Forum Post: How the current financial system can be ended
Posted 12 years ago on April 16, 2012, 8:56 a.m. EST by niphtrique
(323)
from Sneek, FR
This content is user submitted and not an official statement
Summary
Interest on money contributes to social dislocation, environmental degradation and economic crises. Interest introduces risk in the financial system as interest is an allowance for risk. Interest gives the economy a short time bias as money in the present is preferred to money in the future because of interest. Interest increases wealth inequality as the poor pay interest to the rich. Interest leads to slavery because many people cannot repay their debts with interest and become the serfs of money lenders. Because of interest, there is a strong competition for money, which promotes unethical behaviour and crime. Interest is also the cause of economic booms and busts.
Natural Money is a solution for those issues. Natural Money has a constant money supply, a holding tax and a ban on charging interest. Because people have to pay a holding tax on money, they are willing to lend out money without interest. Because the money supply is constant, any economic growth will result in lower prices and a rise in the value of the Natural Money. Because there is constant economic growth, there is always a real return in lending money at zero interest. Because of the constant economic growth and full employment, investments in an economy based on Natural Money will lead to superior returns.
Examples in history demonstrate that an economy based on Natural Money is feasible, stable and can lead to prosperity. In the past similar types of money have been used. The most interesting examples are the grain receipts used in ancient Egypt after Joseph had advised the pharaoh to store food for the seven lean years and the introduction of the complementary currency in Wörgl, Austria, during the Great Depression. Natural Money is theoretically the most efficient type of money and will replace all other forms of money as soon as it will come into existence. This nearly happened in 1933 after the experiment in Wörgl turned out to be a success. It can happen any time as soon as the experiment is repeated.
Link to the complete article:
Ummm, accepting the bible story of Joseph in Egypt as historically true, is certainly tenuous. Otherwise, the idea sounds fine. Nevertheless, if the value of money constantly rises, then how is that any different (in a practical sense) than paying interest? I mean, the borrower still pays back more than he borrowed. I think the real benefit of this idea is in terms of "local currency" (and variations in valuation of potential currency within regions currently served by the same currency). But, it's also not impossible to think that these differences are already accounted for in the marketplace (I'm just not informed enough on this particular issue, to opine either way).
In Islamic finance the bank shares in the profit. This makes the system more stable because when there is no profit the bank will not take money out of the enterprise. Similarly, if the economy does well, somebody loaning out money at 0% should be rewarded for it. Otherwise interest free money would not be economically feasible.
The story of Joseph is historically correct as I will show you:
The Bible contains a story about the Pharaoh having dreams that he could not explain. The Pharaoh dreamt about seven fat cows being eaten by seven lean cows and seven full ears of grain being devoured by seven thin and blasted ears of grain (Gen. 41:1-45). Joseph was able to explain those dreams to the pharaoh. He told the Pharaoh that seven good years would come and after that seven bad years would follow. Joseph advised the Egyptians to store food on a large scale. They followed his advice and built storehouses for food. In this way Egypt survived the seven years of scarcity.
What is less known, because it is not recorded in The Bible, is that the storing of food resulted in a financial system. The historian Friedrich Preisigke discovered that the Egyptians used grain receipts for money. Farmers bringing in the food, got receipts for grain. Bakers who wanted to make bread, brought in the receipts, which could be exchanged for grain. Because Joseph took all the money from the Egyptians (Gen. 47:14-15), they had to invent an alternative currency.
It did not take long before the grain receipts where generally accepted as money. Because of the degradation of the grain and mice eating it, the value of the receipts was steadily decreasing. This stimulated people to spend the money fast. The grain receipt system lasted for many centuries. It made sense to store food to provide for hard times. When Joseph came to Egypt, the country had already passed its zenith. The time of the building of the great pyramids was centuries earlier.
After the introduction of the grain money, Egypt started to flourish again. Three centuries later, during the reign of Ramesses the Great, Egypt became again a leading power. The wealth of Egypt during the reign of Ramesses the Great was built upon the grain money system. The grain money remained in function in Egypt until it was replaced by the Roman currency during the late Ptolemaic period. The grain receipt system was very stable and it helped Egypt to remain a stable civilisation for another 1,500 years. It is the only monetary system that survived for such a long time without collapsing. The Egyptian civilisation lasted for more than 2,000 years, far longer than any civilisation ever.
http://www.naturalmoney.org/full-theory.html#jose
Because Joseph took all the money from the Egyptians (Gen. 47:14-15), they had to invent an alternative currency. The existence of the grain money therefore proves beyond reasonable doubt that Joseph existed.
Ummm, bare assertions aren't proof of anything, and the Joseph story is most likely mythological (for the most part anyway).
I see that my comment was deleted. You can see that:
Denying the obvious is what makes many belief systems (including religions) irrational.
[Deleted]
Well, I don't disparage whatever your deeply held beliefs are, and while I'm on the secular side of this issue, I can't discount unknown possibilities, except to say I see no real value in evaluating things like monetary policy from the perspective of legends that fit the mythic archetype.
A stable-valued currency helps commerce and generates wealth due to the exchange of excess production. However, the powers that be like to undermine the value of currency because they can create that at will "out of thin air" and use that for extracting labor. This perpetual trick undermined all fiat currencies so the stored value in the currency became subject to various feedback processes (I monitor how much credit/currency our federal reserve creates but it monitors how much I keep in reserve -- can you see the two mirrors helping to form the mirror palace that is our financial world? The really smart and stoic ones understand the law of negative returns: investment returns = taxes + inflation losses + commissions and expenses + loss of sleep and increased worry; the simplest way to maximize investment returns is to make the principal amount zero and stay out of the fray). When there is enough fluctuation and uncertainty, the whole financial system experiences a thrombosis that hurts everyone.
The ancient Egyptians' reverence for the cats and their usage of feline features in their cosmetic techniques may relate to the guarding of the store of value in the grains which were protected by the cats killing the mice eating the grains. In a sense, the cats were gods and goddesses of prosperity and they underpinned the financial stability and well beings of the ancient Egyptians allowing them to become a long-enduring mighty empire.
A relevant comment: http://occupywallst.org/forum/-ows-does-a-plan-for-jobsread-on-/#comment-754905
(JoeW)
Wikipedia also lists an example of a "natural money"/demurrage system that is currently being used in Germany: http://en.wikipedia.org/wiki/Chiemgauer
Scrip, or local currency, was said by Ben Franklin to have brought prosperity and full employment to the American colonies in the 1740s. When, as embassador[?], he told that to some of the British, the British bankers, who were not profiting from scrip, made scrip illegal and that ended the prosperity and helped lead to the Revolution.
Pick a small island and try your idea out there. In the mean time, the fixes are obvious. There are actual economists who can fix it, and if they won't/can't I will. I learned mine from Mr. Greenspan, so I know exactly what not to do.
LOL
If economists were so bright then why are we in this mess in the first place?
Not to mention Mr. Greenspan, who is the primary culprit. He is a Mega Mess Maker.
I guess you are just joking, but I am not sure. People who think like this do exist in reality.
Even some twelve year old girls are smarter than that.
Because people are paid NOT to listen to them. No field has unanimity and neither does economists. They aren't all right or all wrong. That doesn't mean some of them aren't right most of the time. I did take an econ course from Greenspan, but haven't agreed with him for years. Economists didn't create this mess, although Greenspan contributed to it greatly. But so did Sen Gramm, (an economist who replaced the Glass-Steagal law) and several regulators who were put in place NOT to regulate. (The Controller of the Currency, the CFTC, the SEC, the DoJ and several others) And, that is what they didn't do. Regulate. I don't think you should pick on girls. it was a girl that exposed most of this in a Congressional Hearing. But Brooksley Born was head of the CFTC and warned of the dangers of derivatives trading. she testified before Congress that unfettered, opaque trading could "threaten our regulated markets or indeed our economy without any federal agency knowing about it." She called for greater disclosure of trades and reserves to cushion against losses.. Shiela Bair, Chairman of the FDIC was one of the best involved with saving the system. You need to understand this well enough to make judgements, rather than defaulting to 12 year old girls.
It is not difficult and it boils down to simple math. The real cause of the problems lies in the nature of our money system in which interest on money is charged. Interest causes wealth to concentrate as the poor pay interest to the rich. Interest can therefore be seen as a tax on poverty to the benefit of the rich. The following example demonstrates this and also that interest on money is unsustainable and leads to crisis:
If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogramme of gold weighing 6,000,000 times the complete mass of the Earth.
If interest is charged on a limited scale or over a short timeframe then those problems do not surface. Interest is an insidious process. Over time it is inescapable that it reduces large numbers of people to a state of servitude to the money lenders. This is a long term development that transcends the life span of a human. Interest is the main reason why a number of civilisations have failed and why Western civilisation is about to fail. Therefore all interest is usury and the current financial system is a usury financial system. Interest is also the cause of inflation as more and more money has to be created to keep the economy going.
If economists do not see this simple point, then the whole field of economics is rather pointless. You can better hire a twelve year old girl who understands this.
Wrong
You must be an economist.
You must be ignorant.
Everything you know about economics is wrong. Dead wrong. Everything. The conclusions of economists are based on a fiction that distorts everything else.
Economic profession is a genuine threat, not entertainment. Economics dogma is on track to destroy the world with a misleading ideology.
http://articles.marketwatch.com/2012-06-12/commentary/32176488_1_economics-gdp-growth-myth
the GDP (Gross Domestic Product) measures
the total money transferred in a nation in a year
-this is the current index used by most economist as I measure of the economy
.
the GNP (Gross National Product) measures
the total money transferred for exchange of goods and service in a nation in a year
-this would be a more accurate measurement of production
You are correct. A chart comparing these would illustrate the problem of the growth of money shuffling. A so called Turner Tax on financial transactions would address a number of problems and would raise a lot of revenue on activity that has created a huge burden on the other taxpayers.
There isn't a large enough stadium for the 99% to watch the circus performance of the 1%. And it doesn't pay well.
I have no idea what this means
Tax Payer? Ax Prayer ?
Because theory and practice are two different things and there's always a gap between them. When an economic theory is put into practice its done so by politicians and many other humans, these people are not economists and have faults. There's a big difference between Keynesian or Smith economic theories in the books and in the field.
If there is a difference between theory and practice then the theory is faulty isn't it?
If I were a doctor and I diagnose pneumonia but it turns out to be cancer then I would be fired.
So why do all those economists still have a job and get paid well too?
They should be in the unemployment lines.
You can try my solution and if it does not work I will look for another job.
No, there is always a gap between theory and practice. This is normal.
There is little use of a pseudo science called economics that produces such poor results.
They did not even see the credit crisis crisis coming.
http://www.washingtonpost.com/business/economy/greenspan-image-tarnished-by-newly-released-documents/2012/01/12/gIQAvh0mtP_story_1.html
Maybe astrologers can do a better job in economic forecasting.
It is no surprise that they are doing such a bad job as they are paid by the FED that supports the debt based monetary system:
http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html
Even a twelve year old girl knows it is a fraud.
One solution for those economists: fire them.
Well said.
What's important is public awareness.
If people were aware of such facts, they'd try not to take bank loans or bring them down to a minimum.
Natural Money gets at a lot of the systemic issues, but I do still think that we need a currency that would grow with interest, it should be a small part of the money supply however, naturally regulated by the other types of currency in circulation.
But what I wanted to point out was that this money seems, at least on the surface to be rather monopolistic. Also, this is very similar to the ideas of Bernard Lietaer, whom I came across through readings suggested by Daniel Quinn on his website. He goes into much greater depth than this article does, this article is a great summary (not sure if by coincidence or not, lots of people are on this train of thought) of much of what he says in his books The Future of Money, and New Money for a New World.
Natural Money is related to the concept of free money.
There are thousands of similar currencies, but only a few became such a success that they were banned.
Finding out the the reasons why only a few examples were such a success that they threatened the financial system would be an important discovery.
The idea of Natural Money is based on the secret that made those few currencies a success.
You should explain the monopolistic issue because I do not see it.
Well it depends on how Natural Money would spread, if it started in one locality and took over the system, yeah it would be monopolistic. But if its a bottom up process taking place all over, than it would be a very democratic and not at all imposed process. And Natural Money would probably end up taking different forms as a result of this process (giving us lots of different monetary tools instead of just one).
I am trying to see how close it is to the ideas of Democratic Money I have come across.
I assume that local Natural Money currencies will dominate the future because they are more efficient.
If they are more efficient then this is unavoidable, even when 99% of the population opposes Natural Money at first. If they are not then it is unavoidable that they will not dominate the future.
Money is not something you chose by voting. I think Natural Money will replace usury money because of Gresham's Law:
Bad [depreciating] money drives out good [stable] money. So depreciating money is a superior form of money.
Democracy is a simple concept. The citizens must be in control of the government. Elections are not sufficient as politicians can be bought. If you add a referendum law to that, so citizens can overrule politicians, then you have democracy.
I have been in OWS since October and I have met with so many brilliant people with phenominally astute plans to fix things
get rid of corporaions
get rid of the fed
new currency
new banking system
tax the rich
tax the corporaions
From one who is humble enough to say that I could not impliment these ideas
but who is old enough to know that NOTHING will change as long as the power of GREED is on the other side.
The plan is simple:
Phase 1: Blow away the current financial system with superior efficiency of Natural Money, see: http://www.naturalmoney.org/naturalmoneybomb.html
Phase 2: Grab the momentum and implement political reforms, most importantly a referendum law.
It will take the money out of the political system because after the politicians have been bought, the people can overrule them anyway so there is no use in buying them any more.
It is simple and it will work.
And the best thing is: it will fix everything.
"Blow away the current financial system with superior efficiency of Natural Money"
and how do you convince 300,000,000 Americans about something they have never heard of?
How do you get koch & the banksters NOT to spend $1,000,000,000 to stop this?
Are there any national polls supporting this plan?
start in the beginning
national polls DO SHOW 74%-86% of Americans want to get rid of Citizens United
It does not need many people or a large organisation. People will be convinced because it works. If the success becomes known, many people will start to copy it, and the powers will not be able to stop it like they did in the past. The Internet will ensure a fast spread of the information. This is the fix for the crisis and a ban will not be accepted.
The Wörgl experiment became explosive because many towns and villages wanted to copy it. For this reason the central bank of Austria banned it. The Lignières-en-Berry experiment was explosive because it would have replaced regular usury money within a few years. For this reason the government of France banned it. If the experiments had not been banned then everybody would use scrip money now.
So, it is just around the corner and it probably will happen.
Replying to this:
From http://www.naturalmoney.org/buildfuture.html
Your logic is wrong. Many types of food are perishable; basically the only grain which consumers store is rice, which is not as popular in the US as other foods. Storing food has costs of space, spoilage, and possibly transport costs (if someone moves while possessing stores of food).
Lower grain stocks are probably the result of more efficienct supply chains.
Regarding the underlying logic: "natural money" would make people want to spend money, but there would still be some people who have more money than they can spend (= the rich). In one of the historical examples mentioned, around 1100 or so, it talks about how people avoided the scrip currency because it was a 6% holding tax per month.
So poor people would still end up spending all their money and have no wealth, while rich people would still have more money than they can spend and end up with most of the wealth in the country. The ratio of wealth to income might be lower than present (currently, US has ~$55 trillion of wealth (including 'phantom wealth' of stocks, etc.) and $15 trillion/year in income) but I do not see how this is fundamentally any better than current.
So, if poor people did spend all their money on food to avoid the "holding tax" they wouldn't be able to pay to fix their car when it broke. Artificially capping interest rates at 0% instead of letting the market dictate rates could easily mean that they could not get a loan to pay to fix their car, resulting in financial disaster.
As I said with my first comments on this topic, you have too much fixation on interest rates and loans.
Food is perishable but not storing food is a bad idea. The holding tax will make storing food economically rational where it is possible.
You can save money for car repair. In one year the tax is 12% and in a savings account you will lose less.
Regarding your objections to the holding tax: we can only look at real examples in history to see how it worked. It did work well.
I guess more to the point is instead of buying food in advance (which could 'spoil', thus depreciating your investment) you could just operate without any savings and continue to buy food when you need it.
I just think you're overextending by trying to link grain supplies with interest rates. Especially when interest rates change, and are now at... 0% for banks to borrow from the government isn't it? And have been close to 0% in Japan for decades (where large amounts of rice are stored by law, and even goes to waste/fed to animals due to agreements to buy rice from the US despite not needing it etc.)
A Monetary Policy for the 99%: Twelve-Year-Old Reformer Goes Viral
Tuesday, 29 May 2012 09:31 By Ellen Brown, Truthout | News Analysis
The YouTube video of 12-year-old Victoria Grant speaking at the Public Banking in America conference last month has gone viral, topping a million views on various web sites.
Monetary reform - the contention that governments, not banks, should create and lend a nation's money - has rarely even made the news, so this is a first. Either the times they are a-changin', or Victoria managed to frame the message in a way that was so simple and clear that even a child could understand it.
Basically, her message was that banks create money "out of thin air" and lend it to people and governments at interest. If governments borrowed from their own banks, they could keep the interest and save a lot of money for the taxpayers.
She said her own country of Canada actually did this, from 1939 to 1974. During that time, the government's debt was low and sustainable and it funded all sorts of remarkable things. Only when the government switched to borrowing privately did it acquire a crippling national debt.
Borrowing privately means selling bonds at market rates of interest (which in Canada quickly shot up to 22 percent), and the money for these bonds is ultimately created by private banks. For the latter point, Victoria quoted Graham Towers, head of the Bank of Canada for the first twenty years of its history. He said:
Each and every time a bank makes a loan, new bank credit is created - new deposits - brand new money. Broadly speaking, all new money comes out of a Bank in the form of loans. As loans are debts, then under the present system all money is debt.
Towers was asked, "Will you tell me why a government with power to create money, should give that power away to a private monopoly and then borrow that which Parliament can create itself, back at interest, to the point of national bankruptcy?" He replied, "If Parliament wants to change the form of operating the banking system, then certainly that is within the power of Parliament." In other words, said Victoria, "If the Canadian government needs money, they can borrow it directly from the Bank of Canada. The people would then pay fair taxes to repay the Bank of Canada. This tax money would in turn get injected back into the economic infrastructure and the debt would be wiped out. Canadians would again prosper with real money as the foundation of our economic structure and not debt money. Regarding the debt money owed to the private banks such as the Royal Bank, we would simply have the Bank of Canada print the money owing, hand it over to the private banks and then clear the debt to the Bank of Canada."
Problem solved; case closed.
But critics said, "Not so fast." Victoria might be charming, but she was naïve.
One critic was William Watson, writing in the Canadian newspaper The National Post in an article titled "No, Victoria, There Is No Money Monster." Interestingly, he did not deny Victoria's contention that "When you take out a mortgage, the bank creates the money by clicking on a key and generating 'fake money out of thin air.'" Watson acknowledged:
Well, yes, that's true of any "fractional-reserve" banking system. Even before they were regulated, even before there was a Bank of Canada, banks understood they didn't have to keep reserves equal to the total amount of money they'd lent out: They could count on most depositors most of the time not showing up to take out their money all at once. Which means, as any introduction to monetary economics will tell you, banks can indeed "create" money.
What he disputed was that the Canadian government's monster debt was the result of paying high interest rates to banks. Rather, he said:
We have a big public debt because, starting in the early 1970s and continuing for three full decades, our governments spent more on all sorts of things, including interest, than they collected in taxes.... The problem was the idea, still widely popular, from the Greek parliament to the streets of Montreal, that governments needn't pay their bills.
That contention is countered, however, by the Canadian government's own auditor general (the nation's top accountant, who reviews the government's books). In 1993, the auditor general noted in his annual report:
[The] cost of borrowing and its compounding effect have a significant impact on Canada's annual deficits. From Confederation up to 1991-92, the federal government accumulated a net debt of $423 billion. Of this, $37 billion represents the accumulated shortfall in meeting the cost of government programs since Confederation. The remainder, $386 billion, represents the amount the government has borrowed to service the debt created by previous annual shortfalls.
In other words, 91 percent of the debt consists of compounded interest charges. Subtract those and the government would have a debt of only C$37 billion, very low and sustainable, just as it was before 1974.
Mr. Watson's final argument was that borrowing from the government's own bank would be inflationary. He wrote:
Victoria's solution is that instead of paying market rates the government should borrow directly from the Bank of Canada and pay only token rates of interest. Because the government owns the bank, the tax revenues it raises in order to pay that interest would then somehow be injected directly back into the economy. In other words, money literally printed to cover the government's deficit would be put into circulation. But how is that not inflationary?
Let's see. The government can borrow money that ultimately comes from private banks, which admittedly create it out of thin air and soak the taxpayers for a whopping interest bill; or it can borrow from its own bank, which also creates the money out of thin air and avoid the interest.
Even a 12-year-old can see how this argument is going to come out.
This article is a Truthout original.
Sounds like a quality way to stamp out fractional reserve banking. Do you see this limiting investors however?
Another argument in the same direction would be to require 100% reserve requirements on deposits for banks....and return to a metallic backed money.
Fractional reserve banking would be ended. However there is no metallic backing. If you back the money with gold or silver you cannot avoid interest on money. Nobody will lend out gold or silver at 0% because there is no reward for the risk of losing it. When there is a tax on money, there is a reward for lending out at 0% because you can evade the tax by doing this. You can also invest in stocks and real estate. The money tax does not apply there.
Interest on money is fundamentally unsound because all the money will end up with a few people in the end. The following example demonstrates this:
If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogrammes of gold weighing 6,000,000 times the complete mass of the Earth.
This is the reason why there is a top 1% that owns 45% of everything just by moving money around. To keep the game going a while longer, more money has to be printed and more debts have to be created, and that is what has been done in recent decades.
If you have a tax on money and a ban on interest then no new money has to be printed and debts are not needed to keep the economy going. There will be no inflation, and if the economy grows there will be deflation and the value of the money will rise. Consequently lending out money at 0% will bring a real positive return. This is also the catch. If it is tried out under the correct circumstances there will be a capital flight to the interest free economy because it produces higher returns. This will end the current financial system.
In the past there have been two experiments that were such a spectacular success that they threatened the current financial system and therefore those experiments were banned. I have researched the secret behind their success and I am hoping to find some people to redo the experiment under the right circumstances:
http://www.naturalmoney.org/naturalmoneybomb.html
I see what you're saying about gold, but I don't believe there is evidence that it works this way in the economy. Under the gold standard in the US we actually had a normalization of the distribution of wealth. Check out the graph posted below....in 1971 we got off the gold standard (almost the exact time that wealth started to become distributed more to the upper class once more). Under the gold standard, however, we had a great move towards a middle and lower class that controlled more of the wealth. Also past civilizations that used the gold standard typically had minor inflation, rather than deflation from hoarding. There were panics under the gold standard, but most people don't realize the detrimental effects of fractional reserves, and instead attack the gold standard for these panics. There is a lot of dancing around with the graph in the teens and 1920's because of decreases in fractional reserve requirements by the Fed which caused credit creation and a semi-gold standard at those points in time:
http://www.google.com/imgres?um=1&hl=en&biw=1366&bih=643&tbm=isch&tbnid=ZLYgwOF854VDjM:&imgrefurl=http://en.wikipedia.org/wiki/File:Chart_of_US_Top_1%2525_Income_Share_(1913-2008).svg&docid=RWI3yEZsEKFlM&imgurl=http://upload.wikimedia.org/wikipedia/commons/f/fa/Chart_of_US_Top_1%252525_Income_Share(1913-2008).svg&w=998&h=712&ei=72zFT6OBB8GM2gXvk9G4AQ&zoom=1&iact=rc&dur=326&sig=115116358960083345000&page=1&tbnh=126&tbnw=177&start=0&ndsp=18&ved=1t:429,r:0,s:0,i:72&tx=65&ty=50
Definitely interesting stuff though, will dig more into natural money and check out the economies you listed on your site that used it. I haven't really dug into it yet in detail, but it seems a much better solution to the one we have today. Plus the fact if you want to hold commodities as money, you can! Thanks for posting.
During the time of the gold standard there was a gigantic leap in the living standards of people but the cause was not the gold standard but the industrial revolution. After the gold standard ended, many other nations enjoyed a rise in living standard, so it is not the gold standard that caused the leap in living standards. Interest on money is a fundamental mistake. The math is simple and the consequences are far reaching:
If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogrammes of gold weighing 6,000,000 times the complete mass of the Earth.
At some point a few people own all the gold. The economy will collapse long before that as there is too little money in circulation unless... the money is borrowed again. Poor people are left with the choice: starve or borrow money at interest for necessities. This only makes it worse. In democratic societies this will not be accepted. The welfare state, big government and money printing are the consequences. Without interest you do not need to manage the economy and the government can be much smaller than it is now.
The industrial revolution was in the 1800's....the improvement spread between the middle and upper class (from my graph) occurred in the 1900's.
I read the link. Didn't understand a single word of it.
The theory is not easy, but a practical example may help:
http://www.naturalmoney.org/example.html
I get it. Having a secondary currency that operates on negative interest is a way to get people to spend.
Apart from that, if the currency is local, which it mostly is, then it will create local employment.
Is promoting everyone to spend their money as fast as possible truly positive? I have significant doubt that 'natural money' will curb the current corruption/crime levels. There is also little evidence to support the statement that there will be constant economic growth under natural money.
Well, the example of Wörgl demonstrates it, but I have prepared a computer program to redo the experiment so we can see if it works or not.
Discussing it does not produce results, so I am ready to try it out. It only needs a single community like Wörgl.
http://www.naturalmoney.org/example.html
The question is: Is there somebody out there that dares to work with me to create an alternative financial system.
I have invented these things called Collateralized Mortgage Obligations (CMO's). You should buy a bunch of those first, so your money will be real safe. It is part of a new system called "Naturally Your Money Is Now My Money." NYMINMM.
I am starting to see what you mean but is this feasible in America where the banks have an even greater death grip on our monetary system? One weakness of this currency is that it basically equates to a fiat currency that will only be as valuable as its prevalence. The stamp scrip might have spread to hundreds of towns/villages in Austria but would people elsewhere be so willing to accept this new currency? Different mindsets and cultures all over the world.
Again, I do see incredible potential in an idea like this.
The example demonstrates that you need only one small village or town. That must be possible. As you see in the Wörgl case, if it is a success more towns will follow.
Like in Austria it can spread like wildfire. Only this time there is Internet so the experiment cannot be stopped as the world will be watching by then. I hope to find people that will work on the idea and contact communities.
I am now looking for a community that will do the experiment. I will provide my expertise and the programme, that is capable of running a network of banks using local currencies, so it can become an alternative world wide financial system.
If there are people who want to work with me on the issue, they should be aware of what is on Naturalmoney.org website as I have some controversial theories. That is quite a read to begin with, but I have to be honest about what this project is all about, and it is quite ambitious, but for good reason.
A holding tax contributes to instability in the stored value and that is why even after such a long time, gold is still the storage of value of choice. Mice do not eat gold. Some governments confiscated gold (U.S. included) but only if they could find the gold. Gold even if mixed in with other metals can be refined to high purity and there is so much already mined and stored that the new supplies from the gold mining companies cannot undermine the value of gold much.
Stability
First of all, money with a holding tax creates a stable economy. In a Natural Money system with holding tax and without interest, money is not created by financial institutions. The government levies a holding tax on the money and returns this money into circulation in the form of government spending. Any form of cash, both in accounts and in the form of bank notes, is subject to the tax. All loans that exist are created with existing money that is lent. Even though the money may not be lent at an interest rate, people will still be inclined to lend money, because there is a holding tax on money and the money keeps its value.
Consequently the following will happen:
There is always money available to be borrowed by credit worthy companies and people. Because no interest may be charged, there is no reward for taking the risk that the loan will not be repaid. There will be no unwise lending and borrowing that may destabilise the economy.
Should the economy weaken, which is unlikely because no money is withdrawn from circulation by interest payments, the economy may be fuelled by raising the holding tax. After all, people will be more likely to spend their money. With Natural Money, a higher holding tax is an incentive for the economy. This means that when a government is faced with rising deficits because of a weakening economy, increasing the holding tax reduces the deficit while energising the economy. This shows that there is no strong incentive for the government to increase money supply.
People who are unable to pay back a loan, will not get a loan. Ultimately this is in their own interest and in the interest of society. No one benefits from large groups of people that are so deeply in debt that they can never recover. However trustworthy individuals and companies can get a loan easily if needed because there is always full employment in the economy.
Gold
The problem with Gold that interest becomes unavoidable. Because gold can be stored without losing value, it does not make sense to lend gold without charging interest. Hoarding money is sometimes safer than bringing it to the bank because banks can go bankrupt. Therefore people may be hoarding money for a rainy day. When more people do this simultaneously, money is removed from circulation, weakening the economy and the banks. When this happens, even more people will start hoarding money, because they expect times getting worse. This is the beginning of an economic crisis.
During the crisis many people will lose their income, and if they do not have money, they must borrow money against interest for unavoidable expenses such as food. As a result, the situation becomes even worse and many people will be reduced to a state of servitude to the money lenders. Returning to gold and silver as money is also not practical. If gold were chosen as money now, many people would exchange their servitude to the banks for servitude to the gold hoarders, which includes governments and central banks.
Hoarding money is not the same as saving money. Saving money and bringing money to the bank is good for the economy because the bank can lend out the money for productive investments. Gold and silver were chosen as money because they were a good store of wealth. People should have the option to buy gold and silver if they think that the financial system is unsound. By owning gold or silver it is possible to protect yourself against currency mismanagement. A simple solution is therefore: gold and silver can be used as a safe haven and money should be a medium of exchange only. Therefore gold and silver should not be money.
Definitely see your point about gold, but i think if you look at history it contradicts this notion that people naturally lean towards holding of precious metals when its used as a means of exchange. Most experience slight inflation, rather than deflation coming from hoarding.
Actually money can be ANYTHING satisfying the conditions of fungibility and storage of value. There is nothing that will limit your natural currency being the only accepted means of exchange. Gold is still universally recognized and accepted (as bribes sometimes), from the mighty nimrods to the savages. In a real bind, you can throw the right people a few pure gold coins and the doors will be opened to you (just ask refugees escaping from human hells). It has served this role well and will eventually be called back into service to re-stabilize the currency systems which are based on just so much hot air and greed right now. The yellow shine has always been a miraculous antidote to inflation. Rationally, human beings' craving for the ownership of gold makes no sense at all but the fact is that it makes banishing hyperinflation miraculously possible.
saw a south park episode were junk gold jewelry was melted down than made into more gold jewelry to sell to old people on the shopping channel
Gold does seem to endure over time by being recycled.
it's a non reactive mettle
doesn't easily combine with atoms besides gold
the reason it's found pure in nature
Gold is an excellent store of value and but it is not a good facilitator of transactions. Because gold does not depreciate, nobody will lend it out without charging interest.
As interest was the cause of the financial crisis to begin with, gold is a bad facilitator of transactions. Gold can be hoarded, and in such circumstances, the economy declines, and debts become unpayable. If you choose gold, you will get economic depressions. This does not have to be.
I am aware of the fact that governments can print money, and for this reason Natural Money should exist in a free market together with gold. If Natural Money is managed correctly, there will be no economic crisis and the value of the Natural Money currency will rise against gold (probably 2-5% annually). Under these circumstances Natural Money will be preferred, even as a store of value, as you can lend it out at 0%.
Interest is an allowance for risk. A ban on interest takes most risk out of the financial system as risky projects have to be financed with equity. So lending out money at 0% has little risk.
There are always people who prefer gold, but Natural Money is a stable form of money. It has existed in Egypt for over 1,500 years:
http://www.naturalmoney.org/full-theory.html#jose
Natural Money can be eternal like gold.
I agree with almost everything you're talking about, except for your discussions on gold. History has shown gold standards to have slight inflation...rather than deflation caused by hoarding. Natural money seems to get rid of the fractional reserve issue that cripples the economy in this country and around the world as well...another plus. The one thing that worries me about it (at least the examples) from the website....is the velocity of it. It would deter against savings (which is somewhat its point as this is viewed as hoarding...along with the full employment from higher velocities of money you mentioned). In reality i don't think hoarding with gold is a serious issue, and slight deflation can actually benefit the middle to lower class at times (even though we're all told otherwise). I also challenge the fact that deflation causes economic slowdowns (unless you're talking about deflation of the money supply....from fractional reserves during tightened credit. Deflation from population growth while the money supply remains constant can be beneficial). The Fed actually studied deflations from different monetary regimes in history and found that there is no correlation between deflation and depressions (particularly so for the gold standard).
http://minneapolisfed.org/research/sr/sr331.pdf
Interesting site though.....definitely agree with you on more things than i disagree. Check out this site, one i put together a few years ago along the same lines:
www.hmscoop.com
During the gold standard depressions have been severe (1930's, 1870's). Ending fractional reserve banking would help, but it is not the core problem. The core problem is interest. Gold can be held back because it does not depreciate.
If the economy does not well, interest rates will fall and the risk of putting money in the bank rises. At low interest rates it is more attractive to keep the gold at home or at least out of the banking system. This is hoarding. Money is taken out of the economy. This was a serious problem in the past because this made interest rates rise above the level the economy could support.
Deflation is not a problem. With natural money prices will drop because the money supply is fixed and the economy grows. The velocity of the money only makes the economy run at maximum potential (like a turbo). The US economy may grow at a 3-5% rate annually with Natural Money (I cannot prove this, so it should be tried out). You can imagine how much lower taxes can be if this happens.
If you put money in a natural money bank at 0%, you will get a 3-5% real return and this will put the usury economy out of business as soon as it is tried out. Examples in the past have shown that it works extremely well. For this reason they have been forbidden.
I agree that gold should NOT be the medium of exchange but a gold-BACKED non-metallic non-forge-able currency with the government controlling the exchange ratio and authenticity under a popular referendum mandate will be desirable. With so many metal detectors around in the U.S., gold being a medium of exchange would impede the flow greatly, to the great delight of the terrorists. I do not see the holding tax having much different effects from the current way of inflating the money supply through the nefarious process that we have right now in the U.S. Having the holding tax will WAKE people up to the fact that the government is stealing value from their money which does not contribute to domestic tranquility. Let the sleepy sleep and besides employers can give pleasure to people receiving raises as long as they do not measure their new income relative to the new price levels. For the same reason, I like people buying lottery tickets for some moments of excitement and pleasure although it is a money-losing proposition.
As for Egypt, I believe that the cats moving into the granaries was the major reason why Egypt prospered. Stabilizing the currency always inspires confidence in the ultimate worth of wealth-creating activities and that will contribute to general prosperity IF the wealth is SHARED through a progressive tax system or low taxes on businesses catering to the consumption of the wealthy people. We want the wealthy people to buy yachts, build great mansions, travel to exotic locales, gamble in casinos, etc.
The holding tax will certainly make the cost of government clear, which the elites may not like. Part of my proposal is a referendum law like in Switzerland, so elites cannot hijack the government any more.
We can theorise endlessly but the Wörgl example demonstrates that the current financial system can be toppled by the superior efficiency of this money. One small community is enough to make it happen.
If it works like it did in Wörgl, then the current usury financial system is finished. I have a ready-to-go experiment and hopefully I will find a community that will try it out. That will prove me right or wrong.
Absolutely, go for it and let us find out if it works. Money's true foundation is trust. There have always been black market currencies so as long as all participants keep quiet and trust is retained, the experiment can proceed without central bank interference.
The same problems can happen with Natural Money. Money is not the problem. People are the problem.
Volos, a town in Greece is now using an alternative currency. Watch video here.
http://www.bbc.co.uk/news/business-17686384
Woopie!!!
"How the current money system works
Almost all money in circulation is created by bank loans. Characteristics of the current money are:
Money is not created by bank loans... money originates from the government. The government can make as much as they want or need in a fiat economy, there is no issue of never having enough as the third bullet indicates.
Banks can create money. This is basic knowledge. Money in the current account can be used to make loans. You can use the money in the current account and someone else can too. Banks bet on the fact that not all money is taken out at the same time, and if you take out the money someone else will deposit some money.
Yes, once banks have a reserve they can increase that money. That is through interest on loans (profits) as you describe. That is not creating money. Most of the money that makes up that reserve comes from depositors. Other money comes from loans made to the bank from the central bank. The central bank operates on behalf of the government (treasury). The point is money does not originate from banks but is issued from the government, the government actually creates money.
It is like this:
Where did this money come from? It was not deposited. It was created.
What is missing is the person who took out the loan. His balance is now in negative numbers. (Minus $900.00) The bank is temporarily poorer: it has swapped $900.00 it possessed for a promise. No money was created. It was transfered. The loan is a lien against the borrower's future earnings. In the end the aggregate stays the same: there was no increase of actual dollars in the economy.
The aggregate may stay the same, still there more money in circulation.
If you have 1,900 $ in your current account, you can use it as money. Therefore the 900 $ came out of nowhere.
Banks can create money. It is taught at economy classes.
If someone pays back a loan, money is taken out of circulation (or destroyed).
Nope, there is no more money in circulation. $900 did not come out of nowhere. It came out of the bank's vaults. It already existed. The bank gave money it owned to someone to buy the car. There is still only $1900.00 in total money: the one thousand you originally had, and the bank's nine hundred dollars. That's it, there is no more. The economy did not grow magically to $2800.00. All that has been created is a contract on future earnings with the borrower. When the loan is repaid, the bank gets its $900 back from "new" money that the borrower created from labor over time. That money would have been made regardless, and it was not the bank that created it. Labor over time did. Once the bank receives its own money back it has restored is previous balance of $900. That money is not destroyed. (!) It is simply not circulating if it remains in the bank. When it is loaned again, it is in circulation again.
We started with 1,000 $ in the current account. Now there is 1,900 $.
Banks can create money. You can read it in basic books about the economy.
It seems pointless to discuss this further.
epa1nter is correct on this. You are not keeping track of the debit side of the ledger. You are using only the credit side. This is a common fallacy. Economics books don't teach that banks can 'create' money. As much as I despise banks, if they were manufacturing money, I would state it... but lets be factual.
Wikipedia:
http://en.wikipedia.org/wiki/Money_creation
Yes, Fractional Reserve Banking.... does not really create money:
"The nature of modern banking is such that the cash reserves at the bank available to repay demand deposits need only be a fraction of the demand deposits owed to depositors. In most legal systems, a demand deposit at a bank (e.g., a checking or savings account) is considered a loan to the bank (instead of a bailment) repayable on demand, that the bank can use to finance its investments in loans and interest bearing securities. Banks make a profit based on the difference between the interest they charge on the loans they make, and the interest they pay to their depositors (aggregately called the net interest margin (NIM)). Since a bank lends out most of the money deposited, keeping only a fraction of the total as reserves, it necessarily has less money than the account balances of its depositors.
The main reason customers deposit funds at a bank is to store savings in the form of a demand claim on the bank. Depositors still have a claim to full repayment of their funds on demand even though most of the funds have already been invested by the bank in interest bearing loans and securities.[8] Holders of demand deposits can withdraw all of their deposits at any time. If all the depositors of a bank did so at the same time a bank run would occur, and the bank would likely collapse."
http://en.wikipedia.org/wiki/Fractional_reserve_banking
If money was truly being created, then a bank would have enough money on hand through the creation process to cover what everyone sees in their account balances. The truth is that number you see as your account balance doesn't really exist. Proof of that is that if eveyone withdrew the amount their account balance indicated at the same time the bank would collapse.
"If all the depositors of a bank did so at the same time a bank run would occur, and the bank would likely collapse."
That is the core problem of money creation and therefore it is money creation, because if there was no money created, this problem did not exist.
If you put the money in a deposit for 10 years and someone takes out a loan for 10 years, there was no money created.
Loaning out money against a current account balance is money creation.
It's debt creation. Not the same.
Definitely debt creation and a small cycle recirculation of existing resource.
So, in the current account from the example there is $1000 money and $ 900 debt. Hmm. Interesting.
I can just see how the intricate process of money/credit creation is working well for the elites -- perhaps that was the original purpose of its creation: to obfuscate the sleight of hand and prevent any attempt to explain it to "hoi polloi." First try to define and agree on what "money" is and classify all of the other "money equivalents" or "near-money", etc. No matter how the process had worked, if you assume a long-enough historical perspective, you can see that our U.S. "money" has lost almost all of its stored value over the decades. Just try looking up the increase in the price of first class postage in the U.S.
From you're wikki link article: http://en.wikipedia.org/wiki/Money_creation
Within almost all modern nations, special institutions exist (such as the Federal Reserve System in the United States, the European Central Bank (ECB), and the People's Bank of China) which have the task of executing the monetary policy and often acting independently of the executive. In general, these institutions are called central banks and often have other responsibilities such as supervising the smooth operation of the financial system. There are several monetary policy tools available to a central bank to expand the money supply of a country: decreasing interest rates by fiat; increasing the monetary base; and decreasing reserve requirements. All have the effect of expanding the money supply.
So creation of money ( new money ) is a restricted thing.
Yes.
At least you acknowledge that there is money creation.
There is money creation Central Banks yes, by commercial banks no... they create debt.
How else do you think it happens - it is created under controlled conditions and not as a general everyone has a print shop basis.
Incredibly stupid. I lend to my friend; my friend lends to me and neither of us get the holding tax (good luck enforcing it anyway). Why should I lend to someone who might go bankrupt and be unable to pay me back?
See also: If you are poor, it's because you want to be or because you're stupid
There will be no money creation and there will be no inflation. In fact 0% on a savings account will be a better return than 3% on a saving account when the money supply increases with 10%. Enforcing it is no problem anyway.
Example showing that it will work: http://www.naturalmoney.org/example.html
The reason it helped that town was because of the faster velocity of money. It wasn't about debts (which people try to concentrate now on especially with 'underwater mortgages).
Someone who borrowed money would, according to the description of how it worked, had to pay the same 'holding fee' which makes it more difficult to pay back the original debt.
It sounds like the reason the plan worked, actually, was because people trusted the issuer of the alternate currency to have the best interests of the community in mind (by boosting employment). This social/peer pressure was why most people were willing to accept an alternate currency with continuously decreasing value, on which they paid a 'tax' in the original currency (which the currency issuer could then use on public projects). While the US government could do something analogous it would in reality be no different from inflation caused by printing currency.
So basically, that town was small enough that people trusted each other and trusted the local government not to waste money. Would you support a negative interest rate on US dollars if the US government used the surplus from printing replacement money to bail out more corporations and finance more wars? Since, again, having older dollars worth less (a dollar printed in 2000 = 90¢ unless you exchange 10 of them for 9 current dollars) is no different from standard inflation caused by printing money with a low or zero central bank interest rate.
edit: to address this part specifically:
In the example, the mayor created a new currency which people then accepted. This gave him 40k schillings worth of value to spend on public projects. The monthly 1%-of-value stamp transferred money from holders of currency to the mayor/government; when it was paid in schillings then no currency was created, but when it was paid in 'stamp scrip' (for example paying one of the new notes worth 0.99 before being stamped for 99 stamps for other notes) then the mayor could create another note of currency since he had the same 40k schillings in the bank as a guarantee of the alternate currency.
This is the same as what would happen if the US government used it: the value of old notes would decrease and the government would need to create more currency to prevent deflation from occurring and keep prices stable.
If the same type of money was issued on a national scale, it will have the same effect. The power of the concept is clearly demonstrated because Adolf Hitler used interest free money to bring Germany out of the depression, even though this type of money had no holding fee (his design error, which in the end made interest inevitable):
http://www.naturalmoney.org/full-theory.html#nage
Furthermore, there is a real difference between a holding fee and inflation. It will become clear when you lend out money at 0%. This is also the secret key to its success. The only thing that counts is: will it work or will it not, and I think it will work.
So this 'interest free money' referred to money lent to the government, not money lent by the government (altho low interest rates for the government would have also meant low borrowing rates for everyone else, especially with a healthy economy).
Note the part about high government deficits. From the beginning of the same article,
I think you are confusing who was borrowing money in that case. The US has also achieved some degree of economic growth by borrowing money and having a huge deficit+debt, but you seem to dislike the idea of inflation. The German government did not achieve success by lending money to people at 0% interest (as the OP focuses on lending to the poor), but rather by borrowing at a low interest rate. Holding fee is effectively the same as inflation, it's just that store prices don't need to change.
I do not have problems with inflation. The core problem is interest as stated in the original article:
http://www.naturalmoney.org/full-theory.html
The real cause of the problems lies in the nature of our money system in which interest on money is charged. Interest causes wealth to concentrate as the poor pay interest to the rich. Interest can therefore be seen as a tax on poverty to the benefit of the rich. The following example demonstrates this and also that interest on money is unsustainable and leads to crisis:
If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogrammes of gold weighing 6,000,000 times the complete mass of the Earth.
If interest is charged on a limited scale or over a short timeframe then those problems do not surface. Interest is an insidious process. Over time it is unescapable that it reduces large numbers of people to a state of servitude to the money lenders. This is a long term development that transcends the life span of a human. Interest is the main reason why a number of civilisations have failed and why Western civilisation is about to fail. Therefore all interest is usury and the current financial system is a usury financial system.
So any solution should end interest on money. The holding tax can make this possible.
btw. I will read the article about Schacht again tomorrow, as my depiction of the facts should be accurate.
If you dislike interest, don't borrow money. Simple.
If you feel like the poor are forced to borrow interest, they are only poor (and forced to borrow money in emergencies) because they want to be or because they're stupid.
Interest only creates money if the entity paying interest can create money (that is, when the government lends money and either prints more or inflates away the debt by raising the debt ceiling as the US government does). Bankruptcy is the solution to 'unfair' interest rates and part of why interest rates can go so high. If your problem is debt that doesn't go away when declaring bankruptcy (i.e. student debt), this is a different problem but I will just mention that unemployment or underemployment of college graduates is high despite their education; half of recent graduates don't have a job in their field; and this chart nicely shows how education is partly cultural, compare South Korea to Germany:
http://jaredbernsteinblog.com/wp-content/uploads/2012/03/oecded1.png
So again, if someone's excuse for being poor is "student debt" then they are still stupid for not supporting changes that would make student debt less necessary.
If there was no interest then there was no allowance for risk, and the markets would not allow people to do stupid things. But of course predators like it the way it is so they can exploit people that are less smart.
I am working on an experiment like the one in Wörgl. If it works like it did in Wörgl then the current financial system is finished. Period. I do not have to argue with unbelievers because it simply works or it doesn't.
It only takes one community to find out. There are plenty of communities, so it is likely that I will find one.
http://www.naturalmoney.org/example.html
Anyway, bad money drives out good money. So bad money is a superior currency. A 1% tax per month is of course very bad in the eyes of the usurers.
I may try to incorporate 'community benefit' into arguments of my own. The examples you link show that it can, actually, be effective even if people (especially in current society) seem disinclined to be convinced by group benefit, the same way that union membership has been dropping.
Community benefit is not an efficiency argument. Interest free money is theoretically more efficient. You may find the argument here:
http://www.naturalmoney.org/introduction.html
I am not alone in this. Silvio Gesell outlined the theory of Natural Money in the Natural Economic Order. Many famous economists and scientists saw the potential of Natural Money:
"I thoroughly enjoyed Silvio Gesell's brilliant style. The creation of money that cannot be hoarded will lead to a different and more real kind of property." Professor Albert Einstein, Nobel Prize Winner
"Gesell's name will be a leading name in history once it has been disentangled." H.G. Wells
"The application of Gesell's principle of circulation of money will lead the nation out of the depression within two to three weeks. I am a humble student of this German-Argentine businessman." Professor Irving Fisher, Yale University, America's greatest economist
"I believe that the future will learn more from the spirit of Gesell than from that of Marx." John Maynard Keynes
"Gesell's work will initiate a new epoch in the history of mankind." Prof. Dr. B. Uhlemayr
"Gesell's discoveries and proposals are of the greatest importance for centuries to come." Dr. Theophil Christen, eminent mathematician and physicist, Berne
The main problem is putting theory into practice.
Albert Einstein also advocated socialism and a planned economy, while acknowledging that the issue of bureaucracy remained unsolved. I suppose that there is a major difference from just printing money in that with a 'tax' on holding money, the rate at which the government gains more money to spend is limited by the amount already in circulation (so yes, the total supply of money doesn't increase) while when just printing money, there is no theoretical restriction which is the reason it has sometimes led to hyperinflation.
But this is fundamentally no different from a system where the government gains all money by traditional types of taxes. A higher velocity of money from a holding tax can have some positive effects in the right economy, but can also cause negative effects on the environment and from resource depletion.
The previous argument I was using:
http://jobcreationplan.blogspot.com/2012/04/low-consumer-demand-and-inefficiency.html
It is quite simple. Because money is not hoarded, and people cannot go deeply into debt, and interest does not aggravate the debt problem, the economy also performs at maximum potential (max. economic growth, full employment) and this makes it more efficient.
The rise in currency value makes lending at an 0% attractive investment, and it will attract capital at the expense of the usury economy, which will then be left to crumble and die.
When the government prints money, it can then spend that money (on things like job creation, etc). Not printing more money isn't really an advantage, it just means taxes have to be higher. But anyway,
Negative real rates are because of a positive rate of inflation and lack of other productive uses for that money. They still give higher nominal rates than just keeping it as cash in the current system (or putting it in a normal bank, which is mostly the same thing except in rare cases like one bank actually did use a negative interest rate for certain deposits because people were taking advantage of its deposit guarantees in some exploitative way).
But anyway, that just shows how unusual the current situation is. When someone buys government bonds they are loaning that money — to the government.
Assuming 'natural money' had zero inflation (and not deflation from, for example, keeping the same $100 billion or whatever from 1950 to 2000 despite population increases) government bonds could possibly give a "negative nominal interest rate" but it would need to be higher than the normal negative return from holding cash. Anyway: lending money is not spending it. If someone is just going to default on their debt by going into bankruptcy, buying negative real return interest rate government bonds is still more profitable than lending out money.
(Look at it another way, if someone can borrow money for a house at 0% interest rate then they are likely to pay more for a house, driving up prices.)
Assuming that the amount of money is fixed, prices will stabilise. Assuming that there is economic growth, more goods and services will become available against a fixed money supply, so prices probably will drop.
Assuming that the value of the money rises, you need productive investments if you borrow money at 0%. You will never buy items for speculative purposes (and drive up prices). If you buy a house, you need rent to compensate for maintaining the house and for the rising value of money.
With natural money governments do not go into debt so there is no government debt. The reason is the following:
The risk of default is limited. Interest is an allowance for risk. Only trustworthy borrowers will get a loan when 0% is the maximum return. The best borrowers may even get better rates, for example -2%. The economy will grow at a constant rate, so risk perceptions will change less. This will also reduce the risk of default.
Why not? If you can't find anyone who will borrow at a reasonable rate, holding items would definitely be better than holding cash.
Unless you really do have significant deflation, which just works against the purpose of a negative interest rate because it would discourage people from lending or investing.
Many governments, like the US, can already do this. The reason they don't is to limit the money supply and inflation, since if the US borrows $1 trillion by selling bonds instead of printing $1 trillion, then the rich people that the US borrowed that $1 trillion from can't directly spend it as cash until the US returns it. Borrowing/lending does increase the M2 component of the money supply or whatever, but it doesn't increase the amount of actual cash in the economy.
You might as well just leave the financial system how it is but limit loan interest rates in this same way, to 2% higher than inflation or something.
It would kill things like credit cards which depend on high interest rates because (people are stupid) of the risk of bankruptcy and cancellation of debts, but so be it.
Might as well outlaw "payday loans" while you're at it.
The point: natural money would not necessarily cause rich people to spend more than current, since rich people are already willing to loan (to the government) at a negative real interest rate. If the government used Natural Money like you suggest and avoided printing more to keep up with population growth, leading to deflation like you suggest, this would just increase the real interest rate of loans, counteracting the 'negative interest rate' of Natural Money, and make it less likely that rich people would spend their money (instead of loaning/saving it).
So unemployment could easily still remain high. Maybe the middle class would spend more money and save less (the rich that get their income from corporate profits are the ones who are probably already spending all they can, and there are less of them than middle class) but due to the predictable spending patterns described in this post that additional spending by the middle class would likely just go to brands, meaning that it would increase profits for corporations and income for the rich, instead of an actual increase in volume of consumption that would create jobs for the poor.
Here is just something to imagine: the government is currently spending $800 billion more than it takes in revenues, and unemployment is still at 8%.
Suppose that people continue to spend the way they have been spending, with poor people going into debt (the average debt of the bottom 40% of wealth is about $50k, the same as their assets, or at least it was in 2007 before the housing crash: page 14 of this paper). This means they continue buying iPhones etc, and Apple has another $35 billion in profit this year.
Now suppose that the government had issued enough "natural money" to create an extra $800 billion per year in revenues. (The St. Louis Fed seems to be saying that there was $800 billion in circulation before the crisis, and about $2.7 trillion now: http://research.stlouisfed.org/fred2/series/BASE/ So dollars would need to lose about 8% of their value per month pre-crisis, and still ~2% per month now.)
Unemployment would still be at 8% since all it would do is eliminate the deficit without actually creating any jobs.
Whereas work conservation can fix unemployment without more government spending or higher taxes.
http://the99percentvotes.com/idea/US95
I could not reply to you last post:
"Much has been made of the fact that people are buying inflation-adjusted government bonds at negative real interest rates."
There is a catch in this one. With Natural Money the value of the currency will rise as there is no money printing so economic growth will lower prices. Consequently lending out money at 0% will give a positive return.
For an investor it is more attractive to lend out Natural Money at 0% than buying a bond at negative real rates. Consequently, Natural Money produces higher returns for investors.
doesn't change the owners of the resources
Because there is a holding fee on natural money, it is not attractive to keep the money. The money will be spent again and again without creating debt, so unemployment will drop.
Furthermore, it is not attractive for countries like China or Japan to accumulate the money, so if they export something to the US they will also import something, and unemployment will drop even further.
Job sharing is a good idea, also when you use natural money. However, your income after job sharing must be sufficient for your needs.
Much has been made of the fact that people are buying inflation-adjusted government bonds at negative real interest rates.
These people are aware they are losing money by holding on to it. Yet they already spend enough money that $9 of purchasing power in a few years is more useful than $10 today.
Maybe it would have helped to mention this sooner lol. Not sure if you were aware this was happening.
People who feel they need money would just continue to work full-time, simple. (Whether they have debts or are saving to buy something.)
I have been thinking it might help to point out areas where money can be saved, but it's pretty difficult to do this... I can only think of the large differences in prices at grocery store (generic bread costs $0.88 for a 22-oz loaf, "special" bread is $4~5 per loaf) and the large differences in prices between the US (and even within the US) and other countries for things like an MRI or CT scan.
http://www.ifhp.com/documents/2011iFHPPriceReportGraphs_version3.pdf
http://www.washingtonpost.com/blogs/ezra-klein/post/why-an-mri-costs-1080-in-america-and-280-in-france/2011/08/25/gIQAVHztoR_blog.html (and links)
Cost per hospital day: average $3,949/day in the US. $655 in France, $632 Germany, etc...
More statistics related to health specifically in this post.
Practical question then: what would happen to coins? They are more difficult to attach a stamp to.
The US penny is already worth less than the copper it takes to make it, I believe (though inflation has the same issue).
This is a reply on your last message but I cannot reply on it directly.
You are making it complicated, which it does not have to be.
If you issue $1 million of Natural Money currency and back it by $1 million of US dollars then you have $ 1 million backing and $ 1 million in the accounts.
After one month there is 990K in the accounts, 10 K in the government account and 1 M backing. The backing cannot be spent unless you exchange the money to regular dollars.
The government can spend the 10K so the money will be spread around and account holders will have 1 M again.
For the rest I can only say: it works or it doesn't. Discussing it does not change a thing about that. My opinion is irrelevant. I believe it works so I will try to find some people that are willing to try it.
It does not really matter whether the Natural Money currency is banknotes or in bank accounts.
In the existing examples the money existed alongside regular money including coins so this was not an issue.
In the digital age this would be no problem. On bank accounts you can work with fractions.
I don't actually have a very clear understanding of how digital banking works... is it all based off of actual cash in the end? It doesn't seem likely that two banks can just "agree" that they both have more money (or hack their own computer systems to add an extra digit), so other than stocks and financial instruments I think it really is just cash? As well as, maybe, debts recorded in the accounts of the Fed?
For that second case I think it works that way; I've seen a picture of the Fed's "current balance sheet" with quantitative easing and housing debts and so on. So the Fed buys bonds at whatever the market price is, but instead of actually giving out cash it just promises to pay the previous holder. Then banks can treat that promise as digital cash.
In that case it might be possible to do what you say, with negative interest on those accounts.
But for bank holdings that are based on actual cash, I don't think it works. If a bank has recorded that it has $1m in cash in a vault, you can change computer records with negative interest to say it only has $990k but there is still $1m in bills in the vault.
You need to do something to those actual notes to affect their purchasing power, which is what the tax on holding money is. If you don't use physical stamps you could use the date of issuance, as I think I mentioned before, but that makes handling money very complicated. If a cashier needs to give someone change they can't just grab random notes; they would need look at or scan with a computer every note so that the customer gets the right amount back, and the customer would also need to look at every note if they want to make sure they got the correct change.
Possibly you could make everything more digital and less cash-based, so that everything really is a digital 'promise' from the central bank... but I am still not convinced it would fix everything.
You keep saying that money will not be hoarded, but this may be an unjustified generalization of the example town. After all, since "bad money drives out good money" rich people would be spending digital currency while keeping cash. Given the practical problems outlined above (unless you really are going to force everyone to put physical stamps on their currency) you would need to completely replace physical currency with digital currency.
And even if you did this, people would still probably buy iPhones for twice their production costs giving Apple and other corporations the same profits they have now. Ownership of capital (such as stocks) would not be affected, so unemployment would only be fixed if rich people spent more money than they do now or if the government was spending more.
Since the top 5% account for ~37% of consumer spending, it might be possible for them to spend more but maybe they already buy everything they want given their income. Generally I think the rich are perceived to have returned to their pre-recession spending levels. So for your goal to be achieved the government might have to spend more, and people would have to agree to the spending.
So I thought this was a good example of people's reactions: if government revenue was from a tax on holding money instead of on income, would people be less upset at these signs?
http://www.youtube.com/watch?v=oiHoD28SAIg
I do like this statement:
But I still think that a solution where people work less is better than one where people work full-time in whatever trivial occupation people will pay for. Ask yourself, would 'natural money' really prevent unemployment if productivity was twice what it currently is without any new goods?
But... the last time inequality was this high, during the gilded age and great depression, things didn't really improve until the government raises taxes on the rich during and after WWII. Natural money would not suddenly reduce the share of income going to the rich or to the 1%, due to their ownership of capital and financial instruments; inflation means there can already be a negative real interest rate on holding money (see the "giant pool of money" that contributed to the housing bubble) so it's questionable whether even a 1%/month tax would lead to the rich spending significantly more than they do now.
If the rich don't spend more, then unemployment doesn't go up. Having people work less circumvents this problem by reducing the amount of money going to the rich in the first place by affecting peoples' sensitivity to prices, which natural money and full-time employment does not do in the slightest.
I could not reply on you other comment for some reason, but a tax on money is not a tax on wealth. It does not tax productive assets (factories, real estate).
We will see what works best. Only by trying you will find out. I think this will work, and that it even will replace the current financial system, but somebody has to try it out.
I am working on a plan that is easy to start but it needs a few daring individuals. I wil help in every way I can.
Natural Money would reward productive people while the usury system works well for all kinds of parasites. If people become rich by productive enterprise or hard work this is no problem. However if you become rich because of financial considerations (for example: outsourcing, trading, financial engineering) this should not be rewarded. This is also the reason why Natural Money is more efficient.
While I may still agree with the premise that a problem exists, I still find it unlikely people will adopt a tax on wealth. Example, this poll question...
Q59. Which do you think is the best way to promote economic growth in the U.S.? 1.Lower taxes on individuals and businesses, and pay for those tax cuts by spending on some government services and programs, or 2. Spend more on education and the nation’s infrastructure, and raise taxes on wealthy individuals and businesses to pay for that spending.
Lower taxes, cut spending 37
Spend more raise taxes 56
People know that a larger government would mean higher employment, but they still prefer smaller government:
"A majority of the population is opposed to government spending to create jobs, and 64% would choose cutting government spending over raising taxes on corporations despite that only 4% think that corporations use savings from tax cuts to hire more workers."
http://occupywallst.org/forum/work-conservation-is-the-solution-to-the-global-re/
Yeah, ever since the great depression, some one or the other has been saying that the US economy would decimitate and vanish soon. It's been nearly 90 years and 'soon' hasn't arrived. Let me know when it does.
Well they keep printing money so it wont go away... We just have 17 trillion dollars in debt instead.
... and pay interest on it.