Gyroscopic Investing

Here's an interesting teach in — given by author Ellen Brown — to OccupyLA about the Bank of North Dakota model, as well as the powers of the Fed. The Bank of North Dakota is currently the only state-owned bank in the country, but more may soon follow.

She covers some interesting ideas about how the layers of interest — as all money is debt-based — increases our costs through every step of the production/sales process of everything. She says that there are studies that show that the interest on every part of the production/sales process of goods usually makes up 50% of the cost of nearly everything. It ends up becoming unsustainable over the long run.

A state-owned bank (such as North Dakota's) — where interest-free loans can be created — has apparently solved a lot of problems for that state. Other states are now attempting to mimic the ND banking model.

Food for thought... The video is roughly 12 minutes long and definitely thought-provoking.

http://www.youtube.com/watch?v=-Sp8oREsvW0

That's a pretty good video. 

I saw some of the other videos from the "teach-in" and saw Robert Reich's, which I thought was really good.  While I don't agree with everything Reich has to say, I find him to be a good advocate for his positions and an interesting personality.

Here is a three minute video from Reich's website that I saw a while back and thought was funny:

http://robertreich.org/post/9094669056

Interesting video.  I like the idea of a state run bank.  If the interest earned on loans could offset tax revenues you could actually cut taxes.  Why should that profit end up in absurd bonuses for bank executives when it could just as easily help balance the budget and fund state and local infrastructure projects?

That system seems much like what China does and what the Nazi economic system was. The Nazis prided themselves on supposidly ignoring economics and finance. They just spent what they wanted to. They restricted wage bargining and imposed taxes so supply was always able to keep up with demand so preventing severe inflation. Apparently Keynes was pained by the fact that the Nazis were the clearest example of much of what Keynes recommended.
I'd rather have an economic system that reflected the aggregate choices of each person acting as individuals. Either the state herding people about or corporations/oligarchs herding people about both go against what makes sense to me. I think that it is important that the whole population is debt free and has money to spend on what they as individuals choose. An asset tax/citizen's dividend system seems to me a possible way to get that.

stone wrote:I think that it is important that the whole population is debt free and has money to spend on what they as individuals choose.

But that's impossible with our current system. Every single dollar in existence comes from a debt. (Including money that the Fed spends — which is listed as a liability on its balance sheet). As the author explained, the only money that isn't a form of debt (or liability) are coins, which the Treasury can issue at will. And coins are a minuscule fraction of the money supply.

When the Treasury spends money, by law it must issue corresponding debt as Treasury Bonds. And when banks create money, as loans, that is another form of debt. The difference is that now you owe the bank interest — which requires more debt issued by another bank (or the government) to pay off.

Can you explain how there would even be enough money to be "debt free"?? I don't see how it's possible if all money originates from a loan/liability or a Treasury Bond issuance.

All money, other than physical coins, is a form of debt!

That was the author's point — a state bank would be a way to alleviate some of the interest payments to help relieve some of the nested-loop debt burden on individuals and corporations.

If you added up all the hidden costs of taxes in everything you buy, it would add up to 50%+.

Think about it. Go to the store and buy a box of pencils for $1

The box costs $1.10 because you paid 10% sales tax.

You had to earn $1.80 in Gross Wages to have $1.10 after FICA, State, Federal Income tax in order to buy the pencils.

The store paid $0.90 for the box of pencils. There is a 10 cent profit that is taxed at 3 cents. Thus, the pencils are 3 cents higher than they would need to be, if it wasn't for tax.

The cost to the store, logistics provider, and manufacturer are higher than they need to be in order to pay corporate taxes on profits, as well as FICA, unemployment tax, and pay their workers a higher salary in order to cover their taxes. i.e. if FICA, Federal, State income tax didn't exist, Employers could paid their employees 40% less money (and give them the same take-home as in the current system).

Gasoline on transporting the items to the store it taxed.

The corporations have to hire several CPAs at $100k each to figure out how to file taxes because the tax code is so complex that it generates more waste. The cost of the CPAs is built into the cost of business and thus raises the cost to the consumer.

So the consumer has to earn $1.80 Gross to buy a box of pencils that costs "$1" but has 50 cents of materials/labor in it. The government extracts 30%+ of the value. The corporations involved extract 5% to 10% of the value created.

If you want to point fingers at true hidden costs of things, don't look at interest expenses. Look at taxes.

TripleB wrote:If you want to point fingers at true hidden costs of things, don't look at interest expenses. Look at taxes.

I don't think you get to dismiss the cost of interest just because taxes are also a burden on the consumer. And let's not forget that many corporations (such as GE) hardly pay any income taxes.

Taxes reduce debts. But, interest creates more debt.

From Wikipedia:

Since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. This implies that debt must grow exponentially in order for the monetary system to remain solvent.
Source: Criticism of fractional-reserve banking

Studies have shown that interest makes up more than 40% of the cost of all goods:

http://www.converge.org.nz/evcnz/resources/money.pdf

And a state bank is an actual solution to this problem. That's many states are trying to pass state bank bills right now.

I would also point out that it would make no sense, whatsoever, to bemoan the state of our public and private debt and lament the burden of taxes while also supporting the idea of fractional-reserve lending with interest charges.

Any politician or pundit who supports banks and says that we need to reduce taxes and says that we need to reduce spending either has no clue what they are talking about, or is lying to us.

In a fractional-reserve monetary system — where interest is charged — the only way to reduce both private and public debt is through taxation. There is no other mathematical way.

If Bank A loans me $100 (created out of thin air), I need to pay Bank A $104 when the loan is due. Where does the $4 come from? Other than freshly minted coins from the Treasury, it has to come from some other form of issued debt (or liability).

So, you can complain about taxes till the cows come home. I certainly don't enjoy paying taxes. But, it's literally impossible to eliminate all debt without taxation.

Think about it.

If the government stopped spending money altogether — and therefore stopped issuing Treasury Bonds — and the only money creation came from banks, we'd still need an ever-growing supply of bank-issued debt in order to pay off the interest of every future loan.

The entire banking system is a scam. It needs to change. That's what Occupy Wall Street is all about. Interest-free loans for some situations (tuition, small businesses, etc) is a step in the right direction.

Gumby, I was really meaning a system free of private debt rather than of government debt but now you come to mention it I'm very skeptical about the need (other than the legal requirement currently in the USA) for bond issuance. I think an entirely base money system is perfectly feasible so long as inequality does not need to be perpetuated.

stone wrote: Gumby, I was really meaning a system free of private debt rather than of government debt but now you come to mention it I'm very skeptical about the need (other than the legal requirement currently in the USA) for bond issuance. I think an entirely base money system is perfectly feasible so long as inequality does not need to be perpetuated.

Yes, now that makes sense. And I fully agree that there is no need for bond issuance. However, in the US, bond issuance is really used as a tool to control interest rates. And from Congress's own perspective — at least how they envisioned it when we were on the Gold Standard — the issuance of bonds also allows for greater oversight and accountability. Or so they like to think.

Of course, the interest on those bonds just creates the need for more bond issuance, and therefore more taxation if you actually wanted to reduce or eliminate the bond issuance.