Michael Stuart Kelly

Money and Politics - The Money Masters

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Fred,

I have seen a bit of how things work in high finance abroad and it bears little relation to what goes on here (with correspondent bank accounts being a sort of interface between institutions out there and institutions in here).

Hell, I know more about how SWIFT and Euroclear operate than I do my own bank account.

More coming later.

Michael

I'd really like to hear some of that. Also, the Brady Bonds background. I read a little -- a response to debt restructuring backed by the US. Mostly, except for Ecuador, long since repaid? So Ecuador defaults in 1999/2000...and then in 2008, defaults again on a new round of debt? That has to be a story. I found some old articles from the 1999/2000 default ... "Nobody will lend them money now." And clearly somebody immediately did!...no doubt at a hefty interest rate, enough to fuel another round of default in 2008.

I have no idea but it reads like Ecuador was the Brady Bond exception, not the rule. Or did Ecuador just lose the musical chair/debt refinancing dance?

Another realy interesting topic from the documentary is the whole SDR thing. (Did the new, similar play of 'carbon credits' push SDRs towards the back of our global consciounsess?)

How to explain SDRs? Have you got a reasonable model for their how and why you could share?

regards

Fred

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If you imagined the simplest economy that had no such thing as a value-proxy, one based on pure value-for-value barter transactions, it would have clear and obvious disadvantages. There would be far less opportunity for specialization, we'd all literally have to carry around our 'pump' stations and bolt them directly to other's turbine stations, and directly exchange value for value. No value-proxies at all.

And even in that simple form of economy, there is still opportunity to game the system. To lie, cheat, and steal. To foist crap. To misrepresent value. To offer false value for real value. The difference is, the gaming is directly in front of the participants in the trade. There is at least some prayer of personal responsibility and action, in dealing with the gaming.

By necessity, choice, convenience -- by the fact that they are more powerful and efficient means of creation and circulation of value for value, our actual economies have become far more complex then that, and have introduced the concept of value-proxy. We have altered the value-for-value exchange to value for value-proxy for value exchange, with clear and obvious advantages for doing so. We have readily accepted the advantages, but we have also blown by the additional costs, and in so doing, have weighted the additional costs as less than the additional gains. The introduction of value-proxies largely created the banking system, whether the value-proxies had actual intrinsic value, such as Gold, or were simply fiat money.

The additional gains are obvious. The additional costs are less so. The constant costs are the same gaming opportunities as before, now split between two marketplaces: one where value is exchanged for value-proxy(the pump stations), and one where value-proxy is exchanged for value(the turbine stations.) However, the new costs are the brand new gaming opportunities that have been created in our more complex economies. There are gaming opportunities at the banks. There are gaming opportunities at the credit window. There are gaming opportunities at the public tax/borrow/spend bypass. There are gaming opportunities at the corporate/business tax bypass (that exists at the manifolded exit of the turbine stations, just as the income tax bypass exists at the manifolded exit of the pump stations.) There are gaming opportunities at the parallel universe compressible equities marketplace, where one form of (nearly) incompressible value-proxy can be exchanged for an alternative form of compressible value proxy, as a means of self modulated sharing of risk/reward in the ROI at risk economies.

A myriad of new, complex opportunities for gaming: for lieing, cheating, stealing. For the foisting of crap. For the offering of false value-proxies for real value-proxies. In other words, for reptilian minded naked sweaty apes to be reptilian minded naked sweaty apes, just as before in the face to face barter simple economies, but with a brand new universe of playgrounds in which to currupt economies. The difference is, in today's complex economies, when A conducts commerce with B using value-proxies, they are both subject to gaming of the value-proxies that has been foisted by C,D,E, and F, far away and far removed, so neither A nor B have a prayer of influencing or correcting the gaming that is affecting their immediate transactions.

The above is part of the cost that is paid to participate in modern economies. C,D,E and F don't regard them as 'costs', they regard them as opportunities to rape, pillage and burn and get away with it. All of that is leakage, corruption of healthy economies. Healthy economies can tolerate a certain amount of value leakage, but not an infinite amount.

What can and should A and B do reduce those costs?

I bring this little homily up because, in the context of 'fractional reserve banking' and the operation of the Fed, and the functioning of banks under laws, there can be a difference between the concepts as pure concepts, and the concepts as impurely implemented.

Let me bring this homily back to earth with a concrete from the news.

Senate Democrats Overcome GOP Filibuster of Small Business Bill

September 14, 2010

Senate Democrats today overcame a summer-long Republican filibuster of a bill to jumpstart job growth by providing small businesses with a $30 billion lending fund and around $12 billion in tax relief.

The vote to end debate on the small business measure was 61-37, paving the way for it to obtain final passage in the Senate later this week. The newfound support of Republicans George Voinovich of Ohio and George Lemieux of Florida was key in helping Democrats end the GOP blockade, after they came up only one vote short during their last stab at passing the bill in late July when lawmakers voted strictly along party lines.

The bill would establish a $30 billion small business lending facility run by the Treasury Department and provide another $12 billion in tax relief. Smaller banks – with under $10 billion in assets – would use the Treasury fund to extend loans to small businesses, helping get these companies back on their feet and hiring new workers. The fund, proponents say, could help leverage up to $300 billion in loans, a massive boost in loosening tight credit markets. Democrats have estimated that the bill could ultimately help create up to 700,000 new jobs.

When you search for a hint of how this is going to be 'paid' for, you find mention of the following curious item: Those same small businesses will be "allowed"/"encouraged" to convert their profit sharing/pension plans into Roth IRAs, accelerating future taxes and converting them to immediate taxes. I can't wait to see the details of the "allowed"/"encouraged," can you?

On the face of it, this is more KoolAid; an acceleration of de-investment not just in the current economies(where are those pension plan assets today?)but yet more de-investment in future economies(by accelerating ahead and collecting those future taxes today.) A panicked grab at one of the last remaining pools of black ink in existence, small business pension plans.

As I pondered this, I wondered, "Why has the government always seemed to have a bug up its butt about its own creations, regulated pension plans?" There was a similar swipe in the 90's, when Reich sent the IRS after them as part of his reinventing government/cabinet department metric, when he defined, as his metric of how well the DoL was perfroming for taxpayers, the total dollar amount of small business regulated pension plans overturned because of 5500 (information only return)irregularities--an event that, when triggered, would often put a small business out of business, with penalties, back 'taxes', and interest. When these plans were 'pierced' and instantly reclassified as income -- not over nonpaymnet of taxes, but over things like confusing instructions on the 5500s and missed filing dates for information only returns -- then this could result in several years of corporate and personal returns instantly being reclassified as delinquent. THe event would ruin any small business that fell in this government trap. (Fortunately, the IRS fielld agents sent out to carry out this hatchet job refused , leading to the mid-90s "IRS Street Revolt." They largely simply refused to carry out their orders, unlike the guards in those Nazi prison camps. Reich et. al. didn't get away with their swipe that time, this time, the new aparatchiks might have learned their lesson, and won't rely on just plain folks staffing the IRS.

But this wasn't a purely left-wing extremist apratchik swipe. Consider the following. There are a wide range of regulate pension plans, many of them very similar, and all of them creations of Congress. What is their main difference? A big one is, the rights of participants to borrow money from their own profit sharing plan. So, consider the following scenario: a small businessman ends up putting $500,000 into his profit sharing pension plan. (The actual number isn't that important, the issue is the same no matter what the number is. In aggregate, for all such small businessmen, it is a big number.) In those circumstances, if he also has a mortgage on a home, and is paying interest to a third party, then why wouldn't he simply borrow the same amount from his pension plan, and pay back his pension plan, with interest? Under some forms of pension plan, he is in fact able to do that, but under that same form of pension plan, not all small businessmen are able to do so. The economic reason? There is no economic reason, there is only a political reason. Never mind just small businessmen, but if the entire middle class was permitted to borrow from its own pension plans and reduce the interest paid to third parties, and pay that interest instead to themselves, then how would those third parties ride the middle class? The same middle class whose pension assets have been shepherded, via regulated plans, to third parties, who effectively turn around and lend those same assets back to that same middle class as mortgages, and in so doing, collect fees and the spread on the interest paid/received.

And, in exchange for a cut directed to re-election coffers, Congress rigs the regulated pension plan rules to fleece the entire middle class, as well as any small businessman with insufficient political leverage, as in, the self-employed, single shareholder plans with no political clout whatsoever.

The economic reason for this gaming? There is none. That fraction of the middle class that has both a regulated pension plan, as well as a mortgage, should be staring at the interest it is paying to others who are ultimately using their own pension assets to lend back to themselves, and wonder why our legislation has been gamed that way? What is the justification? What 'social good' is achieved by creating a game where OPM is used to fleece the Middle class?

This is just one example of the 'gaming' I am talking about, and the gaming does not uniquely line up under left wing/right wing sensibilities.

P.S.: Example of confusing 5500 instructions, paraphrased, with made up page numbers, but you get the point:

Page 14: "No need to file an initial information return until total plan assets exceed $100,000.

Page 186: "...unless the plan is deemed 'Top Heavy', in which case, must file from the very first year."

What is 'top heavy?' That is a plan where more than 50% of the plan assets are in the name of company principals/officers, or something like that. Oh.

Then, if you are a self-employed, single employee, sole officer and shareholder, and this is your own money in your own plan, are you screwing your non-existing employees by managing a 'top-heavy' plan? The IRS claims 'yes.' And so, the self-employed who had such plans all fell under the special rules for 'top heavy' plans, even though they have no 'halves' at all. And largely had no idea, until the IRS showed up and audited their plans five years after they started their plans, and gives them the good news. Heard far and wide in the mid 90's: "You didn't file your first 'information-only' 5500 until 1992. You should have filed in 1991. You owe a fine for every day late since that you haven't filed that 'information only' return. Also, your plan is now consider 'non-complying' because of this. Therefore, you must reclassify all your contributions to those plans in every year since the first as income, and you now owe back taxes, penalties, and interest far in excess of the value of the plans. You must redo your 1120s, and as well, all your 1040s. ... but, you know and I know this is totally bogus nonsense, so I am not going to report or enforce this. Our managers are telling us this is what we must do, but they are insane. I am not going to look someone in the eye and tell them they are ruined over filing an 'information only' non-tax return a year late under confusing rules, because the IRS considers small business self employed people to be running 'top heavy' plans. It is complete nonsense, those managers can go to Hell.' IRS Street Revolt of the mid 90s.

Edited by Frediano

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RE: The Money Masters

I've had the same interesting reaction recently, talking to folks about arbitrage, and the appearance of once nearly 'risk free' trading. When explained, the universal response has been akin to 'you have to be kidding me?'

Caveat emptor; this all may not be complete or comprehensive, but it is close enough to get the 'you have got to be kidding me?' gist of it.

So, there exist multiple markets in which the same or similar commodities, or increasingly entities/complex constructs with slightly varying cashflows, are traded at the same moment in time. In spite of the fact that there are pressures -- including true arbitrage itself -- which tend to equalize prices in these varying markets, this equalization occurs imperfectly, and for various durations of time, there can exist differentials of price for 'the same' things in multiple markets. These differences, because of these pressures, are usually small, and don't exist very long, but if a trader could detect and make buy/sell transactions fast enough in both markets, he could effectively make a nominally 'risk free' trade. Because the price differentials are usually small, the only way to make money is to leverage the trades with massive amounts of often borrowed money, or a large pool of OPM, of folks seeking large(over time)returns on a seemingly 'risk free' basis. By using this large pool of managed/borrowed money to make lots of these small difference 'risk free' trades over time, these pools could promise large nearly 'risk free' returns over time. The key words are both 'large' and 'nearly.' One tends to cloud the reality of the other.

But of course, these are not totally 'risk free', because there are multiple arbitrageurs making similar plays and watching the same markets, and a given arbitrageur is subject to his own risk of execution speed, and so, the game is fought on the basis of speed of analysis and execution of transactions. But this type of 'true arbitrage' is mostly risk risk free, and serves as the mechanism which equalizes prices in different markets. It's like a price enforcer. Over time, this has become a battlefield over milliseconds and microseconds.

This game quickly had pressure to move beyond merely observed fluctuations in the noise(in theory, anyone can do that with fast enough access and silicon) and shifted towards 'mostly' predictable anticipations of fluctuations in the noise based on news analysis(not just the news itself, but the source of the news and the predicted--if possible -- differences in impact on two markets), with now significant added risk to poorly modeled real-time scenarios. Depending now on the time frame of the analysis and trades, this has become 'risk arbitrage.' Not nearly risk free trading. So risk arbitrage models that work 'most of the time' in predicting these things, coupled with speed of execution and forward reach of (risky) analysis, can 'mostly' achieve advantage...until they don't, like LTCM(which clearly wasn't 'risk free' trading.) And because of the leveraging pressure, these misses can be astronomically large, which is the flip side of astronomical hits.

And, the specter of disparate and constantly changing real time computer trading models battling each other over millisecond response times to fluctuations in the intelligent guessed at noise sometimes leads to system instability, digital lemmings, and ridiculous rapid fluctuations in prices that bear no reflection to anything real, other than battling computer code executing in real time and making trades untouched by human hands. This barely understood system dynamics problem causes regulators to endlessly reconsider safety valves and automatic trading stops, as crude measures to deal with the worst consequences of this kind of silicone and logic based 'trading.' (It can't be based on real time wetbits because that would be way too slow...)

It's crazy sounding to most people, no doubt. But these traders promised and mostly delivered ridiculous returns. And so, not just moneyed folks, but the managers of teachers pension funds, and so on, were drawn to these managed funds. So when the inevitable rainy day came, and the weather was suddenly not sunny and warm in San Diego, like in 1998/LTCM, it wasn't just a bunch of rich guys taking risk looking for ridiculous returns that were going to take a bath, but potentially, the managers of things like state teachers pension funds. So... they cried to the fed, 'save us.' And the fed responded with at least guaranteed backup if not actual payout that time, but no matter, the concept of moral hazard was born. LTCM was worked out without a Fed payout that time, but we were told in 1998, when the backup was only 3.5 billion, that this was a 'once in a hundred year event.' Not ten years later the actual taxpayer bailout of moral hazard was a trillion dollars or so of actual payout. And moral hazard has latched onto the tribe like a social disease, which is an apt metaphor for the socialization of risk.

At the peak of the miracle Clinton economies, these folks chasing ridiculous returns couldn't have taken a haircut? That 3.5 billion in 'education' was going to ruin those economies?

If not during those economies, then when is market education possible?

How do we unwind moral hazard? We seem to be every day winding in exactly the wrong direction. The Money Masters indeed. That was what was wrong with the Fed; it was abused to ruin our economies. Sure thing, some teacher pensions would have taken a spanking for chasing ridiculous returns, and fund manager heads would have been placed on figurative pikes-- as they should have. And, we'd have long forgotten it and moved on.

Instead, what good was served by teeing up the much larger national disaster which followed just ten years later?

To be clear, at the time, in 1998, a long list of economics academics from top universities signed a statement responding to the administrations report on the LTCM crisis clearly claiming "Don't...stop....no!" and were totally ignored. http://www.luc.edu/orgs/finroundtable/statement99.html

Moral hazard, full speed ahead. Have we learned anything, even in 2011?

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So... they cried to the fed, 'save us.' And the fed responded with at least guaranteed backup if not actual payout that time, but no matter, the concept of moral hazard was born. LTCM was worked out without a Fed payout that time, but we were told in 1998, when the backup was only 3.5 billion, that this was a 'once in a hundred year event.'

The birth was even earlier -- Continental Illinois Bank and the S&L crisis. Arguably, it was even earlier -- Fannie Mae and Freddie Mac were formed or semi-privatized. It just took longer for them to reach crisis.

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We currently have as many people pulling at pump handles as we did over ten years ago..., even though our population has increased. Even with a ton of 'water in the tanks/pipes', if folks are not running uphill and circulating value for value, there is no inflation. There is just poor circulation. WHich means, poor tax revenues.

regards,

Fred

That was then.

Currently, we have as many people pulling at pump handles as we did in 1979. In just 2.5 years since writing that, the number of people who are pulling at pump handles has gone from 'ten years ago' to 'thirty four years ago."

And yet our population has increased in that same time, not decreased.

That is some recovery. Companies that long ago survived the Great Depression are finding it impossible to survive the Obama Recovery.

How long are we going to tolerate government chearleaders putting lipstick on this pig?

If we counted unemployment the same way we did in 2000, the current rate would be reported as near 16%.

Which is why all this government distortion is showing up as inflated stock prices; wages and other forms of inflation are suppressed by the actually high unemployment.

Who are we kidding?

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YOU:If we counted unemployment the same way we did in 2000, the current rate would be reported as near 16%.

ME: Thank you sir. Obama's recovery reminds me of FDR's recovery in the year 1937 when we had a double dip recession on top of the Great Depression. It took a World War to get us out.

Ba'al Chatzaf

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YOU:If we counted unemployment the same way we did in 2000, the current rate would be reported as near 16%.

ME: Thank you sir. Obama's recovery reminds me of FDR's recovery in the year 1937 when we had a double dip recession on top of the Great Depression. It took a World War to get us out.

Ba'al Chatzaf

Well, it took restoration of gradient; war is one way to do that, a negative way, through destruction. Same with natural disasters.

Mankind is at the end of a long term 2D surface based gradient wave; not quite mold on the surface of an orange, but nearly so. That is, for dirt-simple geopolitical gradient. Practical evidence of this; it has been over 50 yrs since America sewed a new star on its flag. The rate of change of stars on the American flag has dropped to zero. The official end of the New World.

The end of dirt-simple geopolitical gradient has practical consequences; Beth Steel at its peak employed over 330,000 Americans. Not so much today. The initial development wave that spread across AMerica has ended. The replacement in place wave is less gradient, more like stasis.

This is a brand new condition in mankind's history; at the very moment our technological range(ability to project command, control, communication, and commerce)has more than circumnavigated the planet, we've reached the end of dirt-simple geopolitical gradient. The broad opportunities once supported by the dirt-simple geopolitical development wave have been -rapidly- replaced by opportunities only in narrow intellectual fields; there are still plenty of opportunities in 'frontiers' but they are increasingly -only- intellectual frontiers these days. The cost of admission is ever more specialized education, and this abrupt change in economic reality has happened way to quickly for mankind to broadly adapt to. It is at the root of our economic problems, from the spreading gulf between the haves and have nots, to the ever dropping participation rate, to the languishing, sick things we call 'the economy' but which are really 'the economies.'

Our institutions of government are fighting the last war with their economic tools.

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^ ^ ^

We might have to actually think our way out of our dilemma.

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^ ^ ^

We might have to actually think our way out of our dilemma.

Are you much encouraged by that as a realpolitik possibility? For years -- maybe since JFK was assassinated -- we seem to be trying to 'hope' our way out of this endgame. JFK's vision of restoring gradient, realized immediately upon sewing that last star on the American flag, has largely fallen flat for five decades. (Why? Sadly, it comes down to Nixon's petty jealousy over what he perceived as JFK's legacy. Nothing much more substantive than that. We spent the last 30 years flying no father above the earth than Washington DC is from NYC, after once having traveled to the Moon.) The new volume based 3D growth paradigm -- the one that we are currently standing on the shore of, staring out at a vast Gulf -- is the obvious new growth paradigm. It's not about moving us all to the Moon or Mars or beyond; it is about restoring -broad- gradient(and this, broad opportunites) all the way from here to mankinds farthest reach. Without mankind's farthest reach, there is no such growth driven gradient to drive economies. The gradients that exist are thus purely intellectual and specialized, ever more tiny niches. Mercury/Gemini/Apollo was not about putting twelve sets of footprints on the Moon; the effort to do that reached all the way back to Bethpage, NY, Huntsville, AL, Los ANgeles, CA, etc., and beyond. The gradient created by that reach beyond our grasp went into our universities and schools.

There is no technical reason that you and I aren't able to go out tonight, look up at the Moon, and show our children the lights of new cities. The political reason we can't inspire our children to look up tonight is because we chose another path, the path of targeting stasis on earth in an endgame. OK, so ask our children instead, "What is it that this nation is doing today that inspires you to look up, to reach?" They will either give you a blank stare, or laugh at you. Shame on us.

On average, we are average. No escaping that fact. Politicians don't need to know how to think, they need to know how to count heads on average. They told us fifty years ago that the pictures from Detroit and Appalachia compelled us to stay and fix our problems 'right down here on earth." OK, fifty years of Great Society have passed, exceeding Mercury/Gemini/Apollo by many orders of magnitude. (We're still living off of that push in microelectronics, etc.) So what have we accomplished? The pictures from Detroit and Appalachia look worse, not better. Stills and drunks are now meth labs and drug addicts. What else have we done to fix those problems 'right down here on earth?'

In fact, our ability to address those problems -- like the energy of JFK's America once did, and not since -- is lacking precisely because we've eliminated mankind's reach and the establishment of gradient and opportunity that reach creates. Our present lack of gradient creates fiscal stess on governmental budgets all the way from federal through state and local, all the way to local school districts and above all, into our individual homes and economies.

Our current glimmer of hope in this area is the incredible work being done at SpaceX and Orbital Sciences; further advances in this area will result not because of the forward thinking vision of our political leaders, but in spite of their total lack of it.

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אויב מיין זיידע האט בריסט ... קיינמאָל מיינונג, מיין זיידע האט האָט בריסט..

?ביסט דו אַ איד

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אויב מיין זיידע האט בריסט ... קיינמאָל מיינונג, מיין זיידע האט האָט בריסט..

?ביסט דו אַ איד

בלויז אין גייסט; אויב איך געווען צו קלייַבן אַ רעליגיע, וואָס וואָלט זייַן מיין ברירה. איר קענען נישט קלאַפּן 6000 יאָרן פון הצלחה, רעכט איך טראַכטן צו זייַן וואַלועס (משפּחה, בילדונג, שווער אַרבעטן.) איך באַווונדערן עס ס פלאַך נפּאָן-פֿירמע מאָדעל: איר, רבי, גאָט, מיט רבי ווי לערער, ניט מאָנאַרטש.

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You guys know you're being impolite to us goyim, don't you, or are you planning to take over and dominate us cattle?

--Brant

I don't read from the right, I just fight for the right to fight from the right if it's right--right!?

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You guys know you're being impolite to us goyim, don't you, or are you planning to take over and dominate us cattle?

--Brant

I don't read from the right, I just fight for the right to fight from the right if it's right--right!?

That was for sure impolite, but not deliberately so.

Google:More:Translate, and in 30 seconds, you can have your way with all that.

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Of course 'money is debt.' That is exactly what money is.

I see that from a different place. I regard money as capital, and debt as a lack of money.

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Of course 'money is debt.' That is exactly what money is.

I see that from a different place. I regard money as capital, and debt as a lack of money.

Double entry accounting is like that. It looks one way...when you only look at one account.

You could as well say that a 'lack of money' is a lack of you being owed a debt by others, because you havent toffered a surplus of value to other folks and thus end up holding residual debt (money) in return for that value,owed to you by others who accepted your past value/effort and handed you the paper in return.

Money is also capital -- whether you borrow the money, or others have borrowed from you(resulting in you holding evidence of -their- debt in your hands, which you can now freshly exchange in the economies for value. -- by cashing in the debt you are holding (as cash, current accounts.)

There is debt you hold payable by others (cash is an example), and there is debt payable to others (that you owe.) Both are debt, but what is key is, held by who and payable to who? Cash in your hand is anonymous debt. You can walk up to people who have value or effort that you would like to consume, hand it to them, and they will cough up the value or effort. They are anonymously paying debt by providing value.

If you actually borrow money, you can also that same debt/cash to paydone -your- debt. What you get in retrun is a restoration of your personal available credit. None of us has an infinite amount of available credit, and 330 million times a finite number is still a finite number, although it is a big finite number. So when you or I take on debt, we reduce our available credit-- we consume a finite resource under our control. We have incentive the very next day to go out and create new effort in the economies, to acquire new cash/anonymouse debt that we can use to resotre our available credit.

That is the alchemy by which deferred present value becomes future value. When governed by sane banking principles, it is win-win for all involved. We all at various times in our life are both borrowers and lenders.

regards,

Frediano

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Of course 'money is debt.' That is exactly what money is.

I see that from a different place. I regard money as capital, and debt as a lack of money.

Double entry accounting is like that. It looks one way...when you only look at one account.

I look at my own account because that is my personal responsibility. So it logically follows that it is the personal responsibility of others to look at their own accounts.

You could as well say that a 'lack of money' is a lack of you being owed a debt by others...

I couldn't as well way that because I'm a Capitalist. Only Creditists could say that. Creditists regard debt as if it was capital when in reality it is only their own lack of capital. The widespread insolvent delusion that credit is capital is what caused the crash of 2008. And that crash was simply a return to the reality that only capital is capital.

The Creditists got slaughtered in the collapse... while the Capitalists continued to consistently prosper.

Greg

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Of course 'money is debt.' That is exactly what money is.

I see that from a different place. I regard money as capital, and debt as a lack of money.

Double entry accounting is like that. It looks one way...when you only look at one account.

I look at my own account because that is my personal responsibility. So it logically follows that it is the personal responsibility of others to look at their own accounts.

You could as well say that a 'lack of money' is a lack of you being owed a debt by others...

I couldn't as well way that because I'm a Capitalist. Only Creditists could say that. Creditists regard debt as if it was capital when in reality it is only their own lack of capital. The widespread insolvent delusion that credit is capital is what caused the crash of 2008. And that crash was simply a return to the reality that only capital is capital.

The Creditists got slaughtered in the collapse... while the Capitalists continued to consistently prosper.

Greg

I agree, funding spending from savings/sweat equity always puts you in a stronger position. And, not what is taught in business schools, which amounts to 'Go find fools and risk their savings, not yours.' Or leverage via debt to fuel maximum growth. But that theory discounts a fact of human nature; we are far more focused in our efforts when we have our own skin in the game. It is painless to risk OPM. Modern business school ethos doesn't acknowledge that calculus. They talk instead about 'stakeholders' and whatnot. Total nonsense. Hard to imagine a more efficient means of bringing the greatest economies on earth to a grinding halt than half the crap taught in our left wing over-run 'business' schools. As if by design...

You offer value in exchange for value-proxies. (Unless you are a 'Barterist.') You receive value-proxies in the form of spendable cash. When you spend those value-proxies, folks hand over actual value or effort-- as if they accepted your cash as anonymous debt/demand on their value. If you earn more than you spend, you end up with a surplus of value-proxies, representing anonymous debt held by you(not owed by you-- owed to you, anonymously, by the economies.) If you spend all you earn, you end up with no surplus of value-proxies. Nobody owes you anything. And if you spend more than you earn, -you- must be in debt(be a 'creditist.') and you owe the economies.

When you defer spending all your value-proxies, you have a choice as to what to do with the balance in the future. You can choose to spend it later, and you have a choice. You can spend it on consumer items(making you a 'consumer.') or you can spend it on things that will help you create new value (capital). Making you a 'capitalist.'

But that is true of money that you borrow, as well. You can spend that borrowed money on consumer items, or you can spend it on things that will help you create new value, on capital. So even, not all debt is equal in its effectiveness in turning present value into future value. Debt fueled consumer spending is not equivalent to debt fueled capital spending...is not the same as deferred spending fueled future capital spending (paid for by past pulls on the pump handle/savings vs. future pulls on the pump handle/credit.)

But even as an individual who takes on debt for capital spending, you have incentive to actually create future value(to pay off debt and restore your available credit or even just stop paying future value as interest.) This is why private debt is not equivalent to public debt; nobody in the world wakes up the day after taking on public debt with an incentive to do anything at all.

Cash is anonymous debt, created by offering more value than consumed. If you look in your wallet and find any dollar bills, the economies are in debt to you(owe you value.)

Cash is not anonymous debt you owe; cash is an anonymous debt owed to you. There is no such thing as unary debt there is always an entity that owes debt and an entity that is owed debt.

But you need to account for all your accounts in total; if that cash in your wallet is a result of your own debt, then at most it is a wash. You can use that cash to pay off your debt-- getting you back to '0' -- but you can't do that and also spend it(on anything-- consumer or capital goods.) It is one or the other.

When the government is not jacking with the money supply, cash is a locally nearly 'incompressibly' form of valye proxy. Cash is nearly 'risk-free' as a value proxy. (I wish.) At least over the very short term, because in fact the government is jacking with the value of money.

Over the long term, there is another alternative for cash/spending. It can be converted into an equity -- a 'compressible' form of value proxy, one with future value subject to risk/reward. The value of the equity in the future might go up or down, and in the meantime, it might pay dividends over time, as well. It is a means of modulating exposure to risk/reward. But when cash is converted into an equity, cash/debt doesn't dissappear from the economies; it is simply transferred from the current account of the equity buyer to the current account of the equity seller, at the current equity price scored in dollars.

In the old days, this used to be about funding capitalism(fueling the engines that create future value.). In the modern era, both the government as well as the financial 'industry' focuses almost exclusively on the value-proxies and gaming the various value-proxy exchanges; 'capitalism' is for the glossy brochures and sales pitches and the few remaining fools struggling to take actual risk and create value in this tribal C.F., unaware that they are the only folks actually keeping the entire card game afloat.

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I agree, funding spending from savings/sweat equity always puts you in a stronger position. And, not what is taught in business schools, which amounts to 'Go find fools and risk their savings, not yours.'

Yeah, I don't consider that to be Capitalism, because it's not actually making any money. It's just betting in a zero sum win/lose casino where one person's gain can only come at another's loss. And just because lots of people do it, that doesn't make it morally right.

There are only two basic win/win actions that actually create wealth. Produce useful products for others, or do useful services for others.

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I agree, funding spending from savings/sweat equity always puts you in a stronger position. And, not what is taught in business schools, which amounts to 'Go find fools and risk their savings, not yours.'

Yeah, I don't consider that to be Capitalism, because it's not actually making any money. It's just betting in a zero sum win/lose casino where one person's gain can only come at another's loss. And just because lots of people do it, that doesn't make it morally right.

There are only two basic win/win actions that actually create wealth. Produce useful products for others, or do useful services for others.

That is correct in the steady state. Making a product adds to wealth. Performing a useful service adds to wealth.

Getting started purely on savings is not so easy. Borrowing can give one a kick start and succeeding in the business can rapidly pay back the load after which it is gravy city.

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