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Next Currency … A Real One?
Pretend for a moment that the US $dollar is no longer useful. With what could we settle transactions?
Obvious answers are a new fiat currency from a new Central Bank;
currency issued directly by the government, such as US Treasury-issued
Greenbacks; precious metals in raw, coin, or certificate form; various forms of
local or private coupons or currencies; novel concepts, like various forms of
digital currency; and certificates of claims on present or future assets,
baskets of goods, commodities, energy, or even other currencies.
Currency is managed scarcity. The
complaint against fiat currencies is that it is managed poorly. Precious metals are by their nature scarce,
but have practical issues associated with mass, competition with industrial
consumption, speculation, coin clipping, and assorted predatory market
manipulation.
Clearly a society can have some level of success trading in feathers,
seashells, salt, precious metals, government coupons, and even fiat
currencies. Of course, systems tend to
fail with surplus or scarcity shocks, either through natural disruptions, or more
commonly through management-induced changes in currency supply when the Wizards
of Smart are found to be lacking.
However, most would probably agree that historically the most successful
currencies have been through precious metals and fiat currencies (depending on
a definition of “success”, and to some extent, the motives for maintaining a
currency).
For fun, let’s assume for a moment that we want to try something
different.
In our pretend example, we would like to have our currency “backed” by
something, thus fulfilling the fundamental requirement of scarcity: Since nothing is infinite, a currency backed
by something cannot itself be infinite (short of accounting fraud). It would be nice if the market determined the
value of that backing, and (of course) that backing will change over time
relative to other things society values, but we generally want that something
to have a somewhat “stable” value.
What about a basket of stocks and bonds?
Remember that a “stock share” is a share
of all future profits. While some
pretend it is represents a percentage of ownership of a company (which is sort-
of true), and it may represent a claim on the company in liquidation, remember
that the company’s bondholders and creditors fill their claims from a company’s
assets first. While most shares today are
purchased for speculation (e.g., the
share is desired because the buyer expects its future price will be higher),
this is somewhat of a distortion because its fundamental value as an investment is merely the value of all
future profits delivered.
Now we’re ready: Many investment
companies offer a “Total Stock Market” investment fund with low expenses. The fund purchases shares on the open market
to maintain a balance that resembles a market index, but which is distributed
among all the stocks on the market.
Thus, this fund is backed by shares in companies that are regulated,
audited, and exposed to public scrutiny.
Individual companies may be performers or stinkers, but the public (at
some level) can scrutinize and value the individual company’s worth. These same investment companies offer a
“Total Bond Market” investment fund with low expenses, and the public can
similarly perform due diligence on individual bonds that comprise that fund.
Next, we have the magic of a Money Market Fund, originally designed to
provide liquidity and price stability at one dollar. It pays dividends to the fund with increased
shares, but the shares themselves remain at one dollar (i.e., one nominal
unit).
Combine all three (Total Stock Market Index, Total Bond Market Index,
and Money Market Fund), and we now have a Money Market Fund backed by the Total
Stock Market and Total Bond Market (at a 50% / 50% ratio, to pick a ratio, with
history suggesting such a balance is more stable and productive than all of one
or the other). Let us call this fund,
the “Bocks” (for “bonds/stocks”, since that’s easier to pronounce than “Stonds”
[for “stocks/bonds”]). Another cool name
might be the “Sibs” (for “stocks-index-bonds”), but I must admit I was never
very cool, and probably should not be permitted to coin such terms.
The final requirement is the issuance of “Bearer’s Bonds”. If you bought one share of Bocks, it is worth
one share of Bocks. Its value is
somewhat stable at the nominal Money Market one dollar. However, on deposit at an institution, the
institution would receive the dividends from the underlying assets that back
that share of Bocks (and that institution may be kind enough to split that
dividend with you).
It’s true that bearer’s bonds of Bocks in circulation (equivalent to
today’s M1 printed money supply) would produce no dividend (because to where
would the dividend be sent?), but that is a relatively small number of Bocks related
to the total money and credit supply, and that merely increases the dividend distribution
to deposited Bocks (where we actually have an address to which we can send the
dividends).
[Side note: The US banned new
issuance of bearer’s bonds in 1982 to inhibit tax avoidance, but even a
personal check can be considered a “bearer instrument”, which can be used
legally. While it may be possible for an
investment company to establish a Bocks system today, a legislative change may
make this easier.]
Thus, we could still have anonymous transactions without centralized
control (e.g., the private trading of goods-and-services for bearer’s bonds, or
printed Bocks), and Bocks found buried in a back yard after a decade would
still hold the face Bocks value (although the dividends would have been
forgone, since they were not on deposit).
The issuing agency would “benefit” from Bocks that were lost or
destroyed (since these shares effectively were dropped from circulation,
resulting in a reverse-dilution for the remainder of Bocks holders), and the
issuing institution would remain viable just as they are today by charging a
“management fee” to be paid from the dividends produced by the underlying stock
and bond assets. Theoretically, the
underlying companies issuing the stocks and bonds themselves could be priced in
Bocks, with the relative value of the company being determined by its
competitive place against other companies:
One company could not grow-in-value ten times overnight without
similarly lowering the rest of the market by that value in that same night.
This is as it should be: The
value of all houses in my city is fundamentally determined by the incomes of
all the people that live in my city. The
value of all products produced is determined by the purchasing power of all
people that consume products. The value
of the entire stock and bond market is determined ultimately by the value of
all future profits, which themselves are determined by the value of all future
productivity.
This system also honors the fundamental “time value of money”: One dollar tomorrow is not as good as one
dollar today, so when I loan you my money today, I want you to give me back
more tomorrow (e.g., “interest”). One
Bocks on account is worth more tomorrow simply because of the dividend it can
claim through its underlying assets, the stock and bond markets.
Further, we need not grant a single institution monopoly control in
issuing Bocks: Many investment companies
exist today with these market funds, each with their own structure. One Bocks is worth one Bocks, no matter who
was the issuing company. Counterfeiting
is only possible through fraud, in the event Bocks are created without
purchasing the underlying stocks and bonds on the open market.
What about speculation? Stock
market crashes? Secular cyclical changes
in the markets?
First, these swings principally relate to the expansion and contraction
of credit. Society must make its own
decisions regarding fractional reserve lending, leverage limits, auditing
guidelines, government fiscal discipline, and any other mechanized fraud. That has nothing to do with the currency
itself, or the fundamental “worth” of anything.
Second, our fictional Bocks currency itself doesn’t care about the price
of the stock or bond markets. Ten
thousand? Three thousand? One zillion thousand? Who cares?
We don’t care because the Bocks is itself merely a unit of exchange, and
its instantaneous “worth” is merely its fundamental claim on future dividends. When the market crashes, conceivably the
Bocks is worth more, in the event future dividends are expected to be
relatively high compared to the current market “share” price.
Nothing is “fixed” forever, as things constantly change relative to each
other. We need only consider as currency
something that is “relatively” stable, and “relatively” worth something. We can agree the dollar (or any national
currency) has had volatile swings in valuation over the decades, with the US
dollar currently devalued in excess of 95% from its inception. It is hardly the poster child for a more
stable system. In fact, no unit of
exchange satisfies this “super-stable” concept.
Thus, the best we can do is pick a backing that is of relative stability
and value, and which represents the productive capacity of society: The stock and bond markets.
Fundamentally, all other markets are ephemeral: Wealth is stuff people want, and society
creates wealth through the productive capacity of the stock and bond markets. Holding a share of all future profits from those
may be the best we mere mortals can do.
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I think we're using different terms.
I consider leverage as putting in some, then borrowing to make up the difference. The benefit is the power to wield more money than I really have, and the cost is that I must service the debt for what was borrowed (plus the liability that I must eventually make good on the amount borrowed).
In contrast, when I buy a share of GE in the example above, I paid too much. It was my money to lose, and I may have lost it, because GE isn't really worth the market price. Price discovery was bad, and I got screwed.
I don't see that as leverage. At worst, it is a bad investment, or bad speculation, but there is no debt to service, and no need to eventually "make good" on what was borrowed. So, there is no future risk or liability with my purchase of GE, as there would be with leverage.
I pointed out that Apple could issue more shares of Apple. GE could issue more shares of GE. New companies could IPO. That's how it works now, and the market rewards or punishes market capitalization of individual companies depending on the decisions by those individual companies.
In contrast, Vanguard could only purchase more shares of Apple and GE if it wanted to "grow" its mutual fund. That also is how it works now, and I would not change it.
Currently, Apple could not print GE shares, nor vice versa, and Vanguard cannot print Apple nor GE shares (rather, Vanguard could merely chose whether or not to purchase Apple or GE shares). There would be no leverage and no printing of phantom shares.
We agree. IMHO, 10% stock returns and 6% bond returns were not real: These were due to changes in debt. A more realistic return going back to the 1890's is a stock market return of 4%. People won't want to hear that, but IMHO, that's a realistic total market return expectation (net of inflation).
Going forward, I actually don't care what will be the return (although IMHO it will be negative for a decade, and then approximate 4%). The return is not a factor in the proposal. Rather, I'd rather trade currency backed by the market index, because no matter what is the value of that index, it is greater than zero.
http://dailyreckoning.com/the-state-of-the-republic/
http://www.youtube.com/watch?v=nQts21QiKTQ&feature=player_embedded
Dr. Ron Paul (R-TX) delivers a speech in the clip below entitled, “Is That All There is to a Recession?” He provides ample evidence and explanation as to why, “the correction is just barely started and has a long way to run.” The insight is definitely worth passing on.
pertinent speech by the "other" good doctor.
I was at a bar last night...saw this bartender with the largest boobs I've seen in the past year or so...I had to talk to her. She's fresh out of Poland, accent and all. Her backside was rather flat, but the front side made up for it if you know what I mean. I asked her if I were to go to Poland if I could hire her as a tour guide. She told me most people speak English and all you have to do is flash your American Dollars around and you can get anything.
wow, this has be a record for ZH commenters for how long it took for boobs to come up in the comment stream...pretty heady stuff mikla started...and you, mister anon, must be from Chicago....
Could have very practical application for bonds of emerging market countries.....with coupons dependent on the performance of local economy.
Should trade at a lower discount (ie cheaper borrowing cost) because clearly the coupon liability is closely linked to ability to pay.
The only way yet another Central Bank would work, especially on a global scale, is if it were a robot.
The political has to be removed from the heart of Central Banks.
And Everything fails.
You would think that intelligent people would know by now that there is no permanent solution so long as human beings with larceny for a heart, self-interest for blood, and avarice for lungs, exist and have access to the levers of power of which the money sysetem is the most omnipotent.
There is no permanent solution but I can think of one hedge.
Again....
The solution for the US or any other country....
Is to allow for its sustainable commerce to grow....
As this will better reflect that country's fiat....
An orange grove that is bigger and produces more fruit is worth more ....not less....
By which its currency will be reflective....
Whereas demanding more oranges while cutting down more trees forces one to borrow someone else's oranges....
ie Recently ....the US gave Haiti money....or did the US pay with borrowed money from China....Therefore why does Haiti thank the US when it was China all along....
Those were China oranges not US oranges....
Nothing could be simpler or a more concrete solution than a simple 15% consumption tax....no other taxes....
A more expensive tax system will simply place that country at a disadvantage....
THIS is the sole solution for the US....
I challenge any economist or politician to prove otherwise....That a 15% consumption tax would not be a superior system to the current/proposed systems....
I challenge any economist or politician to prove otherwise....That a 15% consumption tax would not be a superior system to the current/proposed systems....
but thats a red herring
any system would be better than the current system of taxes .
we need less government / so you propose to take a gun and extort 15% of all value and turn it over to someone else.
no taxes.. a central bank with little interest .. currency backed by gold .. a real small government paid for by excise taxes, stamps of export . import ..
we have turned the productivity of our lives to less qualified and pandering poiticians .
whats better .. food with 2 oz of poison ,, or 2.5 oz of poison
.
Only? see Henry George---Progress And Poverty. Also GOOGLE Fred Harrison and The Land Trust. p.s. They ain't makin any more land...ever heard of any fiat land? anonnn
yeah, real estate never fluctuates wildly in value either
Stocks and Bonds? WTF, have you not heard of Enron or Argentina? Why would I want anything that is subject to fraud? Gold and silver can be 100% verified.
You have just invalidated every IRA and 401K, pension fund, and asset collection on the planet.
Looks like nobody will ever retire.
I don't agree that gold and silver can be 100% verified, even if the physical metals themselves are used "on the barrel-head".
Nice example of thinking-out-of-the-box! While initially i found the concept rather enthralling, however it contains some serious flaws:
1. Feedback loop
The intrinsic value of a unit of currency must be separate and distinct from the value of goods/services that it is used to transact for. In other words, a feedback loop cannot be allowed to exist for the currency to work.
Imagine if there were a tourism fever, and business for the national carrier boomed. Being a large blue chip, its shares would constitute a major component of the stock market. By flying with this airline, the tourists would be literally increasing the value of the Bocks in their wallets! One individual company may not have much of an impact, but this phenomenon multiplied throughout the economy? The end result is the currency's value wildly fluctuating from one business cycle to another.
The gold standard worked so well precisely because gold is - intrinsically - worthless, just like paper. This is what many already understand, but that which many more refuse to acknowledge. Gold was not used for much of anything other than adornments in the long era which it thrived as money/money-substitute.
(The only situation whereby purchase of gold would affect the value of currency used to purchase it, would be at a jeweller's shop. Since that is a minor market segment, the impact is contained.)
2. The question of credit
Another limitation of gold was that its supply cannot be grown fast enough to match the economic progress mankind has made, thus leading to unstoppable hardening of gold-backed currencies. The only solution then, was to debase the currency issued; eventually even debasement could not keep up with new demand, thus we ended with fiat.
Under the gold standard, full reserve banking was the only system that was logically feasible. Same goes for this. Now imagine if it were a recession, the value of Bocks will be high given that companies' future expected earnings after the recovery will be much higher than today's; this will naturally lead to rampant speculation. To curb this phenomenon we have to raise lending rates, and end up discouraging legitimate borrowers. Whence then will the recovery come?
A world without credit is a world of soundest money and stagnant growth. A world of full reserve banking is one of slow, albeit stable, growth. This might be workable in developed 1st world countries if not for the fact that trade dependencies have evolved and are entrenched in the global system. 3rd world countries will not willingly agree to curtail their own progress, and any unilateral adoption of full-reserve by one country will only result in capital flight into another where credit is freely available.
3. Backed by bonds?
Bonds are essentially debts, so that makes Bocks not much different from the present day USD. Americans holding Bocks, for instance, would still be "owing the debt to themselves".
* * *
In conclusion, i believe many people have mistaken fiat money as a bad thing. In my view, fiat and democracy are in the same boat. Both are major advancements in humanity's history, yet widely misunderstood and grossly mishandled. Some of us foresaw their critical flaws very early on, while many of us are now convinced they've utterly failed. This is not true.
The problems with the present fiat system are multifold, and quite impractical to dissect in the short span of a few hundred words. What we have witnessed is the culmination of the worst of both, hence the magnitude of the world's troubles today.
The only alternative to fiat is electronic fiat!
Nice satire, because any sane and knowledge person as it concerns currency/money would laugh at your post.
With that said, electronic FIAT would only enable the 'printers' to better hide their 'printing' activities and lower the costs of flooding the market with FIAT.
Then we have the privacy issues. How would one handle garage sales and other private transactions? What if a mistake is made in the system and suddenly you are cut off from any access to 'money'.
Electronic FIAT would be a disaster due to opening up the gate even further to the money masters and manipulators Rothschild, Morgans, Warburgs, etc.
It wasn't intended as satire. The goal is merely a currency backed by something, and for that "something", I've picked 100% backed by market index shares.
I take your point about the "printers" -- If you buy a share of GE, and you don't really own a share of GE, then you're screwed. That's fraud, and I can't fix that. My assertion is that when you purchase a market index, you actually *do* own shares in that market index (that somehow regulation ensures the stocks are not fraudulently printed).
If that's not true, then all bets are off, and we are totally doomed.
That is the point of the "bearer's bonds" (or some bearer instrument). I have paper in my wallet, issued by Vanguard, that represent ownership of shares in a Vanguard fund. When I hand them to you at a garage sale, you now own those shares at that Vanguard fund.
I trust a Vanguard fund more than I trust the Fed.
We agree. I don't want that. Rather, I'd rather swap fund shares as currency, and not permit anyone to print fiat.
Very good point, this is my greatest concern.
However, what I describe we have today: Stocks and bonds are priced in dollars, are speculated in dollars, and generate dividend streams in dollars. Substitute "dollar" for "new unit". However, today's dollar supply is not tied to anything, so I expect the current system is more stochastic (actually, more inflationary, because that's politically easier).
Regarding the feedback loop, the proposal assumes no one stock or bond can sustainably move the whole market. Mostly, this is true, although sometimes a very large stock with have a significant impact on the market for a given day. Rather, because the unit is fully backed by stocks and bonds, it is possible to get "drift" within this feedback loop, but it will be slower: within a day individual stock prices can only go up by out-competing other stocks. Not all stocks can go up in a day, because there's no external "source" of magically printed dollars (unit devaluation) being pumped into the market.
Rather, the "real world" competition among companies that exists for a finite flow of consumer dollars will have their stock prices adjusted based on their success in receiving those consumer dollars, in exclusion of those consumer dollars being spent with other companies. In that sense, this feedback loop is "a good thing", and actually an essential attribute of the system.
I find inflationary drift to be quite dangerous, and this system proposes a "fully-backed" (e.g., not fractionally-backed) currency. In contrast, society can have all the inflationary fun it wants with the credit and leverage markets. (For example, "I promise to give you back five Bocks tomorrow for every Bocks you give me today, Mmmmmkaaaayyy?")
This system is agnostic on credit, banking, fractional reserve lending, and leverage. It is only a currency.
I don't pretend to address regulation, public policy, and government fiscal responsibility. Yes, it is possible credit is borrowed-into-existence at any level, even with a gold standard. (For example, "I promise to give you back five ounces of gold tomorrow for every ounce of gold you give me today, Mmmmmkaaaayyy?")
I disagree. Bonds in the bond market are back by what was pledged. There are varieties durations and of asset quality, and thus varieties of yields. Upon bond default, bond holders claim those assets (in the days when you followed the law), and even if you didn't get any assets, that shouldn't be a problem because you got your money back in confiscatory interest charged, with the price set by the market.
This is not the same with US dollar. You cannot claim any assets in the event of Fed default, and I argue there are no assets anyway (a debatable point, like is there really $1T in mortage securities? ;-)) Further, these rates are not set by the market (are complete fiction), and they are independant of any scarcity argument (dollars are printed every day at the drop of a hat, devaluing what you thought was the dollar in your pocket).
Fundamentally, owning some or all of the total bond market is owning something of substance (albeit, yes, on the promise to pay).
However, the unit itself is 100% backed. The bond market itself is merely priced in terms of that unit, and merely represents society's acceptance of credit and leverage risk.
....
In summary, I share your concern with the feedback loop, but I currently think that's a "feature", and "a good thing". I'm not concerned with the other points, but it is quite insightful that you raise them.
This simply... does not make sense.
If i may,
You assert that there's no external "source" of magically printed dollars (unit devaluation) being pumped into the market. What you essentially mean is that the Bock will be a hard currency, and that no growth in the monetary base will be allowed (no exceptions?). Therefore, the implications are: no newly-printed notes except to replace old ones, no fractional banking, no cross-border trade (the Bocks will not come back, given the scarcity of it. ie, guaranteed appreciation over time assuming humanity's continued progress, or resources continually extracted/grown domestically; to attain no undue disruption to its value, you'd have to disallow all trade with entities external to this monetary system).
This can only be effectively done in an isolationist country. Short of war or other exogenous events, this country which has adopted the Bock will remain in stasis, the currency will circulate among its denizens ad infinitum. This has been tried, i believe, by the Ming dynasty in China, the japs during Perry's time, and more recently, the Soviet bloc.
i don't assume you find that desirable?
In a way, i suppose, the people can benefit from isolationism. The conditions are:
1. A pop. base of sufficient size that is either aging, or at least stable;
2. No external threats;
3. The people are generally hermits with a disdain for overseas vacations.
That being said, i really enjoyed this mental exercise. Fun way to spend the weekend!
I don't go there: Credit will exist, and somebody else (e.g., government regulation) will decide what to do about fractional reserve lending. Those discussions are independant from discussions regarding the currency.
For example, pretend a million market shares exist. Pretend a couple investment companies buy 10% of those shares (i.e., 100K shares) to back a currency. People transact with that currency, and only 100K shares worth of that currency exists.
Perhaps a bank will receive 10 shares of currency on deposit, and choose to loan out 100 shares. Or, a more ambitious bank makes an unsecured loan for 100 shares, receiving nothing in deposit. In both cases, the currency is "borrowed into existence", and that institution has "levered-up". That's how it works now, and I presume it will continue to work that way (I don't control the banking system).
Thus, it's true that it "appears" that more units are trading than actually exist (that's the credit market). More specifically, those institutions have liabilities in shares that don't exist, and the institutions are in trouble if they can't keep things going. What's different is that the shares cannot be merely printed (as dollars are now), because the money supply is physically limited by the stocks available on the open market. That discipline is A Good Thing.
The underlying growth in the money supply will thus be explicitly tied to the underlying growth in the stock and bond markets: As new companies are added to the market, or as new shares are issued, more shares are available to back the currency. This is one measure of societal productivity, linked to the money supply.
Of course, a fundamental problem is that today I can buy on the open market 6,000 shares of a company that has only 5,000 shares in existence. That is fraud, and that's being done now, and we'd need a real regulator to take care of that fraud for a system like the one proposed to work.
Fiat money is not a bad thing until it fails. And they always fail. Democracies are not bad things until they fail. And they always fail. That means humanity must relearn ancient lessons again and again. The question is, WHEN will they fail and WHAT do you want to be in possession of during the transition? You want the only true hedge. Maybe we should rename this site Onehedge.
Yes to pressing the giant reset button.
Yes yes, one would desire to hold gold, as well as canned food, milk powder, bottled water, a guard dog, and probably a shotgun or 2 with ample shells to wipe out a small town.
But this thought exercise is about finding a long-term replacement for the fiat currency, right? The above would work for 3, maybe 5 yrs; but eventually, ammo will be exhausted (unless you don't plan on using them...), and food will turn bad, you know.
And with a ratio of 37.5* persons to every kg of gold, it is a 'risk' asset, in the true sense of the word. In the event of societal breakdown production may halt, or more likely, public access will be strictly restricted.If society carries on business as usual, then perhaps we still need paper bills to pay our bills with?
* approx. 6 bil global pop. / 160,000 tonnes surface stock.
My above comment sounded like an anarchist comment but was not really meant that way. I believe a long term solution to fiat is worth discovering which is why I enjoy the points mikla has brought up in this thread. However, I think, when considering a backed currency, we should consider the pros and cons of all alternatives. People who have thought this through and settled on gold aren't simply longing for the past. In above comments I've pointed out that I believe that gold backed fractional reserve banking would be best. I don't think we should use coins for everyday transactions. Checks, notes, electronic transactions against bank balances should all be used.
One MAJOR advantage that gold has is that individuals can choose to stop playing the game. It gives individuals ultimate freedom. Stocks and bonds, although valuable assets, are not divisible and portable like gold is. You can't go to the bank and walk out with recognizable wealth. The teller would say, you've got your numbers on the page, that's your net worth. You'd be stuck in the game.
The threat of a bank run is the primary thing that keeps a banker honest. Imagine a bank run with a currency backed by stocks and bonds. You are left high and dry, just like now with fiat. It's just that you've changed the names of the players.
Think how silly a bank run is now. We had a couple in 2008. People lined up with their bank books (even people with less than $100,000) and waited in line to get different pieces of paper that said 'legal tender'. Kinda silly when you think about it with the FDIC backing deposits and all. Quite a contrast to bank runs in the 30s when people went in and demanded gold. In both systems, people lost faith. In only one of the systems could people truly take their ball and go home. The power didn't like that so they made gold ownership illegal.
A gold backed currency demands discipline. Our country did not like the discipline demanded by a gold backed currency so we abandoned it. If we didn't I'm convinced we would not have had the problems we now have in the financial system and I'm not convinced that monetary inflation (beyond what you would get with increased mine supply) is required for progress to occur. I do think some level of credit is required and that it needs to expand and contract. A gold standard would not prevent recessions but I think they would be less severe.
You do realise that specie money and fractional banking cannot coexist, right? Forcing such will only result in the debasement of money via price inflation in gold, or in olden days, reduction in gold content.
If money is allowed to inflate freely through credit creation, then what difference is there between this backed money and the fiat system we currently have? If the backing is strictly enforced, this will of course result in stout confidence in the currency's value due to full-reserve system; the flip side being slower growth relative to economies fuelled by sound credit. Keyword being sound.
But we digress.
"sound" is a buzzword used by politicians to keep the proles content to be looted. Slow vs Fast growth? Tortoise or Hare? Prevent the bust by reigning in the boom. For some reason they have stopped exercising the death penalty for currency manipulation these days.
GOLD BITCHES!!!
good digression- if that's a word
Some systems have more checks and balances than others. Some systems provide an expectation of better things, provide a vision to those that lack the advantages of systems.
I say we keep trying to get it right, we have a unique in situation in history global economy, global communications, computer/internet technology, all of history available for our perusal, we may not succeed forever, but we can do better.
Money is drawing rights to community productivity. Everything else of worth, whether it's time or gold, are commodities. Why confuse the issue?
The question is how to maintain a stable system. If we put the politicians in control, they will inflate it to buy immediate support, but if we put bankers in control, they over-extend credit to increase power and profits. Then when the credit bubbles burst, surprise, surprise, they happen to have enough money to buy up the deflated assets.
The fact is, that as drawing rights on community productivity, money is a public utility. Just like the roads. We treat it as a form of personal property because people are less willing to exchange private value for community value. The problem this creates is that it enables a legal foundation for hoarding these drawing rights, which necessitates an excess to be issued and this inevitably destroys the system.
To have a functioning and stable monetary system, we will need to accept that it is the public utility that it is. Of course this would reduce the inclination to convert value into currency in the first place and that would go a long way toward solving many of our social and environmental problems, since people would naturally develop more orgainic economic relationships and leave value undisturbed, or store it naturally in the environment. A stand of forest, or a strong community are more healthy than some fluctuating figures in a bank deposit.
Now this isn't to say a strong monetary system shouldn't exist and isn't necessary for a modern economy, so the question returns to how to formulate one. As a public utility, we would have to accept that money is a function of the public sector, so the question is how to formulate such an institution that it isn't quickly corrupted by the power entrusted to it.
First off our lack of trust in public institutions has to be examined. Why do they always need to spend money on everything? For one big reason. That's how it is designed. The only way to get anything passed is to load it up with enough goodies to satisfy enough legislators and the only response the president is allowed is to pass or veto it. Is it entirely coincidental that with a debt based currency, we have a political budgeting process that is incapable of budgeting? Where would all the money the government borrows be invested otherwise?
What if we had a budgeting process that actually developed priorities?
Remember the line item veto? Obviously it would never work because it would give practically all power to the president, but if we could break these bills down into their items, then we could have each legislator assign a percentage value to each line, then reconstruct them in order of preference. The president would then draw the line at what would be funded. This would divide the budgeting process between the legislature deciding the priorities and the president choosing the level of funding.
We would solve the problem of government debt, but would seriously reduce the amount of wealth that could be stored as government debt. Also a lot of local funding would be cut, since it would generally draw the narrowest support. So a way to fill this gap is to make banking a function of local government. Thus the actual wealth generated by a community would be invested back into that community and the profits would go to fund the infrastructure of that community.
These local and state banks would then be a consortium to create a national bank to manage issuing the currency, so there would be no top down institution beholden to the few, as these local structures would be in friendly competition with each other and local corruption would be a weakness. This would remove much of the power from New York and Washington and create a more networked economy.
A meritable idea. So basically what you are advocating is the nationalisation of all banks, doesn't sound very palatable to anti-Marxists i'm sure.
Unless private banks are still allowed to operate, in which case they'd compete for deposits, and ultimately succeed, rendering the national banks quite impotent. Private banks would then proceed to make risky investments in order to generate sufficient returns to cover the higher cost of capital which would again lead to, as you've probably guessed by now, inherent financial instability.
I'd agree to private banks and local/private currencies. They would be allowed to invest as they wished, but won't have public guarantees and have to develop their own insurance model.
I'm all for economic biodiversity.
I suspect though, that many people will be inclined to bank with their local community banks, knowing the profits go to local infrastructure and management is loaning out to local businesses to create a strong economic community.
These would also create regional consortiums for larger projects.
The current central bank system is designed to make monetary stability a public responsibility while the profits of banking are privatized. This system is parasitical to its very core. Either we have private banks being responsible for their own currency, as has happened many times in the past, or if we have a publicly guaranteed currency, then we have a public banking system. This doesn't mean nationalized in terms of the federal government running it, but more of a open source, franchise model, so that they could use the same currency. Or possibly a number of currencies.
Obviously this scenario would need the current system to implode in order to have the political space to develop, but that seems a distinct possibility.
" I suspect though, that many people will be inclined to bank with their local community banks, knowing the profits go to local infrastructure and management is loaning out to local businesses to create a strong economic community."
While i concede that this is a good point, and in the long run, the better of 2 choices (private vs national banks). However, in order for this to happen, we'd have to rely on either the patriotic natures of the people, or their ability and willingness to accept abysmal short-term reward for potentially larger returns in the long-term. So what is needed is a whole country of nationalist investors.
Liquidating private banks should they happen to fail, though, is the right thing to do. As was always the case, prior to this generation.
And by private currencies, do you mean issued by private banks? Naturally not i assume, course otherwise to have any exchange value with the legal-tender notes, it must inevitably trade at a huge discount. There would be no profitable private banks and we're back to Marxism.
On the other hand, what about Grocery dollars(G$), Oil dollars(O$), Textile dollars(T$)...
Banks used to issue their own currencies, prior to the establishment of the Fed. A relative set me a bank note with the picture of a distant ancestor on it, as he founded the bank in Illinois back in the 1800's. It failed in twenty nine.
For one thing, Marx was the one who said the state would wither away. Now that sounds pretty damn libertarian to me. Obviously he didn't have Stalinism in mind. So that raises the issue just where our current theology of libertarian capitalism is going? Rule by the bankers?
By Marxism, I assume you mean some form of public ownership of all property. Socialism, communism, etc. What I'm saying is that there are distinct spheres of what constitutes public property and what's private property. Your car, your house and your business are private property. The roads connecting them are public property. The fact is that money functions very similar to a road system. Now there are essentially private toll roads, but much of our road system is public and it works quite well.
As I pointed out, excessive money is destructive to any monetary system and the primary reason for excess currency is the belief that it constitutes a form of private wealth and can be hoarded, rather than drawing rights on community productivity. The essential fact is that what determines the value of the currency is the productivity of the economy. More money than productivity and its value goes down. Less money than growth of productivity and its value goes up. As soon as you tie the value of the currency to any one commodity, you hand control of the economy to whomever controls that commodity. So if we make it a public utility, then its value can be defined relative to total productivity.
The problem is that money creates a broad scale against which people can judge themselves against one another, so there is the inclination to accumulate as much as possible and think it has intrinsic value. So there is the tendency for the money supply to grow faster than productivity.
Remember though, that the Fed reduces the money supply by selling debt. The logic of this is that excess money is naturally in the hands of those with savings. The fact is that the economy can only support as much savings as can be prudently loaned and that is limited by the productivity of those borrowing it.
So my point is that you can have as much private wealth in terms of tangible assets as you can accumulate and manage, but since money is a public utility, there has to be some effective limit to the growth of the supply. The only logical way to develop the broad social acceptance of this is to start treating money as the public commons it already is and that means taxing monetary savings progressively. For one thing, since this would limit the growth of the money supply, it would help to control inflation, so the value of savings wouldn't be lost. This would make public corporations necessary, with profits being more broadly distributed, since the stores of capital required to make them run would spread among a broader number of people, rather than having those monopolizing the money supply use leverage to own ever more assets.
The fact is that our current system is collapsing and rebuilding a new one would have to start at the local level. A public community banking model would be very useful for this.
Either you don't know what you are talking about or you are spreading disinformation. Stop.
Which is why we have our problems today. The standards the Founding Fathers advocated, if they were followed, would eliminate the wild economic swings that are engineered to transfer wealth.
A gold standard would eliminate the theft called inflation.
Bravo! So, we need to End the Fed first. But that parasite won't go without a massive fight. By the way, you sound kind of Marxist.
"Money is drawing rights to community productivity."
Yes but money needs a currency and currencies can be manipulated. Gold is a commodity, but it has unique and unusual properties. Primarily, people desire it and it is not useful for much else. It also exists in the proper quantity in the earths crust. Therefore, history tells us it is very useful as a currency. The fact that it can't be printed or created out of thin air is exactly what makes it a "stable system". Sounds like just what your looking for.
a basic problem .. so many do not have a grasp of austrian economics, the writings of mises etc. and run circles in the sand ,
i suspect nobody here has read and digested
Reismans ...Capitalism ,, 850 pages of dissecting the flawed thinking of the keynesian .. marxest thinking here. about value , money , and the role of gold. in a free society.
all that can be given here are sound bites,, .. as the discussions flow into wishful thinking ,, and half baked ideas, not enough time in the day to take each issue and in the light of reality explode the myths inherent in the thinking .. of a population groomed on mush . and incomplete logic. in my very humble opinion
best to use simple writings .. like run spot run .. see gold run. .
they diss sinclair , russell, sprott, and the thinkers of austrian bent .who have been right .. but wait for the short term sprott missed a year lol but we are groomed on nickle flipping and instant rewards .
what would be real interesting is to wave a little wand .. to see where their ideas spring from , and who is pulling the chains that make the thoughts appear,and to have the time to take each thought to some meaningful conclusion.. most are so full of holes that you could drive a team of blind lemmings .. with out touching a gram of long term economic thinking .
just mush and the status que,, built on the foundation of the very fabric of what is crumbling beneath our very feet
i confess austrian economics powers the thinking process,, here . and the works of the great austrian economists take first place .. when compared to the thinking of brand X.. who ever the heck they are ,
'
Wow, all big names.
If there was no box, how will we know we are out of it?
Have you studied the history of gold based monetary systems?
The problem is that people spend money and it tends to accumulate in banks, who find it convenient, as do their custumers, to issue certificates. The problem is that when they issue more than they have gold in stock, then use their influence over the political structure to ameliorate this fact, due to the convenience of loose monetary policy.
The point I'm making isn't that we have to change what money is, just accept what it is and that would go a long way to solving our problems. As highly evolved as we are technologically, we need to get beyond our medieval economic relationships.
That's funny, I prefer my economic relationships to be medieval.
No internet. You want to be king, court, knight, merchant, smith, landholder/farmer, or peon?
silver
weed
iou's
sex
fellatio
Create a form of guaranteed TRANSPARENCY. Transparency is what proofs North Dakota State Bank against fraud-greed-etc.
A fiat currency becked by inviolable transparency would be workable. anonnn.
Not a bad idea at all, I like it when folks think out of the box and the solutions are simple.
You get an A from me.
Reality, eh, who knows how life will go.
Forget about gold.
Buying gold amounts to a faith that the Central Banks will survive.
The internet will change the nature of money. Already, local currencies are popping up across the globe. It becomes far easier to barter - and to trade apples for oranges - with digital market platforms. There will still need to be a currency to settle differences at the margin (freegold? goldmoney?). but the need for a government-issues script decreases dramatically with the internet and with the movement toward local economies.
Fiat currency and global government was a good idea before "globalization" collapsed. The writing is on the wall. Peak oil, Baltic freight index, fiat vapor ... we need local currencies and economic engines. Not global central planning.
"The Internet will change the nature of money" Unless of course, the electric grid can't handle the growing amounts of intermittent energy that are being legislated into it without regard for the laws of physics. Let's ingnore peak-coal energy production per ton (passed 12 years ago) and peak oil's impact on post-industrial living ... Given that the "Smart Grid" concept is nothing more than an attempt at design by a committee of competing self interests, that total solar PV global production in 2013 will not be enough to run the State of Texas - on a sunny day, and only when the sun is up, that concentrated solar power systems only work when there is direct sun, which is typically in places where there's no water - and that CSP needs a lot of water - and that nobody outside of India is looking into Thorium reactors seriously, reliable electricity at the scales needed in the USA and therefore access to the 'Net won't be the basis of any new currency.
yes, barter sites basically create currency by giving you a credit/point for services, goods supplied. They are only limited because govt powers tend to shut down anything that starts to replace their currency
And because whoever runs them is tempted with absolute power to increase their fractional reserve nature and we know where that ends.
"Buying gold amounts to a faith that the Central Banks will survive. "
Don't understand this. Quite the opposite actually.
if the CBs survive, it will be because they can mobilize their gold holdings at a much higher valuation - to basically refinance fiat money.
if the CBs fail, the global money supply goes down with them and there won't be any "money" to buy gold or anything else. Local economies will be forced to adopt barter-based systems and will organize around mission critical supplies like food and water. Gold would be useless in that environment.
Gold is the most natural barter item in the world! I've never heard anyone argue, FOR BARTER, FOR Local currencies, and AGAINST gold.
You've got it backward. Probably the only way the CB's can fail would be if we go to barter. If we go to barter, trust me, gold will be quite useful.
+100
NO COUNTERPARTY RISK, what part of that people don't understand?