Do you think that the Worgl, Austria experiment can be applied in America again?

I have something in mind that would perhaps allow for a proposed "Nova Scotia Progressive Conservative Volunteerism Hour" (or Dollar)....
to become linked to the Israeli shekel.

My province Nova Scotia is part of what is termed The Atlantic Gateway so we are in a
very good position to initiate an agreement that is of great value to Israeli political leaders.......

who regard the tendency of Canadian Conservatives and Progressive Conservatives......
as pretty much priceless!

http://www.politicalforum.com/relig...s-p-m-brokering-jordan-israel-peace-deal.html

Please pray or meditate on Canada's P. M. brokering Jordan - Israel peace deal?

Mushroom..... in post #13 over in this other discussion I give a link to an interview by a
Mr. Chris Brown....... the man elaborates on Modern Monetary Theory at a level that I
personally had never heard anybody do previously.......... He does an amazing job of
explaining how some the perhaps rather radical measures that some of my online
friends had been proposing could well be unnecessary?!

http://www.politicalforum.com/canad...ate-teachers-nova-scotia-liberal-party-2.html
Thread: Subject: Government Update on Teachers (Nova Scotia Liberal Party)

 

If you don't mind me jumping in....

You said you beleive that a currency has to be backed by something of value?

Can I assume that you don't beleive that dollars are backed by anything of value?

If so I'd like to challage your thinking a little, if you'd allow me to.

-Cheers

 

Econ4Every1..... we absolutely love to have you jumping in to these discussions.

Please continue........

I can't resist stating though....
that even if lawmakers in the State of Utah were to mint a Utah State coin.....
and encourage socially active people in Salt Lake City to print up a City
currency, similar perhaps to Ithaca Hours then.......

the very fact that Latter Day Saints essentially control the State of Utah.....
then a Utah State coin plus the Salt Lake City currency would have ......
the backing of the reputation that Mormons have to be socially active......

they really did do a huge amount of volunteerism in the clean up after Hurrican Katrina.

There is an old saying that a person, (and I assume a groups), reputation......
is somewhat like GOLD!

http://www.politicalforum.com/polit...-could-utah-state-dollar-save-usa-dollar.html
Could a Utah State Dollar save the USA Dollar?

 

Of course it is. It is backed by the value and good credit of the United States itself.

Here is a great video made over 5 years ago. And the Narrator may now be President Elect, nobody has ever denied he is ignorant about finances.

http://www.dailymotion.com/video/x14vf96_what-s-america-worth-2011_shortfilms

That should more than explain what backs up the US currency (and most other currencies as well) .

In order to have any value at all, everything must have a value that is either real (gold) or perceived (a check I wrote). And a currency has to have real value behind it, or else you get the Confederate Dollar. That had started the Civil War roughly on par with the US$, but collapsed when it was realized they had almost no International trade, and could not pay their expenses.

 

I think it's a little more nuanced that that, but in the absolute simplest terms, any currencies value is ultimately derived from what can be purchased with it. The real question is how a nation get's to that point.

John Kenneth Galbraith said "anyone can create a currency, the trick is getting people to accept it.

Shifting topics here just a bit....

In the video you posted, at 40:10, DT said that they are ready to add things up, "but first, as any good accountant knows, we have to subtract your our debt".

Now, I don't want to be argumentitive, but challenge your thinking on this idea.

Why would the debt need to be subtracted?

 

Wow, really?

Accounting 101.

If you want to know your net worth, subtract your debt from your assets.

You have $1,000,000 in assets.
You have $750,000 in debts.
Therefore, you are worth $250,000.

Then this is going into much more ethereal territory, because you still have control of $1,000,000 in assets, it is simply that you do not own all of the assets. Then we get into things like balance and leverage.

"If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy." - Lord Keynes

 

Yes, I told you I was going to challenge your thinking

Let's have a little fun with this....

Yes, and it's amazing how many people don't understand the debt when it comes to accounting.

This is where we have some fun.

Who actually holds the public debt?

Roughly 1/3 of it is held by people in the private sector. At the macro level if the government taxed the $6 trillion out of us private sector to repay the debt, it would pay it right back to people in the private sector who hold that debt (bondholders), so on a micro level, some people would have less and other would have more once the debt is repaid, but overall it's a wash. Another 1/3 of that debt is held by the government. Government debt or intragovernmental debt, is the equivalent of reaching into your right pocket, taking out a dollar and putting an IOU in its place and then sticking the dollar in your left pocket and saying that you now have a dollar because you just borrowed $1. It's insane that people don't understand the semantics that go on when discussing the public debt.

Ok, a little disclaimer, if you click on the link you'll see that the private sector only holds about 15% of the debt and the government holds closer to 1/2. This is really misleading because of the Fed's QE program. The Fed created money out of thin air and it bought assets from the private sector (it was a simple swap, cash to private sector banks and assets to the Fed). On paper, this increased the amount held by government and decreased the amount held by the public. Since that graph, the Fed has sild close to $1 trillion dollars in assets back to the US public banking system and has decreased it's overall debt position, but that's a topic for another time. Point is, the Fed is holding a lot of assets that belong to the private banking sector and they will spend the next 3-5 years selling it all back.

The last approx 1/3 of the debt is held by the foreign sector, and while it's true they are owed roughly $6 trillion dollars, what can they do with it? That is, they are holding US dollars, dollars that can't be spent by the people in the economies that hold them. If you are a Chinese business man if you sell your $1 million bonds for $1 million US dollars, what can he do with it? He can't pay taxes in China with it, you can't buy groceries or pay your mortgage. For that $1 million dollars to have value it has to purchase something denominated in dollars. Nothing changes if you exchange it for native dollars. Whoever it's traded to will only find real value in the dollars once they are spent purchasing goods denominated in US dollars. Eventually that dollar will have to find it's way back here (or one of the 12 economies outside the US that use US dollars, economies that all together have a GDP of about $250 billion) where it can be spent, otherwise, it really is just a worthless piece of paper (or electronic credit).

Said another way, imagine you created IOU's and traded those IOU's for things of real value. If people wanted to trade them back to you, it would put you to work. If the foreign sector decided to spend it's money here, it would create millions of jobs!

The point is, the private sector benefits from the debt it holds because it's also the payee. The private sector benefits indirectly from debt held by foreigners as to have value they have to be spent here (less the other nations I listed), and the last 1/3 of the debt cancels itself out as the government takes money from the left pocket and puts it back into the right and tears up the IOU's..

Interestingly, after all of that.....In the video, DT subtracts the $20 trillion dollars in US government debt. He subtracted the wrong debt. The true debt of the people in the US is private debt, not government debt. Private debt in the US is ~25 trillion!

That's awesome.

 

Wow!

I believe that you just answered a question that I posted here to the forum several months ago.

I am curious how you would relate all of this to a statement made in
relation to our situation here in Canada by the late Jack Layton?

Oh Canada Movie 6 - Banking - 5
https://www.youtube.com/watch?v=i1HfKIvmZGU


Here is the question that you answered: I quoted you into post #14, which is on page 2.

http://www.politicalforum.com/polit...tly-did-we-get-trillions-dollars-debt-if.html

How exactly did we get to be trillions of dollars in debt if......



The Federal Reserve actually pays back most of the interest payments
that is generated by the loans that it makes to government??????

 

First, you are looking at interest backwards. When it comes to the Federal government, when the Fed repays the Treasury it's taking money OUT of the economy, not adding it. Remember that the Governments of the US and Canada can create dollars. The US Government doesn't need to collect taxes or get money back from the Fed in order to have money. The Fed gave the US government $100 billion dollars last year. You know how much spending that paid for? ZERO, NADA, NOTHING. The government isn't limited in spending by the amount it collects in revinue. We can talk about this later privately if you want.

Just remember, at the provincial level, the government must collect revenues in order to spend, but at the national level, that's not true (confused yet?).


Moving on...

You can't have dollars without debt.

In the simplest terms possible, dollars are IOU's redeemable in anything that is sold in that dollar. Dennis you need put the idea out of your head that there is such a thing as "debt free dollars". When Lincoln issued the Greenback, what were they worth? Their value would have been directly proportional to what could be bought with them. It's only the productivity that can be purchased that gives dollars value. The debt is paid with the real productivity that could be bought with them. Think about it like this. Say you are contracted to the government to build a shed for the government. You spent 3 days building it and the government creates "debt free dollars" and it pays you $2000, the act of payment IS the debt. You don't need the dollars, you need what they can purchase. If the goods and services you need cannot be purchased with the dollars you were paid, then, from your point of veiw, the debt remains unpaid. ALL IOU's are a debt to be reddemed in something of value. If the value isn't threre, the holder of the IOU isn going to feel like the debt was never settled.

Just because dollars represent a debt does not mean they cannot be deployed in such a way as to serve the public interest.

It is the relationship between the dollar and the society that uses them that really matters.

Now, doing 10 minutes of research I found this page (click here). It appears to be from the Parlament of Canada. It has the simplest most straight forward diagram I've ever seen on how money is created in the government.



Now, far as I can tell from this page, it looks to me as if the Bank of Canada does created money for the Canadian Federal Government.

Basically what that means is the Canadian Government creates a bond with a few strokes on a computer keyboard and auctions off the bond to the Bank of Canada. The bank of Canada purchases the bond and deposits the proceeds into the Canadian government's account and indeed n that same page it says;

The page goes on to say that private banks also create money for the Canadian Government;

However, if Canada's system is anything like the US, the banks don't hold on the bonds they purchase from the Canadian government. They turn around and sell them to the public. As nefarious as that sounds, remember that a bond (a security) is just a savings account. So the banks in Canada make money by selling to the government and to the people, but the people hold the debt long term, just as they do in the US, or that's my guess at least.

Here is the only chart I could find of Canada's debt and it's from 2005, so it's old and it's pre-2008, so it's hard to say if this is how assets are aligned today....But let's just run with it.



The Foreign sector - ~14%
Public Sector - ~39%
Private sector - ~47% (of which Carter private banks own 14%)

So what does this mean.....Well, again, I spent about 15 min looking this stuff up, so don't take this as gospel (I welcome corrections), but it doesn't appear to be nearly as bad as the video you posted makes it sound.

In 2005, the government owed itself 4 out of every 10 dollars (again, if I'm reading this right) and Canadians own 5 out of every 10 dollars to themselves, with 23% held directly as life insurance and retirement accounts.

As far as the banks, it's had for me to say if the amount of Canadian debt they own is unjustifiable (whatever it is today). I don't know how much money they make per year, nor do I know what, if any services they provide to the Canadian people because of their arrangement with the Canadia Federal government.

One thing you have to remember is that private banks do something a national bank cannot do on its own. Private banks buy and sell for profit and as such, they determine private market rates for money and debt. They also compete and, because they lend for profit, politics, at least in the lending process, is kept to an absolute minimum. With a single state-run bank, government or more to the point, the party in power can use it's influence on banks to sway policy and has the potential to "weaponize" banks against certain businesses, people, parties, religions, ideologies etc.


I found this in an article about Canadian debt:

It's really painful to watch people have these discussions. They don't realize that when the bank of Canada or private banks sell Canadian bonds to Canadians all that's happening is that people are investing in the nation of Canada. The bond and the interest that accrus is nothing more than a savings account. The people of Canada aren't saving anything by eliminating the interest, as a matter of fact, they could be screwing themselves out of the interest income that people make by saving their money in Canadian securities.

If the Canadian government lowers its interest payment, the people look to private for-profit banks to invest. We know how that goes. They take more in fees and because they are driven by profits they have been known to be un-ethical (Lookin at you Wells Fargo!).

Interest paid on Canadian bonds, as long as most of the interest is paid to Canadians can be a good thing, because the interest people earn is income!

Some problems on the horizon for Canada?

Looking though some charts, I think I'd worry about the housing sector in Canada. Apparently you guys never had your day of reckoning. About 1/2 of all loans are uninsured (which means that at least 1/2 of the homes have at least 20% equity), but the more worrysome thing is that homeowners, in order to avoid mortgage insurnce are borrowing their downpayments. If things go south, those leders will get screwed....

Also, the Canadian population is projected to fall in the net 10 years. Without increased automation or immigration, the loss in productivity will create inflationary pressures as domestic productive output declines.

The good news is that you live in the world's second largest country and by far the largest relative to the population. That means enormous amounts of natural resorces per capita. Canada just need to figure out how to harvest them and find a buyer.

The downside to a posititive trade surplus is that your nation is at the mercy of other countries to buy your goods. If there is market disruption, that can put a hurt'in on a nation REAL quick.....

 

No, you really did not at all.

Huge amounts of that were actually rather meaningless.

Who actually owns the debt is meaningless. You have taken a mortgage on your house. Well, you could go to a bank, an S&L, a mortgage lending company, the VA, a private banking group, there are tons of different ways to get that loan.

Does it matter to you which one you go to? Let me go one step further, same question but you are refinancing and withdrawing $50k in cash of equity.

Does that $50k spend differently depending on who you get the cash from?

In other words, you go into a lot of convoluted attempts to explain something that really does not matter worth a damn.

And most of the debt is as you briefly mentioned in the form of T-bills and T-bonds. Something that is bought and sold on the open market as of it was coffee or soybeans or pork bellies.

In other words, just another commodity. Who actually owns these means absolutely nothing.

And most holders of such "debts" do not want to be repaid. If their notes "mature", they simply exchange them for more of them. One of the biggest uses of them is as a "reserve currency". Think of it like this, if you have a $5 million US Government bond, it is pretty much like holding a $5 million bank note.

 

Phenomenal answer Econ4Every1.....
I simply had to find the article that you quoted because they
certainly were asking the same question that I also have been wondering about?


http://www.taxpayer.com/blog/why-do...just-print-money-to-pay-off-our-national-debt


Why doesn’t the Bank of Canada just print money to pay off our National Debt?

 

The article finishes with a question I believe you've been asking.

 

Does not matter.

First of all, you have to look at the kind of debt.

Now on an individual matter, you take out a loan. You may use collateral to back it, but ultimately you are going out begging for people to give you some money.

When countries (states, communities, etc) need money, they do it a very different way. They do not take loans, they issue bonds.

In short, they give a piece of paper, saying that in exchange at a set future date they will repay that entire loan with interest.

No payments, they pay it all off in one lump sum. Generally years down the line.

This is a vastly different kind of debt.

Also, when you take a loan, it is from one agency. You go to XYZ Bank to get your car loan, and ABC Credit Union to get your car loan.

A Government issues generally large numbers of bonds, and whoever wants to can buy them. This means instead of owing to a singe entity, they owe to thousands. And based upon the strength of the nation, there are people lining up to buy more of the bonds (unless you are say Venezuela).

You simply can not look at National Debt as you can personal debt.

Plus a lot of that debt is internal. Consider the US Marines, which regularly buys excess equipment from the Arms. Rifles, tanks, ammunition, etc. Yes, they buy them, and then owes them money, which adds to the National Debt.

Even though it is one agency of the government which owes it to another.

The FBI wants some help from the Army to secure a possible terrorist training camp in Nebraska? Guess what, ultimately they are going to owe money to the Army to offset costs. CDC takes Air Force transport to Nowhereistan to fight an outbreak of the Cow Flu, they are eventually going to pay the Air Force for the costs.

 

Inflation.

Items hold value based upon their scarcity. Throw in more, and it looses it's value. Take some away, and it becomes more valuable.

Many countries tried printing more money. Invariably, that caused the money to loose value and inflation set in. Sometimes to the point where workers were paid daily, so they could spend their earnings before it was worthless.

Interesting sidenote. In the 16th century, the currency of most of the world was hard metals, gold and silver. And when the conquest of New Spain brought huge amounts of gold and silver to Europe, their economy collapsed.

Why? To much silver and gold. Inflation took off, so that a farmer could make more money bringing a single crop into the market than they could in a decade, so why go back to the farm?

Land became fallow, people stopped working because of all the money they just made, and in a year famine and disease settled in.

In Weimar Republic Germany, they tried to print their way out of debt. It was so bad that employees were paid twice a day so they could spend their money before it was worthless.

In the Civil War, some smart individuals who had loans in the South paid them off as inflation settled in. Since they paid in legal tender the banks could not say no, and had $5,000 mortgages paid off with C$5,000, worth maybe US$50 prior to the inflation.

Think of that money as backed by a 50 pound brick of gold. $50, then each is worth 1 pound. Multiple that by 16, and now each dollar is backed by 1 ounce of gold.

You can see that literally in the British Pound. In 8th century Anglo-Saxon England, it literally was the value of a pound of Silver. That is obviously not the case anymore, thanks to over 1,400 years of inflation.

 

That sounds like code for "I have no idea what you mean".

If you were married and you borrowed the money from your wife to make a $1000 purchase and repaid her $100 a month for 11 months (one extra month for interest). Would it matter then?

You've essentially made yourself a loan (since money in a marrage belongs to both of you). If you were to calculate your families net worth, you'd have a loan for $1000 and income of $1100.

The government borrows from itself. The government borrows from the people and repays the people. The people aren't minus the money owed on the debt because the government doesn't have to tax money away from people to pay the debt.

HERE we see that the government repaid $94 trillion dollars in debt last year. Do you think that money was taxed away from the people to repay that debt?

You just made my point for me and you don't even realize it. If you are right (see bolded) then why would you subtract $20 trillion from the aggregated value of the nation's assets if you are correct and "if you have a $5 million US Government bond, it is pretty much like holding a $5 million bank note."

They are two forms of the same thing, yet you are claiming we should treat it is a liability. I'm saying the debt is equal parts asset (to the public sector) and liability (to the government), they net to zero.

 

Can you name a few? Wait! let me guess.....

Zimbabwe
Weimar
Hungry
Venezuela

Am I warm? Did I miss any?

 

Off the top of my head, Argentina, the US and Mexico. But at one time or another pretty much every country in the last century tried printing more money than the economy could handle without inflation.

 

Econ4Every1... your comments on what really happens when Canada chooses to do a bond issue is certainly encouraging and yes... you do a great job of helping me to look at this topic in a much more positive...... and probably realistic manner than was done in the film that I gave you a link to in another post. (The film from which I got a quotation on flaws in the Canadian banking model from the late Jack Layton).

Speaking of the President Lincoln Greenback monetary policy experiment....
yes..... the Greenback was greatly inflated but that is almost certain to occur when you
take your most well trained and productive workers off the farms and out of whatever
types of industries existed at that time.... and pay them to shoot muskets and cannons at
each other........

War is terribly inflationary because it decreases the supply of goods and services going into the economy
at the same time that the supply of money is greatly increased......... so of course prices rise and rise.

I know that you know that extremely well but I am not sure if you
knew that I knew at least a little bit about that time period!

Here is another statement on how the USA central bank responded to the
Greenback experiment after President Lincoln was assassinated.......
which to my thinking helps to explain why so many people tend to
be a little paranoid about this.


http://www.michaeljournal.org/artic...story-of-banking-control-in-the-united-states

 

I will read your link when I get a chance. I wanted to take a second and explain something to you that may just "click".

In the bolded section, you've demonstrated that you understand inflation driven by demand.

The same thing happened during WWII. Much of US private industry was converted to the war effort. Car makers were making planes and tanks, even sewing machine makers like Singer were making firearms.

Ok, so now that you understand that, you are now in a place to understand one of the real uses of bonds.

I'm sure you're aware that during WWII the government had a MASSIVE campaign encouraging citizens to purchase war bonds. People were told the government needed the bonds to support the war effort. The government played on people sense of patriotism and bond sales were extremely high.

Were bonds sold to fund the war effort? No. The truth is that the government sold war bonds to take money out of the economy to help reign in inflation. As you point out, while production was very high, an extremely high proportion of it was being spent to create non-consumer goods.

If a dollar's value is in some proportion to what can be purchased with them (and the time they take to earn). People could still purchase something with their dollars, future savings. So not only did it help prevent inflation, but it maintained the value of the dollar by creating something of value that people could buy with their dollars.

This also helps understand why savings is considered a "leakage" in an economic sense as savings is money not being used to consume.

 

This is simply a problem of causal reasoning.

You know the saying, it's not the fall that kills you it's the sudden stop at the end?

That's called a "dependent cause" because the results of one action are contingent upon separate causes.

In a car, does "speed kill"? No speed is a contributing cause in the event of an accident.

See where I'm going....?

So the question is, in nations that experience hyperinflation, is money creation the root cause, or a dependent/ contributing cause?

In every modern example of hyperinflation, inflation did not begin with a healthy economy and a government that simply decided to create money. In every case, money creation was a dependant and contributing cause.

In most cases, the "root cause" was a disruption in productivity. Usually, because productivity had been cut drastically in a short period of time. And indeed, Weimar and Hungry are examples (war). In Zimbabwe, it was ultimately the government's fault, but the root cause was talking farms that were leased to European companies and giving them to the locals who couldn't produce the same volume of productivity. Zimbabwe also had a large amount of foreign debt much of which was called in after the government violated the contracts of European companies. Since farming made up 1/3 of the nation's exports, cutting them in half, caused inflation almost immediately. The inflation spiral started when government sympathizers upset about rising inflation demanded higher benefits and that's when the money printing began. In Venezula the problem was a huge drop in their countries main export combined with recent spending that future oil profits were to pay for. When the profits disapeard because of the drastic drop in oil prices, their currency inflated without having to print a single dollar. Dollar creation ofter that was a result, not a cause.

In all cases, governments continue to print currency because that is the last policy tool available to them.

So in all of those cases, money printing was not the cause of inflation, it was the result of disruptions in productivity.

 

Extremely well said.....
in the case of the Weimar Republic of Germany
the consumer goods productive sector of Germany had been pretty much destroyed and diverted by
WWI.....
so when the Weimar Republic attempted to live up to high War Reparations Payments by
printing money.....
the productive capability just was not there for Germany to produce
goods of the quality and quantity that could satisfy the demand that the
increased supply of money had created!

 

Wow!

I DID NOT know that!

 

Kind of a "no duh" line here. Yea, there are other problems. Otherwise a nation would not take such an action.

No government suddenly decides to inflate their currency for no reason. But I can not think of a single instance where taking that action helped.

 

So then the question is, is there some other form of money that would have helped the economies in question?

And before you answer, the bigger question is, do fiat economies allow greater growth than the alternatives? If so, then what we're really talking about is something akin to "the bigger you get, the harder you fall".

Now if we lived in a vacuum we could limit our economy to prevent a big fall, but we don't, we live in a world of competing interests and being on top, or at least in the top 1/2 is the best way to ensure that the society you live in has a reasonable chance of some sort of freedom.

That is unless you want to live in a place without and strategic value or valuable resources, then you can be as free as you like as no one will bother you.

 

first, you'd have to kill all the bankers, and all of their minions in govt, military and police.