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Austrian Economics, Monetary Freedom, & America's Economic Roller-Coaster

Tyler Durden's picture




 

Submitted by Richard Ebeling via EpicTimes.com,

For over a decade, now, the American economy has been on an economic rollercoaster, of an economic boom between 2003 and 2008, followed by a severe economic downturn, and with a historically slow and weak recovery starting in 2009 up to the present.

Before the dramatic stock market decline of 2008-2009, many were the political and media pundits who were sure that the “good times” could continue indefinitely, including some members of the Board of Governors of the Federal Reserve, America’s central bank.

When the economic downturn began and then worsened, many were the critics who were sure that this proved the “failure” of capitalism in bringing such financial and real economic disruption to America and the world.

There were resurrected long questioned or rejected theories from the Great Depression years of the 1930s that argued that only far-sighted and wise government interventions and regulations could save the country from economic catastrophe and guarantee we never suffer from a similar calamity in the future.

The Boom-Bust Cycle Originates in Government Policy

Not only is the capitalist system not responsible for the latest economic crisis, but all attempts to severely hamstring or regulate the market economy out of existence only succeeds in undermining the greatest engine of economic progress and prosperity known to mankind.

The recession of 2008-2009 had its origin in years of monetary mismanagement by the Federal Reserve System and misguided economic policies emanating from Washington, D.C. For the five years between 2003 and 2008, the Federal Reserve flooded the financial markets with a huge amount of money, increasing it by 50 percent or more by some measures.

For most of those years, key market rates of interest, when adjusted for inflation, were either zero or even negative. The banking system was awash in money to lend to all types of borrowers. To attract people to take out loans, these banks not only lowered interest rates (and therefore the cost of borrowing), they also lowered their standards for credit worthiness.

To get the money, somehow, out the door, financial institutions found “creative” ways to bundle together mortgage loans into tradable packages that they could then pass on to other investors. It seemed to minimize the risk from issuing all those sub-prime home loans, which we viewed afterwards as the housing market’s version of high-risk junk bonds. The fears were soothed by the fact that housing prices kept climbing as home buyers pushed them higher and higher with all of that newly created Federal Reserve money.

At the same time, government-created home-insurance agencies like Fannie Mae and Freddie Mac were guaranteeing a growing number of these wobbly mortgages, with the assurance that the “full faith and credit” of Uncle Sam stood behind them. By the time the Federal government formally took over complete control of Fannie and Freddie 2008, they were holding the guarantees for half of the $10 trillion American housing market.

Highway Free Market vs. Highway Bailout cartoon

Easy Money and Lower Interest Rates Led to the Bust

Low interest rates and reduced credit standards were also feeding a huge consumer-spending boom that that resulted in a 25 percent increase in consumer debt between 2003 and 2008, from $2 trillion to over $2.5 trillion. With interest rates so low, there was little incentive to save for tomorrow and big incentives to borrow and consume today. But, according to the U.S. Census Bureau, during that five-year period average real income only increased by at the most 2 percent. Peoples’ debt burdens, therefore, rose dramatically.

The easy money and government-guaranteed house of cards all started to come tumbling down 2008, with a huge crash in the stock market that brought some indexes down 30 to 50 percent from their highs. The same people in Washington who produced this disaster then said that what was needed was more regulation to repair the very financial and housing markets their earlier actions so severely undermined.

That included, at the time, a shotgun wedding between the U.S. government and the largest banks in America, when in October of 2008, the heads of those financial institutions were commanded to come to Washington, D.C. for a meeting with, then, Secretary of the Treasury, Henry Paulson and former Federal Reserve Chairman, Ben Bernanke.

They were told the Federal government was injecting cash into the banking system with a purchase of $245 billion of shares of bank stocks in the financial sector. The banking CEOs present – some of who made it clear they neither needed nor wanted an infusion of government money – were basically told they would not be allowed to leave the Treasury building until they had signed on the dotted line. (The money was eventually returned to the Treasury, with bank buybacks of the shares in which the government had “invested.”)

Opening the Monetary Spigot Again

The Federal Reserve, in the meantime, turned on the monetary spigot, increasing the monetary base (cash and bank reserves) between 2007 and 2015 from $740 billion to around $4 trillion, brought about through a series of monetary creation policies under the general heading of “quantitative easing.”

A variety of key interest rates, as a consequence, when adjusted for inflation, have been in the negative range most of the time for seven years. Nominal and real interest rates, therefore, cannot be considered to be telling anything truthful about the actual availability of savings in the economy and its relationship to market-based profitability of potential investments.

Interest rates manipulation has worked similar to a price control keeping the price of a good below its market-determined and clearing level. It has undermined the motives and abilities of some people to save on the supply-side, while distorting demand-side decision-making in terms of both the types and time-horizons of possible investments to undertake, since the real scarcity and cost of borrowing for capital formation has been impossible to realistically estimate and judge in a financial market without market-based interest rates.

Markets have been distorted, investment patterns have been given wrong and excessive directions, and labor and resources have been misdirected into various employments that will eventually be shown to be unsustainable.

Keep Printing that Paper Money cartoon

Low Inflation and Faulty Price Indexes

Keynesians and other supporters of “stimulus” policies have argued that there has been no need to fear “excesses” in the economy because price inflation has been tame – running less than two percent a year practically the entire time since 2008.

First, it needs to be remembered that this measurement of price inflation is based upon one or another type of statistical price index. This by necessity hides from view all the individual price changes that make up the statistical average, and which has seen in the last few years significant price increases in subsectors of the market.

Second, the full impact of the massive monetary expansion has been prevented from having its full effect due to a policy gimmick that the Federal Reserve has been following since virtually the start of its quantitative easing policies. The central bank has been paying banks a rate of interest slightly above the interest rate it could earn from lending to borrowers in the private sector.

Thus, it has been more profitable for many banks to leave large amounts of their available reserves unlent as “excess reserves” that have been totaling almost $2.8 trillion of the nearly $4 trillion that Federal Reserve as created. Having created all this additional lending potential, the Fed has been manipulating interest rates, again, this time to keep a large amount of it from coming on the market.

Third, particularly since 2014, the world has been increasingly awash in expanding oil supplies that has resulted in dramatically lower prices for refined oil products of all types, and most visibly to the average consumer in the form of falling prices to fill up one’s car with gasoline.

Greater supplies of useful and widely used raw materials and resources at significantly lower cost should be considered a boon to all in the economy, in making production and finished goods less expensive, and thereby raising the standards of living of all demanding such products.

Instead, the Federal Reserve worries about “price deflation” as a drag on the economy, rather than as a market-based stimulus through supply-side plentifulness that, in the long run, reduces the scarcity and cost of desired goods and services.

Central banks around the world have all gravitated to the idea that the “ideal” rate of price inflation that assures economic stability and sustainability is around two percent a year. Fixated on averages and aggregates, the central bankers continue to give little or no attention to the really important influence their monetary policies have on economic affairs: the distortion of the structures of relative prices, profit margins, resource uses and capital investments.

The “Austrian” Theory of Money and the Business Cycle

In my new book, Monetary Central Planning and the State, which will be published in October 2015 by the Future of Freedom Foundation in a eBook format available from Amazon, I explain the “Austrian” theory of money and the business cycle in contrast to both Keynesian Economics and Monetarism.

Developed especially by Ludwig von Mises and Friedrich A. Hayek in the 20th century, the Austrian theory uniquely demonstrates the process by which central bank-initiated monetary expansion and interest rate manipulation invariably sets the stage for both an artificial boom and an eventual, inescapable bust.

Their theory is explained in the context of an analysis of the most severe economic downturn of the last one hundred years, the Great Depression. The crash of 1929 and the depression that followed was the outcome of Federal Reserve monetary policy in the 1920s, when the goal was price level stabilization – neither price inflation nor price deflation. But beneath the apparent stability of the statistical price level, monetary expansion and below-market rates of interest generated a mismatch between savings and investment in the American economy that finally broke in 1929 and 1930.

But the depth and duration of the Great Depression through the greater part of the 1930s was also not due to anything inherent in the market economy. Rather than allow markets to find their new, post-boom market-clearly levels in terms of prices, wages, and resource reallocations, governments in America and Europe undertook a wide variety of massive economic interventions.

The outcome was rising and prolonged unemployment, idle factories, unused capital and vast amounts of economic waste caused by wage and price interventions, large government budget deficits and accompanying accumulated debt, uneconomic public works projects, barriers to international trade due to economic nationalism and protectionism, and introduction of forms of government planning and control over people’s lives and market activities.

Monopoly Game Bailout cartoon

Faulty and Misguided Keynesian Ideas

Many of these rationales for “activist” monetary and fiscal policy emerged and took form under the cover of the emerging Keynesian Revolution as first presented by British economist, John Maynard Keynes. In Monetary Central Planning and the State, I also offer a detailed critique of the fundamental premises of the Keynesian approach and why its policy prescriptions in fact lead to the very boom-bust cycle the Keynesians claim to want to prevent.

Furthermore, it is shown why it is that every essential building-block of the Keynesian edifice is based on faulty economic premises, superficial conceptions of how markets actually function, and why its end result is more government control with none of the benefit of economic stability that the Keynesians say is their goal.

Also, in spite of Milton Friedman’s valuable contributions to an understanding of the superiority of competitive markets in general, his own version of activist monetary policy through a “rule” of monetary expansion and “automatic” fiscal stabilizers was more an “immanent criticism” within the Keynesian macroeconomic framework, rather than a fundamental alternative such as the “Austrian” economists have offered.

Private Free Banking, Not Central Banking

What, then, is to be done, in terms of the workings and the institutions of the monetary system? A good part of Monetary Central Planning and the State is devoted to explaining the inherent economic weaknesses and political shortcomings of all forms of central banking.

In a nutshell, central banking suffers from many of the same problems as all other forms of central planning – the presumption that monetary central planners can ever successfully manage the monetary and banking system better than a truly competitive private banking system operating on the basis of market-chosen forms of money and media of exchange.

It is shown how systems of private competitive banking could function if government central banking were brought to an end. This is done through a critical analysis of the proposals for a private monetary and banking system as found in the writings of Ludwig von Mises, Friedrich A. Hayek, Murray N. Rothbard, and the “modern” proponents of monetary freedom: Lawrence H. White, George Selgin, and Kevin Dowd.

Monetary Central Planning and the State ends with a brief list of the steps that could and should be taken to begin the successful transition from central banking to a free market monetary and banking system of the future.

If the last one hundred years has shown and demonstrated anything, it is that governments – even when in the hands of the well intentioned – have neither the knowledge, wisdom nor ability to manage the social and economic affairs of multitudes of hundreds of millions, and now billions, of people around the world. The end result has always been loss of liberty and economic misdirection and distortion.

 

Wanting Gold in Monopoly Game cartoon

It is the Time for Monetary Freedom

A hundred years of central banking in the United States since the establishment of the Federal Reserve System in 1913 has equally demonstrated the inability of monetary central planners to successfully direct the financial and banking affairs of the nation through the tools of monopoly control over the quantity of money and the resulting powerful influence on money’s value and the interest rates at which savers and borrowers interact.

It is time for a radical denationalization of money, a privatization of the monetary and banking system through a separation of government from money and all forms of financial intermediation.

That is the pathway to ending the cycles of booms and busts, and creating the market-based institutional framework for sustainable economic growth and betterment.

It is time for monetary freedom to replace the out-of-date belief in government monetary central planning.

 

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Fri, 09/18/2015 - 20:15 | 6567557 q99x2
q99x2's picture

I think the bankers and banking families have a plan of taking the populations of the world down slowly and then killing us.

Fri, 09/18/2015 - 20:49 | 6567655 Oldwood
Oldwood's picture

No, they would never dirty their hands. They are depending on us killing each other off.

What can I hate you for today?

Fri, 09/18/2015 - 21:36 | 6567777 Tabarnaque
Tabarnaque's picture

What a pile of rubbish this article is. The boom and bust cycle does not come from “government policies”. It comes from the fact that our current monetary system is a debt base fiat currency and fractional monetary system. Moreover, private commercial banks ALREADY have the monopoly on money creation. The Federal Reserve IS NOT a government institution. The Federal Reserve is PRIVATELY owned. Period. The boom and bust cycle has nothing to do with government policies. This article is a pile of rubbish aiming at confusing the audience. Worst, this article totally avoids the most important point of all: In our current monetary system, money is created through the expansion of debt. Money is leased into existence. Money = Debt. Any article about monetary reform that does not even touch this topic is a huge waste of time.

 

Finally, the following quote sends me a freezing feeling down my spine:

 

It is time for a radical denationalization of money, a privatization of the monetary and banking system through a separation of government from money and all forms of financial intermediation”.

 

This is the promotion of a “supra-national” worldwide currency held in the hands of private banks?!!! Where is my vomit bucket?! This is the promotion of exactly what the NOW wants.

 

How could such a pile of rubbish get through Zerohedge’s BS filter?

Fri, 09/18/2015 - 21:45 | 6567786 ZerOhead
ZerOhead's picture

Yep... complete and utter crap. Just like Krugman this guy doesn't have a clue as to how the modern monetary system works and who it works for. Tell you what Richard... let's just end the private bankers privately owned Fed and make private banking 100% reserved.

No more magic money printer.

Unfuckingbelievably dissappointing article.

Fri, 09/18/2015 - 22:04 | 6567841 Spiritof42
Spiritof42's picture

This is the promotion of a “supra-national” worldwide currency held in the hands of private banks?!!! 

That's what we have now. Such a monopoly is only possible with government protection. Without government protection, monopolies are not possible. Once a bank gets too profitable, it attracts competition.


Fri, 09/18/2015 - 22:49 | 6567966 Tabarnaque
Tabarnaque's picture

Definition of Fascism: The merger between State and Corporate powers.

 

The banking cartel has taken over our governments since a long time ago. The creation of the Federal Reserve in the USA in 1913 represents the date when government’s autonomy/independence from the financial sector ceased to exist. Nowadays, Banks and Government really are only 2 heads of the same snake.

 

As for the world wide supra national currency held in the private hands of the Banksters, it currently exists in the form of the IMF’s SRD. However its use is remains limited. To this date the world reserve currency is the USD, which is a national currency. The NWO is actively promoting the SRD as the next alternative to the USD. Jim’s Rickard is one of the main apologists of the SDR. One wonders who does he work for…

Sat, 09/19/2015 - 00:39 | 6568221 frankly scarlet
frankly scarlet's picture

 Spiritof42  Perhaps you don'y understand that the bankers have already bought all the protection they need or what you call the "government".Here stick this in your pipe. FDR in a private letter to his very trusted friend Colonel House dated November 21,1933 wrote...."the real truth of the matter is, as you and I both know, that a finacial element in large centers has owned the government ever since the days of Andrew Jackson".....

Fri, 09/18/2015 - 23:08 | 6568024 daveO
daveO's picture

Mises Mafia and the NWO. When the dollar crashes, we're all supposed to be happy to accept their new script.

http://redefininggod.com/?s=mises+mafia

Fri, 09/18/2015 - 23:24 | 6568066 teslaberry
teslaberry's picture

it's simple zerohedge is a honeytrap for people who are seeking truth. the more observant ones who spend a few years on ZH and the alt-internet in general learn about the nature of propoganda and COUNTERpropoganda, which is not truth per se, but the taste of truth from the alt-net.

 

many honey pots and lazy thinkers reside in the alt-net , at best, amongst the many completely wacko fringe hate mongering and aliens websites.

 

zh is, at best, just there to make money off planting some information in sporadic episodes. at worst, it's a data collection trap.

Sat, 09/19/2015 - 01:01 | 6568273 Radical Marijuana
Radical Marijuana's picture

Maybe so, teslaberry, but I am not aware of any better Web sites. Meanwhile, I learn a lot from some of the comments, which I have found are way less censored that most other, somewhat comparable, Web sites.

Sat, 09/19/2015 - 09:09 | 6568726 Booked
Booked's picture

Tabarnaque: "The boom and bust cycle does not come from “government policies”. It comes from the fact that our current monetary system is a debt base fiat currency and fractional monetary system."

You say the boom, bust cycle does not come from "government policies", and then you cite "government policies" as what you say it DOES come from!!  "Fiat currency" and "fractional monetary system" (sic) are BOTH government policies which could be whisked away with a vote and the stroke of a pen.


Sat, 09/19/2015 - 09:40 | 6568774 StychoKiller
StychoKiller's picture

If you think that the Govt doesn't put its thumb on the scales when it suits the Govt, then you need to check yer premises.  Abolish legal tender Laws and FIAT, without those crutches, most banks would be forced to issue honest MONEY, you know, Ag/Au at the constitutionally mandated weights.  The Govt's only responsibility then devovles into verifying that a DOLLAR contains the correct amount of Au/Ag.  Those banks caught cheating get boarded up and bank officers visit the graybar hotel.

Sat, 09/19/2015 - 12:11 | 6569120 roadhazard
roadhazard's picture

This is the internet, you are the filter.

Sat, 09/19/2015 - 16:26 | 6569725 BigJim
BigJim's picture

 What a pile of rubbish this article is. The boom and bust cycle does not come from “government policies”. It comes from the fact that our current monetary system is a debt base fiat currency and fractional monetary system. Moreover, private commercial banks ALREADY have the monopoly on money creation. The Federal Reserve IS NOT a government institution.

You've missed the point. And, given the balance of green to red your comment has garnered, so have a surprising number of ZHers.

There's absolutely no problem with a debt based currency, or fractional reserve banking... IF that currency is not being foisted upon hapless citizens by the government stamping it with the imprimatur of being the "national" currency that extinguishes tax debt. In other words, if private institutions are free to issue competing currencies and citizens are free to accept (or decline) them, the market will determine the relative value of those currencies, and issuers who over-leverage with illiquid "assets" will see their fiduciary issuance decline in purchasing power. If the government was also not allowing bad actors to get away with ripping people off via limited liability corporation laws, this would mean that directors who lied (or mislead investors) about the risk on their balance sheets would face destitution if their firms collapsed.

The history of money in modern times is one of increasing (government-imposed) centralisation, much to the ordinary person's detriment. The answer is to allow firms to compete in the issuance of currencies and let the market (i.e., us) decide which currencies are the best money.

I suspect we'd end up with something like the gold standard, with a competing (and complementary) silver standard running alongside it, with banks offering currencies that are partially backed by PMs and productive assets. Don't like their paper? Demand specie.

Fri, 09/18/2015 - 22:49 | 6567967 orez65
orez65's picture

"...taking the populations of the world down slowly and then killing us"

Correct!

Visit: http://www.thegeorgiaguidestones.com

The genocidal branch of the liberal progressives wants the world population down to the number existing in the year 1492: 500 million.

I say, let them lead by example. Let the liberal progressives be the first to enter "the termination chamber" 

Fri, 09/18/2015 - 20:39 | 6567635 Multivariate Man
Multivariate Man's picture

In my experience, once very bright Ph.D. academics have a theory and published research supporting it they rarely change their minds no matter what future research shows.  They are not a very open minded bunch, particularly those at prestigious universities.  They are certain they know because they are very smart in a bookish sense.  Recently, researchers tried to replicate 100 studies published in top pysch journals.  They were only able to do so in about 40% of the studies.  Generally, I'd rate psych research superior to economic research, which usually forms a theory and tests it with data plugged into equations that bear little relationship to the real economic world and involve little or no empiricism.  The Fed's DSGE model of the US economy informs its decisions but is a illusion based on 30 years of data, complex equations of debatable  and limited merit and the total delusion that the numbers it plugs into the equations are constants.  A businessman generally must have a flexible model because there are personal consequences if they don't pay attention to reality.  FOMC board members face no personal consequence no matter how much damage their models create.  Bernanke and Greenspan pick up $200-$250k per rubber chicken dinner from financial firms who directly benefitted from their actions while head of the Fed, huge egos bought and paid for. 

Fri, 09/18/2015 - 20:48 | 6567653 Oldwood
Oldwood's picture

people get paid for strong opinions, not wishy washy ones. You can't make money on wishy washy, but a "sure thing" lands a bet every time.

Fri, 09/18/2015 - 20:51 | 6567666 DaddyO
DaddyO's picture

+1000

It's a shame I only have one up arrow to give...

A great comment among the ever-increasing decay on the ZH.

DaddyO

Fri, 09/18/2015 - 22:07 | 6567857 ZerOhead
ZerOhead's picture

+1000 Agreed

It would have been worth 5X the time it took having to read through the entire article just to get to that comment.

Fri, 09/18/2015 - 21:10 | 6567724 Faeriedust
Faeriedust's picture

Quite so about academics.  Once they become acknowledged Experts, you can count on their field becoming fixed in stone for the 40 years until they die.  They will NEVER let go of a hypothesis once formed, regardless of the evidence piled up against it.  This is why much of the science idolatry of our culture is so laughable.  The theory of the Scientific Method bears little resemblance to the realities of politics and funding.

 

Fri, 09/18/2015 - 22:32 | 6567890 ZerOhead
ZerOhead's picture

No such thing as the "Scientific Method" anymore. The "Money Method" however will help you find whatever the person who is giving you the money is looking for.

 

Aug 25, 2015  Global Warming ended the last Ice Age...

http://www.science20.com/news_articles/global_warming_implicated_in_endi...

Sept 1, 2015  Global Warming may cause new ice age...

http://www.dailymail.co.uk/news/article-201951/Global-warming-cause-big-...

 

Sat, 09/19/2015 - 01:07 | 6568280 Radical Marijuana
Radical Marijuana's picture

Good summary

by ZerOhead:

Although somewhat overstated,

still that is too tragically true:

No such thing as

the "Scientific Method" anymore.

The "Money Method" ...

Fri, 09/18/2015 - 21:59 | 6567822 ZerOhead
ZerOhead's picture

You possess some amazingly clear insights... Great post.

Fri, 09/18/2015 - 20:40 | 6567636 Atomizer
Atomizer's picture

The first photo reminds me of Jimmy Carter era. Oil embargo. Long lines to fill the gas tank. Sound familar??

OPEC OIL EMBARGO - 1973 <<<<- watch

Fri, 09/18/2015 - 21:37 | 6567782 Joe Mama 3
Joe Mama 3's picture

Nixon was prez in 1973 ya fuckin douche

Fri, 09/18/2015 - 20:43 | 6567643 Scooby Dooby Doo
Scooby Dooby Doo's picture

Why don't these Austrians just go back to Austria and stop meddling in USA economics?

Fri, 09/18/2015 - 20:49 | 6567657 MarkGoldman
MarkGoldman's picture

Denationalization of the money supply will happen when the oceans of the world are tinged red with the blood of billions, and not one second before that. 

Just look at how hard a bunch of worthless cabbies have fought against ride sharing apps, if the cabbies can keep their staus quo then the Banksters have little to fear and much left to profit from our race to the bottom.

It isn't enough to starve this beast, we've got to do our part to work it to death while it starves. 

Fri, 09/18/2015 - 20:53 | 6567674 DaddyO
DaddyO's picture

Enjoyed the article!

DaddyO

Fri, 09/18/2015 - 20:55 | 6567685 ucde
ucde's picture

Read up on Modern Monetary Theory if you want some alternative to 'everything-is-a-currency-devaluation-problem' logic. Here are two links:

http://aeon.co/magazine/society/what-political-system-does-happiness-economics-support/

 

http://hipcrime.blogspot.com/2015/04/jobs-vesus-commodities.html

I just recently had the epiphany that the ZeroHedger's default position of Austrian/liberatarian fiscal responsibility...... is actually at the heart of the reactionary thinking that is keeping the world needlessly enslaved. It is a scarcity view of money which is just fundamentally wrong. 

As if everything was rosy up until 2008... as if. Capitalism's heyday was based on slavery, exploitation of the new world's resources, and the U.S. hegemony post WWII. That's it. We had a brutal industrial revolution and we invented industrial warfare... its not a good thing. 

For someone to even breathe the word's "free market" and seriously mean it... means they have never seen a serious historical analysis of what socialist/governmental structures underpin the existence of all markets throughout time. The deification of The Market... funny it seemed so countercultural and hip once for me to be on here, so guerilla, so underground... but the thinking is about as fresh as a 200 year old corpse, and I'm honestly not sure the spirit of this place is not based in anything else than masochistic morals and "what-goes-around-comes-around" revenge fantasies. We have nothing here to offer but doom and skepticism. You people and the writers here openly mocked the forgiveness of student debt. Jesus christ, that is the most schizophrenic and insane worldview I have ever heard, that absurdly pretends to legitimize student debt in the name of nobody getting a free ride. You sided with the creditors of this world against the young, because you cant take the cognitive dissonance of somebody getting a ding-dang handout. No real historical understanding of how socialism was one of the foundations of the modern western 'good times' coming after the great depression. Its pure sadism/revenge. Just like someone once opined, liberarianism is less about freedom and more about the desire to moralistically punish people who are perceived as free-riders. Anyway, count me out, yall. 

Fri, 09/18/2015 - 21:06 | 6567713 Faeriedust
Faeriedust's picture

Ah, but do stick around for the information.  They tend to collect an amazing amount of it about everything that goes wrong in the world, much of it the stuff that Mainstream Media tries to sweep under the carpet.  Just avoid the obvious opinion pieces, or respond fearlessly as you did here.

Mind you, MMT cannot solve the fundamental problem of a finite planet with limited resources.  Endless growth in fundamental commodities can't be created just by printing or crediting money.  But some of the vast inefficiencies of capitalism could be curtailed if not eliminated.

 

 

Fri, 09/18/2015 - 21:13 | 6567729 Faeriedust
Faeriedust's picture

Oh, and I DID try to uprate the comment, but ZH is not responding to my clicks.  Funny how it accepts or rejects my ratings seemingly at random.

 

Fri, 09/18/2015 - 21:39 | 6567788 PoasterToaster
PoasterToaster's picture

MMT is just a rebranding of the same failed garbage fed to us by Monetarists and neo-Keynesians.

Fri, 09/18/2015 - 21:48 | 6567797 Spiritof42
Spiritof42's picture

Privately-issued money was TRIED, repeatedly, in the 18th and 19th centuries, and invariably led to widescale fraud and eventually, total loss to anyone who happened to hold those currencies when they went belly-up

Another would-be expert who doesn't know what the free in free market means. So I'll explain it. People exchange of their own free will every day countless times 24/7. The free market is omnipresent in human societies. Government intervention distorts exchange values but cannot replace them. This economic crises that is building up, is not a failure of the free market, it is a malignant symptom of government intervention.

No real historical understanding of how socialism was one of the foundations of the modern western 'good times' coming after the great depression.

That's good for a laugh. 

Sat, 09/19/2015 - 09:50 | 6568785 StychoKiller
StychoKiller's picture

Without having a Store of Value attribute, ALL currencies fail, which is WHY Gold is the most universally recognized form of MONEY.  Only the dishonest despise Au/Ag coinage, because they cannot cheat their way to prosperity!

Sat, 09/19/2015 - 12:24 | 6569156 roadhazard
roadhazard's picture

The best thing about ZH is I get to have my own opinion and laff at the others. None of this really affects me back here in the woods and if it does I can't tell it. This forum is just a place to come to watch the other shoe drop no matter who's responsible.

Sat, 09/19/2015 - 15:16 | 6569550 withglee
withglee's picture

you cant take the cognitive dissonance of somebody getting a ding-dang handout.

Speaking of "cognitive dissonance", why did WTC7 fall down?

Fri, 09/18/2015 - 21:02 | 6567707 Faeriedust
Faeriedust's picture

Absolute dogmatic crap.  Neither new, modern, and innovative crap, nor Eternal Truth crap applicable to all or most human societies through the test of time and space.  Merely a limited dogma invented by obsolete aristocrats cut out of power by the defeat of the Austro-Hungarian Empire.

Privately-issued money was TRIED, repeatedly, in the 18th and 19th centuries, and invariably led to widescale fraud and eventually, total loss to anyone who happened to hold those currencies when they went belly-up -- as they inevitably did, and rarely in more than 20 years.  Gold was the standard of value for three thousand years, BUT the gold supply was and continues to be inadequate for everyday use running any economy larger and more complex than medieval France (which ran on silver because there STILL wasn't enough gold).  Even as an alternative hedge of value in today's markets, supplies of gold are vastly over-hypothecated and doomed to lead to another crash in the near future.  And of course, fraud is still common, as the recent discovery that a Russian bank had used gold-plated tungsten ingots as "gold" reserves shows.

ONLY governments can guarantee currency; that's why the Sumerians first started stamping their seals on copper ingots.  It's time they recognized that and stopped trying to use the illusion of private lending to multiply the money supply with hot air; instead they need to actively manage a stable money supply based on real commodity resources available, not hypothetical potential profits.  This might not have been practical in 1940, but with today's computers, it damned well is, and it's time to put them to better use than front-running speculative binges.

 

Fri, 09/18/2015 - 21:32 | 6567770 Spiritof42
Spiritof42's picture

Privately-issued money was TRIED, repeatedly, in the 18th and 19th centuries, and invariably led to widescale fraud and eventually, total loss to anyone who happened to hold those currencies when they went belly-up

And that applies just as much with government issued money with one difference. Government frauds are on a much larger scale. The fiat system currently in operation is far and away the largest fraud ever.

I think the problem of money has more to do with trust in the issuer than whether the issuer is public or private. 

Sat, 09/19/2015 - 12:13 | 6569121 Oscar Mayer
Oscar Mayer's picture

For the most part, we don't use "government money", we use "bankster credit", a derivative of government money.

Money is defined by law, not some economic theory.  And the law that defines our money, specifically, is Section 31 U.S.C. 5103, it's a short paragraph.  In it, you will not find the credit generated by the banks or the Federal Reserve listed.  In point of fact, there is no law anywhere that grants to either the Federal Reserve or the banks the authority to create money.  There is no law anywhere that designates or acknowledges the credit generated by the Fed or the banks, as 'money' or a 'currency'.  There's your fraud.

This is how safe your 'money' is when it is "deposited" in a U.S. bank; it is stolen by the bank at the moment of deposit (assuming the 'money' existed in the first place) and your account is credited with the amount stolen. This means that the richest amongst us have exactly the same amount of 'money' in their "credited accounts" as the poorest amongst us have in theirs, $0.00.  You don't have a "deposit account" because there is nothing "deposited", you have a "credited account".

That a bank maintains some 'money' on hand to placate a few requests for the medium, does not negate the fact that all "credited accounts" maintain a zero monetary balance. A ledger book entry denoting the amount of 'money' the bank owes to (stole from) the account holder, is not 'money', regardless of your ability to 'spend' that ledger book entry with a debit card. Passing around bank debt from one recipient to another, is not payment for anything. Crediting an account with the amount and actual payment are two different things.

Some people bitch, howl, whine and complain all the time about 'gold' and 'silver' being 'real money' and denounce the 'fiat paper', and they're not even getting or using the 'fiat paper', which is the money as defined by law. Do you know what is not listed in that legal definition of money?  Ledger book entries made by the Fed and the banks denoting the amount of money they owe.

The only reason any government issuing a fiat currency can be in debt is due to the fact that it did not print the payment. This also means that the U.S.G. does not need to 'borrow' or 'tax' to meet any of its obligations. The whole U.S.G. debt mime, is B.S..

**By the way, I just gave you a description of real 'fractional reserve banking', did you spot it?

The whole fuking system is just one giant mindfuking fraud, to include the totalitarian political ideologies of capitalism and socialism.

http://carl-random-thoughts.blogspot.com/

the Frog

Sat, 09/19/2015 - 15:10 | 6569538 withglee
withglee's picture

The whole fuking system is just one giant mindfuking fraud, to include the totalitarian political ideologies of capitalism and socialism.

And if you had your way you would replace it with what?

And how would your replacement work?

Sat, 09/19/2015 - 15:06 | 6569527 withglee
withglee's picture

The fiat system currently in operation is far and away the largest fraud ever.

And if you had your way you would specifically replace it with what?

And it would operate how?

Sat, 09/19/2015 - 15:53 | 6569655 Spiritof42
Spiritof42's picture

And it would operate how?

I have no idea. Your problem is that you think like a social planner. A market is composed of the economic decisions of millions and billions of people whose valuations change by the day. I try to get a sense of which way things are going. This is where Austrian Theory gives me an edge.

Sun, 09/20/2015 - 12:02 | 6571408 withglee
withglee's picture

And if you had your way you would specifically replace it with what?

And it would operate how?

I have no idea.

Correct.

Your problem is that you think like a social planner. A market is composed of the economic decisions of millions and billions of people whose valuations change by the day. I try to get a sense of which way things are going. This is where Austrian Theory gives me an edge.

Thank you Jesus.

And BTW, I am intimately aware of how I think ... and it's not like a social planner.

I have laid out pure simple logic and described the obvious without ambiguity. Social planners don't do that.

 

Fri, 09/18/2015 - 21:37 | 6567783 PoasterToaster
PoasterToaster's picture

Absolutely.  All we need is more central control by more smarter people.  It's always worked in the past, and now it will be even better in the future.

Fri, 09/18/2015 - 22:21 | 6567886 Spiritof42
Spiritof42's picture

I know you meant to be sarcastic. But you have a point. I would argue that the central planners are getting dumber. 

Consider the Chairman of the Federal Reserve in the 50s, William McChesney Martin. He was well know for his punch bowl speech. 

 

If we fail to apply the brakes sufficiently and in time, of course, we shall go over the cliff. If businessmen, bankers, your contemporaries in the business and financial world, stay on the sidelines, concerned only with making profits, letting the Government bear all of the responsibility and the burden of guidance of the economy, we shall surely fail. ... In the field of monetary and credit policy, precautionary action to prevent inflationary excesses is bound to have some onerous effects--if it did not it would be ineffective and futile. Those who have the task of making such policy donl t expect you to applaud. The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just
when the party was really warming up."


Then consider Bernanke's helicopter speech:

 

Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, ...

I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound

Sat, 09/19/2015 - 01:21 | 6568302 Radical Marijuana
Radical Marijuana's picture

There are NO "easy solutions"

to the essential problem that:

Money is measurements backed by murders.

Fri, 09/18/2015 - 21:08 | 6567716 Atomizer
Atomizer's picture

Most of the cars are 4 or 6 cylinder with a three speed gearbox. Four speed was luxury. I see V8 models as well.

Gas Crisis 1974

OPEC raises oil to $20 a barrel - 1979 David Brinkley NBC news

 

Fri, 09/18/2015 - 21:41 | 6567789 RaceToTheBottom
RaceToTheBottom's picture

I gave this article 5 stars because they did not explicitly mention minimum wages and stayed to the real larger issues....

Fri, 09/18/2015 - 21:42 | 6567795 PoasterToaster
PoasterToaster's picture

Funny to see the epic amounts of butthurt spontaneously appearing in any article that challenges control of our lives by central authorities, especially the authority of private banks to dominate our lives and all business on Earth.  Throw in the dog whistle term "Austrian" and the babies start bawling about evil and chaos.  lol

They're on the run now.  Just wait for the giant implosion that is growing nearer every day.  They'll never live that down, and central controllers are going to be running for the hills before its all over.  Almost time to start gloating, haha.

 

Fri, 09/18/2015 - 23:12 | 6567812 doublexdoubleo
doublexdoubleo's picture

Why we have coruption heaped upon corruption:

We have learned by sad experience that it is the nature and dispostion of almost all men, as soon as they get a little authority, as they suppose, they will immediately begin to exercise unrighteous dominion.

 

D & C 121:39

The Church of Jesus Christ of Later Day Saints

Fri, 09/18/2015 - 21:50 | 6567820 Never One Roach
Never One Roach's picture
No More Jet Skis, Maine Tells Food Stamp Recipients "Hard-working Mainers should not come home to see snowmobiles, four wheelers or jet skis in the yards of those who are getting welfare."

 

http://www.huffingtonpost.com/entry/food-stamps-maine-paul-lepage_55fc4b...

Fri, 09/18/2015 - 22:07 | 6567856 Atomizer
Atomizer's picture

The Zionist Jews repeat stories to scare everyone, Let's look at Carter, Bush and Obama

Before we begin, look at Bush Hostage video

Americans convicted in Iran say they were hostages | Reuters

We have a offline video of these hostages in new suits and dresses. Eating like kings and laughing..

Then you have Jimmy Carter.

Pres Jimmy Carter's Response to the Iranian Hostage Crisis ...

Jimmy Carter unveils truth about Israel

 

Lastly, Barack Hussein Obama

Obama shuts down reporter who asked why Iran ... - Daily Mail

 

Fri, 09/18/2015 - 23:06 | 6568017 VWAndy
VWAndy's picture

A coin with a real value please. Something that can be measured and proven.

Sat, 09/19/2015 - 01:30 | 6568238 Radical Marijuana
Radical Marijuana's picture

Superficially,

it appears so:

"The Boom-Bust Cycle Originates in Government Policy" BUT, "Government Policy" originates via the persistent application of the methods of organized crime through the political processes, primarily through all aspects of POLITICAL FUNDING.  I found the article above to be quite goofy, because it deliberately ignored the ways that governments are actually the biggest forms of organized crime, controlled by the best organized gangs of criminals, which primarily works through the funding of the political processes, including the assassinations of those politicians who could otherwise not be bribed or intimidated. 

The article above was monumentally stupid, since it does NOT present the slightest hint regarding how to actually implement the changes it proposes, when the history of POLITICAL FUNDING has already resulted in governments ENFORCING FRAUDS by privately controlled banks, whose excessive successfulness has become metaphorically like going beyond the "event horizon" of a "social black hole."

Central banking is triumphant organized crime, capturing control over powers of governments.

I.e., Deep State America:

What makes the deep state so successful? It wins no matter who is in power, by creating bipartisan-supported money pits within the system.

As I posted under In Thrall To The Federal Reserve:

The existence of the Federal Reserve Board is due to the persistent application of the methods of organized crime through the political processes. Most people still do not perceive that, while most of the few that do continue to want "solutions" based on impossible ideals that deliberately ignore how and why civilization necessarily operates according to the principles and methods of organized crime, because civilization necessarily operates as entropic pumps of environmental energy flows.

Political puppets "are all bought and paid for ... owned by banksters inc.." They are voted for by enough of the masses of muppets, so that the Federal Reserve Board can continue to engage in legalized counterfeiting of the public "money" supply, within the overall systems of DEBT SLAVERY, backed by wars based on deceits, which are generating numbers which become debt insanities, that will provoke death insanities.

The deeper problems with respect to "central banking, one of the great evils of our time­," is that behind that view there is too little "sympathy for the devil." Money is measurement backed by murder, as the most abstract form of private property based on backing up claims with coercions. Since human beings, as soon as we perceive them as separate from their environment, live as entropic pumps of environmental energy flows, human beings and civilization necessarily operate through the dynamic equilibria of different systems of organized lies operating robberies, with the banksters' frauds being symbolic robberies.

The article above stated:

The “Austrian” Theory of Money and the Business Cycle ... the “Austrian” theory of money and the business cycle in contrast to both Keynesian Economics and Monetarism. Developed especially by Ludwig von Mises and Friedrich A. Hayek in the 20th century, the Austrian theory uniquely demonstrates the process by which central bank-initiated monetary expansion and interest rate manipulation invariably sets the stage for both an artificial boom and an eventual, inescapable bust.

That is a superficial, "controlled opposition" view of the ways that civilization NECESSARILY operates according to the principles and methods of organized crime, because the death controls are central to everything else, since the political economy operates inside of the human ecology.

The article above may as well be

unicorns excreting rainbows:

http://www.paradism.org

http://www.youtube.com/watch?v=PYI8bux3Bso

Solutions to worldwide problems : Paradism

And similarly so, the Venus Project:

http://www.thevenusproject.com/en/

Or TROM:

http://www.tromsite.com/

Sat, 09/19/2015 - 04:41 | 6568512 Batman11
Batman11's picture

We know what un-regulated Capitalism look like because this is how it started.

The early businessman seeking profit  ........

1) I need cheap labour to work on my sugar plantations to maximise profit.

Slavery, ideal.

2) I need cheap labour to work in my factories to maximise profit.

Men, women and children all paid enough just to keep them alive to work.

The beginnings of regulation to deal with the inhuman monster that is the businessman seeking to maximise profit, ban slavery and child labour.

Where regulation is lax today?

Apple factories with suicide nets in China.

A leopard never changes its spots.

 

Sat, 09/19/2015 - 13:02 | 6569263 withglee
withglee's picture

We know what un-regulated Capitalism look like because this is how it started.

Capitalism is "two years". In the whole scheme of things (e.g. our 250+ year republic) that is nothing!

How do I reduce the myth of capitalism to two years?

It's really very simple. Take a group of "investors" blessed by the elite and have them form a bank with say $10M dollars. Even with no depositors their charter allows them to loan out 10x that much. Also, for every $1 they take as deposits they can loan out another $10.

Say they make a 4% spread ... pretty typical I'm sure. With their 10x leverage, that is 40% annually. In your head, by the rule of 72 you know 40% doubles in just less than two years. So after two years these "capitalists" can take their money off the table and let their gain ride to double in another two years ... or perpetually.

With that capital, they now have the privilege of determining interest people must pay. They also have the privilege of deciding who get's their trading promises blessed ... and who does not.

This gives them the control they need to run their enormously profitable farming operation they refer to as the "business cycle".

We are such schmucks to allow this. Off with their heads.

Sat, 09/19/2015 - 04:48 | 6568514 Batman11
Batman11's picture

"In a nutshell, central banking suffers from many of the same problems as all other forms of central planning"

Do centrally planned global corporations suffer the same problems?

The pyramid structure of all corporations will need to be done away with to avoid central planning.

Sat, 09/19/2015 - 09:16 | 6568733 overmedicatedun...
overmedicatedundersexed's picture

funny I am old enough to remember the "phone company" aka ATT ma bell. now it was broken up and we are so much better for it, (although it did not cost even the price of one Iphone for a years service)..seems important to the discussion some how.

Sat, 09/19/2015 - 04:56 | 6568524 Batman11
Batman11's picture

The Austrian school does not understand money.

Savers are unnecessary with such low reserve requirements.

A mortgage with a fee can contain the reserve, the amount of the mortgage is then just typed into a keyboard and lent out.

All created with no initial reserve whatsoever.

Here is the BoE to explain money for you:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdf

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Sat, 09/19/2015 - 10:48 | 6568874 withglee
withglee's picture

The Austrian school does not understand money.

This is so right! And what's so hard to understand? Money is "a promise to complete a trade". It always has been this and it always will be this.

Examine trade: (1) Negotiation; (2) Promise to Deliver; (3) Delivery. In simple barter exchange (2) and (3) happen simultaneously on-the-spot. Money allows (2) and (3) to happen over time and space.

So money is "obviously" a promise to complete a trade.

Find any Mises Monk who can support their dispute of this with any argument whatever.

Also, find any Mises Monk who can tell you how their so-called "sound money" backed (backed? based? ) by gold can work when there's only 1oz per person on Earth and miners are happy to produce it at less than $2,000 per oz. That's petty cash!

Sat, 09/19/2015 - 11:31 | 6569033 Spiritof42
Spiritof42's picture

The Austrian school does not understand money.

LOL. You must be reading Marxist critiques of Austrian Theory.

So money is "obviously" a promise to complete a trade.

Money is more accurately defined as a medium of exchange. What underlies money's value is what it can be exchanged for.

Also, find any Mises Monk who can tell you how their so-called "sound money" backed (backed? based? ) by gold can work when there's only 1oz per person on Earth and miners are happy to produce it at less than $2,000 per oz. That's petty cash!

No monetary system can make men into angels. A sound money system based on gold or bytes, for that matter, would be a symptom of honest money. It can never be a cause.

FYI What Has Government Done to Our Money

Sat, 09/19/2015 - 13:51 | 6569367 withglee
withglee's picture

A sound money system based on gold or bytes, for that matter, would be a symptom of honest money. It can never be a cause.

I just asked you how it can work? Observe folks! I'm still batting 1000 at finding Mises Monks who can't explain their religion.

Sat, 09/19/2015 - 15:38 | 6569582 Spiritof42
Spiritof42's picture

I just asked you how it can work?

??? It's been working for thousands of years. Cycles are an integral part of human societies. It is pointless to explain how it can work. Austrians explain how cycles do work just as scientists explain how nature works. Without a basis of understanding, there is no chance of societies bettering themselves. Clearly, government authorities are totally clueless.

It's value is totally arbitrary and gets set in every single simple barter exchange of which money is virtually always one of the exchanged objects

Value is arbitrary? Huh? Values are subjective. Values are always subject to change based on a person's whim and circumstances. Always were. Always will be.

I'm still batting 1000 at finding Mises Monks who can't explain their religion.

That's pretty good when you're swinging at air.

The Austrians go to great lengths to explain their "religion." If you can't understand it, that's your problem.

Sun, 09/20/2015 - 11:52 | 6571384 withglee
withglee's picture

??? It's been working for thousands of years.

No it hasn't. It has "never" worked.

Cycles are an integral part of human societies.

Cycles are evidence of instability. Some systems (heavily damped) don't cycle. Some systems exhibit non-decaying simple harmonic motion. Some systems explode. Cycles are a "defect" in human societies, usually, if not always, arising from purposeful manipulation to yield a benefit. They are not "natural". Don't confuse this with climate change ... which is natural.

It is pointless to explain how it can work. Austrians explain how cycles do work just as scientists explain how nature works.

Just like scientists explained the flatness of the Earth and its position as the center of the universe and explained away anomalies with complicated epicycles ... when all that was needed was a simple change of perception. You don't explain how it "can" work ... because it "can't" work.

Without a basis of understanding, there is no chance of societies bettering themselves. Clearly, government authorities are totally clueless.

Agreed. The Keynesians and the Mises Monks are totally clueless and competing to get control of government through control of "trader's" money.

Value is arbitrary? Huh? Values are subjective. Values are always subject to change based on a person's whim and circumstances. Always were. Always will be.

Subjectivity is in the eyes of the beholder ... and that "is" arbitrary.

I'm still batting 1000 at finding Mises Monks who can't explain their religion.

That's pretty good when you're swinging at air.

The Austrians go to great lengths to explain their "religion." If you can't understand it, that's your problem.

The monks of his day said it was Copernicus' problem. Then Bruno's. Then Galileo's. You are right. When it comes to Keynesian and Mises religions, I am swinging at air ... hot air. With you Mises monks I always get reading assignments. None of you can explain your religion. And when when one parses the reading assignments they are easily shown fail in their initial premise ... and then pile failure and misconception on top of failure and misconception.

As a case in point: "All" Mises writings quickly focus on prices. It is "obvious", a proper process for management of any MOE has no interest in prices whatever. So why do you toil over prices?

Sun, 09/20/2015 - 20:59 | 6572944 fremannx
fremannx's picture

My pappy always told me never argue with idiots... bystanders can't tell the difference. Mr. Gleeful is obviously an idiot. Pseudo-intellectual at best.

Mon, 09/21/2015 - 12:22 | 6574844 withglee
withglee's picture

Mr. Gleeful is obviously an idiot. Pseudo-intellectual at best.

The slur. A necessary arrow in the quiver of the inept.

Sun, 09/20/2015 - 19:22 | 6572639 fremannx
fremannx's picture

You're batting zero, man. You remind me of Spiro Agnew.

Mon, 09/21/2015 - 12:39 | 6574831 withglee
withglee's picture

You're batting zero, man. You remind me of Spiro Agnew.

Good thing we have an audit trail. Follow it sir.

I have had many at-bats so for your assertion to be correct you need ony to show one instance where it resulted in an out (i.e. failure to prove my points). I welcome seeing you try to do that.

This colloquy (proving I've had at least one at-bat) would be a good one for you to work. Reveal the out. We have instant replay so this is easily done by just captioning anything I've written and proving it to be untrue.

Sat, 09/19/2015 - 14:11 | 6569388 withglee
withglee's picture

Money is more accurately defined as a medium of exchange. What underlies money's value is what it can be exchanged for.

"Money" is the common word for "Media" of Exchange. Thus, it is an alias, not a definition. The definition is obviously "a promise to complete a trade".

It's value is totally arbitrary and gets set in every single simple barter exchange of which money is virtually always one of the exchanged objects. It's value only exists in that exchange. Experience and a guarantee of zero inflation of the MOE itself smooths the process.

A properly managed MOE process relieves traders of many degrees of freedom which mismanaged MOE processes throw at them.

A properly managed MOE process guarantees zero inflation, free creation of money by traders making delivery promises, perfect destruction of money on delivery of those promises, immediate recovery of defaults with interest collections ... all these lead to the vitality of money in a properly managed MOE process.

Sat, 09/19/2015 - 22:22 | 6570473 fremannx
fremannx's picture

The definition is obviously "a promise to complete a trade".

You're right about the promise but the trade part is erroneous.

Originally, money was a tangible good freely chosen by society. For millennia, gold or silver provided this function, although sometimes other tangible goods (such as copper, brass and seashells) did. Originally, credit was the right to access that tangible money, whether by an ownership certificate or by borrowing.

Today, almost all money is intangible. It is not, nor does it even represent, a physical good. How it got that way is a long, complicated, disturbing story, which would take a full book to relate properly. It began about 300 years ago, when an English financier conceived the idea of a national central bank. Governments have often outlawed free-market determinations of what constitutes money and imposed their own versions upon society by law, but earlier schemes usually involved coinage. Under central banking, a government forces its citizens to accept its debt as the only form of legal tender. The Federal Reserve System assumed this monopoly role in the United States in 1913.

 

What Is a Dollar?

Originally, a dollar was defined as a certain amount of gold. Dollar bills and notes were promises to pay lawful money, which was gold. Anyone could present dollars to a bank and receive gold in exchange, and banks could get gold from the U.S. Treasury for dollar bills.

Let’s attempt to define what gives the dollar objective value. The dollar is “backed” primarily by government bonds, which are promises to pay dollars. So today, the dollar is a promise backed by a promise to pay an identical promise. What is the nature of each promise? If the Treasury will not give you anything tangible for your dollar, then the dollar is a promise to pay nothing. The Treasury should have no trouble keeping this promise.

Sun, 09/20/2015 - 11:28 | 6571303 withglee
withglee's picture

Originally, money was a tangible good freely chosen by society

Originally the Earth was flat and the center of the universe. Astronomy and geography changed dramatically with a simple change of perception. Then, as now, factions had a vested interest in the misconception.

Originally, credit was the right to access that tangible money, whether by an ownership certificate or by borrowing.

In time, complicated epicycles were rolled out to explain an anomaly that disappeared with a simple change of perception.

How it got that way is a long, complicated, disturbing story, which would take a full book to relate properly.

And the Keynesian and Mises monk scribes continue to copy and regurgitate that misconception ... while offering up a new misconception. 

Governments have often outlawed free-market determinations of what constitutes money and imposed their own versions upon society by law, but earlier schemes usually involved coinage.

A scheming criminal once said "give me control of money and I care not who makes the laws".

The Federal Reserve System assumed this monopoly role in the United States in 1913.

That is just one instance of a con that can be found in all recorded history. Andrew Jackson gave us a brief respite.

What Is a Dollar?

A unit of exchange in a mismanaged MOE process whose value changes with manipulation by its creators. Such manipulation is obvious evidence it is defective on its face as a MOE. In the short term it is the most valued and efficient object of simple barter exchange. It the long term it exhibits a 4% leak. It's controller's claim to want a 2% leak. It's controllers are the recipients of the leaked value.

Let’s attempt to define what gives the dollar objective value. The dollar is “backed” primarily by government bonds, which are promises to pay dollars.

"That" dollar is created by a deadbeat trader. That deadbeat trader "never" delivers on his trading promises. He just "rolls them over" and that is "default". "That" dollar has zero value. It competes with, and is indistinguishable from, dollars created by responsible traders who keep their promises and deliver. The value of those trading promises is strictly a perception of the traders themselves. The counterfeit and default valueless dollars compete and dilute the value of the real dollars. A properly managed MOE process makes it extremely difficult to create valueless dollars, and when detected it removes them immediately with interest collections of like amount. This guarantees perpetually zero inflation of the MOE itself.

A better unit would be the HUL (Hour of Unskilled Labor). The value of this has never changed over all history ... and that's a useful attribute for a reference of value to traders everywhere and all the time. Regardless of the unit, the money is created with a trading promise and destroyed on delivery. Its value is whatever perception traders have for it and the other object in simple barter exchange. It value is "not" set by any controlling authority.

If the Treasury will not give you anything tangible for your dollar, then the dollar is a promise to pay nothing. The Treasury should have no trouble keeping this promise.

You "so don't get it"! That "treasury trader" is a counterfeiter. Counterfeits are defaults. To the extent that defaults can not be prevented, they must be expunged with equal interest collections.

In a properly managed MOE process, every protection possible is employed to obviate counterfeiting. And deadbeat traders (whether counterfeiting or just repeatedly failing to deliver) are automatically eliminated from the marketplace. They are squashed by an interest load that makes their trading overtures impossible on their face. They can't compete with responsible traders who enjoy zero interest load.

You obviously haven't been paying attention.

 

 

 

Sun, 09/20/2015 - 19:23 | 6572630 fremannx
fremannx's picture

You simply restated what I said but in a long, elaborative and boring diatribe. What the hell is wrong with you?

Mon, 09/21/2015 - 12:14 | 6574797 withglee
withglee's picture

You're right about the promise but the trade part is erroneous.

I didn't agree to this. It is "obviously" a trade ... taking place over time and space.

Anyone could present dollars to a bank and receive gold in exchange, and banks could get gold from the U.S. Treasury for dollar bills.

I didn't agree to this. It was the myth that enabled the fraud. Finally France called the bluff. Poof! Gone!

The dollar is “backed” primarily by government bonds, which are promises to pay dollars. So today, the dollar is a promise backed by a promise to pay an identical promise.

I didn't agree to this. Promises don't "back" promises. What you describe is just syndicated or rolled over failures to deliver ... on a "trade".

If the Treasury will not give you anything tangible for your dollar, then the dollar is a promise to pay nothing. The Treasury should have no trouble keeping this promise.

And if you think I stated this, you are playing a game with yourself. Counterfeit is counterfeit.

Succinct enough now?

What's wrong with you?

Mon, 09/21/2015 - 12:18 | 6574789 withglee
withglee's picture

[reply misdirected. moved]

Sat, 09/19/2015 - 14:06 | 6569401 withglee
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FYI What Has Government Done to Our Money

As always, this 130 page reading assignment from a Mises Monk who can't explain his religion is totally off base.

It deals with how prices are set. How someone becomes a trader. How someone behaves as a trader. And all kinds of other nonsense that has nothing to do with the proper management of any MOE process.

The entire 130 page answer to the subject question "What Has Government Done to Our Money?" can be reduced to two words:

They have "counterfeited it".

Sat, 09/19/2015 - 14:40 | 6569467 withglee
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Cherry picking your reading assignment (FYI What Has Government Done to Our Money), I can find misinformation on every single page. Here's a couple examples of particular interest to me that show me jumping out of the Keynesian frying pan is just jumping into an equally clueless Mises fire!

First, the total stock, or supply, of money in society at any one time, is the total weight of the existing money-stuff

Even if you could turn this ridiculous sentence into usable English it is nonsense.

The total stock of money is "obviously" the sum total of all in-process certified trading promises. It has "nothing" to do with stuff. If all in-process trades are completed, all defaults are recovered with interest collections, and no new trading promises are initiated ... there is "no" money in existence. Yet there is still lots of "stuff" in existence ... even more than existed before the money was first created.

The Problem of “Hoarding”
The critic of monetary freedom is not so easily silenced, however. There is, in particular, the ancient bugbear of “hoarding.” The image is conjured up of the selfish old miser who, perhaps irrationally, perhaps from evil motives, hoards up gold unused in his cellar or treasure trove—thereby stopping the flow of  Gold mining is, of course, no more profitable than any other business; in the long-run, its rate of return will be equal to the net rate of return in any other industry circulation and trade, causing depressions and other problems. Is hoarding really a menace? In the first place, what has simply happened is an increased demand for money on the part of the miser. There has been no loss to society, which simply carries on with a lower active supply of more “powerful” gold ounces. Even in the worst possible view of the matter, then, nothing has gone wrong, and monetary freedom creates no difficulties.

This is an example of the Mises Monks getting it completely wrong but being paid by the word:

In the first place, what has simply happened is an increased demand for money on the part of the miser.

In a properly managed MOE process hoarding has no effect on supply and demand for money at all. Supply and demand is always in perpetual perfect balance. It's the nature of a trade. If one party puts some money under a rock, it has no effect on the economy or the trade. He must still deliver as he promised. If he can do that and have some left over to put under a rock, more power to him. This doesn't cause the "Web of Debt" type shortage declared by E.H.Brown because any trader is free to certify and deliver on any trading promises he wants ... any time ... any where. He may profit. He may lose. But he must deliver.

As a result, prices of goods fall, and the purchasing power of the gold-ounce rises.

The price of nothing changes if someone puts money under a rock with a properly managed MOE process.

If these Mises Monks get control of money when the reset comes, we are in as much or worse trouble than we are now with the Keynesians!


Sat, 09/19/2015 - 15:14 | 6569549 Spiritof42
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The total stock of money is "obviously" the sum total of all in-process certified trading promises.

By your reason, even though fractional reserve banking produces multiple claims to the same money. To you, it doesn't matter if its a fraudulent pyramid scheme because the bank certifies it.

The price of nothing changes if someone puts money under a rock with a properly managed MOE process.

When the monetary system is close to collapsing, that's about the best place to store "pet rocks". I guess that makes me a hoarder. During normal times, money saved in a bank, doesn't stay there. it's loaned out.

Supply and demand is always in perpetual perfect balance.

LOL. The only state by which the market could be in perfect balance would be a total collapse. For money to circulate, there have to be imbalances. it's even a law of physics.

If these Mises Monks get control of money when the reset comes, we are in as much or worse trouble than we are now with the Keynesians!

When the reset comes, don't say us monks didn't warn you.

Sun, 09/20/2015 - 10:39 | 6571225 withglee
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To you, it doesn't matter if its a fraudulent pyramid scheme because the bank certifies it.

I never said "the bank" certifies it. I said the "process" certifies it. Where's the fraud?

I guess that makes me a hoarder. During normal times, money saved in a bank, doesn't stay there. it's loaned out.

If you're ever going to get this you're going to have to change your view of money. Money isn't "loaned out". It is created by traders and it is destroyed by traders. In the interim it is the most valued object of exchange. This is because of the integrity and correctness of the process. Banks are not needed at all. Savings is not needed at all. Capital is not needed at all. Shinny metal is not needed at all. All of those things are just tools for opportunists to control something that is naturally self controlling.

LOL. The only state by which the market could be in perfect balance would be a total collapse. For money to circulate, there have to be imbalances. it's even a law of physics.

As I say, you need to change your perception.

If you view

  • one trader wanting corn to produce pigs,
  • another trader wanting pigs to produce food,
  • another trader wanting food to produce digging energy,
  • another trader wanting digging energy to produce iron,
  • another trader wanting iron to produce a plow,
  • another trader wanting a plow to produce corn

... if you call that an "imbalance" so be it. I call it trade and I know money to be a great invention to facilitate that chain of simple barter trade over time and space.

And I know that all trade represents a perfect balance by definition. And I know that money stands for a trading promise. Thus I know money in a properly managed MOE process "will naturally be" in perpetual perfect supply/demand balance. I know that money created by a trading promise doesn't exist before the promise nor after delivery as promised. If you call that collapse, so be it.

When the reset comes, don't say us monks didn't warn you.

If this proper antidote to Keynes and Mises confusion and corruption and opportunism can be put into effect "before" the reset, it will drive both of you from the marketplace ... you can't compete.

And just like you are positioning to take over the enormously profitable money control the Keynesians now enjoy, I'm exposing both of you. If it comes to a reset, the proper process can be ready to institute and adopt.

There is neither profit or control in a properly managed MOE process. There is just a perfectly natural negative feedback loop. Institute it and take your hands off the wheel. It drives itself.

Sat, 09/19/2015 - 05:03 | 6568530 Batman11
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Bankers don’t understand their product, debt.

“What is wrong with lending more money into the Chinese stock market?” Chinese banker recently

“What is wrong with lending more money into real estate?” Chinese banker last year

"What is wrong with lending more money to Greece?" European banker pre-2010

"What is wrong with a NINA (no income no asset) mortgage?" US banker pre-2008

“What is wrong with lending more money into real estate?” US banker pre-2008

"What is wrong with lending more money into real estate?" Irish banker pre-2008

"What is wrong with lending more money into real estate?" Spanish banker pre-2008

"What is wrong with lending more money into real estate?" Japanese banker pre-1989

"What is wrong with lending more money into real estate?" UK banker pre-1989

“What is wrong with lending more money into the US stock market?” US banker pre-1929

We need to teach bankers the lost art of prudent lending and the importance of fundamentals, eg. ratio of mortgage size to income; ratio of national debt to GDP and age old metrics for valuing companies based on performance.

 

 

Sat, 09/19/2015 - 10:46 | 6568899 withglee
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We need to teach bankers the lost art of prudent lending and the importance of fundamentals, eg. ratio of mortgage size to income; ratio of national debt to GDP and age old metrics for valuing companies based on performance.

We need to teach the whole world, but in particular bankers and governments, what money really is.

Money is "a promise to complete a trade". It is created by traders getting their trading promises certified. It is destroyed by traders delivering on their promises. If they default it is recovered by like interest collection. In the mean time it circulates as the most value object of simple barter exchange. It is one side of "virtually all" trades.

Banks and governments are counterfeiters and manipulators of money. Governments make trading promises they have no intention of keeping ... they just roll them over and that is default. Thus, they finance themselves with INFLATION. The operative relation is INFLATION = DEFAULT - INTEREST.

Banks manipulate interest collections and traders' creation of money to operate their enormously profitable "business cycle".

Capitalism is their front. It is ridiculous to suggest that before a trader can make a trading promise, someone must first save to back that promise. It is really ridiculous to suggest that a privileged entity (banks) can control this process while violating it by a factor of 10x, thus enjoying 40% annual return on their 4% spread ... that's what bankers do.

Sat, 09/19/2015 - 09:52 | 6568788 fowlerja
fowlerja's picture

So how do we get there...sadly by the use of another economic term ...a depression...has a way of refocusing your thinking...

Sat, 09/19/2015 - 10:05 | 6568810 rejected
rejected's picture

Sorry,,, this shit show has nothing to do with economices and all to do with c o n t r o l like everything else the control freaks do.

Take a real close look at the list of jackels this country comically calls presidential candidates. All megalomaniacs lusting for a piece of banker pie and the ego trip that goes with it. Not one with a plan to reinvigorate a industrial renaissance. Just replaying that tired old globalism record of more trade treaty's and military adventures and American voters are humming that same tune 

Awhile back our son who is in debt up to his ears mentioned he wanted a motorcycle. We told him to save up to buy it outright or at least to put up a good down payment. He scoffed, went out bought a new HD with no down and 6 years of large payments. The irresponsible banks with their ZIRP and printing have infected the entire nation with this economic malaise and malfeasance.

Debt is the enemy of liberty and freedom. Like drugs a little when necessary is okay,,, a lot will kill you. Matters little whether its a nation or an individual and the chains of debt brings the control the bankers crave for.

They own us, lock, stock and barrel, and this includes government. So long as debt money exists there can be no liberty or freedom.

Sat, 09/19/2015 - 10:37 | 6568881 Mr. Bones
Mr. Bones's picture

http://monopoly-game.net/Classic_Monopoly_Rules.html

The MONOPOLY Bank:

Besides the Bank's money, the MONOPOLY Bank holds the Title Deed cards and houses and hotels prior to purchase and use by the players. The Bank pays salaries and bonuses. It sells and auctions properties and hands out their proper Title Deed cards; it sells houses and hotels to the players and loans money when required on mortgages.

The Bank collects all taxes, fines, loans and interest, and the price of all MONOPOLY properties which it sells and auctions.

The Bank never "goes broke". If the Bank runs out of MONOPOLY money it may issue as much more as may be needed by merely writing on any ordinary paper.

 

If the banker could only issue zero interest loans to their friends and their friends alone Monopoly would be a near perfect microcosm of the " real " financial system.

 

 

Sat, 09/19/2015 - 10:42 | 6568888 GRDguy
GRDguy's picture

http://www.anonymousartofrevolution.com/2012/12/those-who-dont-study-his...

We don't need new monetary books, just understanding the old ones.  The following quote is from The Great Red Dragon: Foreign Money Power in the United States, published in 1889:

"An Imperialism of Capital has grown up within the last two centuries from small beginnings, until it is now the mightiest power that has ever existed on earth. It is an Imperialism mightier than the empire of the Caesars, grander than the empire of Napoleon in the hour of his highest glory. In comparison with it, all other empires sink into comparative insignificance."

And that's not even all of the first paragraph.  

 

Sat, 09/19/2015 - 11:14 | 6568991 Burticus
Burticus's picture

No small group of people, however intelligent, educated, experienced and well-meaning, can substitute for the collective brilliance and stupidity of millions of individuals.

Since there is no means of avoiding a final collapse of a boom brought about by credit expansion and the @$$#01e$ in charge won't voluntarily abandon further expansion, we can't avoid a total catastrophe of the global fiat currency system.

All we can do it prepare.

Sat, 09/19/2015 - 11:45 | 6569024 Mediocritas
Mediocritas's picture

Total bullshit article.

Who owns the Fed? Who controls the money system? Keep blaming the wrong target (elected government), weakening it even more, and giving the true power a free pass to keep running up more control.

Boom/bust is caused exclusively by government policy?? ROFL. You can't be serious. Every species on Earth (and in the history of life on Earth) undergoes boom / bust, overshoot and dieoff. Every single species booms when the spice flows and busts when it doesn't. Those stupid trees, bacteria, fish, birds, mammals, etc, they just need to get rid of their GOVERNMENTS to achieve stability!!

Keynesian governance is great because it counteracts the natural boom / bust using human intelligence. We tried from the 50s to the 70s and it was awesome, remember? Then you neoliberal free market fundamentalists took over in the late 70s, converted counter-cyclical governance to PRO-cyclical governance (the opposite of Keynesian, such as tax cuts in a boom) and here we are. After screwing everything up, you blame your long defeated enemy and use the misdirection to double down on dumb.

Buffering. Every engineer and every farmer worth his salt knows what it is and why it's necessary. Keynesian governance is just buffering and only an idiot wants to eliminate buffers for "efficiency".

PS: we've already tried your "free market in money" fantasy and it doesn't work (remember Wildcat Banking?). How do you think we ended up with the Fed in the first place Einstein? Here's a big hint: COLLUSION IS MORE PROFITABLE THAN COMPETITION.

I'm starting to think that these Miseans are paid outright by the Banksters. Sure smells like it.

Sat, 09/19/2015 - 13:05 | 6569271 Spiritof42
Spiritof42's picture

I'm starting to think that these Miseans are paid outright by the Banksters. Sure smells like it.

You could not be more wrong.

we've already tried your "free market in money" fantasy and it doesn't work ... How do you think we ended up with the Fed in the first place Einstein

Now we're stuck with a system many orders of magnitude worse. Don't say I didn' warn you.

Sat, 09/19/2015 - 18:12 | 6569982 polo007
polo007's picture

According to Bank of America Merrill Lynch:

https://app.box.com/s/2x1jqc1901tv8v00mbqnqjfbu8rrqzzp

The HY Note

Global growth concerns spread from us to Fed

A slow moving train wreck

Today’s Fed decision was the second worst outcome for risk markets, in our view. We have written on numerous occasions that if the Fed didn’t hike rates today initially markets would rally modestly before selling off. The realization that global growth concerns are not only real, but very dangerous right now should cause a risk off environment. And with no room to cut rates, we question the Fed’s ability to manage any further slowdown through what would have to be QE4. However, we can’t see how additional quantitative easing will help, as the goals of QE have already played out: the banking system has recovered, rates are low, investors have driven debt issuance and asset prices to uncomfortable levels, and the housing market has recovered enough to not be a concern.

Furthermore, lower rates don’t help high yield at this point. Whether the 10y is at 2.20% or 2.0%, does the asset class really look all that more compelling? Not in the slightest. In fact, outside of hiking while sounding very hawkish, not hiking and sounding very dovish while expressing concern about the global economy may be the worst thing that could have happened today.

We have been saying for months that the global economy is weak and the Fed’s dovish disposition today only bolsters our view. Europe is about to enter QE2 as inflation and growth remains poor. Japan and Brazil were just downgraded. Commodities remain   under pressure and we think, at some point, the narrative could turn from a supply driven story to a demand driven one. Domestically it becomes harder to argue that a strong dollar and the lack of inflation can be viewed as transitory and this headwind is continuing to hurt high yield corporates. Manufacturing is uneven, consumer spending hasn’t improved in a year, and 2014 real median income was down 6.5% versus 8 years ago (and down 7.2% from the 1999 level). Although auto sales remain strong, we would expect as much given low gas prices, an aging fleet and the fact that auto loans are one of the few places in the economy where it’s easy to obtain credit.

Additionally, high yield corporate earnings remain incredibly weak, with yoy earnings growth negative for the first time since the recession (even ex: commodities EBITDA growth is only slightly positive). Leverage is at all-time highs (again, even ex- commodities) and the High Yield index is more globally exposed than it has ever been (35% of the market generates 45% of its revenue from outside of the United States, and that doesn’t include Energy, which is globally exposed despite not realizing significant direct sales abroad).

Not only are earnings weak, but there has been next to no capex investment, debt issuance has been massive, and buybacks and dividends have driven equity valuations as CEOs and CFOs, afraid to invest in organic growth, have chosen to buy growth instead. And as a result, recovery rates are 10-15ppt below historical norms and defaults and downgrades are creeping into the market. Although we understand many will say its just commodities, is it really? What started as coal weakness 18 months ago became coal and energy weakness. But it wasn’t really just the commodity sectors, as retail was also already weak. Now it’s the commodity sectors, retail and wireline (but definitely not all of telecom). The situation almost seems unbelieveable, as everything that seems to go wrong is explained as being isolated (AMD, well, of course semiconductors are in a secular decline) and treated as a surprise (Sprint).

In our view, the makings are there for a risk off environment for some time to come. For non-commodity spreads to be 400bp tighter than in 2011 makes little sense to us. Replace Greece for a much bigger problem: China. Replace Washington dysfunction and debt downgrade with uncertainty about monetary policy and EM weakness (though we may see Washington dysfunction very soon between this fall’s budget talks and the presidential race looming). Replace US QE with European QE. Additionally, replace   strong earnings growth and margin expansion in 2011 with no earnings growth, a stronger dollar, and higher leverage today. Replace decent liquidity back then with poor liquidity now. And replace the fears of a double dip recession with the potential for fears of a global recession. Though this last point has yet to play out, we think it’s only a matter of time before investors begin to feel as bearish as we do.

The Fed had an opportunity today to hike rates and begin to build a cushion should the global slowdown be so severe it can’t be ignored. Instead, they chose to wait. In our view, this has left them in a predicament as now the rumbles of never being able to increase rates will become even more exaggerated, and when they ultimately do, we think it will be more painful than if they had gone today. We expect as a consequence for there to be more market volatility, more uncertainty around the Fed’s motives and belief in the economy, and therefore more downside risk. Most importantly, however, the acknowledgment of weakness only bolsters our view that we are in the midst of the beginning of the end of this credit cycle, and we warn investors to tread carefully not try to be a hero into year end.

Now is the time that investors need to be managing risk rather than looking for alpha. 1 or 2 names will destroy the performance for what has otherwise been a good set of holdings. Remember what many have forgotten over the last 7 years, credit returns are skewed to the downside. The best case scenario is to earn coupon and the ultimate payment of principle. The worst case scenario is 40, 50, 60 or more points of loss.

We’re in the midst of watching a slow-moving train wreck, and in our view the Fed confirmed as much today.

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