PersianPaladin

Jan 27 2012, 06:48 PM

I'm currently having a debate with somebody at Misers Institute regarding the feasability of a monetary system backed by gold. If the government got out of the way, would this be a bad thing?

Here is what I stated:-

If the fraudsters bought off all the gold and silver, or the majority of it - then wouldn't the compensation for the damage they have wrought to the unemployed and businesses, result in most people getting a share in gold and silver stock? That could be a good move, at first glance. Let us suppose people spend or save this money and then transfer their stocks into various interest-accruing accounts (such as ISA's here in the UK). This money may not be sufficient for them to live, long-term. So they will have to rely on employment (if they live in the cities or suburbs) and their employer will obtain loans from the bank based on the value of savings in their collective deposits from all the various owners of gold-stock. Now - a bank would have to make loans when consumers or businesses demand it. To use lay terms (for convenience) - would a minority elite be able to buy the gold-stock represented in each persons' bank account? This depends on whether the bank would allow this in their Terms Of Agreement or not. For example, they could warn the customer that their savings may be liable to the risk of being bought and sold (i.e. their gold-stock deposit accounts could be sold off in exchange for the money that an elite minority of businessmen give to the bank). The consumers' deposit accounts would still be technically redeemable in the amount of gold-stock that they deposited into it, but the ownership of that gold-stock would be out of their hands. Now, you could argue that it doesn't matter if this happens - as banks would still make loans anyway. But, what if said banks come under the ownership influence of a minority elite who have invested heavily in the majority of gold stocks?

What are your thoughts?

Sage Against The Machine

Jan 28 2012, 05:35 PM

PersianPaladin

Jan 27 2012, 06:48 PM

I'm currently having a debate with somebody at Misers Institute regarding the feasability of a monetary system backed by gold. If the government got out of the way, would this be a bad thing?

Here is what I stated:-

If the fraudsters bought off all the gold and silver, or the majority of it - then wouldn't the compensation for the damage they have wrought to the unemployed and businesses, result in most people getting a share in gold and silver stock? That could be a good move, at first glance. Let us suppose people spend or save this money and then transfer their stocks into various interest-accruing accounts (such as ISA's here in the UK). This money may not be sufficient for them to live, long-term. So they will have to rely on employment (if they live in the cities or suburbs) and their employer will obtain loans from the bank based on the value of savings in their collective deposits from all the various owners of gold-stock. Now - a bank would have to make loans when consumers or businesses demand it. To use lay terms (for convenience) - would a minority elite be able to buy the gold-stock represented in each persons' bank account? This depends on whether the bank would allow this in their Terms Of Agreement or not. For example, they could warn the customer that their savings may be liable to the risk of being bought and sold (i.e. their gold-stock deposit accounts could be sold off in exchange for the money that an elite minority of businessmen give to the bank). The consumers' deposit accounts would still be technically redeemable in the amount of gold-stock that they deposited into it, but the ownership of that gold-stock would be out of their hands. Now, you could argue that it doesn't matter if this happens - as banks would still make loans anyway. But, what if said banks come under the ownership influence of a minority elite who have invested heavily in the majority of gold stocks?

What are your thoughts?

In terms of a Gold Standard, why would we in the UK or US want to base our money on something we, the people, don't have anything of? It would also cause massive devaluation of the dollar or pound - is this economically desirable?

I understand the Austrian Economist's distrust of government, but it's all we have for democracy. I'm not keen on a free-for-all, laissez faire approach to something as fundamentally important as the money supply. It would cause massive inequality IMO.

Monetary reform in the UK aims to do the following things:

1. Replace most of the debt-based money with debt-free money in a way which will not cause inflationary shocks. There is so much debt-based credit in the money supply that it is unpayable without huge forced, unsustainable growth or a swinging slash and burn policy by the government. Why should the losses of the banks be nationalised? The banks (the so-called experts) were controlling the tap of credit. Sure there was some greed by consumers but many people have felt their real purchasing power dwindle.

2. The above can be achieved by paying off personal debt (as quickly as possible) and the national debt (slowly over 15 years or so) using digital debt-free money. This newly created money on its own would cause inflation (which is why we need Point No 3 below). Not because of debt-free money itself but because the debt-free money could easily be converted to debt-based money using the FRB / capital adequacy ratio system that we currently have. UK Money Reformers consider debt-based money and FRB-type systems to be inherently inflationary. This explains why the Bank of England target for inflation is 2% and not 0%. The current model balances the economy on such a precarious knife-edge that an inflation rate that approaches 0% would tip the economy into a deflationary spiral under the current debt-money system. The 2% target represents the extra amount of money needed over and above that which is required to keep the economy working. Even during comparatively good times, we get a little bit of inflation - which as we know is really a stealth tax on money itself as people find their purchasing power diminish - and we get a little bit of recession - job losses, home repossessions (the real-life human tragedies that lie beneath economist's bland jargon and dysfunctional theories). In addition, even though UK goverments gave the power of money creation to the banks, they gain huge political power by having the national debt as a contrived tool of scarcity. They can dip into it whenever they want to stimulate the economy or they can stop subsidising industries they don't like (e.g. coal and steel). With a debt-based economy they win the argument every time with cries of "we're living beyond our means" or "we've maxed out the nation's credit card" or "we didn't fix the roof when the sun was shining!"

3. Raise the capital adequacy ratios to full reserve at the same rate that new money is introduced. This keeps the quantity of money constant & inflation low and controlled. In fact, research by The New Economics Foundation has worked out an internal accounting exercise to make an overnight switch to the new system without affecting people's accounts or bank's assets.

4. The government in question would need to repeal necessary legislation which gave private banks the ability to create new money out of thin air. Private banks would still remain private and would provide fiancial services. The money supply would be nationalised and banks would effectively be account holders in the Bank of England and there would be massive penalties if they went into the red - which would be effectively counterfeiting and devaluing UK currency. An at arms length agency such as the Monetary Policy Committee would have control over the total money supply (to minimise political tinkering) which they could increase or decrease accordingly to set inflation or to take into account a rising population or even boost it during a national emergency to stimulate the economy. This is the least bad system IMO. At least we can keep our eye on them and we will know who to blame!

I believe the above would free up the nation's money supply which was previously hanging around not doing very much other than servicing a debt.
Banks keep saying they can make money (not surprising seeing as how they have a monopoly on our one and only means of exchange). So I say let them try to make it - on a level playing field, competing properly with other banks for good quality customers to attract some of the money that is recycled in the system.

Customers would have 2 types of account.
(a) Transaction (current) account - guaranteed by the government, no risk. 100% reserve.
(B) Investment (savings) account - not guaranteed, therefore slight risk.
Customers do not have to put all their eggs in one basket. They can spread their savings around. Customers give banks permission to invest this during a certain time period, during which the customer has no access. No bank bailouts in this model.

This money reform model should free up so much money that the demand for loans would fall because people would no longer be experiencing "poverty amidst plenty."
If there are temporarily insufficient funds for lending to viable businesses then interest rates would need to be raised to encourage savers to put more money in the banks coffers for lending. This could be market controlled.
Banks could still be profitable if run responsibly but they would cease to be the multibillion dollar gambling casinos they are at present. They will also have to stop paying CEOs silly seven figure bonuses which have not been earned in the true sense of the word.

Other things to consider:
The banking system is a complicated, interconnected web of various financial packages - some low risk, some toxic. The way this is directed is by market forces and herd mentality. The whole thing is a bit like a nasty game of pass the parcel with a bomb inside and when the music stops, the person left holding the parcel is up a certain creek without a particular implement.

The system of full reserve is a means by which the money supply can be stabilised during a transition period to debt-free money, so inflation can be controlled and set to 0%. Contrary to popular belief a 0% inflation rate wouldn't cause people to stop spending (people will always want to spend, some would say, too much!) - but it would benefit savers and debtors equally.
The UK has a money supply of 2 trillion pounds. Plenty of money for anyone to gain acces to - to earn it and spend it. It's the current system that has boom and bust built into it, not 100% reserve in the Transaction account.

I hope I'm wrong. I hope the world economy magically heals itself in the next year or two but I think it's caught in a debt trap.
I think the current financial system is dead and if the government hadn't nailed it to the perch, it would be pushing up the daisies.

telday

Jan 29 2012, 12:53 PM

Sage Against The Machine

Jan 28 2012, 05:35 PM

PersianPaladin

Jan 27 2012, 06:48 PM

I'm currently having a debate with somebody at Misers Institute regarding the feasability of a monetary system backed by gold. If the government got out of the way, would this be a bad thing?

Here is what I stated:-

If the fraudsters bought off all the gold and silver, or the majority of it - then wouldn't the compensation for the damage they have wrought to the unemployed and businesses, result in most people getting a share in gold and silver stock? That could be a good move, at first glance. Let us suppose people spend or save this money and then transfer their stocks into various interest-accruing accounts (such as ISA's here in the UK). This money may not be sufficient for them to live, long-term. So they will have to rely on employment (if they live in the cities or suburbs) and their employer will obtain loans from the bank based on the value of savings in their collective deposits from all the various owners of gold-stock. Now - a bank would have to make loans when consumers or businesses demand it. To use lay terms (for convenience) - would a minority elite be able to buy the gold-stock represented in each persons' bank account? This depends on whether the bank would allow this in their Terms Of Agreement or not. For example, they could warn the customer that their savings may be liable to the risk of being bought and sold (i.e. their gold-stock deposit accounts could be sold off in exchange for the money that an elite minority of businessmen give to the bank). The consumers' deposit accounts would still be technically redeemable in the amount of gold-stock that they deposited into it, but the ownership of that gold-stock would be out of their hands. Now, you could argue that it doesn't matter if this happens - as banks would still make loans anyway. But, what if said banks come under the ownership influence of a minority elite who have invested heavily in the majority of gold stocks?

What are your thoughts?

In terms of a Gold Standard, why would we in the UK or US want to base our money on something we, the people, don't have anything of? It would also cause massive devaluation of the dollar or pound - is this economically desirable?

I understand the Austrian Economist's distrust of government, but it's all we have for democracy. I'm not keen on a free-for-all, laissez faire approach to something as fundamentally important as the money supply. It would cause massive inequality IMO.

Monetary reform in the UK aims to do the following things:

1. Replace most of the debt-based money with debt-free money in a way which will not cause inflationary shocks. There is so much debt-based credit in the money supply that it is unpayable without huge forced, unsustainable growth or a swinging slash and burn policy by the government. Why should the losses of the banks be nationalised? The banks (the so-called experts) were controlling the tap of credit. Sure there was some greed by consumers but many people have felt their real purchasing power dwindle.

2. The above can be achieved by paying off personal debt (as quickly as possible) and the national debt (slowly over 15 years or so) using digital debt-free money. This newly created money on its own would cause inflation (which is why we need Point No 3 below). Not because of debt-free money itself but because the debt-free money could easily be converted to debt-based money using the FRB / capital adequacy ratio system that we currently have. UK Money Reformers consider debt-based money and FRB-type systems to be inherently inflationary. This explains why the Bank of England target for inflation is 2% and not 0%. The current model balances the economy on such a precarious knife-edge that an inflation rate that approaches 0% would tip the economy into a deflationary spiral under the current debt-money system. The 2% target represents the extra amount of money needed over and above that which is required to keep the economy working. Even during comparatively good times, we get a little bit of inflation - which as we know is really a stealth tax on money itself as people find their purchasing power diminish - and we get a little bit of recession - job losses, home repossessions (the real-life human tragedies that lie beneath economist's bland jargon and dysfunctional theories). In addition, even though UK goverments gave the power of money creation to the banks, they gain huge political power by having the national debt as a contrived tool of scarcity. They can dip into it whenever they want to stimulate the economy or they can stop subsidising industries they don't like (e.g. coal and steel). With a debt-based economy they win the argument every time with cries of "we're living beyond our means" or "we've maxed out the nation's credit card" or "we didn't fix the roof when the sun was shining!"

3. Raise the capital adequacy ratios to full reserve at the same rate that new money is introduced. This keeps the quantity of money constant & inflation low and controlled. In fact, research by The New Economics Foundation has worked out an internal accounting exercise to make an overnight switch to the new system without affecting people's accounts or bank's assets.

4. The government in question would need to repeal necessary legislation which gave private banks the ability to create new money out of thin air. Private banks would still remain private and would provide fiancial services. The money supply would be nationalised and banks would effectively be account holders in the Bank of England and there would be massive penalties if they went into the red - which would be effectively counterfeiting and devaluing UK currency. An at arms length agency such as the Monetary Policy Committee would have control over the total money supply (to minimise political tinkering) which they could increase or decrease accordingly to set inflation or to take into account a rising population or even boost it during a national emergency to stimulate the economy. This is the least bad system IMO. At least we can keep our eye on them and we will know who to blame!

I believe the above would free up the nation's money supply which was previously hanging around not doing very much other than servicing a debt.
Banks keep saying they can make money (not surprising seeing as how they have a monopoly on our one and only means of exchange). So I say let them try to make it - on a level playing field, competing properly with other banks for good quality customers to attract some of the money that is recycled in the system.

Customers would have 2 types of account.
(a) Transaction (current) account - guaranteed by the government, no risk. 100% reserve.
(B) Investment (savings) account - not guaranteed, therefore slight risk.
Customers do not have to put all their eggs in one basket. They can spread their savings around. Customers give banks permission to invest this during a certain time period, during which the customer has no access. No bank bailouts in this model.

This money reform model should free up so much money that the demand for loans would fall because people would no longer be experiencing "poverty amidst plenty."
If there are temporarily insufficient funds for lending to viable businesses then interest rates would need to be raised to encourage savers to put more money in the banks coffers for lending. This could be market controlled.
Banks could still be profitable if run responsibly but they would cease to be the multibillion dollar gambling casinos they are at present. They will also have to stop paying CEOs silly seven figure bonuses which have not been earned in the true sense of the word.

Other things to consider:
The banking system is a complicated, interconnected web of various financial packages - some low risk, some toxic. The way this is directed is by market forces and herd mentality. The whole thing is a bit like a nasty game of pass the parcel with a bomb inside and when the music stops, the person left holding the parcel is up a certain creek without a particular implement.

The system of full reserve is a means by which the money supply can be stabilised during a transition period to debt-free money, so inflation can be controlled and set to 0%. Contrary to popular belief a 0% inflation rate wouldn't cause people to stop spending (people will always want to spend, some would say, too much!) - but it would benefit savers and debtors equally.
The UK has a money supply of 2 trillion pounds. Plenty of money for anyone to gain acces to - to earn it and spend it. It's the current system that has boom and bust built into it, not 100% reserve in the Transaction account.

I hope I'm wrong. I hope the world economy magically heals itself in the next year or two but I think it's caught in a debt trap.
I think the current financial system is dead and if the government hadn't nailed it to the perch, it would be pushing up the daisies.

Another good post Sage, and I must say I am in broad agreement.

Personaly I am in favour of a "no risk" 100% reserve "savings" account, (By that I mean money deposited that can't be loaned out by the bank and must be held in reserve and payable on demand. Even if this results in a "small" fee charged by said bank)

However, something that does trouble me with regard to this is the spectre of "hoarding".

If I deposit my money in a 100% reserve "savings" account then that money, is obviously, taken out of the general economy.
Isn't this, in effect, contracting the money supply, and am I therefore preventing "society" from functioning at it's peak efficiency?

Also, could this be used by the PS as a means to control the money supply to their advantage?

Money surely is intended to be liquid, it must circulate to be of real benefit. Conversely shouldn't people have a right to protect their money (savings) as they see fit.

How can we safegaurd/gaurantee peoples savings, whilst not depriving society of the money's real function, and maintain an adequate money supply. Do you think there is any way of squaring this particular circle, or do you not think it is a problem?

I would be interested to hear your views.

Quote:

 

Sage Against The Machine
I'm no expert (not that they've been any good lately!) so any new system is a concern and has no guarantees. However, I would start by saying that the Transaction (Current) account will not necessarily be used to hoard money. My own current account at the moment has a lot of activity with hundreds of pounds going in and hundreds of pounds exiting.

telday

Jan 30 2012, 06:47 PM

Quote:

 

Sage Against The Machine
I'm no expert (not that they've been any good lately!) so any new system is a concern and has no guarantees. However, I would start by saying that the Transaction (Current) account will not necessarily be used to hoard money. My own current account at the moment has a lot of activity with hundreds of pounds going in and hundreds of pounds exiting.

You're lucky mine has tens going in, and hundreds going out.

I take your point of a current account, used for day to day tr

PersianPaladin

Feb 2 2012, 02:57 AM

Interesting discussion guys.

But I don't think my scenario was really addressed.

PersianPaladin

Feb 2 2012, 02:57 AM

Interesting discussion guys.

But I don't think my scenario was really addressed.