Gyroscopic Investing

Most people in this country have some misunderstanding about the National Debt. The misunderstandings are mostly perpetuated by politicians and the media. Many people believe that the National Debt is something that should be completely paid off. But, the fact is that it's impossible under our current debt-based monetary system — the National Debt is where our base money supply comes from. All of our money is either public or private debt. In fact, the only money that doesn't come from debt are coins. The only way our government and the private sector can pay the interest on its own debt-based money, is to issue more debt of the same kind (i.e. the Treasury only accepts debt-based base money (held in "reserve accounts" at the Fed) for its tax payments, and banks will only accept bank credit or base money for loan payments. The Treasury doesn't accept bank credit when it collects taxes). So, it's no wonder that the Federal debt is always growing and banks just become more and more powerful. And since our government is a currency issuer (unlike Euro zone countries) our government can never go bankrupt, but the banks just grow larger and stronger as they absorb interest payments. People, of course, receive interest payments as well, but since the bulk of our money supply comes from bank credit, the banks ultimately are the benefactor of all this interest.

Anyway, I just came across a very low-budget feature-length video that has offers a very interesting opinion on our debt-based monetary system.

Video: The Secret of Oz

The video offers a completely different take on fiat money than what most people are used to hearing.  

Instead of simply lamenting about the size of the debt — as most people, right or wrong, tend to focus on — the filmmaker suggests that where most of the interest payments are going (i.e. to the banks) is what we should really be focussing on. If we look at our current debt-based monetary system, the filmmaker argues that debt-based money causes the banks to absorb all of the interest payments and take control of our government. There are few people who would disagree with this. But, instead of arguing for a return to the gold standard, the filmmakers argue that the gold standard is what caused the banking system to become so powerful in the first place. That totally blew my mind.

I'm only about 1/4 way through the movie, but I'm intrigued about the argument and thought I would share the video. At the moment, the filmmakers are explaining why having a government issue "debt-free" fiat money is the only way to avoid a banking system from taking control over a government and the people's money. The filmmaker discusses the history of fiat money and its successes and short-comings.

Could it be that gold — and the inability to issue debt-free money — is the root of our banking and monetary problems? The filmmaker argues seems to argue yes so far. I plan on watching the rest of the film later tonight, but thought I would mention this in case anyone else wants to watch and offer their comments.

I'm sure this low-budget film has inaccuracies (as most films do). I just think the idea of gold being the root of some of our problems is an interesting hypothesis to investigate.

I just finished the movie. I have to say that it was a very interesting perspective on the history of our debt-based monetary system. If you've ever wondered why our nation's entire monetary system is debt-based, watch this film.

I was also surprised to learn that, throughout our nation's history, many people (right or wrong) viewed the gold standard as an evil conspiracy — supposedly designed by powerful European and American bankers — to make money extremely scarce, suck liquidity and credit out of the private sector, cause depressions, divert the political dialogue towards meaningless hot-button issues, and push the middle class into a life of debt. If this is true, it explains why we find ourselves in the current financial situation where big banks have wrecked the economy and essentially control our Congress.

In fact, the film uncovers a lot of evidence to suggest that much of the religious respect we give gold today as "sound money" comes from a fierce misinformation campaign, by bankers, against Lincoln's fiat greenbacks and to thwart other attempts for our government to issue debt-free money.

Not only does the movie investigate why our country has found itself in a situation where it has to "borrow" its own currency, the film goes in depth about the historically significant L. Frank Baum book, The Wonderful Wizard of Oz and its symbolism of Lincoln's fiat Greenbacks, Free Silver vs. the evils of the Gold Standard. (I had always heard that the Wizard of Oz had something to do about silver and the Gold Standard, but I never understood the back story.)

I do encourage everyone to watch this who has an interest in our nation's debt situation.

Yes, the film has a bias (against the big banks, the gold standard, as well as our debt-based monetary system). Yes, the film has some inaccuracies (there were legitimate inflationary problems with Free Silver too). But, by and large, it's a very interesting film about the web of debt we find ourselves in and legal solutions on how debt-free fiat money can be a legitimate way to break free of our debt-based monetary system.

The movie has a few flaws and inaccuracies but I highly recommend watching it for a different perspective on our monetary system.

Gumby- thanks for presenting this video. I really enjoyed it without fully understanding all the monetary issues and solutions. It seems certainly clear that the question of liquidity and profit under the control of the banks and the stranglehold they exert over the economy is very disturbing- intentionally creating depressions- very creepy. It gave me a better understanding of history and policy. This presentation seems to be the same direction that Warren Mossler is advocating in his book on line book: Seven Deadly Innocent Frauds of Economic Policy http://moslereconomics.com/wp-content/p ... s/7DIF.pdf
Beyond that, I'm out of my depth.

Gumby wrote:
I do encourage everyone to watch this who has an interest in our nation's debt situation.

I am about 1/3 through the movie right now.  I agree that it is a very interesting perspective. 

The thing that I can't understand is what the government's incentive is to relinquish control of the money supply to private banks. 

AdamA wrote:

Gumby wrote:
I do encourage everyone to watch this who has an interest in our nation's debt situation.

I am about 1/3 through the movie right now.  I agree that it is a very interesting perspective.  

The thing that I can't understand is what the government's incentive is to relinquish control of the money supply to private banks.

If you're a politician you can either fight the banks or join them and have their full support. If you fight them, then you risk being ousted by a candidate who has the well-funded support of the private banks.

The film shows some rather convincing evidence that — throughout our nation's history — bankers have skillfully misdirected the political conversation away from money and towards hot-button cultural issues. The film shows written historical evidence (such as internal memoranda from the American Bankers Association) showing how the bankers did this. In fact, we still see this kind of approach today — with well-funded Super-PAC candidates riling up the populace about cultural hot-buttons issues such as abortion, gay rights, guns, etc. Bankers don't really care about that stuff, but they know that their candidates can win a lot of votes by preying on those issues.

The film also insinuates (but offers no proof) that most Presidential assassinations and attempted assassinations usually happened after Presidents attempted to move the country towards debt-free money. Oddly enough, their happens to be some truth to that.

Now 2/3rds done.  One other question...if the government can always borrow money from the Fed, then why does it borrow from foreign countries?

Very much enjoyed the movie.  Thanks for posting it.

I haven't watched the movie, but I'll do so when I get home from work this afternoon.

I now understand (more or less) that national debt = base money supply. I also get that it seems a little odd for the government to pay interest to private banks or citizens for money that only it has the power to create.

What I don't get (and maybe the movie will explain this) is why gold would make such a bad form of money when it is a medium of exchange; a unit of account; and a store of value. In addition, because it doesn't derive it's value from any government, and cannot be printed at the behest of unscrupulous politicians or toyed with by government bureaucrats, it is truly the only stable international currency that exists.

The only argument against gold seems to be that its supply is too low and that it could be potentially deflationary in periods of high growth. However, isn't deflation just another way of slowing down a potentially overheating economy....the natural inverse of raising interest rates? Gold (like other forms of commodity money) also seem to remind humans that economic growth is limited on a finite planet. In other words, slow money supply growth could inhibit environmental damage by overzealous cheap money fueled development.

I'll watch the movie and comment later...these are just a few scattered ideas that came to mind on the topic.

By the way, with regards to the deflation comment above. Here is an argument for why deflation is actually a positive thing for the economy: http://youtu.be/U9w0S9bEXIw

doodle wrote:What I don't get (and maybe the movie will explain this) is why gold would make such a bad form of money when it is a medium of exchange; a unit of account; and a store of value. In addition, because it doesn't derive it's value from any government, and cannot be printed at the behest of unscrupulous politicians or toyed with by government bureaucrats, it is truly the only stable international currency that exists.

Yes, Gold is an excellent form of money. There is no doubt of that. However the filmmaker shows historical evidence that these truths, which you've summarized — and which we all believe here — were spoonfed to us by bankers and goldsmiths throughout history (many of them now call themselves members of "The Mises Institute").

The scarcity of gold makes it one of the easiest commodities to manipulate. Bankers and goldsmiths owned much of the gold supply, and charged interest to anyone they lent it to — including the government. It seems that gold lending — originally by goldsmiths to kings, and later by international bankers to governments — is where debt-based money comes from in world history. The evils of the gold standard in the US is what the L. Frank Baum's The Wonderful Wizard of Oz was all about. The witches in the Wizard of Oz were the big bankers: The Wicked Witch of the West was Cleveland banker J.D. Rockefeller, and the Wicked Witch of the East was New York banker J.P.Morgan. Anyway, you need to watch the Secret of Oz to fully understand the argument against debt-based money.

It's difficult to explain the history of debt-based money, so watch the film. So, when you are done watching The Secret of Oz, watch this brief lecture on the history of plutocracy, and prepare to have your mind blown*:

Video: A Brief History of Plutocracy

Right or wrong...It's a totally different perspective of the world we live in.

* You'll need to watch both movies to fully appreciate the argument against the gold-standard and debt-based money.

What I found fascinating is that during the late 90s, Greenspan and a few politicians were actually worried about what would happen if the US paid back all of it's debt.  If the US were suddenly unable to issue treasuries, the entire fractional reserve banking system might collapse.

They federal reserve actually drafted contingency plans during the Clinton administration about how to deal with this situation:

http://www.npr.org/blogs/money/2011/10/ ... ent-report

Storm wrote: What I found fascinating is that during the late 90s, Greenspan and a few politicians were actually worried about what would happen if the US paid back all of it's debt.  If the US were suddenly unable to issue treasuries, the entire fractional reserve banking system might collapse.

They federal reserve actually drafted contingency plans during the Clinton administration about how to deal with this situation:

http://www.npr.org/blogs/money/2011/10/ ... ent-report

It's amazing, considering that it would have been impossible for us to pay off the debt. Mosler explains...

Al Gore

Early in 2000, in a private home in Boca Raton, FL, I was seated next to then-Presidential Candidate Al Gore at a fundraiser/dinner to discuss the economy. The first thing he asked was how I thought the next president should spend the coming $5.6 trillion surplus that was forecasted for the next 10 years. I explained that there wasn't going to be a $5.6 trillion surplus, because that would mean a $5.6 trillion drop in non-government savings of financial assets, which was a ridiculous proposition. At the time, the private sector didn't even have that much in savings to be taxed away by the government, and the latest surplus of several hundred billion dollars had already removed more than enough private savings to turn the Clinton boom into the soon-to-come bust.

I pointed out to Candidate Gore that the last six periods of surplus in our more than two hundred-year history had been followed by the only six depressions in our history. Also, I mentioned that the coming bust would be due to allowing the budget to go into surplus and drain our savings, resulting in a recession that would not end until the deficit got high enough to add back our lost income and savings and deliver the aggregate demand needed to restore output and employment. I suggested that the $5.6 trillion surplus which was forecasted for the next decade would more likely be a $5.6 trillion deficit, as normal savings desires are likely to average 5% of GDP over that period of time.

That is pretty much what happened. The economy fell apart, and President Bush temporarily reversed it with his massive deficit spending in 2003. But after that, and before we had had enough deficit spending to replace the financial assets lost to the Clinton surplus years (a budget surplus takes away exactly that much savings from the rest of us), we let the deficit get too small again. And after the sub-prime debt-driven bubble burst, we again fell apart due to a deficit that was and remains far too small for the circumstances.

For the current level of government spending, we are being over-taxed and we don't have enough after-tax income to buy what's for sale in that big department store called the economy.

Anyway, Al was a good student, went over all the details, agreeing that it made sense and was indeed what might happen. However, he said he couldn't "go there." I told him that I understood the political realities, as he got up and gave his talk about how he was going to spend the coming surpluses.

Source: Seven Deadly Innocent Frauds of Economic Policy

And that's what we get for having a debt-based monetary system. It is by design. It's a continuation of the banking-class plutocracy explained in The Secret of Oz.

Some would argue that the US was founded as a plutocracy. In order to vote, you had to own land, proving that you belonged to the land-owning class. You also had to be a white male in order to vote (and possibly owned slaves) — which perhaps shows us the idea that "democracy" was not really a core concern at the time. Eventually, black males were able to vote. Then even women were allowed to vote. Most recently, young adults who were old enough to be drafted into foreign wars were found to be old enough to vote as well. And yet, a banking-class plutocracy still seems to rule our country and its policies. Having a debt-based monetary system has allowed the plutocracy to continue.

How much of the current deficit we have now is due to two wars against countries that didn't attack us (Iraq and Afghanistan)?

It seems like every time the country goes into recession the Democrat's answer is more social programs and the Republican's answer is to start a war.  Both should help out an economy in true Keynesian thinking, but they also have the side effect of increasing the deficit by a huge amount.

Storm wrote: How much of the current deficit we have now is due to two wars against countries that didn't attack us (Iraq and Afghanistan)?

It seems like every time the country goes into recession the Democrat's answer is more social programs and the Republican's answer is to start a war.  Both should help out an economy in true Keynesian thinking, but they also have the side effect of increasing the deficit by a huge amount.

Storm, you're missing the point. The size of the deficit isn't the issue here. The issue is why we even have a debt in the first place. Under our current system, all money (except coins) is debt. The film explains how this came to be.

Why are coins not debt, but bills are?  Or are we talking gold/silver coins here?

moda0306 wrote: Why are coins not debt, but bills are?  Or are we talking gold/silver coins here?

All coins (nickels, dimes, pennies, quarters, etc) are debt-free money. It's just the way seignorage works. (I suppose you could say that coins are already backed by the metal they're made out of). When the Treasury mints a coin, it doesn't need to issue any corresponding debt. When the Treasury writes a paper check, it is required to issue corresponding debt.

Watch the film.

I will stress that the film has a few flaws. But, on the whole, it is a very interesting perspective on our debt-based monetary system.

I fully intend to watch it.

I can't, now, however, as my workplace makes that a tad difficult.

Thanks for posting it.

Gumby,

Still haven't gotten home, however in brief response to this comment of yours:

It seems that gold lending — originally by goldsmiths to kings, and later by international bankers to governments — is where debt-based money comes from in world history.

I think debt based money is in fact much older than this. In fact the concept of debt is the oldest form of money that exists. In ancient days if you wanted a cow you would borrow one from your friend or neighbor with the agreement to pay him a cow back at some future date. This debt was sealed with a handshake or maybe etched into a stone tablet or something. There was no need for gold or other some such "money" to exhange hands. The "debt" by itself was enough for the transaction to occur.

doodle wrote: Gumby,

Still haven't gotten home, however in brief response to this comment of yours:

It seems that gold lending — originally by goldsmiths to kings, and later by international bankers to governments — is where debt-based money comes from in world history.

I think debt based money is in fact much older than this. In fact the concept of debt is the oldest form of money that exists. In ancient days if you wanted a cow you would borrow one from your friend or neighbor with the agreement to pay him a cow back at some future date. This debt was sealed with a handshake or maybe etched into a stone tablet or something. There was no need for gold or other some such "money" to exhange hands. The "debt" by itself was enough for the transaction to occur.

Yes. Both videos cover that initial origin and its manifestation into our current debt-based fractional reserve monetary system. The second video does an especially good job of looking at the anthropological origins of debt-based money.

Saw the first half... a few thoughts:

- Really interesting to get a broad historical perspective on money that is skeptical of a gold standard AND big banks.  The idea that they were FOR a strict gold standard flies quite a bit in the face of much of what you hear.

- The 1800's don't sound nearly as prosperous as I'd earlier believed based on the "stability" mentioned so often by proponents of the gold standard.

- Thomas Jefferson officially being quoted as being for PAPER money... this is one I'll have to use in some battles against the Austrian Empire :D!

- I think the interaction of our fed/treasury isn't fully understood by the video's narrator.  We have a quasi-debt-based money system, but the ability of our fed to 1) ensure treasury auctions to succeed, and 2) pay off debt via QE definitely put us down a road fundamentally different than if we couldn't do those things.  His fear that "what if they stop buying our bonds" shows that he might not know the power the fed holds over the banks that participate in auctions.

- Some of the correspondence of the Banking industry is scary, scary stuff.  I was amazed.

- To call fiat money NOT "debt-based" just because there's no liability recorded I think is a mistake.  You're printing "assets" out of thin air.  To me the liability involved is one of function, not finance, in creating an environment where a productive, prosperous society can result.

I'm searching like crazy and I can't find ANYTHING that shows Thomas Jefferson supporting fiat money... and plenty against it... I'm starting to wonder if this documentary is a bit misleading.

moda0306 wrote:- Really interesting to get a broad historical perspective on money that is skeptical of a gold standard AND big banks.  The idea that they were FOR a strict gold standard flies quite a bit in the face of much of what you hear.

Yeah. I hadn't really heard that side of the coin before. It was very interesting. Let me know what you think after you get to the end of the film and then watch the brief lecture on plutocracy.

moda0306 wrote:- The 1800's don't sound nearly as prosperous as I'd earlier believed based on the "stability" mentioned so often by proponents of the gold standard.

It sounds like it depends on where people lived. Mid-western farmers were having droughts and were begging for more liquidity — and they saw the manipulation of the gold-backed money supply, by bankers, as a "wicked" evil (i.e. bankers caused a depression and then bought everything up). Mid-western farmers wanted the fiat Greenbacks back — it's what the symbolism in The Wonderful Wizard of Oz was all about. But, people in big cities didn't see it the same way. Most urban residents wanted a gold standard. For all we know, the urban media was financed by big bankers who wanted a gold standard and made sure that's what their readers were spoonfed — which wouldn't surprise me.

moda0306 wrote:- Thomas Jefferson officially being quoted as being for PAPER money... this is one I'll have to use in some battles against the Austrian Empire !

I believe that may be one of the places where the movie stretches the truth a bit. Yes, he did write that he wished he could have outlawed the government's ability to borrow, but most people use that same quote to show his support for a balanced budget amendment — which makes much more sense. The problem with the movie is that some of the quotes are out of context, so it's difficult to say that everyone the filmmaker quoted was fully on board with fiat money. Some were, and some weren't. For instance, Lincoln was certainly a fan of fiat money — his administration invented the fiat Greenbacks when bankers tried to screw him over. But, some historians claim that the quote attributed to him in the movie was actually said by a Congressman to describe Lincoln's policies. So, while the quote is accurate about Lincoln's opinion on fiat money, it's not entirely clear, at first glance, if he in fact uttered those exact words.

moda0306 wrote:- I think the interaction of our fed/treasury isn't fully understood by the video's narrator.

I agree.

moda0306 wrote:We have a quasi-debt-based money system, but the ability of our fed to 1) ensure treasury auctions to succeed, and 2) pay off debt via QE definitely put us down a road fundamentally different than if we couldn't do those things.

Yes, I agree. That was certainly one of the flaws of the movie.

Though, Moda, the Fed can't monetize the debt through QE. The Fed can't even monetize the debt at all because the Fed isn't allowed to purchase Treasuries directly from the Treasury (like Japan can). The Fed can only purchase Treasuries from the Primary Dealers, who must acquire the money in advance to purchase Treasuries — which can only happen is if there is a government debt in the first place.

See: http://pragcap.com/pomo-flip-matter

Anyway, you are correct that the filmmaker doesn't understand any of that stuff. However, I think that misses the point. The point isn't whether the government is at risk of being insolvent or how large the debt is. The point of the film is who ultimately collects the interest payments on a Macro level (for both public and private debt). The bankers do. Over time, the bankers become richer and the masses become poorer.

moda0306 wrote:His fear that "what if they stop buying our bonds" shows that he might not know the power the fed holds over the banks that participate in auctions.

Yes. As I said, the film isn't perfect. It has flaws.

moda0306 wrote:- Some of the correspondence of the Banking industry is scary, scary stuff.  I was amazed.

Me too. The second video ties it all together over the course of human history. It is scary stuff.

moda0306 wrote:- To call fiat money NOT "debt-based" just because there's no liability recorded I think is a mistake.  You're printing "assets" out of thin air.  To me the liability involved is one of function, not finance, in creating an environment where a productive, prosperous society can result.

I'm not sure I follow. If you had to choose between debt-based fiat, and pure fiat, why would you choose debt-based fiat money?

If the bulk of our money supply is just credit, from private banks, then debt-based fiat money just makes bankers richer and stronger — since private banks control almost all of the domestic base money supply used to buy government debt, banks will just collect more and more interest over time. The banks use all that base money to back their own "thin air" private credit in the private sector — which allows them to collect even more interest from the private sector, with money that doesn't even exist yet in the private sector. The only way the private sector can fulfill those interest payments — without new debt-based money entering the private sector — is if the creditors provide more liquidity to the private sector (via payment for services, or with new loans that require more interest payments).

If you're a banker (or part of a group of bankers) for a mid-west region in the 1800s, it would be pretty easy to reduce liquidity to the masses by simply refusing to lend money and making money scarce. Assets then become cheap, you buy them up, and then the population even more dependent on your credit — owing you more and more debt. Greenbacks were popular to those regions because they provided the liquidity farmers needed so desperately.

I believe the part the film doesn't tell you is that the farmers actually wanted inflation (also from the Free Silver movement) so that it would be easier to pay their debts back. On the other hand, it's worth considering that this was likely a natural retaliatory reaction to being forced into debt by the bankers.

In any case, the filmmaker has one key point. It really doesn't matter what backs your money. What matters is who controls its quantity. Is it better for local and federal elected officials to control the quantity of credit and money? Or is it better for unelected bankers to control its quantity?

Gumby,

My point about us being debt-based is simply the acknowledgement that you can't simply print assets out of thin air unless there is some offsetting requirement to make those function as money.

That "liability" is a functional one... simply that our government create an environment where base money can be used for productive gain.  I just don't think there is all that much difference between our system and one that rids itself of the dance that the treasury and fed do, though I bet there is some bank arbitrage that can be avoided.

Regarding banking... I see leverage of a base money supply (or leverage of expected future base money supply) as completely natural.  All the contracts (IOU's) that were formed during the 1800's and used as money were based on credit.  If ALL money were issued by government, and no leverage of that money was allowed by the banking sector, that means a very inefficient allocation of resources IMO...

What does a young Steve Jobs do to get enough money to make his idea a reality?  Does he have to go into business with elderly equity-holders who want some ROI on their savings?

I do agree we need better regulation of the issuance of credit, including having banks HOLD the loans they make, but I see a healthy system of credit as the life-blood of entreprenurialism... otherwise the government is in too-much control of the initial allocation of money, and in restricting leverage of that money, has manipulated the private sector into something rigid, unnatural, and something that will not live up to its full potential.

Also, I think a lot of the Secret of Oz deals with what Stone has always been talking about — and why Stone supports Economic Democracy policies. Stone says that deficit spending just causes the FIRE sector to become stronger and stronger. Well, The Secret of Oz explains — in layman's terms — why that is and how the US got here. The second video shows us why this plutocracy is really an international phenomenon.

Again, it's just a very different perspective. But, I'm starting to see where Stone is coming from. It's very interesting.

moda0306 wrote:Regarding banking... I see leverage of a base money supply (or leverage of expected future base money supply) as completely natural.

Sure. Up until a few days ago I thought that was quite natural as well. But by the time you finish both videos, you might not see it exactly that way. Why don't you finish watching both videos before we continue with that thought.

moda0306 wrote:All the contracts (IOU's) that were formed during the 1800's and used as money were based on credit.  If ALL money were issued by government, and no leverage of that money was allowed by the banking sector, that means a very inefficient allocation of resources IMO...

The first video offers a few solutions that still involve private banks. You'll have to finish watching.

moda0306 wrote:What does a young Steve Jobs do to get enough money to make his idea a reality?  Does he have to go into business with elderly equity-holders who want some ROI on their savings?

Nope. He would get a loan from a bank. Watch the video.

moda0306 wrote:I do agree we need better regulation of the issuance of credit, including having banks HOLD the loans they make, but I see a healthy system of credit as the life-blood of entreprenurialism... otherwise the government is in too-much control of the initial allocation of money, and in restricting leverage of that money, has manipulated the private sector into something rigid, unnatural, and something that will not live up to its full potential.

I don't believe anyone is offering a solution that eliminates private banks from making loans. Let's discuss tomorrow.

Gumby,

So I should watch the rest of the video, or not?



Just despite you, I'm going to continue to make assertions about banking without watching the rest of the video.... JK.