Article: Europe's pain is coming America's way

[MachineGhost]

Harding reduced the debt by a third, and a few years later we were in a Great Depression. When you reduce the amount of government debt in a debt-based monetary system, such as ours, you are just reducing the amount of base money in the private sector. If you reduce the amount of base money in an economy that is

I think you're confusing the 1920-1921 recession with the 1930-1942 Great Depression which was a combination of monetary deflation (Fed asleep at the wheel), a real estate bubble crash in England, foreign capital outflows from the U.S. stock market, a worldwide trade war (Smoot-Hawley) and domino sovereign bond defaults in Europe.

MG

[Gumby]

Harding reduced the debt by a third, and a few years later we were in a Great Depression. When you reduce the amount of government debt in a debt-based monetary system, such as ours, you are just reducing the amount of base money in the private sector. If you reduce the amount of base money in an economy that is

I think you're confusing the 1920-1921 recession with the 1930-1942 Great Depression which was a combination of monetary deflation (Fed asleep at the whell), a real estate bubble crash in England, foreign capital outflows from the U.S. stock market, a worldwide trade war (Smoot-Hawley) and domino sovereign bond defaults in Europe.

MG

MG, you might be right... My basic point is that "paying down the debt" requires a reduction in base money in the private sector (since you can't pay down the national debt with bank credit).

[align=center][/align]

So, it looks like the base money went way down after 1920 and it didn't grow very much the rest of the decade. This forced the private sector to fund it's growth with lots of private credit — which fueled a credit bubble that eventually popped.

For some reason, people seem to think we get a prize when we pay down the national debt. We don't. There is no prize — there's just less base money. When the economy is growing, you need more base money, not less. Otherwise, you force the private sector to leverage itself with an unstable private credit bubble.

[MachineGhost]

The Fed can only swap assets with the Primary Dealers (i.e. the largest banks in the private sector), and the private sector must acquire the funds to purchase Treasuries before the Fed can even think of buying them from the Primary Dealers. The Fed can provide short term loans (or repos) to the Primary Dealers, but that's about all it can do. And those loans need to be paid back with base money (i.e. deficit dollars). Either way, the funds to buy Treasuries (and pay taxes) can only come from deficit dollars that were spent into existence by the Treasury. This is especially true since the Treasury doesn't accept bank loans or private credit as a form of payment.

That may be the day to day operational reality, but there is nothing stopping the Fed from acting against its charter in extenuating circumstances and monetizing debt directly as it did during the subprime crisis.  It holds such unconstitutionally acquired debt off its balance sheet as a wink and a nod.  I suspect if people weren't so widely ignorant of the operational realities, the Fed would have been sued long before now.

MG

[MachineGhost]

Let me clarify one question for now...by "primary source" I meant an explanation from the Fed or Treasury or some government agency of how their system actually works...not something interpreted/developed by others. Are you aware of anything of this nature?

Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion, Federal Reserve Bank of Chicago
http://upload.wikimedia.org/wikipedia/c ... hanics.pdf

MG

[MachineGhost]

MMR claims that since we as a society control our government, that to illustrate it as someone holding a gun to our head is a misrepresentation, and that we tend to WANT our government to establish a stable, common, fiat currency, and we wouldn't accept the coercion of taxes unless we weren't relatively (as a society) happy with our government.

That's B.S..  Sanctity of contract and property rights are based on mutual choice, not coercion.  A gun held to someone's head is coercion; the threat of doing so is duress.  People just don't want to have to deal with the rationalization of a coercion-based society and its illegitimate government.  Most people are so wedded to the spooks in their heads that its downright painful for them to even broach the subject.  We've all accepted institutionalized coercion as fait accompli in practical reality, but widespread acceptance does not in any way, shape or form, make it just or moral.

Here's a bigger question.  Is monetary tokenism the ultimate outcome of the alleged and infamous "market failure"?

MG

[MachineGhost]

There is something that bothers me about this MMT/MMR -- maybe it's that it claims to have the answers, but I have a feeling it is more complicated and dynamic.  Although I haven't the slightest clue what the real story is...maybe it just boils down to how productive a society is, and from this the monetary system will account for this productivity in whatever way it can.

The real story is confidence.  If people believe in anarchronistic gold standard reserve-constraints or legal-constraints (or constraints of any kind for that matter), they will act accordingly.  If Rome debases its coinage and its military cannot be paid....  well, once confidence is lost, it is impossible to get it back as 500-years of the Dark Ages shows.  That is the real risk we face right now.  Deflation is synonmous for a loss in confidence.

Japan has no confidence, but fortunately it has a tokenism and export-oriented system where the negative consequences can be greased over with constant heroin fixes.  Then again, you still have a lot of Japanese committing suicide by jumping in front of bullet trains.  I imagine it will come down to whether or not one has the hardwiring to be an eternal optimist through decades of a stagnant economy.

MG

[MachineGhost]

So, I'm not sure why it's wrong to say that banks are leveraging safe assets. That's what banks do in a debt-based and credit-based monetary system!

Is a noncoporeal debt obligation printed on paper safer than gold?  

It's all about confidence, no matter what form the underlying "monetary base" takes, whether that be gold, electrons or "full faith".

MG

[MachineGhost]

Yes. Also, private interest payments generally require an ever-growing money supply so that the private sector doesn't default on itself. Since the majority of the money supply is credit-based, the interet can't really be paid without new money (or at least new credit) being constantly issued. So, a credit-based monetary system in the private sector generally requires increasing deficits to satisfy all those private interest payments.

It also makes those 99% without the political connections, cryonism or nepotism increasingly poorer as they cannot repay such interest on debt from their labor faster than the velocity of those that get to tap into and access the newly created money.  Hence, the gap between the rich and poor gets wider even while the whole pie grows through "trickle down" productivity and technological improvements that improve living standards, but does nothing for emotional/intellectual growth and job prospects (Japan).  It's like being a rat swimming in the ocean; you can't stop swimming or you'll become one of the ever-growing pool of male deadbeats outclassed by a pool of women with higher incomes and higher education.

MG

[MachineGhost]

I just finished watching The Secret of Oz, which was quite interesting.  But doesn't the interest on the debt simply help the base money keep pace with inflation.  So the bankers are making some money on the real interest, but not as bad as it appears.  Also the interest that the bankers charge the public is used to create their profit AND cover their losses when someone defaults on the loan.  So again it is not quite as bad.  I don't have a problem with the bankers making a few percentage points off of what they lend since they need to pay their own bills and make a profit.

Also doesn't the public pretty much own the banks through our stock holdings?

What am I missing?

It sounds like you need to read "The Creature from Jekyll Island" and get some perspective on why the Federal Reserve System was structred as it is and pushed through Congress, although as Gumby noted, the concept of statutory debt slavery has been around for centuries.  In fact, the infamous South Sea Bubble of 1711 was one of the very first truly spectacular bubbles from "printing money", all due to the efforts of just one man.

MG

[MachineGhost]

EDIT: When you think about it, it's pretty amazing that 75% of the PP, by design, essentially bypasses the ponzi private credit markets. Pure genius.

I have wondered about replacing the equity allocation with discounted high yield corporate bonds.  The failure rates are low and the repayment is all but guaranteed.  And you can control the duration so you dont have like 50+ years of risk exposure.

MG

[moda0306]

MMR claims that since we as a society control our government, that to illustrate it as someone holding a gun to our head is a misrepresentation, and that we tend to WANT our government to establish a stable, common, fiat currency, and we wouldn't accept the coercion of taxes unless we weren't relatively (as a society) happy with our government.

That's B.S..  Sanctity of contract and property rights are based on mutual choice, not coercion.  A gun held to someone's head is coercion; the threat of doing so is duress.  People just don't want to have to deal with the rationalization of a coercion-based society and its illegitimate government.  Most people are so wedded to the spooks in their heads that its downright painful for them to even broach the subject.  We've all accepted institutionalized coercion as fait accompli in practical reality, but widespread acceptance does not in any way, shape or form, make it just or moral.

Here's a bigger question.  Is monetary tokenism the ultimate outcome of the alleged and infamous "market failure"?

MG

Sorry MG, but that is what's bs.  If government is illegitimate than so is private property In any recognizable form, and then we're left basically with anarchy.  People actually value the societal organization governments can accomplish.  Otherwise the most high demand areas to live for our best and brightest wouldn't mainly be metropolitan areas.

[Lowe]

It's interesting that the 20th century wound up being the greatest period of prosperity overall in the history of the world, and it coincided with bankers and other financial interests basically getting their way with respect to control over the currency and expansion of credit.

Not to imply that you claimed this, but coincidence isn't causation.  The prosperity of the 20th century might have occurred despite the establishment of a debt-based monetary system, not because of it.  Or perhaps there was no relationship whatever.

The hypothesis that a debt-based monetary system is hurtful to prosperity is straightforward to argue.  Here are a couple points, of which you are probably aware.

-Inflation is a regressive tax.  It hits the poor and the uneducated the hardest.  Inflation is nearly unavoidable with fiat money.

-Wars are devastating to prosperity.  They destroy capital, human and otherwise.  You're aware of the relationship between war and fiat money.

The only counterpoint to these, that I can think of, is that fiat money allows for more credit to private enterprises, leading to greater capital creation.  That is probably what any state-owned economist would tell you, but I don't know if it is credible.

The apparent trajectory of Western democracies toward bloated gov'ts paying out benefits to pensioners from a shrinking pool of labor, suggests it is not.

Gov'ts expand, because gov'ts are violent, and violence has no self-limiting process.  This would happen with or without fiat money, but it probably happens faster with it.

[Lowe]

If government is illegitimate than so is private property In any recognizable form, and then we're left basically with anarchy.

This is a claim without an argument.  I'm not saying it isn't true.  It might be... but I don't see a reason to think so.

Actually, I see a good reason that isn't true: gov'ts do not respect the private property of their citizens.  They collect it through fines, taxes, eminent domain, and inflation.

So your claim is, in order to preserve respect for private property, we must rely on an organization that does not respect private property.  The solution creates the exact situation we were trying to prevent, though...

People actually value the societal organization governments can accomplish.  Otherwise the most high demand areas to live for our best and brightest wouldn't mainly be metropolitan areas.

People value certain services.  Security, protection from fire, old age pensions, charity for the poor.  Just because these are provided by gov'ts presently, is not an argument that they have to be.

If I understand you correctly, you're saying that metropolitan areas are popular because they have big local gov'ts that provide lots of services.  This is backwards, though.  The reason these areas have big gov'ts is that they were prosperous.  The size of gov't is a function of economic prosperity, not vice versa.

We can tell this is true from the history of the US.  The national gov't there started out small, and there was great prosperity, without many gov't services.  This prosperity lead to the growth of the state, and now the US has the largest and most violent gov't on earth.

[moda0306]

I don't see how inflation is a regressive tax like so many claim.  If you haven't contracted to buy something yet, having it rise in price is not a tax.  However, if you own $1 Million in bonds, inflation is a tax.  If you hold $1 Million in debt, inflation is a tax.

EDIT:  If you hold $1 Million in debt, inflation is a SUBSIDY!

Now of course it's unfortunate that poor people have to pay more and more for food and gas with the same amount of wages, but this is likely due to plutocratic factors and fewer people owning more and more than more money being in the economy.  If it were just the latter wages would rise, too.  When we had strong unions in the 1970's, wages rose pretty strongly with inflation.

Lowe,

Regarding your second points, of course there are legitimate vs illegitimate gov't services.  However, the idea that gov't is illegitimate because it doesn't come as a result of a private contract basically implies anything but anarchy is illegitimate, because ANY form of government takes at least some coercion to initiate.  In fact, even a libertarian form of government is very coercive, in that it dictates who owns what real property (thinking more of the unearned land than the constructed buildings on them).

And, yes, areas increase government both after and before they become more prosperous.  My point is absolutely not that the government created prosperity, but simply that it CAN greatly facilitate it... and often does in metropolitan areas in a way that it doesn't do in rural areas.  I probably made my point somewhat snarkily.

[moda0306]

If government is illegitimate than so is private property In any recognizable form, and then we're left basically with anarchy.

This is a claim without an argument.  I'm not saying it isn't true.  It might be... but I don't see a reason to think so.

Actually, I see a good reason that isn't true: gov'ts do not respect the private property of their citizens.  They collect it through fines, taxes, eminent domain, and inflation.

They also recognize and defend your property in court.  Private property is very much a social construct, not just some universal truth that humans must own everything on our earth.  Property that develops as a result of someone's ingenuity is naturally attached to them, but land & natural resources are not inherantly private, yet our government was built on trying to make them so, which, in my opinion, is a much better social construct than soviet ownership of everything, but it's still a social construct.   

[Gosso]

I agree with Moda.  Government is meant to set-up the game to allow the businesses to compete against each other.  Problems arise when the government is bribed by lobbyists or simply does not enforce the rules.  It's not a perfect system, but it works well enough.

Gumby, it's possible I am just too dumb to understand (feel free to give up on me ).  In my mind everything works pretty well.  I do agree that the media, government, and banks are scumbags for encouraging people to take out excessive debt.  In these cases the people do become slaves to the debt that they willingly accepted.  But this debt has allowed these people to "own" a nice home, receive a higher education, drive a nice car, all before they could afford it.  Is it better that they simply saved for 15 years and then used cash to buy these things?

I fail to see where the extra interest is being siphoned off by the bankers.  If I cannot find it in the micro, then I'm not sure how it can exist in the macro.  And even if we are paying a small tribute to some crazy dudes, then so be it, it's better than paying 50% to the real Mafia! 

[Gosso]

EDIT:  If you hold $1 Million in debt, inflation is a SUBSIDY!

Bingo!  That's the way I see it.  That is why the banks need to charge you interest on the loan.  They need to cover the loss of inflation, loss from others defaulting, pay their bills, and make a profit.

The one area that I haven't wrapped my brain around is fractional reserve banking, and how that plays into it.

[Gumby]

The Fed can only swap assets with the Primary Dealers (i.e. the largest banks in the private sector), and the private sector must acquire the funds to purchase Treasuries before the Fed can even think of buying them from the Primary Dealers. The Fed can provide short term loans (or repos) to the Primary Dealers, but that's about all it can do. And those loans need to be paid back with base money (i.e. deficit dollars). Either way, the funds to buy Treasuries (and pay taxes) can only come from deficit dollars that were spent into existence by the Treasury. This is especially true since the Treasury doesn't accept bank loans or private credit as a form of payment.

That may be the day to day operational reality, but there is nothing stopping the Fed from acting against its charter in extenuating circumstances and monetizing debt directly as it did during the subprime crisis.  It holds such unconstitutionally acquired debt off its balance sheet as a wink and a nod.  I suspect if people weren't so widely ignorant of the operational realities, the Fed would have been sued long before now.[/quote]

It's not nearly as sinister as you would have us believe. When all of the repos and short term loans are settled, the private sector has the same amount of net financial assets after all Fed transactions are settled. The Fed isn't doing anything unconstitutional. It can purchase whatever financial asset it wants to from Primary Dealers. And if the Primary Dealers don't have the money to conduct their business, the Fed loans it to them on a short term basis. No conspiracy or winks or nods. It's still all swaps when everything is settled.

Scott Fullwiler explains the operational realities of how the Fed and Treasury work together to keep Treasuries:

"This all leads me to the often noted MMT point that “spending comes before tax revenues are received or bond sales.”? If one expands this a bit to include loans from the Fed, then this statement is absolutely correct in terms of the operational realities of the monetary system. That is, according to both the tactical and accounting logics, taxes credited to the Treasury’s account and the settlement of Treasury bond auctions can only occur via bank reserve accounts, while the original source of banks’ balances in their reserve accounts can only be previous government deficits (which are net credits reserve accounts) or loans from the Fed (repos, loans, purchases of private securities, or overdrafts—note that an outright purchase of a Treasury security by the Fed to add reserve balances requires a previous government deficit). Therefore, it very much is the operational reality that for taxes to be paid or bonds to be settled, there has to have been previous government spending or loans from the Fed to the non- government sector, and this is true whether or not the Fed is legally prohibited from providing overdrafts."
Source: http://www.moslereconomics.com/wp-conte ... lwiler.pdf

 

Furthermore, the Fed isn't doing the private sector any long-term by swapping interest-bearing assets out of the private sector and replacing them with base money. When Treasuries are swapped out of the private sector, the private sector never gets those base money interest payments. When MBS are swapped out of the private sector, the private sector still needs to pay down those assets with the base money that flooded into the private sector. If people default on those MBS, the Fed takes a loss and makes up for it with Treasury income over time. The Fed just lands on the grenade, for all intents and purposes. Hardly an unconstitutional conspiracy.

At least, that's just how I've come to understand it. If you know of any specific illegal activity, please share it with us.

[moda0306]

EDIT:  If you hold $1 Million in debt, inflation is a SUBSIDY!

Bingo!  That's the way I see it.  That is why the banks need to charge you interest on the loan.  They need to cover the loss of inflation, loss from others defaulting, pay their bills, and make a profit.

The one area that I haven't wrapped my brain around is fractional reserve banking, and how that plays into it.

Nobody's saying that if you loan money to another entity you shouldn't collect interest... it's about the mix of private credit vs base money in an economy, as well as what our gov't is willing to do to induce banks not to lend too much.  Gumby believes that base money and T-Bills should make up a greater part of the total money supply and credit a smaller part.  Banks would still charge interest, of course, but only to private borrowers, not to the gov't for deficit spending.

[Gumby]

Gumby, it's possible I am just too dumb to understand (feel free to give up on me ).  In my mind everything works pretty well.  I do agree that the media, government, and banks are scumbags for encouraging people to take out excessive debt.  In these cases the people do become slaves to the debt that they willingly accepted.  But this debt has allowed these people to "own" a nice home, receive a higher education, drive a nice car, all before they could afford it.  Is it better that they simply saved for 15 years and then used cash to buy these things?

I fail to see where the extra interest is being siphoned off by the bankers.  If I cannot find it in the micro, then I'm not sure how it can exist in the macro.  And even if we are paying a small tribute to some crazy dudes, then so be it, it's better than paying 50% to the real Mafia!  :D

I dunno, Gosso. You keep making assertions that assume that credit is something that reckless people do and they strive to pay it down somehow if they do their homework. But, that's not how the credit-based private sector works. When the private sector, in a credit-based monetary system, pays it's private loans down — on a Macro level — it often does it with more lines of credit. For some reason you're not grasping the fact that 90% of all money is ever-expanding credit (and the rest is from government debt). And by definition, if the overwhelming majority of money is just lines of credit, then the money supply is a credit-based ponzi scheme that requires most private debts to be paid with more private debts, which are paid with more private debts, which are paid with more private debts, and so on...until the economy slows down and loans stop getting issued (by banks)...which causes the ponzi scheme to implode on itself. So, as extract that out to the nth degree and that means that the entire private sector owes an exponential amount of credit-based money to the people who create the credit-based money supply (i.e. banks).

In other words, home "ownership" in the debt-free sense is really a myth since even if you are living debt-free and have no mortgage on a Micro level (i.e. just you yourself are debt-free), by definition, the credit-based money supply requires that the money you used to pay for your house had to have come from many other people's lines of credit. So, for every debt-free homeowner there are many, many more people in debt to creditors. The same is true for tuition, and all the things you list. The money you received in your paycheck to buy lunch today, that's essentially came from someone else's line of credit. Even when you think you are living a debt-free life, that means that many others must be in debt. As time goes on, the lower half becomes more and more in debt as the credit-based monetary system crushes them.

You're making it sound too neat and easy... get a loan and pay it back one day. But, in a credit-based monetary system, it requires the creation of more credit to keep things solvent. As the decades wear on, majority of the population winds up looking like this if you extract a credit-based monetary system out far enough...

[align=center][/align]

Does the notion of the overwhelming majority of the private sector never being able to get out from their debts make sense to you? That's how the private sector's credit-based monetary system works. It's intended to enslave the majority of the private sector into paying a fee for the creation of all money. And the more the private sector tries to pay those money-creation fees, the more fees they end up having to pay. Only a lucky few get to live off of the credit of others.

[Gumby]

EDIT:  If you hold $1 Million in debt, inflation is a SUBSIDY!

Bingo!  That's the way I see it.  That is why the banks need to charge you interest on the loan.  They need to cover the loss of inflation, loss from others defaulting, pay their bills, and make a profit.

Nobody's saying that if you loan money to another entity you shouldn't collect interest... it's about the mix of private credit vs base money in an economy, as well as what our gov't is willing to do to induce banks not to lend too much.  Gumby believes that base money and T-Bills should make up a greater part of the total money supply and credit a smaller part.  Banks would still charge interest, of course, but only to private borrowers, not to the gov't for deficit spending.

Yes, exactly. Nobody is saying that banks shouldn't exist or shouldn't be able to turn a profit. Proponents of monetary reform want reforms such as:

• The issuance of interest-free credit from a government-controlled and fully owned central bank. These interest free but repayable loans would be used for public infrastructure and productive private investment. This proposal seeks to overcome the charge that debt-free money would cause inflation.

• The issuance of social credit - "debt-free" money issued directly from the Treasury - rather than the sourcing of fresh money from a central bank in the form of interest-bearing bonds. These direct cash payments would be made to "replenish" or compensate the populace for the net losses some monetary reformers believe the populace suffers in a fractional reserve-based monetary system.

• The enforcement of full reserve banking for the privately owned banking system

Source: http://en.wikipedia.org/wiki/Monetary_reform

This is what Edison and Ford were talking about. Edison was talking about the creation of a major public infrastructure project (the Muscle Shoals nitrate and water power projects near Florence, Alabama) and didn't see why the government needed to issue "debt" to pay for it. The government could just pay for it with debt-free money and not issue corresponding debt. The people who actually poured their sweat and blood into building the projects would have debt-free money in their pockets. No need for more credit-based money, or increased taxes, to pay for something the private sector really needed. The labor force as a whole would be more easily able to climb out from under its mountain of debt and credit and use their debt-free money for more productive investments.

The one area that I haven't wrapped my brain around is fractional reserve banking, and how that plays into it.

Well, this is where the majority of our credit-based money comes from in the banking system. So, it's kind of important.

See: http://en.wikipedia.org/wiki/Criticism_ ... ve_banking

[moda0306]

Gumby,

Another thing to clarify is that while inflation could be horrible for a saver holding greenbacks in 1865, with few other options to save with (could you imagine him holding yen?  ), today we have so many opportunities to save outside of our own currency.  It simply makes no sense to put some kind of artificial restraint on our government's money (at the expense of the real economy and wealth equality, no less) because we're nervous about debasement.  I can see why someone in the 1800's would want such a thing, but when we have so many options to protect ourselves from debasement today, and putting those artificial restrains has shown to add fragility to currencies & countries (ie, Euro), it seems to me that we shouldn't look at all this with the same fear.  Gov't allows you to own gold, even in an IRA or Roth IRA, you can own foreign currencies quite easily, or foreign bond/equity funds for simplicity.  In spite of all the talk about nothing looking like an attractive investment out there, there simply has never been a better time to be able to save in a diversified, safe manner with the click of a mouse.  However, of course, you have to get through the noise of the financial media and shysters... but that's a private-sector 24/7 distraction, not government coercion or propaganda (though advertising of TIPS and I-Bonds as inflation protection could qualify... but until I see Tim Geithner on CNBC's "Spectacular Savings Bonds"  making a complete a$$hat of himself I think I will conclude it's not anywhere near the drivel that the private sector throws at us).

[MediumTex]

On the subject of the role of government in society, i think that the problem is that the government typically wants to be exempt from the same competitive processes that created the wealth that allowed the government to exist in the first place.

If I think that GM doesn't make the best cars, I can start up a car company and try to make a better car.

If I think that the U.S. government does a poor job of maintaining the currency, I cannot set up my own competing currency.

The basic problem with the state as an actor in society is that it doesn't depend upon the consent of the governed, it depends on coercion of the governed to achieve its goals.  Periodic elections in which the candidate with the most money is re-elected is hardly a process that could be called "the consent of the governed."  Even if an election was clean, it is still the functional equivalent of mob rule, and is a blunt instrument for the achievement of individual freedom.

If I like the services that a company provides, I can subscribe and purchase their service for as long as I enjoy using it.  

If I decide I don't like the services that the U.S. government provides, I can't opt out by no longer paying tribute to the IRS and utilizing the services of the government.

Ultimately, capitalism provides the ultimate form of democracy because every individual can vote with his dollars every single day on what is working and what is not working.  When it comes to the government, however, we have just the opposite arrangement--the government has a monopoly on the use of force in society and has outlawed any effort to set up any entities in society that would compete with the government's monopoly in the areas in which it operates.  In other words, there is no way to vote with your dollars in favor of other social and political arrangements, and attempts to do so are punishable by imprisonment and continued resistance is punishable by death.

For someone who wishes to change the structure of government, he can try to run for office and change the system from within, but he can't set up a competing system because he thinks it would work better.  To return to my GM example, it would be like there being a law that it was illegal to compete with GM, but if you thought you had a better idea about how to make cars you would be told you are free to apply for a job at GM and work your way up through the company and maybe one day someone at GM would listen to your ideas about how to make better cars.

Some level of government is certainly necessary for a society to function, but what history tells us is that this minimal level of services necessary to facilitate society is quickly overwhelmed by the dreams and delusions of the people who think that they know how everyone else should live and attempt to coerce the rest of society to live a certain way.

The basic problem with the government is that as they tell me all of the things they are protecting me from, they cannot tell me who is protecting me from the government.  If I have no way of protecting myself from the arbitrary exercise of the government's monopoly on the use of force in society, how can I really say that I am free?

If you look at the kind of system the Founding Fathers were trying to create, it was a government with a severely limited ability to perform mischief in society, and the limited government they created lasted for about 100 years, which is pretty good by historical standards.  What we have had since about 1900, though, has been something very different from the limited government contemplated by the Constitution.

[Gosso]

You're making it sound too neat and easy... get a loan and pay it back one day.

Maybe it's not as complicated as we think it is?

I graduated with $25,000 in debt, paid it off in a couple years, and now live debt free...does that mean I'm part of the 1%  ...wait a second, I guess it does!    Although I still have a job. 

So it seems that either the government OR the private sector can create "money" by creating debt.  But this debt will not be created unless a person or business is willing to take on that debt.  So isn't it a self regulating system?  The only way the monetary base grows forever is if the economy and population continue to grow forever, which I think we can agree is impossible, unless we colonize other planets...

Gumby, I have got say that I have learned a lot with this discussion and you have accelerated my learning 100 fold, I really do appreciate your responses...even though they appear to be going over my head...you are a patient person! 

Bingo!  That's the way I see it.  That is why the banks need to charge you interest on the loan.  They need to cover the loss of inflation, loss from others defaulting, pay their bills, and make a profit.

Nobody's saying that if you loan money to another entity you shouldn't collect interest... it's about the mix of private credit vs base money in an economy, as well as what our gov't is willing to do to induce banks not to lend too much.  Gumby believes that base money and T-Bills should make up a greater part of the total money supply and credit a smaller part.  Banks would still charge interest, of course, but only to private borrowers, not to the gov't for deficit spending.

Yes, exactly. Nobody is saying that banks shouldn't exist or shouldn't be able to turn a profit. Proponents of monetary reform want reforms such as:

• The issuance of interest-free credit from a government-controlled and fully owned central bank. These interest free but repayable loans would be used for public infrastructure and productive private investment. This proposal seeks to overcome the charge that debt-free money would cause inflation.

• The issuance of social credit - "debt-free" money issued directly from the Treasury - rather than the sourcing of fresh money from a central bank in the form of interest-bearing bonds. These direct cash payments would be made to "replenish" or compensate the populace for the net losses some monetary reformers believe the populace suffers in a fractional reserve-based monetary system.

• The enforcement of full reserve banking for the privately owned banking system

Source: http://en.wikipedia.org/wiki/Monetary_reform

This is what Edison and Ford were talking about. Edison was talking about the creation of a major public infrastructure project (the Muscle Shoals nitrate and water power projects near Florence, Alabama) and didn't see why the government needed to issue "debt" to pay for it. The government could just pay for it with debt-free money and not issue corresponding debt. The people who actually poured their sweat and blood into building the projects would have debt-free money in their pockets. No need for more credit-based money, or increased taxes, to pay for something the private sector really needed. The labor force as a whole would be more easily able to climb out from under its mountain of debt and credit and use their debt-free money for more productive investments.

In a strange way don't we already have a debt-free money?  All we gotta do is stop paying interest on the "debt" (ie drop interest rates to 0%), which would then just make it "money".  But if we stop paying interest then the money will erode from inflation, which means no one would want to hold on to it.

I just don't understand...I think I will retreat into my own parallel Universe where sea shells are still used as currency. 

[moda0306]

MT,

Regarding currency, I don't think being able to start up a competitive currency has as much to do with government coercion as public acceptance.  Now if you set up pieces of paper or 1's and 0's that are backed by gold and people believed you 100%, that's great, but you probably have just given somebody a tool to hold gold in their IRA, not something used as an every day currency.  People want some pretty universal and consistent usage in their common currency... not so much with their savings vehicles

I think it's a lot more important for us as sovereign individuals to be able to save in diverse ways (gold, foreign currencies, foreign bonds, etc) than to actually be able to transact on a day-to-day basis with some other currency.  First of all, the private sector probably wouldn't accept it as value-adding.  People are afraid of long-term, not day-to-day, debasement.  But even long-term contracts can be indexed to gold, CPI, what-have-you.  The grocery store nor its customers are anxious to have a second currency to use to buy things... however, both the store owner and the customer may be VERY anxious to protect their mid-to-long-term savings from the risks of the common currency... and they're very free and right to do so in the USA.

Another problem I have is what people insist that the "some basic level of government" should be.  I really respect the founding fathers for their time... but let's look at the system they set up from a different view for a second: A bunch of people who hold deeds to land (a decidedly social, not natural, construct) come together and decide that the government of the land should be a Republic that does little else than protect/defend those deeds as well as other contracts & property, and the way of deciding who gets to alter the terms of this government are (drumroll) land "owners."

This is a skewed and simplified way of looking at it, and it sounds like I'm trying to undermine some great men, which I'm not... I love reading about the FF's and their philosophies, but I think we should not put them on quite the pedestal that we do.  There could be very different definitions of what that "base level" of government should be, and I don't think the libertarians have a philisophical/moral monopoly on what that is (not that you were suggesting this).