What is Money?

[doodle]

I have posted the videos below elsewhere, but I think there might be enough fodder coming from their conclusions to merit a seperate thread.

There has been quite a bit of discussion on this board regarding the eventual outcome of our current crisis....will we get inflation...or will we get deflation.

After watching the videos below, my belief is that the next large shock to the system might not be inflationary or deflationary in nature, but rather could serve to bring the entire current banking system down.  

The video's below will take about a half an hour of your time, but they do very clearly elaborate on the absurdity of our present banking system and tackle the fundamental question of "what is money"?

When you start to peel back the layers of the banking system itself, you inevitably start to reach the conclusion that if it weren't for the enormous vested interests and power of the current banking system over our politicians, it would have long been totally revamped in favor of a much fairer and saner system.


part 1http://www.youtube.com/watch?v=zhA2kG5RrYU

Part 2http://www.youtube.com/watch?v=sanOXoWl0kc

Part 3 http://www.youtube.com/watch?v=kTv1fo6sKmo

Part 4 http://www.youtube.com/watch?v=3qicabStQkc

Part 5 http://www.youtube.com/watch?v=7kpSbkaD4tM

[doodle]

I took the time to summarize what the videos cover for those who don't have the time, or inclination to watch them. I think that the central issue that they raise is: Our monetary system is dependent on perpetual exponential growth which conflicts completely with the reality of life within a system of finite resources. When you understand this, you realize that the current money and banking system inevitably MUST be overhauled to function in the future. Below is the synopsis:


The theoretical limit to the amount of money in the system is only restricted by the amount of debt that can be created.

In the past banks could only lend out a certain amount relative to the amount of gold they held in their vaults. Maybe 10 units of credit for every unit of gold that they held in the vault. And then, the credit that they created was bank credit from their particular branch and it could be refused just as someone can refuse a personal check from you today.

Soon however, because of issues with so many different banks issuing their own banknotes, a single federal currency note was created. Now when banks created credit, they actually issued as a federal currency note, and no longer just a private bank note. This federal currency note had to be accepted for all debts. Banks were suddenly given the power to create government money.

Of course, the money was still backed by gold and silver and redeemable for such. But, because they were only holding a fraction of the gold necessary to satisfy their depositors, if there were a run on a particular individual bank, a central bank would have to infuse the member bank with gold to quell the run. This only created a public illusion however that people’s money was truly redeemable for gold or silver, because in reality there was not enough gold or silver to back every dollar in existence.

Soon the old idea of backing dollars with fractional amounts of gold and silver was seen as old fashioned, and it placed limitations on the demand for credit.  The governments at that point moved to a fiat money system where paper money was no longer redeemable for gold or silver. A dollar for example was only redeemable for another dollar. This lifted restrictions on how much money could be created. Governments and banks no longer had to limit the amount of money they could conjure into existence by the amount of gold and silver they could find in the ground as they did in the past.  In other words money no longer had a value related to a desired commodity.


In the present, new money is created as debt. Whenever someone takes a loan from the bank new money is created.  In theory, today the total amount of money that can be created only has one real limit, the total level of debt.

Money = debt

Governments place statutory limits on the creation of new money by enforcing arbitrary rules called fractional reserve requirements.  These reserve requirements vary from country to country and from time to time. In the past , banks could generally create 10 dollars of loan money for every dollar of gold in reserve.  Today this no longer applies, and the creation of new debt money is limited only by the amount of existing debt money on deposit.  

Then:   New Money = 10/gold
Now:   New Money = 10…20…30 / existing money (debt)

Today a banks reserves consist of two things:

1. The amount of  government issued cash that the bank has deposited with the central bank.
2. The amount of already existing debt money that the bank has on deposit

So to show how this works, lets pretend that a new bank starts up today. They don’t have any customers yet but the banks investors have made a deposit of 1111.12 cents of existing cash money at the central bank.  The required reserve ration is 9 to 1.

Step 1.  The first customer comes into the bank and wants a 10,000 dollar loan to purchase a car. The reserve requirement that the bank is subject to allows it to conjure into existence 9 times the amount it has on reserve deposit at the central bank also known as “high powered money”? 9 x 1111.12 = 10,000 dollars) on the basis of the borrowers pledge of debt.

This 10,000 dollars of money is not taken from anywhere. It  is simply typed into the banks computer as 10,000 dollars of bank credit.   The borrower then writes a check based on that 10,000 dollars of credit to buy a used car.

Step 2:  The seller of the car then deposits the check she just received for the car at her bank. Unlike the high powered money deposited at the central  reserve bank, this money cannot be multiplied by the reserve ratio of 9:1. Instead it is divided by the reserve ratio.

So on the basis of a reserve requirement of 9:1, this bank can create a new loan of 9000 dollars based on the deposit of 10,000 dollars.

Step 3: If that 9000 dollars is deposited by a third party at the same bank that created it or any other one, it becomes the legal basis for the creation of more bank credit, this time in the amount of 8,100 dollars.  And so, like the Russian babushka dolls, where each doll contains a slightly smaller one, in the bank each deposit creates the potential for a slightly smaller loan. If the money at a certain point in the process isn’t deposited in the bank, the loan creation process stops. But more likely, that money will be deposited and the loan money creation process will continue until nearly 100,000 dollars of newly created money has been created within the banking system.

All of this money, more than 100,000 dollars has been created as debt. And the whole process has been legally authorized by the initial deposit of 1111.12 cents at the central bank.

Under this system, the banks must however show that it has 10% more on deposit than it does on loan, which gives the bank a very real incentive to seek deposits in order to make loans.
100 deposits :  90 loans

This gives the misleading public perception that loans come out of deposits.  Unless all of the successive loans are made at the same bank, it cannot be said that any one bank got to multiply its initial “high powered money”? reserve by almost 90 times by issuing bank credit out of nothing. However, the banking system is a  closed loop. Bank credit created at one bank becomes a deposit at another, and so the system wide effect is the same as if the process all took place in one bank.
So the banks initial 1111.12 central bank reserve ultimately allows the banks to collect interest on up to 100,000 dollars the bank never had.

In recent years, as a result of lobbying by the banks, requirements of deposits at the central bank are not required in some countries and reserve requirements can be much higher than 9:1.  

Even more recently, by using loan fees to raise the required reserve from the borrower, banks have found a way to circumvent reserve requirement limitations entirely.

In sum, banks can create as much money as we can borrow.  Government created money typically accounts for less than 5% of the money in existence. 95% of all money in existence today is created by someone signing a pledge of indebtedness to a bank.  Bank credit is being created and destroyed every day as new loans are made and others are repaid.
Banks can only practice this money system with the active cooperation of government.

#1 Governments pass legal tender laws to make us use the national fiat currency.
#2 Governments allow private bank credit to be paid out in this currency.
#3 Government courts enforce debts.
#4 Governments pass regulations to protect the money systems functionality and credibility with the public.

The truth is that when we sign on the dotted line for a loan or mortgage, our signed pledge of payment (backed by the assets we pledge to forfeit should we fail to pay) is the only thing of real value involved in the transaction.
To anyone who believes we will honor our pledge, that loan agreement is now a portable , exchangeable, and saleable piece of paper.  It’s an IOU. It represents value and is therefore a form of money.  This “money”? is what the borrower exchanges for the banks so called “loan”?.

A loan in the real world means that the lender must have something to lend. If I want a hammer, someone’s loaning you a promise to provide a hammer I don’t have won’t do you any good.  But in the artificial world of money, a banks promise to pay money it doesn’t have is allowed to be passed of as money, and we accept it as such.

Once the borrower signs the pledge of debt, the bank then balances the transaction with a few keystrokes creates a matching debt of the bank to the borrower. From the borrowers point of view, this becomes loan money in his or her account. And because the government allows this debt of the bank to the borrower to become converted to government fiat currency, everyone has to accept it as money.

So the basic truth from this is that without the piece of paper that the borrower signed, the bank would have nothing to lend.
Have you ever wondered how everyone (families, corporations, governments) can all be in debt at the same time and for such astronomical amounts? Have you ever questioned how there can be that much money out there to lend? Now you know.  There isn’t. Banks do not lend money, they simple create it from debt. And since the potential amount of debt is unlimited, so is the supply of money. And the opposite is true. No debt = no money.  

Despite the incredible wealth of resources, innovation, and productivity that surround us, almost all of us from governments, to companies to individuals are heavily in debt to bankers. How can that be? How can it be that all of us that create and produce everything, are all in debt to the people who merely lend out the money that merely represents the wealth? Even more amazing, is that once we realize that money really is debt, that if there was no debt there would be no money.

Most people simply believe that if all debts were paid off the state of the economy would improve.  It is certainly true on an individual level.  Just as we have more money to spend when our loan payments are finished, we think that if everyone were out of debt, there would be more money to spend in general.  But the truth is the exact opposite. There would be NO money at all.  All debts paid off leave society with NO money.

We are dependent on continually renewed bank credit for there to be any money in existence.  No loans, no money. Which is what happened during the great depression. The money supply shrank drastically as the supply of loans dried up.

That’s not all. Banks create only the amount of the principal, they don’t create the money to pay the interest.  Where is that supposed to come from? The only place that borrowers can go to obtain the money to pay interest is the general economies overall money supply.  But almost all of that overall money supply has been created in the same way…with bank credit that has to be paid back with more than was created. So everywhere there are other borrowers in the same system frantically trying to pay back the principal and interest from a total money pool where only the principal has been created.  It is clearly impossible for everyone to pay back the principal and the interest because the interest money doesn’t exist.

The big problem here is that for long term loans, the amount of total interest far exceeds the principal, so unless a lot of new money is created to pay the interest, it will mean a high rate of foreclosures and a non functional economy. To maintain a functional society, the foreclosure and default rate has to be low, and so to accomplish this more and more new debt money has to be created to serve as money to service the previous debt.  But this of course just makes the debt bigger and means that ultimately more and more interest must be paid. This results in an ever increasing spiral of indebtedness.

It is only the time lag between moneys creation as new loans, and its repayment with interest, that keeps the overall shortage of money from catching up and bankrupting the entire system. However, as the banks insatiable credit monster gets bigger and bigger, the need to create more and more debt money to feed it becomes increasingly urgent.

Why are interest rates so low? Why do we get unsolicted credit card offers in the mail. Why is the US government spending faster than ever? Could it be to stave off a collapse of the entire monetary system? A rational person has to ask, “can this really go on forever?”? Isn’t a collapse inevitable?

In a fractional reserve banking system, just like in a game of musical chairs, as long as the music is playing there are no losers.
Money facilitates production and trade. As the money supply increases, money just becomes increasingly worthless unless the volume of production of trade in the real world grows by the same amount.  Add to this the realization that when we hear that the economy is growing at 3% per year it sounds like  a constant rate. In fact it is exponential growth. This years 3% represents more goods and services than last years 3%.  Instead of growth representing a straight line, it is really an exponential curve growing steeper. The problem is that perpetual exponential growth of the real economy of goods and services, requires perpetual growth in the use of natural resources and energy. More and more stuff has to go from natural resource to garbage forever just to keep this system from collapsing.

What can we do about this scary sistuation? For one thing we need a new concept of money.
It is time people asked themselves and their governments 4 simple questions. Around the world governments borrow money at interest from private banks. Government debt is a major component of total debt,  and servicing that debt takes a big chunk of our taxes. We know that banks simply create the money that they lend, and that governments have given them the permission to do this.


1. Why do governments choose to borrow money at interest from private banks when governments could simply create all interest free money that they needs itself?
2. Why create money as debt at all? Why not create money that circulates perpetually and does not have to be perpetually reborrowed with interest to exist?
3. How can a money system that can only function with perpetually accelerating growth can be used to create a sustainable economy? Isn’t true that perpetual growth and sustainability are incompatible?
4. What is it about our current system that makes it dependent on perpetual growth? What needs to be changed to allow the creation of a sustainable economy?

It used to be that charging interest on money was illegal. All major religions called this usury and it was punishable by death. Most of the arguments were moral. It was held that moneys only legitimate purpose was to facilitate the exchange of real goods and services. Any form of making money by simply having money was regarded as the act of a parasite.

However as the credit needs of commerce increased, the moral arguments eventually gave way to the argument that lending money involves risk and loss of opportunity to the lender, and therefore attempting to make a profit from lending is justified. Today these notions seem quaint. Today the idea of making money from money is an ideal to strive for.  Why work when you can get your money to work for you? However when trying to envision a sustainable future, it is very clear that the charging of interest is a moral and practical problem.

Imagine a sustainable society and economy that instead of plundering its capital stores of energy it simply restricts itself to present day income. No more wood is harvested than grows in the same period. All energy is renewable. This society lives within the limits of its non renewable resources by reusing and recycling everything and the population simply replaces itself. This type of society could not function with a money system that depends of perpetual increasing growth.

This video explains one possible way on how to do that: http://www.youtube.com/watch?v=3qicabStQkc

[doodle]

To me, one of the fundamental questions the creator of the videos raises is where does the money to pay back the interest on a debt come from?

If the total money supply is dictated by the fractional reserve system, where does the extra money come from to pay for the interest on this money?

The answer is that it must come from a growth in the money supply. The money supply must continue to grow or else there will not be sufficient money for people to pay back their debt with interest.  And where does new money supply come from? It comes from more debt.

However, a system such as this, requires perpetual growth in the money system to avoid all of the debts collapsing in on themselves for lack of money. For money to hold value this perpetual growth in the money supply must be backed by a perpetual growth in products and services. But the reality is that in the finite real world, perpetual, exponential growth is impossible.

It appears to me that something has to give

[TBV]

doodle:

I liked the videos.  However, at the end, it seems the message shifts from a vote of no confidence in private bank finance to one of confidence in government controlled finance (after a brief mention of small-scale barter.)  Would the end of bank interest really make much of a difference to ordinary citizens if the supply of money could still be manipulated to serve partisan political agendas?  Would government really generate money for benign value-added projects instead of using it to buy votes?  If not, then is the assertion of government accountability any more credible than bank accountability if the lure of low bank low interest is merely replaced by the lure of government "benefits?"

[Gumby]

Doodle,

If only banking were that simple...

Your Textbooks Lied to You – The Money Multiplier is a Myth

The Myth of The Money Multiplier: A Follow-Up

See also this paper from the Federal Reserve, which says:

Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?

...

The role of reserves and money in macroeconomics has a long history.  Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations.  Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons. First, when money is measured as M2, only a small portion of it is reservable and thus only a small portion is linked to the level of reserve balances the Fed provides through open market operations.  Second, except for a brief period in the early 1980s, the Fed has traditionally aimed to control the federal funds rate rather than the quantity of reserves.  Third, reserve balances are not identical to required reserves, and the federal funds rate is the interest rate in the market for all reserve balances, not just required reserves.  Reserve balances are supplied elastically at the target funds rate.  Finally, reservable liabilities fund only a small fraction of bank lending and the evidence suggests that they are not the marginal source data for the most liquid and well-capitalized banks.  Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected.  Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks.

Our evidence against the bank lending channel at the aggregate level is consistent with other recent studies such as Black, Hancock, and Passmore (2007), who reach a similar conclusion about the limited scope of the bank lending channel in the United States, and Cetorelli and Goldberg (2008), who point out the importance of globalization as a way to insulate the banks from domestic monetary policy shocks.  Our findings are also consistent with the predictions of Bernanke and Gertler (1995) from over a decade ago that the importance of the traditional bank lending channel would likely diminish over time as depository institutions gained easier access to external funding.

Our evidence against the bank lending channel at the micro level is consistent with Oliner and Rudebusch (1995), but it contrasts previous findings of a lending channel for small, illiquid, or undercapitalized banks (see Kashyap and Stein (2000), Kishan and Opiela, (2000) and Jayartne and Morgan (2000)).  What is common in all these studies is that their sample periods cover the period prior to 1995, when reservable deposits constituted the largest source of funding.  As we have shown in Table 3, this is no longer a feature that characterizes bank balance sheets in the post-1994 period.  Furthermore, Kashyap and Stein (2000) and Kishan and Opiela (2000) interpret a change in the sensitivity of bank lending to monetary policy as evidence of a bank lending channel. We argue that changes in the sensitivity of bank loans may of funding, either.  All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative. While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the stem from the demand side, and that a better test for the lending channel is to check whether bank loans are financed by reservable deposits. Our findings suggest that this is not the case.

In general, our results echo Romer and Romer (1990)’s version of the Modigliani-Miller theorem for banking firms.  They argue that banks are indifferent between reservable deposits and non-reservable deposits.  Hence, shocks to reservable deposits do not affect their lending decisions, and changes to reserves only serve to alter the mix of reservable and non-reservable deposits.  Our findings in this paper support the argument that shocks to reservable deposits do not change banks’ lending decisions.

Since 2008, the Federal Reserve has supplied an enormous quantity of reserve balances relative to historical levels as a result of a set of nontraditional policy actions.  These actions were taken to stabilize short-term funding markets and to provide additional monetary policy stimulus at a time when the federal funds rate was at its effective lower bound.  The question arises whether or not this unprecedented rise in reserve balances ought to lead to a sharp rise in money and lending.  The results in this paper suggest that the quantity of reserve balances itself is not likely to trigger a rapid increase in lending.  To be sure, the low level of interest rates could stimulate demand for loans and lead to increased lending, but the narrow, textbook money multiplier does not appear to be a useful means of assessing the implications of monetary policy for future money growth or bank lending. (emphasis added)

Source: http://www.federalreserve.gov/pubs/feds ... 041pap.pdf

[doodle]

I think that the fundamental truth that comes from this video is that infinite growth in an economy is impossible. Unfortunately, our entire capitalist system is based on this absurd assumption.

Now, technological innovation can prolong the present growth model. For example, finite sources of energy such as fossil fuels can be replaced by renewable sources of energy such as solar or fusion technology. This might prolong the dream of infinite growth, however if the transition technology isn't created quickly enough there will be a jarring transition between our system and the physical realities of our planet.

Humans, in my mind need to recognize that a system that is based on exponential growth rates is absurd. Unfortunately, our money and banking system perpetuates this problem by creating a system of money + interest. In other words, money is supposed to represent some actual amount of production or service in an economy. If the actual amount of production and services in an economy grow, then the money needs to expand in proportion to this growth to avoid the effects of inflation or deflation. Pretty simple.

The complication arises by the fact that money in our system is created by private banks who seek to make money simply off of money. In other words, money is no longer simply a facilitator of exchange and commerce, it becomes a way for a group of people to leech off of the productive economy.

When a banker fabricates money through the fractional reserve system, they also charge interest on this fabricated money that governments have given them the ability to create. On a long term loan, such as a mortgage, the interest on the principal can be many times larger than the principal itself. In order for a person to pay off the loan with interest you must have a growing money supply. If the money supply weren't growing and we were operating in a zero sum game, someone would have to foreclose on their home in order for me to pull the excess money from the system to pay back the principal + interest on my loan.

To avoid this, the money supply (debt) in a system must continue to grow. If it contracts there is simply not enough money to pay off all of the debt + interest. Of course money is supposed to represent productive assets in an economy so in order to avoid inflation or deflation the productive economy must grow to match the growth of the money supply.

Eventually however, the productive economy cannot continue to grow any further without consuming the whole earth. At this point how does our present system cope?

[doodle]

Gumby,

Where is the underlying flaw in my logic?

[doodle]

From my understanding of money, it is created when debt is created. If no one wants any debt, then there is no money.

All of those "reserves" and other crap that the federal reserve talks about seems to me to be hogwash because it is just paper or electronic numbers. It doesn't do anything. In other words if there is no demand for something in the real economy "cars, food, clothes" then you can have all of the banking reserves and "money" piled up that you want....it isn't worth squat.

[Gumby]

Gumby,

Where is the underlying flaw in my logic?

You make it sound like the individual banks are endless supply of money creation. As if money just forever multiplies, exponentially (like that scene from the Harry Potter movie)

But even the Federal Reserve shows us that the textbook definition of the money multiplier is just not true.

[doodle]

Gumby,

I would ask....what is money?

Money is something which facilitates commerce. It facilitates work and trade.

If I produce corn and you produce apples, then money facilitates trade between us. We are two productive actors who want to exchange the fruits of our productive labor.

Gold or silver (traditional money) doesn't really have any inherent value other than it can facilitate this transaction of actual goods.

But think about our modern system and the role of the banker and the power they have achieved in our society from essentially doing nothing.

Instead of using gold and silver, our government has essentially given a group of people the power to create the "money" which greases all of the productive transactions in the world and on top of just creating it,  they also get to skim huge profits in the form of interest off of the productive labor of the people who are forced to use this "money" to go about their daily productive business in society.

What is "money"? Money as wealth is an illusion. "Money" is that which allows me to trade my productive labor for your productive labor. Our labor is the wealth.

[Jan Van]

See also this: billy blog: Money multiplier and other myths:

So the idea that reserve balances are required initially to “finance”? bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

So when you consider this in the light of the current policy debate you have to wonder what half the commentators are on! For example, it makes no sense to say that the credit crunch is because banks have no money to lend and that Quantitative Easing will provide them with “printed money”? that they can then lend. Banks will always lend when a credit-worthy customer walks through the door and the terms are to the bank’s favour.

[doodle]

When someone says....there is too much debt. Or we have to pay down the debt...what does that mean?

For example what happened to all of that money that was spent on the war in Iraq...and how did it end up as debt? Debt to whom?

The government wanted a war, American citizens dedicated their lives, resources, and energy to the war. The soldiers come back home and life returns to normal.

But the government is left with 1 trillion worth of debt for the war. Debt to whom?

The government needed to compensate the soldiers for their effort so they "borrowed" money? How does a government "borrow" the very money that only it can create in the first place?

All of this "money" and "debt" seems to obscure the simple reality that an economies wealth is based on the productive capacities of its individuals.

Complications arise when people attempt to store and grow "wealth" by focusing on the "money-grease" instead of the actual productive labor and assets.

[Jan Van]

But even the Federal Reserve shows us that the textbook definition of the money multiplier is just not true.

Very interesting Gumby. That looks to be very much in line with what the MMT peoples are saying...

[doodle]

So when you consider this in the light of the current policy debate you have to wonder what half the commentators are on! For example, it makes no sense to say that the credit crunch is because banks have no money to lend and that Quantitative Easing will provide them with “printed money”? that they can then lend. Banks will always lend when a credit-worthy customer walks through the door and the terms are to the bank’s favour.

EXACTLY!!


If there is no demand for productive work....there is no need for money. Money isn't wealth. Productive work, and what it creates, is wealth.

The scam is that the banks have our economy and our productive labor by the balls.

[Tortoise]

You make it sound like the individual banks are endless supply of money creation. As if money just forever multiplies, exponentially (like that scene from the Harry Potter movie)

That scene reminds me of one of my first lessons on inflation: This scene from a Duck Tales episode

[MediumTex]

Now, technological innovation can prolong the present growth model. For example, finite sources of energy such as fossil fuels can be replaced by renewable sources of energy such as solar or fusion technology. This might prolong the dream of infinite growth, however if the transition technology isn't created quickly enough there will be a jarring transition between our system and the physical realities of our planet.

Humans, in my mind need to recognize that a system that is based on exponential growth rates is absurd. Unfortunately, our money and banking system perpetuates this problem by creating a system of money + interest. In other words, money is supposed to represent some actual amount of production or service in an economy. If the actual amount of production and services in an economy grow, then the money needs to expand in proportion to this growth to avoid the effects of inflation or deflation. Pretty simple.

***

Eventually however, the productive economy cannot continue to grow any further without consuming the whole earth. At this point how does our present system cope?

Doodle, if you would like to see the picture of the entire elephant that you are feeling your way around, please order William Catton's excellent 1980 book Overshoot.

Reading this book will save you some time and mental energy.  Once the mind is prepared for an honest extrapolation of longer term trends, the logic presented in Overshoot is hard to disagree with, and actually helps to make sense of a confusing world.

The good news is that we are currently standing on top of the highest mountain of technological progress in the history of humanity.  Athough there may be regret and sadness at the prospect of our species not being able to continue climbing ever-higher into perpetuity, there is nothing wrong with simply enjoying the majestic view with humility and wonder.

The trees don't weep when they stop growing taller, especially the tallest trees in the forest.

[Gumby]

Gumby,

I would ask....what is money?

Money means different things to different people. However, in the strict sense, 'Money' is whatever we're required to use to pay taxes.

[melveyr]

I totally agree with the notion that US governments "Debt" is in no form a burden that impedes spending. The government could pay off all of its debts whenever it wanted to, with inflationary implications of course. But that does not represent a burden for the government, just holders of the dollars.

However, I disagree with your interpretation of money as being worthless. Gold has a definite intrinsic value. Silver definitely has an intrinsic value as well. Dollars have an intrinsic value as well.

Precious metals have been a part of our history for thousands of years and gold and silver are both very useful metals. You could easily argue that their price has extended beyond a strictly industrial market clearing price, but their still is an industrial market clearing price.

Dollars have an intrinsic value as well. Dollars are the only thing that the US government will accept as a form of payment. If the government imposes a liability on you (taxes) or you wish to buy goods or services from the government, then you must use dollars.

The market clearing prices for dollars has probably extended beyond this strictly government demand market clearing price (because it is used as an international medium of exchange), but that underlying government demand is still there.

Even if the US dollar was not the medium of exchange for the people, it would still have some value because people would scramble to acquire dollars when tax season came. The biggest gold bugs in the US still need dollars unless they want to go to prison for tax evasion.

[doodle]

Medium Tex,

What I am taking from all of this is that there is one part missing from the permanent portfolio.

The fifth asset should be something that gives you the ability to survive without "money"

People would do well to have a piece of land and a small cabin tucked away somewhere to retreat to if this crazy "house of cards" fell in on itself.

[doodle]

Melveyr,

I agree with what you wrote. But at the core I think that you recognize that all of this money, is really only the transactional grease that allows productive economies to function.

People represent wealth with dollar bills, gold, silver etc.

The reality is that wealth is food, shelter, and all of the productive work that people do on a daily basis for each other.

When gold hits 1600 dollars and ounce you must question whether people are confusing "transactional grease" with wealth.

[MediumTex]

Think of humanity as a troupe of professional actors moving from one stage production to another, often engaging in multiple overlapping productions simulataneously. 

This troupe of actors pride themselves on their craft, and do whatever possible never to break character once a production has started.

As we all know, the truth of any fictional storyline rests partly in simply being true to the internal logic of the story and respecting the premises on which the story is based.

Each government is like a play, and each economic system is like a play. 

What is money?  It is simply part of the internal logic of one of these governtal/economic plays.  People who take issue with this part of the narrative find themselves written out of the storyline.

When actors are between plays, however, they seem to have a preference for gold as money.

[Gumby]

The trees don't weep when they stop growing taller, especially the tallest trees in the forest.

MT, what a beautiful notion. I've always been amazed at giant trees in the wilderness that have been standing for hundreds and hundreds of years without a care in the world for any of our species' nonsense.

[Gumby]

Medium Tex,

What I am taking from all of this is that there is one part missing from the permanent portfolio.

The fifth asset should be something that gives you the ability to survive without "money"

People would do well to have a piece of land and a small cabin tucked away somewhere to retreat to if this crazy "house of cards" fell in on itself.

This was often discussed on this forum a few months ago. But, equally important, a good and supportive community (like AgAu described) is pretty key.

[MediumTex]

Medium Tex,

What I am taking from all of this is that there is one part missing from the permanent portfolio.

The fifth asset should be something that gives you the ability to survive without "money"

People would do well to have a piece of land and a small cabin tucked away somewhere to retreat to if this crazy "house of cards" fell in on itself.

I believe it is more subtle than that.  I think that the fifth asset is YOU, which includes your knowledge, skills, beliefs and network of friends, relatives and loved ones.  A cabin is normally a poor substitute for a person who is part of a strong community and who has many ways of contributing to that community.

If you look through history, you will find that the approach I describe above is a more realistic way of getting through hard times than a remote cabin.

[doodle]

Medium Tex,

I like your allusion to Shakespeare..but

When actors are between plays

what do we eat and drink?