Money Is Debt: The Absurdity Of Our Financial System

[God the Father]

I have a BBA in Finance from a T20 UG business program.

 

Fractional reserve banking is pretty much a crime, along with quantitative easing. John Ryan commented that withholding your money from "the financial system" is the only way to get burned on inflation, and this is partly true--investment in financial assets is conducted by most people with the goal of generating a real return on assets, and many people have accomplished this.

 

That said, "the financial system" is a byzantine web of derivative derivatives, regulation, cronyism, manipulation, etc., controlled by an extreme minority of wealthy, connected individuals, who benefit directly from the system they've created, where your choice to withhold your own hard-earned money from their system results in real erosion of your wealth because they've designed it that way. Your investment in their arrangement, necessary to merely maintain your wealth, enriches them to a greater and greater degree while putting you at risk of a 2007-esque bubble burst.

 

Furthermore, the idea that inflation helps retail debt slaves (that's all of us, now, thanks to the same people referenced above) doesn't have a firm basis in reality. As a consumer with a lot of retail debt, the inflation that decreases my real debt burden is simultaneously increasing my real food/gas/energy/insurance/clothing/furniture/detergent/soap/razors burden. In the best case scenario it's a wash for me in terms of net income, and in a realistic scenario the savings I've built up becomes worthless while my disposable income shrinks to prole levels. Anyone who does their own shopping can tell you that inflation is already out of control in spite of the official figures: This is because the official calculation of "CPI" has been changed dozens of times since its inception, always to goalseek a lower figure. Meanwhile 100% of retail debt is locked in at a variable rate with a spread 20x above the rock-bottom index that the powerbrokers are paying on debt.

 

http://www.shadowstats.com/alternate_data/inflation-charts

 

The graphs in the below link illustrate that the "Nixon Shock," which broke the post WWII Bretton-Woods international monetary framework tying all money to gold through the US dollar correlates pretty irrefutably with a sea-change in the trajectory of real wages and real wealth for the average American. This is because the people (they're people, not angels) in control of the money's value are not middle class and have no motivation to protect the prosperity of the middle class, and unsound money drives up the nominal price of the assets they (and fewer and fewer others) hold--increasing their own net worth while necessity purchases for the rest of us become less and less tenable.

 

http://www.zerohedge.com/news/guest-post-explaining-wage-stagnation

 

I get that most goldbugs/libertarians/tea partiers/preppers/soothsayers are insane, unattractive, and smelly. But they're telling the story that the media, highly interbred with a political and banking elite, refuse to tell, and it's worth lending an ear to.

Edited July 11, 2014 by God the Father

[John Ryan]

Do you currently live with your parents? And will they be helping you pay off your student debt?

 

I do not know where you are going with this. Let's get to the point.

 

When the power to define what is money is not vested in the hands of a few, different goods will operate as money. In the past, demand for such things as tobacco leaves, or furs, was high enough that those goods traded as money. Coin has more consistently enjoyed this status. Paper notes representing money were a convenience banks and governments exploited in order to commit fraud. Bank notes are now unbacked by money, but required under threat of force to be recognized as legal tender. Devaluation of government papaer has been forbidden under threat of force more than once, but at least in colonial times the governments that did this "promised" to eventually exchange the paper for money.

 

Federal reserve notes are not really "money". They're worthless paper backed by a threat of government violence.

 

It depends how you define money. I would not agree with the logic of your argument. 

[Winchester]

 

 

 

It depends how you define money. I would not agree with the logic of your argument. 

 

I stated an historical fact.

[John Ryan]

I have a BBA in Finance from a T20 UG business program.

 

Fractional reserve banking is pretty much a crime, along with quantitative easing. John Ryan commented that withholding your money from "the financial system" is the only way to get burned on inflation, and this is partly true--investment in financial assets is conducted by most people with the goal of generating a real return on assets, and many people have accomplished this.

 

That said, "the financial system" is a byzantine web of derivative derivatives, regulation, cronyism, manipulation, etc., controlled by an extreme minority of wealthy, connected individuals, who benefit directly from the system they've created, where your choice to withhold your own hard-earned money from their system results in real erosion of your wealth because they've designed it that way. Your investment in their, necessary to merely maintain your wealth, enriches them to a greater and greater degree while putting you at risk of a 2007-esque bubble burst.

 

Furthermore, the idea that inflation helps retail debt slaves (that's all of us, now, thanks to the same people referenced above) doesn't have a firm basis in reality. As a consumer with a lot of retail debt, the inflation that decreases my real debt burden is simultaneously increasing my real food/gas/energy/insurance/clothing/furniture/detergent/soap/razors burden. In the best case scenario it's a wash for me in terms of net income, and in a realistic scenario the savings I've built up becomes worthless while my disposable income shrinks to prole levels. Anyone who does their own shopping can tell you that inflation is already out of control in spite of the official figures: This is because the official calculation of "CPI" has been changed dozens of times since its inception, always to goalseek a lower figure. Meanwhile 100% of retail debt is locked in at a variable rate with a spread 20x above the rock-bottom index that the powerbrokers are paying on debt.

 

http://www.shadowstats.com/alternate_data/inflation-charts

 

The graphs in the below link illustrate that the "Nixon Shock," which broke the post WWII Bretton-Woods international monetary framework tying all money to gold through the US dollar correlates pretty irrefutably with a sea-change in the trajectory of real wages and real wealth for the average American. This is because the people (they're people, not angels) in control of the money's value are not middle class and have no motivation to protect the prosperity of the middle class, and unsound money drives up the nominal price of the assets they (and fewer and fewer others) hold--increasing their own net worth while necessity purchases for the rest of us become less and less tenable.

 

http://www.zerohedge.com/news/guest-post-explaining-wage-stagnation

 

I get that most goldbugs/libertarians/tea partiers/preppers/soothsayers are insane, unattractive, and smelly. But they're telling the story that the media, highly interbred with a political and banking elite, refuse to tell, and it's worth lending an ear to.

 

There is no question that the system we have is monstrous (Communist here), though I would dispute some of your specific points. The problem is that the "solutions" appear to be equally perverse. The Federal Reserve might not be angelic, but economies were much more unstable and crises more frequent on the gold standard. Criticize fiat currency all you want, I still think it is an improvement over the old system. 

[Winchester]

There is no question that the system we have is monstrous (Communist here), though I would dispute some of your specific points. The problem is that the "solutions" appear to be equally perverse. The Federal Reserve might not be angelic, but economies were much more unstable and crises more frequent on the gold standard. Criticize fiat currency all you want, I still think it is an improvement over the old system. 

That depends on the gold standard and the metrics for "unstable". The Bretton-Woods scam wasn't a "gold standard", and monetary manipulation was accomplished in different ways. I think Rothbard's work: https://mises.org/books/historyofmoney.pdf is illuminating. You can ignore the chapters on his economic theory and proceed straight to the history. He also detailed several of the scams run by different colonial governments in "Conceived in Liberty". 

 

Economists sometimes interpreted periods of deflation as equivalent to periods of depression. That's led to some mistakes. You will find that depressions were generally preceded by some sort of monetary or credit expansion, and this is most commonly accomplished by manipulation by governments. A real gold standard, sans fractional reserve, would minimize this, but the best system would be to permit competing currencies.

[mortify ii]

I do not know where you are going with this. Let's get to the point.

 

I'm trying to understand your perspective, whether you're coming more from a theoretical background or real world experience. 

 

So what exactly do you find the videos above at fault with? Your gave some verbose posts but we're hungry for substance. What is it that is wrong precisely?

[CrossCuT]

Get rid of the federal reserve. 

[John Ryan]

That depends on the gold standard and the metrics for "unstable". The Bretton-Woods scam wasn't a "gold standard", and monetary manipulation was accomplished in different ways. I think Rothbard's work: https://mises.org/books/historyofmoney.pdf is illuminating. You can ignore the chapters on his economic theory and proceed straight to the history. He also detailed several of the scams run by different colonial governments in "Conceived in Liberty". 

 

Economists sometimes interpreted periods of deflation as equivalent to periods of depression. That's led to some mistakes. You will find that depressions were generally preceded by some sort of monetary or credit expansion, and this is most commonly accomplished by manipulation by governments. A real gold standard, sans fractional reserve, would minimize this, but the best system would be to permit competing currencies.

 

I never really bought into the Austrian arguments regarding history. 

 

I'm trying to understand your perspective, whether you're coming more from a theoretical background or real world experience. 

 

So what exactly do you find the videos above at fault with? Your gave some verbose posts but we're hungry for substance. What is it that is wrong precisely?

 

My criticism is that the video lacks substance. It does not offer anything different from the mainstream economic theory of money and banking. The only difference is that the mainstream theory is not taught next to ominous music or scare-tactics of money fetishism. 

 

Get rid of the federal reserve. 

 

And then how do you manage the natural crises of capitalism?

[CrossCuT]

And then how do you manage the natural crises of capitalism?

 

Let them eat cake.

[John Ryan]

Let them eat cake.

 

If that means finally getting a socialist form of economy, then I say hallelujah.

[Winchester]

I never really bought into the Austrian arguments regarding history. 

 

 

 

It's not uniquely Austrian to see that goods with the highest demand meet the function of money. Nor is Gresham's law Austrian. It's not Austrian to observe that when unbacked government scrip was issued, people depreciated it until the government threatened them with violence. These are historical facts. That "gold standard" is a generic term often used without adequate research (as in applying it to the gold exchange standard) is a mere observation, also not unique to the Austrian school. None of that depends of Austrian business cycle theory, which uses economic law to describe as causative what one cannot escape as at least correlative.

 

Tobacco did in fact serve as money. So did furs. This isn't really up for debate.

 

Notes represented a good in storage. Not up for debate. Nor is it up for debate that issuing receipts for goods allegedly available on demand but in fact not in existence is fraud, nor is it up for debate that this practice was used by banks to benefit from the perceived value, which later declined when that value adjusted to reality (inflation).

 

These are not debatable. They happened. They're not uniquely Austrian.

 

 

The Federal Reserve was invented by people you would call capitalists. Inflation works on the same lines as debasement of specie, and the Fed reserve makes use of inflation to benefit banks. It doesn't get rid of crises, and the people claiming it does I should think you would find even less reliable than the Austrians. The Chicago school is a promoter of the idea of monetarism. I find it bizarre to see a communist echoing their nonsense.

[mortify ii]

My criticism is that the video lacks substance. It does not offer anything different from the mainstream economic theory of money and banking. The only difference is that the mainstream theory is not taught next to ominous music or scare-tactics of money fetishism. 

 

Ok...

 

Can you more specific? Do you not find the endless inflation, indefinite debt creation, and fiat currency problematic? I'm keeping in mind that you're a Marxist. 

[Isidore_of_Seville]

http://www.amazon.com/The-Creature-Jekyll-Island-Federal/dp/0912986212

[The Hierophant]

So we have Austrians and Marxists here, but no mainstream folks?

 

I don't know why so many people are opposed to fractional reserve banking.  If that were to disappear, I suspect the poor would be in a bad sorts as interest rates would skyrocket.  If the worry is that it is fraud, all that you need to add (and there probably is somewhere in the fine print, I'd bet) is a clause on the account contract saying that the bank has the right not to hold funds sufficient for everyone to withdraw their account simultaneously.  If the worry is that it generates boom/bust cycles - well, I think the Austrian theory says something like this.  But in my mind it's implausible to attribute (1) a conspiracy among academic economists to withhold the truth or (2) incompetence to the vast majority of economists out there.  Monetarists, Keynesians, and Neoclassical economists of all stripes all are fans of fractional reserve banking and make up the vast majority of highly educated economic researchers.  IMO, being an Austrian or Marxist is kind of like being a Christian Scientist or a homeopath:  you have a massive burden of proof to show that someone should trust your theories to the mainstream alternative, one that is probably impossible to bear in practice.

 

Call me crazy, but I think social democracy - a market economy with hearty-to-copious amounts of wealth redistribution - is probably the best we can hope for.  The happiest Western countries are social democracies.  What America really needs is a Christian Democratic party.

[God the Father]

 

Call me crazy, but I think social democracy - a market economy with hearty-to-copious amounts of wealth redistribution - is probably the best we can hope for.  The happiest Western countries are social democracies.  What America really needs is a Christian Democratic party.

 

Not sure if serious? See France/Spain/Italy/Greece/Cyprus

 

http://www.zerohedge.com/news/2014-05-25/european-voters-are-revolting-france-warns-situation-grave-europe (see chart toward bottom)

http://www.zerohedge.com/news/2013-01-28/labor-minister-says-france-totally-bankrupt

http://www.zerohedge.com/news/2012-12-29/french-constitutional-court-strikes-down-75-millionaire-tax-finds-it-unfair

http://www.zerohedge.com/news/2014-03-01/near-bankrupt-rome-bailed-out-italy-unemployment-rises-all-time-high-grows-most-reco

http://www.zerohedge.com/news/2013-03-16/europe-does-it-again-cyprus-depositor-haircut-bailout-turns-saver-panic-bank-runs-br

http://www.zerohedge.com/news/2014-07-01/spain-celebrates-end-recession-54-youth-unemployment-highest-january

http://www.zerohedge.com/news/2014-06-13/meanwhile-greece

 

Concurrently, the UK is inflating a real estate bubble so big it makes mid 00's USA seem minor by comparison.

 

Is this one of those "Cambodia's not a good example because it wasn't really communism" arguments?