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Old 23rd January 2012, 07:03 PM   #81
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Originally Posted by Sceptic-PK View Post
Central banks are the government.
No, it's not. It has the taxing power of the government, by virtue of the fact that it is an institutional, legal counterfeiter, and none of the oversight.
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Old 23rd January 2012, 07:26 PM   #82
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Originally Posted by Tippit View Post
If trading "metal chits" means a skyline that isn't dominated by bank buildings, and an absence of banker-caused global financial crises, then I'm all for it. Maybe you are, or perceive yourself to be a beneficiary of the status quo. Either way, you're wrong.
We've all in the West+ have benefited vastly by the ability to efficiently put capital to work. We have examples, both contemporaneous and historical of societies where capital formation by M1 creation is prohibited - often by religious prohibition. Pre-13th century Europe, and much of the Muslim world failed to progress economically for precisely this reason. Even periodic crashes don' negate the positive impact.

You're welcome to live in a 3rd world metal-chit utopia - and if you had the courage of your convictions you would start today - it's perfectly legal. Many devout Muslims live without benefit of borrowing or interest. Of course you are all talk and no walk.

You are correct to point to the problems with bubbles and crashes, but you promote a system that has been demonstrated to have far worse average performance over millenia. When you can propose something better I'll listen.

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Old 23rd January 2012, 07:42 PM   #83
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Originally Posted by psionl0 View Post
Still think you know better than MMM? Good luck with that.
WOW - so you can't answer the main point - your erroneous claims on interbank lending - so you cling to your little masterwork. Homo unius libri.

Yes I do know more than MMM, as I've read far more widely than this little edu-pamphlet. Anyone with an econ101 course knows more - it's a pamphlet for noobs. It covers one narrow topic imperfectly, the exclusion of everything else.

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Old 23rd January 2012, 08:01 PM   #84
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Originally Posted by Tippit View Post
The notion that central banks should be independent, is utterly and hopelessly retarded. If there is one thing that either should not exist or be managed exclusively by government, it's the monetary printing press. Common sense dictates this.
So you think that financial institutions more directly involved with the legislature, like FreddieMAC, are better managed in the general interests of the nation than the Fed ? I don't see that at all in practice.

I'm not immune to your argument that the Central bank should operate in the interest of the people/nation generally, and therefore it SEEMS that it should be controlled by democratic politics. However in practice I doubt that works when the legislature extorts then panders and distorts to a nearly ignorant populace.
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Old 23rd January 2012, 08:04 PM   #85
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Originally Posted by Tippit View Post
No, it's not. It has the taxing power of the government, by virtue of the fact that it is an institutional, legal counterfeiter, and none of the oversight.
And it remits its profits to the government and is appointed by the government (yes yes, I am aware of the slight differences in the US, but we’ll keep it simple by referring to central banks as a whole). Of course central banks are part of the government (just like independent Statutory Offices are too).

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Old 23rd January 2012, 08:49 PM   #86
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Originally Posted by Sceptic-PK View Post
And it remits its profits to the government and is appointed by the government (yes yes, I am aware of the slight differences in the US, but we’ll keep it simple by referring to central banks as a whole). Of course central banks are part of the government (just like independent Statutory Offices are too).
I believe the German Bundesbank is also quasi-government in the same sense as "The Fed". There is a real question about how the central banks should be controlled so at to act in an interest according to their charter. I'm pretty convinced that I don't want monetary policy set by the Congresses of my lifetime, nor buy democratic vote of the populace. Perhaps these could be made practical by democratizing bond and capital ownership (the Chilean private retirement system is claimed to have such an effect).
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Old 23rd January 2012, 08:54 PM   #87
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Originally Posted by stevea View Post
I believe the German Bundesbank is also quasi-government in the same sense as "The Fed".
That’s interesting. By the way usual suspects go on and on about the US Fed, I can be forgiven for thinking it was the only one!

Originally Posted by stevea View Post
There is a real question about how the central banks should be controlled so at to act in an interest according to their charter. I'm pretty convinced that I don't want monetary policy set by the Congresses of my lifetime, nor buy democratic vote of the populace.
Certainly there is that question, but as far as I am aware most countries have decided to set their central banks up in a similar fashion, as an independent agency within the government (obviously with charters, audits etc being determined by the legislature). I certainly haven’t seen a convincing argument that monetary policy should be conducted or critiqued by elected officials.
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Old 23rd January 2012, 09:39 PM   #88
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Originally Posted by stevea View Post
WOW - so you can't answer the main point
You would have to go back beyond post #80 to find out if I answered the main point or not.
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Old 23rd January 2012, 10:49 PM   #89
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Originally Posted by stevea View Post
We've all in the West+ have benefited vastly by the ability to efficiently put capital to work. We have examples, both contemporaneous and historical of societies where capital formation by M1 creation is prohibited - often by religious prohibition. Pre-13th century Europe, and much of the Muslim world failed to progress economically for precisely this reason. Even periodic crashes don' negate the positive impact.
We can put capital to work in a full reserve/sound money system in such a way that a) doesn't create systemic risk, and b) doesn't reward the banking sector with illicit, unmerited profit. I'm not advocating the banning of borrowing, or borrowing at interest. I'm advocating a less abstract relationship between lender and borrower, through the use of time deposits, and investment banks. I am advocating an end to crony capitalism, so that true, merit capitalism, can flourish, and silence its critics. While it is true that under the system I advocate credit will be tighter, it will not result in economic armageddon, but prosperity, and a more meritorious distribution of wealth in the first place. Your false dilemma of muslim-style anti-usury laws or fiat money fractional reserve phony illicit debt crises is just that, false.

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You're welcome to live in a 3rd world metal-chit utopia - and if you had the courage of your convictions you would start today - it's perfectly legal. Many devout Muslims live without benefit of borrowing or interest. Of course you are all talk and no walk.
If you understood what you were talking about, you would understand that gold and silver are illegal as money. They are not even taxed at the capital gain rate, they are taxed at a special "collectible" rate of 28%. Abolish this proxy for the inflation tax, and then we can talk about the viable alternatives I really have to Ben's funny fun bucks.

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You are correct to point to the problems with bubbles and crashes, but you promote a system that has been demonstrated to have far worse average performance over millenia. When you can propose something better I'll listen.
No. You merely fail to understand precisely what I'm advocating, and precisely why it will work. Your defense of the status quo is an abject failure, as is evident by simply watching the financial news.
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Old 23rd January 2012, 10:58 PM   #90
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Originally Posted by stevea View Post
So you think that financial institutions more directly involved with the legislature, like FreddieMAC, are better managed in the general interests of the nation than the Fed ? I don't see that at all in practice.
I would abolish Fannie and Freddy. If you're arguing that a corrupt, poorly managed government institution is presumably managed worse than a corrupt, poorly managed (in terms of the public at large, certainly not from it's master's perspective) quasi-government institution like the Fed, then it seems to me you don't have much of an argument. Regardless, the Fed has the power to levy a regressive tax. They should not exist. The lesser of evils would be that if they do exist, the power to counterfeit massive sums of ethereal money should be strictly and closely regulated, which bears no resemblance to the crony capitalist, cheap-money-for-connected-insiders Federal Reserve System.

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I'm not immune to your argument that the Central bank should operate in the interest of the people/nation generally, and therefore it SEEMS that it should be controlled by democratic politics. However in practice I doubt that works when the legislature extorts then panders and distorts to a nearly ignorant populace.
And the alternative is to delegate the awesome power of opaque and regressive money creation to... the private banking sector? Really?
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Old 23rd January 2012, 11:05 PM   #91
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Originally Posted by Tippit View Post
the status quo is an abject failure, as is evident by simply watching the financial news.
and this interactive history of financial crises 1810 - 2010

https://www.historyshots.com/FinancialCrisis/index.cfm
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Old 23rd January 2012, 11:09 PM   #92
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Originally Posted by Sceptic-PK View Post
And it remits its profits to the government and is appointed by the government (yes yes, I am aware of the slight differences in the US, but we’ll keep it simple by referring to central banks as a whole). Of course central banks are part of the government (just like independent Statutory Offices are too).
In what meaningful sense is it "independent", then? Please describe in full detail.
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Old 23rd January 2012, 11:51 PM   #93
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Originally Posted by Tippit View Post
In what meaningful sense is it "independent", then? Please describe in full detail.
It means central bank decisions are not subject to parliamentary/Congressional oversight, alteration or interference. At least, not without the legislative framework being altered (like they did in Australia in the 90s to ensure a fully independent central bank).

It's not wholly different to how Statutory Authorities function. The elected representatives create the laws that the authority works within, but any decisions made by that authority are not subject to review or able to be over-ruled by a politician or parliament. With rare exceptions, courts function in the same manner. Would you allege the courts are not part of the government??
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Old 23rd January 2012, 11:58 PM   #94
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Originally Posted by Sceptic-PK View Post
It means central bank decisions are not subject to parliamentary/Congressional oversight, alteration or interference. At least, not without the legislative framework being altered (like they did in Australia in the 90s to ensure a fully independent central bank).

It's not wholly different to how Statutory Authorities function. The elected representatives create the laws that the authority works within, but any decisions made by that authority are not subject to review or able to be over-ruled by a politician or parliament. With rare exceptions, courts function in the same manner. Would you allege the courts are not part of the government??
So an entity with the power to levy an arbitrarily unlimited tax, while simultaneously rewarding its cronies is not subject to Congressional oversight. Thanks for clearing that up.
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Old 24th January 2012, 12:07 AM   #95
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Originally Posted by Tippit View Post
So an entity with the power to levy an arbitrarily unlimited tax, while simultaneously rewarding its cronies is not subject to Congressional oversight. Thanks for clearing that up.
Are you enjoying your little word games? Haha.

Of course these institutions are subject to oversight. The parliament/Congress could abolish the central bank if it so wished. It would make it an arm of the Treasury. It could remove or add any level of audit it wished, simply by changing the law.

But no, it can't change or amend the monetary policy decisions of the bank (at least, not officially). I know you know all this, what exactly is the point of your little game?
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Old 24th January 2012, 06:06 AM   #96
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Originally Posted by Sceptic-PK View Post
Are you enjoying your little word games? Haha.

Of course these institutions are subject to oversight. The parliament/Congress could abolish the central bank if it so wished. It would make it an arm of the Treasury. It could remove or add any level of audit it wished, simply by changing the law.

But no, it can't change or amend the monetary policy decisions of the bank (at least, not officially). I know you know all this, what exactly is the point of your little game?
If you were capable of understanding that, then you wouldn't be apologizing for the ridiculous.
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Old 24th January 2012, 06:10 AM   #97
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Originally Posted by kevsta View Post
and this interactive history of financial crises 1810 - 2010

https://www.historyshots.com/FinancialCrisis/index.cfm
Looks like things sure got a lot worse around 1914. Must be a coincidence.

ETA: By the way, welcome back!
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Old 24th January 2012, 02:38 PM   #98
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Originally Posted by Tippit View Post
If you were capable of understanding that, then you wouldn't be apologizing for the ridiculous.
Yeah, all central banks are organised in a similar fashion just to annoy angry little sophists like yourself.
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Old 30th January 2012, 10:10 AM   #99
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Originally Posted by Tippit View Post
We can put capital to work in a full reserve/sound money system in such a way that a) doesn't create systemic risk, and b) doesn't reward the banking sector with illicit, unmerited profit. I'm not advocating the banning of borrowing, or borrowing at interest. I'm advocating a less abstract relationship between lender and borrower, through the use of time deposits, and investment banks.
But as I understand it you are advocating the invalidation of current M1 as money. So a current checking account or demand account balance is - to you - just an IOU from the bank - not valid as currency, perhaps tradeable on a secondary market. This will radically inhibits capital formation, as I said.

Quote:
I am advocating an end to crony capitalism, so that true, merit capitalism, can flourish, and silence its critics.
Agreed - but that's fiscal policy, not monetary policy. Topic for another day.

Quote:
While it is true that under the system I advocate credit will be tighter, it will not result in economic armageddon, but prosperity, and a more meritorious distribution of wealth in the first place. Your false dilemma of muslim-style anti-usury laws or fiat money fractional reserve phony illicit debt crises is just that, false.
With our 10% reserve rate every dollar of m0 deposited can result in 9 dollars of loans. Even that's anachonistic - Canada and the UK have no reserve limit and generate as many loans as they see fit. As I understand your suggestion one dollar of M0 deposits results in at most 1 dollar of loans. Furthermore people will have to keep short term money needs in non-interest bearing demand accounts unavailable for loans, further reducing loanable capital Please explain how a 9+fold decrease in available loan capital is not an economy-stopping event that devastates growth and greatly inhibits capital formation. Yes we will have the same general problem as Iraq - where to the extent loans are even available, the criterial for credit will be exceedingly high (lots of demand but low supply). Of course we can kiss most credit cards ,car loans and mortgage loans goodbye too, as we move back toward your stone-age utopia.

The fundamental question is - do we allow loan-backed demand accounts. Without that the supply of loan capital shrinks radically.

Quote:
If you understood what you were talking about, you would understand that gold and silver are illegal as money. They are not even taxed at the capital gain rate, they are taxed at a special "collectible" rate of 28%. Abolish this proxy for the inflation tax, and then we can talk about the viable alternatives I really have to Ben's funny fun bucks.
NO these isn't aren't illegal, YOU don't know what you are talking about. Yes bills are legal tender which means they must be accepted to repay contractual debt - but no vendor is required to take bills nor prohibited from taking quatloos, gold or anything else. Your inability to convince vendors to take gold coinage in exchange for goods speaks to problems with your scheme.

Yes the capital gain on coins maybe taxed at a 28% rate. So instead of losing 100% of "inflation" by holding dollars you'd lose just 28% of the "inflation" and keep 72%. You therefore should be thrilled to improve your lot by holding gold instead of dollars, despite the tax. Instead you are making excuses for not following your claims to their (il)logical conclusion. Of course the less paranoiac will hold gold mine stocks or other proxies to avoid the special tax treatment.

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No. You merely fail to understand precisely what I'm advocating, and precisely why it will work. Your defense of the status quo is an abject failure, as is evident by simply watching the financial news.
I don't claim to know precisely what you are thinking - but the rough outline looks like a where capital formation is radically less available by removing debt-backed accounts (M1) from the money supply.
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Old 30th January 2012, 10:59 AM   #100
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Originally Posted by Tippit View Post
I would abolish Fannie and Freddy. If you're arguing that a corrupt, poorly managed government institution is presumably managed worse than a corrupt, poorly managed (in terms of the public at large, certainly not from it's master's perspective) quasi-government institution like the Fed, then it seems to me you don't have much of an argument.
Your paranoiac conspiracy theories are showing. Please drop the other shoe - is it the trilateral commission, Illuminati, the Knights Templar or international Jewery behind the "master perspective" ? What is this corruption at the Fed ? Be specific - name names.

Look I'm not in love with the Fed - it's a little too loose historically and the Bundesbank was a little too tight, but neither has been incompetent at monetary policy - at least until recently.

The bank bailouts were a clear violation of free market principles. The Gov should have stabilized the situation and then gotten the losers into bankruptcy reorganization ASAP, and let the bad bond holders take their beating. I don't buy the chicken-little story the politcos have been selling, however I'm in a small minority. People don't understand that there can be no confidence so long as policy is ad hoc (applies to the Fed and the executive) but I see stupidity and lack of principle as the cause - not corruption.

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Regardless, the Fed has the power to levy a regressive tax. They should not exist. The lesser of evils would be that if they do exist, the power to counterfeit massive sums of ethereal money should be strictly and closely regulated, which bears no resemblance to the crony capitalist, cheap-money-for-connected-insiders Federal Reserve System.
Interesting claim. Where has the fed executed crony capitalism ? Of course they sucked up GM and Chrysler bonds - but that's the result of political policy originating in the legislature/executive (which ideally they would be above/isolated from).

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And the alternative is to delegate the awesome power of opaque and regressive money creation to... the private banking sector? Really?
Once again - what is your better plan ? Giving day-to-day monetary control to the silly geese in the legislature can't work ? They couldn't manage their own bank - recall the house banking scandal ? What will they do with a bigger cookie jar ?


It makes a lot of sense to give control to a separate body outside of the political sphere (a good reason to hang Bernanke) and with a broad interest in the economy. I'd generally agree that the Fed Reserve bank board has it's own interests - but again - what is the better alternative ?
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Old 30th January 2012, 11:33 AM   #101
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Originally Posted by stevea View Post
Please explain how a 9+fold decrease in available loan capital is not an economy-stopping event that devastates growth and greatly inhibits capital formation.
Clearly anybody who would advocate this (which amounts to decimating M1) is nuts.

However, lets approach this from the opposite end. Suppose that (in the absence of FRB) there was enough base money to serve our current needs which includes making money available for loans, credit cards etc. Obviously any proposal to introduce FRB would result in massive inflation as deposit expansions increased M1 9-fold.

You might argue that if the base money can't be increased (or increases very slowly as would be the case if gold was the only currency) then economic growth would be inhibited because interest rates would rise as the demand for credit increased. I wouldn't disagree but I would see it as swapping rapid growth for stability. Some would argue that we might even have negative growth (something that Tippit vehemently denies) but since I have no experience of such a system, I can't say for certain.

We could solve that problem by gradually introducing FRB so that deposit expansions don't increase too fast but ultimately, if the base money is fixed, we would reach a limit to how much M1 could be created this way - unless we allow the banks to lend so much money that they are in constant danger of going broke due to bank runs. This seems to be pretty much how the history of money evolved under a gold standard.

OTOH if we had a fiat based system, an alternative to introducing FRB would be to print more money in line with economic growth.
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Old 30th January 2012, 03:02 PM   #102
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Originally Posted by stevea View Post
But as I understand it you are advocating the invalidation of current M1 as money. So a current checking account or demand account balance is - to you - just an IOU from the bank - not valid as currency, perhaps tradeable on a secondary market. This will radically inhibits capital formation, as I said.
The world is awash in debt. Every debt has a corresponding credit, therefore, the world is awash in credit. The nature of the debt is a large part of the wealth condensation - the growing gap between rich and poor, so this isn't just an economic problem, but a moral one. Full reserve banking would certainly reduce the amount of outstanding credit, but it would also remove the inherent instability, and inequitability of the system. Those who wished to issue credit could still do so, using either time deposits, or investment houses, and investors (no longer mere depositors) would have a stake and a responsibility to do due diligence with regard to their holdings. This is as opposed to delegating the function to the bank, a credit intermediary whose concept of risk management is skewed by the fact that his losses are typically socialized and paid for by the taxpayer. The problem is too much debt, the solution is full reserve banking.

Quote:

Agreed - but that's fiscal policy, not monetary policy. Topic for another day.
No, it is monetary policy. Every single loan the Federal Reserve Bank makes to a member bank, and every single asset it purchases in the open market is done so via an effective subsidy paid by the taxpayer (the inflation tax), yet the taxpayer doesn't have direct access to this credit. The some $16 TRILLION in outstanding loans by the Fed recently were made to foreign banks, some including our sworn enemies, like the Central Bank of Libya. The mere existence of the Fed represents the epitome of crony capitalism, no matter how it's managed, and no matter how incompetent or competent the Fed chairman happens to be.

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With our 10% reserve rate every dollar of m0 deposited can result in 9 dollars of loans. Even that's anachonistic - Canada and the UK have no reserve limit and generate as many loans as they see fit. As I understand your suggestion one dollar of M0 deposits results in at most 1 dollar of loans. Furthermore people will have to keep short term money needs in non-interest bearing demand accounts unavailable for loans, further reducing loanable capital Please explain how a 9+fold decrease in available loan capital is not an economy-stopping event that devastates growth and greatly inhibits capital formation. Yes we will have the same general problem as Iraq - where to the extent loans are even available, the criterial for credit will be exceedingly high (lots of demand but low supply). Of course we can kiss most credit cards ,car loans and mortgage loans goodbye too, as we move back toward your stone-age utopia.

The fundamental question is - do we allow loan-backed demand accounts. Without that the supply of loan capital shrinks radically.
Implementing a full reserve policy overnight would be an unmitigated disaster, and would launch the world into the worst depression it has ever seen. No one here is advocating that. You're setting up and knocking down strawmen. There are ways to transition out of the current system, just like we transitioned into the current system. See the Monetary Reform Act for but one example.

The answer to your "fundamental question" is no. Deposits become sacred, and depositors have the choice to become investors whenever they choose, and they bear all of the risk. No longer is this foisted on to society. All of the harebrained government programs, war profiteering, and crony capitalist misadventures would cease, and the world would be a far better place to live in.

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NO these isn't aren't illegal, YOU don't know what you are talking about. Yes bills are legal tender which means they must be accepted to repay contractual debt - but no vendor is required to take bills nor prohibited from taking quatloos, gold or anything else. Your inability to convince vendors to take gold coinage in exchange for goods speaks to problems with your scheme.
No, you're wrong. The fact that I have to pay Federal Income Taxes means that I'm required to keep a balance in the Fed's funny money, and this creates a demand for it. End legal tender laws, and stop using the US military to force the rest of the world to pay for oil in Federal Reserve Notes, and see how long vendors keep accepting it.

Quote:

Yes the capital gain on coins maybe taxed at a 28% rate. So instead of losing 100% of "inflation" by holding dollars you'd lose just 28% of the "inflation" and keep 72%. You therefore should be thrilled to improve your lot by holding gold instead of dollars, despite the tax. Instead you are making excuses for not following your claims to their (il)logical conclusion. Of course the less paranoiac will hold gold mine stocks or other proxies to avoid the special tax treatment.
I should be thrilled that gold is taxed at a special collectible rate? You're losing your already dwindling credibility. I also own mines, as well as other financial assets, and these all have different risk/reward profiles than holding bullion itself. I shouldn't have to explain this to you. None of this justifies a special tax rate for bullion, nor does it justify the absence of a legal money for which the supply is strictly limited AND carries no capital gains rate AT ALL.

Quote:

I don't claim to know precisely what you are thinking - but the rough outline looks like a where capital formation is radically less available by removing debt-backed accounts (M1) from the money supply.
It wouldn't be radically less available, to the extent that depositors would simply transition to becoming investors, lest they be forced to pay a bank to safeguard their deposits. It would merely eviscerate the banks and their undue influence, as intended.
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Old 30th January 2012, 03:15 PM   #103
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Originally Posted by stevea View Post
Your paranoiac conspiracy theories are showing. Please drop the other shoe - is it the trilateral commission, Illuminati, the Knights Templar or international Jewery behind the "master perspective" ? What is this corruption at the Fed ? Be specific - name names.
You mean, it wasn't evident that I was a New World Order conspiracy theorist from the outset, despite my posts in the 9/11 forums, and my ceaseless criticism of NWO institutions for years and years now? Where have you been? The Trilateral Comission is the only one of the above which is proven to exist, and their influence is documented. What's your position on the Trilateral Commission?

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Look I'm not in love with the Fed - it's a little too loose historically and the Bundesbank was a little too tight, but neither has been incompetent at monetary policy - at least until recently.
Of course you are. You're a neo-con, and you view the Fed as sharing your interest, namely increasing the nominal value of your financial assets, without merit. Why pretend otherwise?

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The bank bailouts were a clear violation of free market principles. The Gov should have stabilized the situation and then gotten the losers into bankruptcy reorganization ASAP, and let the bad bond holders take their beating. I don't buy the chicken-little story the politcos have been selling, however I'm in a small minority. People don't understand that there can be no confidence so long as policy is ad hoc (applies to the Fed and the executive) but I see stupidity and lack of principle as the cause - not corruption.
Really? Hanlon's Razor implies that incompetence, not corruption, is the default condition, right? Too bad any sufficiently advanced incompetence is indistinguishable from malice! The bailouts were a clear violation of free market principles? Ya think?

Quote:

Interesting claim. Where has the fed executed crony capitalism ? Of course they sucked up GM and Chrysler bonds - but that's the result of political policy originating in the legislature/executive (which ideally they would be above/isolated from).
Are you kidding? See the previous post.

Quote:

Once again - what is your better plan ? Giving day-to-day monetary control to the silly geese in the legislature can't work ? They couldn't manage their own bank - recall the house banking scandal ? What will they do with a bigger cookie jar ?
That isn't my plan. I've already told you what my plan is. My plan guarantees that the politicians and the banksters have their power stripped. I was merely commenting on how utterly ridiculous the notion of "central bank independence" is.

Quote:

It makes a lot of sense to give control to a separate body outside of the political sphere (a good reason to hang Bernanke) and with a broad interest in the economy. I'd generally agree that the Fed Reserve bank board has it's own interests - but again - what is the better alternative ?
It makes absolutely zero sense, and it's amazing how an otherwise intelligent human being could come to this conclusion. Please humor me, and give me an example of how you can delegate the power of infinite and arbitrary money creation to an institution with the guarantee of a "broad interest" in the economy? Those are weasel words. It can't be done.
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Old 6th February 2012, 12:01 AM   #104
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A good summary of MMT

http://business.time.com/2012/01/19/...ession-at-sea/
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Old 6th February 2012, 09:16 AM   #105
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Originally Posted by !Kaggen View Post
Not only was that article painful to read, it had nothing to do with MMT, and everything to do with the growing distrust of the economics profession. The article presumes that economics needs to be "repaired", yet in your introductory post you said:

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However the dangerous false notion that government deficits inherently bad should be not be a constraint. Ironically the US federal government Isis running a large deficit because of political deadlock in congress is preventing the attempts to eliminate it! Republicans refuse to raise taxes and Democrats refuse to cut spending. This is a reason to rejoice as the US recovery is entirely dependent on this deficit being maintained or even increased.
This is high praise for the status quo of politicians borrowing, taxing, and spending us into oblivion. So which is it, do we need real reform, or more of the same?
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Old 23rd February 2012, 10:58 AM   #106
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The existing money system is out of date. In modern democratic societies, the value created by issuing new money should be a common, not a private, resource. New money should be put into circulation as public spending, not as profit-making loans by commercial banks. In Britain, the result would be equivalent to 12p off income tax. Other countries would benefit comparably.

In the information age, money has mainly become information, electronically stored and transmitted. Monetary policies that serve the public interest can no longer be founded on a smoke-and-mirrors fiction that “real money” lurks behind the information.

The authors propose a simple reform, and spell out its practicalities step-by-step. The economic, social and environmental arguments for it are very strong. The public purse, private households and businesses will all benefit from it.
http://www.neweconomics.org/publicat...ting-new-money
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Old 23rd February 2012, 04:25 PM   #107
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“New” money can only be created by the government. Banks create credit/deposits in the banking system. Banks don’t do this to “create new money”, this is a by-product of loans and credit expansion. How is a government deciding to spent X amount of dollars on say, a new highway, going to help me borrow money to buy a house?
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Old 23rd February 2012, 06:14 PM   #108
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Originally Posted by Sceptic-PK View Post
How is a government deciding to spent X amount of dollars on say, a new highway, going to help me borrow money to buy a house?
Really! You already know this!
  • The government borrows money to build a highway
  • The fed monetizes some of this debt (QE)
  • More base money is created by the fed as a result
  • The banks have more reserves that they can use to underpin new loans.
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Old 23rd February 2012, 06:17 PM   #109
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Originally Posted by !Kaggen View Post
That certainly wasn't written by Mosler - it recognizes that fractional reserve banking is a problem.
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Old 23rd February 2012, 07:17 PM   #110
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Originally Posted by psionl0 View Post
Really! You already know this!
  • The government borrows money to build a highway
  • The fed monetizes some of this debt (QE)
  • More base money is created by the fed as a result
  • The banks have more reserves that they can use to underpin new loans.
The government borrows money to build a highway
The fed monetises the debt
The highway builders get their new money and bury it in the backyard.
I have no housing loan
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Old 23rd February 2012, 07:30 PM   #111
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Originally Posted by Sceptic-PK View Post
The government borrows money to build a highway
The fed monetises the debt
The highway builders get their new money and bury it in the backyard.
I have no housing loan
That's pretty much how it would work if the Australian government was doing it.
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Old 23rd February 2012, 09:06 PM   #112
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Haha!
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Old 23rd February 2012, 11:27 PM   #113
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Originally Posted by psionl0 View Post
That certainly wasn't written by Mosler - it recognizes that fractional reserve banking is a problem.
If you read Mossler's writings you would notice that he goes to great pains to point out that fractional reserve banking is a problem. He suggests governments should be supplying money directly into the economy through investments for the benefit of all not private banks through multipliers for the benefit of a few.
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Old 23rd February 2012, 11:31 PM   #114
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Mossler's plan for Greece

http://pragcap.com/the-mosler-plan-for-greece
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Old 24th February 2012, 12:36 AM   #115
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Originally Posted by !Kaggen View Post
If you read Mossler's writings you would notice that he goes to great pains to point out that fractional reserve banking is a problem.
Earlier posts in this thread would suggest otherwise (which is probably why you lost interest in the feedback you were getting).
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Old 24th February 2012, 12:43 AM   #116
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Originally Posted by !Kaggen View Post
Quote:
The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government.
So in a default situation, the Greek government gets back its own worthless IOUs instead of taxes (how to fund next years budget is next year's problem).

The government still has to pay for these bonds and these bonds are still extra debt - the thing that is ruining Greece today.
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Old 24th February 2012, 02:18 AM   #117
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Originally Posted by psionl0 View Post
So in a default situation, the Greek government gets back its own worthless IOUs instead of taxes (how to fund next years budget is next year's problem).

The government still has to pay for these bonds and these bonds are still extra debt - the thing that is ruining Greece today.
Mossler answers this further down

"And, again, should there be a default event, the investor will still get full value for his investment as the entire euro value of the defaulted securities can be used at any time for the payment of Greek taxes. So while this discussion concerns the case of default, the removal of the risk of loss means there will always be demand for them at near risk free market interest rates, and that the default discussion is, for all practical purposes, hypothetical."

The point being Greece is now in charge of its own recovery through stimulating its economy, rather than ECB and/or the IMF austerity approach which certainly won't lead to a recovery.
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Old 3rd March 2012, 06:53 AM   #118
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My brothers new blog post explaining MMT


Two complementary ways of creating money

Quote:
Economic growth requires a concomitant increase in the money supply. Without such an increase growth will be constrained because consumers and investors won't have the money required to increase demand through investment and consumption. While in theory economic activity can increase without expansion of the money supply if prices and wages decrease, i.e. if there is deflation, deflation depresses economic growth because it provides a powerful incentive to save money instead of borrowing or spending it.

There are two distinct and complimentary methods of money creation in modern financial systems. These first is private credit creation by bank lending. The second is deficit spending by governments. I will argue in this article that both methods are needed to allow sustainable economic growth, and that the global financial crisis was the result of excessive reliance bank lending because of misconceived opposition to deficit spending.

Private credit creation. It is not widely appreciated that banks are able to create money at will by making loans. They simply credit the bank account of the recipient. They have no obligation to raise or borrow that money in the first place. Of course, as this is a loan with an associated debt, this process does not create net new money; loans and debt always cancel each other out. The factors restricting money creation by banks through loan creation are capital requirements and the commercial decision as to whether the loan will be profitable. There is a notion that the central bank controls bank lending by requiring banks to hold some of their money as reserves at the central bank. However banks can in practice always borrow whatever reserves they need at the prevailing base rate, so reserve requirements are not a real restraint on lending.

The second mechanism of money creation is deficit spending. This mechanism of money creation is only available to governments that issue their own currency - which includes most countries. If more money is spent (created) than taxed (destroyed) then net money is created. Crucially, this money is not balanced by a loan. It is debt-free money. Deficit spending is the only way that net financial assets can be added to the banking system. By adding net financial assets deficit spending allows the private sector to increase its savings (or reduce its debts). Conversely a government budget surplus requires the private sector to reduce its savings (or increase its debts).

There is a widely held belief that deficit spending crowds out private investment because it requires that the government borrow money to fund the deficit in competition with the private sector. This is only true for governments that dont issue their own currency. There is a crucial difference between deficit spending by a currency-issuing versus currency-using governments (e.g. any Eurozone government).

A currency-using government has to borrow money BEFORE it can spend it, just like the rest of us. It is therefore competing with other borrowers for funds. This applies, for example, to Eurozone governments.

In contrast, currency-issuing governments borrow money AFTER they have spent it. They create money when spending, which flows into the banking system, creating extra reserves. Governments then usually 'remove' this extra money from the banking system by selling bonds of an amount almost exactly equal to the budget deficit. This is done for two reasons. Firstly, in most countries it is a formal, but entirely self-imposed, requirement that the government does this, supposedly to 'fund its budget deficit' or at least give the appearance that it is doing so. However this 'borrowing' can only happen AFTER the money has been added to the banking system by government spending. So clearly the government is not 'competing' for these funds with the private sector - it is simply providing a safe place for the private sector to store the extra funds that they received from the government through deficit spending.

The second reason that goverments sell bonds is to enable central banks to target interbank interest rates to a specific level. If there are excess reserves as a result of deficit spending banks will be unable to earn any interest on by lending these funds and the interbank interest rate will rapidly drop to zero. Since central banks are required to meet a specific interest rate target it is necessary for the government to 'drain' the excess reserves created by the deficit spending, and they do this by selling bonds. What this does is transfer bank reserves to the equivalent of a savings accounts. So currency-issuing governments 'borrow' the money after they had spent it. They are not really borrowing it to fund spending. Instead, they are keeping it in a savings account on behalf of the private sector. Government debt or the national debt is really just private savings. High levels of debt represent high levels of private savings. Conversely, paying off the national debt by running budget surpluses means reducing these private savings!

The neoliberal consensus that has prevailed for the past 3-4 decades has held that money creation by banks is good whereas money creation by deficit spendings is to be avoided. The basic argument, which is based on microeconomic theory, is that by coupling it with a debt obligation money creation is disciplined by commercial considerations. The fact that interest will need to be paid and the debt will eventually need to be repaid ensure that money is only created to fund a viable economic activity. Hence money creation is less likely to be excessive and therefore inflationary. In contrast deficit spending lacks the same discipline and is thus more likely to be excessive and inflationary.

Hence the neoliberal approach has been to aim to avoid budget deficits and balance the budget over the business cycle. Since deficit spending is one of two methods of money creation, avoiding deficit spending requires that governments rely exclusively on bank lending to meet demand for money. I would argue that this is profoundly mistaken, and indeed is the underlying cause of the global financial crisis. Unless this policy is changed sustainable growth cannot be restored.

The reason why it is flawed is that it requires an increase in bank lending (and private debt) without a concomitant increase in net financial assets. What this means is that as the economy grows the overall or aggregate ratio of debt to capital (i.e. the leverage) has to increase relentlessly. It can only stabilize or drop if private lending stops. However since, in the absence of deficit spending by governments, economic growth absolutely depends on private credit expansion, there is a powerful incentive to allow ever higher levels of bank lending and private debt. [I should add here for completeness that it is possible to grow without budget deficits or increased private borrowing through increases in net exports. However this simply shifts the borrowing to the private sector in importing countries. This aggravates the problem in other countries and is not sustainable in the long term.]

The need for ever increasing private sector borrowing to fuel growth was met by the relentless deregulation of banks and financial markets over the past 30 years. More recent support has come from central banks lowering interest rates to record low levels.

Unfortunately this private lending and the policies that support it can predispose to asset price inflation and asset bubbles. When money is so cheap it is tempting to borrow money to purchase assets (e.g. houses, stocks etc) that are increasing in value. Banks are also generally happy to lend money to purchase assets that are rising in price. This is self-perpetuating since more borrowing leads to further price increases which encourage further borrowing. Inevitably this results in credit bubbles as private debt reaches an unsustainable level before the bubble pops. That is what precipitated the global financial crisis. When asset bubbles pop bank lending will wind down as the private sector tries to reduce their debts. This deleveraging process is also inherently unstable because as people try to pay off their debts they reduce consumption and sell assets which decreases prices further and therefore aggravates the debt problem. This forces central banks to intervene to stop this process. They do this by lending freely to the banking sector at very low or zero interest rate. This can prevent collapse but it will, on its own, not stimulate growth until the private sector reverts to borrowing again, and this only likely when debt levels (and thus the money supply) have dropped substantially, creating much damage in the process. This will include immense human misery, destruction of wealth, deteriorating public goods such infrastructure and education, and a permanent reduction in the productive capacity of the economy, damaging the well being of future generations.

Growth may then restart from a low base but, as before, it will be constrained by the fact that balanced government budgets mean that no net new money (i.e. capital) is being made available, so economic growth requires increasing leverage and deregulation of lending practises. Eventually this will reach its leverage limit and the economy will shrink again. This cycle could take 30-40 years.

The way to avoid this cycle is to move away from relying exclusively on credit creation and instead use a combination of credit creation and deficit spending to grow the money supply. Because deficit spending adds net financial assets to the banking system it allow growth in bank lending without increased leverage.

In my next post I will discuss why deficit spending is particularly critical now as our economies struggle with the aftermath of the global credit crunch and why fears that deficit spending will bankrupt governments are misplaced.
http://tcelleconomics.blogspot.com/2...ating.html?m=1
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Old 4th March 2012, 07:08 AM   #119
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MMT proponent Wynne Godley who predicted the Eurozone crises in the essay linked below

Godley was a professional oboe player for some years in his twenties; in his thirties he joined the Treasury, where he reached the rank of Under-Secretary; in 1970 he became a fellow of King’s College, Cambridge and, later, was appointed director of the Department of Applied Economics. He died in May 2010.

http://www.lrb.co.uk/v14/n19/wynne-g...t-and-all-that
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Old 10th October 2019, 01:38 PM   #120
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I'm surprised this thread hasn't been resurrected yet, given that MMT is now in prime time thanks to Alexandria Ocasio-Cortez. A friend of mine linked this Vox article and sort of got me re-interested in the subject:

Modern Monetary Theory, explained

Here is a Bloomberg response and criticism:

A Beginner’s Guide to Modern Monetary Theory

And finally here is some discussion by the only Fed VP I know who has a blog:

A conversation with Eric Tymoigne on MMT vs SMT

The forum sort of looks like a ghost town, so maybe that's one reason. I hope the censorship hasn't gotten worse. Anyway, does anyone have any thoughts about this? Is it an idea whose time has come, or just a final repudiation of any constraints on unchecked government power forever?
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