You indicated in your response that the Community Safety Society would result in unwanted inflation. I agree that inflation is undesirable. However, I am not yet convinced that the Saftey Society would produce inflation. And I would like to explore this a bit more with you.
I am not opposed to the idea of all US currency being fully backed by gold and silver. I also recognize that the banking profession needs to cover its overhead. So, I have no problem with banks issuing fee-based and simple interest loans. The Catholic Church probiltion against the collection of any interest created a credit black market in the Middle Ages that led to all sorts of abuses. (Lombards, Templar Houses, Florentine and Venetian Banks)
However, I do not believe that it is not right nor necessary for money to make money. This divides the people and pits wealth against labor. Furthermore, full-reserve banks shouldn't issue loans based on depositor's gold; even by contract: 1. extending loans based on gold deposits subjects depositors to risk by the creditors. 2. Loaning deposits is another type of inherently risky fractional-reserve system 3. According to the Constitution, only the Federal Government should have the power to coin the money and regulate its value. In our current system, fractional reserve banks create a large majority of our money. How is extending loans based on private deposits any different?
Therefore, in my opinion, If we decide to create an inflationless economy, we need a banking system that focuses on preserving the value of our deposits as well as being immune from banking failure (full reserve). At the same time, we must create a credit system where credit is so readily and equitably accessible, there is no need to subjugate ourselves to a wealthy class. To do this, It is my opinion that we need a credit system that operates independently from the deposit system.
A locally owned and operated Community Safety Society would be full-reserve. The bank would hold 100% of its deposits in reserve. Money for new loans would come from the US Treasury. This money could also be gold-backed. If an individual, corporation, or community, demonstrates credit-worthiness, then they should be granted a fee-based, low, simple interest loan to go towards the purchase of or production of real estate, real assets, durable goods, and commodities. (money never lent for speculation).
According to my very limited economics understanding, "real demand" should not produce inflation. According to g(m) + g(v) = infl + g(y). As long as the growth rate of the money supply = growth rate of real output, then inflation = 0. It's only when the money supply exceeds real output that inflation is produced.
In the Safety Society System, money is only ever created and credit extended for the projected production and/or purchase of real assets on an "ask and ye shall receive" basis. Money is never created without real demand and projected real output in some sort of Keynesian injection of liquidity.
Our current system produces inflation because the money is created first and the price comes second. In this system, price precedes money creation. An example of money creation preceeding price is the FHA/HUD amortized loan. With interest collected up front, the only way to earn equity is to charge the next buyer a higher price. Thus, this loan has money creation built into it which drives an inflating price for a depreciating asset. In the Safety Society System, a borrower earns equity from day 1 and is free to sell the asset for its real price.
In conclusion, have no objections to the Federal Government creating only "gold-backed" currency. However, we don't change our history of perpetual banking failures unless we establish a full-reserve system, control inflation, and establish an equitable and available credit system.
Furthermore, Constitutional money is more than just gold and silver, but it is about the Federal Government doing one of the few things enumerated in the Constitution; which is to coin "all" of the money and not just a fraction of it.
With such an equitable and available credit system, there would be much less need for companies to "go public", sell stock, have their boards infiltrated, and then risk getting bought out in a hostile takeover. Also, the Safety Society System could mean a great reduction or even an end to pork barrel politics.
P.S, these are a few quotes that are some of the basis for the Safety Society System. I'm not sure they are even authentic. But they make the point about the importance of controlling our currency, credit, and inflation.
"If that mischievous financial policy which had its origin in the North America Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe."
“That is simple. In the Colonies, we issue our own paper money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to make the goods and pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power and we have no interest to pay to no one.”. -Benjamin Franklin
"The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament (The Currency Act of 1751), which has caused in the Colonies hatred of England and the Revolutionary War." -Benjamin Franklin.
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would
Hopefully, the last time. I know we have beat this to death. Thank you for your responses . I think I better understand where you are coming from and I hope you understand where I am coming from. I'm not set on convincing you, I just want to feel like you understand what the concept. I am keeping an open mind but I'm happy you would take the time to discuss this issue.
I get the gold idea. Ending the FED and fiat and a return to "gold redeemable" money and a continuation of fractional reserve banking is very popular. Zeitgeist and many "white hat" are pulling for it. It seems every other commercial on the radio is selling gold. When we finally see the end of the FED and the end of the dollar, I'm sure we'll all think we just won some great battle. We've had gold redeemable currencies before.
I can appreciate your added idea that money creation be completely decentralized. Its a great idea. However, this idea could be a bit reactionary (pendulum swinging too far opposite the FED). But, I guess your bank could also be your store that made loans based on the value of its inventory. People could take out loans from the Merchantile Exchange and then return that money to the same Merchantile Exchange for whatever goods they wanted. Interesting idea.
The Merchantile Exchange Bank could have a problem I think. It seems to me that the Exchange would only ever be able to lend out the exact money to purchase the inventory in its wearhouse. If the bank can only lend out enough money for the people to buy out its inventory, how is there any money left over to do any other economic activity? How do you import anything? What do you do with price fluctuations? How would currency exchange from bank to bank? Seems like you would have to get in line for a loan. I'll have to give this some more thought.
Another idea I would love to see is to actually do as the Constitution suggests. Unfortunately, because of fractional reserve lending, we've always had banks creating a majority of our money in this country and not Congress.
I seriously think it is possible that the FED instituted a corrupt paper currency to drive us away from paper and back to gold. Thinking on the London Times comment, I think there may be something about paper currency that TPTB are hoping we miss as we run away from it.
#####"it can't have gold unless it buys it from those who produce it, or taxes it away from people. That's not a costless transaction"####
I suggested gold redeemable currency attempting to be conciliatory. But you make a good point here. I agree that the government taxing away the people's gold would add unwanted cost. So, I will repent on this idea. Let's forget gold all together.
####"True money has to be a certificate of value for durable goods in a warehouse, "####
Money is just a medium of exchange. As long as the parties involved agree upon what the exchange rate. If individuals are free to make private contracts with one another, then they should be free to exchange money. Money, as I see it, could be described as a standardized government contract form approved for use by its citizenry.
The issues with gold is that while it is innert and lasts a long time, there isn't much of it around. This creates a problem of scarcity. And when something is made scarce, then it gets a false value associated with it. On the flip side, you don't want people to be able to counterfeit money either. That goes for the government also. However, with modern technology, we can better create paper currencies that cannot easily be counterfeit.
Today, we really don't need gold at all because we can create a relatively counterfeit-proof currency that is equally accessible. Thus we can get back to money just being just a contract again and not treated as something of value in and of itself.
I am afraid that just because the FED instituted a fraudulent, inflationary, and destructive fiat currency that we necessarily need to run away from paper back to the inequality and scarcity of gold. That said, money has to be tied to something of value. I agree that the Goverment shouldn't counterfeit either.
I am of the opinion that it was the HUD/FHA amortized loan and other amortized loans like it that were the major drivers of inflation in our economy. Banks create most of the money in our economy and amortized loans are the tool by which banks create that money. And exactly as the Feidman macroeconomic equation predicts, the amortized mortgage (double death) creates money each time a home is bought and sold for a higher price that does not match an increase in real output. It's the same house as before, just older and now costs more but is not worth more. This is an amazing verification of the Friedman equation. (in fact this point is exactly what woke me up in 2008)
Despite your opinion that the Freidman Macroeconomic equation doesn't apply to the macroeconomics of inflation, I think I have just shown you a clear example of how a microeconomic mismatch between money creation, velocity, and real output creates macroeconomic inflation. The Amortized Mortgage is an inflation generator by doing exactly what the Freidman equation predicts.
Freidman Monetarism may be ruining this country, but it's not because the equations don't apply or don't work. The equations do apply and the system is working just as the equation predicts.
I suggest that because the Friedman equation does apply, that it is very possible that the SSS would not produced the unwanted inflation that you are convinced it would produce. Remember, money would never be created out of nothing. Money would only br created if there was a durable good it was being created to purchase or produce. Not unlike your system. Money supply, money velocity would stay proportional to real output.
Again, just like your system. The real asset and the price has been negotiated before the loan is applied for. There is no speculation. if a building is being built, the materials, land, labor etc already exists and has a negotiated price before the money is created. In this system money ceases to be the rate limiting step.
####"you can't create anything from nothing ... and not be inflationary"####
As I said, I agree that currency needs to represent something of value. I never said that I supported the Federal Government just printing money out of nothing as we do now. In the Safety Society System, money is backed by the real durrable assets it is being created to purchase, or being created to produce.
####"Just because the Constitution gave congress the right to coin and regulate money doesn't mean it's right "####
I say, let's follow our inspired Constitution first before deciding if it's "right" or not.
####"no cost loans"####
Again, I don't remember saying this or thinking this. If inflation is controlled, simple interest, fee-based loans can compete in a free market. Anyone is free to charge more and pay more. However in the SSS, local banks make money as they do now by charging a loan origination fee and a monthly service charge. The Gov makes money by charging a prime interest rate and generating revenue on what is a Constitutionally-sound voluntary tax on the entire money supply and not just a fraction of it (could make the income tax obsolete). And then we can get rid of the useless "too-big-to-fail" mega banks who were instituted because of our short but persistent history of small bank failures.
####"It's also wrong to say compound interest is illegal. "####
I don't remember saying or even thinking this. But if we control inflation, and simple interest, fee-based loans are available, I'm sure they would compete very well in a free market. Again, I haven't proposed making anything illegal. I just would like to see these ideas compete in a free market.
What I did say is that I don't agree that money needs to be used to make more money. I wouldn't make this illegal, my system would make loan sharks obsolete.
####"There is no free lunch on loans, much as you persist in trying to make it so."####
In the Safety Society System we don't need the unelected wealthy capitalist to decide what to invest in. Our capitalist system tells us we need those few rich guys at the top of the pyramid.
In the SSS, If an individual is credit worthy and there is a real asset to purchase, the local bank would extend the loan and the loan would be repaid with interest and fees. And when the owner resold the asset, he would have equity from day 1 such that he wouldn't need to inflate the asking price to his neighbor.
Furthermore, if a community wants a museum or an aquarium, they can qualify for a loan to build the aquarium or museum. And they don't need Billionaire ultra-elite capitalists to fund these building projects.
Other financial institutions would fill the niches for venture capital and other speculative activities. SSS is about being full reserve and staying safe.
No comments:
Post a Comment