Frediano

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. 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.

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

32 years in South America...then, you are well familiar with 'El Bite.' Did some business with Brazil, through dealers, if I remember correctly, for a non-existing nuclear weapons development facility in their jungle. (It was all weather-wienie stuff, nothing at all to do with anything remotely security related.) Brazil is very protective of its interests and domestic capabilities. Also...Argentine Navy, Chilean Navy, Chile/CODELCO copper mines, Chile MET Service, Uruguay, Venezuelan Air Force. South American L/Cs were very reasonable, and also very adamant, in writing usually, that there was no such thing as 'El Bite.' Or nuclear weapons development facilities, for that matter. I normally sold into South America by way of a US dealer, an old pro, specializing in exporting tech to South America. I seem to remember RIGGS as being one the correspondent banks that kept cropping up for South America, but that was mostly in the 90s, before they stepped in it. South America seemed so much more cultured about its formalized corruption than the US. It was gentlemanly and mostly reasonable. Sort of like the US and its firm Cuban trade embargo. I sold a system in the early 90s that ended up at the Havana airport, by way of a Canadian dealer, and it was a lawyer at the Cuba Desk at the US Dept of State that laid out the blueprint for me of precisely how to legally get that system to Havana. It's good to read that 'capitalism' is freshly coming to Cuba. regards, Fred

MAXIMUM AVAILABLE CREDIT There is an interesting concept. What is the maximum DEBT that is reasonable for an entity to assume? The CEO of FED EXP had some interesting comments regarding this. He, as the CEO of FED EXP, is subject to a set of banking/lending rules that says his MAXIMUM AVAILABLE CREDIT is based on 15% of his companies asset value. He is actually buying planes from Boeing and employing a ton of people and operating facilities all over the US. However, there are some markets where the self awarded leverage rules are more like 5000% than 15%, and that is precisely, exactly where the concept 'money from nothing' comes from. Those are the purely financial markets, which have long been disconnected from the game on the street. Those are the markets that have long disconnected from the value for value marketplace, and have focused exclusively on gaming the value-proxy marketplace, as an end in itself. "Financial services" as carcass carving, not beast building, 'serving' only itself. Staring at the scoreboard of a game played only by others, and making the game all about betting on the game. Healthy economies once tolerated a certain amount of that, and yet struggled to run uphill in the value-for-value economies. As long as that occurred to a sufficient enough degree, focusing on the value-proxies marketplace was an irresistibly attractive thing to do. Because, indeed, unless one is going to eat or wear value proxies, in the end, it is only value that matters, and somebody somewhere better still be struggling to run uphill and create actual value, or all those gamed value-proxies have only heating value in some future MadMax world. Yet, nobody wants to actually break a sweat and risk their own skin in the game when it is yet possible to comfortably place bets on the scoreboard using OPM and 5000% leverage 'rules' and shower daily in a waterfall/tsunami of OPM. The old-school reason for being for the equities markets was a means to raise capital for the game, by offering the incentive of shared risk/reward in a form that could be individually self modulated. But, the evidence is in, our economies speak for themselves. That marketplace has long become just Las Vegas. The current 'crisis' is the bones beginning to show on a far too long carcass-carved once beast. Too little beast building, too much carcass carving. And, much of this enabled by a too corrupt blending of cozy crony deals with the guns of state. Sep 1998. Near the peak of the Miracle Clinton Economies. LTCM. A handful of people-- including possibly a blowback onto the fund managers for teacher pensions and so on, in search of fantastic too good to be true 'returns' , are about to take a haircut when it turns out that the weather in San Diego one day wasn't always sunny and warm. At the peak of the economies, we are quietly told that the fed must provide a 3.6 billion backstop, because of 'systemic risk.' Because, indeed, after the haircut, there would have been significant requests for heads on pikes, and to the folks whose heads would have been on those pikes, it was a 'crisis.' We were told that this was a 'once in a hundred year event,' and it was necessary to 'socialize risk' in order to 'save the system as a whole.' The Magic Keys to the 'systemic risk' kingdom were discovered, and a confluence of interests erupted. The tribe was going to tolerate this nonsense, and so, the carcass carving shifted into high gear. Ten years later-- not a hundred years later -- the bill was a trillion or so dollars, and the arguments have been identical during down economies; more KoolAid. Main street -- in shock this time, and freshly paying attention, finally senses something is wrong in those markets, that our political class has gone insane. The current 'crisis' both on Wall Street and in Washington is, a sense that the gig might be up. I wish, no more KoolAid. And yet, by all appearances, it is KoolAid to the max.

Having wrestled with Letters of Credit from Bangladesh, Chile, Argentina, Qatar, the Phillipines, ... I appreciate your vision of the role of correspondent banks. Not high finance, though. I've been operating in the cracks as a US "S" Corp, since 1983. I've designed, manufactured, sold, installed satellite groundstations all over the world, for US and foreign military, met services, but the reality of export is wrestling with L/Cs. That, and a well placed Caymans corp(fully disclosed.) Most challenging are any former colony of the British; they get their vengeance and release former colonial rage via convoluted L/Cs. I've been out of that for a few years now, I've been strictly consulting. But it was a fun 20 years or so. No rush, discuss this topic when you get a chance. There is no time schedule, I just find the topic timely and interesting. regards, Fred

The implications in these theories are that banks 'create money from nothing' -- including fractional reserve banking -- and then in some way pocket the money and spend it in the economies. I don't see that, even with fractional reserve banking. Assume a 10% fractional reserve number. Consider that individuals have just 4 accounts: "CASH" "AVAILABLE CREDIT" "CHECKING/SAVINGS" "DEBT" They receive CASH as a result of value-value transactions in the economies. They pull on pump handles. Consider that BANKS have just 3 accounts: "CASH" "ASSETS/NOTES" "LIABILITIES" When an individual deposits CASH in a bank, the following happens: His CASH account goes down, his CHECKING/SAVINGS account goes up. At the BANK, the CASH account goes up, and so does the LIABILITIES account, by the same amount. Someone else in the economy walks in and borrows money from the bank. What happens? That individuals "AVAILABLE CREDIT" account drops. That individuals "DEBT" account goes up. That individuals "CASH account goes up. (I shouldn't confuse double entry bookeeping; the above is equivalent to saying that our personal DEBT accounts have a maximum value, that is our maximum available credit. "AVAILABLE CREDIT" is just our current unused possible DEBT account. So, really, there are just two accounts, and AVAILABLE CREDIT is just a report item.) At the Bank: The CASH account drops. At most, 90% of what was previously deposited is available to lend. The ASSET/NOTE account goes up. The LIABILITIES account has not changed. Where is the 'money from nothing' available to the bankers? If there is a run on the bank, they can take their ASSET/NOTE and sell it to another bank, or even, a central bank, for which they receive CASH to meet their LIABILITY. When they do that, their ASSET/NOTE account goes down, their CASH account goes up. Then they meet their LIABILITY -- the run -- with the required cash. How does the bank (as a commercial entity) make any money at all so far? Only from fees, for check handling, for financial advice, for safety deposit boxes, for loan processing, etc. The above is pure static analysis. It doesn't include the effect of 'over time.' What happens 'over time?' The bank 'pays' interest on interest bearing accounts. It also 'receives' interest on loans. It makes a profit on the 'spread' between interest bearing accounts and loans. But it is not making money (as a commercial interest) by 'creating money from nothing.' Not even, fractional reserve lending. When it conducts fractional reserve lending, it's books still balance. It's liquid on demand CASH account drops, but it accepts an ASSET/NOTE equal to the amount loaned. Interbank transactions of CASH for NOTES is clean accounting, all the way, in theory, to a central bank. It's true that a central bank might(if it had no actual cash reserves itself)simply 'create' an accounting entry out of thin air to hand out, but the flip side of that it, it is accepting a NOTE that it can do nothing with but sell back. Why would someone want to buy back that NOTE? Because it represents someone's commitment to pay interest over time for a loan. The note represents a demand on that future income stream, in excess of its face amount. It pays 'interest.' It is one of the ways that banks make money, by managing and accepting the risk of offering credit. (By the time the transaction occurs at the fed window, it isn't actually 'your NOTE' that is handed over; it is an interbank NOTE. Along the way, notes have been bundled and rebundled, they aren't individually being handed around all the way back to the fed window. But, they've been repackaged -- hopefully using sound accounting/banking practices-- another process that is ripe for gaming and shedding risk and corrupting the banking system.) "the fed" participates by being the holder of notes of last resort, but unless there is 'leakage' in the central banking system, does not directly participate in the economies. (It can't, for instance, create money out of nothing and assign that to its own current account, as a commercial entity. But, it can do that in exchange for holding a note. It is the holder of last resort for the form of note that it ends upholding, in its role as a central bank. In that role, it holds 'nothing it can spend' and hands out 'nothing it can spend.' It is acting, purely, just like a boiler-feedwater valve. It can let 'new' water into the system, which ends up in some other entities spendable credit tank. Or, it can bleed excess water from the loop(and just hold it until it needs to add some again later.) That is what a 'central bank' does, in theory, and it is OK if it charges bank fees for that service and even makes a profit for doing so. There is plenty of room to game that concept as implemented, but there is nothing inherently wrong with the concept. The 'risk' in the fractional reserve lending scheme is the quality of the NOTES/ASSETS that the bank accepts, to back up that additional credit. Remember, nobody has infinite credit -- it is consumed, as 'debt' increases. Also, not everybody has the same available credit. We rely on smart banking practice to keep that market clean. When it is gamed with bad NOTES, then those ASSETS are not really ASSETS. But, neither fractional reserve banking, nor the seeming magic that goes on at the fed window, has any direct bearing on the operation of banks as commercial entities, whose revenue streams depend on interest spread, fees, and financial services/advice fees. (And, maybe, a little hard to detect 'float' on processing checks and deposits and 'availability of funds'...) Where banks supposedly earn their keep is in how hard they sniff at those loan applications, because the health of the fractional reserve banking systems depends on the health of those NOTES as actual ASSETS in lieu of holding CASH as CASH deposits. When the government inserts itself into that banking process with half baked social experiments(characterized as 'what keeps poor people poor is lack of access to easy credit'), and then inserts its fat fingers into banking and lending by providing the implicit backstop for 'mortgage backed securities', and then the sharks come running for a few years, salute the flag, and thrash the waters with all those mortgage app fees being processed by the pitchfork load while they are doing God's work and socializing risk, that is real concern. Much more so than fractional reserve banking. What made me uneasy about the documentary, although I thought it was interesting, is that I saw in it the retelling of past political arguments as current historical facts. Imagine if historians a hundred years from now were to excerpt political discourse from today, and then quote it in the future as 'historical fact.' So, although it was interesting and thought provoking, I kept reaching for cum grano salis. But, just a little, not a lot. I bought most of its argument, except for the 'solution.' The solution, as best as I could fathom it, was to 'print US Treasury Certificates' as cash, pay off the national federal government debt, and then force banks to eat the resulting inflationary pressure of doing that by raising reserve requirements. So, banks would no longer be able to act as banks and loan depositors money (those with current excess present value) to credit seekers (those with current deficit present value) and 'make money' on the spread for managing the hookup between those two groups. In that world, in order to make loans, banks would be restricted to loaning only investors capital for that purpose. Or, from money that they, themselves, as large discountable commercial entities, have borrowed at a lower rate, for the purpose of lending it out in smaller amounts at a higher rate, with more unit fees. (How is that different than 'fractional reserve lending, on an accounting basis?) Their incentive to accept deposits and pay interest on demand accounts would be much less. Their fees would go up, their paid interest would be far less. Their overall appeal as investments would certainly be less, they'd probably find it harder to raise capital at risk. In essence, a massive one time taxation of just banks and bank investors operating under the current rules to pay for the entire national debt. Do we think we could do this without just closing down hundreds of banks in America, or severely displacing banking in the nation? When the documentary was filmed, maybe this was more doable. But no matter when this happened, I think the government could do this at most once. The month after this occurred, the government is going to freshly want to borrow more money. From who? From lenders who will have forgotten that the government might someday payoff this fresh debt with newly printed paper-- literally 'money from nothing?' The precedent will have been set that the government simply prints money and spends it. Then what? Do we insist on greater than 100% reserve ratios, to absorb the new inflationary pressure? Maybe the 'then what' is, we will have shut the door on the federal credit card. Maybe that's not such a bad idea. That is for sure one way to severely cut the size of government. regards, Fred

Fred, I do remember the argument that if ALL debts (meaning throughout ALL of the economy) were retired, there would be an enormous hole left over in the currency from the interest. Michael "Interest" does not leave any hole, much less, an enormous hole. The concept of flow-of-money-over-time is getting confused with money-as-static-water-in-the-pipes. Please take a look at one of the diagrams in the PowerPoint referenced in my original post, of the pump-turbine model. "Interest" is not part of static accounting, of assets/liabilities/debts. "Interest" is firmly routed to the concept of 'over time.' Just like your income is not a static pile of dollars -- it is a sum of the flow of money out of your personal pump station over a period of time, so is 'interest' not a static pile of dollars. It is that fraction of your income flow that you devoted, over time, to paying back into your personal credit tank, an additional amount above your once borrowed and long ago spent current accounts. You pay interest the same way you generate income -- by pulling on pump handles, by circulating flow of dollars past your personal pump station. Interest is the number on a flow gage, just like income is. You and I and everyone don't work all year, and then on the last day of the year, all get handed a pile of cash that represents our yearly income, from which we then pay all of our bills, credit charges, and interest. We pull on pump handles all year long. We divert some flow to pay our taxes. We divert some flow by spending some. We divert some into our static savings tank. We divert some flow into our credit tank, as interest plus principle. We can easily pay interest, by pulling on pump handles and circulating flow. (Actually, the integrated output of that flow gage.) And when the integrated output of that flow gage has reached a certain value over time, in the future, then we will have paid back interest-- and there is still the same amount of water in the pipes. No 'hole.' regards, Fred

Fred, I just started reading your post and stopped right here to make a comment. Could you provide a quote for this? I don't have time to go back over all that again, but I do not remember this argument being made. So a quote would be helpful. I do remember the argument that if ALL debts (meaning throughout ALL of the economy) were retired, there would be an enormous hole left over in the currency from the interest. Michael I was responding to the claims made in "The Money Masters - Part 1 of 2" between about 1:20 and 1:40. "Debt" and "[federal]government debt" and "paying off the national debt" are being conflated there. As if treasury bonds/federal government borrowing was the same concept as fed/central bank action in creating the base money supply. (They may be transactionally related in our specific implementation to too great a degree-- federal government as debtor may be one of the larger folks walking up to the fed window, but they are not exclusively the same thing. We -could- pay off the federal government debt, and could still have a base money supply via the fed. The federal government as debtor is not the only transactor at the fed window. A totally separate(and legitimate)issue is the degree to which the federal government has actually "monitized the federal government debt." That is clearly not the only way for the federal government to borrow money. (They could sell bonds to the private sector, for example, instead of to the fed window. Folks would transfer current accounts from their savings/checking/mattresses and assign them to the federal government in exchange for a bond. Like 'war bonds' in WWII.) Please don't over-read my criticism. I am addressing the concept, not the current national implementation. There may be significant defects in our specific implementation of the concept of a central bank, but those defects are deliberate flaws in our implementation of the concept of a central bank, not inherent features of the concept of a central bank. Private credit is not nearly the same thing as public credit. Private credit is current account spending today in exchange for claim on value created in the future, on the same entity as borrower and repayer. Public credit is current account spending today in exchange for claim on future taxes on others that will create value in the future. Private credit, in a sense, is a personal stimulus of future value creation(to personally repay credit.) "Value" is consumed in the present, but personal incentive to create value is also projected into the future. Public credit is a kind of de-investment in those future economies; "value" is still consumed in the present, but all that remains in the future is the increased public obligation. Where is the incentive in the future? It is strongly decoupled from the economies, in a mirror image to how easy it is to accept public debt to begin with. We don't wake up in the future, freshly invigorated to 'pay off the national debt.' We may well do so, to pay off personal debt. As such, on several levels, public credit is a kind of 'de-investment' in future economies. The flip side of this is 'savings.' What government savings? Local school boards capital accounts, maybe. That's it. There is only private savings to balance the inflationary pressure of the sum of all private and public credit. regards, Fred

Michael: This topic looks like it languished. But it is an important topic. I've seen these before, and I have to take exception to some of what is offered. I think there is a lot of misunderstanding about the relationship between 'debt' and currency/money. There are two ways of thinking of currency/money as 'debt' and both are true. (The simplest is, the cash in your pocket are IOUs for past value offered to the economies; the economies 'owe' you value, as represented by those value-proxies. They are deferred current income, given to you as an IOU for value offered, so that you didn't have to carry around your personal pump station and bolt it directly to other's turbines/barter.) Of course 'money is debt.' That is exactly what money is. However, it is not true that if we retired all federal debt, there would be no currency/money. "Retiring federal debt" means, a transfer of current accounts from the federal government as borrower to the current accounts of federal government lenders. This is accomplished by(in the government's case)application of future tax revenues -- a moving stream, money in motion -- to those debt accounts. A transfer of current accounts, not a destruction of anything. Federal debt is not the same as 'fed total base money supply' -- the sum of all the notes that the central bank ends up just ... holding. In the case of monetizing the debt, the federal government is still creating an obligation -- a future obligation to pay, a bond -- that the 'fed' still ends up just holding, in exchange for manufactured base money supply. It is not 'money for nothing.' It is 'money for future obligation' -- in this case, a future obligation of citizens to pony up fresh new taxes(or borrowing.) It definitely has consequences. It is not(or should not be)unlimited credit. What is potentially confusing is that, _new_ debt is the mechanism by which _new_ additional currency is added to the system(like the boiler feedwater valve in a system of circulating water.) As long as the central bank does not directly participate in the economies, and is simply the holder of the note of last resort, that is, it holds 'nothing' -- a note that it cannot spend -- in exchange for 'nothing' -- currency that it can only use to 'buy' these notes which it can only hold or exchange for currency+interest, and not directly spend in the economies, then the underlying economies are not perverted. As long as the resulting 'new' current accounts are balanced at each transaction level by sound accounting/banking principles and limited (not unlimited) credit principles, then the simple fact that there is a central bank does not necessarily in and of itself corrupt the economies. The central bank can even charge and collect fees for its service, but as long as it does not directly 'spend' the current accounts that it creates 'from nothing', and only accepts 'nothing' in return, then the economies are in accounting and economic balance. Where does the _new_ current account go? It ultimately goes into a borrowers credit 'tank'. That is where 'new' currency in the economies shows up. When this is 'new' money supply, this is where the boiler-feedwater valve adds the new 'water' in the system. In the (limited) credit tanks of an individual entity with an a new credit obligation. But once added tot he system of circulation, this 'new' current account doesn't necessarily leave the system, even when the borrower pays back his credit(by pouring current accounts back into his credit tank, as opposed to draining it when it is created/spent.) As long as these are not the government's credit tanks (spendable in the economies), and are 'filled' using sound banking practices and limits, the economies are not corrupted. Ditto the 'interest' charged by the fed -- as long the fed and/or government doesn't actually spend that interest. (In this last regard is how our implementation of a central bank might be a little funky. The central bank should simply add such interest to its debt holder of last resort current accounts, and make it freshly available the next time a bank/borrower shows up at the credit window with a note. In our present scheme, this interest, or some part of it, can end up being spent by the federal government. This is 'leakage' in our implementation of the concept of a central bank. (The fees charged by the fed for services are not value leakage, they are value for value.) What is key is, when federal government debt is paid off(as opposed to base level money supply debt held by 'the fed,' not the same thing), current accounts do not disappear; they are transferred between debtor(the federal government) and debt holder. It is true that 'the fed' could not retire all of its held notes, or else the base money supply would disappear. (Why would such debt be retired? Because a bank is paying interest on that debt. But, banks stay in business, and new credit is offered, and new notes replace old notes. The fed controls the current total base money supply by easing/prodding drag on this mechanism of note retirement and accepting new notes. But the base money supply is not the same as 'the federal national debt.' 'The federal national debt' is money that the federal government has borrowed from future tax revenues and spent in current economies. Because of the fractional reserve scheme, this means that not all current accounts would disappear even if for some reason new credit stopped being offered in the economies and only old credit was retired and eventually the fed held no notes at all representing base money supply. Banks accept the full obligation of deposits, and are permitted by the fractional reserve system to lend out as credit a fraction of those deposits, which creates new current accounts, but new current accounts backed by credit, not 'nothing.' An obligation by others to repay. That fraction also expands the money supply, beyond the base level creation by the central bank, but gain, as long as each level of transaction is cleanly accounted for, there is no corruption of the value-proxy/value economies. The lower level debt transactions are all clean, on an accounting basis. You go to the bank, you don't have infinite credit. You wither apply for a collateral backed loan, or a more expensive unsecured loan, where all users of unsecured credit pay a premium for 'in case crap happens,' Whereas collateralized loans put up collateral for 'in case crap happens.' No entity has an infinite amount of credit, it is limited -- or should be limited -- by sound banking practices. But, your books balance (asset/liability). You are never walking out of the bank with 'something for nothing' and participating in the economies. And the lenders books balance (Asset/liability.) And when the lender sells that asset, the exchange with the next holder of debt is also a balanced transaction. All the way to the central bank, who ... ends up holding the bag-- the note of last resort, which it cannot turn around and do anything with except 'hold'. So in return for 'nothing' -- it offers 'nothing.' But the underlying mechanism is gated by drag -- what are supposed to be sound banking principles a the street level. Entities in the economy do not have unlimited credit, whereas bank to bank and interbank transfers are exchanges of double entry accounting entries, assets/obligations. What is credit? It is current account in exchange for a promise of future pulls on the pump handle-- for value freshly created in the future, that does not yet exist. (If there was only credit, then credit would be an inflationary pressure in economies -- more value-proxies than value in the current economies.) But there is also 'savings.' Savings is 'past pulls on the pump handle.' IOUs representing past creation of value in the present economies, spending deferred. If there was only savings in the economies, then savings would be a deflationary pressure -- fewer circulating value-proxies than value in the current economies. This is a little sobering -- it can be seen that, in some sense, in order for the economies not to be value-proxy/value corrupted, there has to be a kind of balance between 'savings' and 'credit.' This is especially sobering when we realize that there is no such thing as 'government savings'(of tax revenues.) Maybe some local school district capital accounts, but that is it. That means, in some sense, the sum of all private and public credit must in some sense be balanced by the sum of all private savings, or there will be a built in net inflationary/deflationary pressure. Clearly, our economies historically have been credit heavy, resulting in a long term endemic inflationary pressure. The fractional reserve scheme enhances the leveraging of the credit side of this pressure. Thre is plenty of room to 'game' the system above, at several levels, but the concept, per se, of a central bank, even with fractional reserve banking, is not that gaming. It is not at all like a poker game, with a fixed number of value-proxies. There is not just the value proxies in the static savings/credit tanks. There is also the value-proxies circulating in our value-for value economies. The paying back of credit is not an impossible task; it is a matter of pulling on the pump handles in the future, and diverting a fraction of your income to pour back into your credit tank. Even with interest. 'Interest' is not 'new money.' 'Interest' is future circulation of currency past your pump station (income) after taxes. I have a PowerPoint that presents a model of the economies as 'pump turbine' model. If you stop the video on one of the diagrams and ponder it, the relationship between credit and savings and income and taxes and even corporate taxes is apparent -- as is, where the effort comes from to drive all of that.Our focus is too much on the 'value-proxies.' Not value. Value is the results of human beings running uphill. Pulling on pump handles is an uphill human effort. Spending is a downhill human effort effort. Government policy is all about gaming the value-proxy system. It's clear when government spending is fueled by borrowing that it is future pulls of the pump handle that are being spent. The fed, and even fractional reserve banking, is just the mechanism by which the system's pipes are filled with water. The water is added at the private credit tank, but it is(or should be)gated by sound banking practices. The only thing that is important is 'value.' Value-proxies are stand ins, and diligence must be paid at every level to make sure that the value-proxy mechanism is not gamed. There is a side universe based on equities. Cash/value-proxies are like relatively 'safe' incompressible value-proxies, while equities are an alternative 'compressible' form of value-proxy. When cash is created to/from an equity, currency does not actually leave the pump/turbine economies. Current accounts are transferred between equity buyer and equity seller, in exchange for shared risk/reward, a ticket to ride the roller coaster and invest in the future. There is plenty of opportunity to game all of those markets -- the pump stations, the turbine stations, the tax bypass, the savings tanks, the credit tanks, the central bank/boiler feedwater valve, and the equity side markets. And at the heart of all that in healthy economies has to be real people pulling at pump handles and circulating value for value. There are two ways to pull at pump handles in our economies: ROI at risk, and ROI guaranteed. There is a discount taken for working at an ROI guaranteed basis as wages. The ROI at risk folks also pull at pump handles, but do so in exchange for high risk/reward. There is also a way for folks to do both, and to share in the bearing of intelligent risk/reward, and that is the equities marketplace. Individuals modulate how much participation in the risk/reward marketplace they want to personally accept. (And, it is a market fraught with gaming.) But, there are no ROI guaranteed opportunities without ROI at risk. There are no pump stations, no turbine stations, and no tax bypass fueled government spending, without ROI at risk. A play is being made to try and repeal this model, and replace it with one in which all risk is socialized and all ROI is guaranteed. (By whom?) The more we kill the discipline of risk in our economies, the fewer opportunities to pull at pump stations and so on, and the less value circulates. 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. The maximum potential income and taxes is not the total amount of static wate rin the tanks and loop. That is determined by how energeticvally people pull at pump handles and exchange value for value. The water/currency in the loop can circulate as many times in a year as we want. The sum of the water that has flowed past our pump stations in a year is our income. When folks are not pulling on pump handles, then reduced income, and reduced taxes and reduced corporate taxes... The government is currently focused on future tax funded credit based government spending. That is all downhill. Where is the incentive to run uphill and take on risk and pull on pump handles? regards, Fred

I don't smoke because it doesn't give me pleasure. I can only assume Rand did because it gave her pleasure. In the hypothetical of not smoking adding to her life, it is a fact that denying herself that pleasure might have only have extended the end of her life, not her youth or middle. Perhaps she valued the pleasure of all those years of smoking more than she valued 5 more years wearing depends in a home, or being decompacted every 2 weeks. Not for me to choose for her, that's for sure. And when I put it that way, it almost makes me want to smoke. regards, Fred

It is a compelling story. As well, for me, one of the strongest political take-aways in addition to the obvious testimony of her witnessing an out of all control totalitarian alternative, was her pithy observation about the proper role of government in our lives, paraphrased as "We need the plumbing, but we don't live for it. Just because we need the plumbing, we don't let plumbers run our lives." regards, Fred

Thank you. I've read the posting guidelines, please do not hesitate to let me know if you think I've overstepped them. I am not thin skinned, and neither do I want to be an ingrate or overstay my welcome. The most potent miss-step in this medium is the ease with which it is possible to miss-read tone. People take offense too easily, I think, at what they think they read into other's words, expressions of thought. As a species, we all seem to have the gain turned up to max on our defensive radars in this medium, looking for the lions in the grass. I don't know why, but it seems like many do. regards, Fred

A theocracy based on '"S"ociety is God, and the state is its proper church' is no less a theocracy than one based on an alternative Magic Spirit in the Sky. In centuries, even though Christianity was always a majority religion, no serious threat of establishing an actual theocracy in AMerica. In far less than a century, the social scientologists blew past our 1st amendment and are clinging to the machinery of state until their fingers bleed. The GOP is bereft of ideas, the Dems are filled with really bad ideas. That is no choice. The GOP's pandering to the Christian Right was pure politics. A sliver of difference exists between them, only Rand Paul clearly states those differences, and he, like Clark in '80, might pull 1% of the vote. The majority is intent on electing Emperors of the Economies, and insists on referring to them as an it. Little hope until and if the nation starts electing honorable state plumbers, not emperors. We could pull state plumbers from any page of any phone book == just like we do life and death jurors. We could still vette that pool of candidates, and elect a slate of state plumbers. Our current scheme has a bias to select power grubbers from the populace, GOP or Dem. But the horserace is more exciting this way and the current jockeys will never give up the tribal gig. regards, Fred