent.... but you and others pushing a gold standard want that the US can become insolvent... and I must ask for what purpose?
Ron Paul, the Austrians, The Chicago School can all stuff it. Life under Libertarian rules is a privatization nightmare. A flexible currency is mandatory in times that move quickly, in times where information travels around the world in milliseconds. This isn't the 1800's anymore. This is the nuclear age. If we need to defend ourselves and deploy troops in our defense we should not be hindered by currency by currency restrictions. If natural disaster strikes, Hurricane Katrina style, or California gets the big one finally, the Fed govt needs the financial flexibility to respond.
A gold standard does not prevent recessions and depressions, but it does tie our hands to respond to such events. Ludwig Von Mises thought that under a gold standard, the total value of money would be fixed, and the market would adjust itself efficiently around it. We have learned a few times now of the fallacy of an efficient market. Magic hands and voodoo do not come in to play to correct it.
In 1821, Britain became the first nation to switch to a full gold standard. Until then, nations had used a bimetallic regime of gold and silver. In the 1870s, the U.S. and the rest of Europe followed suit, after the discoveries of huge gold deposits in the American West. From then until 1914, the world would operate under a unified gold standard. This era is known as the Gilded Age.
Bitter controversy over the gold standard was a hallmark of the Gilded Age. It was widely regarded as a tool of the rich. Democratic presidential candidate William Jennings Bryan spoke for the poor when he charged, famously, that "You shall not crucify mankind upon a cross of gold." The U.S. suffered three depressions during the Gilded Age, and the gold standard and its bank panics were often held to blame.
According to the Austrians, cartels are short lived entities. Tell that to OPEC, who has been around for quite some time now and shows no signs of going away.
Go worship at the idol of gold... your choice. It has very little inherent value outside of a few industrial uses where small amounts are needed for telecommunications applications. Over half of the gold mined is used for jewelry. Shiny, pretty.... useless. That it has value is an illusion. At least paper has more real utility than gold.
right on! here is a piece from the american thinker - he is quoting keynes comment about burying money in bottles - keynes was pointing out the absurdity of thinking that finding gold (the money in the bottles) could makes a society richer. the author of the piece doesn't understand keynes comment - he is an american non thinker. "John Maynard Keynes once suggested that the government could create jobs by burying bottles full of money in coal mines, covering them with trash, and encouraging people to dig them up. I know, pretty dumb idea. If Korea builds cars, China builds computers, India builds accountants, and we take money out of the private economy to subsidize a government bottle burying program, which economy will generate more wealth in ten years?
Thats pretty funny... but a great way to look at it.
thought you'd like it - pretty clever - why is it not more widely known?
It is now. The more it gets repeated, the more known it will be. I've put it in my arsenal.
here is more from another source - a more intelligent source - i will send you the full text later -
Its particularly interesting to pull out the quote from Hume because he is not discussing the decision of a Central Bank to print more money but an increase in actual gold and silver.
Keynes is agreeing with this point and saying yes, if people were to discover more gold that would indeed boost employment through the same means that Hume describes.
However, the way one discovers gold is by digging holes in the ground. Which, in Keynes words, have no purpose other than the accumulation of gold which people intend to use a backing for money.
Why not then just bury money in the ground and let people dig that up?
This would have the same effect as the discovery of new gold deposits and would alleviate unemployment though the same means.
But, wait then he says. What in the world is the point of burying money in the ground just to dig it back up again?
Why not have people do something productive like build roads and schools rather than dig holes in the ground. In exchange you can give them money. It will work just like gold mining will but instead of having a hole in the ground to show for it, you have a road or a school.
"hinder the US Govt from doing it's Constitutional job"
You mean this constitution? Article 1 Section 10: "make any Thing but gold and silver Coin a Tender in Payment of Debts"
A gold standard absolutely does prevent recessions and depression..IF...you do away with fractional reserve banking and debt pyramids.
"We have learned a few times now of the fallacy of an efficient market."
You always provide vague statements like this....please provide some actual examples.
"The U.S. suffered three depressions during the Gilded Age, and the gold standard and its bank panics were often held to blame."
If these are your arguments it's kind of disheartening, because you haven't studied Austrian economics...like at all. This is what i usually find with people who talk negatively about it. "there were panics during the gold standard"...or "the gold standard would cause deflation"...or "there isn't enough gold in the world for it to be a means of exchange" or "people will hoard all the gold". If these are questions you are asking, you don't know anything about Austrian economics unfortunately. Here is a primer on your statement. Woods going into some of the panics you're talking about:
http://www.youtube.com/watch?v=TxcjT8T3EGU
What do you find when you actually look at these panics? The same thing that happens today that the Austrians argue against...artificial credit creation/expansion...and what does it lead to? The busts you're talking about. The gilded age is also another area you shouldn't really be talking about if you'd studied Austrian economics: "The Gilded Age was a period of rapid economic growth and technological innovation in the United States beginning in the latter half of the 19th Century and extending into the early 20th Century. During this time per capita income and living standards were raised dramatically. Infant mortality fell steadily and life expectancy was extended by many years. It was during this period of growth that the economy in the U.S. overtook that of Great Britain to be the world's largest.” “If you actually look at the numbers during this time period Americans consumed about three times more economic goods per capita than they had a half century earlier, they lived longer and healthier lives and spent less time at work and more at recreation. They were better housed and educated, traveled more, read more, and were better informed about their own and other countries. “
The gilded age wasn’t even the Austrians view of how the economy should be either. You still had massive expansions of credit, the banking systems weren’t limited w/ fractional reserves…a lot of the system wasn’t what the Austrians would call ideal. Were there poor people? You bet there were, but who wouldn’t expect poor people during a technological transition such as the industrial revolution….things changing rapidly and new businesses sprouting up like weeds while older ones were dying. If you look at the period as a whole we made tremendous gains however, as the quotes above show.
“I like clean air, clean water, clean soil, food that meets minimum quality standards, homes that meet minimum construction standards, safe toys for my kids” It is absolutely ridiculous to think that you wouldn’t have these under a monetarily restrained government. All that would mean is that they would have to budget their money like every other citizen in this country is expected to do. They have quite the revenue stream if you haven’t noticed…and quite the wasteful track record (GSA scandal much? The institution supposed to be curbing waste in government. That’s just one tiny example). Perhaps they would actually have to use their resources wisely…I know, it’s a crazy off the wall idea…but why not give it a shot? Surprisingly 1.8 trillion dollars a year is quite a bit to live on.
Goverments are notorious for preferring paper standards. So are dictators. Who wouldn’t want a paper standard? It allows them to spend as much money as they want while they steal it from the population through inflation. This is a great tool to allow manipulation of the economy to secure future elections (artificially lowering interest rates…ridiculous quantitative easing etc.).
“Ron Paul, the Austrians, The Chicago School can all stuff it.”
If you’d have listened to them a decade ago we wouldn’t be in this mess right now. Why not this idea. How bout we legalize gold as a currency…don’t make it the official currency, just legalize its use. Your paper standard would be toilet paper…that’s why the government has to force it on the population through force…it’s worthless and people would flock out of it like crazy….and they know it.
I'll leave you with this to think about... Article 1 Section 10 of the Constitution:
"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;"
That passage specifically refers to what States can do, not the Federal Government.
The rest of your long winded rant is all based on the supposition that the Austrians are correct. Sorry I don't find them to be, and yes I have studied them, however, I'm not going to write a book about why they are wrong here.... many others have already done that.
With our currency system as it stands, a balanced budget means bankruptcy for the private sector.
Try this one step at a time.
http://www.correntewire.com/the_fiscal_summit_counter_narrative_part_three_are_there_spending_constraints_on_governments_soverei
Are the states following this (referring to US states and the gold/silver standard)?
Nothing in my statement is assuming austrians are correct. When did i assume that? The one thing i said (not assumed) that the austrians were correct on was the housing bubble...that's fact...not assumption. I'm trying to get people to actually look at it in detail...and not do the typical cursory glance and then run off and listen to people like Krugman because they think he sounds like he might be right (or more to the point...because he's a democrat...i could care less if Austrians were more repub or democratic...put all that crap aside...look at the data).
I'll read your article and get back.
Are the states following this (referring to US states and the gold/silver standard)?
Thats besides the point, which is you misinterpreted the Constitution, cherry picked you phrase.
..if you'd studied Austrian economics: "The Gilded Age was a period of rapid economic growth and technological innovation in the United States beginning in the latter half of the 19th Century and extending into the early 20th Century. During this time per capita income and living standards were raised dramatically. Infant mortality fell steadily and life expectancy was extended by many years. It was during this period of growth that the economy in the U.S. overtook that of Great Britain to be the world's largest.”
Workers worked a minimum of 10 hour days, 6 days a week. Child labor exploitation was rampant. Women and children worked in the most dangerous parts of mines, because they were smaller and could fit in tight spaces.... and were expendable. Coal Mine owners ordered the saving of trapped mules over women.
No vacations, no sick time, pregnant women were fired, no medical benefits. The days of the 'company town' ruled, where the company owned your home, your clothes, and gave you script to buy food in the overpriced company stores.
Things got so bad that Labor Unions erupted in the US, and only after bitter deadly fights did some concessions become realized.
I don't read Krugman.
"Workers worked a minimum of 10 hour days, 6 days a week. Child labor exploitation was rampant. Women and children worked in the most dangerous parts of mines, because they were smaller and could fit in tight spaces.... and were expendable. Coal Mine owners ordered the saving of trapped mules over women."
What does any of this have to do with the Austrian theory of the monetary standard? Nothing. These are problems of a maturing country that didn't have a firm template to go off of. My point was to look at the progress before and at the end of the gilded age. You take a snapshot when it began and compare it at the end and you see the people were much better off because of those decades while enduring the side effects of a developing country. Economic activity was incredible during this time and where we came from to where we got was amazing.
I didn't cherry pick that phrase...are you kidding me? I told you exactly where to go in the constitution to look it up. The Constitution is a list of what the federal government is authorized to do, with everything else to it being denied by default. Please provide me with the article and section that allows the printing of a paper currency.
What does any of this have to do with the Austrian theory of the monetary standard? Nothing.
Not so.... You wrote: "..if you'd studied Austrian economics: "The Gilded Age was a period of rapid economic growth ...... During this time per capita income and living standards were raised dramatically."
That tells only part of the story. Prior to this the country was largely agrarian. Per capita incomes may have been low, but that doesn't that the quality of life was bad. Most Americans enjoyed in the same standard of living.
The Gilded Age brought about the emergence of a society largely divided between the haves and the have-nots, a society in which many poor workers struggled just to survive while an emerging industrial and financial aristocracy lived in palatial homes and indulged in opulent amusements. The rich became richer and the poor became poorer. Much like today.
It was also a time of limited governmental interference in business, and species backed currency, hallmarks of the Austrian school.
Please provide me with the article and section that allows the printing of a paper currency.
There is no article or section prohibiting the printing of paper currency.
"The Constitution nowhere declares that nothing shall be money unless made of metal." ....Knox v Lee, 79 U.S. 457 (1871)
You said:
In the meantime please take the time to read and understand this.... as it may make more sense to you because examples of the book keeping are shown: http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html"
My Answer:
I have already read your link and responded to you in quite specific detail about it. Perhaps you should be open and actually read the stuff i'm replying to you with. I have dug through everything you have sent me, in great detail. I didn't stumble onto my economic beliefs, i have dug through both sides of the argument and come to the conclusions i've drawn by the fact that i've done this. You said to "not listen to the ben bernanke's" in your response to me....the only reason i brought up ben was because the article you provided spoke in reference to him and supported what he was discussing on 60 minutes...that is why it was brought up. So, my response to your article which i already answered...this is repasted:
ust finished reading through the whole thing. It was very painful for me....i've read these ideas many times before and dug into them...and it hurts me to read because these ideas hurt the average person...very much. This author does a very good job of not explaining what the stimulus does and the monsters it creates. I'll go over a few of them, but i beg you to sit down and watch this video of Tom Woods...the link should start you at 14 minutes and 30 seconds..if it doesn't...fast forward to there. Hang in there with it...and take note that i've seem Tom destroy the right wing...bush he couldn't stand...hates Romney......limbaugh and fox jackasses...same deal. So don't get frustrated and stop watching...and try to go into it and clear your head....don't let previous things you think to be true stop you from really listening to what is said. The book is better, but i highly doubt people are on here and are going to buy my reading suggestions..so here's the video:
http://www.youtube.com/watch?v=JlUwkC_B2p8&t=14m30s
To go over a few things myself. This author fails to mention many important things. Inflation being one....inflation is something that is happening because of this...in fact many countries have wound up in hyperinflations because this is a self feeding cycle...he pokes fun at hyperinflations...but i would suggest you pick up a copy of Peter Bernholz - Monetary Regimes and Inflation". This is a great book that describes the history of inflation in society’s dating back to the Roman currency debasement in the 4th century.
But put hyperinflation out of the way...lets just say inflation in the society. Watch this 2 minute video on how this transfers wealth to the upper class..its a simplified version of how it works, but the theory is correct:
http://www.youtube.com/watch?v=hx16a72j__8&feature=player_embedded
Inflation (or just injecting money...or letting the gov print it) also erodes your savings. Do you want to retire at some point in your life? Do you want your savings to be safe? If you do, you don't want inflation...and you want to seriously minimize inflation's. Don't think this is happening? The dollar has lost 95% of its value from 1913...this screws people over who are saving money for retirement. The scary thing is that inflation was somewhat in check for the majority of those years until 1971 when the gold standard was abandoned completely.
He also talks about the "building code" regulations. It was great, because he lays it out perfectly. You guys at OWS really hate monopolies right? You have just forced out of the market all the startup companies that can't afford the $1000 to pay for the building code....you're essentially propped up the major businesses that are controlling the market already and stopped competition that might not have as much captital a chance to ever enter the market....this leads to monopolies. I agree there should be some regulations to protect people...but there is a major double edged sword and there are many examples of large corps lobbying for regs that will force competition from having any chance in the market.
The notion at the end that "if we ran surplusses the game would come to and end as CIG would get all its money back again." In this fake monopoli game perhaps....there is actually real wealth in the world...its called commodities..gold. When the fed came into existence people had gold that wasn't owed to anyone..true wealth. When the first reserve notes started they were actually backed by gold (and hence they never had to be repaid to anyone). As soon as those notes were expanded beyond the backing of gold then you start to see that every dollar created must be repaid back at some time...but there is a base currency that used to represent true wealth. It also negates the fact that in the real world what the heck is a government going to do with a surplus eventually...they're obviously going to spend it or give it back to the people. Might be wise to chip away at that 16 trillion dollar debt. According to this guy though that doesn't matter...and if his theory was correct we should print a million dollars for every man woman and child in this country.
He also doesn't incorporate fractional reserves which wouldn't let his balance sheet w/ the gov equal what the private sector has. There are so many things i can attack in here...but the best thing i can do is provide the argument of the other side...watch that first video if nothing else.
These are krugmans idea right? Krugman supported the stimulus of housing in 2001...the exact things all the austrians were screaming at...saying this would create a housing bubble and destroy everyone..why listen to a guy who has been wrong over and over again? Study Japan....there's a good example of this type of mindset in action. But watch the video...please...if nothing else...start at 14:30
I think the problem is that we are dealing with two systems that have internally correct logic for each system.... its not that we aren't listening to each other. When we try to judge one against the other, using the system we favor as a benchmark it doesn't work.
You can't judge baseball games using football rules. The writings of Mises, Rockwell, Paul, and Rothbard all advocate for a gold standard. The reality is that we as a country rejected that idea 40 years ago, for good or bad. If we are to go with the currency system we have, then lets do it by the most consistent rule set for fiat - which is MMT. Superimposing other systems upon fiat and expecting success will only lead to failure.
For the record fractional reserve banking should be outlawed, along with derivatives trading. I do happen to like minimum standards for things like building codes. The market does not eliminate the shoddy, inferior, or for that matter the fraudulent. They just pack up, create new business names and move on. Codes on the other hand give consumers recourse, even if they raise the cost for market entry.
MMT rules have not been seen in history before, so going back and comparing other fiat systems, with their short comings to MMT is not valid either.
As long as you hold on to the concept that gold is real wealth, you may never see the merits in this system. Owning the means of production is real wealth.... you wan the Goose that lays the golden eggs.... and not be an egg collector. With the Goose you will always have product to sell, with just a pile of eggs you will have nothing over time.
Austrian theory of the MONETARY standard...what does any of that have to do with the gilded age?
"most americans enjoyed in the same standard of living"....are you kidding me? In the early 18's??? Maybe they all enjoyed in the same terrible standard of living...maybe i'd buy that.
So per capita income is now not a good judge of the health of an economy. I'm a slightly taken back.
I read your article. This stuff is just plain scary. I know what MMT is. Lets go through a little of it.
“… . is an attempt to coordinate the government’s spending with taxes and bond sales and it creates the illusion that what’s happening is that the government is taking money from us and using it to pay for the things that it purchases. But that’s not really what’s going on. As Warren likes to say, the government neither has nor does not have any money at any point in time. It is simply the scorekeeper… . ”
This couldn't be more false....i mean it's just common sense. When they tax you do they take money you could be putting into a retirement account? Yes...so that is money they are taking from you. When they print money, are they technically stealing it from you? Yes, they steal it from you through inflation....and this hurts the middle and lower class more than the upper. It errodes middle and lower income family wealth because the goods they buy all increase in price.
"… . the national debt clock, the sum total of all of the outstanding bonds that the Treasury has issued… . what we would argue is we shouldn’t call that the national debt clock; we should just rename it. It’s the national world dollar savings account. All it does is keep a record of the total amount that’s invested in savings as opposed to checking accounts at the Fed.”
This is obsurd....this is all stuff that the government has to pay back at some future date...all of it. Its obligations that it must pay either through taxation or inflation.
”Something about the issue of solvency, the tipping point problem. Can the government run out of money? The U.S. government can’t run out of money any more than the Washington Nationals Baseball team stadium can run out of points. Every time a ball game is played at Washington National Stadium, some team scores some points and they appear on the screen and then the other team scores and some more points appear on the screen. And there’s nobody behind the screen going, ‘Hey Johnny, we’re running out of points here’, you know, right? Look in the trust fund. That’s not the way it happens. You just add the points."
I about feel out of my chair reading this. Technically can governments run out of money? No, not right now, they can just print it endlessly. But what are the consequences? Hyperinflation which destroys a country...just rots it to its very bones. You want bad times similar to the gilded age back in the country...just wish for a little hyperinflation. In Peter Bornholdz book (economist) he has looked at the data from all hyperinflation's dating back to the Roman currency debasement....what does he find? That budget deficits can be used as a predictable gauge for around the time hyperinflation will kick in (budget deficits...the thing that these people are saying doesn't matter at all). In cases of hyperinflations studied they occur around or after the countries deficits reaches 20% of public expenditures. HIis conclusion from the study of all the hyperinflations ---- " Hyperinflations are always caused by public budget deficits which are largely financed through money creation."
Lets take a look at what the hyperinflation in germany did to its people:
"Nothing else has made the German people as embittered, as hateful, as ripe for Hitler as the inflation. For the war, as murderous as it had been, had at least seen hours of triumph, ringing of bells, fanfares of victory...but as a consequence of the inflation felt only drawn into the dirt, cheated and humiliated. A whole generation did not forgive the German Republic these years and preferred to call back its own butchers. (Stefan Zweig..1944)"
or (still talking about germany hyperinflation)
"The poor became even poorer and the winter of 1923 meant that many lived in freezing conditions burning furniture to get some heat. The very rich suffered least because they had sufficient contacts to get food etc. Most of the very rich were land owners and could produce food on their own estates. The group that suffered a great deal - proportional to their income - was the middle class. Their hard earned savings disappeared overnight. They did not have the wealth or land to fall back on as the rich had. Many middle class families had to sell family heirlooms to survive. It is not surprising that many of those middle class who suffered in 1923, were to turn to Hitler and the Nazi Party."
So yeah, we can just print forever...nothing bad will come out of it. Lets get back to your article:
"This is Ben Bernanke in an interview on Sixty Minutes just last year when Pelley asked him, “Is that tax money the Fed is spending?” And Bernanke says, “It’s not tax money. The banks have accounts at the Fed much the way that you do, have an account at a commercial bank. So when we want to lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed."
-Technically this is true, it isn't tax money. This sounds fantastic...right? Wrong. If you print money you tax people in a roundabout way through inflation. Their goods they purchase increase in cost, that is where the tax comes from. It is theft through inflation. This hurts the middle and lower class guy the most. Just look at what our goods we use everyday have done since moneyprinting has grown exponentially...take a quick glance at a couple of these graphs please:
http://hmscoop.com/MoneySupplyvsCommodities.html
Do skyrocketing oil prices help the average person? Do skyrocketing food prices help the average person? This is the tax that printing money has on people....this is how they're getting screwed. Their goods are going up in price astronomically...and like everyone here at OWS is arguing..their pay at work isn't going up to compensate for it.
There is a whole heck of a lot more i could comment on in that article..but i'll leave it at that for now.
So per capita income is now not a good judge of the health of an economy. I'm a slightly taken back.
It doesn't tell the whole picture. Material goods aren't the only measure of someones standard of living. Is that really that difficult to understand? If someone is working 14 hour days 6 days a week, what does it matter if he can buy a flatscreen TV, if he can never watch it, nor spend time with his family?
I read your article. This stuff is just plain scary. I know what MMT is. Lets go through a little of it.
If you really understood MMT you wouldn't see it as scary, but the truth. You must let go of all your preconceived notions of what money is, and how other schools see it. Money is not wealth but a place holder.
In a fiat system, Taxes do not pay for Federal level government expenditures. Taxes remove money from the private sector, which is true.... the converse truth is that Federal govt expenditures increase private savings. Inflation is a danger but hyperinflation can always be avoided.... and I'll get to that. In the meantime please take the time to read and understand this.... as it may make more sense to you because examples of the book keeping are shown:
http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html
Debt in a fiat system is not something that has to be paid back in the future, with our grandchildren running around in bare feet because of fiscal irresponsibility from generations before. Debt is a score keeper of how much private sector savings there is.
Another thing.... Ben and the leaders of the Fed are Monetarists. You look to them for answers on how fiat works and you'll get the wrong answers.
About Germany.
The chief reason Germany went into hyperinflation, and why it won't happen here is that almost all of the German national debt was owed in foreign currency because of the penalties forced on Germany at the end of WWI.
The vast majority of our national debt is due in US Dollars.... something we can't run out of. If we had to convert our currency to foreign currency and lose in the exchange to pay our debts, our dollar would devalue at a rate that would lead to hyperinflation, as what happened in Germany.
Again, in 1945 we were spending at 125% GDP with 100% employment, with no hyperinflation. We are around 90% of GDP now, put there is a productivity gap..... we have 9% unemployment and a much higher rate of underemployment, which gives a large cushion to what our spending limits are before inflation becomes a problem..... thats inflation, not hyperinflation.
you again - have you read "debt the first 500 years" yet? stop the nonsense about inflation - look at the inflation from 1850 until today and explain why we are so much richer today - go ahead - i will wait. banks and bond holders (those that own the country) hate inflation since inflation redistributes wealth - theirs! get a new theory this one is cooked.
I read your article you sent me...not the book yet. Will reply later.
you need to get off the gold kick - it is a sham - if you are really interested in the subject read this - In The General Theory of Employment, Interest and Money, Keynes writes
"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. Keynes is agreeing with this point and saying yes, if people were to discover more gold that would indeed boost employment through the same means that Hume describes.
However, the way one discovers gold is by digging holes in the ground. Which, in Keynes words, have no purpose other than the accumulation of gold which people intend to use a backing for money.
Why not then just bury money in the ground and let people dig that up?
This would have the same effect as the discovery of new gold deposits and would alleviate unemployment though the same means.
But, wait then he says. What in the world is the point of burying money in the ground just to dig it back up again?
Why not have people do something productive like build roads and schools rather than dig holes in the ground. In exchange you can give them money. It will work just like gold mining will but instead of having a hole in the ground to show for it, you have a road or a school.
Thats kind of ridiculous. Its negating the sole reason for the gold standard....that gold is not reproducible! That's the reason behind its value...you could argue everything has value if one used it as a currency...i could use pens or paperclips as a currency.....the important thing about gold is its created through a dying star. It cannot be devalued like fiat currencies...that is the whole point. To stop the stealing of wealth via inflation....this is why its been used as a currency for thousands of years. Paper currencies fail..because they always depreciate by theft of printing (counterfeiting). In “Monetary Regimes and Inflation” by Peter Bernholz he describes this process and notes that no administrative efforts to stop the expansion of the money supply worked when someone was given the opportunity to expand it; even if the violation was threatened with death. The temptation to debase a currency through money creation is too great when given the power that no punishment deters this crime.
Are you arguing that us Austrians are saying that we want the gold standard to lower unemployment via the jobs created by mining gold????? What????
no it is not ridiculous. it makes the whole thing obvious. if we as a country were to dig up a pile of gold (when we were on the gold standard like when he wrote this) we would then print more money. why not just print the money? as to inflaton you are incorrect. it does not steal a nations wealth it redistributes it which is why the rich and the sustrians hate it. you cannot explain the huge inflation in this country and the world (look at the lira in italy or turkey over 100 yrs) and also the increase in wealth in the last 100 or 200 years. the wealth of a nation ahs nothing to do with the dollars it has - that is a symbol of wealth - watch the movie titanic - do you want the $10,000 offered or the seat in the lifeboat.
It is incredibly ridiculous...it's claiming that the Austrians like gold because it would cause employment from mining. That has nothing to do with why Austrians prefer a gold standard. Seriously, at least explore this side before you say stuff like that. You haven't even touched the subject of Austrian economics if that is what you think.
"why not just print the money". Because of what I said in my post above - In “Monetary Regimes and Inflation” by Peter Bernholz he describes this process and notes that no administrative efforts to stop the expansion of the money supply worked when someone was given the opportunity to expand it; even if the violation was threatened with death. The temptation to debase a currency through money creation is too great when given the power that no punishment deters this crime. Politicians love it because it gives them a way to fudge the economy temporarily to get re-elected. Take a look at obama..... Bernanke guaranteeing artificially low interest rates until 2014...the only way to do that is inject money into the system and steal wealth from the middle and lower class through inflation. But, it makes it look like things are a little better until the whole thing comes crashing down. As Peter also describes in his book:
“In a democracy parties compete to gain and maintain government power. As a consequency the party or parties in power have to try to gain as many votes as possible in the next election to secure at least a majority in parliament. However, voters are rationally uninformed about matters which are not very important to them, since the negligible chance that their individual vote would make a difference to the outcome of the election does not warrant more than very little effort and quences. It follows that they are only reasonably well informed about what is important to them, usually their and their relatives’ job security, their wages and incomes, and the availability of not too expensive housing. They are thus usually ignorant about monetary policies and their future consequences. Moreover, these matters are complex and not easily understood without specific education. On top of this, the positive though usually short-lived consequences of an expansionary monetary policy (aka increasing the money supply), namely an upturn of the economy and a decrease in unemployment, follow more quickly than its negative consequences in the form of higher prices. As a consequence, because of the complexity of the problems and of their rational ignorance voters will judge the performance of the government mostly by the results of former policies and even events which have not been caused by measures of the government.”
Yeah i read your article a few days ago. It didn't really refute anything i'm talking about...in fact there were a few things in it that just backed up what i'm talking about. For instance (he's talking about virtual credit..or computer generated credit) "Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly?"
Or
" One could go further than the Clinton era, actually, a case could be made that what we are seeing now is the same crisis we were facing in the 70's, it's just that we managed to fend if off for 30-35 years through all these elaborate credit arrangements........."
first i would like an answer to my question about inflation since that is the heart of the argument. how is it that we have had inflation for hundreds of years and are much richer over this time period - how can it be that inflation destroys wealth? do not talk about debt - we can see long periods of time where there is inflation and no debt and the country getting richer. think it through! how old are you? you seem to have trouble getting out of your rigid thinking - not sure that is the best way to put it but hopefully you get the idea. this is not saying the austrians like mining as employment. if one country puts hundrends of men and machines (using up resources that cannot be replaced) and builds houses and roads etc and another uses those same things to dig a hole in the ground and pull out gold - which one is better off. you are missing the simple point. you are wrong in your thinking and i think you should try to get your head around this. if you do not want to fine - let's end the conversation but i have studied this too much to be convinced by your arguments - they do not hold water. you also do not seem to get the main point of graeber but that is another question!
Graeber didn't really provide any main point in the article you sent me. It was a question and answer session. Maybe in his book he does maintain a solid point, but i haven't read it yet. Looking for a cheap copy...like 20 bucks on amazon.
"We have had inflation for hundreds of years and we are much richer because of it. How can inflation destroy wealth?"
We haven't really seen hundreds of years of massive inflation...not at all. The world was taken off the international gold standard in 71. It was restrained before this. The few countries that did see massive inflation didn't end up so great. Please read my post to geo above...it starts off with "Austrian theory of the MONETARY standard...what does any of that have to do with the gilded age? "
Inflation steals wealth.....it steals it and redistributes it. Its a tax on the american people. If you print money you tax people in a roundabout way through inflation. Their goods they purchase increase in cost, that is where the tax comes from. It is theft through inflation. This hurts the middle and lower class guy the most. Just look at what our goods we use everyday have done since moneyprinting has grown exponentially...take a quick glance at a couple of these graphs please:
http://hmscoop.com/MoneySupplyvsCommodities.html
Do skyrocketing oil prices help the average person? Do skyrocketing food prices help the average person? This is the tax that printing money has on people....this is how they're getting screwed. Their goods are going up in price astronomically...and like everyone here at OWS is arguing..their pay at work isn't going up to compensate for it.
Now maybe with your question "how is it that we have had inflation for hundreds of years and are much richer over this time period " you meant not inflation (as we haven't inflated the way we are now for 100's of years)...but spending. We are currently 16 trillion dollars in debt (and before you say debt doesn't matter...again read my response to geo above).....this isn't true wealth. This is an illusion. Much the same as your next door neighbor running up 20 credit cards but having a Lexus in his million dollar house...looks like he's doing great...but wait a few years until the whole thing comes crumbling down.
I am not wrong in my thinking at all about your mining example. The percent of the population that mines for gold is probably like .0000000001% of it. That's a ridiculous argument that Austrians want a gold standard to unemployment will go down because of mining for gold...i've never heard that...ever. If you're implying that it would divert man hour resources into mining instead of another area of the economy...again you're talking about .00000000001% of the population. One could argue that there wouldn't be anymore people going to mine for gold than there are now..because gold can be converted into dollars right now. They can make boatloads of money by mining gold even today. So that theory is really a baseless argument.
I'm 30 years old...does that make me an old man who's stuck in his ways?
30 yrs old makes you inexperienced in the ways of the world. you are wrong about inflation - a pizza cost a quarter in 1935 - much more in 1965 when i was 15 yrs old and buying pizza. and yet the country was richer. inflation did not start with the end of bretton woods. the latest debt is an obvious non fact. look at the price of things in 1800 then 1900, then 1930 and 1970. i lived (and worked and bought a house) through the inflation of the 1970's - my life was never better than at that time. figure this out - think it through or just hold on to your religious belief! this is a waste of time - you miss the most obvious point on too many things like here "The percent of the population that mines for gold is probably like .0000000001% of it. That's a ridiculous argument that Austrians want a gold standard to unemployment will go down because of mining for gold...i've never heard that...ever. " no one is saying that - reread my previous comment - hard to believe you do not see what keynes is saying. keep trying
"If you're implying that it would divert man hour resources into mining instead of another area of the economy...again you're talking about .00000000001% of the population. One could argue that there wouldn't be anymore people going to mine for gold than there are now..because gold can be converted into dollars right now. They can make boatloads of money by mining gold even today. So that theory is really a baseless argument."
I know what you're getting at and i answered it...i just repasted it to you.
"My life was never better in the 70's"....congratulations....lets base the entire society on 1 individuals experience during one episode of inflation during the history of the earth...that makes complete sense. Have you read my post to geo above? Have you looked at the graphs i'm trying to show you?
So first i'm too old...then i'm too young to understand. I have an engineering degree...pretty qualified to sift through the BS when it comes to data.
i never said you were too old but you are making it clear that either you do not read carefully or like distorting what others are saying. no, sorry, you have shown yourself to be not very qualified to sort through this info - you have missed keynes whole point about the gold standard - it has nothing to do wiht employment - got that - nothing! he is not saying anything about the austrians but blowing up the idea that the gold standard has anything to do with the wealth of a nation. believe what you want - let's stop now - take a last shot - say the same thing over one more time and then stop!
No one wants it, we get stuck with it. And protests like OWS appear because of it.
Why cant we all just decide gold isn't worth crap, so that when the dollar does crash, that the wealthy bankers won't have control anymore. The sweat off our backs (our labor) and the land we stand on is more valuable than gold, and they know that. Why do we give gold power over us?
Noone gives gold power over anyone but the collective thoughts of individuals. The market has always widdled away at currencies and come to gold....paper currencies are like toilet paper....bury gold and a paper currency next to each other and dig it up 5000 years later...not an economist in the world would choose the paper. It isn't that gold is valuable in itself...the value comes from the inability to reproduce. Provide something else that isn't reproducible and extremely limited and you'd find a similar value in it as a currency.
[Deleted]
there is no evidence your theory actually happens. Just look at it over the last 100 years. Check out the figure on concentration of wealth...after the international gold standard was abandoned things got much worse for the middle and lower class (1971) (you have to copy and paste link)
http://en.wikipedia.org/wiki/File:Chart_of_US_Top_1%25_Income_Share_(1913-2008).svg
If you had ALL the gold, gold would have no value... On the other hand, a chicken would be worth all your gold if you were hungry.
If the dollar's value has gone into a free fall thank the Republicans! Nixon took the dollar off the gold standard.
Richard Nixon really wanted badly to become President, probably to redeem himself as a successful politician rather than lead the country to peace, and prosperity. He also opened relationships with China. Something we didn't need as now most of our manufactured items now seem to come from there.
Such lack of foresight. Who'd think this combination would be the icebergs that sank the Titanic?
There should be a rule that once candidates are defeated for election for this office, they can't run again. Brain transplants aren't possible. Those bad ideas that weren't acceptable the first time are still there.
Compare Presidents
http://www.youtube.com/watch?v=Cxb9y3u96_Q&list=PLCE5366C1413E9EBC&feature=plpp_play_all [right click]
Was it really lack of foresight? Consider - now that our monetary value is tied to GDP it is paramount for business success for a healthy dollar - problem being - now the nation/government is focused on the dollar/profits and not on good business not on a healthy society. GDP as the monetary value source has given rise to the power of the corpoRATions.
Watch a movie - Hard Wired. It is kind of like an updated version of 1984 with a mixture of Robo-Cop thrown in. Where the corpoRATions have gained the power of rule.
The economy is not controlled by the government. I think the big banks are in control. They are too big to fail. They sell debt. The national debt is humongous. Credit default swaps are agreements to cover losses in investments. If one of these banks fail it will create a systemic failure. The OTC derivatives market, where credit default swaps are traded, is an unregulated economic super nova waiting to explode. When it does the world economy will be vaporized. The derivatives market is $100+s of trillions at risk. Not only is there not enough money to cover the losses, there isn’t enough paper to print it on. There certainly isn’t enough gold in all of the vaults, or mines, or in shipwrecks at the bottoms of all of the oceans.
Brooksley Born had determined to bring regulation to the derivatives market, but free marketeers (Greenspan, Summers, Rubin) threw her overboard.
Frontline The Warning PBS Video
http://www.pbs.org/wgbh/pages/frontline/warning/view/ [right click]
See also - Inside job.
I suppose the Fed could come up with the idea of printing Federal Reserve notes in $1,000,000 and $1,000,000,000 denominations.
If one of those turns up missing there would be a panic.
If the current course of events is not addressed - they may start printing those denominations to be more convenient to carry around in a hyper inflation environment.
A huge portion of the debt, The Fed owned debt could be eliminated with the production of two $Trillion dollar coins that will never be circulated.
http://seekingalpha.com/article/283180-trillion-dollar-coin-idea-goes-mainstream
People need to start thinking of the debt and deficit in different terms than what the politicos are telling us they are. The rules of MMT seem to be the correct description of how our currency system operates.
We are not headed to hyperinflation.... nor bankruptcy.
If it were up to me - and this may sound a bit crazy - I would cancel all fake debt/contracts/liabilities return the initial investment to the bilked investors (if possible) and start over from scratch requiring real property/security for all transactions. How many trillions of toxic derivatives are still out in circulation?
That would be my starting point.
Good start. I would outlaw derivatives trading completely.
Yep - I mean what the hell? Financial transactions that are nothing but a gamble - at best? Sheesh.
When we receive a tax bill it creates a demand for fiat money. A huge deficit creates even more demand for fiat money. The government has the power to create jobs. It simply creates the agency to issue the paychecks and has the Federal Reserve create the money.
The products from these jobs is income tax, goods and services. Why didn’t this jobs creation occur during Obama’s first month on the job?
In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government's currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.
Modern Monetary Theory (MMT)
http://en.wikipedia.org/wiki/Modern_Monetary_Theory [right click]
Taxes remove money from the system, they don't finance Federal expenditures. Taxation isn't necessary to establish the currency as viable, it is the last resort for that. We already have plenty of demand for our currency as shown by bond sales, even at extremely low interest rates.
There is no reason any administration for the past 40 years could not have implemented 100% job creation. FDR came close during his tenure, and we did not experience hyperinflation even when Federal spending reached 125% GDP in 1945.
Since the government can create money. There is no need for taxation except to keep money from concentrating in 1% of the population.GW Bush didn't understand this. Neither did Reagan nor the current Republican Party. I am not sure Obama or the Banks understand how the monetary system is supposed to work. Maybe this is a flaw with globalization.
I believe that their economic advisers were/are classically trained. Even Keynesians and neo-Keynesian's don't understand the operational realities outlined in MMT. There is also the thought that they might understand it, but there is far more political currency in keeping people scared to death of the national debt and deficit non-issue. It appears that since the end of WWII we have been given one crisis after another by government, mostly to keep us in step and obeying.
Sounds like one more form of mind control to control the masses in a free democracy.
will u post something about the alternative, gold backed I guess
so we can compare
The Price of Gold http://www.youtube.com/watch?v=z6NfXk7Bvc8 [right click]
Here is a good video if you want a good overview of our system and how it came to be...and also good explanations for other alternatives:
http://mises.org/media/4390/Money-Banking-and-the-Federal-Reserve
Scroll down the page to watch the video.
Here is another interesting link that talks about where our economy is headed - you had better hold on because the roller coaster has reached it's apex and is abou to take a nose dive.
http://www.youtube.com/watch?v=zabqDZPulhs&feature=em-uploademail