ALL BLOG POSTS AND COMMENTS COPYRIGHT (C) 2003-2016 VOX DAY. ALL RIGHTS RESERVED. REPRODUCTION WITHOUT WRITTEN PERMISSION IS EXPRESSLY PROHIBITED.

Tuesday, April 14, 2015

Debt and particle acceleration

This is an interesting and intriguingly simple way of explaining the debt-deflation cycle:
The scientists at CERN can create matter from nothing only if they also create its offsetting opposite anti-matter. Similarly banks are only able to create money from thin air provided they create, at the same time, the offsetting opposite amount of anti-money, otherwise known as debt.

In short our modern banks are the particle accelerators of the financial system. They conjure money and anti-money, fortunes and debts, from nothing.

It is informative to extend this analogy a little further. When particles and anti-particles are created from nothing energy is ‘consumed’ and when they later recombine to annihilate one another this energy is then re-released. There is an analogous, though opposite, process of energy capture and release associated with the creation and destruction of money and debt.

When a bank makes a loan it splits zero into a fortune (money) and its equivalent debt. This process releases new spending power into the economy producing a burst of economic energy. Conversely when, at a later date, the money is recombined to annihilate the debt, both money and debt vanish and an equivalent amount of spending power, economic energy, is withdrawn from the economy.

At any given time, if the amount of credit being created roughly balances with the amount being destroyed the spending power within the economy will remain roughly constant and the economy will be stable. On the other hand, if there is an imbalance between credit creation and credit destruction the economy will be unstable. An excess of credit creation – new money and new debt – will amplify economic activity. Conversely an excess of credit destruction – repaying old debts – will attenuate economic activity.

From the remorseless logic of Brahmagupta’s mathematics it follows, any economic boom generated by high levels of debt creation will have the seeds of its own destruction within it. These credit-creation fuelled booms will inevitably lead to their partner, a credit-destruction driven bust – otherwise known as a debt deflation cycle.

This simple way of thinking about how our monetary and banking system works helps explain what has gone wrong with monetary policy over recent years... Our own voting patterns have trained our political leaders, like Pavlov’s dog, to seek a relentless but ultimately unsustainable credit expansion. However, when policy makers seek to engineer an economic boost through credit expansion they are also, due to the mathematics of Brahmagupta, engineering a future economic slump. This helps us understand where the deflationary forces currently taking hold in the Eurozone have come from. These are, in large part, the inevitable consequence of previous monetary policy designed to engineer credit expansion.

The next time you see the term ‘Money Supply Growth’ it may be worth pausing for a moment to reflect on the ideas of an obscure 7th century Indian mathematician and think instead of the term ‘Debt Supply Growth’.
This should help explain why you simply cannot borrow or spend your way out of debt. It's like trying to dry yourself off by jumping in the pool. It's a logical contradiction, no matter how convincingly economists like Ben Bernanke and Paul Krugman manage to dance in circles, draw epicycles, and dazzle you into thinking they are speaking anything but utter nonsense.

I think I can explain it even more simply, however. Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer.

Labels:

96 Comments:

Blogger Blume April 14, 2015 8:11 AM  

Low blow. Ouch.

Anonymous Anonymous April 14, 2015 8:15 AM  

While I agree with you, Vox, I think you are taking the wrong tack here.

Politicians pursue the Keynesian model because there are short-term political gains to be made from it, not out of any ideological commitment to it. And it DOES work, in the short-term (though admittedly that's like saying that crystal meth is really enjoyable while you're high on it). And the short-term is all that most politicians are concerned about.

So if you want them to pursue the Austrian model (which, by your description is what I presume you would prefer), you need to figure out how to convince them that their careers will benefit from it.

Gun owners have been doing this with gun rights since 1987 or so, and we've been winning this fight (not completely mind you, but even DC has finally caved and has been issuing carry permits, even though the city council admits that they would rather deny everyone).

Well, I suppose you HAVE been fighting the cultural fight. But you write articles like this in a tone that suggests they are stupid for doing what they are doing. But the definition of *stupid* is in the eye of the beholder, and they are performing according to the political incentives that they face. So when I say you are taking the wrong tack, I'm talking about the tone of the article.

Ultimately it's the fault of people like us that these people got into power in the first place. Our predecessors didn't take them seriously, and we are paying the price for it.

Blogger David April 14, 2015 8:22 AM  

In our fiat regime, all money is debt (including banknotes.)

Not all debt is equal, though. Banknotes are intert, like argon. They sit around and don't do much. The contribution of Moneyness from a bond, however, varies inversely with its yield, which is always subject to market re-evaluation.

Bonds are thus volatile, like acetone, and flammable too. Some bonds (junk debt, especially "covenant-light" junk) are more like hydrogen gas, very buoyant but dangerously explosive in quantity.

We now have oceans of such gasses permeating every corner of the world economy and the can-kickers' solution is to pump ever more.

Blogger David April 14, 2015 8:28 AM  

As Prechter wrote, if the Fed were to replace all existing debt with its banknotes there would be no inflation. This would have the odd effect of embedding the cumulative credit inflation of the past 83 years in stone.

This is impossible, of course, unless they deforest the planet for the paper or begin issuing Zimbabwe-esque currency denominations.

As an aside, whenever you see someone float the idiocy of the "trillion dollar coin," ask if they realize they're espousing the USA republic turning Full Banana.

Anonymous Steve April 14, 2015 8:30 AM  

Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer.

Yes. Messing with the scale is pretty helpful if you want to screw people out of what you owe them, though.

Blogger David April 14, 2015 8:33 AM  

"Ultimately it's the fault of people like us that these people got into power in the first place. Our predecessors didn't take them seriously, and we are paying the price for it."

Of course it's The People's fault. Those in charge obtain their offices by giving people what they want, even if this is often like a street hustler giving a crackhead his next hit.

If this was not the case, human history would be a smooth rising trend of ever-better conditions. Instead, we see cycles from those of business to those of empires. Goldilocks is not an option.

Anonymous Athor Pel April 14, 2015 8:51 AM  

"...
But the definition of *stupid* is in the eye of the beholder, and they are performing according to the political incentives that they face. So when I say you are taking the wrong tack, I'm talking about the tone of the article.
..."



Nope, stupid can be determined objectively. And if you're too stupid to see it then you're too stupid to comment here. Don't feel put off though, keep commenting, we'll keep pointing and laughing. But you would be better off reading instead of writing.

And your second sentence has been written by so many newcomers to this site that it's a trope.

Blogger Silent Cal April 14, 2015 8:51 AM  

Great Post.

Anonymous Anonymous April 14, 2015 8:52 AM  

@David That's not what I meant.

I meant that we let the culture slip away from us. Obama's "you didn't build that" speech would have gotten him tarred and feathered - literally - if he had given that speech in 1870. Or in 1950. Even union workers would have wanted to actually lynch him for that.

There was a time when Marxist claptrap would have gotten politicians run out of town, by the very poor people they claimed to be speaking for, because there was a time when the poor took pride in their capacity to work and in the property they owned. The people on our side, in both political parties, didn't take the Marxists seriously enough.

Anonymous Geoff April 14, 2015 8:55 AM  

Money has a dual nature. It is both credit and debt. Someone's debt is always somebody else's asset.

But agreed on the basic point of this post. We can't borrow our way out of debt. The Fed is pretty much impotent.

Blogger Josh April 14, 2015 8:56 AM  

Anonymous concern troll, please pick a name. You could even use "anonymous concern troll" as your name.

I'd like to respond to your comments, but not if they're going to just get nuked.

Blogger Nate April 14, 2015 8:57 AM  

"I think I can explain it even more simply, however. Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer."

And that's really all there is to it. The ruler isn't longer if you measure it in centimeters instead of inches.

Anonymous Anonymous April 14, 2015 8:57 AM  

@Athor Pel I'm not talking about him being angry. Vox's anger is a sight to behold. I'm saying he's angry *at the wrong people*.

Perhaps tone is the wrong word here, then. I'm not suggesting he should be any less of the enlightened barbarian that he likes to be seen as. Righteous anger can be a good thing.

I'm referring to this article only. I think he is directing his anger at the more concentrated target - politicians - rather than at the people who let them do this.

It's like..... Imagine a house surrounded by an angry mob, and a little boy holding a torch. If the boy sets the house ablaze at the mob's urging, who is more deserving of your anger: the boy, or the mob?

The boy is the easier target, because all he had to do was refuse, but then someone else in the mob would have snatched the torch and burned it anyway. So the mob is the real culprit and the boy is merely the scapegoat.

Blogger James Higham April 14, 2015 8:58 AM  

In short our modern banks are the particle accelerators of the financial system.

Think there's an SF book in there somewhere.

Blogger Josh April 14, 2015 8:59 AM  

The ruler isn't longer if you measure it in centimeters instead of inches.

However, if you use inches instead of centimeters, you're more likely to land a man on the moon...

Anonymous Anonymous April 14, 2015 9:01 AM  

And for the record, I usually go by WhiteKnightLeo, (which I got from playing Lunar 2 when I was in middle school. What can I say, Leo was an awesome character. The irony that he was a paladin in service to a goddess, and the use of "white knight" to describe male feminists, is not lost on me, but I liked Leo because he was badass).

I just don't want to sign on at work.

Blogger Bobo April 14, 2015 9:01 AM  

Anti-matter doesn't generate interest...

1-1=.05

Blogger David April 14, 2015 9:03 AM  

"I think I can explain it even more simply, however. Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer."

Continuing with the analogy, the object doesn't become longer if the ruler is elastic and pulled to multiples of its original length; all that occurs is that energy is stored in the ruler as it elongates, and when the time comes that the force needed to keep it elongated wanes, and the ruler snaps back (often violently) to a much shorter length, the object STILL doesn't change its dimension.

Blogger Josh April 14, 2015 9:03 AM  

I just don't want to sign on at work.

Just use the Name/URL option. You don't have to put in a URL.

Anonymous WhiteKnightLeo April 14, 2015 9:06 AM  

Better? All of the Anonymous comments prior to this seem to be mine, so feel free to consider them to be mine.

I actually didn't know that was an option, so thanks for the tip. I'll do that in the future.

For the record, I actually really enjoy his Quantum Mortis series thus far. I think a Christian AI is a little weird, but since Cass is supposed to be an imprint of an actual person, it's a little easier to believe than if she had been purely artificial.

Anonymous PhillipGeorge(c)2015 April 14, 2015 9:12 AM  

We get energy from the sun on a daily basis so economics/ locally derivated physics is not a zero sum game. Interesting the Jewish Shmitah and the Jubilee are debt write down systems.
Paper and electronic money, every bit of it, is a promissory note system. So long as promises mean something economies can be fixed. The mechanisms are
'everything'

Blogger Josh April 14, 2015 9:15 AM  

There was a time when Marxist claptrap would have gotten politicians run out of town, by the very poor people they claimed to be speaking for, because there was a time when the poor took pride in their capacity to work and in the property they owned. The people on our side, in both political parties, didn't take the Marxists seriously enough.

What time would that be?

It certainly wouldn't be the first half of the 20th century.

Blogger David April 14, 2015 9:16 AM  

Credit growth requires a vast network of trust. We live today in peaking trust (and have lofted higher in the Trust Hindenburg for decades.)

Maintaining credit volume requires effort, much like maintaining the warmth in a Fargo ND greenhouse (in February) requires electricity. More power allows the greenhouse to build out, growing ever more roses and lilies in the harsh environment and creating a Garden (of Eden) in an otherwise hostile climate. This is the Money Manipulators' showroom. Look at the great stuff we sell you every day (no money down, no payments for 3 years!)

The US and world economies have "built out" for decades and decades. To the extent that economic activity grew beyond some unknown-but-real baseline due to credit growth, the greenhouse analogy applies. The build-out consumes ever more energy and strains the generator more and more (it is fueled by trust, and now blind credulity.) When the time arrives that the generator coughs and quits, everything that cannot survive "natural" conditions will wither and wilt.

Look for industries most paid-for by government(s), which have flourished for 30 years and appear today so full of blooms (e.g., medical services, higher ed, etc.) to turn brown, desiccate and blow away in the first of many storms.

Anonymous Titus Didius Tacitus April 14, 2015 9:16 AM  

WhiteKnightLeo: "Better?"

Yes.

Anonymous A Paradigm Is More Than Twenty Cents April 14, 2015 9:19 AM  

John Law's paper money made France "rich" and led to the Mississippi Bubble, which later popped with serious effects. The sloshing of that "richness" likely carried over the channel to England where the South Seas Bubble grew, until it popped.

Perpetual motion machines were also peddled in those times...

Extraordinary Popular Delusions and the Madness of Crowds should be required reading, as it is both entertaining and instructive in such matters.

Blogger David April 14, 2015 9:25 AM  

"So long as promises mean something economies can be fixed."

Not when the promises for future delivery far exceed any possible notion of real future production, and when current behavior so tips in favor of capital consumption that the means to deliver on future promises is actually, by all rational concepts, contracting.

Self-liquidating debts (borrowing to expand production of goods/services in expectation of profits, where said profits retire the debts) are salutary and necessary in a functioning economy of any size at all.

In a time when firms are issuing debt, expecting to roll it over perpetually, in order to simply buy back their common stock shares (instead of using that "cash" to expand into additional, profitable avenues), we know beyond doubt that debt issued is NOT self-liquidating. The world is drowning in overcapacity.

Debt issued for pure consumption is toxic. It is mathematically impossible for debt-for-consumption to be economically salutary. The world is now awash in such debt, it is the water of the hilarious unintentionally satirical movie, "Waterworld."

Blogger David April 14, 2015 9:27 AM  

"Extraordinary Popular Delusions and the Madness of Crowds should be required reading, as it is both entertaining and instructive in such matters."

Like Orwell's Nineteen Eighty-Four, it is proof that people learn nothing from history, and the boom-bust cycles of economics & politics will never change.

Blogger Emmanuel Mateo-Morales April 14, 2015 9:52 AM  

The problem is... NEITHER of those two create ANYTHING from nothing.

The particle accelerator requires a vast array of THINGS to create the particles, not the least of which being, well, particles.

Likewise, the banks still need paper or electronic signals to create their 'money.'

This analogy breaks down way too easily at the beginning, which is problematic.

Anonymous Seymour Brown April 14, 2015 9:55 AM  

Where does interest figure in this scenario?

Today we even have banks charging to hold peoples money and bonds at negative rates, a strange time indeed.

Blogger Jourdan April 14, 2015 9:56 AM  

I think we would do well to remember the old saying about there being a great deal of ruin in a country.

I've been reading dire predictions of economic meltdown, deflation, the demise of the U.S. Dollar as the default currency, the impending demise of the Euro, etc. for a very, very long time now.

As we are currently seeing with the quiet resolution of the Greece situation, the room for manoever held by the international finance system remains quite large, and they are firmly in control of the situation.

Kicking the can down the road every year, saying, in effect "yes, maybe they resolved the crisis this time, but a year from now..." isn't very convincing.

As for rational, mathematic rules, I think it's fairly well recognized that the financial and economic system is very human in this regard, i.e. it is not 100% rational. Money is indeed "conjured" and people indeed have faith in a "piece of paper". That merely makes the system in place reflective of the human beings who constructed it.

Economic determinism has never explained the real world very well. Like libertarians, numbers men known the cost of everything and the value of nothing.

Anonymous a_peraspera April 14, 2015 9:59 AM  

I'm interested in what VD, Nate and other folks who know more about economics than I think about this link: http://mythfighter.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

I wish this was true but seems too good to be true if you know what I mean. I could use a few counter-arguments to use on liberals.

Blogger bob k. mando April 14, 2015 10:04 AM  

David April 14, 2015 9:16 AM
The US ... economies have "built out" for decades and decades.



actually, the US is on the back side of the credit bubble and has been off-shoring and dismantling production for well over a decade now.

and this goes back to my raving about the GDP. this does not and CAN NEVER accurately reflect the state of the economy because it specifically excludes friction and entropy effects from consideration.


A Paradigm Is More Than Twenty Cents April 14, 2015 9:19 AM
Perpetual motion machines were also peddled in those times



yes, and constructing a working perpetual motion machine is trivially easy ... if you never have to consider friction or entropy.

let us all wave our hands and dismiss these fractious and troublesome concepts. they do nothing but prevent us from immanentizing the eschaton and ushering in the shiny, happy, equalitarian utopia of the proletariat of man that awaits us.

a gold standard WOULD restrain .gov deficit spending ( which funds the trade deficit, which is the mechanism by which American industry is being destroyed ).

https://www.youtube.com/watch?v=3en75HjKvyo

on the other hand, making any minimal effort to reform the GDP to reflect the deleterious effects of .gov spending, ESPECIALLY deficit spending would also do much to correct this.

Anonymous Rhys O'Reilly April 14, 2015 10:06 AM  

After reading WhiteKnightLeo's comments I do wonder if Bernanke believes the bullshit he peddles. Telling the unfavourable truth has never been good for one's career.


@ A Paradigm Is More Than Twenty Cents: Thanks for something else to add to my insurmountable reading list.

Anonymous Stilicho April 14, 2015 10:10 AM  

When a bank makes a loan it splits zero into a fortune (money) and its equivalent debt. This process releases new spending power into the economy producing a burst of economic energy. Conversely when, at a later date, the money is recombined to annihilate the debt, both money and debt vanish and an equivalent amount of spending power, economic energy, is withdrawn from the economy.

Very interesting analogy. I will note that this is attractive to debt creators and politicians in large part because the spending energy effect is nearly instantaneous while the withdrawal of that spending energy via debt annihilation usually occurs gradually over the period of the loan. Except, of course, when the spending energy created is no longer sufficient to service the gradual debt annihilation (because it has been used for other purposes, because the anticipated productive expansion never occurred, because the interest on debt mathematically requires either creation of new debt money or transfer of wealth to pay the interest, etc.). When that occurs, debt deflation occurs and the only play left to the debtists is to create even more new debt in order to service the old debt while hoping that an exogenous event occurs that will boost actual economic activity.

Tangential question: the Fed claims that its purpose is to provide stability (and it uses this to justify its inflation targets to keep the money supply equivalent to the growth in the economy), but has the Fed ever decreased the money supply to account for the loss of economic activity during a recession/depression? Not just slowed down its inflating, but actually decreased the money supply to maintain monetary equivalence and "stability"? I can't find an actual instance of this and the coventional neo-keynesian/monetarist wisdom is that the money supply must be increased even MOAR during economic downturns. So much for the false claim of "stability".

Anonymous Porky April 14, 2015 10:17 AM  

"Nope, stupid can be determined objectively. And if you're too stupid to see it then you're too stupid to comment here."

Athor Pel, you have a ringside seat to the most ingenious grand theft scheme in history. The sheer scale and hubris is astonishing. The amount of wealth absconded is unimaginable. And in fact, it is your wealth they are stealing.

Yet there you sit on the porch...toothless, with banjo in hand, declaring them to be "objectively stupid".




Anonymous Stilicho April 14, 2015 10:22 AM  

After reading WhiteKnightLeo's comments I do wonder if Bernanke believes the bullshit he peddles. Telling the unfavourable truth has never been good for one's career.

It is very easy to believe what you want to believe.

Blogger bob k. mando April 14, 2015 10:22 AM  

a_peraspera April 14, 2015 9:59 AM
I'm interested in what VD, Nate and other folks who know more about economics than I think about this link: http://mythfighter.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

"The U.S. government created the dollar from thin air, by creating from thin air, all the laws and rules that made the dollar possible. Being sovereign over the dollar, the U.S. can do anything it wishes with the dollar. It can make the dollar equal to three euros, two pumpkins or one partridge in a pear tree. The federal government’s power over the dollar is unlimited."

the number of lies within this single paragraph are impressive.

1 - the US .gov DID NOT 'create the dollar out of thin air'. originally, the dollar was gold + silver ( bimetallism ) backed and we were still on a form of the gold standard until 1971.
2 - the US .gov DOES NOT 'create dollars out of thin air'. in a credit / debt fractional reserve system the *banks* do that.
3 - the US .gov CANNOT "make the dollar equal to three euros, two pumpkins or one partridge in a pear tree" UNLESS ALL COUNTERPARTIES AGREE. this is the totalitarian wet dream, that ONLY the Soviet Central Committee has any 'say' in the value, demand and production of a specific desired good. market and people and other nations be damned.

and people wonder why all central command economies wind up with huge black markets, without which nothing would get done.

his whole argument is predicated on the concept that money IS WORTH NOTHING. to him, it's an imaginary concept, like the square root of -1. he is openly advocating for a rubber ruler that he can stretch however he likes so he can make his micro-peener look like John Holmes.

Blogger Josh April 14, 2015 10:29 AM  

It is very easy to believe what you want to believe.

Not to mention that Bernanke's policies certainly worked for Bernanke. He was able to prop up the global financial system long enough to retire and turn the reins over to Yellen, not to mention his lucrative post Fed career prospects.

Blogger bob k. mando April 14, 2015 10:33 AM  

"1. Fact: Money is the way modern economies are measured. By definition, a large economy has a larger money supply than does a small economy. Therefore, a growing economy requires a growing supply of money. QED"


*facepalm*

well, Zim-fucking-babwe was circulating $100 trillion dollar notes. by his definition ( By definition, a large economy has a larger money supply than does a small economy ), the 'economy of Zimbabwe' dwarfed the size of the US economy.

i also like how he makes appeals to his own authority by promulgating economic 'laws' which he created himself and which are recognized by no one else.

"Mitchell’s laws: ...Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics."

Anonymous FrankNorman April 14, 2015 10:35 AM  

This should help explain why you simply cannot borrow or spend your way out of debt. It's like trying to dry yourself off by jumping in the pool. It's a logical contradiction, no matter how convincingly economists like Ben Bernanke and Paul Krugman manage to dance in circles, draw epicycles, and dazzle you into thinking they are speaking anything but utter nonsense.


Vox, that does assume that they actually intend to repay those debts.
One could certainly get out of debts to people one needed to repay, by "borrowing" from people one could avoid ever having to give back anything to.

Unethical, of course. But it would work.

Blogger Josh April 14, 2015 10:36 AM  

I'm interested in what VD, Nate and other folks who know more about economics than I think about this link

It's really nothing more than web of debt greenbacker stuff.

It's refuted by the law of supply and demand, for starters.

One of the things I've learned is that when someone frequently uses the term sovereign, it's a good indicator that their argument is rubbish.

Blogger bob k. mando April 14, 2015 10:40 AM  

know that i think of it, that's really scary. Mitchell has the same quality of economic understanding as sub-Saharan Negroes in Zimbabwe.

average IQ in Zimbabwe? 66.

http://sq.4mg.com/NationIQ.htm

Blogger Student in Blue April 14, 2015 10:46 AM  

Similarly banks are only able to create money from thin air provided they create, at the same time, the offsetting opposite amount of anti-money, otherwise known as debt.

A very minor quibble, but I would add that the debt is often more than offsetting, since every bank charges interest, so they get more money than they gave out.

I liked the analogy. The only thing I didn't see mentioned was the possibility of the matter disappearing, leaving the anti-matter free to destroy unrelated and possibly very important matter. And by that, I mean the cash from a loan being wasted and the debt going into default.

Anonymous WhiteKnightLeo April 14, 2015 10:46 AM  

@Porky The worst part is that I think it really is an unvenal theft. It's a theft perpetuated by thieves who don't actually want the thing they are stealing.

I go back to the arguments in favor of the Federal Reserve Act of 1913 in the first place. The thinking was that the reason that a boom collapses is because the capital runs out. Therefore, if the capital could be extended indefinitely, so could the boom.

This is manifestly wrong on all the important points, but this is something that people could actually believe. And why not? There are people who believe we can be held accountable for the sins of ancestors so ancient we don't even know how we are related to them.

And politicians have never gotten elected by being the brightest bulbs. Some of them ARE bright, but that isn't what gets them elected.

Of course there were real thieves involved. But I think the thing that turns ordinary people off from this topic is the assumption by many that everyone who voted for this was in on the con.

And it's not true.

A real con job only ever has so many conspirators; if it doesn't have a fair number of mostly innocent dupes to shield the con men, the illusion fools no one.

So I never approach this topic with the assumption that all the people who want this are cynical manipulators who really know what the real effects of these policies are and want them anyway. "Never assume malice when ignorance is an option", after all. I assume instead that the people involved are well-meaning fools who really think their policies will help the people they publicly claim to want to help.

Maybe it isn't true all the time. But by working from this assumption, I don't take on the burden of having to claim that everyone involved is a devil-worshipper.

And @Athor Pel: I misspoke. I meant to say "Stupidity is in the eye of the beholder", not the definition of stupidity.

Anonymous WhiteKnightLeo April 14, 2015 10:49 AM  

@bob k mando

A larger economy WILL have a bigger money supply. Where he gets it wrong is the assumption that a bigger money supply means a bigger economy. That connection only goes one way.

A castle may need a lot of land, but having a lot of land doesn't mean you've got a castle.

Blogger Josh April 14, 2015 11:02 AM  

Several people have mentioned interest. You can't look at interest without also looking at defaults.

NNT mentions in the black swan that all accumulated bank profits were wiped out by various financial crises.

So for the sake of discussion, let's assume that the amount of interest paid is roughly equivalent to the amount of defaults.

Blogger bob k. mando April 14, 2015 11:13 AM  

WhiteKnightLeo April 14, 2015 10:49 AM
A larger economy WILL have a bigger money supply.


not true on any more than a trivial level.

you need sufficient currency in circulation so that middle / lower class people don't get locked out of the economy. which means that the necessary currency in circulation is a function of population size vs currency concentration.

Wendy's used to cover their tables with prints of old newspaper ads, and you could see the prices. 5 cents for a burger. penny for a couple of pieces of candy. $10 for a horse. couple of hundred dollars for a car.

our economy would function perfectly well if we deflated the money supply back to population adjusted 1901 levels.

another thing that Zimbabwe Clown Car isn't considering is the whole productivity issue.

surplus productivity == potential wealth

you can uselessly expend surplus productivity by burying product in abandoned salt mines, making lots of copies of Piss Christ and Elephant Dung Madonna or blowing it up in a war or something.

but without surplus productivity, it is physically impossible to have wealth.

the US has been suckered into substituting Debt for Wealth. and we can live high on the hog this way.

for a while.

but someday, that piper is going to come calling.

Blogger Student in Blue April 14, 2015 11:15 AM  

So for the sake of discussion, let's assume that the amount of interest paid is roughly equivalent to the amount of defaults.

While you're free to make that assumption, I do not see that assumption play out in reality. Loans are a banks #1 income generator - and if defaults were roughly equivalent in subtraction to what loans are adding in profit, banks would quickly go under, as fees generate such a small amount.

OpenID S. Remy Sheppard April 14, 2015 11:20 AM  

"Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer."

This is probably one of the best ways I've ever heard modern economics explained. And its great to pull out in a debate because it also crushes egos.

Good show, sir!

Anonymous Stilicho April 14, 2015 11:23 AM  

A larger economy WILL have a bigger money supply.

Sure, IF you switch from inches to centimeters as your basic unit of measure. It isn't required though.

Several people have mentioned interest. You can't look at interest without also looking at defaults.

I mentioned both in my comment above.

NNT mentions in the black swan that all accumulated bank profits were wiped out by various financial crises.

From Mish (quoting NYT article):
After the latest round of bank stress tests last month, the Federal Reserve announced that, by and large, the nation’s biggest banks would all be able to withstand another crisis without requiring bailouts.

This month, Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, released data that contradict the Fed’s conclusions...
According to the Fed’s main measure, capital at the eight largest American banks averaged 12.9 percent of assets at the end of 2014, well above required regulatory minimums.

In contrast, Mr. Hoenig’s calculations show that capital at those same banks averaged only 4.97 percent at the end of 2014.

In a recent speech, Mr. Hoenig noted that under American accounting rules, derivative holdings add $300 billion to the balance sheets of five top banks — JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley. Under international rules, the holdings would add $4 trillion.
Read more at http://globaleconomicanalysis.blogspot.com/2015/04/former-fed-governor-thomas-hoenig-says.html#CeCri8MdWdxDaehO.99


It may evaporate pretty damned quickly this time...the TBTF banks don't have much of a margin to work with and the derivatives that constitute the big risk here will be the first to implode (see, e.g. Exeter's pyramid).

So for the sake of discussion, let's assume that the amount of interest paid is roughly equivalent to the amount of defaults.

Then the banks' profits have to come from other activities...derivative sales, proprietary trading, etc. Moreover, the interest must still be paid from either new money/debt creation or via wealth transfer. Wealth transfer is a zero sum game unless the debt can create at least enough new wealth to pay the interest.

Anonymous WhiteKnightLeo April 14, 2015 11:24 AM  

@bob k mando

Did.... did you really just ignore my second sentence in order to harp on the first sentence?

"Ceteris paribus" is normally assumed in any economic comparison.

If you have two comparable economies, the bigger one will also have a bigger money supply, because the larger volume of trade and production will increase the return on the production of new money (ie gold-mining). There will always be some inflation, even in an economy with a standard-backed currency (as opposed to a fiat-backed currency), its just that the inflation rate will be tied to the actual production of new money.

I'm not making any assumptions about economic management; I'm assuming a completely free economy here.

Blogger Josh April 14, 2015 11:25 AM  

While you're free to make that assumption, I do not see that assumption play out in reality. Loans are a banks #1 income generator - and if defaults were roughly equivalent in subtraction to what loans are adding in profit, banks would quickly go under, as fees generate such a small amount.

What happened in 2007-2008?

Anonymous Porky April 14, 2015 11:25 AM  

the US has been suckered into substituting Debt for Wealth. and we can live high on the hog this way.

Who said anything about "we"?

Anonymous justaskin April 14, 2015 11:30 AM  

OT ... Vox, you are reading Tanith Lee?

Can you recommend me what book to start with? Book of the Damned? Birthgrave?

Blogger Student in Blue April 14, 2015 11:30 AM  

Did.... did you really just ignore my second sentence in order to harp on the first sentence?

To be fair, the second sentence builds on the first one. If the first sentence was untrue, then the second and following sentences in your post are meaningless.

Blogger Noah B April 14, 2015 11:34 AM  

"There will always be some inflation..."

You've been conditioned to believe this. In something resembling a free market, and in the absence of constant government intervention, the value of money varies with the business cycle. Periods of deflation are every bit as normal as periods of inflation.

Blogger Student in Blue April 14, 2015 11:36 AM  

What happened in 2007-2008?

Defaults did. To be more specific, defaults on dumb as hell loans happened. Banks bet big and stupid, and paid the price.

Were those defaults roughly equivalent to the interest on said loans? I don't see how your example is proving your previous point.

Anonymous Porky April 14, 2015 11:36 AM  

the US has been suckered into substituting Debt for Wealth

When debt becomes a universally accepted medium of exchange then debt actually IS wealth.

Blogger Student in Blue April 14, 2015 11:37 AM  

An edit to my previous post,

"Banks bet big and stupid, and paid the price."

should be

"Banks bet big and stupid, and taxpayers paid the price."

Anonymous Athor Pel April 14, 2015 11:41 AM  

"Porky April 14, 2015 10:17 AM
"Nope, stupid can be determined objectively. And if you're too stupid to see it then you're too stupid to comment here."

Athor Pel, you have a ringside seat to the most ingenious grand theft scheme in history. The sheer scale and hubris is astonishing. The amount of wealth absconded is unimaginable. And in fact, it is your wealth they are stealing.

Yet there you sit on the porch...toothless, with banjo in hand, declaring them to be "objectively stupid". ."




I was talking to Leo about the definition of stupid. I was not talking to you about the current financial system.




" WhiteKnightLeo April 14, 2015 10:46 AM
...
And @Athor Pel: I misspoke. I meant to say "Stupidity is in the eye of the beholder", not the definition of stupidity."



Zoom, right over your head. If you run fast enough you might catch it.

Blogger Noah B April 14, 2015 11:42 AM  

"When debt becomes a universally accepted medium of exchange then debt actually IS wealth."

This only holds until it becomes widely recognized that the real value of debt will never be repaid. Once that happens, people can't sell debt instruments quickly enough.

Anonymous Stilicho April 14, 2015 11:45 AM  

Banks bet big and stupid, and taxpayers paid the price.

Via wealth transfer and new debt...which is also a form of wealth transfer from the taxpayers in this case...

Blogger bob k. mando April 14, 2015 11:50 AM  

WhiteKnightLeo April 14, 2015 11:24 AM
Did.... did you really just ignore my second sentence in order to harp on the first sentence?



your first sentence was trivially true but generally false and your second sentence did not mitigate that.


WhiteKnightLeo April 14, 2015 11:24 AM
There will always be some inflation



bullshit. go get any econ textbook and get out the graph for inflation adjusted value of the dollar since 1800.

it wanders up and down but is fairly flat to deflationary.

UNTIL the creation of the Federal Reserve.

constant inflation is an artificial construct of the Fed. and the Fed ( used to ) claim that it's primary purpose was 'price stability'.

while at the same time devaluing the dollar more than 95% over the last century.

somebody lyin.

it's also diametrically opposed to the concept of Capitalism ( of which, you know, Capital Accumulation is a central concept ) because constant inflation ( especially inflation that exceeds the savings interest rate ) destroys generational Capital Accumulation.

you'd almost think it was a system designed by ... Marxists.



WhiteKnightLeo April 14, 2015 11:24 AM
If you have two comparable economies, the bigger one will also have a bigger money supply



absolutely AND FLAGRANTLY FALSE. as noted several times now, Zimbabwe was circulating notes in denominations of $100 TRILLION dollars.
https://en.wikipedia.org/wiki/Zimbabwean_dollar

the entire US GDP for 2014 was less than $20 trillion.
https://en.wikipedia.org/wiki/Economy_of_the_United_States

by your criteria ( and Mitchell's ), a man holding a single Zimbabwean bill would have been 5x more economically successful than the entire 2014 US economy.

which is the kind of absurd bullshit you get from people who believe that money should have no intrinsic value.

and before you try to argue that Zimbabwe and the US do not have 'comparable' economies, i'll just point out that the US has been running a trade deficit continously since 1976 ... after we went off of the gold standard.

https://en.wikipedia.org/wiki/Foreign_trade_of_the_United_States#History

there's no way we could get away with this UNLESS the rest of the planet uses the USD as a reserve currency.

and that's coming to an end.

Anonymous Athor Pel April 14, 2015 11:54 AM  

" Noah B April 14, 2015 11:34 AM
"There will always be some inflation..."

You've been conditioned to believe this. In something resembling a free market, and in the absence of constant government intervention, the value of money varies with the business cycle. Periods of deflation are every bit as normal as periods of inflation.
"




You've been conditioned to believe inflation is purely an increase in prices and deflation a decrease. This is blaming the price change on the market with no blame apportioned to the banks that emit the currency.

To be somewhat more precise, inflation is an increase in the money supply and deflation a decrease of that supply. Which is directly attributable to the banks, the emitters of currency.

Prices flucuate based on supply and demand even without a changing money supply.

Anonymous Porky April 14, 2015 11:55 AM  

This only holds until it becomes widely recognized that the real value of debt will never be repaid. Once that happens, people can't sell debt instruments quickly enough.

I used to believe this too. But the proliferation of negative interest rates is convincing me otherwise.

Everybody knows that not everyone will get paid. But everyone is also betting that they will be the ones to get paid first.

The bank/casino is starting to hand out comps and free hotel rooms to the average Joe. This should be absolutely mind-blowingly startling. But I don't hear much about it.

Blogger Noah B April 14, 2015 11:59 AM  

You've been conditioned to believe inflation is purely an increase in prices and deflation a decrease. This is blaming the price change on the market with no blame apportioned to the banks that emit the currency.

To be somewhat more precise, inflation is an increase in the money supply and deflation a decrease of that supply. Which is directly attributable to the banks, the emitters of currency.

Prices flucuate based on supply and demand even without a changing money supply.


I completely agree, and I'm not ignoring the effect that banks have -- even in a fractional reserve banking system. Without constant government intervention, the ability of banks to continue creating new currency indefinitely is greatly limited. Eventually the business cycle peaks and defaults begin to overwhelm banks.

Blogger JaimeInTexas April 14, 2015 12:33 PM  

"I think I can explain it even more simply, however. Money is a measure. And no matter how you may redefine the "inch" by making it increasingly smaller on the ruler, you do not make the object measured any longer."

What's next, that daylight savings time does not make thd day longer?

Blogger Josh April 14, 2015 12:35 PM  

Were those defaults roughly equivalent to the interest on said loans? I don't see how your example is proving your previous point.

If they weren't roughly equivalent, the bank wouldn't have gone bankrupt.

Anonymous WhiteKnightLeo April 14, 2015 12:38 PM  

Guys, guys...

If gold is money, any successful gold mining will increase the money supply.

That's what I'm referring to when I say "there will always be some inflation", some increase in the money supply.

The inflation rate prior to the creation of the Federal Reserve was very low, especially when you ignore the fractional reserve issue, but it did exist.

Since the value of money is directly related to the amount of it in circulation, increasing that amount decreases the value of any one unit of the currency, and prices of goods therefore rise, which is the definition of inflation.

Hence my contention that there will always be some.

Deflation, by contrast, happens when production of goods outstrips the production of new money. Then the value of money rises relative to the goods, and prices fall.

Neither inflation nor deflation is a huge problem on its own, because even the discovery of very large gold deposits only had a finite effect on the economy.

In a free economy, technological advances will tend to deflate the currency, because technological advances usually reduce the cost of production.

Blogger JaimeInTexas April 14, 2015 12:53 PM  

When fiat money is printed but used to, say, pay government employees, it comes from stored energy/capital.

Then, there are virtual particles:
http://www.reddit.com/r/askscience/comments/2877s8/where_do_virtual_particle_pairs_borrow_their/

Blogger Student in Blue April 14, 2015 1:03 PM  

If they weren't roughly equivalent, the bank wouldn't have gone bankrupt.

Let's say Lehman Brothers had approximately 100 billion in loans, and adding up all the interest from those loans over all of the years it would've matured approximated another 100 billion.

You're saying that because they went into bankruptcy, it is evidence that the amount that was defaulted was equivalent to the amount of interest, in other words, they defaulted and lost 100 billion dollars.

That then makes the case that 100 billion base + 100 billion interest - 100 billion defaulted, somehow equals 0, or less than zero, instead of 100 billion.

Granted, this is a simplification, but I'm still not seeing it.

Blogger Copperheaded April 14, 2015 1:34 PM  

Finally, a theory of everything!

Blogger Josh April 14, 2015 1:41 PM  

Granted, this is a simplification, but I'm still not seeing it.

The amount of defaults could very well be much greater than the amount of interest.

The point is to combat the "but interest!" Objections in the beginning of the thread.

Anonymous Stilicho April 14, 2015 1:57 PM  

Interest just fuels the fire of default

Anonymous The Fraudster April 14, 2015 2:08 PM  

This matter/antimatter heuristic is a useful analytical tool. You can do the same matter-antimatter trick in your own life. Want to give someone some money to radically reduce your marital assets before divorce? Create an imaginary obligation (antimatter) that you "repay" with your marital assets (matter).

First create antimatter: Get someone you trust to file suit ($50) for some imaginary injury (fender-bender, slip-and-fall) etc.

Then cancel the antimatter with your "matter": Settle the lawsuit by writing them a big check. File the settlement agreement with the court and drop the suit. Bingo!

Legally speaking, you weren't giving marital assets away, you were merely canceling a [fake antimatter] debt with an equivalent amount of [real matter] marital cash..

That's also how liberals fund their favorite causes. The city works with liberal activists to create an antimatter lawsuit, and then "settles" the lawsuit by building something the liberal activists want [the matter].

The city then explains to the taxpayer that they HAD to settle the suit. They didn't build the Somali Refugee Center by choice! Liberal causes get funded and the city officials are not blamed.

Blogger bob k. mando April 14, 2015 2:16 PM  

WhiteKnightLeo April 14, 2015 12:38 PM
If gold is money, any successful gold mining will increase the money supply.



indubitably.

which is also why i used to not have a problem with fiat money; because it renders non-mining nations superficially weak against against nations with large in-ground reserves:
https://en.wikipedia.org/wiki/Gold_mining#/media/File:Top_5_Gold_Producers.png

which does nothing to explain the RISE of the Dutch Empire ... an empire which sprang from a nation with absolutely zero gold reserves.

https://en.wikipedia.org/wiki/Dutch_Empire



WhiteKnightLeo April 14, 2015 12:38 PM
That's what I'm referring to when I say "there will always be some inflation", some increase in the money supply.



i already pointed out your error here.

growth in the overall money supply base is balanced against both population growth and wealth concentration.

UNLESS the money supply grows FASTER than the population/wealth concentration, the gen pop will not see general price inflation.

who cares if Ben Bernanke carries around fifty $100 trillion notes in his wallet?

UNTIL HE SPENDS THEM they have no effect on the economy and no effect on pricing for anyone else in the economy, long term.

Blogger Student in Blue April 14, 2015 2:17 PM  

The amount of defaults could very well be much greater than the amount of interest.

The amount of defaults could also be less than interest, as long as it impacts the bank so that they can't make ends meet,

If the bank was operating on the thinnest of margins, and had all of their assets tied up and no one was able (or willing) to give them money immediately, then even the smallest default could technically kill them.

The point is to combat the "but interest!" Objections in the beginning of the thread.

In which case, I believe a more accurate way to say it would be, "defaults can help counteract interest based on difference". Bankers hope that growth in wealth by the loanee will counteract the interest... because if that is not the case, then the default will.

And sometimes the default is more than the interest. Someone buys a $100k house, and immediately defaults on it... the bank is out a bit more money than just the interest they would've gained, as they now have to deal with a house which will probably be sold for less than $100k.

Blogger bob k. mando April 14, 2015 2:20 PM  

because ( gold backed currencies )

Anonymous Porky April 14, 2015 2:20 PM  

Interest just fuels the fire of default

Not if it's negative.

Blogger Student in Blue April 14, 2015 2:24 PM  

Hm, pardon me. I meant to say, "defaults can help counteract interest".

There's a factor of the difference of equity and loan but I didn't quite figure out a way to phrase that correctly yet. Maybe, "defaults + equity/value of collateral + interest paid = loan + interest"?

Anonymous Stilicho April 14, 2015 2:29 PM  


Not if it's negative.


Call me when the banksters start paying borrowers to borrow from them, not when banksters charge savers to loan them money.

Anonymous not seeing it April 14, 2015 2:34 PM  

In the matter/antimatter/energy model, where is the little man with the green visor, skimming his juice?

Anonymous Porky April 14, 2015 2:46 PM  

Call me when the banksters start paying borrowers to borrow from them.

Collect call from a mister Nirp.

Anonymous Stilicho April 14, 2015 2:54 PM  

Collect call from a mister Nirp.

What part of "when banksters charge savers to loan them money" did you fail to comprehend?

Anonymous Porky April 14, 2015 3:07 PM  

Stilicho, yet another article just showed up on zerohedge just hours ago.

Banks Across Europe Pay Borrowers To Buy Homes

Granted this is all very nascent and I have yet to wrap my head around the consequences.... but this is where we're headed. Thar be dragons thar.

Anonymous WhiteKnightLeo April 14, 2015 3:23 PM  

@bob k mando

The very first thing I said about this topic was that the size of the money supply did not say anything about the size of the economy (my analogy about castles. Did you miss it?).



The only point I was trying to make is that a gold-backed currency WILL inflate over time so long as gold-mining is both possible and legal, and that a large economy WILL have a larger money supply than a smaller one. Whether any rise in prices will occur is a different issue, because the rate of technological progress is not directly related to the money supply. The currency could be expanding at a rate of 5% (which is pretty high for a free economy), and we could still see prices falling rapidly if GDP were 9%.

How much bigger it will be is not something I can calculate. I did not say and did not imply that a bigger money supply was better than a smaller one. I don't have any opinion about what size is a good one for a given economy. The only thing a real economy needs is a *stable* currency, one that can actually do its job as a store of value. A rapidly-inflating currency is all but useless as a store of value, which is one of the primary functions of money. And rapid *sustained* inflation can only be done by a fiat currency.

I'm well aware that the Dutch empire grew quite wealthy without significant mineral deposits under its control; that doesn't add to or detract from my point. It's actually irrelevant to what I was saying.

I said gold is MONEY. I did not say gold is WEALTH. If gold were wealth, Spain would have been much wealthier than the Netherlands. But it was not, and is not. If gold were wealth, several African nations would be wealthier than Japan.

Obviously this isn't true. But I also didn't make this argument, and so you didn't prove shit.

And with the knowledge that gold isn't wealth, the idea that a fiat currency can help nations with minimal gold deposits is self-evidently horse shit. So long as those nations with large gold stores can trade with nations that have small gold stores, the gold supply will quickly stabilize across nations.

The reason for this is that the nations that produce the gold will have higher local prices, other things equal, and so any money they dig up will be worth more in nations with smaller gold production.

This will produce a net flow of gold from nations that make it to nations that don't until the supply is stable, exactly like water finding its level.

Anonymous Stilicho April 14, 2015 3:27 PM  

Fair enough. I didn't think any bank would be stupidly self-destructive enough to actually pay a borrower interest and hope to get by on the margin between that and the negative rate applied to deposits. I'll be even more surprised if it actually continues. The banks doing this can only hope for capital controls to be enacted that freeze depositors' accounts, otherwise, those accounts will leave. Whether the departure of depositors' accounts occurs via direct flight to other countries or other currencies, into various asset purchases, or into mattresses there will be an exodus unless it is prevented by force. If the exodus occurs, the banks are dead. If it doesn't, politicians and banksters may start decorating lamp posts.

At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.

I wonder what distinguishes the "some customers". It may end up being the bank's way of slowly recognizing a borrower's default over an extended time instead of all at once.

Anonymous Porky April 14, 2015 3:59 PM  

I didn't think any bank would be stupidly self-destructive enough to actually pay a borrower interest and hope to get by on the margin between that and the negative rate applied to deposits.

Maybe you're just not as cynical as me. It seems to me that the note is now worth more to them than the usury.

That should frighten the hell out of us.

Whether this is because it will get tranched into a zillion derivatives or if they are planning to score big on foreclosures I can't say.

Anonymous Porky April 14, 2015 4:03 PM  

I wonder what distinguishes the "some customers". It may end up being the bank's way of slowly recognizing a borrower's default over an extended time instead of all at once.

With ARM's they don't have much of a choice. The rate is linked to the euribor.

Blogger bob k. mando April 14, 2015 4:49 PM  

WhiteKnightLeo April 14, 2015 3:23 PM
The very first thing I said about this topic was that the size of the money supply did not say anything about the size of the economy (my analogy about castles. Did you miss it?).


no, i didn't miss it. in fact, i even agree with that.

the problem is, you keep coming back around and contradicting yourself:
" a large economy WILL have a larger money supply than a smaller one"

WhiteKnightLeo April 14, 2015 3:23 PM
I said gold is MONEY. I did not say gold is WEALTH.



yes, it is, by definitions 1,3 & 4. which also true for pretty much any commodity.

do i have a wealth of shit? then i can fertilize many fields with it.

http://dictionary.reference.com/browse/wealth?s=t

more esoteric is the argument that Keynesian and Monetarists try to make that gold is not MONEY in this fiat era.

this also fails to the dictionary definition:
http://dictionary.reference.com/browse/money?s=t

but you were on the right side of that argument already.



WhiteKnightLeo April 14, 2015 3:23 PM
and that a large economy WILL have a larger money supply than a smaller one.


once again, Zimbabwe and Wiemar Germany disprove this ABSOLUTELY.

i don't care how you characterize the monetary base, Zimbabwe's 'money supply' was orders of magnitude larger than the entire rest of the world's economy.

you're confusing 'wealth' with the monetary base.

and the monetary base is completely irrelevant to whether a nation is 'wealthy' or not.

the size of the monetary base is only how finely sliced the .gov has decided to gradate the aggregate wealth of the nation.

it has nothing to do with whether the economy is large or small, productive or indebted.

Blogger WhiteKnight April 14, 2015 5:54 PM  

"you're confusing 'wealth' with the monetary base."

I'm confusing nothing. I've already said that money isn't wealth, and that GDP is very different from the money supply. I stated both of those outright.

You are only responding to parts of what I say and ignoring the rest. Zimbabwe and Weimar Germany both happened because the money supply was confused with wealth by the people there. THEY made that error.

Zimbabwe's economy was in fact shrinking as the money supply grew, as was Weimar Germany's. And what does that prove?

It proves that the politicians of both nations chose to focus on the thing they could control and simply hoped for the best. Which means nothing. You can't disprove my point by pointing to nations that relied on fiat currencies, because I was talking about gold-backed currencies.


The example that should be used instead would be America, or possibly Britain. Both nations had relatively free economies for the period 1800-1900. Both had gold-backed currencies almost for the duration. Both had *huge* economic growth over that period.

And both had substantially larger money supplies in circulation at the end than at the beginning. By this I mean the total amount of gold. The money supply would have been larger even if the gold-dollar definition didn't change during the period. Money is more productive in growing economies, and thus money tends to flow to productive economies.


Again, again, again, the money supply WILL grow in a free society, because the return on the production of new money is higher during growth periods (because growth periods in a free economy will tend to have falling prices over time, thus money will buy more, and therefore more resources will be put to the task of creating new money). This will happen by the free choice of individual people in that economy.

The higher the rate of economic growth, the higher the return on the production of money will be, and therefore more resources will be diverted to the production of new money.

Thus in a free economy the size of the money supply will reflect the size of the economy. This applies ONLY to a free economy, as the lessons of Zimbabwe prove.

The same applies to home ownership, which our government found to its dismay in 2008. Increasing rates of home ownership IS a sign of prosperity, but the rate of home ownership DOES NOT CAUSE prosperity, it is CAUSED BY prosperity.

In much the same way, increasing the level of freedom in a society will tend to reduce economic stratification and fill in the gaps between economics "classes" until there ceases to be anything but a continuous gradient. However, efforts to reduce economic stratification directly necessarily reduce the level of freedom, and that tends to *cause* economic stratification.

Hell, Frederic Bastiat noted that in a free economy, a person's wealth would tend to reflect how moral they are. It would only apply to a free economy, but it would be true.



*You* are referring to an *unrelated phenomena* that applies only to *fiat currencies*.

Anonymous BigGaySteve April 14, 2015 8:00 PM  

David "much like maintaining the warmth in a Fargo ND greenhouse (in February) requires electricity"

If this is your actual situation I would direct you over to http://www.permies.com/ . You can make a earth sheltered greenhouse similar to what the Indians ,feather not dot, used to call Walipini. You can also set up a wood burning rocket stove with ductwork under your grow bed. If you have a boyfriend it will be hard to convince him due to ascetics so plant some Siberian Pea Tree/Shrub (Caragana arborescens) which are actually nitrogen fixing legumes with a good amount of protein and oil to help hide it.

" gold mines" ~ There are industrial uses for gold and silver that take it out of the economy, not so much silver since digital photos.

"One could certainly get out of debts to people one needed to repay, by "borrowing" from people one could avoid ever having to give back anything to."

Didn't a guy by the name of Martin Luther write a book about a tribe that took over banking that way by going to non tribe banks?


"I just don't want to sign on at work." You could always stick to posting when you are at home. The alternative is spending $40+ a month for a tunneling service to hide you from IT like non-Asian minority tokens do since no one expects them to work.

Blogger Vox April 14, 2015 8:26 PM  

Can you recommend me what book to start with? Book of the Damned?

Yes.

Anonymous zen0 April 14, 2015 10:45 PM  

As I try to understand, I am left with the phrase "What does Money want, anyway?"

We will find out the latest demands in a couple of years, tops.

Anonymous Steve Brown April 15, 2015 12:58 AM  

It's late in the day and all the readers have gone to bed, but... When I graduated from college in 1974 as a banking & finance double major, I thought I knew something about the workings of the money world. Very quickly I watched as many things would happen that I would just shake my head at in disbelief. Excessive debt, lending to 3rd world countries, local, state, and regional banks being "acquired" by larger banks, and the selling of income producing instruments that took 600 pages to explain & a PhD to understand. Just as God said that my thoughts were not His thoughts, the bankers, that control the world's money, thoughts are not my thoughts. We will never understand! They not only control the money, but the nations and politicians.

Blogger J Van Stry April 15, 2015 2:32 AM  

That's not a bad simile, but it ignores the laws of thermodynamics, which a corollary I believe exists for in the monetary world as well: Basically it take energy to create the matter/anti-matter, so at the end of the game, you still have less than what you had when you started, because you never get THAT back.
I believe the same is true of creating money, it took money(effort/etc) to make that creation in the first place, and when it buys that debt back off, you still will be out the money you spent creating all of it. So the system overall, has gone down even further.

Post a Comment

Rules of the blog
Please do not comment as "Anonymous". Comments by "Anonymous" will be spammed.

<< Home

Newer Posts Older Posts