On the Creation of Money
Many people are taking the red pill these days. My own watershed event was 9/11, after which I ceased believing the MSM and quickly found some more plausible views on reality.
One of the main items the newly awakened confronts is that money is just another commodity, created out of thin air. And that banks as the main creators of money use this privilege for an ongoing wealth transfer.
Unfortunately many born again Truthers stop thinking there. And this is a shame, because it makes them susceptible to more advanced hoaxes (our current money system being the primitive one). Like the idea that Gold is the only real money.
The problem with money is not that it is created out of thin air. Far from it, it is quite pleasant to realize that a commodity of such tremendous importance is so easy and cheap to produce.
The problem is, that if you control the production of the medium of exchange, you have a number of devices available to sheer the flock. Two of these devices are very important: Interest and the so called ‘Business Cycle’.
The business cycle is not some kind of natural phenomenon. It is created by first inflating the money supply, leading to economic growth, and then deflating it, leading to recessions and depressions. In our system money is debt based. So if the money supply grows, what is really growing is the indebtedness of economic actors, be it the state, companies or individuals.
Deflation in this system implies the paying off of debts and what bankers like about this is, that because people are dumping assets to decrease debt, prices go down and the few that still have cash (the bankers) can buy up these assets for very attractive prices. When the economy starts growing again, these assets will appreciate in value.
In an economy with a sound and humane money system there is no business cycle, because the money supply is stable.
However destructive the business cycle may be, it pales in comparison to the problem of interest. I will not elaborate on it too much here, since it merits a post on it alone. Suffice it to say that you pay 400k interest in thirty years for a 200k mortgage. And that HALF of prices you pay are for capital costs. And that in Germany alone the poorest 90% pay 1 billion euro in interest to the wealthiest 10% PER DAY.
So the problem is not the creation of money, but the tools at the hands of malevolent controllers of its supply. A reasonable institution would not use these tools and supply stable and cheap money.
How to create it
There are a number of ways to create money. The classical approach would be to have Governments create it and spend it into circulation. This how the Chinese did it, back in the 14th century. This is also the way Stephen Zarlenga from the American Monetary Institute would like to do it.
There sure is a lot to be said for it, but I do see a few problems. In the first place, why should it be Government’s privilege to spend the money? Why not hand it out to the populace?
Spending the money into circulation, either by individuals or by the State is an approach better suited for legal tender issued by Government. The reason for this is, that Government collects taxes and can choose to withhold money from circulation. This can be necessary if too much money was issued and prices are rising.
The future, however, will see many alternative currencies circulating beside each other. Many currencies will be issued by private entities and they will not be able to get out of circulation excess money which was given away. Also, since private entities have a limited lifespan there would be problems getting rid of circulating money once the organization quits.
In these cases it is better to issue money based on debt. Strangely enough many seem to have problems with money creation based on debt, but it is unmerited. Debt is a very reasonable proposition for a number of reasons.
In the first place, companies need credit for investments. As long as the economic conditions allow for it, there is no need to withhold this credit from them.
Secondly, the amount of money needed in circulation is a function of the ‘economic capacity’ of the community within which the money circulates. In the case of private money, where the money is basically used within a trading community, the required money supply grows with every new participant joining and shrinks with every company ceasing to use the money.
It is really very rational to have each firm finance its own participation in the network. Simply allow it to create the money by going into debt. The debt needn’t ever be settled, unless the company quits accepting the currency.
The problem is not debt, but abuse of debt through interest.
Some claim debt based money is causing bankruptcies. Maybe so, but the vast majority of loans is payed off. Secondly, if there is no interest the credit worthiness of the borrower is increased a lot. And third, our bankruptcy laws are as barbaric as is our current money system. The fact that people and companies are being slaughtered if they suffer from a liquidity squeeze, not considering their real asset positions, is a disgrace. Bankruptcy in its current form is just another symptom of the domination of debtors by creditors, of Labor by Capital.
Debt based money is the reality not only with ‘national’ currencies, but also with commercial barters all over the world.
Debt based money is rational, as long as it is supplied by a benevolent organization, aimed at serving the users of the money.
Also see:
Mutual Credit, the Astonishingly Simple Truth about Money Creation
This has been successfully done before as I am sure you are aware. I did not see any mention of intentetionally induced depreciation of 1% per month if it was not spent or used. This discouraged hoarding and of course encouraged spending.
Absolutely MJF! Not only am I fully aware of that, I’m really busy doing it myself!
I dealt with demurrage here:
http://realcurrencies.wordpress.com/2009/11/10/what-is-money/
How banks create money http://www.youtube.com/watch?v=WefdeNLup3M
How banks use money plates http://www.youtube.com/watch?v=yYRoUcmrl30
Shift B Inflation from Turmel’s Miracle Equation exposes Big Lie of Economics http://www.youtube.com/watch?v=GqlthpY94cQ
Who do you think you’re kidding, that *you* worked out the ramifications of interest?
My public Skype ID is pfmpe2012. Add me to your contacts and I’ll interview you for TNS Radio. All discussions are recorded — and I’d be much interested in what you claim to have worked out.
huh?
I’m just sharing some common knowledge Mike!
I’m not too eager to be interviewed just yet. Are you sure you won’t waste all airtime explaining you invented it all before I could even say sugar daddy?
Maybe you’re an expert on what I haven’t resolved (versus “invented”). You have a problem with mathematically perfected economy you’d like to point out — like something it doesn’t resolve?
nah, nothing in particular! I like your work!
Well, if you’re familiar with it, why aren’t you promoting mathematically perfected economy and its teachings?
I am!
http://realcurrencies.wordpress.com/2012/01/04/the-goal-of-monetary-reform/
See point 1
“but none are complete and all need further development.”
As I posted to your article, I challenge you to demonstrate your assertion.
You have a link; obviously you’re familiar with the proposition. Then you say all are incomplete?
That’s not promotion — that’s relegation.
But here’s the opportunity of our disagreement then. If you can prove there’s an alternate solution 1) to circulatory inflation, deflation, and maldisposition; 2) to systemic manipulation of the cost or value of money or property; and 3) to inherent, irreversible, and therefore terminal multiplication of falsified indebtedness by interest — and/or if you can prove there is anything else to solve — then and then only are you qualified to say “but none are complete and all need further development.”
If you really wanted to understand either fact, I would think you’d be willing to have a gentlemanly discussion at least. After all, if we can prove this proposition complete in just a few minutes, I would at least think that would be critical to your assertion.
You see, you can’t “promote” all these disparate ideas at once. Any veritable commitment to the whole of them is impossible, because to every mathematic riddle, there is only one correct answer. The question is only whether we’re really interested in that answer, isn’t it?
Otherwise, we might just relegate the only solution to the lot of the rest — which come much later. And so long as that’s our real business, what will we have then, but the rest being so good as real solution, that no one knows what to do next — which is what we could have done 44 years ago if we were really about solution, or the authority to advocate solution.
Here for example are a whole slew of mal-formed ideas, peppered “somehow” with terminology from my work — which of course invalidates all this nonsense (what you have written distinguished by horizontal lines):
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The problem is not debt, but abuse of debt through interest.
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Actually, no one can argue with absolute justification against interest on actual debts, not just because the practice is well accepted, but because actual debts indeed would be at risk in a purported economy which depends upon a given circulation multiply — then the money is certainly at risk; and being as the more this philosophy is exercised, the less likely repayment will be possible, thus some interest is justified.
But interest would never be justified if our right to issue unexploited promissory obligations were preserved.
Neither then is the problem abuse of debt through interest; on the contrary, the problem is an obfuscation of our currency which falsifies commitments to pay and to retire principal from circulation (“promissory obligations”) into falsified indebtedness to a purported banking system which merely publishes further representation of our promissory obligations to each other.
Benjamin Franklin for instance was just such a publisher of further representations of our promissory commitments; but he certainly didn’t pretend the further representations represented his own entitlement, which therefore might have justified his collection as well (as per the present obfuscation).
So the problem is not debt, because debt itself is always soluble (otherwise), and because debt imposes no cost whatsoever but the principal (therefore inflicting no injury whatever); and neither then is the problem abuse of debt, because a purported banking system is neither a creditor — it never gives up lawful consideration commensurable to the debts it only falsifies to itself by publishing further representations of our promissory obligations, and asserting we have to borrow our own promissory obligations into circulation.
The fact is, the people are the only issuers of money (promissory obligations); and they likewise are the only creditors — because we and we alone give up property for promissory obligations.
The whole scheme of banking then is about unwarranted possession.
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Some claim debt based money is causing bankruptcies. Maybe so,
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No “maybe” about it. It’s absolutely not the fact that “money” is a debt which multiplies maldisposition into terminal indebtedness (and therefore bankruptcy, foreclosure, etc….), because debt itself is no injury (we only pay the principal).
As I have been saying for 44 years, it is interest which multiplies the falsified indebtedness into terminal sums of falsified indebtedness, as this obfuscation of the currency forces us to maintain a vital circulation by re-borrowing the interest and principal we pay out of a circulation comprised of only some remaining principal, with the sum of debt therefore perpetually increasing by so much as periodic interest on an ever greater sum of debt.
Ask Paul Grignon if he wants to debate that with me.
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but the vast majority of loans is payed off.
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If you say that, then you don’t “get it.” It doesn’t matter how many loans you pay off; because to pay every loan off you have to borrow practically all the principal and interest back into circulation, with the sum of your *new* or succeeding debt thus being the former principal plus all the periodic interest *someone* had to borrow back into circulation.
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Secondly, if there is no interest the credit worthiness of the borrower is increased a lot.
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All the concern about “credit-worthiness” comes from my work, which proves how credit-worthiness is inherently compromised at even an escalating rate by maldisposition.
But thus, the math is not just “a lot.” In fact, at the brink of systemic bankruptcy, the “increase” is virtually infinite.
But it is not an “increase” at all: on the contrary, what you have is a perpetual compromization of credit-worthiness by maldisposition, from an initial fact in which you don’t really have credit-worthiness under the present system, because owing to the obfuscation of the currency, any “indebtedness” (subject to purported interest) is a commitment to borrow perpetually, and ultimately into terminal indebtedness.
Under the present obfuscation of the currency, “credit-worthiness” is a delusion. Under mathematically perfected economy, “credit-worthiness” is a capacity to fulfill any given promissory obligation — which is a commitment only to pay and retire principal as we consume of the related property.
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And third, our bankruptcy laws are as barbaric as is our current money system.
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Yes, but they are skewed only to exist in concert with the obfuscation. Your artificial destruction under “banking” must implicitly concur with purported risks of “loaning” “money” into circulation, by entities which no more than publish further representations of our promissory obligations to each other.
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The fact that people and companies are being slaughtered if they suffer from a liquidity squeeze, not considering their real asset positions, is a disgrace. Bankruptcy in its current form is just another symptom of the domination of debtors by creditors, of Labor by Capital.
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No. We are not debtors. We do not borrow money from banks. As “banks” merely publish further representations of our very own promissory obligations (which remain obligations to pay and to retire principal from circulation), the real shame is that *by refusing to understand these things with the little attention which is necessary to do so*, we continue to presume there may be multiple answers to the questions — in which case of course we only continue to fail to unite upon solution.
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Debt based money is the reality not only with ‘national’ currencies, but also with commercial barters all over the world.
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I have been repeating that “the debt” is only falsified by these obfuscations for 44 years. No one has proven me wrong yet — including governments, banks…
We do not suffer from “debt-based money.” We suffer from an obfuscation of our promissory obligations which not only falsifies indebtedness to the purported banking system, but which multiplies that falsified indebtedness into terminal sums of falsified indebtedness.
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Debt based money is rational, as long as it is supplied by a benevolent organization, aimed at serving the users of the money.
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Never, never, never. There’s *nothing* “rational” about the initial debt or the ultimate, terminal debt. Nor is terminal indebtedness merely a consequence of a malevolent organization; nor would “a benevolent organization” “supply” us *as a debt*, mere further representations of our promissory obligations — which do not even exist “to borrow,” until “the benevolent organization” prints the further representations we ignorantly (still) call, “money.”
I try to express myself in such a way that people can understand what I’m saying.
When I listen to people, I try to hear their intent.
You suffer from a condition that is fairly common with strong men: the tendency to look for power by trying to force your vocabulary on others.
I don’t go along with that.
I choose to stick to my own words.
And I also choose to end this conversation.
Mr. Montagne. I’m sorry to say, but after listening to you in many of your exchanges with other bloggers on this site and on many of the other sites that I’ve come across, Im getting the feeling that you’re just a foul mouthed, obnoxious, & self absorbed individual who goes around insulting people who happen to disagree with you on your analysis of economy (that you’re not qualified to make anyways) You’re the typical person who suffers from Narccistic Personalty Disorder. Frankly I and many other bloggers are getting tired of it. If you can’t discuss things in a courteous fashion, go somewhere else to rant. Also may I suggest go for some anger management & take some grade school course in Communication Skills-because obviously to anyone listening to you, you seem to be severely lacking. Also if you truly want people to start taking you seriously stop trying to alienate them-perhaps then they’ll listen more attentively to what you’re trying to say. Cheers. Charles.