How The Monetary System Works - And Why It Seriously Needs to Be Replaced

Obviously. But we don't have to with a system not based on debt. My point was that with monetary sovereignty there is no reason to borrow your own created money.

You create it. Via the treasury instead of via debt instrument to the Fed that results in either printed money or electronic credit. With monetary sovereignty you have no need to borrow anything.

I wasn't talking about our current system, I was saying we could use the treasury, just as the Fed does, to transact the actual creation of money and it could manage the electronic end the Fed currently manages as well. Under the direction of the same people we have at the Fed now if necessary (or whoever they hire/appoint).

And what would be different under what I suggested? Banks would borrow funds from the government to lend, then pay back to the government when the individual pays the bank back (payments). It would subordinate banks to the federal government instead of leaving dollar creation to fractional lending. Then the federal government controls all money creation and fractional lending disappears because a single run on banks crushes a bank that lends dollars it does not have. And no, 10% reserves will not cover a bank run without additional funds borrowed from other banks that also only keep 10% reserves.

Fractional lending is a scam that only works because people remain trusting in the banks. If they decide as a group they want their money back, what happens to those banks? Real lending from real money eliminates any possibility and still allows the government to make money from the banks (what a concept!) and allows banks to keep the economic engine turning at a pace determined by the government who sets rates of lending.

Let's be real. Banks weren't bailed out due to anything except their own reckless behavior that continues today and we still have a looming catastrophe in the form of the derivatives scam that has yet to set its hook and cause another failure. You would have no need to bail out banks that live by real regulations because they would be forced to maintain adequate standards in order to access federal dollars to loan. The spigot of economic control would be in the hands it belongs in.

Try to institute my suggestion and you'll quickly find out the truth. Who leads the fed, what is their traditional background, and where do they usually end up if they don't retire? Backs are too easily scratched and JP Morgan is the only bank I've really witnessed lately being hammered only to find out they get to write off those $13B in penalties so they win again.

I never suggested cutting off lending. Quite the opposite. Lending is critical, but there's no reason it needs to be only within our current system in order to work. I'm well aware of how the current system works, but it's not perfect.

But you miss the point. Without debt there is no reason to tax people for debt servicing so you don't need your own money returned to you from the Fed because you don't issue at debt. It eliminates the entire need to issue debt. You control the supply via the banking system and federal spending. If the money supply needs to be increased they can create funds, spend the funds and leave them in the economy. To contract it, destroy it via taxation. The need to stimulate and cool the economy shouldn't swing wildly if you remove the factors banks have pushed onto the economy through reckless behavior like we saw with S&L and the housing bubble.

 

Of course, it's difficult to tell exactly what is responsible for that. You obviously believe that would never have happened without this stupid banking system. I beg to differ, but even if it didn't I'd prefer a stable system to a "boom then permanent bust" system.

Or do you a) believe this has no limit; or b) don't care?

Because once you hit that limit, now no one has any money.

Personally, I'd take a stable economy over one that will eventually outgrow its supply any day but perhaps evolution needs longer to work itself out before people realize this.

 

Real money. Competing currencies.

No.

Can you imagine yourself as a legal counterfeiter? You get to legally print however much money you wanted. That is what the Federal Reserve does. They trick people into believing that they are doing it with honest intentions but in fact they print themselves billions and let it trickle down. If one is well connected then you'll do well. Didn't the Queen of England spend a $billion on a wedding not long ago? If one is not well connected, then they get food stamps and Section 8 housing.

It costs you tremendously. Inflation is a hidden tax. Not one man in a million can diagnose.

Counterfeiting debases currency. It makes your currency worth less and less over time.

My proposal is too lengthy to go into here on the forum. I agree with Dr. Edwin J. Vieira "The Purse and the Sword."

 

For a society to function, especially in modern times, a stable currency is needed. That seems to be a fair duty of a central govt, if you're going to have one. I don't know what the recourse of the citizens are, if said govt does NOT provide a stable currency, short of revolting & setting one up that does. But monetary policy over the last 100 yrs has been in place to fleece the common man, & enrich the bankers & money shufflers. The dow hit 16k a couple of days ago. The economy is not thriving, nor are any businesses producing things to justify this new high. It is all money shuffling, starting with the Fed. They print up a bunch of money (figuratively, of course) dump it on the banks in a QE, then it is shuffled around by the big corporations, each skimming off a bit for themselves, until a pittance trickles down to the people in reduced wages & higher consumer prices. The borrowing & shuffling is like a pyramid scheme.. each one making a bit more for themselves, then shuffling it off to the next scoundrel, supported & defended by our own govt.

The occupy loons should have been protesting the govt, the fed, & monetary policy.. THEY are the central problem & source of the corruption. Individual banks are just willing participants in the pyramid scheme. Yet where did they go? Wells Fargo. Wal mart. Please.

But as long as the tv works, it seems, people are content to let the govt plunder the wealth of the nation, redistribute it (translate: steal from the people, give to the govt cronies), & destroy any savings through inflation. It would be completely possible to base the dollar on something 'hard'. Gold, silver, copper, oil, even commodities would be better than nothing, which is what we have now.

I don't think most people realize that our fates are much more closely tied to monetary policy than anything else. We can fix just about anything except a collapse of the currency. Nothing else, short of global thermonuclear war, would have the devastating destruction of a currency collapse. Yet that is the direction we are heading. Here is a recent bit about china moving to the gold standard, which would destroy the dollar:

source

Now, i know that chicken littles have been crying 'the sky is falling!' for decades. But if you look at the framework that is in place, & the persistent devaluing of the dollar & other systemic problems in the economy: reduced production, huge disparity in the trade balance, artificial low interest, market manipulations, juggling gdp numbers.. all these & more SCREAM collapse. We cannot go on. We ARE headed for a fiscal cliff, & our momentum may be too great to stop the train.

The more likely result of this will be some govt leader plunging us into another world war.

The 1st panacea of a mismanaged nation is inflation of the currency; the 2nd is war. Both bring a temporary prosperity; a permanent ruin. ~Ernest Hemingway

BTW, the above quote was written just a month ago.. evidently china IS planning to be the major player in the world currency, replacing the dollar. IF & WHEN that happens, the dollar will plunge in real value.. everything will go up, as it becomes worthless.

 

The money would be in the hands of individual producers (workers). You can't have a devastating run on the bank if the bank has enough reserves to meet their obligations.

 

Lmao!! Utah did not pass a gold standard. They passed a law that can allow banks to take old government issued gold coins as deposit at current gold prices. In return they give you a debit card because in order to actually buy goods and services you need USD. They probably aren't doing very good right now as gold has plummeted over 20% the past year.

 

GDP is a phoney number, manipulated to deceive the people.

 

1) It demands endless growth which is impossible; even if you assume that it is sustainable, ti basically means the government and the banks runs the economy, not the people, an illiberal society
2) Either market currency (privately made, competing currencies); or, to stamp out any possibility of this system occurring, have the government simply print enough money to represent the value of the entire economy and keep the money supply large enough to accomadate growth. In this way, money actually represents wealth rather than debt, and it is permanent - the money is not destroyed by being placed in a bank deposit, it stays in circulation forever as a representation of value.

 

Lol, you just make stuff up. We have a more stable economy than we've ever had in our history and in no where near a danger of outgrowing our supply, lol. I kind of like you dude, but these are embarrassing comments.

 

Problem is if you create too much money you get inflation.

So the plan is to just have the Treasury create whatever money the Govt spends in excess of taxes? You'll get high if not hyper inflation.

See above issue with inflation.

Why would banks have to borrow money from the Govt to lend? Do you want the Govt to be in the business of general commericial lending? Why?

What do you mean "It would subordinate banks to the federal government instead of leaving dollar creation to fractional lending."? Is what you are proposing is that all bank lending has to be done with money borrowed from the Govt? What happens when loans goes bad? Then the Govt doesn't get repaid and tax payers are on the hook. It's bad enough when that happens because of a financial crisis, but is it good policy? What is the incentive of the banks to make prudent loans? Is the Govt going to underwrite every loan?

See my post above. Fractional lending has been the engine that financed the last 200 years of economic progress.

What kind of standards are you talking about? See my points above. Should the spigot of economic control be even more in the hands of the Govt?

I think the last 2-3 Fed chairs came up through the Fed reserve system.

OK.

With the Government injecting hundreds of billions into the money supply each year you get high/hyper inflation. See above.

 

I know you find everything that disagrees with you stupid but try not being a self-righteous claims-to-know-it-all for at least one day.

This is a finite planet, but we are using a system that requires infinite growth, and not only infinite, but exponential growth. So we will get closer and closer to the proverbial cliff as this goes on at a faster rate than before. It will come comparatively quickly.

I have yet to see any evidence that the economy has infinite capacity. And again, even if it did, this still makes our economy run by a bunch of bureaucrats and bankers instead of by us. And unless you either aspire to be one of those people or you worship them, I think we can all agree that's not exactly fair or free for the rest of us.

 

When the financial experts create a system that primarily benefits the financial experts at the expense of everyone else, I really don't care how well it works, it's illiberal and wrong unless you believe that a few should dictate to the many how to live. I don't.

 

What is "real money" and whose competing currencies, and why would having multiple currencies in the economy be better?

The Fed doesn't counterfeit anything. It is authorized by law to create money.

What do you mean "the print themselves billions". Please explain your understanding.

How is it a tax? A tax is what you pay to the Govt.

Unless you have more and more because you invested it. That's the benefit. It induces people to invest, which is beneficial the economy, as opposed to hoard, which is not.

If you can't summarize an alternative there is no reason for me to suppose there is a better alternative to the current system. I've seen all kinds of quack proposals.

 

I think we have a fog-filled reality of an economy doing well. We have an explosive stock market with little visible to justify the speculative pricing we're seeing. Far too many are living off of the social safety net to think we're doing well. Unemployment combined with numbers of people who quit trying to find work is astronomical for our country. Unused productive capacity was around 20% last I had looked. Housing is still a very bad part of the economy. Derivatives are a big fear if that market were to experience a hiccup. The ACA is causing ripples of fear that we don't yet understand in terms of long term impact. Faith in government is very low for such a touchy economic time.

The economic indicators give indications that things are ok, but the clues lying around suggest otherwise. I don't know for sure that it's as bad as I suspect, and I honestly hope I am wrong, but taking it at face value makes the hairs on my neck stand up.

 

They are doing just fine in Utah. The FRN is what is weak. It is still teetering around 80 with near zero interest rates.

 

No, you simply require the bank actually possess the money it loans. That's the point: money should not just be created out of nowhere as a debt, it should represent actual wealth.

 

It requires endless exponential growth to work. That is impossible.

Either us (market currency) or have the Fed do something like I mentioned earlier: the money supply represents the value of the economy, rather than debt.

 

The Federal Reserve Act of 1913 is an unconstitutional act.
You do not have enough background for me to discuss this any further with you. You'll have to do your own homework if you really want to know the answers to the questions you asked.

 

ROFL. Are you serious? Historic achievements? We went from an Unemployment rate of about 10% at the height of the crisis and it now stands at 7.3%

Or in other words,a 3% reduction in a 5 year span. That's not impressive. So does that mean in another 5 years, we'll get back to the optimal "5%" level ?

Taking a decade to recover from the "massive problem" isn't impressive.

By giving our currency some real, stable value corporations and businesses won't be able to cheat out average Americans.

Bring back the Greenback, and end corporate and banking fraud against 99% of Americans.

 

True in any monetary system I'm aware of. I didn't suggest endless and out of control creation of money.

If that were true, why is that not the case now? If government gets a product or service for money it spends that contributes to the good of the nation, how is that expenditure inflationary if no debt is tied to it? And how is it different than now where we deficit spend without skyrocketing inflation? The government, just like the Fed, would control interest rates so...?

Think about what you just asked. Why would they actually need to have money in order to lend money. That was your question, regardless where they get it from. Yes, of course, banks should lend money they actually have and they would get it from the government, which is the only entity by law who should control money (via the Constitutional authority granted to the congress)

Banks would borrow so they would be the customer of the government, responsible for repaying the money to the government. It would fall upon their risk management practices to determine risk and be ok with the risk of lending. That's the point of earned interest. You loan at interest for bearing risk of default. Government would fund every loan until banks earned enough they could then lend their own money that they made off of interest from previous loans. Eventually they could self fund many loans and reap the benefits of loaning money they didn't have to borrow, borrowing from the government when loan demand is higher than internal funds can support. The process would put them at the mercy of the government instead of the way it is now, where 93% of the created money is via commercial banks. The government would create it, pass the credit to the banks, then it would get loaned.

And taxpayers are on the hook in our current system via bailouts. Little different in that regard.

Sure it has. We have the goldsmiths to thank for coming up with a system where they deceived people into thinking their deposits were all truly held by them. Exact same scenario today. Doing it differently doesn't mean it would be wrong. There would actually be dollars for deposits and kept on deposit (electronically) and dollars involved in loans.

Since the constitution was written that way, I have to say yes. Congress forfeited the right in 1913 when they passed the Fed Reserve Act, but it had no obligation, or even right, to do so. Taking it back would just be in keeping with the concept envisioned.

Explain how the government creating demanded (via loans) money creates high or hyperinflation. Only unnecessary federal expenditures and dollar creation would be inflationary, just like today.

 

Then it's not a bank. Then it doesn't have money to loan. The ability to use the capital that is put in banks to lend to businesses and individuals to grow and expand and pursue business opportunities has provided the capital that fueled economic growth over the past two centuries.

 

1) Why is it impossible?
2) How is that driving growth at the expense of long term viability?

What is the value of the economy and how do you have a money supply that represents it, and how do you regulate it?

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That would only be your opinion. In reality, you don't decide whether it is constitutional or not, the Supreme Court does. So it is not unconstitutional.

Baseless presumption underpinning an inability to argue and defend a position.

 

But that is the effect of the Govt printing money instead of borrowing it.

I never said the Govt spending money is inflationary. Why would it be inflationary? It is different because the money created by the Fed is only a small fraction of the money the Govt has borrowed.

No, my question was: Why would banks have to borrow money from the Govt to lend?

What is "money they actually have"? If a bank has 1050 in cash and 1000 in deposits and $50 dollars in net worth, what you're position is they should only be able to lend their net worth?

Then its no longer a bank and you've crippled the ability to get credit to fuel the economy.

That makes the Govt the insurer of every bank. Again, what happens when loans goes bad? Then the Govt doesn't get repaid and tax payers are on the hook. It's bad enough when that happens because of a financial crisis, but is it good policy? What is the incentive of the banks to make prudent loans? Is the Govt going to underwrite every loan?

Banks don't earn enough money to fund lending and pay their shareholders. You've crippled lending in the US, or you are simply making the Govt the commercial lender.

Self fund with what? You're going to charge them exhorbitant interest rates to borrow the money from the Govt to provide insurance against defaults. That means the bank is going to charge exhorbitant interest to customers. Not to mention paying interest on deposits, which will be nil.

Banks aren't making much of a profit in that scenario, and certainly not enough to fund lending in the economy.

Only if necessary to prevent a systemic collapse, and even that should be the case. We shouldn't have banks "to big to fail".

You're making the Govt the insurer of every loan and every bank failure. That is a huge financial obligation on the Govt, and of course, ripe for fraud. Again, are you going to make the Govt the underwriter on every loan? Can you say politicize?

That's why we got deposit insurance.

So you're going to have Congress in control of the money supply? You're joking, right?

Simple. The Govt has borrowed $16 trillion over the past 30 years. If all that money had gone straight into the money supply we'd have had massive inflation or hyperinflation.

 

No, it's no different. It's the same monetary sovereignty allowing it and the same interest rate controls managing inflation with creation of money (electronic credit and cash) controlled by spending and banks borrowing to re-lend.

We agree but you are arguing that we don't. The treasury would not just print money. They would also conduct electronic credits as the fed does, but without debt being necessary on the part of the government to do so.

That's how they would make money. Businesses borrow today (capital) to invest in their business and earn money from doing so. No different for banks. No free rides or free money or fictitious money like under fractional lending.

Money they actually have is what they've earned from interest as profit. They can reinvest it as they wish to build up surpluses of their own to lend, keeping them from paying interest to the government on borrowed money.

No, the same credit is still available as freely as the market needs at rates conducive to banks wanting to borrow in order to meet their lending demands.

It also makes national foreclosure on a bank possible just as banks foreclose on homeowners for failure to pay. It keeps banks honest in that scenario. And if customers don't pay, banks foreclose as they do today. Sell the asset, pay back what they can and eat the loss from a risky loan they chose to take part in. Just like business risk in any other business. Banks aren't special.

Then they borrow it at reasonable rates and charge rates sufficient to meet reasonable profit goals. Lending is easy in this scenario, but unlimited profits are not. They have to compete for loans just like today, but they have to get real credit from the government that obligates them to repayment in full plus interest from the interest they earn from customers.

Their rates would depend on demand from the economy. That's the role of the fed today and would remain the role under what I described. The government has no incentive to harm the banks by charging ridiculous rates. Banks are critical, but no reason they need to hold all the power. And proper regulation would establish acceptable lending practices via some mechanism to control banks ripping off consumers through fees and interest beyond reasonable levels. And yes, that means real regulation to protect consumers from greed we've experienced by the banking industry.

Banks would make what banks can earn from honest business practices, just like other businesses are forced to do today. Again, banks aren't special but we seem to treat them as if they are.

Why is it a huge obligation risk to the government? When markets fail today it's the government who manages the failures that inevitably fall on the government. Monetary sovereignty gives them the power and right to accept that risk. It still beats debt based deficit spending.

Which is backed by the government, which contradicts your last concern about risk to the government?

It is their assigned duty and obligation. The president would appoint someone to manage a group whose sole purpose is to manage the money supply, with full accountability to the congress. It's a constitutional requirement so no matter what we think of them, it's their burden to bear.

Why would it have created inflation? It still would have made its way to the money supply via lending, just as it goes today via sale of debt instruments. Either way, it makes it into the economy overall, right?

 

1) Finite Planet -> finite resources -> finite possessions -> finite wealth
2) For above reason

The value of the economy is whatever people think it is, since value is subjective. If you were to "convert", so to speak, you would create enough money to represent the value of everyone's wealth - their possessions and savings and whatnot. We did this before, it is not a new concept.