[Audio] The French Connection: Credit VS Debt Based Economy

[ctiger2]

http://iamthewitness.com/audio/Rafee...14-06-2010.mp3

A bit of ripping on Ron Paul and the Gold standard...

[hugolp]

You could explain what you mean by credit based economy and debt based economy.

[ctiger2]

You could explain what you mean by credit based economy and debt based economy.

Sorry, I meant to write Credit vs Debt based monetary system.

[IceForester]

You could explain what you mean by credit based economy and debt based economy.

A debt based monetary system is the one we have now and which supported by central bankers regardless of whether its fiat or gold backed(red herring) its based on fractional reserve lending by private banks (the printing press inflation decoy imagery is fooling many people)

Credit based system is like the Worgl miracle the local currency that allowed this Austrian region to prosper during the great depression by issuing its money following a specific method without having to borrow from banks at interest, which was fought against by central banks.

[hugolp]

It might be that I am an engineer and like specific and clear stuff, but all this sounds like switching words arround. I would apreciate if you could clarify:

A debt based monetary system is the one we have now and which supported by central bankers regardless of whether its fiat or gold backed(red herring) its based on fractional reserve lending by private banks (the printing press inflation decoy imagery is fooling many people)

You say that "the printing press inflation decoy imagery is fooling many people", how is inflation not a problem? In fact, it is the fact that the governement have given the central banks the capacity to inflate that allows the banks to create more and more debt. Without that, banks would be restricted, as has been seen during the times where there was no central bank or similar regulations.

Credit based system is like the Worgl miracle the local currency that allowed this Austrian region to prosper during the great depression by issuing its money following a specific method without having to borrow from banks at interest, which was fought against by central banks.

Yes, voluntary currencies are the solution (have you seen bitcoin? : http://www.bitcoin.org/, its a fiat digital voluntary currency), and it is obvious that central banks are going to try to avoid any competition using the force of government. Central banks are created by government to handle the monopoly on money, it is obvious that they are going to do anything they can to keep the monopoly. But I still dont see the point.

[IceForester]

"I would apreciate if you could clarify"

NP

"You say that "the printing press inflation decoy imagery is fooling many people", how is inflation not a problem? "

"the printing press inflation decoy imagery is fooling many people"
refers to the overestimation of and focus on the printing of bills as the primary cause of inflation, and the underestimation of the fractional reserve's effect namely that (fractional reserve) regular private bank lending(and financial activities) results in over 90% of the money in circulation. Many people think that the total money in circulation equals that which is printed by central banks, which is dead wrong by a huge magnitude (and even more so since; the banking act of 1933 was dismembered and banks have lobbied to to reduce reserve requirements and unregulated derivatives have proliferated).

"given the central banks the capacity to inflate that allows the banks to create more and more debt. Without that, banks would be restricted"

as mentioned above, reducing reserve requirements for financial transactions and products can lead to massive inflationary pressure even if the printing presses are stopped (and defaults on enough financial products can create deflationary pressure even if the printing press is rolling).

In addition, depending of the situation, circulation vs. hoarding and production also affects inflation, if theres a lot of hoarding you will have less money circulating, and if production of real goods and services is high an increase in the money supply can potentially have no effects on inflation because there's a lot more things to purchase with a little more money.

Also, your purchasing power can go up or down due to a variety of factors, if a number of factors suppress your purchasing power and someone points the finger at inflation it may distract you form these other factors. For example if jobs are outsourced to 3rd world countries and workers are underemployed(mcjobs) and have the small end of the negociating stick, but that the relative loss of purchasing power is explained by the people who do the outsourcing as resulting from "inflation" then you might not properly evaluate the big picture. (Alan Greenspan was in favor of reducing the wages of american workers to a level more in line to 3rd world countries)

The other aspect to consider is that governements that are not issuing the money thats required for the economy often borrow at interest money that could have been issued without interest(with the option of taking it out of circulation as an alternative to payment if the economy is active).

"have you seen bitcoin?"

No, but I just checked it very briefly. Offhand its good to break the central banks monopoly on money. But my first impression is that there is a Huge difference between Worgl and bitcoin;
Although bitcoin allows you to trade a pepsi for a comic book, the coins get issued for doing little of productive value(or I presume paying real money for bitcoins), and you are not likely to buy a water treatment plant or infrastructure, and the town you live in might not have the means to build such a plant without massive taxes no one can affoard or borrowing at interest. So what typically happens is that you will pay taxes for the plant and at least as much taxes to pay interests equivalent to 1 or 2 plants you are not getting. If the town issues money for the plant instead, there will be an inflationary pressure(as you would with a loan), but if the town collects taxes equivalent to the plant's cost and removes it from circulation as an alternative to paying back a loan, once paid thats it you just paid the cost of the plant and not twice as much in interest. In addition, in some situations it might be difficult to get a loan, so the issuing of money for the plant creates jobs and stimulates the economy as well as the money required to pay taxes.

[hugolp]

"the printing press inflation decoy imagery is fooling many people"
refers to the overestimation of and focus on the printing of bills as the primary cause of inflation, and the underestimation of the fractional reserve's effect namely that (fractional reserve) regular private bank lending(and financial activities) results in over 90% of the money in circulation. Many people think that the total money in circulation equals that which is printed by central banks, which is dead wrong by a huge magnitude (and even more so since; the banking act of 1933 was dismembered and banks have lobbied to to reduce reserve requirements and unregulated derivatives have proliferated).

As I alredy said, the banks can only extend themselves so much because they have the central bank covering them. And the central bank can cover them because the government has given it those powers with regulations. Without all this regulations the banks could not overextend themselves.

I can show you data of how unregulated FRB is not inflationary. It still has its problems in my opinion (ask if you are curious) but the reality is that unregulated FRB is not inflationary and does not led to massive debt expansion. That is reality (I can show you data if you want to, if you have other historic data show it to me but I doubt it). So basically you are mischaracterizing the problem by pointing to the FRB for the massive debt created in the system. And there is alredy enough confusion with this things for someone to go arround explaining false stuff.

Btw, the main reason derivatives have proliferated is the Bassel I accord (the regulations the Fed adopted in 198X), wich stimulated banks to develop the derivatives. Anyways, without the massive amount of money that the monetary system allows them to create derivatives would not be a problem. Its important to go to the root and not the symptoms.

as mentioned above, reducing reserve requirements for financial transactions and products can lead to massive inflationary pressure even if the printing presses are stopped (and defaults on enough financial products can create deflationary pressure even if the printing press is rolling).

In addition, depending of the situation, circulation vs. hoarding and production also affects inflation, if theres a lot of hoarding you will have less money circulating, and if production of real goods and services is high an increase in the money supply can potentially have no effects on inflation because there's a lot more things to purchase with a little more money.

Also, your purchasing power can go up or down due to a variety of factors, if a number of factors suppress your purchasing power and someone points the finger at inflation it may distract you form these other factors. For example if jobs are outsourced to 3rd world countries and workers are underemployed(mcjobs) and have the small end of the negociating stick, but that the relative loss of purchasing power is explained by the people who do the outsourcing as resulting from "inflation" then you might not properly evaluate the big picture. (Alan Greenspan was in favor of reducing the wages of american workers to a level more in line to 3rd world countries)

Wages depends on productivity, and a big factor of it its capital capacity. If a worker has a machine that allows him/her to do the job of 4 or 5 people without that machine he/she can earn a lot more than without the machine, because its producing more. For example, a worker with a digger earns more money than a worker with a shovel.

BUT, when you create inflation you distort the capital structure, create malinvestments, and end up de-capitalizing an economy (wich is exactly what its happening to the USA). Therefore, without the proper capital, the workers of that economy are not productive enough and the jobs go to other countries. So basically, inflation is what its sending the jobs to China. I can extend this explanation if you are interested.

The other aspect to consider is that governements that are not issuing the money thats required for the economy often borrow at interest money that could have been issued without interest(with the option of taking it out of circulation as an alternative to payment if the economy is active).

But governments are alredy "printing money". When a central bank monetizes government debt is equivalent to governments printing money.

No, but I just checked it very briefly. Offhand its good to break the central banks monopoly on money. But my first impression is that there is a Huge difference between Worgl and bitcoin;
Although bitcoin allows you to trade a pepsi for a comic book, the coins get issued for doing little of productive value(or I presume paying real money for bitcoins), and you are not likely to buy a water treatment plant or infrastructure, and the town you live in might not have the means to build such a plant without massive taxes no one can affoard or borrowing at interest. So what typically happens is that you will pay taxes for the plant and at least as much taxes to pay interests equivalent to 1 or 2 plants you are not getting. If the town issues money for the plant instead, there will be an inflationary pressure(as you would with a loan), but if the town collects taxes equivalent to the plant's cost and removes it from circulation as an alternative to paying back a loan, once paid thats it you just paid the cost of the plant and not twice as much in interest. In addition, in some situations it might be difficult to get a loan, so the issuing of money for the plant creates jobs and stimulates the economy as well as the money required to pay taxes.

Here is the key point.

But what is the difference with the present system? I mean, you want to do it regionally, but at a government level its alredy "printing money" (monetizing the debt). So the government can overprice anything it needs and control any resource it wants, just like you are suggesting it should.

The problem I see with the system we have (what you are in favor of) is that it requires a monopoly on money, that is forcing people to use a specific money at the point of a gun. And that is because you believe some burocrat that got that power because of the violence government can exercise will allocate resources better and create more useful investment than the citizens would if they could voluntarely choose. You believe through violence and forcing people with guns you achieve better results. I believe you achieve better results when people cooperate.

[IceForester]

Ok I see we disagree.

we are using different perspectives and information to analyse the situation. We could agree to disagree overall, and see if there's common ground

"unregulated FRB is not inflationary"

ok, I think we are not looking at this from the same angle, if I print 2 million $ theres goint to be inflationary pressure, once that pressure is taken into acount there will not be additional pressure you get stability but that 2 million is still there and someone could say that 2 million is not (rather no longer) inflationary. Is this about right?

Heres a few questions to see how far away our views are;

1- over 90% of the money supply is not printed money but results from loans? Yes or no?
2- Does this money circulate in the economy? Yes or no?
3- Can a higher reserve ratio combined with a higher quantity of printed money balance out? Yes or no?
4- Can reducing the reserve ratio increase the money supply? Yes or no?


http://upload.wikimedia.org/wikipedi...ey_supply2.svg

As seen above, The M0 and M1 index are reported, but M3 is no longer reported.
5- In your opinion, is the M3's to M0 ratio is remaining constant?

"basically, inflation is what its sending the jobs to China."

I disgree and theres no point debating that one

When a central bank monetizes government debt is equivalent to governments printing money.

6- Is there interest on the government debt that is being monetized?

7- How do you account for the succes of Worgl?

"guns" "violence" etc

Sorry, I'm not going there

8- Do we agree that there should be a state where people with your views should be allowed to run their 'whatever you think is best solution' and another state where people are allowed to try the Worgl experiment?

It looks to me like we can try different systems in different regions, allowing people to move to the region of their choice(without needing permission from the place they're leaving), but that we all have a common challenge in the central banks opposition to different solutions(which is likely to start with a smear/fearmongering campain in the controled media to justify sanctions/fasle flag/actions).

[hugolp]

ok, I think we are not looking at this from the same angle, if I print 2 million $ theres goint to be inflationary pressure, once that pressure is taken into acount there will not be additional pressure you get stability but that 2 million is still there and someone could say that 2 million is not (rather no longer) inflationary. Is this about right?

Heres a few questions to see how far away our views are;

1- over 90% of the money supply is not printed money but results from loans? Yes or no?
2- Does this money circulate in the economy? Yes or no?
3- Can a higher reserve ratio combined with a higher quantity of printed money balance out? Yes or no?
4- Can reducing the reserve ratio increase the money supply? Yes or no?


http://upload.wikimedia.org/wikipedi...ey_supply2.svg

As seen above, The M0 and M1 index are reported, but M3 is no longer reported.
5- In your opinion, is the M3's to M0 ratio is remaining constant?

Why are you bringing data of regulated FRB? We alredy agree that a central bank + FRB system (wich is a regulated system as I alredy explained) its inflationary.

I am saying that unregulated FRB is not inflationary. You bring data of regulated FRB. Why?

I disgree and theres no point debating that one

I was thinking so, and it is a shame because you would understand a lot of things.

6- Is there interest on the government debt that is being monetized?

All the interest that the government pays on the debt the central bank holds are benefits of the central banks. All the benefit of a central bank is payed back to the government. The money goes in and then back, its the same as if the interest were not payed.

When the central bank monetizes government debt is equivalent to the government printing money.

And it is the same or very very similar as what you are asking, but somehow you seem to think that you are demanding a completely different system.

7- How do you account for the succes of Worgl?

How do I account to the success of a voluntary currency? Because competition keeps the currency sane. I dont know if you realize but I support voluntary currencies.

Sorry, I'm not going there

Yeah, well, Hitler or Stalin could say the same. The fact of the matter is that you want to impose a monopoly on money on people, and you dont mind using violence to do so. That is a reality wether you want to go there or not.

8- Do we agree that there should be a state where people with your views should be allowed to run their 'whatever you think is best solution' and another state where people are allowed to try the Worgl experiment?

It looks to me like we can try different systems in different regions, allowing people to move to the region of their choice(without needing permission from the place they're leaving), but that we all have a common challenge in the central banks opposition to different solutions(which is likely to start with a smear/fearmongering campain in the controled media to justify sanctions/fasle flag/actions).

The point of the matter is that I honestly think that you are confused and you are demanding a system that is utterly similar to what it is in place now, its just that for some reason I fail to see you think its completely different. Probably new rulers would make the system more beareable for a while, but at the end what you are asking is what we alredy have.

[IceForester]

"system that is utterly similar to what it is in place now"

Maybe, but the Austrian Central Bank sure didnt allow Worgl to continue even if it was a success.

So my main question is, would you;

A) allow different states to adopt the system they prefer; keep the existing system, a system thats utterly similar from your point of view, your system, some other system, and advocate the right for each state to do so without reprisals from the Fed/Centralbank/WallStreet,
OR
B) impose your system across the country (even if a majority in state X want another system, and the majority in another state Y want something else)

?

[hugolp]

Maybe, but the Austrian Central Bank sure didnt allow Worgl to continue even if it was a success.

So my main question is, would you;

A) allow different states to adopt the system they prefer; keep the existing system, a system thats utterly similar from your point of view, your system, some other system, and advocate the right for each state to do so without reprisals from the Fed/Centralbank/WallStreet,
OR
B) impose your system across the country (even if a majority in state X want another system, and the majority in another state Y want something else)

?

I think I alredy answered that question, but let me say it very clearly: I would allow anyone to use the currency they choosed without government (or anyone else) using violence or force to impose one or other currency.

And now my turn to question: Would you support a system that allows anyone to use the currency they choose or would you support the government (or anyone else) imposing one currency using violence?

Btw, its a shame that you are refusing to discuss the economical issues, because I think you have a good understanding of the system but with a couple of mistakes that are confusing you.

[IceForester]

And now my turn to question: Would you support a system that allows anyone to use the currency they choose or would you support the government (or anyone else) imposing one currency using violence?

I'm in favor of allowing more freedom in the currency available (local, LETS, etc). This being said, if the majority of people in a region want to use a certain system, then I'm in favor for that region(state) to give it a shot without preventing others to use the system they prefer be it free for all or monopoly. I am generally in favor of Local democracy and local decisions combined with federated voluntary cooperation(local cooperates bottom up instead of top-down decisions imposed on states/local communities).

For example you may feel you want the absolute freedom to run red lights at 120 miles per hour in a school zone claiming its your freedom and that no one should use "force" to prevent you from zig-zagging between todlers at break-neck speed, thats all find and well, if you find a region/community that wants that type of freedom its ok as long as its not imposed at large (one size fits all) to all regions and states, so if your region wants mad-max-behond thunderdome people from other regions should keep this in mind when going to your region/state and people that identify with this will find a place thats a good match, and by the same token if communities from another region want red lights and school zone speed limits to be respected then people from other regions should accept the local concensus and laws/code of conduct/etc.