Probably the most basic concept about currency, wealth & money is also the most misunderstood. There is this notion that wealth is a pie, managed by the govt. Poor people get a small slice of the pie, while greedy rich people take big slices. The origination of that pie is not considered. Wealth begins when a crop is harvested, a building is built, or a product manufactured. There is something of value, which people want. Without the demand, the item has no value, so the beginning of wealth starts with demand. All of the wealth of a nation depends on actual creation of something from raw materials, or the production of those raw materials. Production is the basis for all wealth & value. But what about Quantitative Easing? Can't the govt just print more money & provide the currency that fuels the economy? No. All that does is DILUTE the real product of a nation. It is drug dealer dynamics. A drug dealer gets some drugs & cuts it with powdered sugar or some other cheap diluting product, to make it go further, but he does not 'create' more drugs. It is like a distiller producing a barrel of whiskey, then diluting it with water to make 5 barrels. This is what QEs do. They dump more money into the system. It is shuffled around, skimmed off by bankers, politicians & their cronies, & finally trickling down to the people as borrowed money. But it is not based on production. It has NO basis for its creation. It is fundamentally destructive to the economy, not productive. So what does this dilution accomplish? 1. It enriches the money shufflers. An unintended consequence of QEs or any fiat money scheme is those who originate it profit the most. Instead of the PRODUCERS getting the bulk of the increase from their product, the money shufflers take the lion's share through dilution. They are like the drug dealers, cutting the original drug with bulky filler. 2. It causes inflation. The currency is not based on something of value, but simply declared. 3. It causes income inequality. The money shufflers: bankers, politicians, govt, financial sector manipulators. They get the bulk of the value from the nation's production, so they become rich off of other people's labor. 4. It discourages saving & thrift. What is most ironic is that those who oppose income inequality the most, support those who provide the setting for it to happen! Leftists & occupy wall street types are indignant over obscene profits from the banks, yet it is their political cronies that are making this happen. The politicians, via the federal reserve, are responsible for all the QEs, the complex derivatives & secret financial wranglings that dilute the currency & stifle the economy. They trumpet redistribution, but they are already redistributing from the producers to the NON productive money shufflers! Then, they want to INCREASE the dilution by giving away more money to other non producers in the society via the welfare state. They are merely cutting more bulky filler into an already diluted drug. That is why the value or 'potency' of our currency continues to decline. All it does is burn & not provide the high. But like good marketing drug dealers, they tell us what 'good stuff' this is. This is why the current financial system is doomed to fail. It is based on drug dealer dynamics.. ponzi scheme increases. It is NOT based on real production, nor does it reward it. Real production is discouraged, while money shuffling is rewarded. That is why people pursue MBAs instead of farming... politics instead of construction.. welfare instead of working. Hard, productive work is not rewarded, but shuffling & cons are. A currency, to be valid, should be based on something of value. That is the difference between 'hard' & 'fiat' currencies. Fiat currencies ALWAYS fail. They operate by dilution. They are currency by theft. They offer illusion in exchange for the created product. But eventually, the actual producers see through the scam & no longer accept the illusion. Then, you get weimar republic inflation & devaluing. The american dollar is allegedly based on our gdp.. gross domestic product. Now this sounds good, IF the currency is actually based on our production. But that is not the case. THe GDP is a propaganda construct. It does NOT measure actual production, but money shuffling! So they use the borrowing, shuffling, & skimming of money in the financial sectors to measure the nation's production. It is all paper based numbers with no reflection of reality or actual production. This seems like an obvious, common sense observation of reality. Yet when we actually propose & debate monetary policy, we think it grows on trees. We want to pass it out like candy. But there is no value without production. Unless a crop is produced, land improved, a product manufactured , or the raw materials mined or acquired for any of these things, all other increases come from dilution. The solution is to stop the flood of fiat money. That will end the dilution, limit the enrichment from the money shufflers, & give more of the value to those who actually work & produce the product. We need accountability from the fed, & a constant audit of their actions. It is the responsibility of our elected officials to provide a stable currency, which they have not done for over a century. The current system is theft from the producers by dilution. It weakens the currency, discourages production, & breeds corruption & non-productivity. The currency should be tied to actual production of food & raw materials, like lumber, oil, steel, etc. If that could happen, the currency would stabilize, & those actually producing the products would gain the most, & there would be less money printed for the shufflers to skim from. But if we continue along the current path, history shows the outcome: Economic collapse.
I want to make a point about demand, to refute the myriad of liberal claims that jobs don't begin with the entrepreneur thinking up an idea, and bringing it to market. These biznoob liberals actually think 'trickle up' is the only way to grow an economy. Steve Jobs alone refutes this notion. Steve Jobs created a product for which there was no demand, because no one knew it was possible. He created an OS which allowed real-time changes to the programming. People scoffed that no one would buy it, because no one wanted it, to which he said "how could you know that no one wants it if they don't yet know what it is?" He then did it again with the iPod. No one knew what it was; people thought no one would want it. He then did it again with the iPad. You want to stimulate the economy? Stimulate the ability to go into business without crushing the effort. The economy will follow.
Ahh, the 'just take care of the rich, and the rich will take care of you' thing again. (I think we tried that already, and here we all are).
actually it's a "take care of your own damn self and don't whine about what you don't understand" sort of thing.
We HAVE tried that too many times. (It's not a viable approach; that's proven.) - - - Updated - - - In a world where there are billion of souls, "take care of your own damn self..." is an unwise approach. Thinking, decent people realize that readily.
Did it? Fixed us all, I think. - - - Updated - - - Yes, yes...join in on the looting, and keep quiet. I've heard that one quite often as well.
"thinking, decent people" know that you have to take care of yourself before you can start helping others. "thinking, decent people" know that you can only take care of someone for so long before they become useless to themselves and those around them. "thinking, decent people" know that the best way to help someone is to make them help themselves, to allow them to fail and learn from the experience. a government that insists on taking people by the hand and micro-managing them into submission has traveled too far down the road toward tyranny and those that support it are not "thinking, decent people".
To a degree, I do agree. But surely, we can dispute what taking care of oneself actually means. If you ignore the well-being of your fellow human beings, you really are hurting yourself (ultimately). I understand, that may not be apparent to us... right away.
I've been trying to get a simple, clear explanation of fractional reserve banking & monetary policy for years. I could see the evils of inflation, & how it robs people of their life's savings, & i could see the dangers of fiat money, & the seemingly automatic degeneration of a culture or empire once that becomes the basis for the currency. But i haven't been able to get it boiled down to the essence.. the simple basics of what is actually happening, & tying it all together. As usual, it is not the system that is necessarily flawed, but the way govt has worked it. Fractional reserve banking has been with us for centuries, & if managed in a responsible way, is a workable system for a nation to regulate it's currency & money supply. Here is the progression that i see, & how we have gotten to where we are. And of course, none of these things happened in a vacuum, either, but were part of the timeline of events in history, from the american revolution to the civil war, to the new century. 1. Creation of the federal reserve, 1913. Basically, the fed was created to allow banks to extend themselves more in fractional reserve banking.. IOW, they were not required to have ALL the assets on hand to make loans, but would get guarantees from the fed to cover any runs on the banks. This took some risk away from the banks, & also seemed to insure the deposits & savings of the people. But, it created unintended consequences, which had to be addressed by more govt measures. BTW, the creation of the fed was a private entity not run by elected govt officials, & not really accountable to the american people, congress, or other banks. This institution was given tremendous power, to control the nation's money supply. While it was still under the gold standard, it ability to manipulate the currency was limited. 2. FDR ends the gold standard, 1933. This was one of the greatest administrative overreaches in american history. He got congress to rubber stamp it.. which, btw, was controlled by the dems. The senate was 59/36 & the house 313/117 in dem/pub ratio. Basically, the problem was runs on the banks, & a lack of confidence in the banking system. People were converting their liquid assets to gold, & the govt was finding itself overextended, as the fractional reserve created bubble in the roaring 20s had burst. But instead of letting a correction happen, the govt intervened. Private gold ownership was outlawed. People had to conduct all transactions with federal reserve notes. It was all done under the guise of 'save the economy, save the children!' It provided a temporary solution to the failing banks. Socialism was growing in the world, as was a sense of entitlement to basic needs. The problem of fractional reserve banking became obvious in the roaring 20s. The stock market was booming, & margin buys were common. That is essentially buying stock on credit.. you have money to buy 10 shares, but can buy 100 on margin. This is fine as long as stock keep rising. But if they fall, the bill comes due for the rest of the stock purchase, which has not decreased in value so selling it does not provide the money to pay the original cost. Eventually, all liquidity is lost, & bankruptcy ensues, or jumping out of the wall street window. But this was the start of the dilution process. Margin buying was not 'creating' anything, or actual production, but was 'fake' wealth.. an illusion of increase, based only on monetary policy. This boom in the money supply, created by the fed, was not justified by actual, physical production in the nation. The economy was booming in the postwar 20s.. farmers were growing & expanding, with production increasing exponentially with the appearance of the internal combustion engine.. tractors could do the work of many mules & horses, with one man driving it. Building was booming.. houses, factories, economic growth was exploding. But much of it was on margin.. credit. When the bubble burst, it took many people down with it. Now the statist cheerleaders could not face the prospect of taking blame for their own govt meddling, so they blamed gold. It was a roadblock to continued economic expansion. So the solution? Outlaw gold, & force usage of the declared (fiat) money. This is also when people began to get rich from money shuffling.. sure, there have always been money lenders, who get rich off of usury, but this was different. It was cutting the real wealth with a bulky filler.. printing more money with the same basis, & allowing middle men to skim off for their own enrichment. This was different than the typical money lender, charging interest for the loan. This was not REAL money, but something 'created' by the fed, then skimmed off by multiple middle men.. money shufflers who don't produce anything. They are leeches in the system, & the new structure was causing an explosion of growth. But the actual production was not growing at the rate of the money supply, so the producers were not able to support all of these middle men, each diluting the original value of the product. It is drug dealer dynamics.. a ponzi scheme system of monetary supply. This is getting too long, so i'll quit for now.. maybe later i'll finish up with the rest of the progression, from ww2 to nixon, skyrocketing inflation, opec, & the growing explosion of the money supply, along with the dwindling production. Some people already know this, as it is nothing new. But most people do not grasp the significance of the financial meddlings by the govt. What it all boils down to is confiscation of wealth.. REDISTRIBUTION from the producers to leeches, via dilution of the value of the currency. The leeches early on were the money shufflers.. bankers, wall street tycoons, etc, & the progressives want to 'share the wealth' with a bunch more leeches in the welfare state. But it is all done on the backs of the producers, & is unsustainable. I am myself persuaded, on the basis of extensive study of the historical evidence, that... the severity of each of the contractions - 1920-21, 1929-33, and 1937-38 - is directly attributable to acts of commission and omission by the Reserve authorities and would not have occurred under earlier monetary and banking arrangements. ~Milton Friedman The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. ... Roosevelt's policies were very destructive. Roosevelt's policies made the depression longer and worse than it otherwise would have been. ~Milton Friedman In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard. ~Alan Greenspan With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. ~Friedrich August von Hayek
True. 1) Your drug dealer analogy is not only wrong, its distracting. Stop trying to be cute and make your point. 2) Banks create wealth. They provide Financial capital to production. You can't produce goods or services without financial capital. If people want to start a new business (lawn mowing service) they need capital (lawn mowers). But lawn mowers cost money. Which mean you either get a job and save up for the capital --- during which time you are NOT creating jobs and expanding the economy or you borrow the money. Banks are a vital component to any economy. So when the banks are doing well, society will do well. Any problem you have with bankers has to do with pay and incentives. It CAN cause inflation. Until someone accurately predicts the inflation monetarists and their ilk have no legs to stand on. We are currently experience to LOW of inflation. (wages are sticky, blah blah <--- for the smart people. If you don't get it don't worry about it, just understand that a low level of inflation is good and that is universally understood by educated economists) In indictment of capitalism itself. Are you a communist? You basically just cliff noted Dos Capital. Basically True. But during low growth is saving and thrift good for an economy that driven by consumption? We need HIGHER demand, saving reduces demand. Yes there are a lot of ignorant liberals. And here comes the conspiracy, simpleton, rote statements. What year will the system fail? How do you define failure? Yes we will have a recession some day. Its cyclical like the sun and moon and there is nothing you can do to stop it for reasons I don't feel like explaining right now. Like all fiat currency rants, you make vague predictions then declare victory when inevitable economic events take place. I think Vanilla Ice cream is better than Chocolate therefore I predict the economy will grow which will vindicate my premise. 1) Real production is not possible without 'money shuffling'. 2) Real production is NOT discouraged by QE1. QE1 encourages production because its cheaper to get capital and start a venture. 3) If there is an entrepreneur out there who is thinking "I'll keep working at Taco Bell instead of starting a business because I don't like low interest rates and Fed policy"... wait that isn't happening. There is no entrepreneur putting off production because of Fed policies. There is no money in farming longterm. Its a global market and you will NEVER produce your product cheaper than people in other nations. (Thank the decreased cost of shipping) Clearly there are vastly more people in the construction industry. For the people in politics... its a free society we can pursue what we want. Tiny % of the populace and the vast majority of them are young single mothers. Dumbest quote of the year? In your very thread Steve Jobs proved you wrong. Hard work IS rewarded. Consistently. Or is your argument that a farmer, a low level skill, should make as much as the creator of derivatives (a skill set VERY few people have, A skill set very few people understand) You do understand supply and demand right? It works for skills too. Is an opinion constantly smashed on the rocks of history. Here is a pop quiz: Name the 50 best economies on earth and tell me how many use Hard currency. A vague statement where you don't define failure. A useless statement because every form of currency has ups and downs. A silly statement because no hard currency proponent has been able to explain what happens when the economy grows faster than the money supply. (Demand can be created by more than income) Premise Wheat causes societies to collapse eventually. Premise Romans consumed Wheat. Premise Roman empire collapsed. Therefore, Wheat caused the collapse of Rome. Come to think of it the Soviet Union collapsed, the German Reich collapsed, the British empire collapsed... holy monkey fruit Batman... all those societies grew wheat. Wheat must be stopped! Wake up people... Will a real intellectual please stand up and make an argument?
It is my opinion, based on observation, & reason, that the analogy is right. QEs are a dilution, akin to cutting powdered sugar into cocaine. The systematic dumping of unjustified, NON production based currency into a market has the exact same result. What is inflation, but the result of dilution of the currency? That is my point, & if it was not so unsettling, it might be cute. I am not opposed to banks, nor the fractional reserve system. I am exposing the dilution of the currency by the federal reserve, & the consequences, which are legion. Banks do NOT create wealth. Only productivity does that, which you agreed to earlier. Banks can provide CAPITAL for expansion, growth, investment, etc, but they do not PRODUCE anything. That might seem like a fine point, but it is important to keep in mind. Labor is superior to capital, as it does the actual production. Most people start lawn mowing services without a bank involvement at all, so your analogy is dead in the water, & illustrates that labor is the key to production. The lawn mower is a tool, that can be borrowed, bought, stolen, or inherited. Typically a bank is not involved in lawn mowing services. No. The problem i'm addressing concerning bankers is related to our govt representatives selling us out to the banks.. the federal reserve in particular, which has caused this massive dilution of the currency. I do not fault the hordes of greedy humans rushing into the banking & financial sectors, as that is where you can get easy money, & produce NOTHING. The only thing in history that comes close is empires conquering distant lands & stealing their stuff. And this is what has been happening, systematically, for the last 100 yrs or so.. the federal reserve, via the force of govt, has restricted our transactions to their declared currency, which has NO basis in anything of value. Gold was pulled as the basis, starting in 1933, & finished up in 1973. Look at any graph of wholesale prices, or gold prices, or wheat, or just about any commodity, & the regular devaluation of the dollar is plainly evident. The result of this system has been the slow dilution of the currency. And the money shufflers.. crony capitalists, govt spending, banks, wall street traders.. all these things live off of the slow dilution of the dollar. It is like this. Say a farmer yields a crop worth $100 in gold. The markets pay him his $100 but in federal reserve currency. They then 'cut' that $100 with another $900, making a total of $1000. Each banker & money shuffler skims off $50 for themselves, until their are 10 or more people all 'profiting' from the original $100. This is a tough thing to explain, & that is how the bankers & politicians like it. Obscurity hides their dirty little deeds. Yeah, yeah.. blah, blah.. you can keep your witty little insults or put them where the sun don't shine. I get that you don't understand the basics about currency, production, & fractional reserve banking. But ridiculing me won't raise you in my estimation, even though you hope for some kudos from the peanut gallery. I guess this was justs a long winded insult from you.. hard to tell sometimes in internet forums.. some people are dense, some snarky.. it's not always easy to differentiate. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard. ~Alan Greenspan
It is not the direct problem of the federal reserve, but that is where the currency dilution began, in america. The fed was created to allow increased fractional reserve banking, remedy bank runs, & encourage bank savings. Instead of gold buried in a fruit jar in the back yard, you put it in a bank. That was a noble concept, but it opened the door for expansion via debt, rather than production. People could borrow, invest, work the system, & become fabulously wealthy, without producing anything. It is ponzi scheme parameters.. skimming off each new 'investment' until the bubble bursts. ..and it ALWAYS bursts. The great depression, though exacerbated by the dust bowl & drought, was primarily caused by a bursting bubble.. the stock market crash of 1929. When the fed was restrained by the gold standard, it could not expand its power or control over the currency by increasing debt. That was why FDR ended it in 1933, to keep the fed solvent, as people were converting their savings to gold, instead of buying federal reserve notes. It was govt mandating the use of their currency, to control the people & the economy (or so they thought). That is a typical tactic of statist systems. I'm not singling out the fed, nor am i condemning fractional reserve banking, as it has been around for centuries. And while i agree that a moral people make laws less necessary, simple, fair laws, with a system of checks & balances is more difficult to corrupt. A central banking power, with no public accountability, but has control over the currency of the nation, is NOT a good system, & needs to change. Here are a few things we can require for a central bank: 1. oversight by elected officials.. congress is responsible to spend money, they should be responsible to provide a stable currency. 2. Hard assets.. something solid to base the currency on.. gold, silver, oil, land.. improvements.. even military hardware or national parks.. but a basis for the currency, not some ginned up numbers reflecting a fake gdp. 3. Limits on fractional reserve banking. .. a minimum requirement of assets to loans, so banks do not loan irresponsibly, or just borrow cheap money from the fed to loan out. 4. Money created from actual production.. no Quantitative easings 'just because', or 'for the children!' If the productivity of the nation did not grow, neither should the money supply. This would cut down on inflation, & lessen the impact of corrections, which will always happen. 5. balanced budget. this is mostly related to the fed, & is not a direct currency issue, but if the govt can borrow for future spending, they will, for votes. It compounds the problems of the currency. If the govt was required to keep a balanced budget, they would have more motivation to keep a stable currency. Some form of bankruptcy has been around for centuries. Perhaps you were sold into indentured servitude for your debts, or all your assets taken to cover them. There was also 'debtors prison'. That was the 'bite' in borrowing.. you had to be sure you could pay it back. Banks & money lenders were also under those laws, & if they went under, they often took others with them. 'Caveat Emptor' was always the rule of the day for investing in any bank or savings plan ..even life insurance or mutual funds. But the feds policies removed the threat of default from the banks. They could overextend themselves, & loan more than they had fractional assets to cover, & the fed would bail them out! That's why gold didn't work. There was more money being 'created' by the lending process than was actually justified by production, so any jitters in the market would spell an end to the system.. it would crash unless it could 'create' more money by fiat.. which is what they did. It had no basis in production, but was simply 'declared'. IOW, the system is corrupt by default.. but it is almost imperceptive. It SOUNDS good, & promises lots of benefits, like most ponzi schemes. But its basis is in dilution, not production, which is why it is failing, & seems to be out of control. I have come to see this as THE most crucial issue of the day, & one that will have the most impact on everyone. The politicians cannot control the fed. They cannot stabilize the currency, because it would cause a collapse of the system. It would take years of austerity, from both the people & the govt, to bring us to a solvent financial state. Even though this would be best for our long term health as a nation, & future generations, i don't think it will happen. Each generation kicks the can down the road, hoping it will hold up for a few more years.
