The consequences of Bitcoin

KyussBishop

hatrickpatrick wrote: »

Kyuss, the problem with the "lending = money supply" paradigm is interest - in a system in which more loans have to keep being made in order to pay off the last round of loans, people in general (businesses in particular) are consistently in debt, inflation is an inevitable consequence, and saving money becomes next to impossible.

The concept that the bank will lend me 100 quid to open a cafe as long as I give them back 150 (assuming 50% interest for ease of example) is fine if everyone else is also getting loans this creating the 50 needed to repay the initial loan, but what happens if instead of spending it, someone wants to save their money for future use? Instantly you've created a glitch in the game of musical chairs.

The nice thing about bitcoin is that there are exactly as many chairs as people playing - it's impossible to use bitcoins which haven't actually been "minted" by the system, the concept of spending bitcoins which don't exist as anything other than a potential future bitcoin is impossible. If you don't have them, you can't use them.

This doesn't make banking impossible, but it does pretty much make interest based lending impossible and it also makes fractional reserve banking impossible, two concepts which in my own opinion are central to explaining why mainstream currency is so f*cked up and has such regular meltdowns. With bitcoin, it's impossible to do any of that.

In all honesty I don't understand why we use an interest based currency in the first place. Hypothetically speaking, what would happen if central banks issued loans consistently with 0% interest? You only pay back exactly what you borrowed?

I agree with you fully about the problems of debt-based money (even if I disagree with the details a bit), and, even more than a public bank, I advocate use of debt-free money, through government use of money creation for spending.

The problems with Bitcoin (much lost in the thread by now, as it has only been discussed by-analogy, with the gold standard), mainly revolve over how it is destined to become extremely severely deflationary over time.

With the public bank I propose (a bank which directly uses money creation for lending), you could pretty much set a 0% interest rate if you like, or even fully write-off debts without consequence (because it's impossible for such a bank to become bankrupt, or to have balance-sheet issues in general).

I'm not totally sure of the reasons why that may be a good/bad idea though (one potential bad, is that the debtor could defer repaying it forever - positive interest would make this burdensome); certainly, a public bank would have literally no use at all for the interest payments, because all money they receive is just taken out of circulation, and when new money is needed it's just created.

You can sidestep that altogether though, and keep interest payments on debt-based money, so long as you find a way to add enough debt-free money to allow for the interest payments: For that, you can just use government spending of debt-free money.

SupaNova2

KyussBishop wrote: »

If you want the money supply to be adjusted in any way at all thereafter, money needs to be created; in order to do this democratically, government would need to do it (either through a public bank lending money, or through spending).

I don't see it as undemocratic. People choose one currency over another, just as buying iPhone's over a Samsung Galaxy is a vote for iPhone, choosing currency X over Y is a vote for X. People would choose the currency that is best managed, including how its money supply is managed. Its actually more democratic, now you are forced to accept national currency and its management, you don't get to vote on how it is managed, you don't get to democratically direct its management. In an environment of choice you have a say.

SupaNova2

KyussBishop wrote: »

I agree with you fully about the problems of debt-based money (even if I disagree with the details a bit), and, even more than a public bank, I advocate use of debt-free money, through government use of money creation for spending.

Can you not see the problem with this, the potential for cronyism times 100.

Expanding currency in a market environment through loans, the money goes to those who can use the loan for a project that will show a return. Banks would give it to those who can provide the biggest return, or those who have the best projects that meet some demand.

Can you explain how government would expand money, how do they decide who to give money to if not based on return? Their best friends? We can't all go to a voting booth to decide whether Tom's software start-up should get money over Sarah's organic food.

KyussBishop

SupaNova2 wrote: »

I don't see it as undemocratic. People choose one currency over another, just as buying iPhone's over a Samsung Galaxy is a vote for iPhone, choosing currency X over Y is a vote for X. People would choose the currency that is best managed, including how its money supply is managed. Its actually more democratic, now you are forced to accept national currency and its management, you don't get to vote on how it is managed, you don't get to democratically direct its management. In an environment of choice you have a say.

You're not addressing what I have described as undemocratic, you are misrepresenting it as a discussion over choosing currency.
It's not a matter of choosing currency (something I don't necessarily disagree with, since government decide how taxes are paid), it's a matter of choosing who gets to create money; that is a vast political/economic/social power, and having it concentrated in the hands of a small private elite, is inherently undemocratic.

If you choose gold, you hand that power to private interests who control gold mining, if you choose fractional reserve of any kind, you hand that power to private banks, if you choose commodity 'x', you hand that power to the dominant players controlling the market for 'x'.

Bitcoin is actually remarkably good at evening the playing ground in this particular aspect, in how it is mined through computing power (and, well...through hard-set limits in the money supply, slowing down growth itself), just at the cost of inevitable deflation.


If you want to avoid all of the regressive effects of deflation, and want a currency where money creation is controlled democratically, then you're going to be hard pressed to find something better than government-controlled fiat currency.

KyussBishop

SupaNova2 wrote: »

Can you not see the problem with this, the potential for cronyism times 100.

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

We have seen how the private banking and financial industry have zero accountability (something there would immediately be more of, under government), and you are arguing that private banks should retain the privilege of being able to undemocratically create money?


This is the perfect example of the pure hypocrisy of your stated views: You 100% ignore the cronyism that you can see plain as day in the private system, and speculate that something similar or worse would happen with government in control.

It's nothing more than the usual 'private good' 'public bad' nonsense; do you not see how Austrian (and general economically/politically-right) ideology is so deliberately blind to bad things happening in the private sector? (even where it amounts to blindingly obvious fraud and illegality)

SupaNova2 wrote:

Expanding currency in a market environment through loans, the money goes to those who can use the loan for a project that will show a return. Banks would give it to those who can provide the biggest return, or those who have the best projects that meet some demand.

Can you explain how government would expand money, how do they decide who to give money to if not based on return? Their best friends? We can't all go to a voting booth to decide whether Tom's software start-up should get money over Sarah's organic food.

Only debt-based money requires a return (because you have to repay the debt + interest). Debt-free money, can be spent without needing to return a profit.

You're also completely wrong about banks. They pissed enormous amounts of money away on a property bubble, that will never see a full return. The people running the banks did this for personal profit in the short-term, and are letting everyone else pick up the mess.

Your argument amounts to nothing more than a vague implication of cronyism from government, when exactly what you describe was done by the private banking system:
Bankers best friend, property developer 'x' takes out massive loans to put into construction projects, banker and property developers collude along with members of the financial industry to crap out poor-quality loans, inflating the housing asset-bubble, and to sell the debt for a killing on the financial markets.

High-ups in the banks, the property developers, and those in the financial industry make craploads of short-term personal profits in salaries and bonuses, and walk away from the mess completely unaccountable, when it all implodes.


Exactly the kind of cronyism you cynically assume government will undertake, is what has happened in private industry! It is an enormous and hypocritical double-standard, that you display absolutely no cynicism towards private industry, and display it all towards government, even though we know private industry has already done what you speculate over, and government has never used money creation in a corrupt way like that.


That is something that makes me so cynical about Austrian views, how there is the view that private industry can do no evil; that is why it is bad to read authors who express such irrational views (which is practically all of the more well known historical Austrian writers):
No matter how hard you try, you can't tune that stuff out and take only the good stuff from those authors; the irrational crap will always sink in through repeated reading of the same assertions. That is why Austrian writing comes in giant tomes, huge books which try to bombard you with so many of those assertions, until they sink in through repetition.

SupaNova2

KyussBishop wrote: »

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

It isn't a private system, it is a quasi-private system that uses government debt as base money, where interest rates are centrally controlled, and moral hazard is in overdrive as government stands in the waiting to bail the whole lot out.

That is something that makes me so cynical about Austrian views, how there is the view that private industry can do no evil; that is why it is bad to read authors who express such irrational views (which is practically all of the more well known historical Austrian writers)

Why are you talking about Austrian views? Where in the thread have I said private industry can do no evil? It would be better if you stopped fighting your right wing caricatures, and concentrate on the people actually posting in the thread.

SupaNova2

KyussBishop wrote: »

You're not addressing what I have described as undemocratic, you are misrepresenting it as a discussion over choosing currency.
It's not a matter of choosing currency (something I don't necessarily disagree with, since government decide how taxes are paid), it's a matter of choosing who gets to create money; that is a vast political/economic/social power, and having it concentrated in the hands of a small private elite, is inherently undemocratic.

It is addressed only you can't see the very simple and obvious link, by choosing currency you choose who gets to create and manage the currency. There is not much power to be had in inflating or deflating a currency no one chooses to use or accept.

KyussBishop

SupaNova2 wrote: »

KyussBishop wrote:

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

It isn't a private system, it is a quasi-private system that uses government debt as base money, where interest rates are centrally controlled, and moral hazard is in overdrive as government stands in the waiting to bail the whole lot out.

I didn't say it was a private system, you are misrepresenting me to create a straw man that you can reply to, so you can avoid replying to what I actually said.
Private banks have the ability to create money; this is a privilege that exercised almost entirely by private banks, and it is undemocratic.

The exact criticism you put forward, against what you think government might do, has (as explained in my previous post) already been done by these private banks!

You just try to sidestep this entirely here, because you are deliberately blind to any wrongdoings undertaken by private industry.

SupaNova2 wrote: »

Why are you talking about Austrian views? Where in the thread have I said private industry can do no evil? It would be better if you stopped fighting your right wing caricatures, and concentrate on the people actually posting in the thread.

I'm talking about Austrian views as that is where the ideological views lie, from every frequent poster contesting my posts.

You are, in your previous posts, hypocritically presenting speculative potential for government abuse as a reason not to remove money creation out of private hands, even though the exact thing you are pre-emptively criticizing government for, has been done (on an enormous scale) by private industry.

This fits perfectly with the usual Austrian hypocrisy, which is hyper-critical of government, and fails to apply the very same standards/criticisms to private industry; that omission is the 'do no evil' stance, where it comes to private industry, which you do nothing to dispel here.

SupaNova2

KyussBishop wrote: »

The exact criticism you put forward, against what you think government might do, has (as explained in my previous post) already been done by these private banks!

It is not just private banks though, CB's lowering interest rates, governments stimulating housing through tax breaks all had their role. And when it all went to crap government predictably bails the whole thing out. There is no need for good management if their is no punishment for bad management. Private banks yes, private system no. Your government scheme is not bad because it is government, but because it throws out P&L.

How does a centralized government system decide between allocating money to Paul's softawre start-up or Sarah's organic food?

KyussBishop

SupaNova2 wrote: »

It is addressed only you can't see the very simple and obvious link, by choosing currency you choose who gets to create and manage the currency. There is not much power to be had in inflating or deflating a currency no one chooses to use or accept.

People may choose what currency to trade among themselves with, but people do not get to decide the dominant currency a government uses.
Government decides that, based on how they demand taxes be paid (which is a policy decision people can have a democratic role in deciding); if taxes need to be paid in a particular currency, that is what will spur demand for that currency, making it become dominant.

If government is forced to use any currency other than one they control, for taxation and spending, then this is undemocratic, because it gives those who control money creation, great power over government, politics, the economy and society in general.

Even where you choose a currency to trade amongst with other private citizens, you do not get to choose who gets to create and manage that currency, and then you have zero democratic control over who gets to create and disperse it. This it true for practically all commodity-based currencies.

Again, you try to sidestep the point, that private control over money creation is inherently undemocratic.


So that is three things:
1: It is undemocratic to force government to utilize a currency they do not control, because those who do control the currency gain power over government; it is a vital part of national sovereignty.
2: Whatever currency a government demands in taxes, will become dominant (given the right level of taxes); this does not have to exclude use of alternative currencies.
3: Private control over money creation is an inherently undemocratic ability, because it vests those who have that power, great control over politics/economics and society overall.

Your desired monetary system, is undemocratic. The one I propose, is not (and even the arguments you put forward against mine, consisting of speculative concerns of government misuse, are precisely things private banks have done to misuse their privileges).

SupaNova2

KyussBishop wrote: »

Government decides that, based on how they demand taxes be paid (which is a policy decision people can have a democratic role in deciding); if taxes need to be paid in a particular currency, that is what will spur demand for that currency, making it become dominant.

Government can simply accept taxes in more than one currency, just because government now specifies taxes be paid in their badly managed monopoly currency does not mean this always has to be the case.

Again, for your democratic currency, how does it decide between allocating money to Paul's software start-up or Sarah's organic food?

KyussBishop

SupaNova2 wrote: »

It is not just private banks though, CB's lowering interest rates, governments stimulating housing through tax breaks all had their role. And when it all went to crap government predictably bails the whole thing out. There is no need for good management if their is no punishment for bad management. Private banks yes, private system no. Your government scheme is not bad because it is government, but because it throws out P&L.

How does a centralized government system decide between allocating money to Paul's softawre start-up or Sarah's organic food?

I don't argue that government did not contribute to the crisis. I am talking about money creation though, which private banks directly engage in by extending loans.

You are trying to shift the blame for private banks abuse of money creation, onto government. I know that government can reign in money creation if private banks misuse of it gets out of hand, but that does not change private banks misuse/abuse of it.


Lets also not forget, that central banks are staffed almost entirely with ex-banking/financial industry people, with plenty of revolving doors there, who are in a perfect position to corrupt the processes within the central bank (not to mention the massive lobbying power of banks/finance in general, brought about through undemocratic profits from private banks money creating abilities).


My system doesn't throw out Profit & Loss (I assume that's what P&L is) either, as a public bank can still extend debt-based money, which requires borrowers to turn a profit.

You don't need a bank, with control over money creation (EDIT: a public one, which doesn't use FRB, but direct money creation), to turn a profit though; you just have to manage the amount of money in the economy carefully, and be careful not to put too much into one area (both things that can cause inflation).


Government can decide where to allocate loans, the same way the private system does: Evaluate the credibility of someones business model, their creditworthiness etc., and do all the necessary basic checks and due diligence required to determine if it's something worthy of a loan.

KyussBishop

SupaNova2 wrote: »

Government can simply accept taxes in more than one currency, just because government now specifies taxes be paid in their badly managed monopoly currency does not mean this always has to be the case.

Again, for your democratic currency, how does it decide between allocating money to Paul's software start-up or Sarah's organic food?

Again, taking taxes in a currency government does not control, gives the controllers of that currency great power over government, if government comes to rely upon it for spending; that is undemocratic.

SupaNova2

Pointing out private banks are not only to blame is not shifting blame, simply pointing out they are not the only ones to blame. Is that so hard to understand? I can't really address most of your post, as you advocate debt based currency where P&L is important then debt free currency where it is not.

Again, taking taxes in a currency government does not control, gives the controllers of that currency great power over government, if government comes to rely upon it for spending; that is undemocratic.

Government wants taxes paid in currency X, or the equivalent value in Y or Z. Government then spends that tax money. Where does this great power over government come from?

KyussBishop

SupaNova2 wrote: »

Pointing out private banks are not only to blame is not shifting blame, simply pointing out they are not the only ones to blame. Is that so hard to understand? I can't really address most of your post, as you advocate debt based currency where P&L is important then debt free currency where it is not.

The issue wasn't who was to blame in general, the issue was who abused money creation. The private banks are solely to blame for abusing money creation, and government are partially to blame for the ensuing crisis, for not reigning them in.

That is private banks abuse of money creation, not government abuse of money creation.

You'll need to clarify what your criticism is regarding P&L, because it is not at all obvious at the moment.

SupaNova2 wrote: »

Government wants taxes paid in currency X, or the equivalent value in Y or Z. Government then spends that tax money. Where does this great power over government come from?

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

Private control over currencies which are dominant in an economy, is inherently undemocratic by itself anyway, due to the privileges it grants those controlling the currency or money creation within that currency.

Such a system could potentially work, so long as government had a currency it directly controlled, but even then you don't escape the undemocratic nature of helping to generate demand for a private currency, giving it and its controllers significant privilege (or the inherently undemocratic nature of private control over money creation itself).

SeanW

KyussBishop wrote: »

I don't argue that government did not contribute to the crisis. I am talking about money creation though, which private banks directly engage in by extending loans.

Point is the public central banks create money too: and unlike the private banks that actually have some restraints (someone has to deposit €100 in cash for the private banking system not individual banks per se) the central bank can just print money out of absolutely nothing. Central banks lay down monetary policy, currency supply totals, interest rates, fractional reserve ratio requirements and so on.

Yes the private banks had a lot to do with it but what happened in Ireland was not a surprise to a person guided by either Austrian OR Keynesian economics.

1. Austrian school economists believe that when you inflate the supply of loanable funds to lower interest rates beyond what the free market demands, that extra money WILL, in one way or another, go into malinvestment.
2. Keynesian economists believe that if you inappropriately use fiscal or monetary stimulus measures when an economy is overheating (our government had a series of giveaway budgets and our central bank, the ECB had low interest rates to support Germany) that you will cause the economy to overheat and crash.

So let's dispense forever that our current difficulties are because we had too much private profit and not enough government.

Yes the private banks had a lot to do with it but you can't absolve government of its role.

Lets also not forget, that central banks are staffed almost entirely with ex-banking/financial industry people, with plenty of revolving doors there, who are in a perfect position to corrupt the processes within the central bank

True, but to think your public bank would be much better requires a certain naievte.

All aspects of human life are subject to imperfection and corruption to some degree. That's why I favour a monetary system with only limited flexibility. Less power = less power to abuse.

My system doesn't throw out Profit & Loss (I assume that's what P&L is) either, as a public bank can still extend debt-based money, which requires borrowers to turn a profit.

But you admit yourself the public bank wouldn't care about interest because it would have no use for the interest it recieved: their main source of funding would be the printing press.

Government can decide where to allocate loans

Do you seriously believe that this would not lead to graft and political pandering?

KyussBishop wrote: »

The private banks are solely to blame for abusing money creation, and government are partially to blame for the ensuing crisis, for not reigning them in.

That's right, central banks never print money to buy government bonds, they don't set interest rates, reserve ratio requirements, and they don't print cash of nothing to back their policies ... oh wait! They do!

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

How does that "guarantee demand" or "create priviledge?"

Seriously. If the local tax office decided to accept road tax payments in Bhutanese ngultrum, how would "grant a priviledge" to the Bhutanese or "guarantee demand" for ngultrum?

I put it to you that the other currency would have to be superior in some way in order for people to want to use it, for paying taxes or anything else.

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

That's the whole point! I WANT to put the brakes on governments ability to debase the currency and cause inflation. Pretty much by definition this requires forcing the government to either save during the good times (what Keynesians consider good fiscal practice) or stop spending, or borrow.

Private control over currencies which are dominant in an economy, is inherently undemocratic by itself anyway, due to the privileges it grants those controlling the currency or money creation within that currency.

Not if you have freely competing currencies. If you want to use local scrip established by your local chamber of commerce. If you want to use gold or silver or synthetic diamonds, you use them. If you want to use the bits of paper funny-money the government says is money, you use that. Ditto for bitcoins. You use the currency you think is best for your needs, both for spending and perhaps a different one for saving, or borrowing.

In any case the system I have proposed (gold standard, either speice or reserve) maintains a public currency while offering limited flexibility (by design). It also has the benefit of being debt free, and as such helping to preserve the integrity of ANY system of private saving and lending built on it.

KyussBishop

SeanW wrote: »

Point is the public central banks create money too: and unlike the private banks that actually have some restraints (someone has to deposit €100 in cash for the private banking system not individual banks per se) the central bank can just print money out of absolutely nothing. Central banks lay down monetary policy, currency supply totals, interest rates, fractional reserve ratio requirements and so on.

You don't understand endogenous money: Money creation, at both the bank level and central bank level, is driven (in one case directly, in the other indirectly) through banks extending loans, and it is purely private banks that have abused their money creating abilities in this crisis.

Private banks extend loans, and shore up their reserves later, and if there are not enough excess reserves in the system then the central bank will not refuse to issue more into the system, as not doing so would cause chaos as loans already given out, have to be recalled.


You also cut out vitally important context from my post, which would not require me to bother repeating myself here if you hadn't discarded:
You are trying to shift the blame for private banks abuse of money creation, onto government. I know that government can reign in money creation if private banks misuse of it gets out of hand, but that does not change private banks misuse/abuse of it.

SeanW wrote: »

Yes the private banks had a lot to do with it but what happened in Ireland was not a surprise to a person guided by either Austrian OR Keynesian economics.

1. Austrian school economists believe that when you inflate the supply of loanable funds to lower interest rates beyond what the free market demands, that extra money WILL, in one way or another, go into malinvestment.
2. Keynesian economists believe that if you inappropriately use fiscal or monetary stimulus measures when an economy is overheating (our government had a series of giveaway budgets and our central bank, the ECB had low interest rates to support Germany) that you will cause the economy to overheat and crash.

So let's dispense forever that our current difficulties are because we had too much private profit and not enough government.

Yes the private banks had a lot to do with it but you can't absolve government of its role.

By requiring government to reign-in bank lending with higher interest rates, you are asking for more government and less private profit.

I explicitly didn't absolve government of anything either; government is responsible for not reigning in private banks, and private banks are responsible for massive abuse of money creating privileges.

SeanW wrote: »

True, but to think your public bank would be much better requires a certain naievte.

All aspects of human life are subject to imperfection and corruption to some degree. That's why I favour a monetary system with only limited flexibility. Less power = less power to abuse.

Your former statement is nothing more than a flimsy assertion which you don't back up with anything; private banks just destroyed a significant proportion of the world economy, by abusing their undemocratic money creation powers, I want a public bank which is both democratic and accountable, and on those grounds is inherently better.

More of the usual hypocrisy from Austrians, where private corruption and fraud is ignored, and public corruption/fraud is asserted; you have all the evidence you need, of massive corruption in private banks, and your defense of them, is handywaviness about corruption in public banks without anything to back it up.

We've seen what inflexibility, i.e. lack of resilience in the face of crisis, does to a monetary system: It causes it to destroy itself, like the gold standard in the 1930's.

I want a monetary system that runs the economy to its maximum potential (that means, not having the utterly stupid situation of leaving masses of people unemployed, every time there is a private-sector crisis), I don't want to have a deliberately crippled/half-assed system, that causes real harm to people in its inefficiency, just because economic conservatives assert (without any backing at all) that everything other than their rigid/archaic system, would be bad.

SeanW wrote: »

But you admit yourself the public bank wouldn't care about interest because it would have no use for the interest it recieved: their main source of funding would be the printing press.

A public bank could decide to charge interest if it wanted, it is only a policy decision.

SeanW wrote: »

Do you seriously believe that this would not lead to graft and political pandering?

You mean, like private banks fraudulently overextending loans into property development and purchasing?

Again, your statement amounts to a 100% unbacked speculative assertion, that it would lead to that, when past precedent shows overwhelming private abuse of money creation, and nothing from public banks (which already exist throughout the world, even in the US in North Dakota).

It's the usual conservative fearmongering about any change whatsoever; this fearmongering is reserved exclusively as well, only for policies which disagree with the persons own desired policies, and is never applied to their own.

SeanW wrote: »

That's right, central banks never print money to buy government bonds, they don't set interest rates, reserve ratio requirements, and they don't print cash of nothing to back their policies ... oh wait! They do!

What precise abuse did central banks commit, using money creation, then? What you are describing are all completely normal operations of the central bank, there is nothing abusive there.

You don't seem to understand the monetary system at all, particularly how money creation is endogenously led, through bank loans.

You can pin negligence on central banks for not reigning-in private banks, sure, but you can't pin abuse on the central banks, when the private banks were fraudulently pissing out overextended loans, displaying both malice in intent, and outright abuse of privilege (not just negligence).

SeanW wrote: »

KyussBishop wrote:

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

How does that "guarantee demand" or "create priviledge?"

Seriously. If the local tax office decided to accept road tax payments in Bhutanese ngultrum, how would "grant a priviledge" to the Bhutanese or "guarantee demand" for ngultrum?

I put it to you that the other currency would have to be superior in some way in order for people to want to use it, for paying taxes or anything else.

Eh, because you can pay taxes in that currency, automatically giving it a massive leg-up over all other non-tax-extinguishable currencies, and if that currency does gain dominance, the people with most influence in money creating powers with that currency, gain significant undemocratic privilege, and additional undemocratic control over politics, economics and society.

SeanW wrote: »

KyussBishop wrote:

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

That's the whole point! I WANT to put the brakes on governments ability to debase the currency and cause inflation. Pretty much by definition this requires forcing the government to either save during the good times (what Keynesians consider good fiscal practice) or stop spending, or borrow.

You don't even give a toss that it is outright undemocratic, and gives private actors (principally those in control of expansion of the money supply, and those with a lot of clout in finance/banking) massive control over politics.

What you want, amounts to handing over massive undemocratic control to private actors who pull the purse strings; that sums up Austrian ideology rather well, but you'll never hear it admitted straight out, because by and large its supporters don't have that kind of honesty.

Your statements about government control over money creation, again, amount to nothing more than assertions, and you are extremely hypocritical as well, in not noting private control over money creation causing exactly those problems, and helping to decimate the world economy.

It is such blind total hypocrisy, and a total lack of care for any kind of democratic principles, and the entire argument reduces down to totally unbacked assertions; it makes more plain than most arguments, just how corrupt the entire Austrian ideology is, at every level (yet it's supporters will still feign indignation, at the suggestion that it is expressly created and maintained by an entire industry of wealthy and corporate interests, looking to directly corrupt politics, even while it is blindingly obvious that this is the end-result of the views they themselves advocate).

SeanW wrote: »

Not if you have freely competing currencies. If you want to use local scrip established by your local chamber of commerce. If you want to use gold or silver or synthetic diamonds, you use them. If you want to use the bits of paper funny-money the government says is money, you use that. Ditto for bitcoins. You use the currency you think is best for your needs, both for spending and perhaps a different one for saving, or borrowing.

In any case the system I have proposed (gold standard, either speice or reserve) maintains a public currency while offering limited flexibility (by design). It also has the benefit of being debt free, and as such helping to preserve the integrity of ANY system of private saving and lending built on it.

It doesn't matter if you have freely competing currencies. A dominant private currency, means private domination over money creation for the countries primary currency, which is de-facto undemocratic.

A gold standard does not offer a publicly controlled currency, it offers a currency where money creation is controlled by private interests that own gold mines, and foreign countries that own gold mines (principally China - so you're handing part of your countries sovereignty over to them too).

You also have no clue what debt-based vs debt-free money is, because a gold standard is most definitely debt-based where the gold is being used as reserves, for a fractional-reserve system (with only the tiny proportion of gold not going directly from the ground to banks, being debt-free).

SeanW

You don't understand endogenous money: Money creation, at both the bank level and central bank level, is driven (in one case directly, in the other indirectly) through banks extending loans

Yes, but the central bank prints new money out of nothing, while the private banks have to have something to back their loans via a reserve ratio requirement.

And as I said, I'd be OK with getting rid of Fractional Reserve Banking, so long as the currency itself was 'hardened' to prevent either public or private institutions from debasing it. FRBing is not something I care massively about especially since it's built on worthless central bank paper anyway.

and it is purely private banks that have abused their money creating abilities in this crisis.

You cannot possibly be serious?

You also cut out vitally important context from my post, which would not require me to bother repeating myself here if you hadn't discarded:
You are trying to shift the blame for private banks abuse of money creation, onto government.

Huh? I clearly stated that the private banks had a lot to do with it, clearly they made loans they shouldn't have. It's somewhat naieve to assume that the central banks had no say, no control, and no blame for the boom and bust.

In fact - and this is the point I have to repeat - the boom and bust cycle we have suffered was predictable from both Keynesian and Austrian economic views.

By requiring government to reign-in bank lending with higher interest rates, you are asking for more government and less private profit.

Yes and No:
Yes: Central banks currently control the money supply, interest rates and all the rest so clearly the responsibility is with them to limit credit expansion when there's any risk of a bubble or economic overheating. The ECB designed monetary policy for the needs of Germany etc during the early-mid 2000s disregarding the needs of the perimiter countries (Ireland, Greece etc) for higher interest rates to prevent unviable lending. Furthermore in both of these cases irresponsible monetary policy was matched at national level with irresponsible fiscal policy.

That's a central point of Keynesian economics which you should know since you - like Keynes - advocate massive government intervention in monetary policy.
No: In an Austrian system, the currency is hardened and credit supply is determined by the amount of loanable funds which in turn is restrained by the supply of savings in the banking system. Debt-bubbles cannot occur - or at least get burst sooner - because as soon as people stop saving and start borrowing and spending like there's no tomorrow, interest rates shoot up like a rocket and it becomes financially unviable.
Likewise if everyone starts saving like crazy, the supply of loanable funds goes way up and interest rates fall.
In short, a nice equilibrium between encouraging people to save while making credit available for sensible uses.

Austrians believe that if you lower the interest rates below what a free market would demand, the funny-money will find its way into unviable uses, either one way or another.

It's the usual conservative fearmongering about any change whatsoever; this fearmongering is reserved exclusively as well, only for policies which disagree with the persons own desired policies, and is never applied to their own.

If I understand your "public bank" idea correctly, you want to put politicians in charge of the printing press.

Any understanding of modern political history must red-flag this idea for potential trouble. For example, if we had your public bank under Fianna Fail in the last decade, it's reasonably safe to suggest that there would have been no limits on lending to property developers or mortage seekers to fuel the property boom. Politicians pander to vested interests: that's a given in the real world. Also not specific to FF but a concern generally is that the bank would be used for electioneering, heck they fired the tax collectors every election year in Greece for gods sake and here in Ireland the gov't won the 2002 and 2007 with giveaway budgets, even the dreadful waste of money that was the SSIA scheme was timed to release a flood of cash just before the 2007 election. Do you seriously think the public bank wouldn't grant heaps of mortgages while simultaneously giving generous interest to savers just before an election, when it's controlled by politicians?

I don't like the current central banking system, not by any means but even that crap we have now is better than having the printing press directly in the hands of politicians.

What precise abuse did central banks commit, using money creation, then?

Central banks set interest rates too low - a catastrophic bust was inevitable regardless of whether you were looking at it is a Keynsian or n Austrian.
They also debase the currency to buy government debt, sending screwy price signals and stealing wealth from savers by having more units of money representing the same total level of wealth.

You don't seem to understand the monetary system at all, particularly how money creation is endogenously led, through bank loans.

I understand it perfectly. At a 10% RRR, the FRB system multiplies the level of cash by, ironically enough 10-fold. So if the Central Bank gives me €100 and I put in a demand deposit account, it becomes €1000 through Fractional Reserve Banking.

But the Central Bank prints the baseline currency supply and in most cases it sets the Reserve Ratio Requirement. So it has ultimate and final responsibility for the total (i.e. M3) money supply. Which the Fed doesn't even publish now.

A gold standard does not offer a publicly controlled currency, it offers a currency where money creation is controlled by private interests that own gold mines, and foreign countries that own gold mines (principally China - so you're handing part of your countries sovereignty over to them too).

The Treasury in my system would have limited control: it could choose to stop buying gold any time it liked. It could give preference to its former central bank gold reserves as the basis of new currency, give preference to buying gold from it's own national citizens before buying any from foreign sources (e.g. a national citizen walks into the Treasury with some old jewelry for smeltering and gets in return either some gold coins or a claim-check). It could also choose whether to have a specie or reserve system, or perhaps in a very extreme scenario with public agreement, alter the value of the claim checks.

You also have no clue what debt-based vs debt-free money is, because a gold standard is most definitely debt-based where the gold is being used as reserves, for a fractional-reserve system (with only the tiny proportion of gold not going directly from the ground to banks, being debt-free).

Straw-man much? I am not advocating Fractional Reserve Banking, as I said many Austrians think poorly of it as you do. But yes, for me the main thing is that cash has real value. But as I said it's hard for me to get excited about the ills of fractional reserve banking when the system is built on government funny-money anyway. The main thing for me is that the CASH that the system is built on is both hard and debt free. After that I would be happy to discuss abolishing FRBing. No doubt abolishing FRBing or raising RRRs would improve the stability of the financial system. But I can't get excited about the prospect when it's still just going to be worthless paper underneath it all.

KyussBishop

SeanW wrote: »

Yes, but the central bank prints new money out of nothing, while the private banks have to have something to back their loans via a reserve ratio requirement.

And as I said, I'd be OK with getting rid of Fractional Reserve Banking, so long as the currency itself was 'hardened' to prevent either public or private institutions from debasing it. FRBing is not something I care massively about especially since it's built on worthless central bank paper anyway.

The argument is not over who can create money creation, it is over where it was abused.

SeanW wrote: »

You cannot possibly be serious?

What is your counterargument?

SeanW wrote: »

Huh? I clearly stated that the private banks had a lot to do with it, clearly they made loans they shouldn't have. It's somewhat naieve to assume that the central banks had no say, no control, and no blame for the boom and bust.

In fact - and this is the point I have to repeat - the boom and bust cycle we have suffered was predictable from both Keynesian and Austrian economic views.

You're trying to pretend we are having a different argument again: We are not debating over apportioning blame for the crisis as a whole, we are debating who abused money creation.

SeanW wrote: »

If I understand your "public bank" idea correctly, you want to put politicians in charge of the printing press.

Any understanding of modern political history must red-flag this idea for potential trouble. For example, if we had your public bank under Fianna Fail in the last decade, it's reasonably safe to suggest that there would have been no limits on lending to property developers or mortage seekers to fuel the property boom. Politicians pander to vested interests: that's a given in the real world. Also not specific to FF but a concern generally is that the bank would be used for electioneering, heck they fired the tax collectors every election year in Greece for gods sake and here in Ireland the gov't won the 2002 and 2007 with giveaway budgets, even the dreadful waste of money that was the SSIA scheme was timed to release a flood of cash just before the 2007 election. Do you seriously think the public bank wouldn't grant heaps of mortgages while simultaneously giving generous interest to savers just before an election, when it's controlled by politicians?

I don't like the current central banking system, not by any means but even that crap we have now is better than having the printing press directly in the hands of politicians.

I am arguing that money creation should be democratically controlled, you are arguing it should be controlled by a private elite who have dominant control over your currencies commodity.

You are trying to pre-emptively slur democratic control over money creation, by asserting (without any backing) that it would be run corruptly, while ignoring the massive private corruption/mismanagement of money creation, which precisely mirrors the exact unbacked pre-emptive criticism you placed on government.

In your system, as we can see right now, there is zero accountability for private banks abuse of money creation; in my system, any government abuse of money creation, is immediately something they can actually be held accountable for, and thrown out of office over (so it would be stupid for them to inflate a property bubble, when they will bear the full brunt of responsibility, unlike FF, who got massively hammered even without full responsibility).


It's democratic and it runs better, and even in the face of a property or general economic crisis (lets say, even one caused by mismanagement), it is far more resilient than the private banking system would ever be on its own, because it is immune to bankruptcy and can write down debts wherever needed; we have been in crisis for half a decade now due to private banks, and my system would be able to end such a crisis far more quickly, and would be able to maintain full employment in the process.

SeanW wrote: »

KyussBishop wrote:

What precise abuse did central banks commit, using money creation, then?

Central banks set interest rates too low - a catastrophic bust was inevitable regardless of whether you were looking at it is a Keynsian or n Austrian.
They also debase the currency to buy government debt, sending screwy price signals and stealing wealth from savers by having more units of money representing the same total level of wealth.

Interest rates are not money creation. That allows private banks to abuse money creation, not the central bank.

You have not described a single abuse of money creation there, all you have described are basic central bank operations, which are in no way abusive; your stretched claim of 'debasement' is also false, because the mechanics of inflation and foreign exchange rates, depend upon the level of economic activity and excess money, which can be soaked up by increasing economic activity.

SeanW wrote: »

I understand it perfectly. At a 10% RRR, the FRB system multiplies the level of cash by, ironically enough 10-fold. So if the Central Bank gives me €100 and I put in a demand deposit account, it becomes €1000 through Fractional Reserve Banking.

But the Central Bank prints the baseline currency supply and in most cases it sets the Reserve Ratio Requirement. So it has ultimate and final responsibility for the total (i.e. M3) money supply. Which the Fed doesn't even publish now.

The money multiplier is a myth, that is not how endogenous money works.

When a bank extends a loan, it creates money/deposits, and a bank can keep on doing this within reserve and capital requirements; the reserve requirement is not even hard set, because when the reserve requirement is hit, central banks will increase reserves in the system (or there would be a crisis), and so the real limit on banks is the capital/asset requirements (whatever the borrower puts forward as collateral).

There are better explanations (I did a better effort than this in reply to SupaNova2, way back, though omitting capital requirements), but this is very different to loanable funds and the money multiplier.

SeanW wrote: »

The Treasury in my system would have limited control: it could choose to stop buying gold any time it liked. It could give preference to its former central bank gold reserves as the basis of new currency, give preference to buying gold from it's own national citizens before buying any from foreign sources (e.g. a national citizen walks into the Treasury with some old jewelry for smeltering and gets in return either some gold coins or a claim-check). It could also choose whether to have a specie or reserve system, or perhaps in a very extreme scenario with public agreement, alter the value of the claim checks.

So in other words, yes, control over money creation is in the hands of private actors, because you have to buy gold off of those private actors; that is undemocratic.

In that situation, you just give citizens who can covertly buy up foreign gold, and sell it to government, greater undemocratic power.

SeanW wrote: »

Straw-man much? I am not advocating Fractional Reserve Banking, as I said many Austrians think poorly of it as you do. But yes, for me the main thing is that cash has real value. But as I said it's hard for me to get excited about the ills of fractional reserve banking when the system is built on government funny-money anyway. The main thing for me is that the CASH that the system is built on is both hard and debt free. After that I would be happy to discuss abolishing FRBing. No doubt abolishing FRBing or raising RRRs would improve the stability of the financial system. But I can't get excited about the prospect when it's still just going to be worthless paper underneath it all.

Okey sorry, I thought FRB was part of what you were still advocating.

The full-reserve gold standard there, would still exhibit all the problems of undemocratic private domination over money creation, of permanent deflation and how that serves to regressively concentrate wealth upwards, among all the other problems of deflationary currencies; you would pretty much guarantee a volatile, crippled economy, which would not be able to maintain full economic activity, and which would fly apart upon encountering a big enough economic crisis.

SeanW

The money multiplier is a myth, that is not how endogenous money works.

When a bank extends a loan, it creates money/deposits, and a bank can keep on doing this within reserve and capital requirements; the reserve requirement is not even hard set

Fair enough, that article suggests, the banking system has short circuited the RRR expanding the money supply well beyond what it should be. If that's true, then it's absolutely not something I could ever support.

KyussBishop wrote: »

The argument is not over who can create money creation, it is over where it was abused.

True, but I think that the world Central Banks have a lot to answer for on this point.

What is your counterargument?

My counter-argument is simply this: The political class (not just Ireland but to a certain extent worldwide) has shown itself to be completely untrustworthy especially with fiscal policy. You know this because when I suggested that any deflationary aspects of a gold standard currency (in monetary policy) could be counteracted by wealth taxes (in fiscal policy) you were less than impressed, suggesting IIRC that any such tax would be just one corrupt/Thatcherite government away from being watered down or abolished.

But AFAIK you want those same people to have direct control over the printing presses. That doesn't seems to be a good idea, frankly. As much as I have a problem with the current Central Banking system (and I assure you that I do) it is better that there be a layer of abstraction between corrupt electioneering politicians and the control of the money supply. Even Ron Paul accepted this, putting numerous safeguards into his various "Audit the Fed" bills to prevent political interference in the Federal Reserve System operations.

You're trying to pretend we are having a different argument again: We are not debating over apportioning blame for the crisis as a whole, we are debating who abused money creation.

They're the same arguement. Whoever abused money created caused the boom and bust. I am looking for restrain on anyones ability to debase the currency, especially the cash, which only a central/public bank can do.

I am arguing that money creation should be democratically controlled, you are arguing it should be controlled by a private elite who have dominant control over your currencies commodity.

I am arguing that currency should have real value, and should be restitant to debasement. Since gold - unlike grain, energy products etc - has a primarily ornamental and wealth storage functions, it's the best choice for a commodity currency.

You are trying to pre-emptively slur democratic control over money creation, by asserting (without any backing) that it would be run corruptly,

Being in the slightest bit familiar with politics should make anyone leery of putting the printing press directly in the hands of the political class.

In your system, as we can see right now, there is zero accountability for private banks abuse of money creation;

True, but there should be consequences: banks that go below their reserve ratios (under todays system) should have their transactions declined. Your own link clearly demonstrates the problem.

But what if Buyer Bank doesn’t have enough Reserves – if it’s at its Reserve Requirements limit already, or worse still, if its reserves are zero? Will the Central Bank refuse to transfer funds that Buyer Bank doesn’t really have?

I hope the answer to that question is now obvious: of course it won’t. The Central Bank will either give Buyer Bank time to find the Reserves, or lend them to it.

That is but one of the many problems that desperately require real (libertarian/Austrian) solutions.

Ultimately the reason for this is the same reason that the government (and as such the people) of Ireland have had foisted on us the responsibility for paying off bank bondholders - this what I consider to be a myth that banks cannot be allowed to fail and that bondholders in general must be treated a sacred cows. Banks need to be let fall when they act stupidly, then the banks that remain would act a lot less irresponsibly. I.E. constantly being told by government "we won't let you fail" is a powerful incentive to be irresponsible and take stupid risks ... "Heads, I win, Tails you lose" is the saying that best describes the resulting Moral hazard.

in my system, any government abuse of money creation, is immediately something they can actually be held accountable for, and thrown out of office over (so it would be stupid for them to inflate a property bubble, when they will bear the full brunt of responsibility, unlike FF, who got massively hammered even without full responsibility).

Fianna Fail are still around despite their flagrant abuse of fiscal policy and the same is true of similar parties in Greece and Iceland.

It's democratic

Even if I accepted that what you're proposing is "more democratic" that wouldn't necessarily mean it was better.
For example, would you rather live in:

1. A democracy where 51% of the people regularly vote to gas the other 49%.
2. An absolute monarchy where the King guarantees the full set of human rights - even to a libertarian standard - to all citizens?

and even in the face of a property or general economic crisis (lets say, even one caused by mismanagement)

Like Zimbabwe?

because it is immune to bankruptcy ... and would be able to maintain full employment in the process.

Because it has the ability to print money like it's going out of style?

Interest rates are not money creation. That allows private banks to abuse money creation, not the central bank.

The central bank is ultimately responsible for interest rates and uses money creation as a tool to set that level.

You have not described a single abuse of money creation there, all you have described are basic central bank operations

So debasing the currency, stealing from savers and inflating asset bubbles are "basic central bank operatios?" Well **** me.

your stretched claim of 'debasement' is also false, because the mechanics of inflation and foreign exchange rates, depend upon the level of economic activity and excess money, which can be soaked up by increasing economic activity.

If the money supply is expanded, then the wealth of existing currencyholders is reduced. So if Mick McWorker has €1000 to spare, he might as well blow it and some more, because if he leaves it in the bank or in cash under the mattress, it will only be worth ~€900 and something in todays money this time next year.

This is a negative consequence of allowing the money supply to be expanded. As far as I am concered, it's debasement.

So in other words, yes, control over money creation is in the hands of private actors, because you have to buy gold off of those private actors; that is undemocratic.

As above: I would prefer that the working and middle classes were empowered with hard money, the benefit of that outweighs any theoretical "it's less democratic than giving politicians the printing press" stuff. Democratic =/= Better.

In that situation, you just give citizens who can covertly buy up foreign gold, and sell it to government, greater undemocratic power.

In that situation, you could place a limit on the amount bought from any one individual. Again, a hard currency system managed by the national treasury would have some flexibility, but by design not enough to have large scale debasement.

Okey sorry, I thought FRB was part of what you were still advocating.

Again, not a huge fan of FRBing, especially the kind that allows the multiplication of M0/M1 type currency 10,000 fold. But again, when it's all just worthless government paper underneath it all, you can't blame me for not getting excited about it.

The full-reserve gold standard there, would still exhibit all the problems of undemocratic private domination over money creation, of permanent deflation and how that serves to regressively concentrate wealth upwards, among all the other problems of deflationary currencies

There is no regressive concentration of wealth upwards because of the fact that the rich can hold assets in whatever they want today (including holdings of oil and food futures) so lets dispense forever this notion that you're "getting" the rich with inflationary monetary policy. The prime beneficiary of a non inflating or (to a limited extent) deflating currency would be the lower classes, encouraged to and rewarded for being financially sensible, ultimately giving the lower classes strength in secure, rewarding savings.

you would pretty much guarantee a volatile, crippled economy, which would not be able to maintain full economic activity, and which would fly apart upon encountering a big enough economic crisis.

The greatest economic expansion in human history (the industrial revolution) occured with gold currency and a limited but adequate, free private banking system. There is no reason we could not continue making everyones lives better with a hard currency.

clairefontaine

If private banks didn't charge fees and commissions every time you bought something in a foreign currency bitcoin would hold no appeal.

KyussBishop

SeanW wrote: »

My counter-argument is simply this: The political class (not just Ireland but to a certain extent worldwide) has shown itself to be completely untrustworthy especially with fiscal policy. You know this because when I suggested that any deflationary aspects of a gold standard currency (in monetary policy) could be counteracted by wealth taxes (in fiscal policy) you were less than impressed, suggesting IIRC that any such tax would be just one corrupt/Thatcherite government away from being watered down or abolished.

But AFAIK you want those same people to have direct control over the printing presses. That doesn't seems to be a good idea, frankly. As much as I have a problem with the current Central Banking system (and I assure you that I do) it is better that there be a layer of abstraction between corrupt electioneering politicians and the control of the money supply. Even Ron Paul accepted this, putting numerous safeguards into his various "Audit the Fed" bills to prevent political interference in the Federal Reserve System operations.

The degree of control given to government is a policy decision, not an all-or-nothing thing; I agree with having robust safeguards against government abuse of money creation, and this does not require government having no ability to use money creation.

Even if you did something as silly, as keeping the current system and letting the central bank give government interest-free money (lets say, at a maximum of €1 billion a year to start with), which they do not recall until inflation rates rise to a certain point; even something as kludged/restrictive as that, is a step in the right direction.

There are any number of safeguards you could put in place, and/or baby-step approaches to granting public use of money creation, that control the flow/quantity of created money, avoiding economic damage even in the face of corruption.

So that means, your argument may have use in arguing how much control there should be, but it is not usable as an argument against public use of money creation altogether.


When you look at the enormous benefits of public use of money creation in its own right, you can see how immensely powerful it can be, even if implemented in a severely crippled form; getting rid of the need for national debt, in itself, is a huge deal.

SeanW wrote: »

They're the same arguement. Whoever abused money created caused the boom and bust. I am looking for restrain on anyones ability to debase the currency, especially the cash, which only a central/public bank can do.

Currencies appreciate and depreciate all the time. One of the factors in this, is private money creation, which can cause there to be an excess of money, that ends up on foreign exchange markets, 'debasing' the currency, relative to other currencies.

There is no abuse there, that simply means there is a floating exchange rate; when central banks do that, it is itself not an abuse either, but a policy decision like any other (one not taken lightly either).

SeanW wrote: »

KyussBishop wrote:

I am arguing that money creation should be democratically controlled, you are arguing it should be controlled by a private elite who have dominant control over your currencies commodity.

I am arguing that currency should have real value, and should be restitant to debasement. Since gold - unlike grain, energy products etc - has a primarily ornamental and wealth storage functions, it's the best choice for a commodity currency.

That's great - except for all of the enormous downsides listed about gold.

Parroting the same token-benefits (which, taking the sum of its socioeconomic/political effects, enormously benefits the rich over everyone else, so it's not really a benefit at all), does not undo the massive harm such a currency does.

You aren't even contesting that it is undemocratic either, and that it empowers a private elite; when you actually look at its effects in-context, not the incredibly narrow view you take on it, then it is clear that it is worse in just about every way.

SeanW wrote: »

KyussBishop wrote:

You are trying to pre-emptively slur democratic control over money creation, by asserting (without any backing) that it would be run corruptly,

Being in the slightest bit familiar with politics should make anyone leery of putting the printing press directly in the hands of the political class.

We could put money creation in the hands of a democratically-elected, and publicly accountable officials, or we can leave it in the hands of private actors who have already partially destroyed the entire world economy, through corrupt greed and profit-seeking, and who are unaccountable, and who are part of the 'political class' through having so much power over politics.

The running of the monetary system, and those involved at every level, is the most critical political issue there is, because it determines how a large part of the rest of politics will function; everyone involved, is part of the 'political class'.

SeanW wrote: »

True, but there should be consequences: banks that go below their reserve ratios (under todays system) should have their transactions declined. Your own link clearly demonstrates the problem.

That doesn't do anything to address accountability issues. Private banks are still able to engage in undemocratic money creation, with limited accountability.

SeanW wrote: »

That is but one of the many problems that desperately require real (libertarian/Austrian) solutions.

Ultimately the reason for this is the same reason that the government (and as such the people) of Ireland have had foisted on us the responsibility for paying off bank bondholders - this what I consider to be a myth that banks cannot be allowed to fail and that bondholders in general must be treated a sacred cows. Banks need to be let fall when they act stupidly, then the banks that remain would act a lot less irresponsibly. I.E. constantly being told by government "we won't let you fail" is a powerful incentive to be irresponsible and take stupid risks ... "Heads, I win, Tails you lose" is the saying that best describes the resulting Moral hazard.

You left out the bit immediately following that:

Steve Keen wrote:

But what if Buyer Bank doesn’t have enough Reserves – if it’s at its Reserve Requirements limit already, or worse still, if its reserves are zero? Will the Central Bank refuse to transfer funds that Buyer Bank doesn’t really have?

I hope the answer to that question is now obvious: of course it won’t. The Central Bank will either give Buyer Bank time to find the Reserves, or lend them to it. To do otherwise – to refuse to transfer Reserves from Buyer Bank to Seller Bank – would void the purchase made by the Buyer from the Seller (and note that this could happen with the Cash purchase just as easily as with the Card one). The system of commerce would break down. We’d have an interesting social system the instant after the Central Bank did such a thing, but it wouldn’t be called capitalism.

The people running the banks already won (they got their salaries/bonsues), they don't give a toss if the bank fails. If you want to let banks fail, you guarantee massive economic destruction (like happened in the 1930's....), the likes of which is incredibly easy to avoid with public money creation and public banks (the problem would never happen in the first place).

SeanW wrote: »

Even if I accepted that what you're proposing is "more democratic" that wouldn't necessarily mean it was better.
For example, would you rather live in:

1. A democracy where 51% of the people regularly vote to gas the other 49%.
2. An absolute monarchy where the King guarantees the full set of human rights - even to a libertarian standard - to all citizens?

This is the perfect example of how you want to throw this to extremes, and it highlights the massive fallaciousness of your argument:
You try to present it in such silly black/white extremes, that it is exactly like advocating we should be in a monarchy, in case granting democracy causes the people to vote for gassing one another.

That is the perfect example of the extreme nature, of the scaremongering you put forward.

In your system, the bankers and others controlling the money supply, are our 'benevolent oligarchs', having vast undemocratic control over the monetary system, for our own good.

SeanW wrote: »

Like Zimbabwe?
Because it has the ability to print money like it's going out of style?

Try engaging with the arguments on a level greater than trite nonsense, chopping up to string together selected quotes; here is the full quoted part:

KyussBishop wrote:

It's democratic and it runs better, and even in the face of a property or general economic crisis (lets say, even one caused by mismanagement), it is far more resilient than the private banking system would ever be on its own, because it is immune to bankruptcy and can write down debts wherever needed; we have been in crisis for half a decade now due to private banks, and my system would be able to end such a crisis far more quickly, and would be able to maintain full employment in the process.

You don't even understand why that's immune to bankruptcy, if you think it involves any kind of printed money; it's typical of a lot of right-leaning posters, where they pour scorn first, without bothering to even understand what they panning.

SeanW wrote: »

So debasing the currency, stealing from savers and inflating asset bubbles are "basic central bank operatios?" Well **** me.

More trite bollocks - step away from the soundbyte/rhetoric-based argument, and provide an actual intelligent argument in response.

The entire gold-bug rhetoric is based on very deliberately dishonest semantic redefinitions of words, which rely on the most ultra-thin superficial interpretation of those words.

You even try to pull the blaming of asset bubbles on central banks, despite this being something pretty exclusively in the realm of control of finance and private banks; the usual 'see no evil' bullshít applied to anything private, and trying to lump all the blame on anything public.

When you start stepping away from the real definition of words, and engage in other bóllocks like that, you make clear you have no interest in honest argument, just rhetoric.

SeanW wrote: »

If the money supply is expanded, then the wealth of existing currencyholders is reduced. So if Mick McWorker has €1000 to spare, he might as well blow it and some more, because if he leaves it in the bank or in cash under the mattress, it will only be worth ~€900 and something in todays money this time next year.

This is a negative consequence of allowing the money supply to be expanded. As far as I am concered, it's debasement.

You don't understand how inflation or foreign exchange works, in relation to the money supply.

When economic activity is below full potential, expanding the money supply does not have to cause inflation beyond targeted rates, or cause deprecation beyond acceptable amounts, so long as the money is (mostly) spent in ways that increase economy activity.

The main time any money creation will cause inflation and/or depreciation, is when the economy is at full employment, i.e. when money can not be spent increasing economic activity any further.

SeanW wrote: »

As above: I would prefer that the working and middle classes were empowered with hard money, the benefit of that outweighs any theoretical "it's less democratic than giving politicians the printing press" stuff. Democratic =/= Better.

That's a baseless assertion, especially given as the gold standard destroyed itself the last time (with your more-restrictive version, being even more prone to flying apart).

You'd seriously try to have people believe, that a private elite in control of money creation, would be best for everyone; come off it.

SeanW wrote: »

In that situation, you could place a limit on the amount bought from any one individual. Again, a hard currency system managed by the national treasury would have some flexibility, but by design not enough to have large scale debasement.

Again easily bypassed, just through barter. In your system gold itself can be used as a physical currency, so there is nothing you can do to restrict that at all.

SeanW wrote: »

There is no regressive concentration of wealth upwards because of the fact that the rich can hold assets in whatever they want today (including holdings of oil and food futures) so lets dispense forever this notion that you're "getting" the rich with inflationary monetary policy. The prime beneficiary of a non inflating or (to a limited extent) deflating currency would be the lower classes, encouraged to and rewarded for being financially sensible, ultimately giving the lower classes strength in secure, rewarding savings.

Eh, yes there is a regressive upward-redistribution of wealth: Your currency is deflationary, which means the wealthy can preserve their share of overall wealth by doing nothing with it at all.

They win just by doing nothing, and since they have most of the money, they have the most powerful profit-making abilities; since the distribution of wealth is a zero-sum game, this means that their profits come from the rest of society (the lower classes), and thus it is an upward redistribution of wealth.

Unless you argue there will be a case of severe mass-irrationality in the case of the wealthy, where they start losing money even though they can preserve it by doing nothing; unless you argue that, then there will be an upward redistribution of wealth.


Think for a second about your argument as well: You say there is no regressive redistribution of wealth, and your argument to back that is that there is regressive redistribution of wealth today.
That doesn't even do anything to support your argument that there is no regressive redistribution, it just is yet another unbacked claim that any system other than your favoured one, is (despite all the historical evidence against your own) worse.

Valmont

Why do you badly want to see wealthy people suffer, KyussBishop? I mean in this scenario poorer people would have a cheaper and better standard of living, being able put the difference into a nice savings account accumulating a reasonable amount of interest. The cheaper standard of living and higher interest rates would also mean less poor people would take out loans both keeping them in a better financial position and starving the banks of customers. Although you would like to scrap all this because the idea of a rich person doing the same horrifies you so much.

KyussBishop

I don't mind wealthy people; if someone creates/produces something of great value to society, I'd like to see them extraordinarily well rewarded, and given the opportunity to capitalize on their creation in a way that greatly benefits both them and society.

If someone gains wealth through exploitation of society though, or through causing damage to society (especially when combined with a sociopathic attitude to the harm they cause), and if enough people are doing that to cause significant harm to society (as arguably much of finance is doing, as well as banking and many large corporations these days), then that's just incredibly harmful and of no benefit to society, not to mention morally/ethically wrong, so it needs to be clamped down on.


Anyway. Your presentation of deflation is only true in a superficial sense, if you ignore all of the negative socioeconomic effects of it; it pretty much takes the whole economy, and stacks everything against the less well off (especially the poorest, as many of them won't be able to help but rely on debt), and gives the wealthy a way to permanently secure their percentage share of the entire economy (including all future growth), with no effort at all, just by holding on to the money they have.

If you want the least well off to get that kind of a benefit, i.e. higher interest rates and whatnot, you can just take my proposal and add a policy that gives the least well off that amount in interest payments; that completely nullifies the last argument in favour of the gold standard, because you can just make my policy do the same, without the massively regressive power it gives those who are already wealthy.

Jonny7

KyussBishop wrote: »

If someone gains wealth through exploitation of society though, or through causing damage to society (especially when combined with a sociopathic attitude to the harm they cause), and if enough people are doing that to cause significant harm to society (as arguably much of finance is doing, as well as banking and many large corporations these days), then that's just incredibly harmful and of no benefit to society, not to mention morally/ethically wrong, so it needs to be clamped down on.

The reality is that large banks and corporations generally benefit* society. If they didn't we certainly wouldn't be typing this on the internet on a computer.

The system is not going to change anyway, only continue to be fine-tuned and regulated.

*in a very macro way, strip-mining DRC would be a negative, etc.

KyussBishop

Jonny7 wrote: »

The reality is that large banks and corporations generally benefit* society. If they didn't we certainly wouldn't be typing this on the internet on a computer.

The system is not going to change anyway, only continue to be fine-tuned and regulated.

*in a very macro way, strip-mining DRC would be a negative, etc.

It's a matter of better standards; there are a lot of ways the current configuration of the monetary system, and ability for corporations to agglomerate into monopolies/oligopolies and 'too big to fail' institutions (the latter two a different discussion), can be very harmful.

We should never stop striving for better standards, in the configuration of the monetary system and economy (don't need government to micro-manage that either, as private industry can manage by itself in a lot of areas, with the right conditions set), especially when some of the reforms available can make it work significantly better.

Jonny7

Unfortunately that change has to be very gradual.

we can't stop paying pensions, we can't interfere with a large company paying tens of thousands of salaries on one particular day, we can't eviserate the ESB and so on..

It's so massively complex and interdependent - changing it from the ground up would be like trying to rip up all the roads in Ireland and starting from scratch just to get rid of traffic. And even then there would still be traffic.

This is the system we have, and it's the system that will be here in 100 years - all we can ever do is refine it, tweak it, reform it - and a lot of that goes on behind the scenes, it's invisible to most people.

Human greed will never magically go away, all we can ever do is design a system around it that yokes and harnesses this greed and self-interest for the best possible benefit for everyone. Which is roughly what we've done. There aren't bread queues in the streets - and we're in a recession - the system stands up pretty well. It could be a lot better, as fast as they throw up laws and regulations - people will always seek to circumnavigate them, exploit loopholes and so on - we all do it in every day life.

Bitcoin does not have regulations nor rules, no safeguards - it's almost entirely free market. Which makes it interesting, but it will remain a novelty internet currency for the rest of it's existence, because without those safeguards, without backing, no one with any financial intelligence or common sense is going to trust putting the value of their house against it, putting their pension in it and so on.

Ironically it's a lot more dangerous, risky and potentially destructive than a normal currency - no country would be suicidal enough to adopt it as it's own.

hatrickpatrick

Jonny7 wrote: »

The reality is that large banks and corporations generally benefit* society. If they didn't we certainly wouldn't be typing this on the internet on a computer.

The system is not going to change anyway, only continue to be fine-tuned and regulated.

*in a very macro way, strip-mining DRC would be a negative, etc.

Corporations perhaps. What do banks in their current form do that couldn't be done by a new type of financial institution which doesn't include the crackpot crap that's part and parcel of today's banks, exactly?

Jonny7

Banking and financial institutions vary from country to country, region to region, do you mean Irish banks? Greek? US? Dubai?

What is the "crackpot crap" exactly? If you can pinpoint the precise problems that need to be addressed, and how to solve each of those problems without affecting people's pensions, savings, mortgages, etc and also the reputation of the banks, their profitability and so on - then you are onto something good.

But I am guessing there is no well thought out in-depth viable solution - it's just a general complaint.

Doing something differently, like Bitcoin, doesn't make it better. Alternative doesn't necessarily mean better. Some people have difficulty grasping this concept because they are so "**** the system man". Pure free market currency? great for speculators, that's it.

KyussBishop

Jonny7 wrote: »

Unfortunately that change has to be very gradual.

we can't stop paying pensions, we can't interfere with a large company paying tens of thousands of salaries on one particular day, we can't eviserate the ESB and so on..

It's so massively complex and interdependent - changing it from the ground up would be like trying to rip up all the roads in Ireland and starting from scratch just to get rid of traffic. And even then there would still be traffic.

This is the system we have, and it's the system that will be here in 100 years - all we can ever do is refine it, tweak it, reform it - and a lot of that goes on behind the scenes, it's invisible to most people.

Human greed will never magically go away, all we can ever do is design a system around it that yokes and harnesses this greed and self-interest for the best possible benefit for everyone. Which is roughly what we've done. There aren't bread queues in the streets - and we're in a recession - the system stands up pretty well. It could be a lot better, as fast as they throw up laws and regulations - people will always seek to circumnavigate them, exploit loopholes and so on - we all do it in every day life.

Bitcoin does not have regulations nor rules, no safeguards - it's almost entirely free market. Which makes it interesting, but it will remain a novelty internet currency for the rest of it's existence, because without those safeguards, without backing, no one with any financial intelligence or common sense is going to trust putting the value of their house against it, putting their pension in it and so on.

Ironically it's a lot more dangerous, risky and potentially destructive than a normal currency - no country would be suicidal enough to adopt it as it's own.

The nice thing about this particular monetary reform I support, is that's the one step that allows all the rest of the reforms to happen much easier; it doesn't need a total reform of everything at once, it's just one relatively small step that can be taken, which will fundamentally change how economic issues are decided politically.

It will no longer be a matter of "Where will the money come from?" or "Why should taxpayers pay for x, y, z", but "Do we have the resources (labour primarily) to do this?", "Can we fund this within inflation targets?" and "Will the affects on trade balance be within targets?"; funds will also no longer come from taxes (taxes become just a policy tool, for managing inflation).

SeanW

KyussBishop wrote: »

The nice thing about this particular monetary reform I support, is that's the one step that allows all the rest of the reforms to happen much easier; it doesn't need a total reform of everything at once, it's just one relatively small step that can be taken, which will fundamentally change how economic issues are decided politically.

Correct. It would abolish private banking and most forms of private savings and investments and give vast powers to questionable politicians who throughout history have shown themselves unworthy of being entrusted to manage a sweetshop, let alone a nations monetary policy.

It would also make it impossible to have a sensible monetary system where there is a strong link between savings and loanable funds, which I believe I've demonstrated quite cogently would be a good idea.

It will no longer be a matter of "Where will the money come from?" or "Why should taxpayers pay for x, y, z", but "Do we have the resources (labour primarily) to do this?", "Can we fund this within inflation targets?" and "Will the affects on trade balance be within targets?"; funds will also no longer come from taxes (taxes become just a policy tool, for managing inflation).

Huh??? So the government lives off the printing press, but then it taxes people to limit inflation that it causes by printing money? Every transaction is subject not to any kind of economic analysis but political policy?

Jonny7

KyussBishop wrote: »

It will no longer be a matter of "Where will the money come from?" or "Why should taxpayers pay for x, y, z", but "Do we have the resources (labour primarily) to do this?", "Can we fund this within inflation targets?" and "Will the affects on trade balance be within targets?"; funds will also no longer come from taxes (taxes become just a policy tool, for managing inflation).

What system is that?

KyussBishop

SeanW wrote: »

Correct. It would abolish private banking and most forms of private savings and investments and give vast powers to questionable politicians who throughout history have shown themselves unworthy of being entrusted to manage a sweetshop, let alone a nations monetary policy.

You are wrong on all counts there; it doesn't eliminate private banking (you still have investment banks/brokers), it just eliminates private money creation; it doesn't eliminate any investments, since investments are not savings, and it provides savings with a guarantee that is more solid than that any private bank could guarantee in the past, now, or in the future.

Again, we already saw the private banking/financial industry destroy our economy for 15-20+ years (we are 5 years in, and likely still have 10-15 to go), and have shown full well that their number one priority is screwing over the rest of society for their own gain, so it's past time to get money creation back under democratic control.

SeanW wrote: »

It would also make it impossible to have a sensible monetary system where there is a strong link between savings and loanable funds, which I believe I've demonstrated quite cogently would be a good idea.

If you believe loanable funds theory is valid now, today, then you are wrong; that is not how money creation works even now, it works through endogenous money creation (loans create deposits), not loanable funds (deposits create loans).

SeanW wrote: »

Huh??? So the government lives off the printing press, but then it taxes people to limit inflation that it causes by printing money? Every transaction is subject not to any kind of economic analysis but political policy?

If government becomes capable of funding itself through money creation then that de-facto changes governments source of funding and the role of taxes; that is just automatically inherently true. Taxes no longer go to fund government, but the money is effectively removed from circulation altogether.

Here though, you don't understand what I describe, so you make false assumptions as to what I'm describing (thus straw-manning it), and then jump to ridicule your false caricature, as if that's what I presented; that's simply ignorant/presumptuous.

It doesn't just display ignorance either, but an inability to actually look at what I'm describing or asking questions about it to understand; as if trying to ridicule and play it down, is the primary goal, and you don't care at all whether the criticism is accurate or if you understand it.

KyussBishop

Jonny7 wrote: »

What system is that?

That is one where money creation is (through monetary reform) put to use for the public good through government, rather than private profits (at the expense of the rest of society) through private banks.

The exact policies are a lot more complicated than just that mind.

SupaNova2

KyussBishop wrote: »

If you believe loanable funds theory is valid now, today, then you are wrong; that is not how money creation works even now, it works through endogenous money creation (loans create deposits), not loanable funds (deposits create loans).

Sorry but no-one takes the position that loanable funds theory equals how money creation works, which makes the following funny.

Here though, you don't understand what I describe, so you make false assumptions as to what I'm describing (thus straw-manning it), and then jump to ridicule your false caricature, as if that's what I presented; that's simply ignorant/presumptuous.

KyussBishop

It's not even about money creation, it's about how the loans work; savings aren't the limitation on loans, the more likely limitation is the banks available equity/collateral for meeting capital requirements.

SupaNova2

KyussBishop wrote: »

It's not even about money creation, it's about how the loans work; savings aren't the limitation on loans, the more likely limitation is the banks available equity/collateral for meeting capital requirements.

Sorry you don't understand the position of others, no-one is saying that loans are limited by savings.

KyussBishop

SupaNova2 wrote: »

Sorry you don't understand the position of others, no-one is saying that loans are limited by savings.

This was said in response to my post:

SeanW wrote:

It would also make it impossible to have a sensible monetary system where there is a strong link between savings and loanable funds, which I believe I've demonstrated quite cogently would be a good idea.

If that's being applied in comparison to SeanW's ideal economic system, and not in comparison to the system we have now, then it's not really relevant as a criticism to my policies, so it's only natural to think it's being applied to the current system.

Either way, that is not comparable to making completely unfounded assumptions about the system I put forward, and using that as a basis to straw-man it; a statement with ambiguous context, is not the same as totally making stuff up.

SeanW

KyussBishop wrote: »

You are wrong on all counts there; it doesn't eliminate private banking (you still have investment banks/brokers), it just eliminates private money creation; it doesn't eliminate any investments, since investments are not savings, and it provides savings with a guarantee that is more solid than that any private bank could guarantee in the past, now, or in the future.

But your public bank would be hopelessly intertwined with politics, it would have no need for profit and as such would have an anti-competitive advantage over private banks that must earn money to survive, plus your previous posts raised the spectre of the public bank printing money to pay poor/middle class savers compensation for inflation - which it too would control. Again, this would put your public bank at an anti-competitive advantage to private banking and/or investments.

Again, we already saw the private banking/financial industry destroy our economy for 15-20+ years (we are 5 years in, and likely still have 10-15 to go), and have shown full well that their number one priority is screwing over the rest of society for their own gain,

Absolutely right - but I put it to you that this is a result of the "too big to fail" and "no bondholder left behind" mentalities that, whether out of necessity or political maladministration, pervade the current system. This creates the moral hazard which in turn caused all these crises.

No doubt the whole system needs to be changed.

The best change IMO would be to split up any banks deemed "too big to fail" "too big to jail" etc so that the system could absorb multiple bank failures, or the full and unreserved prosecution of any bank for lawbreaking. Keep mechanisms such as mandatory depositor insurace (e.g. the FDIC in the U.S.) and then let it be known that any bank that screws up is going to the wall.

If government becomes capable of funding itself through money creation then that de-facto changes governments source of funding and the role of taxes; that is just automatically inherently true. Taxes no longer go to fund government, but the money is effectively removed from circulation altogether.

Here though, you don't understand what I describe, so you make false assumptions as to what I'm describing (thus straw-manning it), and then jump to ridicule your false caricature, as if that's what I presented; that's simply ignorant/presumptuous.

It doesn't just display ignorance either, but an inability to actually look at what I'm describing or asking questions about it to understand; as if trying to ridicule and play it down, is the primary goal, and you don't care at all whether the criticism is accurate or if you understand it.[/QUOTE]

KyussBishop wrote: »

This was said in response to my post:

If that's being applied in comparison to SeanW's ideal economic system, and not in comparison to the system we have now, then it's not really relevant as a criticism to my policies, so it's only natural to think it's being applied to the current system.

As to the loanable funds, you're right, between central bank monetary debasement and the extension of private money creation beyond the limits of the FRB system, indeed the link between savings and loans is indeed very tenuous, if it exists at all.

However, it is my position that RESTORING this link would restore equilibrium. It would leave real loanable funds available for good uses of credit (buying machinery for businesses, small personal loans etc) while severely constraining credit for bubble asset classes which the current system promotes. It would also keep prices of everything down because the definition of "affordable" would go back to being "can I afford to pay for this" rather than "can I afford to take out a massive loan or mortgage for this." Again, this is a problem with the current system because lots of things have become more expensive but are still "affordable" because of artificially cheap credit. It would also send very valuable signals to the business and producer classes:
Low interest rates means people are saving for future consumption - there's lots of cheap money available to spend on R&D for future products and other long term valued use.
High interest rates means people are spending, spending, spending and the resulting interest rate tells producers "screw R&D, make plenty of nice things to sell today."
Hard currency, e.g. gold, while possibly having a deflationary effect, would as I said help the lower classes by encouraging thrift and ensuring that any nominal interest gained was actual earnings and not simply competing with inflation (and losing) as current savings interest rates are.

You can do all this if you have a currency with real value and a credible link between savings and loanable funds. You can have a strong, vibrant private banking system supporting a real, sound economy by laying down rules that discourage recklessness and protect people and business and avoid moral hazards in banking.

The system I dream of is restrained, cautious and works to help rather than hinder the real economy outside of financial services. Yours would - if I understand it correctly - give the political class unimaginable power, trash the private banking system by making it hopelessly uncompetitive against a public bank, and opens the door for grave abuses of the ability to create money and control the supply of credit. Having an organisation like your public bank seems to me to be a recipe for disaster - if politicians control the bank and - for example - their buddies in SIMI (Society of the Irish Motor Industry, i.e. new car dealerships) need help, your public bank could give out crazy amounts of car loans without even serious regard to whether the borrowers could repay the money back, after all they have no need to make money, if the lose the government raises taxes.
Worse, if any abuse or careless expansion were to be in an area where supply was constrained - like housing e.g. during the Tiger bubble - your public bank could drive prices even higher than the current system could because there would be no brakes at all. That would scare the hell out of me.

KyussBishop

SeanW wrote: »

But your public bank would be hopelessly intertwined with politics, it would have no need for profit and as such would have an anti-competitive advantage over private banks that must earn money to survive, plus your previous posts raised the spectre of the public bank printing money to pay poor/middle class savers compensation for inflation - which it too would control. Again, this would put your public bank at an anti-competitive advantage to private banking and/or investments.

That's not 'anti-competitive', private banks have no right to the privilege of money creation. They should not be given extraordinary rights, just to keep their business model ticking over; they have shown that even when given this extremely unfair privilege over society, those powers are used by corrupt interests in banks/finance to literally destroy economies, for personal gain in salaries/pensions/bonuses among much else.

Your argument is nothing more than a vague allusion to 'politics' messing up a public bank; that's just "private good public bad" bullshít. We already see exactly how private control over money creation is catastrophic, almost universally worldwide, and your counter to that is some handwavy allusions about 'politics'.

Power over money creation, is not just economic/societal power, it is political power. There is no way private banks should have that totally undeserved privilege, it should be under democratic control.

SeanW wrote: »

Absolutely right - but I put it to you that this is a result of the "too big to fail" and "no bondholder left behind" mentalities that, whether out of necessity or political maladministration, pervade the current system. This creates the moral hazard which in turn caused all these crises.

No doubt the whole system needs to be changed.

The best change IMO would be to split up any banks deemed "too big to fail" "too big to jail" etc so that the system could absorb multiple bank failures, or the full and unreserved prosecution of any bank for lawbreaking. Keep mechanisms such as mandatory depositor insurace (e.g. the FDIC in the U.S.) and then let it be known that any bank that screws up is going to the wall.

That's not good enough when we hit the next economic crisis. Your system (in fact, just about every system you can propose) fails during a big enough economic crisis, causing massive unemployment for long periods; I want a system that will keep economies ticking over during crisis (even if that means public jobs taking the slack until private industry is ready to take back the workers), so that we aren't in the insane position of wasting human labour, and causing huge varieties of human suffering during crisis.

When there is an economic system available that can provide that (which is actually enormously complimentary to capitalism), then a crippled system which retains private banks domination over the monetary system and over government (due to reliance upon public debt), is one that is unnecessary, unfair (private banks should not have any of those powers), and immoral on many levels.

There's no excuse for keeping a crippled system that some deem 'good enough', just because it sits close to the status quo, when there are far better standards available (which again, all the arguments against thus far have been political, not economic).

SeanW wrote: »

As to the loanable funds, you're right, between central bank monetary debasement and the extension of private money creation beyond the limits of the FRB system, indeed the link between savings and loans is indeed very tenuous, if it exists at all.

However, it is my position that RESTORING this link would restore equilibrium. It would leave real loanable funds available for good uses of credit (buying machinery for businesses, small personal loans etc) while severely constraining credit for bubble asset classes which the current system promotes. It would also keep prices of everything down because the definition of "affordable" would go back to being "can I afford to pay for this" rather than "can I afford to take out a massive loan or mortgage for this." Again, this is a problem with the current system because lots of things have become more expensive but are still "affordable" because of artificially cheap credit. It would also send very valuable signals to the business and producer classes:
Low interest rates means people are saving for future consumption - there's lots of cheap money available to spend on R&D for future products and other long term valued use.
High interest rates means people are spending, spending, spending and the resulting interest rate tells producers "screw R&D, make plenty of nice things to sell today."
Hard currency, e.g. gold, while possibly having a deflationary effect, would as I said help the lower classes by encouraging thrift and ensuring that any nominal interest gained was actual earnings and not simply competing with inflation (and losing) as current savings interest rates are.

You can do all this if you have a currency with real value and a credible link between savings and loanable funds. You can have a strong, vibrant private banking system supporting a real, sound economy by laying down rules that discourage recklessness and protect people and business and avoid moral hazards in banking.

Quite simply, restoring that link brings deflation, and with that brings all of the unavoidable negative socioeconomic effects discussed previously; that sets a very poor standard, in comparison to alternates.

If you want to constrain money going into bubbles, then squeezing the entire supply of credit (which also chokes areas of the economy that are not bubbles, that need money desperately), is an extremely antiquated approach to economics, that is much better replaced by actually specifically targeting the bubbles with other measures.

One of those other measures, is by using taxes to cool down that area of the economy that is overheating (this would not be the only policy tool used to that effect); that role becomes more prominent in the system I put forward.

This actually allows you to target bubbles as they form, so you don't have to damage other parts of the economy as well, just to keep one area from overheating/inflating.

If you want low interest rates, you could provide that in my system just fine as well; you can 100% emulate all of that with the system I propose, but there is no reason why such a flexible system would be setup that way.

SeanW wrote: »

The system I dream of is restrained, cautious and works to help rather than hinder the real economy outside of financial services. Yours would - if I understand it correctly - give the political class unimaginable power, trash the private banking system by making it hopelessly uncompetitive against a public bank, and opens the door for grave abuses of the ability to create money and control the supply of credit. Having an organisation like your public bank seems to me to be a recipe for disaster - if politicians control the bank and - for example - their buddies in SIMI (Society of the Irish Motor Industry, i.e. new car dealerships) need help, your public bank could give out crazy amounts of car loans without even serious regard to whether the borrowers could repay the money back, after all they have no need to make money, if the lose the government raises taxes.
Worse, if any abuse or careless expansion were to be in an area where supply was constrained - like housing e.g. during the Tiger bubble - your public bank could drive prices even higher than the current system could because there would be no brakes at all. That would scare the hell out of me.

Your system would be guaranteed to hinder the real economy, as you could never provide full employment (minus job turnover), 100% of the time (even in economic downturns), like the system I propose can.

Private banks already have grossly abused money creating powers in a way that has destroyed much of the world economy, far worse than the example you speculate over there regarding government.

Government can be held accountable for abuses like that, but we have seen now, how the vast majority of the people responsible for causing the crisis from private institutes, have got away free and with their enormous salaries/bonuses/pensions.

You are totally blind to every private abuse, make whatever exaggerated assumptions you can about how a public bank would be run, to try and smear it.

You don't even understand how a public bank would provide loans (you just assume it will be done in the most reckless way possible, when that is false), you do not understand how the taxation in the system I propose would be setup, again you just assume it will be done in the most general/punitive way possible (when taxes instead, will be directed at areas of the economy that are inflating instead - taking it right back out of the car dealership industry in your example).


So again, these arguments are almost entirely political, not contesting any part of the actual economics whatsoever; they are just blind assertions that there is no way this can be run publicly, other than to be mismanaged, which is nonsense.

Worse even, with the enormous unaccountable private corruption/mismanagement/worldwide-destruction pointed out, you just disingenously ignore that and the sheer scale of it, and pretend (with no backing or precedent whatsoever - and remember there are public banks now, being run perfectly well), pretend that it will be run extremely corruptly and such.

The usual 'private good', 'public bad' bullshít, that's all this discussion is at the moment.

SeanW

KyussBishop wrote: »

That's not 'anti-competitive', private banks have no right to the privilege of money creation.

It is totally anti-competitive for the reasons I highlighted before, i.e. it's lack of a profit motive and its ability to print money out of nothing whatsoever.

For example, if inflation were running at 10% and the bank decided as policy to grant savers this rate plus a bonus, say 1-2% to a total of 11-12%, then any private banks or investment vehicles of any kind would have to compete with this, without the ability to simply print the money.

Under a system designed to prevent inflation, anyone can borrow money from a saver and any nominal interest returned is pure gravy.

They should not be given extraordinary rights, just to keep their business model ticking over; they have shown that even when given this extremely unfair privilege over society, those powers are used by corrupt interests in banks/finance to literally destroy economies, for personal gain in salaries/pensions/bonuses among much else.

Partly agree, but it's more important to me that banks etc. are not subject to a moral hazard (i.e. forced to act responsibly because no-one is going to save them if they don't).

Your argument is nothing more than a vague allusion to 'politics' messing up a public bank; that's just "private good public bad" bullshít.

TBH your argument is nothing more than just "public good private bad"

Power over money creation, is not just economic/societal power, it is political power.

Agreed. I want to restrain the ability of anyone to create money. Remember creating money is not the same as creating wealth, creating money is simply redistributing wealth from existing currencyholders to the creator. Thats why I want to prevent abuse of currency creating by ANY actor.

That's not good enough when we hit the next economic crisis. Your system (in fact, just about every system you can propose) fails during a big enough economic crisis, causing massive unemployment for long periods;

ANY system will fail given a big enough crisis - yours would just respond to a crisis by printing money, as they did in Weimar Germany and Zimbabwe.

I want a system that will keep economies ticking over during crisis (even if that means public jobs taking the slack until private industry is ready to take back the workers)

Again, your talking about causing inflation to do this.

and over government (due to reliance upon public debt), is one that is unnecessary

When a government is spending more money than it takes the only alternative to public debt is monetary debasement. Or - crazy idea - fixing its budget.

If you want to constrain money going into bubbles, then squeezing the entire supply of credit (which also chokes areas of the economy that are not bubbles, that need money desperately), is an extremely antiquated approach to economics, that is much better replaced by actually specifically targeting the bubbles with other measures.

One of those other measures, is by using taxes to cool down that area of the economy that is overheating (this would not be the only policy tool used to that effect); that role becomes more prominent in the system I put forward.

This actually allows you to target bubbles as they form, so you don't have to damage other parts of the economy as well, just to keep one area from overheating/inflating.

Huh? Bubbles, almost by definition, suck people and money in for two main reasons:

1. People don't actually realise it's a bubble, until its too late (like the dotcom bubble of the 1990s or the stock market bubble of the 1920s)
2. The political class and others ignore the evidence of a bubble, e.g. our politicians during the house price rises of the Tiger, public debt bubbles in the Mediterranean due to the low Euro interest rates.

Your system would be guaranteed to hinder the real economy, as you could never provide full employment (minus job turnover), 100% of the time (even in economic downturns), like the system I propose can.

I'm sorry, but guaranteeing full employment by central bank money printing for wages sounds like a shortcut to hyperinflation.

You are totally blind to every private abuse

I'm blind to nothing. Clearly there has been bad banking, participating in bubbles (requiring taxpayer bailouts) gambling on food/energy futures driving up prices etc. Where we differ is the cause - I want sensible rules governing private investment and a cautious monetary policy, you just seem to think private banking is fundamentally evil and has to be taken down.

make whatever exaggerated assumptions you can about how a public bank would be run, to try and smear it.

I just don't think giving politicians access to the printing press is a good idea. I'd prefer there was no 'printing press' at all, or at least a tightly controlled one.

You don't even understand how a public bank would provide loans (you just assume it will be done in the most reckless way possible,

I assume that not having a need to support itself with real wealth, nor a profit motive, there would be no brakes on reckless lending.

The private banks had to stop over-lending mortages (which drove up home prices) because they ran out of money. Your public bank - by definition - could never run out of money. As such, your system would eliminate the final brake on a bubble and/or runaway price/credit increase.

So again, these arguments are almost entirely political, not contesting any part of the actual economics whatsoever; they are just blind assertions that there is no way this can be run publicly, other than to be mismanaged, which is nonsense.

Actually I have made a number of economic points:

• Inflation is bad for people, it discourages saving and encourages borrowing - which ultimately harms and leaves vulnerable the average person.
• Conversly by setting a target of 0% (monetary) inflation (by whatever means necessary) you provide an absolute guarantee that any entity offering interest on savings can return a profit on savings borrowed. This encourages average people to save, making them stronger and more resilient.
  
  (The only caveat is that I am not suggesting monetary policy should try to compensate for price rises caused by supply/demand, so savers might still lose if something becomes more scarce during their savings term, but at least inflation through monetary causes is off the table).
• Encouraging people to save would mean more loanable funds being available from savings, lessening the need to use money creation.
• A credible link between savings and loanable funds provides a good market suplpy/demand signal to all participants.
• Clear limits on the supply of loans would ensure credit is available for viable, worthwhile uses, while preventing money from going into starting/fuelling large scale unviable use bubbles such as housing construction.
• Current monetary policies have changed the definition of "affordable" from "can I pay for this" to "can I afford to borrow for this" and in some cases this has lead to large scale price increases that would otherwise not have happened.
• My economic policy is based around limits to money creation full stop - by any actor, public or private.

KyussBishop

SeanW wrote: »

It is totally anti-competitive for the reasons I highlighted before, i.e. it's lack of a profit motive and its ability to print money out of nothing whatsoever.

For example, if inflation were running at 10% and the bank decided as policy to grant savers this rate plus a bonus, say 1-2% to a total of 11-12%, then any private banks or investment vehicles of any kind would have to compete with this, without the ability to simply print the money.

Under a system designed to prevent inflation, anyone can borrow money from a saver and any nominal interest returned is pure gravy.

Private banks being given the privilege to create money from nothing, is anti-competitive to private business in the rest of the entire economy; that is a privilege nobody else has, and which there is no justification in private banks having.

We're not talking about private banks, if being left alone, have a competitive advantage over government: If left alone without help from government, they would not have access to money creation to begin with.
They are only 'competitive' (i.e. they can only compete) at all, exclusively because of government help, granting the extreme privilege to create money in the first place.

Saying that is anti-competitive, is like calling the removal of subsidies from any particular private industry (particularly if the very existence of the industry depends on the subsidy), an 'anti-competitive' act; total nonsense.


There is also no way either inflation would be allowed to run at 10%, or for interest to run that high; it is not even set that a public bank would offer interest at all, it is only set that they have the capability of doing that if they wish.

SeanW wrote: »

Partly agree, but it's more important to me that banks etc. are not subject to a moral hazard (i.e. forced to act responsibly because no-one is going to save them if they don't).

This crisis is a lesson in showing that moral hazard does not work, because CEO's and other high-salaried individuals don't care if they destroy banks, many only care about personal profit; they will in fact use 'too big to fail' banks (or entire industries teetering upon failure), as giant loaded guns that they can point at government, in demand for bailouts.

SeanW wrote: »

TBH your argument is nothing more than just "public good private bad"

I've described a system where democracy is good, and unaccountable/undemocratic private control over the monetary system is bad. You want a system where private banks and finance can hold government to ransom, I want a system where government uses money for public purpose first, not for unearned private profit first.

The system I describe is capable of easily maintaining full employment through any economic crisis, given the availability of the right resources; every single system your policies can put together, will always fail to provide proper levels of employment, when a big enough crisis hits.

In my system, private industry actually benefits more than in any system you propose, because government only steps in to pump the private economy back up when there is crisis (thus benefiting private industry), so you've got it backwards, and can't see past your silly ideological dichotomy of "everything public/government is bad", even when it provides a far more economically successful system than anything you can put forward (including for private industry).

SeanW wrote: »

Agreed. I want to restrain the ability of anyone to create money. Remember creating money is not the same as creating wealth, creating money is simply redistributing wealth from existing currencyholders to the creator. Thats why I want to prevent abuse of currency creating by ANY actor.

Your system is exactly the opposite of creating wealth, it forces lots of people to be unemployed during crisis, which means resources go to waste and labour potential is permanently wasted.

The system I put forward does create more 'wealth' (and distributes it more equitably too, during crisis), because it doesn't completely waste productive potential during crisis.

Money is not supposed to be a hindrance to full economic activity; that is bad economics. Economics is all about the efficient use of resources, not money; money is for putting together resources efficiently, and my policies only have government step in to help with that, when private industry fails to.

SeanW wrote: »

ANY system will fail given a big enough crisis - yours would just respond to a crisis by printing money, as they did in Weimar Germany and Zimbabwe.

Again, your trite examples of countries that were either 1: Locked into reparation repayments and forced to exchange foreign currency to repay them (thus leading to a hyperinflationary crunch when foreign reserves ran out), and 2: Deliberately decided to destroy its own currency for political reasons, which doesn't do anything to discredit money creation which keeps inflation in check.

Really, by now you know these two examples are bullshít, because they have come up and been knocked down so often, that you know they are nothing more than hyperbole; yet that's the kind of argument you are trying to stick to: rhetoric/hyperbole, because you know you have no economic argument against anything put forward here.

SeanW wrote: »

Again, your talking about causing inflation to do this.

Again, you know this is nonsense, because it has been rebutted innumerable times (you can only not avoid significant inflation with additional money creation once you reach full employment - so long as you're pumping the economy back up to full potential/employment, you can distribute money so as to avoid significant inflation).

You just re-assert this though, to try and drive this back into a circular argument, because you are incapable of debating the actual economics; you assert only the details required in order to engage in rhetoric-based attacks only.

SeanW wrote: »

When a government is spending more money than it takes the only alternative to public debt is monetary debasement. Or - crazy idea - fixing its budget.

Again, more assertions which are based on gold-standard era thinking. This is not true when you are pumping the economy up towards full potential.

If tomorrow, every country in the world started using money creation to pump back up to full economic potential and full employment, you would not even have devaluation (even though you may have adjustments in the trade balance between countries), because they are all increasing economic output at the same time, keeping things in balance.

You don't even understand that 'debasement' doesn't happen when you keep inflation and foreign valuation in check either, and that the determinant of this is whether or not you (and countries you trade with) are using money creation to restore full economic potential or not.

SeanW wrote: »

Huh? Bubbles, almost by definition, suck people and money in for two main reasons:

1. People don't actually realise it's a bubble, until its too late (like the dotcom bubble of the 1990s or the stock market bubble of the 1920s)
2. The political class and others ignore the evidence of a bubble, e.g. our politicians during the house price rises of the Tiger, public debt bubbles in the Mediterranean due to the low Euro interest rates.

What you answer does not address anything I said; copy-paste:
If you want to constrain money going into bubbles, then squeezing the entire supply of credit (which also chokes areas of the economy that are not bubbles, that need money desperately), is an extremely antiquated approach to economics, that is much better replaced by actually specifically targeting the bubbles with other measures.

One of those other measures, is by using taxes to cool down that area of the economy that is overheating (this would not be the only policy tool used to that effect); that role becomes more prominent in the system I put forward.

This actually allows you to target bubbles as they form, so you don't have to damage other parts of the economy as well, just to keep one area from overheating/inflating.

SeanW wrote: »

I'm sorry, but guaranteeing full employment by central bank money printing for wages sounds like a shortcut to hyperinflation.

Again, the usual fallback to hyperbole and hyperinflation scaremongering; such an ignorant/lazy form of argument really. Even Milton Friedman acknowledged, that inflation from money creation is a 'long run' problem; i.e. that in the short-run, it doesn't have to be inflationary so long as it's pumping up economic output.

SeanW wrote: »

I'm blind to nothing. Clearly there has been bad banking, participating in bubbles (requiring taxpayer bailouts) gambling on food/energy futures driving up prices etc. Where we differ is the cause - I want sensible rules governing private investment and a cautious monetary policy, you just seem to think private banking is fundamentally evil and has to be taken down.

It's not fundamentally evil, but it is fundamentally undemocratic; it gives private banks and finance significant undeserved power over society and over government (since banks/finanace are where a large portion of public debt is sourced).

You're defending a system that is undemocratic at its core, and which explicitly rejects true democratic control over money creation.

SeanW wrote: »

I just don't think giving politicians access to the printing press is a good idea. I'd prefer there was no 'printing press' at all, or at least a tightly controlled one.

Yet you would have it remain in the hands of private interests who are totally unaccountable, and have a track record of destroying a large portion of the entire world economy with their undemocratic privileges.

Your arguments all assume completely unrestrained control in the hands of government, totally ignoring that any restraint you apply to private industry can equally be applied to government use of money creation as well; that is the hypocrisy in your argument, and why it fundamentally is all "private good, public bad" at its core.

SeanW wrote: »

I assume that not having a need to support itself with real wealth, nor a profit motive, there would be no brakes on reckless lending.

The private banks had to stop over-lending mortages (which drove up home prices) because they ran out of money. Your public bank - by definition - could never run out of money. As such, your system would eliminate the final brake on a bubble and/or runaway price/credit increase.

That's the entire problem with your arguments: You assume, and universally assume wrong, in the most exaggerated way possible to suit your arguments.

Any restriction you apply to private banks, you can apply to a public bank as well. You have excessive imagination in the ways it can be poorly configured, and deliberately no imaginings whatsoever of the restrictions that are easily placed on lending (you can set reserve targets if you like, capital requirements, inflation targets, credit/risk checks - many of them would be archaic and not suited to the new system, but you can set any restrictions you like).

SeanW wrote: »

Actually I have made a number of economic points:

• Inflation is bad for people, it discourages saving and encourages borrowing - which ultimately harms and leaves vulnerable the average person.
• Conversly by setting a target of 0% (monetary) inflation (by whatever means necessary) you provide an absolute guarantee that any entity offering interest on savings can return a profit on savings borrowed. This encourages average people to save, making them stronger and more resilient.
  
  (The only caveat is that I am not suggesting monetary policy should try to compensate for price rises caused by supply/demand, so savers might still lose if something becomes more scarce during their savings term, but at least inflation through monetary causes is off the table).
• Encouraging people to save would mean more loanable funds being available from savings, lessening the need to use money creation.
• A credible link between savings and loanable funds provides a good market suplpy/demand signal to all participants.
• Clear limits on the supply of loans would ensure credit is available for viable, worthwhile uses, while preventing money from going into starting/fuelling large scale unviable use bubbles such as housing construction.
• Current monetary policies have changed the definition of "affordable" from "can I pay for this" to "can I afford to borrow for this" and in some cases this has lead to large scale price increases that would otherwise not have happened.
• My economic policy is based around limits to money creation full stop - by any actor, public or private.

You are replying to this:

So again, these arguments are almost entirely political, not contesting any part of the actual economics whatsoever; they are just blind assertions that there is no way this can be run publicly, other than to be mismanaged, which is nonsense.

Every point here bar one, does not even relate to my views at all and thus does not relate to what you are replying to; the one point you make here relating to my views, is also a political (not economic) point, which is an assertion about how the policy will be implemented; an assertion that is wrong (I've already described excessively, that excessive inflation is avoided) and which is easily the most frequent false assertion hyperinflation scaremongers throw about.

SeanW

Saying that is anti-competitive, is like calling the removal of subsidies from any particular private industry (particularly if the very existence of the industry depends on the subsidy), an 'anti-competitive' act; total nonsense.

In your public bank setup, not only would the public bank be able to print money FOR ANY REASON (and that is the key point) but being a public body they would have no profit incentive. Private banks would still have to somehow return a profit to shareholders, and have to do so in an environment where they have no say in key variables such as inflation rates.

That's anti-competitive.

it is not even set that a public bank would offer interest at all, it is only set that they have the capability of doing that if they wish.

And if they did, they would be at an anti-competitive advantage over private banks that had to earn money before they could pay it out in interest. Which is of course a lot harder without the ability to use Fractional Reserve Banking (which as you suggest might not be a bad idea).

This crisis is a lesson in showing that moral hazard does not work

Being pedantic: Moral hazard is the condition of one being protected from the consequences of their own irresponsibility. What you want, and presumably meant to say, is the AVOIDANCE of moral hazard.

CEOs don't care ... they will in fact use 'too big to fail' banks ... demand for a bailout.

This is true - but it just highlights that they have indeed been subject to moral hazard. The mentality of some of these groups has been "heads I win, tails you lose." That's pretty much the textbook definition of a moral hazard.

How can you say that the avoidance of moral hazard has failed when it did not exist? Surely, something has to have been tried to be determined a failure?

Again, more assertions which are based on gold-standard era thinking. This is not true when you are pumping the economy up towards full potential.

Huh? When the government is spending more money than its taking in, it has 3 choices:

1. Balance its budget
2. Borrow
3. Expand the currency supply.

To assume that 3. will not result in inflation - if I understand correctly - assumes that every single unit of currency printed will cause economic recovery causing that currency to be somehow absorbed by the economy, not affecting prices through monetary means.


It strikes me that such a view requires the suspension of disbelief.

One of those other measures, is by using taxes to cool down that area of the economy that is overheating (this would not be the only policy tool used to that effect); that role becomes more prominent in the system I put forward.

Yes, but it rests on flawed assumptions:

1. That people will know that a bubble is forming. Most don't - if they did, it wouldn't be a bubble.
2. That the political classes will both know that a bubble is forming, and that they are prepared to use the tools that they have to tamp it down. But if you lived in Ireland between 2000 and 2007 you would know that this too is a flawed assumption - betweem Fianna Fail schmoozing with their property developer buddies and the European Central Bank printing money like crazy for Germany and France, our destruction was inevitable.

Because bubbles by definition suck almost everyone in, I put it to you that having a hard limit on currency supply is the only way to put the brakes on in time to prevent them doing serious damage. Furthermore, historical evidence clearly demonstrates that you can have a strong, powerful, growing economy with a hard currency and cautious monetary policy (e.g. the Industrial Revolution and the United States for most of its history prior to 1913)

Yet you would have it remain in the hands of private interests who are totally unaccountable, and have a track record of destroying a large portion of the entire world economy with their undemocratic privileges

I believe I have been clear about this. I am not a major fan or private banks - especially in so far as they have needed to be "bailed out" - and I'm not happy about them issuing credit beyond their Fractional Reserve Requirements.


I don't like expansionist monetary policy of any kind. Full stop. I consider monetary-cause inflation to be a fundamentally bad thing that is corrosive both to the business evironment (raising the level of investment-return required for viability) and on the average person (by discouraging saving, encouraging debt and forcing average/uneducated people to become stock market gamblers to protect their retirement, education and other long term funds) often with disasterous consequences. For those reasons I prefer currency to have real value and for there to be restraints on expansion.

That's the entire problem with your arguments: You assume, and universally assume wrong, in the most exaggerated way possible to suit your arguments.

That's because I have a very low opinion of the political classes worldwide, I have no reason to believe that an anti-competitive public bank would be run in any way other than incompetently and subject to political patronage.

Every point here bar one, does not even relate to my views at all and thus does not relate to what you are replying to

Huh? Every single one of my points relates to government-fiat currencies and expansionist monetary policies.

hatrickpatrick

Jonny7 wrote: »

What system is that?

It doesn't exist yet. I'd call it common sense to be honest. F*ck all this mathematical mumbo jumbo and concentrate on what can actually be achieved based on real, physical capacity and possibility rather than on numbers on a page.

It's pretty simple. Amount of food that can be grown based on crops, climate, technology etc = x. Amount of people who need food = y.

If x > y, no one should be hungry.

What we have is this moronic situation in which we introduce extra variables into this equation in the form of interest based fiat currency, and then define scarcity based purely on those artificial variables without considering x or y at all.

Essentially you get something like

x > y, but unrelated variables a, b, c, d, e, and f - which we created and we have the complete power to control - aren't what they should be, so even though x > y we're going to throw a lot of that food away as a "surplus" and let a few hundred million people starve to death.

The lunacy of this seems so blindingly obvious to me that I honestly find it quite difficult to adequately describe it. The EU talks about surplus food and destroying surpluses - you don't have a surplus of anything if there's still demand for it somewhere. How can we possibly produce a "surplus" of milk if there are a few million people in Ethiopia who would literally die for it? On the opposite side, how can we talk about a "scarcity" of anything when we're not operating at 100% capacity to produce as much as we possibly can to meet demand?

It's completely and utterly mad. The fact that banks and interest based currency limit our potential despite being totally out of line with real, physical potential is like artificially imposing a limit on the score of a rugby match even when there are still minutes on the clock and BOD could very easily run the whole length of the pitch unopposed and get another try before full time.

To sum up: WTF?

Valmont

SeanW wrote: »

When the government is spending more money than its taking in, it has 3 choices:

1. Balance its budget
2. Borrow
3. Expand the currency supply.

To assume that 3. will not result in inflation - if I understand correctly - assumes that every single unit of currency printed will cause economic recovery causing that currency to be somehow absorbed by the economy, not affecting prices through monetary means.

In ignoring these facts of reality, the economics propagated by Kyussbishop rank alongside money trees, underpants gnomes, and genie lamps. Unfortunately for us these alternatives are not fictional.

To think there is a way to print money that wouldn't raise prices is like thinking you can stand in a bucket and lift yourself up. It comes as no surprise then that most rebuttals to these simple facts are based on mind-bogglingly complex and indecipherable arcane econometric formulas, designed, essentially, to prove that 2 + 2 ≠ 4. Meanwhile, we all get robbed.

KyussBishop

Valmont wrote: »

In ignoring these facts of reality, the economics propagated by Kyussbishop rank alongside money trees, underpants gnomes, and genie lamps. Unfortunately for us these alternatives are not fictional.

To think there is a way to print money that wouldn't raise prices is like thinking you can stand in a bucket and lift yourself up. It comes as no surprise then that most rebuttals to these simple facts are based on mind-bogglingly complex and indecipherable arcane econometric formulas, designed, essentially, to prove that 2 + 2 ≠ 4. Meanwhile, we all get robbed.

I've described the policy dozens of times on boards by now, and outside of the Economics forum, I've hardly used any formula's at all (and even there, it's just a basic accounting sheet).

It's piss easy to understand:
1: If you're increasing economic output with your spending through money creation, then it doesn't have to lead to inflation (if it does, it's a distributional problem in where you're spending).
2: We are not at full economic output, so we (Europe as a whole) have room to spend.
3: Full economic output, is analogous to full employment - if you keep trying to spend after reaching full employment, wages get bid up and you get inflation. You need to stop spending at full employment.

Even Milton Friedman agrees - that's why he said inflation through money creation is a long term problem (because once you reach full economic output, you get inflation), not a short-term problem (because when you are not at full economic output, you have room to spend in the short-term).

All the straw-men provided for countering this, are unbacked assertions about what government will do with the money - political arguments completely divorced from economics. Pretty much everything you present as 'simple fact' is just an unbacked assertion.

recedite

SeanW wrote: »

In your public bank setup, not only would the public bank be able to print money FOR ANY REASON (and that is the key point) but being a public body they would have no profit incentive. ..

I have a very low opinion of the political classes worldwide, I have no reason to believe that an anti-competitive public bank would be run in any way other than incompetently and subject to political patronage.

Lets take a real example of such a public bank; the European Investment Bank in conjuction with the ECB (which is mandated to keep inflation at or below 2%) Possibly something that has the potential to evolve to fulfill this role;

European Investment Bank wrote:

All the projects we finance must not only be bankable but also comply with strict economic, technical, environmental and social standards. Our corps of 300 engineers and economists screens every project, before, during and after we lend. We work hard to be accountable to EU citizens

So the bank is influenced by technocrats, not gombeen politicians.

Lets look at a real loan by the bank; EUR 100m to the Irish government for capital investment in schools across Ireland over the next 2 years.

The programme will build more than 550 new classrooms, and involve modernisation and construction in 35 primary and 12 secondary schools. The 25 year loan from the European Investment Bank, the long-term lending institution of the European Union, will form part of the Irish government’s EUR 219m school expansion programme to be managed by the Department of Education and Skills...“Without a good education, Europe’s children will not be able to compete in a global economy. This new funding, to provide thousands of new places in Irish schools, will directly benefit children across Ireland and improve the quality of their education.

Will this newly created money cause inflation in the current economic climate? I don't think so.
It will provide jobs, reduce unemployment and increase economic output. On the investment side, the next generation of citizens will be better educated and more productive than they would otherwise have been.

Interest repayments can be ploughed back into the general EU budget, thereby reducing the amount paid over to the EU annually by the taxpayers of individual states.


Meanwhile private banks could continue to lend to businesses, but in this brave new world they would only lend out whatever money they already had, and therefore could not bring down an economy by creating asset bubbles, and afterwards losing multiples of their own net worth.

SupaNova2

recedite wrote: »

Will this newly created money cause inflation in the current economic climate? I don't think so.
It will provide jobs, reduce unemployment and increase economic output. On the investment side, the next generation of citizens will be better educated and more productive than they would otherwise have been.

Em you forgot to include time in your analysis. The money gets created and filters through the economy now, the investment takes decades to mature and produce output that will put downward pressure on prices.

KyussBishop

recedite wrote: »

Lets take a real example of such a public bank; the European Investment Bank in conjuction with the ECB (which is mandated to keep inflation at or below 2%) Possibly something that has the potential to evolve to fulfill this role;


So the bank is influenced by technocrats, not gombeen politicians.

Lets look at a real loan by the bank; EUR 100m to the Irish government for capital investment in schools across Ireland over the next 2 years.

Will this newly created money cause inflation in the current economic climate? I don't think so.
It will provide jobs, reduce unemployment and increase economic output. On the investment side, the next generation of citizens will be better educated and more productive than they would otherwise have been.

Interest repayments can be ploughed back into the general EU budget, thereby reducing the amount paid over to the EU annually by the taxpayers of individual states.


Meanwhile private banks could continue to lend to businesses, but in this brave new world they would only lend out whatever money they already had, and therefore could not bring down an economy by creating asset bubbles, and afterwards losing multiples of their own net worth.

Exactly - this is a core element of Yanis Varoufakis 'Modest Proposal' (recently updated):
http://yanisvaroufakis.eu/euro-crisis/modest-proposal/

That doesn't even need to involve the use of money creation, or even any legal changes within Europe.

KyussBishop

SupaNova2 wrote: »

Em you forgot to include time in your analysis. The money gets created and filters through the economy now, the investment takes decades to mature and produce output that will put downward pressure on prices.

Indeed, Miltion Friedman said inflation from money creation is an issue in the long-term - meaning that in the long term full employment/economic-output will be reached, and then continuing money creation at that point will cause increased inflation.

That also means it is not a short-term problem, when employment/economic-output is far below potential; there is room to spend then (even through money creation), but it must be stopped when full economic output is reached.

Spending which (by itself) causes excessive inflation, before reaching full economic output, is a distributional problem with where the money is being spent, not a problem of money creation.

It's all about efficiently allocating resources (which is a good definition of 'economics'), including labour - it's a resource problem, not a 'money' problem.