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

A few people are confused about concepts they read about on some website they find and don't understand. They say crazy things like there is no money multiplier effect from fractional banking, that banks don't need money to lend money, and when the Fed creates money it doesn't create money.

There are very few "learners" on this site. They all think they have all the answers because they read some .com blog. Akphidelt is a lost cause, who can't let go of his ideology.

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Who has tried to convince you of that? Not me.

 

Your explanation is exactly right, but you're again assuming massive amounts of dollars created but put to no productive good. The advocacy for that would be non existent. Government created huge demand during WWII and businesses had to backfill jobs of people sent to war. The economy churned, purred if you will, and tremendous demand drove prosperity that was critically needed after the depression. Only through growth in demand could you justify more money in the supply, but government itself can create demand without hiring a single person. The government uses the FAR (federal acquisition regulation) to do just that via contracts with the private sector. By spending dollars (at a deficit, not via taxation) on many different things we need like infrastructure, the demand for goods increases at a rate, hopefully, equal to the increase in the money supply to pay for them. Once spent on those goods and services, the public benefits from those things that are produced by additional workers in the workforce or full utilization of our current capability that is sitting stagnant now, resulting in higher taxes to the government through business and personal taxes, higher purchasing by people with additional buying power (not the super rich, but the workers in the lower and middle classes), and a velocity increase in the movement of dollars through the economy.

More money alone = high inflation and destruction of monetary value
More money + more demand = economic activity

In theory, if we increase the money side first, inflationary pressure may exist as money beats goods to the market. But as goods begin to flood the market to respond to the growth in demand, prices drop because there is then a similar amount of money chasing more goods. Eventually equilibrium should be found as time passes. But government can keep demand high with procurement and manage inflation while watching unemployment via the Fed.

I just don't see how it is inflationary unless we pump money in without pumping up demand.

 

Then you need to be more precise in what you are proposing, because I thought thought you were proposing what I posted above -- that rather than the Govt borrowing money to make up deficit shortfalls, it prints money (or creates money electronicall, same thing) instead.

If that is not what you are proposing, please clarify what you are saying. If that is indeed what you are saying, then I'll discuss your comments which don't comport to what I understood you were saying.

The Govt has run $16 trillion in deficits over the past 30 years. There are only two ways that those deficits could be covered (given the actual rates of spending and taxation): Borrowing the money, or creating the money. First you said the Govt shouldn't borrow because it could print the money, which would equate to about $14 trillion new base money pumped into the money supply, increasing it over 10 fold. Now you seem to be saying, no, you're *not* saying the Govt should create that amount of money, for the obvious inflationary reasons. But it has to be one or the other. The Govt either borrows the money or it prints it.

Please clarify what you're saying.

 

The entire monetary system's operation was flipped in 1971 when gold standard was thrown out the window.

I stand by my last point.. the banking system hasn't destroyed the middle class (who are allowed to partake in it through purchasing their own securities, stocks, and 401k), the loss of manufacturing has hurt the middle class.

 

That is essentially what we are doing with QE. When the Fed buys US Govt debt ("monetarizing" the debt) the practical effect is doing what you are talking about -- the government (small "g") is printing money to reduce the deficit. Why? Because when the Fed buys US Govt debt, it effectively disappears as an obligation and burden on the Govt. True, the Govt continues to pay interest on that debt (to the Fed), but the Fed turns around and pays the interest back to the US Govt when it remits its surplus each year -- a sum that has been in the $60-80 billion dollar range the last few years if I recall correctly.

As far as the money going to infrastructure versus other things, that is a political issue.

 

In 1787, Article I. Section 8. of the Constitution for the United States of America gave the authority to congress:

So they did exactly that. They determined a mile to be standardized at 5280 feet. A foot is 12 inches, etc. The Coinage Act of 1792 established the gold standard to be an Eagle with 247.5 grains of pure gold. That's the gold standard. An Eagle is 247.5 grains of pure gold.

 

Your economic belief system is based on a couple idealized pictures?

But damn, look at those old junky cars those people were driving, and and old un-air conditioned buildings.

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The middle class started dying about 1981. And not by coincidence.

 

But QE is an asset swap where government spending into the economy is not. Whether it went to infrastructure, human need or whatever, as long as it was productive to the economic cycle it would be beneficial. QE has not shown itself to be.

 

What is the practical difference? QE in effect is the small g government creating money to finance its expenditures. Isn't that the same thing you are talking about?

 

Your argument is not with me.
From amazon books:
"G. Edward Griffin is a writer and documentary film producer with many successful titles to his credit. Listed in Who's Who in America, he is well known because of his unique talent for researching difficult topics and presenting them in clear terms that all can understand. He has dealt with such diversified subjects as archaeology and ancient earth history, international banking, internal subversion, terrorism, the history of taxation, U.S. foreign policy, the science and politics of cancer therapy, the Supreme Court, and the United Nations."

But sure, i'll take the word of unsourced, anonymous posters on the internet over a well known researcher & writer in his field.


Do you know the average inflation rate over the last 100 yrs? 50? Does quibbling about technicalities somehow distract from the reality of the plunder of the working man, through corrupt fiscal policy? You can support the govt backed thieves if you wish. I will expose them, call, & work for reform.

The point is that finite resources cannot yeild infinite results. that only seem possible in economics.. which was a bit of irony, of course. Infinite resources cannot come from any finite source. Did you read the quote? Do you see it in the context of this thread? So you are suggesting that 'human ingenuity' can create a perpetual motion machine? Infinite possibility from finite resources? That is the leftist dream, i will admit. ..something for nothing. Wealth created from thin air. A perpetual motion gravy train. Good luck with your dream.. sorry if my cynicism about reality throws a wet towel on your idealism.

 

They've changed the law since then. Now the have the Bullion Act or whatever it is called. it basically sets the value of an gold coin at the market value of its gold in dollars.

 

No my economic belief system is based on classical liberal economics.

Government has no business being in business because it is not a proper role of government.

I posted those pictures to prove that individuals were wealthy when government was small. That was an asset based economy. Now that government is big and we have a debt based economy individuals are poorer. Most everyone is in debt.

 

Griffin is a nut who makes distorted, inaccurate internet videos to fool gullible people.

But you don't have to take my word for it. You can verify yourself that Griffin is wrong about "institutionalized" inflation being 5% here: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

In the past 30 years, inflation has been above 5% (at 5.2%) precisely once. Hardly "institutionalized". Just one of many examples where Griffin plays loose with the facts.

Addressed already and disproved above. Otherwise we'd be living in small nomadic groups chucking spears at game limited by the resource of how many critters were in the vicinity.

 

Elastic standards is an oxymoron. If they changed the mile standard to 4000 feet then runners today could run a three minute mile. We would get better fuel mileage too. But really nothing changed except to cause chaos.

 

Funny, I could swear you were trying to make an argument based on a couple pictures.

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Irrespective of your opinion, the law you are citing is no longer valid and is not the law.

 

Not an argument. A demonstration of what the world was like before the Federal Reserve started stealing individual wealth.

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Standards are not laws. They are standards. Big difference.

 

That chart would be great to have access to in order to overlay middle and bottom incomes, as well as corporate profits. Some deep analysis on it, besides just knowing the rich take home a growing chunk of the income year over year, could shed some really good light on the problem. I also haven't found much in the way of data that paints a picture of top earners versus average earners, such as what would happen if a percentage of dollars had been shifted from either corporate profit or top earner salaries back down into worker average salaries instead. We know the economic impact would be greatly enhanced economic activity, but I'm curious if the total dollars shifted would have as big of an impact as we imagine overall while still keeping top earners 30-100x salary of average employee.

People sometimes hear discussion about top earners inside corporations earning far too much compared to average worker salaries, but we see in Japan and other countries the spread is much more reasonable. In the context of worker salaries versus top earners, I'm not sure how to demonstrate to people that it isn't about "taking from the rich" but rather is about smoothing the curve to reasonable levels while maintaining an executive pool in corporations that still earn far higher incomes than average workers (perhaps 30x or 40x more instead of 300-1000x, for example).


We're in solid agreement about executive wages. I haven't yet found a compelling argument for it other than "to retain top talent" which really means "to keep guys and gals on boards who will continue to approve executive salaries of extravagance for their CEO/COO/CFO/EVP peers across industries".

 

Our monetary system needs to be replaced with what? Even the right was not really serious about going to a gold Standard, when we had massive federal budget surpluses. Why not insist red (Right to Work) States start using gold or silver as is their retained, States' right.

 

LOL, you base your economic views based on a couple idealistic pictures? But look at those old junky cars they were driving and buildings without air conditioning. No thanks.

Then why were you citing laws to prove a standard? Isn't that inconsistent?

 

He might say, 'iriemon is a nut who makes distorted, inaccurate internet posts to fool gullible people.' I don't follow griffin's work, no more than all of your rantings in these forums. But what can be asserted without evidence, can be dismissed without evidence. This is still just a distraction AWAY from the reality of govt/big money theft by inflation. The worker is robbed, & you support & defend the bad guys. Why?

You still don't get the ponzi scheme of current fiscal policy. It is a brilliant bit of human ingenuity, i will admit.. but like the game of musical chairs, there will be a loser.. unfortunately, it may drag down the whole society, as the dollar collapses in a cloud of dust.. & not just the dollar.. plenty of other currencies based on fractional reserve & 'full faith & credit' of whatever govt or ideology is pitching it.

The debt system & money creation through fractional reserve banking is nothing more than a pyramid scheme.. responsibly managed, it can go on for years, & can have useful results. But the temptation & opportunity is there to POORLY manage it, as well. Then, it accelerates the decline, & magnifies market corrections. It has a built in mechanism for robbing the working man, who does not have the resources to profit from the money shuffling. It rewards crafty, sleazy people, & punishes the hard working producer. The fractional reserve system is synonymous with capitalism, & is the central issue that the anti capitalists hate. Of course, the statists like it, & use it for their own agenda, as it is a system of control. But for the working man, it is anathema. It is a systemic evil in society, corrupting values of hard work & industry, & rewarding sloth & con men.

Go back & watch the video.. it is pretty good with a simple explanation of the basics. I do not see how anyone who cares about humanity can support this basic violation of human rights to their property & labors.

 

So what do you propose to replace it with? Barter?

 

And inasmuch as most good things are produced by labour, it follows that all such things of right belong to those whose labour has produced them. But it has so happened in all ages of the world, that some have labored, and others have, without labour, enjoyed a large proportion of the fruits. This is wrong, and should not continue. To secure to each laborer the whole product of his labour, or as nearly as possible, is a most worthy object of any good government. ~Abraham Lincoln

This is what i expect & want from my govt. If it does not deliver, but joins in with the plunderers in exploiting the laborer, we the people have the right to alter or abolish it & put in a govt that does it's job.

"Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people, who are thereupon absolved from any further obedience." ~John Locke

You can keep serving the taskmasters, & the oppressors of human liberty if you want. It is time for real americans to stand up to the oppressors & promote freedom, truth, & justice to this land.

Do NOT defend the statists & their ruse to steal our property, lives, & futures. RESIST them! All they want is collapse, whether they state it openly or not. It may be too late, anyway, but it would be better to try to salvage the republic, than let it slide into another despotic system of statist overlords.

 

Please see and respond to my post #103 requesting clarification of your position.

The advocacy for that would be non existent. Government created huge demand during WWII and businesses had to backfill jobs of people sent to war. The economy churned, purred if you will, and tremendous demand drove prosperity that was critically needed after the depression. [/quote]

Though it was a war-time economy -- while people worked hard and churned out lots of tanks, living standards dropped because of the decrease of consumer goods.

I can justify a growth in the money supply based on the benefits of a low level of inflation irrespective of GDP growth.

Or more precisely, the money supply hopefully increases at a rate that accomodates growth without high inflation.

OK

Depends upon how much more money you're talking about. If you have too much more money + more demand you still get inflation.

Simply creating more money and spending it does not directly correlate with more economic activity. See e.g. the 1970s. 1) The Govt isn't particularly adept at spending money in the most efficient and effective manner, 2) once the economy picks up closer to maximum capacity, it cannot rapidly expand much faster, and more money will simply translate into higher prices.

Depends on how and how much you increase it. As long as the increases are modest and done in a way to prevent inflation, I agree you can have some stimulation of demand without high inflation. Which is what the Fed has been doing with QE.

But there is a limit to how much you can expand the money supply before you start running the risk of higher inflation. And that limit is well below the amount of money the Govt has borrowed.

See above.

 

Me too, I'm 100% on board. Cut taxes on laborers. Instead, increase taxes on the 1%, and reverse "trickle down."

I've been saying it for years. Good to know Abe and I are on board together.

You do not need to abolish the Govt. Just abolish the Tea Party Republicans. Or at least remove them from control of the House.

 

The reality is, the system is born of, consists of, and is dependent on, massive DEBT.