Austrian & Keynesian Theories Vs. Mathematical Facts
George Orwell’s classic 1984 describes “doublethink” as holding two contradictory beliefs simultaneously and accepting both. To do so denies the existence of objective reality. A good example is the belief in economic theories that contradict mathematical facts.
Both Austrian and Keynesian economic theories hold fundamental beliefs that do not square up with math. The exponential growth of debt in our debt based money system is ignored and refuted by both theories. In place of math, we are offered beliefs such as the “quantity theory of money.”
To deny the exponential growth of debt cuts to the very core and credibility of monetary theories. If the exponential growth can be proven, then equally, Austrian and Keynesian theories are dis-proven. Economic theories hide the fact that a debt based money system is usury by definition and neither Austrian nor Keynesian theories are sustainable. Both systems create bankruptcies and defaults while enriching banks at the expense of the people.
The inherent and terminal mathematical flaw of debt based systems can be proven anecdotally. Our total money supply (M3) is around $15 trillion while our national and private debt total around $55 trillion. How do we pay an existing $55 trillion in debt with a total of $15 trillion? We are short $40 trillion, where will that money come from?
In our debt based monetary system there is only one way to add money and that is through new debt. Eventually, the $40 trillion must be borrowed. If the money is borrowed, it will add new debt of over $40 trillion (principal + interest). The debt can only grow, it can never be repaid as the gap between money and debt will continue to increase.
The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions. This is true when we spend money but it is not true when we repay debt. When debt is repaid it is extinguished, that is that the money ceases to exist which means that money can only be used to repay principal debt once. Most of the interest debt returns to circulation but never the less, the gap between money and debt will still increase since only the principal is created through new debt which brings new interest.
The specie of money doesn’t matter. If our money were backed by gold, the gold would simply be transferred to those who collect the interest. We saw this in 1933 when the gold standard collapsed and we lost most of our gold.
The two prevailing economic theories give us a false sense of choice just like the two party system of Democrats and Republicans. The science of money has been replaced by a belief system just like in the dark ages when science was dominated and defined by religious beliefs. If the next renaissance is to happen, it will come when the science of money displaces unfounded beliefs.
We are suffering from an intellectual amnesia. The Babylonians of antiquity understood the destructive power of debt interest and at one time Christianity and Judaism forbid it as sinful usury. The Islamic faith still forbids debt interest and perhaps that is a reason that we are clashing.
Our debt based monetary system is a form of usury that will result in the transfer of all wealth from the many to the few. The intended outcome is debt slavery and tyranny under the cruel boots of oligarchs - a financial aristocracy.
People are becoming discontent and they sense that something is terribly awry. To rebel against the status quo invariably leads to another tyranny as we have seen through democratic elections and third world rebellions.
If a successful peoples revolution is to happen it will really be an awakening. A higher consciousness where we come to understand how and why the game has been rigged by flawed monetary theories.
Larry
Note: For real solutions stop by Money Talk$ by Byron Dale and Thomas Hedin - discover the difference between debt and wealth based money - take the red pill.
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In Response to Republicae's Quantitative Easing Post
Your post was most helpful in clarifying some of our agreements and disagreements. Your explanation of Quantitative Easing was great and I would add that along with what you said, part of QE is ZIRP, or near 0% loan rates for banks.
Now on to some disagreements and more clarification:
So, we agree that the exponential growth of debt is occurring but it looks like we disagree on why. One thing that still bothers me is that you seem to claim that Austrian economics understands this phenomenon but you attribute it to fiat currency.
First, do you have a link where Austrian economics defines the exponential growth of debt?
Second, I don't think it has anything to do with "fiat" money, instead it is the result of a debt based money system. In our current system virtually all money is created through interest bearing debt. It would not matter if we used potatoes, gold coins or fiat money, the math would remain the same. This is a key to our different perspectives - I say that the exponential growth of debt is a function of a debt based system and has nothing to do with the specie of money.
No doubt, gold would delay the growth but it would still occur. The overriding variable in the exponential growth curve is interest. If interest were at 0%, the amount of money would be equal to the amount of debt.
If the banks are lending money that they create for free, wouldn't it be more fair for them to charge service and transaction fees in validating credit worthiness, verifying collateral, providing collection services, etc.?
If interest is applied, the people should benefit since it is a sovereign power to issue and control currency. For example, the banks could borrow money from the treasury at some amount - 1% would provide a cash stream to allow government to pay for themselves. This would eliminate the need for Federal income tax. You no doubt know that the Federal income tax law was passed in 1913; just months before the non-Federal Reserve Act.
We see things totally different and I'm not sure if the above is your opinion or an Austrian perspective. The Federal Reserve is a private banking cartel - the government has nothing to say.
They pursue their own policies in a colossal conflict of interest. For example, Obama was questioned about the Federal Reserve's unilateral decisions and he responded "a President shouldn't second guess the Fed."
They are parasitic predators, a ruinous blight on our economy. There is absolutely no reason for our government to borrow money from a banking cartel when we can create it ourselves for free. As Thomas Edison said "if a nation can issue a dollar bond, it can issue a dollar bill. The same thing that makes the bond good makes the dollar good too. The difference is that the bond brings ruinous interest charges."
Look forward to your response...
Larry
END the FED before it ENDS US
There are literally
There are literally thousands of papers, books and essays on the subject on money, credit, debt and other highly pertinent information to be found on www. Mises.org
You make the claim that the cause is the addition of interest that creates exponential growth of debt; my claim is that by its very nature fiat monetary systems are subject to the organization of debt into money. Even without any interest attached, you would still eventually have an exponential growth of debt loads under a fiat regime. Since there is no such thing as an actual asset-based fiat currency it must therefore, be liability based.
How can you not think it has anything to do with fiat money, history has proven the exponential explosion of debt under fiat monetary systems since the Romans attempted it in the “B.C.”. History teaches us the very lessons this government has ignored for the last 96 years. Fiat systems are debt based systems because they have no asset value to maintain its value other than liability debt. That is why fiat money is a double liability; it has no “backing” except the issuance of debt. Anytime you have a fiat monetary system, there is nothing to maintain its value except government decree and manipulation; that manipulation is always, without exception, based on the debt creation of the monetary base. You cannot have a fiat system that is asset based or it would not be fiat. It is simply not possible. If that were possible then there would be no need for the government decree or the legal tender laws that force the use of such fiat currencies.
Again, the math would not remain the same if the use, for instance, of gold money since gold is an asset based monetary system not a debt based. Gold is a double asset on both sides of the accounting scale, whether it is used for future payments or present payments, gold and its fungibility are completely different and operate on a totally different principle than does fiat money. Since that is the case, you cannot possibly tell me that the math would be the same since you are talking about two completely different principles of accounting, one being asset based as with gold money, the other being completely debt based as with fiat. The math would not be the same nor would the functionality of the money be the same, nor would the economic results be the same.
I will prove that by your own statement: “In our current system virtually all money is created through interest bearing debt”. Now, consider what you just said and then think about how gold money is “created” and how it operates; now tell me that it would be the same. Even if no interest was applied to the creation of fiat money, since it is a debt based, double liability money substitute there would still eventually be a massive and exponential growth in the debt of the country because the entire economic system would be, as ours is, based solely on debt for the backing of the currency. In other words the entire system is based and must be based, since there is no other backing, on a liability promise to pay, but the question is, as it always is with fiat currencies, a promise to pay what: fiat money? So, the promise to pay is a liability and the repayment of that promise to pay is also a liability, whether interest is attached to it or not, the end result will be the exponential growth of debt in such a system, there is no other way for it to function as a monetary unit without that type of debt accumulation.
Here again, you make several mistakes based on the various misconceptions about interest. First, under a fiat system interest is a highly manipulated instrument used to, whereas under a gold monetary system interest is a natural regulator of the free market system, without it there can be no free market. In fact, if there were no interest there would have to be a replacement and usually, as with Socialist economies, a highly centralized bureaucracy must attempt to maintain the markets, it is, of course, impossible for such a function to take place successfully.
I realize that you really haven’t grasped the fungibility of gold money, or even fiat money that is evident from you linear statement that “if the interest rate was at 0% then the amount of money would be equal to the debt.” The fact is that fiat monetary systems and gold monetary system operate completely differently. Gold monetary systems, with the natural interest function of the market are self-regulating and market based. Savings fuels such a system; savings by interest on savings and lending is a product of savings in a free market gold monetary economy.
The overriding variable in the exponential growth curve of debt is the nature of fiat currency, while interest plays a very significant part of that growth; it does so because of the nature of the fiat monetary system and the massive amount of intervention that is needed to maintain the system itself.
The entire makeup of the fiat system lends itself to abuse, whether it is the hidden tax of inflation and redistribution, or the overt abuses of interest. The fiat system has no self-regulatory mechanisms, it is centrally organized and managed, and the un-natural interest valuations are a product of the fiat system. Under a gold monetary regime you would not have such management, the market would be the co-regulator and interest would be a natural rate based on market ebbs and flows; that does not happen now. That is why fiat economies are very susceptible to booms and bust, the artificial manipulation of interest rates will always, without exception, cause distortions in the economic functions of the market.
How could banks create fiat money, do you mean they might simply “print money out of thin air”? What would value the currency in the market, even in a fiat market, if there were no interest to place a time value on the currency when loaned out? What would regulate the risk associated with such loans?
Perhaps you should do a little research into the spread of interest rate increases and declines under a gold monetary system. You would find something very interesting, like the rate of inflation, the rate of natural interest under a gold monetary system would remain relatively constant, especially if there is no government intervention into the market. You cannot have that under any fiat system!
There have been no instances where a total fiat monetary system did not eventually end insoluble debt. Now, you will say that without interest that would not happen; I beg to differ with you.
The facts behind the passage of the Federal Reserve Act and the 16th Amendment to the Constitution, as well as the 17th Amendment to the Constitution are related, they all functioned to bring about a government free of several Constitutional restraints. The Federal Reserve Act was the first step in steering this county toward a fiat monetary system, the 16th Amendment worked hand in hand with the ideals of a fiat economy and the 17th Amendment took the Senate out of the hands of the States and placed it in the hands of a more “democratic” system of representation; whereas the Founders intended the Senate to be isolated from the “democratic” process that is why they also created the House of Representatives for the people, the Senate for the States.
Beardsley Ruml, a former FED Governor, stated that, in reality, there was never a need for the government to collect income tax and the only reasons for it was to enforce the use by the people of fiat money, to redistribute wealth and to control the American people.
Now, I suggest you actually find out how the government borrows, how money is actually issued in a fiat monetary system, how the Treasury and government benefits from the Federal Reserve, how much “interest” is returned to the Treasury by the Federal Reserve and, in particular, look at the yearly payments and debits within the government’s debt accounting.
Republicae wrote:
We all know the answer however, there is a very interesting fact that this government, through the vehicle of the FED, can, “print money out of thin air”, although a highly inflationary process, it can and has been done before. As stated before, governments, even our government has inflated debt away before.
“The Federal Reserve is a private banking cartel - the government has nothing to say.” Ah, on that you are totally and absolutely mistaken. If you actually believe that the government has nothing to do with either the creation of the Federal Reserve or that there has not been or is not a political correlation between the government and the Federal Reserve then, by all means, look again. The last 95 years have proven that not only is the Federal Reserve closely interwoven with our government, but that it is the favorite lap dog of government. Every step the Federal Reserve takes is a political step, not necessarily an economic step. The Federal Reserve bows to political pressure and I don’t care how much the politicians deny it the truth is that the relationship between banking and government is very, very cozy. Highly influential politicians have always been able to “suggest” to the Federal Reserve what government “expected”, just look through our economic history and you will see that fact and it will slap you in the fact.
As far as the Federal Reserve being a private cartel, it is to a limited extent, but its creation, it maintenance, its ability to survive depends solely upon the discretion of Congress and the Federal Reserve Act has within its charter a caveat for its dissolution. If government had no say in the actions of the Federal Reserve then why is Bernake and the rest of the FED Governors shaking at the thought that Dr. Ron Paul has garnished so much support for having the FED audited?
Even if the government created the fiat money itself, the problem would remain the same, perhaps even worse…just imagine our government being able to print all the money it wants to without having to pay interest…hmmm…wonder what the purchase value of such money would be and how it would be maintained?
Study more Larry…you're getting there.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
false premise
"you two guys stand by your two theories"
"and I'll stand by mathematics"
"mathematics can't be wrong"
"therefore I'm right"
That's the premise we are being asked to swallow right out of the gate.
And it's an old tactic. Associate your argument with something "undeniable" such as the sun rising every morning, and declaring that to argue against "my argument" is to argue that the sun does not rise every morning.
and it's horseshit.
you have a third theory? state it as such, and let's compare the three.
predictions based on economic theory is like predicting the weather.
sure there is science involved. but there is also more then a bit of art.
pure mathematics is a pretty, and graceful description system, and in a closed loop, theoretical world, leaves little room for debate.
the problem is that using the system of mathematics to describe a real life, complex system with practical predictions leaves behind the nice neat closed loop world of theoretical mathematics.
and to portray it as the opening paragraph did in the topic, is insincere, and relies on an ignorant audience to make it's point.
go ahead make your points, my brother has a phd in mathematics, i've linked him to this thread, and he's a phone call away....
and I've had my fair share, more then most, of math.
Hahahahahaha
"......and it's horseshit."
Octobox
"To deny the exponential
"To deny the exponential growth of debt cuts to the very core and credibility of monetary theories. If the exponential growth can be proven, then equally, Austrian and Keynesian theories are dis-proven. "
Austrian theory does not deny exponential growth, nor does Keynesian. It is a fact of fractional reserve banking, and in any textbook. It is called the "money multiplier". Austrians do believe that the growth cannot last forever without a correction, while I believe that Keynesians would probably take it on a case by case basis.
"The inherent and terminal mathematical flaw of debt based systems can be proven anecdotally. Our total money supply (M3) is around $15 trillion while our national and private debt total around $55 trillion. How do we pay an existing $55 trillion in debt with a total of $15 trillion? We are short $40 trillion, where will that money come from?"
The debt is defaulted on and comes back down to earth, or inflation takes care of it. Some Austrians want 100% reserves, which would not allow and increase in debt beyond the money supply.
"In our debt based monetary system there is only one way to add money and that is through new debt. Eventually, the $40 trillion must be borrowed. If the money is borrowed, it will add new debt of over $40 trillion (principal + interest). The debt can only grow, it can never be repaid as the gap between money and debt will continue to increase."
The Fed can inject money into the system without buying bonds. They can buy basically anything.
"The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions."
"The specie of money doesn’t matter. If our money were backed by gold, the gold would simply be transferred to those who collect the interest. We saw this in 1933 when the gold standard collapsed and we lost most of our gold."
A real gold standard necessitates bank runs, which prevent the over-expansion of debt.
"Our debt based monetary system is a form of usury that will result in the transfer of all wealth from the many to the few. The intended outcome is debt slavery and tyranny under the cruel boots of oligarchs - a financial aristocracy. "
I do agree with this.
To deny the exponential...
No doubt, fractional lending exacerbates the process, but with or without it, a debt based system cannot be sustained. Are you saying that Austrian economics validates the exponential growth of debt?
Loan defaults definitely reduce the gap between money and debt as loans are written off. Are you saying that the defaults are acceptable to keep the system going?
The Fed can inject money into the system without buying bonds. They can buy basically anything.
People default on loans for many reasons but it should not occur as the result of terminal flaws in math.
Are you suggesting that the private Federal Reserve go on a buying spree to spend money into the economy?
END the FED before it ENDS US
Larry, what you are saying
Larry, what you are saying is that although you chose a particular title for your post that you have never really read any of the works of Austrian Economists, is that not correct?
Since you are asking some of the questions you are it is very apparent that you have not read such works, otherwise you would know that the Austrian School of Economics has never denied the tendency of fiat debt accumulation and the dangers associated with fiat currency systems. As I stated below, Ludwig Von Mises was writing about it as far back as the 20s and predicted the coming of what is known as The Great Depression. Again, I will recommend that you read the book entitled Organization of Debt into Currency by Charles Carroll.
"Are you suggesting that the private Federal Reserve go on a buying spree to spend money into the economy?" What do you think Quantitative Easing is?
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Quantitative Easing = ZIRP
QE is O%, or close to that, loans for the banks. This is why the U.S. dollar is being destroyed by the carry trade. And, it is a loan, not a debt free injection.
You still haven't responded to the math and charts I presented. I guess it's just a coincidence that the growth of money and debt mirror a near perfect exponential hockey stick graph.
And my empirical evidence that we have a growing gap between the money supply debt by $40 trillion. How do we pay $55 trillion in debt with only $15 trillion of total money?
It is absurd that you think math has no part in economics.
END the FED before it ENDS US
Quantitative Easing is not a
Quantitative Easing is not a reduction of the manipulated interest rate to Zero; it is when the Federal Reserve drastically increases its balance sheet. Now, for a fiat system to remain relatively stable there is, by necessity, the requirement of a strong central bank balance sheet consisting of relatively sound “assets” however, since the FED has determined to embark on the path of Quantitative Easing, the quality of those “assets” have deteriorated in quality. In terms of fiat currency, this means that the FED has basically swapped relatively liquid and low-risk “assets” for so-called “assets” which are not only illiquid, but also extremely risky, i.e. “toxic assets”.
Additionally, since the FED has created new credit programs at the same time it has sold U.S. Treasuries in order to support the failing banking system, it has inadvertently destabilized the liquidity constraint within those banks. While granting credit to the failing banking system, and other “too big to fail” corporations did not directly expand the balance sheet total, it has created a situation where the FED is now in a very similar situation that the failing banks found themselves in during the first months of the economic dislocation.
There was also a subsequent expansion of the balance sheet through an increase of the monetary base. The FED began to embark on a new and perhaps more dangerous stage of Quantitative Easing when, in the Spring of this year, it began buy government bonds, all manner of agency debt and all types of mortgage-backed securities in a direct purchase.
The Carry Trade, on the other hand, is a system where governments or corporations borrow dollars at a very low interest rate and by using the interest rate differential available within the Carry Trade, make substantial amounts of “income” from that differential. It’s similar to a butterfly spread.
As far as responding to your charts and math, there is no need to respond since I have never denied the growth of debt under a fiat monetary system, nor, for that matter does Austrian Economics. As stated, time and again, Austrian Economists have been decrying fiat debt accumulation for decades therefore; there is little need to respond to that which requires no response. In fact, I believe I have used similar links to such charts before in regard to the accumulation of fiat debt. Additionally, Austrian Economics “predicts” that the creation of fiat money will have a direct correlation with fiat debt since all fiat money is organized through debt. So, no it is not “just a coincidence that the growth of money and debt mirror a near perfect exponential hockey stick graph”, it is expected and, as I said, such mirroring has been the subject of several Austrian Economic essays.
Again, what you call empirical evidence is nothing more than information, not actual evidence that can be supported empirically. First, you state that we “have” $15 Trillion Dollars…hmmm, where did that money come from? You also said that we owe $55 Trillion Dollars and there is a gap between the two; of course, you are basing this argument on a very linear logic as though you have the debt in one hand and the money in the other; that’s not the way money, even fiat money operates. Now, what is the nature of fiat money? How is it normally created? We all know the answer however, there is a very interesting fact that this government, through the vehicle of the FED, can, “print money out of thin air”, although a highly inflationary process, it can and has been done before. As stated before, governments, even our government has inflated debt away before.
There was massive debt repudiation when Nixon slammed the door on all foreign debt, formerly paid in gold, but repaid in pure fiat currency not worth the paper it was printed on. Where did all that fiat money come from? What FDR did with the people of this country, Nixon did with all foreign debts. Basically, it cost the U.S. absolutely nothing to “pay” its massive debt through the act of fiat inflation and the repudiation of gold repayments.
Now, it is natural for people, like you, to think of debt and money as two different things however, under a fiat regime where debt is organized into money there is no difference between the debt and fiat money. In the simplest terms debt, upon its creation, IS MONEY! Under a fiat monetary system there is no such thing as debt or money that is isolated from each other since debt in such a system is money and money is debt. As such, debt can be traded as money in such a system. Debt can also operate in a fashion that you can, obviously governments do it all the time, effect a payment with debt.
In a fiat monetary system, money creation only remains effective as an economic stimulant at the moment of debt conversion. In other words, if you “take out” a mortgage there is absolutely no money before you sign the mortgage; the act of debt creation creates the money. This is particularly the case under the fractional reserve system where debt is the creation and expansion of monetary reserves into circulation. However, that being said, monetary creation is not necessarily restricted to the use of fractional reserve; there can be and have been direct injections of fiat currency into the system when the FED directly purchases fiat U.S. Treasury Bonds and other forms of debt. Under a sound [gold] monetary system debt formation is restrained by savings that is not the case under a fiat monetary system.
History teaches us that each and every time there was an excessive creation of fiat money, such as through securitizations, asset-backed securities, commercial paper, credit derivatives and swaps in modern times, there is always a resulting systemic failure. The debt money model can be applied to various situations, which, when expanded beyond a certain point, a point that we have already reached, the proportions of such an expansion will be catastrophic, economically and socially.
The distressed monetary system of the 1920s and, in particular, the Crash of 1929, is a perfect example of an unrestrained expansion of credit money; the actions of our government through its intermediary The Federal Reserve, left this country with a very dysfunctional monetary system of exchange where the markets have become so distorted that we are still living with the effects of those monetary and interventionist policies.
As we are now seeing, usually the very first beneficiaries of a significant expansion of the monetary system are usually the Stock Exchanges. It is not unexpected to see a rise in these Exchanges since new money flows into those institutions first there are other reasons but I will restrict my comments to the expansion of new money.
After WWI, the U.S. found itself in a very interesting position: it emerged as the foremost creditor nation, highly industrialized and willing to provide all those war ravaged countries with “credit” even though those countries had no possible way of repayment in the short term. What was done during the period following the war was that debt against these exports was considered and behaved as though it was money, even though it was not backed by gold or any other asset; as such this government was able to completely avoid the usual restraints that gold forced on money, at least it was able to do this for a while. So, exports paid for in debt began to compound, particularly between the years of 1924 through 1929. Essentially, what was created was a reciprocal relationship of debt-financed exports that provided for a particular type of monetary creation that did not rely upon asset backing, i.e. gold.
During this time, the creation of debt internally by the banking industry exploded during this time, all by-passing the restraints that gold would require of our government and U.S. banks, especially the Federal Reserve. Not only that, but a massive increase in of highly leveraged speculation in various financial assets, all promoted by the act of new monetary creation beyond the gold restraints, with the blessings of politicians, found a place in the heart of Americans and, in particular politicians. What was created was a massive speculative stock bubble, all artificial and completely created by monetary policy. The public was encouraged to invest, to trade through Investment Trusts, all through highly leveraged debt, based on fiat not sound money and it created a speculative frenzy that fed upon itself until reality proved otherwise in October of 1929 and the illusion was blown away.
All of this easy and leveraged debt drove the speculation until the system was absolutely saturated with this leveraged debt, this naturally lead to a systemic failure, not only of the Stock Market, but also of the banking system. The real culprit was a massively expanding export driven money supply, which through leveraged debt creation created a massive speculative asset bubble within the markets. As with all asset bubbles, they depend on an inflationary atmosphere where the assets used as collateral continually increase in price, without such an increase the rug is pulled out from under the whole system; it was true in 1929 and it was just as true during 2008. So, it was not gold that was the culprit, but government and banking policies.
Monetary creation always provides extreme liquidity, likewise, a negative real interest rate where one earns interest by incurring debt instead of lending eventually tends to maximize the amount of debt absorption an economy can manage before there is systemic failure.
History is a great teacher because it teaches us that all such fiat expansion creates asset bubbles that will inflate until it reaches a point where debt becomes easy for even the most highest risk borrowers to secure; at this point in the cycle the ability of repayment usually fails when all expectations of asset inflation fall to the way side. Debt saturation begins to present when the ability to find quality debtors is no longer possible and rising defaults of high risk borrowers, this can not only occur with individuals and businesses, but also with governments.
Thus debt saturation occurs when there is an extreme growth of the money supply is no longer able to stimulate a positive growth in debt creation.
There comes a time when it is no longer possible to engineer such asset inflation through fiat monetary creation, but governments will always try just as ours is doing now; the results will be the total and absolute destruction of the currency through a hyper-inflationary event.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
What is wrong with debt if
What is wrong with debt if it is given wisely and with actual backing(or at least a more reasonable amount of backing: 4 to 1 under free banking)? .
Defaults and bank runs are what keeps debt growth from being "exponential and eternal" like it is today. They are "acceptable" as long as you don't expect to live in a utopia.
I am not suggesting that the Fed should do it, but it can do it. There is no mathematical impossibility to this command-economy.
Here's a more expanded video on the bigger economic picture
again, it is rushkoff
http://www.youtube.com/wa...
I'm not a rushkoff zealot...i'm just currently digesting his ideas.
It's about behavioral economics
http://en.wikipedia.org/w...
getting people to buy stuff they don't need and even stuff that is harmful to them...particularly to get into debt in order to buy the stuff
Oligarthy economies aren't math-based
For a quick big picture of the real world, check out this video...
http://www.youtube.com/wa...
After you watch this video, click "More From: LifeIncTheMovie" and watch his other ten movies.
BTW: Life Inc. is a must have book for Ron Paulers.
Good stuff
Thanks Boru, I really enjoyed your video link. Makes you think twice about the history of the Renaissance.
END the FED before it ENDS US
Response to Republicae - You are called to the carpet
Hello Republicae,
Thanks for responding to my post. You put a lot of time in your "rebuttal" and I'll respect you with a thorough response.
I think I provided irrefutable evidence when I said: "The inherent and terminal mathematical flaw of debt based systems can be proven anecdotally. Our total money supply (M3) is around $15 trillion while our national and private debt total around $55 trillion. How do we pay an existing $55 trillion in debt with a total of $15 trillion? We are short $40 trillion, where will that money come from?
In our debt based monetary system there is only one way to add money and that is through new debt. Eventually, the $40 trillion must be borrowed. If the money is borrowed, it will add new debt of over $40 trillion (principal + interest). The debt can only grow, it can never be repaid as the gap between money and debt will continue to increase."
_____________________________________
Here is some more "empirical" evidence of the exponential growth of debt. This chart linked below shows the growth of debt from 1959. The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. (Data from the Federal Reserve, complied by Chris Martenson.com).
U.S. Money Supply
The money supply has been growing at a near perfect exponential function - see above. And, the amount the total amount of "Debt/Credit" has been growing exponentially, (see below link).
U.S.Debt /Credit
I may be over-simplifying, but here is some math to back up my point. First, assume that we are on an island with 1,000 people, and we have no debt or money - we are starting off with a clean slate and we will mimic our debt based money system in establishing a monetary system.
More specifically, all money is debt with interest applied. Since only the principal is created through IOUs and collateral, there will always be more debt than money. We can calculate the percentage of loan failures that must result unless new money is added to the system.
We can calculate the success/failure percentages: (Note: P = Principal and I = Interest collected through the life of the loan)
* The percentage of successful loans = P/(P+I)
* The percentage of failed loans = I/(P+I)
So, if $100 million were borrowed (P = $100 million) and $10 million in interest was charged (I = $10 million), then we may calculate that 91% can be paid back and 9% will fail.
The alternative is to borrow more money to reduce/eliminate the defaults. But, this will set up a perpetual loop, the gap between money and debt will increase as we borrow more.
We can also use Laplace transformations and algorithms to model more dynamically but that would require more variables.
My take on the history of the depression is different. The gold standard failed in GB and most of Europe before it failed in the U.S. (I think it was 1930 for them and 1933 for us). The reason was the same in each case, as I understand it, there simply wasn't enough gold.
If there was enough gold, why did the U.S. default on it's obligation to redeem the currency? And this brings up an interesting point, who was backing the money? For example, if the banks were creating money, shouldn't they have been responsible to supply the gold for backing?
If you look closely 1928 Federal Reserve $5 Note you will see that it states: "REDEEMABLE IN GOLD ON DEMAND AT THE UNITED STATES TREASURY OR IN GOLD OR LAWFUL MONEY AT ANY FEDERAL RESERVE BANK."
So, if you took this note to a Federal Reserve Bank, they could redeem it with another FRN. If you took it to the U.S. Treasury, you could redeem it in gold.
This means that the U.S. was backing money loaned out by private banks on a fractional basis. This would only be possible if the banks reported every dollar borrowed and the U.S. Treasury would have to buy an equivalent amount of gold to back it up. To my knowledge, there was never communication to assure that along with new money, new gold was purchased. If this is true, we had to eventually default.
Maybe a bigger issue is this...if the banks were loaning money at profit, why would the U.S. back it up? If the U.S. had the gold, why wouldn't the U.S. LEND money to the banks?
And if the U.S. had the gold, why did we borrow money from banks instead of issuing it ourselves without any interest charges?
Our current debt based monetary system is a scam that you don't seem to grasp. You accept theories rather than to acknowledge the math.
Larry
END the FED before it ENDS US
Actually, my rebuttal took
Actually, my rebuttal took me less than 10 minutes DrKrbyLuv because you provided no irrefutable evidence, on the contrary you provided no evidence of any kind. Indeed you entitled your post “Austrian & Keynesian Theories Vs. Mathematical Facts” and yet, even at that you present information that was neither correct or factual and yet now you persist in your assertion that you have actually presented something “empirical”, when all you have presented is information, nothing else.
Factually, debts combined with the government’s unfunded obligations are around $99 Trillion. There is no possible means of paying even one Trillion Dollars of debt because of the nature of this government and the fiat monetary system, which it employs to gain power and transfer wealth. The truth is that we are not short $40 Trillion but short the entire $99 Trillion Dollars and counting. The system is based on a fraudulent system built for the express purposes I noted above. If you are not aware of the fact that this government has and will again, repudiate its debt, it simply has no other alternative since it has been virtually bankrupt since the 1930s and has indebted its people without their consent. You don't need a complex mathematical formula to understand fiat debt and its inclination to grow exponentially, all you need do is be a student of economic history to understand the relationship between fiat debt accumulation and governments. In other words, you seem to think that you are presenting something astounding however, I can provide you with works all the way back in the 1700 hundreds that expounded the nature of fiat monetary systems and the insurmountable debt such systems produce. This is nothing, absolutely nothing new DrKrbyLuv and fiat monetary debt accumulation and governments love of it has been around since at least 20 B.C, the effects of relationships between such fiat debt accumulation and governments is well known.
You, like many others, appear to be mentally locked into thinking that the fiat monetary system is a real monetary system when, in reality, it is nothing more than a government receipt system utilized to provide the government with unrestricted power and the ability to grow unabated by the normal restrictions of real money. This government has absolutely no intention, whether it is the Democrats or Republicans in power, of ever paying the fiat debt of this country. As far as personal debt, it too is based on a system that, similar to the government, must be maintained on a bed of continual credit else it cannot be sustained.
The exponential growth of debt is no longer the issue, the issue is when will the system implode through the complete and absolute default of this government to maintain the flow of credit and create debt. In the simplest terms, in deference to you, this government will be forced to attempt to inflate the debt away. As I have stated in other post regarding this issue, the ability to inflate debt away has been employed by this and other governments before, but the scale of the upcoming repudiation of debt will be a tipping point for the global economic and monetary systems, not to mention the political foundations of this country and its criminal government which, thanks to the politicians and bankers, have signed its own death warrant.
You are blinded by your view of debt when the problem is much more than merely the degree of debt and unfunded obligations, it is a matter of the instability the system of fiat money has created for this society and therefore this country. The danger is much more than a matter of debt, it is a matter that will express itself in the greatest upheaval society has seen since the Fall of the Roman Empire. At this point in the end game, debt and the repayment of this debt should no longer be the issue, the issue should be what to do after The Great Default.
Again, you have not presented any evidence that is empirical, only information that must be determined on the overall effect on both economic and social constructs. That is not, nor can it be considered “empirical” which is much more than charts or data and depends on that which is verifiable by experience or observation rather than theory. Austrian Economist are well aware of that which is observable and the experience such observation entails, something you mistakenly cast as theory. What you have presented is nothing more than information and that is not empirical or irrefutable otherwise, the world in which we live would be a very different place because logic would conclude that the present system should have never been implemented because of its know and inherent instability.
You have yet to provide, despite my countless request, an economic system where the division of labor, time preferences and risk can be determined without natural interest operating and regulating those essential economic principles. Your over-simplification is due to the apparent fact that you don’t have much of an understanding of economic principles, and your math still does not back up the points that you feckless attempt to make in a dreary repetition that has frankly become rather tiring over the months. You just don’t seem to be able to get it.
You made the statement that all money is debt with interest applied…where did you come up with that erroneous fallacy? It should be apparent to you that if there is a type of money that is a double asset, such as gold and silver, then not all money is debt with interest applied. To be sure, fiat money is debt, whether interest is applied or not, it is the nature of fiat currency to be inherently debt since all fiat currency is a double liability without actual asset value.
Now, we are both agreed that the problem is fiat currency and the government that maintains and promotes its creation and use. The problem is that you cannot move beyond the limited scope of understanding that there has always been a solution to the flawed fiat system, like those in our government, the fiat world has distorted their world view and their economic understanding.
Once again, I will state this for you…there is no money, only fiat receipts that are, by government decree, enforced as legal tender. This type of economy must, by necessity, be maintained by credit/debt creation whether the debt portion is ever repaid or not. The debt that has accumulated, both direct, indirect and future unfunded obligations, whether through the fractional reserve system or as we see now, through quantitative easing, must eventually be repudiated due to the fact that it is physically and economically impossible for it to ever be repaid under a fiat monetary system. The system itself will always eventually destroy itself and all institutions that rely upon such systems.
Again, you don’t seem to get it…the fiat system itself, being inherently instable, will always destroys itself. In every fiat monetary system the monetary unit will always degenerate to its actual value, which is nothing. It lends itself to complete and absolute abuse, not only on a government level, although that is where it always begins, but also on business and personal levels.
In other words, you can, like the good ole Federal Reserve, use all the complex algorithms in the world and it would not matter nor would it provide you or them with any evidence that the system can survive. In fact, as I have stated time and again, if mathematical formulae and complex algorithms were the key to understanding and economic predictability then the Federal Reserve should have a step-by-step map on how to proceed and there should never be an economic dislocation or an economic bubble that would be allowed to burst. Obviously, some of the most complex mathematical formulae and algorithms have been used for decades to provide nice economic and monetary models…guess what, they have done nothing to either predict or maintain this economy or to prevent the current situation in which this country now finds itself in…. but by all means, please put your faith in mathematical facts because since it is math it must be right. Yet, it has been shown time and again throughout history, that if you begin your formula with an incorrect premise, or if the information you base your formula upon is skewed or actually unknowable then the results of all that math will also reflect such flaws, but if you place your faith in such things then you rarely know its flawed until observable facts reveal the mistakes. Show me a predictable model that you think is empirical and not simply theoretical? I would really love to see you dig that out!
Apparently you take on The Great Depression is different because you simply don’t seem to have read much on the subject, just like it is apparent that you have never read much about Austrian Economics. Tell me…how did the “gold standard” fail in Great Britain and Europe? Could it be that the governments of the world, including the US during that time, had inflated their money supply far past their gold reserve? Hmmm…let’s see, what would be the effect of that?
Well, since the governments controlled their reserves and their printing presses there should be some indication that if the paper receipts exceeded the reserves that something should have been done about the disparity. Sound monetary policy would have required such an adjustment, but because governments tend to be greedy and politicians like quick prosperity so they can remain in office, sound monetary policy usually falls by the way side. That is the case during the 1920s.
Now, you state, quite mistakenly, that our “gold standard” failed in 1933 however, that is not what history teaches us DrKrbyluv. History teaches us that it was not gold that failed, but government policy that not only created the problem that lead to The Great Depression, but also extended that depression far longer than was necessary. FDR and his Fabian Socialist advisors, like most governments before them, hated the restrictions that gold money placed upon government. The whole purpose behind the creation of The Federal Reserve System was to displace gold with a fiat monetary system that would allow government to operate without the restraint that gold enforces, without gold it would no longer be necessary for government to impose taxes for its own purposes, it could instead simply create fiat currency and through the hidden tax of inflation avoid the political consequences of raising taxes on the people to the point that the people would throw them out of office.
Again, you never learn. I have recommended that you read the works of David Hume concerning the FACT, that the quantity of gold money is not an issue in a free market. It is the quality of money and the fact that it is completely fungible under a gold monetary system that makes the difference in economic growth and development. But you have bought the same ole scapegoat excuse that there was not enough gold to go around. Hume disproved that nearly three hundred years ago.
The government defaulted on its obligations for various reasons, but the lack of gold was not one of them. The steps involved in the implementation of a total fiat monetary system must be incremental otherwise there would be a revolt. FDR played his part in the implementation of the fiat debt standard when he debased the currency by officially increasing the dollar price of gold and thereby devalued the dollar by nearly 69%. Of course, in conjunction he also attempted to confiscate the gold held in ownership of this country’s private individual and despite the threat of huge fines and 10 years imprisonment, only 22% of all Americans turned in their gold.
If you want to see why the reserves of gold in the US were drained then do a little bit of research on J.P. Morgan and his close ties to the Bank of England. That should provide you with some answers to your questions. In conjunction to that you will find out why the 20s saw a flood of fiat currency and credit extended into circulation exceeding the reserves.
You still don’t get the reason this government not only allowed, but also promoted the creation of The Federal Reserve Bank, the fractional reserve system and fiat money do you. I can tell by the statements you have make and continue to make.
The fact is that since the government took the monetary policy steps it did through the latter portion of the first decade of the 20th Century and the 1920s, there was, as I stated, a massive amount of fiat currency being generated by this government via The Federal Reserve through the agency of the U.S. Treasury. You can read the history of these events for yourself, but needless to say that your facts do not match up with actual events of the period.
Now, since you are so informed on these subjects, about as much as you seem to be informed about Austrian Economics I will continue to ask to provide factual evidence to support your opinions. Now, you are beginning to ask the right questions for a change, keep going and before long you will, hopefully, begin to see that there are answers that will open your eyes to those questions and to the reason that this government loves fiat money and hates gold money. Continue to ask why this government loves its relationship with The Federal Reserve Bank, a joint creation between the political and banking powers?
You appear to ignore factual information and depend on mathematical theory...do you not? You consider it factual and yet you have yet to show it as empirical fact, in fact you cannot point to any mathematical formula and state that it is factually correct when conducting economic science even though you may call it science all you want to. As far as being able to grasp the fact that the fiat monetary system is a scam...I think if you read my writings over the years you will find, once again, that you are completely and blindly mistaken since I have called it a scam for at least the last 40 or 50 years. So, you'll have to do better than that!
If you want to end The FED before it ends us, then find out what really happened, what is happening and why this government needs its lap-dog called The Federal Reserve Bank and fiat money.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Republicae wrote: Factually,
You're right that there unfunded liabilities beyond the debt I listed. I did not include them because they are commitments at this point and not debt. According to U.S. Supreme Court rulings, Social Security does not have any legal liability to beneficiaries. Beneficiaries have sued for Soc Sec benefits in federal court and LOST. The court ruled that Social Security is a welfare program, which Congress can reduce or eliminate at any time. Unlike a private-sector pension or annuity, you have no contractual rights to Social Security benefits, regardless of how much FICA tax you've paid.
Fiat money is real money, if you don't think so send yours to me. Every "fiat" dollar is backed by an IOU and collateral by the borrower.
The government and people will not repay the debt, not by choice, but because it is IMPOSSIBLE as I have clearly pointed out. The gap between money and debt is a mathematical function in a debt based, interest bearing money system like ours.
If FRNs were backed by gold, the math would not change. As I have stated before, the specie of money doesn't matter in our system.
Nonsense. If the government had enough gold to back the currency, a default would not be needed. If you look closely at a 1928 FRN it states: "REDEEMABLE IN GOLD ON DEMAND AT THE UNITED STATES TREASURY OR IN GOLD OR LAWFUL MONEY AT ANY FEDERAL RESERVE BANK"
So, if you took this note to a Federal reserve Bank, they could redeem it with another FRN. If you took it to the U.S. Treasury, you could redeem it in gold.
This means that the U.S. was backing money loaned out by private banks on a fractional basis. This would only be possible if the banks reported every dollar borrowed and the U.S. Treasury would have to buy an equivalent amount of gold to back it up. To my knowledge, there was never communication to assure that along with new money, new gold was purchased. If this is true, we had to eventually default.
Maybe a bigger issue is this...if the banks were loaning money at profit, why would the U.S. back it up? If the U.S. had the gold, why wouldn't the U.S. LEND money to the banks?
And if the U.S. had the gold, why did we borrow money from banks intead of issuing it ourselves without any interest charges?
You are misrepresenting history.
And, please, refute my lengthy evidence of the exponential growth of debt if you can. Where is the math flawed - do you have math that shows another possible outcome? How do you explain the fact that our debt has been growing exponentially as shown in this chart:
Exponential Growth of Debt
The dotted line in the chart is an idealized exponential curve, while the solid line is actual monetary data. The fit is nearly perfect (with a correlation of 0.98, for those interested). Data from the Federal Reserve. Info compliments of Dr. Chris Martenson - http://www.chrismartenson...
I think you are making my point - I am talking math and you are talking theories.
END the FED before it ENDS US
First Larry, you based your
First Larry, you based your argument on a rather generalized statement of two completely different economic schools of thought verses a rather nebulous term of “mathematical fact”. Did you not? Now, it is important that if you present an argument that it should have some structure to it rather than such generalizations. The Keynesian School of Economics relies heavily upon the very thing that you are promoting, that is reliant upon mathematical formula, complex algorithms and economic models. Even if I stop at that point your complete generalized argument falls completely apart, but you then place Austrian Economic Thought into the very same mix and yet you provide no particular theory, essay, work or white paper from any Austrian Economist to compare with or expound upon how your so-called “mathematical facts” are contradictory. In other words, you have not presented any worthwhile argument to support your claim, nor have you provided any mathematical formula that you can point to that would support your position. In other words, you have not made an adequate argument only very generalized statements, which contain no substructure, no structure or superstructure.
On to the first point you are making in this latest post: An unfunded future liability is indeed debt because it is a liability that rest upon funding, whether future or present, a liability is always considered a debt obligation. Thus, once again, you make no substantial argument on that point.
Here again, on your second point you must predictably fall back on what amounts to a non-argument. Fiat money is a receipt that bears no promise of payment by either the Federal Reserve, the Government or the Government’s Treasury. It has functioned as “real money” however, through the years each and every fiat note has gradually been reduced in its monetary utility. If you don’t understand that, and apparently by your statement you don’t, then perhaps you should study the various stages of fiat monetary system decline to understand what I am talking about when I say that fiat money is not real money. Real money has a utility outside the parameters of government decree; in other words, real money holds a value beyond the ability of government to declare or manage its value with the economic sphere of activity. Since total fiat money does not retain such abilities it cannot be considered real money only a money substitute and money substitutes, such as fiat currencies always suffer the same fate under government abuses and pressures, they always return to their original “value” and that is ZERO VALUE. The current Federal Reserve Notes, you noticed I said NOTES, not money, have been debased by at least 95% of the original purchase value of the U.S. Convertible Dollar of 1913. Now, it is apparent that since the Federal Reserve Notes have, through the instrument of inflation, lost such a high percentage of its purchasing power that it has also lost a huge amount of the intended utilitarian function it is suppose to have as money.
You made a statement that if FRNs were backed by gold, the math would not change…really? What proof do you have of that since it is obvious that a fiat FRN and a Sound Gold Dollar operate on two totally different spheres, one being a double liability and the other, gold, being a double asset. If you cannot distinguish the differences between the two in terms of economic efficiency and power then you utterly fail to grasp anything to do with how money functions within an economic arena. The specie does absolutely matter; to make such a statement is, to be mild, utterly blind to the facts of monetary mechanics. History proves you to be totally and absolutely incorrect!
Larry, I have several hundred Gold and Silver Certificates in my collection, so there is no need to tell me what they promise. The government defaulted on payment because of the political nature of the various Administrations from Lincoln to Nixon. Your statement that “if the government had enough gold to back the currency a default would not be needed” COMPLETELY IGNORES HISTORY! Again, you make no argument of substance to make a case upon.
Really, I am misrepresenting history well tell me how? What was happening in this and other countries from say 1914 through the 1920s? Numerous countries, especially our own, embarked on a massive circulation of credit money, which by the way, was “endowed” with “legal tender” quality, in other words, it was just like money even though there was no asset money [gold] to actually back up that legal tender credit. Now, such “credit money” basically nothing more than fiat, is inherently unstable and economies, particular during those years between 1914 and the 1920s were intolerant of the rather sudden changes which such vast quantities of new credit money created in the markets, especially the incredible distortions in the markets. This practice was so prevalent during that period that it leads to various mal-investments and misallocation of capital, and eventually to the Crash of 29 and the subsequent Great Depression. Thanks to the cozy relationship between government and the Federal Reserve, the government was able to do what gold money would not allow it to do, create a bubble economy where the illusion of prosperity could promote a political goal.
In the long run of course, there is no economy that is helped by a monetary unit, which continually deteriorates in its purchase value, as does a fiat, whether total or mixed. Fiat currency, as I have stated, provides the government with an instrument of revenue growth not dependent upon taxation, it can be hidden from the public and, as we know, the public is duped by such actions. They still think that slip of paper in their pockets is actual money, it is not because it is not an inherent asset that retains a value, on the contrary, it is a slip of paper that continually depreciates toward negative value.
Asset money [gold] serves purposes that fiat money cannot serve; fiat money cannot be used as a standard of deferred payments for instance because of the instability of its actual value. Gold, on the other hand, does serve, not only as a standard of deferred payments, but also of economic stability since its value is consistent over a long period of time. As fiat currencies are debased through the hidden tax of inflation, it loses its value serviceability for even cash transactions, thus we see a larger quantity of dollars being expended toward lesser and lesser goods and services, hence the outcome of excessive fiat monetary inflation.
During those years between 1914 and the 1920s, there was no concern for whether or not there was reserve coverage for all of the newly created credit money or defacto fiat currency being issued. Don’t you get it Larry? By 1922 the Federal Reserve, at the behest of political pressures, was issuing fiat currency and credit at such a rate that, in the eyes of the politicians, bankers and people, there was no thought of the outcome of such fiat creation. There was certainly no concern, at least in most quarters, of whether or not there was a gold reserve to cover such creation.
I have no need to refute any evidence of exponential growth of debt that was not your preliminary argument. The reason I have no need to refute it is because I, like most who follow Austrian Economics are fully aware of that the nature of fiat currency always leads to the exponential growth of debt. Mises published numerous works as far back as the 1920s, which included that subject, and he denounced the use of fiat currencies because of the tendency that since debt was being organized into money that debt would naturally grow exponentially. Do you actually think you are presenting some new or novel thought here Larry you are not? If you actually read a bit you would find that the subject has been written upon for decades, even longer, for centuries.
Again, you make statements that, by mere supposition, there is a need for me to provide you with a “mathematical formula” that would deny the exponential growth of fiat debt. I have never denied that debt under a fiat monetary system will grow exponentially, in fact, I know of no Austrian Economist who would deny such things. The fact becomes apparent then that you have never read any works on Austrian Economics, have you? You have only made assumptions without any evidence to the contrary. Now, I do deny that your idea that interest is correct and your assumptions which are primarily based on the feeble writings of Montagne. While interest under a fiat monetary system plays a large part of the problem of fiat debt, under a gold monetary system where strict 100% reserves are required interest simply plays a very necessary part in the free market process, without natural interest there would be, could be no free market. Thus your argument is, one again, completely and utterly misdirected.
What “theories” am I talking about Larry? I don’t recall mentioning any theory, only you have and you have yet to provide any specific theories, which you can pit, any “mathematical facts”. Tell me; tell me what Austrian Economic “theories” you are referring to in your argument and how such “theories” fail to denote the fact that fiat monetary systems always have a tendency toward the exponential growth of debt. I have never denied that fact, only your insistence that a mathematical formula can be either predictive or quantitative of economic processes. Additionally, provide all of us with the exact mathematical formulae that you speak of that proves it against the “theories” which you have yet to present.
I mean what is your argument? Like Ludwig Von Mises, I am in total agreement with the fact, the well-know fact among Austrian Economists, that when debt is organized into money there will always be an exponential growth in the amount and burden of debt. So, actually you are not talking about math or theory, you are simply making statements which are so broadly applied that you cannot adequately construct an argument.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
I don't want to butt in...
...but these have been quality responses, Republicae. I agree with you on every point. Your last paragraph summed this all up very well. There's an obvious misunderstanding of Austrian theory (and money in general) going on here), so your persistence and detail is quite admirable.
Flaw
I think the flaw here is that money owed and money owned are not a 1 to 1 ration. People both owe and own money at the same time. I could owe $50,000,000,000 and also own $80,000,0000.
-------
http://www.RebootTheRepub...
It is not completely
It is not completely surprising that you would come to such conclusions since the basis of your “theory” is that there is a mathematical fact to back up such suppositions. First, you have not shown an empirical fact to back up any of what you claim, not in this or previous postings. You have not, thus far, been able to even adequately discuss, with any accuracy, either the most fundamental principles of Austrian Economics or of your own “theory” stating that there is indeed a correct mathematical formula that not only can predict, but present an economic model that comes close to reality. If you have I have certainly not read anything that you have written that remotely resembles such an economic model based on yours or others formula.
Indeed, you have, once again, lumped Austrian Economics with the “Quantity Theory of Money”, yet you will find that Theory was flatly rejected by those Austrian Economists such as Hazlitt; indeed Hazlitt and others, rejected the vast majority of what you mistakenly present as Austrian Economics. Could that be because you have never read any essay or understood Austrian Economics; I dare say that is the case since you have, from the time you first came on the DP, offered absolutely no evidence of either a familiarity either economics in general or Austrian Economics in particular.
Tell me, for instance, what fundamental beliefs that Austrian Economists hold that does not, in your words: “square-up” with math?
As far as debt is concerned, here again, it is very apparent that you have never read some of the most fundamental writings of Austrian Economists dealing with the subject of fiat debt, yet you are and have been quick to place Austrian Economics on a table with Keynesians, two completely different and totally contrary schools of thought. It is odd that you should make such broad statements with little substantiating evidence to support your statements, but yet you do just that without regard to whether or not such statements are either valid or sound.
I dare say that you have never in your life read “Organization of Debt Into Currency” by Charles Holt Carroll; for if you had you would definitely not be making such statements. Of course, there are numerous other works by Austrian Economists, which deal with fiat debt, but there again you refuse to consider such works and have, on many occasions, stated that you haven’t read much about Austrian Economics. It also becomes apparent that you have not read much about economics in general or the mechanics of monetary sciences.
Tell me how exponential growth of debt cuts to the very core and credibility of monetary theories? It is one thing to make such a statement but it is quite another to actually provide evidence to support such statements and to adequately explain just what you mean when you make such statements. What is the core and credibility of monetary theories that is cut into by your supposition?
How, for instance, can you disprove Austrian Economic theory by proving exponential growth of debt? I am really interested in your explanation because in order to do so you must be extremely exacting in both your theoretical assumptions and your rebuttal of the theory you are attempting to disprove.
Again, it becomes appallingly apparent that you have never read much about Austrian Economics by this statement: “Economic theories hide the fact that a debt based money system is usury by definition and neither Austrian nor Keynesian theories are sustainable. Both systems create bankruptcies and defaults while enriching banks at the expense of the people.”
First, it must be stated that Austrian Economics does not support or defend a debt-based monetary system; on the contrary, it proposes a sound monetary system where the monetary unit is a double asset, not a double liability as with a fiat monetary system. That is your first misconception and since you seem to base your entire premise on the assumption that the theories, which you obviously unaware, of Austrian Economics hide, in some occult fashion, the plague of debt-based money, we must conclude that all other assumptions you are making are equally misguided as your premise.
Anytime you have a double liability where debt is organized into a monetary unit system you cannot maintain sound economics, it is impossible and Mises proved that decades ago, so have other well-known Austrian Economists afterwards.
One again, you make this statement:
“The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions.”
You certainly didn’t get that from any Austrian Economics work that I am familiar with, so where did you get it? Since Austrian Economics does not try to explain anything of the sort then why have you indiscriminately lumped Austrian Economics into your supposition? Indeed, you will find a number of essays, reports and books by Austrian Economists, which completely refute the commonly held view of the velocity of money. Yet, here you are attempting to connect the two, why is that? Perhaps because you are really not familiar with either Austrian Economics or economics in general…could that possibly be the case? Evidence does point in that direction.
There is however, a great deal of difference between the velocity theory of money and the fungibility of money itself, you have yet to learn the difference because months ago an adequate explanation was given to you not only by myself, but by several here on the DP. Since you didn’t grasp it then I have serious doubts if you will now be able to understand the concept. It appears that you have Austrian Economics confused with the Monetarists, but I doubt if you know much about that school of thought either.
Once again, you are making assumptions that are not based on factual information. It becomes painfully obvious that you have not a firm understanding of what happened either in the 20s or the 30s, and the fact that you state, quite mistakenly, that the gold standard collapsed in 1933. What happened was a debasement of the monetary system by FDR. FDR used the crisis, primarily brought about by the monetary policies of the Federal Reserve during the 20s, to attempt to confiscate gold and devalue the dollar in relationship to gold. He did this by increasing the “official” price of gold; this effectively debased the currency backed by that gold. He then made the domestic currency non-convertible, making it little more than a fiat note, which must, by its very nature, be backed by debt. Remember, gold is not like fiat money since it is a double asset on both sides of the books, even as a “liability” gold is an asset. Now if you ever grasped that fact you would actually come to understand that the means by which money functions in a society does so by the regulatory function called natural interest, something that is virtually impossible with a fiat monetary system since it must be manipulated to operate. You also fail to understand the differences between natural interest and manipulated interest, the two operate differently and are governed by different forces; the first is governed completely by the market and the risks associated with the market, the second is completely governed by the centralized banking system we know as the FED.
Now, where you get this crap I haven’t a clue, but this is out from left field: “The two prevailing economic theories give us a false sense of choice just like the two party system of Democrats and Republicans.”
Tell me how does the two prevailing economic theories give us a false sense of choice between the two parties? First, Austrian Economic theory is not a prevailing theory; second most Austrian Economists and those who follow AE are far from supporters of either political party…why on earth do you think we are here on the DP? Wake up DrKrbyluv and present some solid arguments to support your case. You provide nothing in the way of actual argument only the most flimsy suppositions.
The science of money, tell me about that…how does that work? Can you explain just what you mean by the science of money? How does it function within a society? What prevailing principles under gird the science of money and how does it perform within say a recessionary trough? What would be the outcome if each monetary unit were asset based instead of liability based? Surely your “science of money” should be able to fully estimate and therefore explain such matters, should it not?
Thus far you have given us absolutely nothing to substantiate your claims or support your arguments on a level that would warrant an in-depth explorations of the subject of Austrian Economics, much less monetary sciences.
All you need do is provide the explanation of what you are talking about, and do it within the framework of economics, whether that is Austrian Economics or even general economic theory. I would really like to see you make such an attempt instead of making great swaths with an indiscriminate brush so broad that you sweep everything into the same net of unsubstantial fodder and froth.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Thanks
Your posts here have educated many of us tremendously. These are the type of posts that I come here for.
"In the capitalist society there is a place and bread for all. Its ability to expand provides sustenance for every worker. Permanent unemployment is not a feature of free capitalism." - Mises - www.mises.org, http://www.freedomshift.b...
Well thank
Well thank you.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
communists and their "scientific" methods...yawn
Nice to see you back, Republicae. Congratulations on your marriage.
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"the only thing that keeps the banking system from failing is general ignorance about how the banking system works."
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dead banksters
http://www.dailypaul.com/...
Think for yourself
Republicae seems to do a lot of people's thinking for them. Think for yourself, explore the math.
END the FED before it ENDS US
...I don't know about
...I don't know about others, but Republicae isn't doing the thinking for me - he's doing the *typing* for me.
;-)
I do think for myself
and I refuse to be swayed by any dogma or theory that assumes complex mathematical models have any place in a monetary system. Since I am able to think for myself, I can deduce the tragic results that command economic "theories" inflict upon those unlucky enough to suffer under top-down monetary systems. In the case of the Soviet Union I watched an entire nation be destroyed by people with ideas similar to yours who were willfully blind to reality because it didn't fit their theories; just as we are all about to witness the destruction of the United States in its present form because those in control of a system that is too complex to be controlled made bad decisions.
While free-market--and by this I do not mean corporatist--monetary systems are inherently messy, they have the advantage of being able to survive disruptions where any style of command system is doomed to failure by the slightest misstep or miscalculation on the part of those in charge.
Simply put, I agree with Republicae because he is pro-free market, and I disagree with you because you are not.
Hey E...how have you been
Hey E...how have you been doing? Thanks!
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Hanging in there,
thanks for asking.
Pseudointellectualism
Edit: already being addressed at: http://mises.org/Communit...
"The two economic theories will try to explain away this reality by claiming that the velocity of money can be increased so that a given amount of money can be used for more transactions." -HUH? The Austrian school would NEVER support this idea.
Is Velocity Like Magic?
http://mises.org/story/91...
"The specie of money doesn’t matter. If our money were backed by gold, the gold would simply be transferred to those who collect the interest. We saw this in 1933 when the gold standard collapsed and we lost most of our gold."
The Great Gold Robbery of 1933 - Tom Woods
http://mises.org/story/30...
Interest rates should be a function of the level of saving and the individual risk to the lender (the ability of the borrower to repay). At a nationwide level average interest rates should reflect the level of nationwide savings roughly. I'm only an amateur economist and a computer professional, but this article sounds like it was written by someone who does not clearly understand the Austrian school. Interest rates play a vital role in the economy, they control time preference. I think the writer needs to do more reading. I would like to see a professional Misesian take this apart. I wish Republicae still came here, he used to disembowel writers of articles such as these.
"In the capitalist society there is a place and bread for all. Its ability to expand provides sustenance for every worker. Permanent unemployment is not a feature of free capitalism." - Mises - www.mises.org, http://www.freedomshift.b...
DrKrbyLuv never, ever
DrKrbyLuv never, ever presents anything of notable consideration regarding even his "theories", only very broad statements that are both ill-conceived and totally unsubstantiated. He is, and always has been, completely void of understanding of general economics and especially Austrian Economics; all one needs do is read his posts to see his lack of knowledge on the subject. It is sad that he continues to make such statements without any actual explanation of those statements in relationship to the subjects he himself raise.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
You should post this at
You should post this at mises.org and show us the responses. The good people there are more likely to give better critiques than the good people here. I don't think that you are correct about the velocity of money. I am pretty sure that the austrians have spent a fair amount of effort trying to explain why the velocity theory of money makes no sense. Your article doesn't explore any arguments or rebuttals that would be made by either of the two economic schools and so it is quite difficult to know whether you are making a good argument or just trying to promote a website.
He would be laughed off the
He would be laughed off the forum just like his mentor Montagne was. Indeed he made no arguments for his case, no substantial evidence to support it or his "theories", which are based on mere suppositions.
The truth of the matter is that he is incapable of explaining either his own "theories" or any part of actual Austrian Economics, or general economics for that matter. I have spent months trying to get him to make such explanations to no avail.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Please stop the personal attacks
You should stop studying economics and start to study math. Good grief man.
END the FED before it ENDS US
Come, come Larry.....I
Come, come Larry.....I didn't attack you, I attacked your argument. Besides, I could provide you with numerous instances where you attacked several people on the DP, not just me. I have studied math Larry, as well as Economics....have you, really? It certainly doesn't appear to be the case.
http://www.1776solution.b...
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
Thanks, will try to do...
I'll try to post this at mises.org. As for providing any arguments against the mathematical facts - I think that is up to those who would disagree.
END the FED before it ENDS US
You don't have to agree with
You don't have to agree with monetary policy.
You just have to agree with freedom.
And I've chosen free market capitalism, because it is freedom.
Mathematical facts, monetary policy, as long as nobody imposes his views on me, that's ok.
I have studied this as well and have been thinking about...
how this would be overcome, yes when ever a debt is taken on the interest is not created as monetary units so there are less units then there are obligations for those units. Thus creates the scarcity of money which causes rifts and angst among those clamoring for it. I actually thought that a good way would be if the government was the one that created the money and lent it then they should create and spend the interest which would be generated so there was always a neutral amount of obligations and currency. I would really like to hear what other people think about this or some other ideas?
The Liberty a society retains is inversely proportional to the number of Lawyers in the Government.
Touche!
I agree and think you are on to it. The gap between money and debt will continue to grow and under our system, it can never be repaid. The really unfair part is that all new money created by banks is solely backed by an IOU and collateral from the borrower.
The banks add nothing, no backing, no guarantees.
As far as new ideas, I agree the banks should borrow their money from the government - not the other way around. The gap between money and debt could be filled with debt free money spent into the economy. The new money should be limited to projects that endow the money with value - for example, infrastructure that benefits everyone.
See the MTA for a good example.
END the FED before it ENDS US
Stunning
Great post, couldn't agree more. I'm often amazed that there is so much ignorance surrounding such a basic issue. Everyone uses money, yet very few understand how it works. I've often thought that the efforts of the campaign should not be focused on electing a few sane voices for government, but on educating the masses to the fraud of the monetary system.
Thanks...
Good to find someone who agrees!
END the FED before it ENDS US