Bill Still's Money Masters

[Toddsterpatriot]

They can create new reserves and buy something with them.
If they bought lunch, would you say money was created with Big Macs attached?

Not only legally they can't, they would never even want to. A Big Mac is not an asset. It doesn't come with an income stream like debt does.

They wouldn't want to buy lunch? Don't they get hungry?
I buy lunch all the time, even though it isn't debt.

Stop being stupid, ok?

By the way, my link goes on to say that the Fed trades those pieces of paper to the regional reserve banks for 'collateral', i.e. debt.

Sorry, but banks buy FRNs from the Fed, no debt involved. The Fed reduces their balance held in reserve, the Fed doesn't loan them $20s.

That was your chance to post a link with supporting evidence, but you blew it.

Straw man time again? I didn't say you paid the interest, I said someone, somewhere is paying interest on the bank debt that $20 represents.

But here, let me keep it simple for you. Imagine no money exists. The Fed is started, and the government goes to the Fed with a $20 bond at 7% and gets a $20 bill. They pay you $20 to stop bogging down discussions on the Internet.

Are you going to deny that the government is paying interest on that $20?



Right there's where you exhibit your deep misunderstanding of the money system.
If the government wasn't in debt, there would be no money

Macroeconomics*|*Chapter Highlights

The Fed initially creates the money when it loans it to the government, and when that loan is paid back, there's no monetary base left and the banks have to call in all the loans and destroy the money.

So no government borrowing, no money supply.
Of course, it you understand it differently, it would help if you posted a link so I can learn the source of your deep wisdom.



I'm glad you feel that way. That's exactly what's happening today, except for the expensive fact that the Fed prints it at interest, and the government would print it free of interest.

and not have interest attached that would amount to two times plus the cost of the dam, and taxpayers wouldn't have to pay that extra cost.

If you don't want taxpayers to pay extra, get politicians to stop borrowing.

I'm trying to. That's why elimination of the Fed and fractional reserve banking is really quite important. Jefferson wanted an amendment forbidding the federal government from borrowing. I do too.

But before that can happen, you and millions of others have to understand the fact that we can't ever get out of debt when the money supply is created from debt.

I have no idea why anyone would support a system that allows people who simply write numbers into bookkeeping entries "earn" more than the people who actually do the work.

Yes, it's awful that banks take deposits and loan out a portion of them.
Just awful! We were better off before banking allowed savings and investment and growth.

We certainly were. And I see your misinformation extends to the natural world and arithmetic too. You seem to like 'growth', probably 'constant growth'. Watch this video...
[ame=http://www.youtube.com/watch?v=cOrvGDRLT7A&feature=player_embedded]Arithmetic, Population and Energy - YouTube[/ame]

I said someone, somewhere is paying interest on the bank debt that $20 represents.

So what?
Pretend the Treasury prints the $20 instead of the Fed. Do you imagine the amount of debt in the world has decreased?

 

[joewp]

Has the liberal ever said what he wants to replace fractional reserve banking? His objection it seems to be that he lacks the IQ to understand it.

Wow, what a loaded pair of sentences. Loaded with misconceptions and false assumptions, complete with an ad hominem, maybe even two!

'the liberal'? I know some people who use that as an insult. Which is kind of funny since I'm anything but a 'liberal', or a 'conservative'. As far as I'm concerned, politics in this country is a dog-and-pony show designed to make us think our votes matter. And next time, if you have a question for me, just ask me. At least you'll get the correct information. Toddster has no idea what I want to replace the FRBS with.

Seems to me, the people who insist our money doesn't have interest attached are the ones that are IQ-challenged.

 

[joewp]

I said someone, somewhere is paying interest on the bank debt that $20 represents.

So what?
Pretend the Treasury prints the $20 instead of the Fed. Do you imagine the amount of debt in the world has decreased?

Ok, so you're admitting that someone, somewhere actually is paying interest on the $20 in your pocket. That's good.

Your question is very puzzling to me because I never said debt is decreased because cash is printed. Oh wait! You're preparing another straw man! I forgot you had the tendency to do that for a sec.

Oh, just parsed your question differently and see what you're getting at. No, I don't imagine that debt is decreased by the Treasury printing it. But debt is certainly not increased, which is the point. Except of course, if the $20 is used to pay back the national debt, then yes, debt is decreased.

 

[EdwardBaiamonte]

I'm anything but a 'liberal', or a 'conservative'.

it seem to me that makes you stupid. Why be so afraid to tell us what you are?????? We like secrets!! Dear, we have to know the disease to cure it. An independent flip flopper???

Toddster has no idea what I want to replace the FRBS with.

so this is another of your little secrets. Why be so afraid to tell us??

 

[Toddsterpatriot]

I said someone, somewhere is paying interest on the bank debt that $20 represents.

So what?
Pretend the Treasury prints the $20 instead of the Fed. Do you imagine the amount of debt in the world has decreased?

Ok, so you're admitting that someone, somewhere actually is paying interest on the $20 in your pocket. That's good.

Your question is very puzzling to me because I never said debt is decreased because cash is printed. Oh wait! You're preparing another straw man! I forgot you had the tendency to do that for a sec.

Oh, just parsed your question differently and see what you're getting at. No, I don't imagine that debt is decreased by the Treasury printing it. But debt is certainly not increased, which is the point. Except of course, if the $20 is used to pay back the national debt, then yes, debt is decreased.

Ok, so you're admitting that someone, somewhere actually is paying interest on the $20 in your pocket.

No, your claim is still silly.
You claim that the first purchase with the $20 is debt, so that attaches interest to the $20.

I claim that the second purchase is a Big Mac. Why isn't a Big Mac now attached to the $20?
Why does only the first purchase count? Why not the second or third or fourth?

 

[joewp]

I'm anything but a 'liberal', or a 'conservative'.

it seem to me that makes you stupid. Why be so afraid to tell us what you are?????? We like secrets!! Dear, we have to know the disease to cure it. An independent flip flopper???

Flip-flopper would imply that I often support either one or the other party's positions. I don't. If you want a label, call me an ecological realist. I'll bet you have fun with that label.

Toddster has no idea what I want to replace the FRBS with.

so this is another of your little secrets. Why be so afraid to tell us??

Nobody has actually asked me, now have they?

 

[freedombecki]

I'm anything but a 'liberal', or a 'conservative'.

it seem to me that makes you stupid. Why be so afraid to tell us what you are?????? We like secrets!! Dear, we have to know the disease to cure it. An independent flip flopper???

Flip-flopper would imply that I often support either one or the other party's positions. I don't. If you want a label, call me an ecological realist. I'll bet you have fun with that label.

Toddster has no idea what I want to replace the FRBS with.

so this is another of your little secrets. Why be so afraid to tell us??

Nobody has actually asked me, now have they?

I will ask. With what do you wish to replace the FRBS?

 

[joewp]

Since you asked, becki:

First of all, talking about eliminating FRB is empty rhetoric without changing the money system. The Fed is the granddaddy of FRB, since it creates all our currency out of thin air in the first place. Money shouldn't be a basically worthless piece of paper (or bits in a computer), but a real thing of value.
Being a conservative in this case, I would recommend we return to what our founding fathers declared a dollar to be in the Coinage Act of 1792:

DOLLARS OR UNITS--each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

now of course, since the silver price in FRN is now around $30 a ounce, we'd have to devalue the dollar to account for the inflationary damage the Fed has caused these last 100 years and probably cut the amount of silver in a dollar to around 10 grains or so, but that new dollar would have an inherent value in and of itself, and not depend on the government declaring it as 'legal tender', because people would acknowledge its worth in and of itself. The mint would start producing these new dollar coins (and the convenient paper Silver Certificates) and spend them into the economy, instead of "borrowing" Fed-created "money".

Now, having established a money supply that's actually worth something, we turn to the "banks". We need to split the functions of a bank into at least two distinct parts. One is money storage and distribution(check and ACH clearing), or what people think a bank does. You deposit money and write checks against your balance, and pay a small fee for the service. In the meantime, instead of an 'account', the bank actually holds your physical coins or certificates in a safe, earmarked as your actual money and transfers that money to another bank or customer's safe to satisfy the check.

The other function is investment, in which you take the money you don't need and want to earn interest and loan it to a loan broker, who then aggregates your money with other's money and makes loans, and pays you a portion of the interest, with the understanding that your money is at risk.

In my opinion, a system like this would reward people who actually built this country and let them keep the fruits of their labor, rather than having it slowly removed from them by the inflation that is inherent in FRB.

Your posting name is freedombecki, but yet I see you thanking Toddster for his posts. Since I answered your question, please answer mine:
Where is the freedom in having a quasi-governmental, quasi-private institution like the Fed dictate the value and amount of currency in circulation? It actually sounds more like slavery or dictatorship to me. Some people insist that Congress controls the Fed. What I see is if the Fed wants more power, Congress bends over backwards to give it to them. Recent events bear that out. You want freedom? Fight for your right to control the value of your own labor, don't hand the right over to a bunch of bankers whose only interest in increasing their personal wealth.
(If you don't think that's what's happening now, you need to pay more attention to current events)

 

[joewp]

hmm, added a pertinent sig, but don't see it. Maybe on a new post???

Yep, there it is.

I don't think anyone can argue the truth of Adam Smith's statement.
Which is:
"Labour was the first price, the original purchase - money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased." - Adam Smith

 

[DSGE]

Since you asked, becki:

First of all, talking about eliminating FRB is empty rhetoric without changing the money system. The Fed is the granddaddy of FRB, since it creates all our currency out of thin air in the first place. Money shouldn't be a basically worthless piece of paper (or bits in a computer), but a real thing of value.

Absolutely it should. Money is not a store of wealth. It is not an asset meant to reward you for foregone consumption, like a bond does. The fundamental reason money exists, the reason we don't simply have a pure barter economy, is that it serves as a medium of exchange and unit of account; it solves the double coincidence problem, and makes economic calculation easier. It need only store value to the extent that the medium of exchange property is not eroded.

How, might I ask, would you make the real value of money constant? Tying it to gold, freezing the monetary base? Neither would keep the value constant as shocks to the relative demand for gold, or the demand for currency or reserves, would cause money to become more or less scarce, relative to the goods it can buy. Would you freeze the price level, or nominal income? That would involve the quantity of money changing in order to offset changes in the demand for money.

Then you have the problem of severe recessions and depressions. If you fix the value of money to one good, say gold or silver, then a shock to the demand for money means that all other prices in the economy must adjust. We know from historical evidence that they are very slow in adjusting downwards, and invariably result in enormous loss to the productive capacity of the economy.

At the end of the day, you are making a moral argument, not an economic one. While I'm fine with moral arguments, yours is a statement about instruments; I'd prefer a statement about outcomes. For example: welfare reducing fluctuations in output and employment are bad, the behaviour of the money supply affects those fluctuations is the following ways: .... And make recommendations about the value of money from there.

 

[Toddsterpatriot]

Now, having established a money supply that's actually worth something, we turn to the "banks". We need to split the functions of a bank into at least two distinct parts. One is money storage and distribution(check and ACH clearing), or what people think a bank does. You deposit money and write checks against your balance, and pay a small fee for the service. In the meantime, instead of an 'account', the bank actually holds your physical coins or certificates in a safe, earmarked as your actual money and transfers that money to another bank or customer's safe to satisfy the check.

Why do you feel this is better?

 

[EdwardBaiamonte]

hmm, added a pertinent sig, but don't see it. Maybe on a new post???

Yep, there it is.

I don't think anyone can argue the truth of Adam Smith's statement.
Which is:
"Labour was the first price, the original purchase - money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased." - Adam Smith

so whats your ideal system and why is it better?????????????????????

 

[Cabron]

Since you asked, becki:

First of all, talking about eliminating FRB is empty rhetoric without changing the money system. The Fed is the granddaddy of FRB, since it creates all our currency out of thin air in the first place. Money shouldn't be a basically worthless piece of paper (or bits in a computer), but a real thing of value.

Absolutely it should. Money is not a store of wealth. It is not an asset meant to reward you for foregone consumption, like a bond does. The fundamental reason money exists, the reason we don't simply have a pure barter economy, is that it serves as a medium of exchange and unit of account; it solves the double coincidence problem, and makes economic calculation easier. It need only store value to the extent that the medium of exchange property is not eroded.

How, might I ask, would you make the real value of money constant? Tying it to gold, freezing the monetary base? Neither would keep the value constant as shocks to the relative demand for gold, or the demand for currency or reserves, would cause money to become more or less scarce, relative to the goods it can buy. Would you freeze the price level, or nominal income? That would involve the quantity of money changing in order to offset changes in the demand for money.

Then you have the problem of severe recessions and depressions. If you fix the value of money to one good, say gold or silver, then a shock to the demand for money means that all other prices in the economy must adjust. We know from historical evidence that they are very slow in adjusting downwards, and invariably result in enormous loss to the productive capacity of the economy.

At the end of the day, you are making a moral argument, not an economic one. While I'm fine with moral arguments, yours is a statement about instruments; I'd prefer a statement about outcomes. For example: welfare reducing fluctuations in output and employment are bad, the behaviour of the money supply affects those fluctuations is the following ways: .... And make recommendations about the value of money from there.

I couldn't agree more.

 

[joewp]

Since you asked, becki:

First of all, talking about eliminating FRB is empty rhetoric without changing the money system. The Fed is the granddaddy of FRB, since it creates all our currency out of thin air in the first place. Money shouldn't be a basically worthless piece of paper (or bits in a computer), but a real thing of value.

Absolutely it should. Money is not a store of wealth. It is not an asset meant to reward you for foregone consumption, like a bond does. The fundamental reason money exists, the reason we don't simply have a pure barter economy, is that it serves as a medium of exchange and unit of account; it solves the double coincidence problem, and makes economic calculation easier. It need only store value to the extent that the medium of exchange property is not eroded.

And the Fed erodes the medium of exchange constantly. The dollar has lost 98% of its purchasing power, most of that occurring in the last 40-50 years since we went off the silver standard and Nixon closed the gold window.

How, might I ask, would you make the real value of money constant? Tying it to gold, freezing the monetary base? Neither would keep the value constant as shocks to the relative demand for gold, or the demand for currency or reserves, would cause money to become more or less scarce, relative to the goods it can buy. Would you freeze the price level, or nominal income? That would involve the quantity of money changing in order to offset changes in the demand for money.

When you have money based on a real thing with value, the free market will adjust the value of the money quite nicely. Take silver over the last fifty years. I found this site The Food Timeline--historic food prices which has the prices for Kellog's Corn Flakes back to 1907! Concentrating on the period from 1960 to the present, we find that a silver dollar would buy you a little more than 66 ounces of cereal. (18ounces/27cents = .667 ounces per penny * 100).
Today a silver dollar would fetch you 23 FRNs and and 12 ounces of corn flakes cost 3.79 FRNs. That's 12/3.79 = or .032 ounces per penny * 2300 = 72 ounces for your silver dollar.

The FRN can only buy 5% of the corn flakes it could in 1960, but a silver dollar can actually buy more than 1960.

Also on that page is the price history of Oreos. Back in 1960 Oreos went for 45 cents a pound, or .35 ounces per penny, 35 ounces for a dollar. Today, an Oreo 14.3 ounce package costs you 4.59, or 0.03 ounces per penny.

The FRN can buy you 3 ounces today, but a silver dollar gets you 69 ounces.

Even in the last 50 or so years that silver has been de-monetized, it still holds its value far better than that crappy piece of paper or digitized FRN.
So what are you worried about?

Then you have the problem of severe recessions and depressions.

Recessions and depressions are the results of the fractional reserve banking system. Nation- and world-wide recessions and depressions are the results of central banking lending too much money into circulation then cutting back on lending.

If you fix the value of money to one good, say gold or silver, then a shock to the demand for money means that all other prices in the economy must adjust. We know from historical evidence that they are very slow in adjusting downwards, and invariably result in enormous loss to the productive capacity of the economy.

What we know from history is that precious metals hold their value relative to goods and services far better than any piece of fiat paper. The two examples above are just the tip of that iceberg.

At the end of the day, you are making a moral argument, not an economic one. While I'm fine with moral arguments, yours is a statement about instruments; I'd prefer a statement about outcomes. For example: welfare reducing fluctuations in output and employment are bad, the behaviour of the money supply affects those fluctuations is the following ways: .... And make recommendations about the value of money from there.

Hey, I'm no economist! I'd rather be dead than be an economist, actually.
Economics in its current form is just more or less a justification for fiat debt money, anyway. And the fact that economics tries to exist without any reference to the real world makes it , shall we say, irrelevant. All I can see is that in a honest money system without FRB at least the rewards of labor would be bestowed on those producing real goods and services, rather then the majority going to the powerful few.

 

[EdwardBaiamonte]

All I can see is that in a honest money system without FRB at least the rewards of labor would be bestowed on those producing real goods and services, rather then the majority going to the powerful few.

dear you don't seem to understand that we have FRB because anyone with money in a bank wants FRB so they they can earn interest rather than pay interest as a storage fee.

Over your head??

 

[EdwardBaiamonte]

The dollar has lost 98% of its purchasing power,

of course that is very stupid given how rich we all are compared to 50 years ago!!

 

[joewp]

Now, having established a money supply that's actually worth something, we turn to the "banks". We need to split the functions of a bank into at least two distinct parts. One is money storage and distribution(check and ACH clearing), or what people think a bank does. You deposit money and write checks against your balance, and pay a small fee for the service. In the meantime, instead of an 'account', the bank actually holds your physical coins or certificates in a safe, earmarked as your actual money and transfers that money to another bank or customer's safe to satisfy the check.

Why do you feel this is better?

Lots of reasons. For starters, it doesn't give a 'bank' the chance to immediately devalue the real labor put into earning the deposit by turning around and creating new debt money, stealing the value of your labor. Example: You earned the first $100 ever. You put it in a bank for safe keeping. The bank now creates and loans $90 (or more) and loans it to another guy who simply purchases 90%(or more) of the fruit of your labor without having to do anything to deserve it.

And forget about banks runs and FDIC, since the 'bank' would be required to keep your money separate and apart, you can always get it back. FYI, this is exactly what vaults like the NY Fed's vault in underground Manhattan does. It keeps each country's gold separate and apart and transfers physical gold between countries when required to.

Not only that, it would make it so that real, productive labor is the source of the money, rather than some magical doubling, tripling... increasing the money supply by the "Mandrake Mechanism", as G. Edward Griffin puts it. Only honest labor could increase the money supply by mining more silver. Which then would be subject to the laws of supply and demand to adjust prices, no need for government intervention.

On the whole, real people would profit from the fruits of their labor and there would be no special class granted the privilege of creating money when they make a loan. Just that fact should be enough for every individual to want to eliminate FRB.

 

[Toddsterpatriot]

Now, having established a money supply that's actually worth something, we turn to the "banks". We need to split the functions of a bank into at least two distinct parts. One is money storage and distribution(check and ACH clearing), or what people think a bank does. You deposit money and write checks against your balance, and pay a small fee for the service. In the meantime, instead of an 'account', the bank actually holds your physical coins or certificates in a safe, earmarked as your actual money and transfers that money to another bank or customer's safe to satisfy the check.

Why do you feel this is better?

Lots of reasons. For starters, it doesn't give a 'bank' the chance to immediately devalue the real labor put into earning the deposit by turning around and creating new debt money, stealing the value of your labor. Example: You earned the first $100 ever. You put it in a bank for safe keeping. The bank now creates and loans $90 (or more) and loans it to another guy who simply purchases 90%(or more) of the fruit of your labor without having to do anything to deserve it.

And forget about banks runs and FDIC, since the 'bank' would be required to keep your money separate and apart, you can always get it back. FYI, this is exactly what vaults like the NY Fed's vault in underground Manhattan does. It keeps each country's gold separate and apart and transfers physical gold between countries when required to.

Not only that, it would make it so that real, productive labor is the source of the money, rather than some magical doubling, tripling... increasing the money supply by the "Mandrake Mechanism", as G. Edward Griffin puts it. Only honest labor could increase the money supply by mining more silver. Which then would be subject to the laws of supply and demand to adjust prices, no need for government intervention.

On the whole, real people would profit from the fruits of their labor and there would be no special class granted the privilege of creating money when they make a loan. Just that fact should be enough for every individual to want to eliminate FRB.

On the whole, real people would profit from the fruits of their labor and there would be no special class granted the privilege of creating money when they make a loan.

Real people don't profit so much during a depression.

At least I understand now that some of your confusion can be blamed on Griffin.
His error filled book still makes me chuckle.

 

[joewp]

All I can see is that in a honest money system without FRB at least the rewards of labor would be bestowed on those producing real goods and services, rather then the majority going to the powerful few.

dear you don't seem to understand that we have FRB because anyone with money in a bank wants FRB so they they can earn interest rather than pay interest as a storage fee.

Over your head??

Nope, it's not over my head. But it must have escaped your notice that people are willing to pay a service fee for a worthwhile service, and a fee for money storage and transfers would be at least up front and easy to understand, and easy to shop for the lowest cost provider.

Of course, on the surface it looks like you're getting 'free checking', but the reality is the bank is lending/creating money based on your hard-earned, which immediately dilutes the value of your labor, robbing you of more purchasing power than you 'earn' from not paying a fee or getting 0.5% on your money.

I hope it's not over your head to realize that the originator of the created money gets the whole benefit of that new money, while the rest of the economy finds their existing money devalued. FRB literally steals value from the existing money supply. This is exactly what happened as FRNs started replacing silver dollars and certificates, inflating the price of silver beyond the monetary value. If people didn't have the FRNs to bid up the price of silver, we could still be using silver dollars today, and getting a hell of a lot more for them. See the examples of corn flakes and Oreos above. I could easily show you plenty of other, less trivial examples of how silver has retained its purchasing power.

 

[joewp]

The dollar has lost 98% of its purchasing power,

of course that is very stupid given how rich we all are compared to 50 years ago!!

I don't know how old you are, but I was around 50 years ago, and I can say categorically we are not any richer than then, and in many ways poorer.
Back when I was a kid, the mother working outside the home (as opposed to the real work inside the home) was quite rare. My mom had time for me. She was home when I got home from school, I wasn't shunted off to some day care while she earned just a little more than day care cost. My father had his own business, and even then he only worked 50 or so hours a week, not like the salaried suckers who put in 60-80 hours a week, only to find their hourly wage reduced by 33%-50%. When I first started working in the computer field (around 1978), we worked 9-5 with an hour for lunch. Now it's 9-5:30(or later) and 30 minutes for lunch.

Of course, if your 'we all' is the top 1%, then you're right. They've done quite well playing the fantasy money markets like FX and derivatives over the last 30 years. But that's not my 'we all'.

I'm starting to wonder if your comment was a poor attempt at sarcasm, since it's pretty well acknowledged that the baby boomers (of which I am one) were the last generation to actually do better than their parents.