January 25, 2008
Stimulus: Good, Bad, and Ugly
From the meeting of the world’s elites in Davos, Switzerland to working American voters and their politicians, the economic stimulus plan having passed the House is creating a very positive stir as Americans look forward to getting some cash back from their taxes. Stock markets around the globe rebounded. The hope is Americans will rush out and buy American made products and American based services, and businesses will apply their kickback to hiring more employees. Sounds Good! But, is it?
The Bad! - This was an immensely compromised proposal. Economists from Bernanke to college professors were in almost unanimous agreement as a result of previous research, that economic stimulus is most effective when injected into the population which will have the greatest propensity to spend it all on consumables and services. The reasoning being that such a massive expenditure will create demand for business products and services, and in turn prevent rising unemployment, which would slow the economy and consumption down, even further.
The 2001 tax rebates didn't have the all the oomph! in stimulus politicians had hoped for. The reason is that many of the Middle Class instead of going shopping, used the funds to pay down their credit cards. No stimulus effect for employment or business from that. But, here, the politicians are agreeing to make the same mistake. Part of the compromise was that Democrats would drop their call for increases in food stamps and unemployment benefits.
There is no question, food stamp recipients and the unemployed would have been the most likely group to go shopping with the funds of the stimulus package. It's not clear why Republicans insisted these people be dropped from the stimulus, but, a few guesses are readily available. Increasing food stamps would increase eating, and poor people are already the most likely to be obese. And the unemployed would be less motivated to seek reemployment, if their unemployment benefits were extended. Clearly however, such rationales, even if true, undermine the express purpose of the stimulus idea, to stimulate consumer activity in a slowing growth economy.
Democrats in turn accepted Republicans offer to drop their demand for businesses to be refunded taxes previously paid. Which is rational, since the economic slowdown is not a result of business not having enough profits or capital to continue operating. Their problem is they don't have enough customers putting in orders. Yet, this seriously compromised bill passed by the House, instead provides businesses with $50 billion in accelerated depreciation (tax deductions they wouldn't have been able to claim until later years) with the hope that the tax savings will cause businesses to invest those savings in new plants and equipment. Whether they do, or not, is debatable.
What is clear is that the government is reducing its revenues yet again, increasing the deficit back up to more than a quarter trillion dollars with this $150 billion, hopefully partially effective, economy stimulus plan. Ardent fiscal conservatives might argue it would be warranted if the entire $150 billion were dedicated to stimulating the economy with maximum efficiency, but that is clearly not the case. As much as $80 billion of the package could have no stimulative effect at all on the economy because of credit card pay downs and businesses increasing profit margins instead of productive capacity and employees. That would be $80 billion wasted on purposes never held out to the public as justification for increasing the national debt.
The Ugly! - The ugly truth about this angelic bi-partisan fever that swept over the House of Representatives is that they are all facing reelection in November and they are all attempting to buy votes from their constituents back home. This accounts for the compromises, and the targeting of who will benefit, and who won't. The very poor in this country don't generally vote.
So, politicians could exclude the poorest, and did; despite the fact that they, more than any other group of Americans, would have used the money for the greatest stimulative effect upon the economy, buying food, medicines, doctor visits, and other American based products and services as opposed to imported conveniences and plastic gadgets from China. (Congress refused to require labels on foods imports insuring consumers can't tell if they are buying American or Chinese, when buying Swiss Cheese.)
The Senate has yet to debate and deal with this package. Only about 1/3 of the Senate is up for reelection this year, which means 2/3 won't be as pressured by the election year to rubber stamp the House version of the Bill. Additionally, the Senate tends to be the more deliberative half of the Congress and therefore, more likely to debate the merits and weaknesses of the House proposal as discussed in this article.
Should there be sufficient Democratic and Republican Senators objecting to the weaknesses, so as to avoid public reaction against one party over the other, the potential exists for a better version of the Bill with more stimulative impact and insurance being produced. It would then be up to the Conference Committee to resolve the differences between the two versions of the Bill. And then up to the President to sign or veto it. (Political hint: Anyone believe Bush would veto any version of this Bill which would rescue the economy given the short time he has to create some kind of positive legacy?)
There are a number of potential political twists and turns ahead for this proposal. But, they remain only potential, and hardly guaranteed; as the 800 lb. gorilla pushing this bill through is the election cycle well underway. This was in evidence in last night's Republican debate in which the candidates agreed the stimulus package was a needed start but, that it didn't go near far enough to cut taxes and increase the national debt even further.
One has to wonder why the presidential hopefuls still don't get why the tax cut mantra isn't carrying the public opinion like it used to? They are for the stimulus increased spending but insist on cutting taxes further. Did they not go to public schools with basic arithmetic classes? Apparently not, considering the 3.67 Trillion dollar addition to our children's national debt over the last 7 years.
Posted by David R. Remer at January 25, 2008 11:36 AMDavid:
Thank you for the great post and timely topic. I hate to be a fly in the ointment of this rush to judgment about whether there are weapons of mass destruction, ooops I’m sorry a recessio approaching, but I think before we all launch our invasion, we need to allow some inspectors to do their work. I know the media train has already left and a recession “talk” is a done deal but I have some reservations. That doesn’t mean we wont find a recession but let me give you a few facts to chew on.
1. New unemployment claims are down. Some economist are pointing to figures that could be as high as 75,000 jobs created in january.
2. Inventories are low.
3. Profits are coming in at or above expectatiions. Look at this quote this morning from Jeremy Seigal
Most importantly, although fourth quarter earnings are expected to post a 21.2% decline from 4th quarter of last year because of the debacle in the financial sector, the other nine sectors are expected to report an extraordinary 11.6% earnings gain. There is still much to be optimistic about going forward.
4. Wednesday the head of CBO predicted no recession.
5. Bernanke predicts no recession.
I say these things to bring a context to your well written argument.
There are serious problems in Iraq. The dictator there is very poor on human rights and has proven to invade neighbors. There are reports of WWD that we need to review. Before we commit American troops we are going to allow the UN inspectors to complete their work.
I’m sorry wrong topic. There are serious issues in the economy. There are very serious credit issues that need to be addressed. There are many economists in the media that have said that there are WWD (oops) is a recession pending. (keep slipping).
Before we jump to conclusions we will learn from our experience in Iraq, and withhold judgment until the inspectors have done their work.
Craig:
You mean with Bush pushing this “package”, like he pushed Iraq?
Interesting.
Posted by: womanmarine at January 25, 2008 02:17 PMCraig said: “New unemployment claims are down. Some economist are pointing to figures that could be as high as 75,000 jobs created in january.”
Accurate, but, doesn’t mean hiring will keep pace with layoffs going forward. We will have to wait and see. Certainly, if consumers continue to rein in spending, unemployment will have to go up for domestic customer based enterprises.
“Inventories are low.”
Not in the housing market, nor the Home Depots and the like. Plus, inventories at retailers at the very high end increased in December. Consumption curtailment was across all income classes. Inventories are an after the fact indicator. They may rise, or not, depending on the efficiency of our on-time supply chain management systems.
“Profits are coming in at or above expectatiions.”
This is a most disturbing fact. And demands an answer from politicians, especially Republicans, as to why they are raising the deficit yet again in the name of business when business appears to be doing just fine in terms of profits across most sectors. If they have profits, they have reinvestment capital.
“Wednesday the head of CBO predicted no recession.”
Given the Fed’s dramatic actions and now the stimulus deficit spending, voters had better INSIST there be no recession going forward. Else, what was the point of all this?
“Bernanke predicts no recession.”
Bernanke could not say otherwise, regardless. Spooking the markets is not in his job description. Quite the opposite, in fact.
The gaping flaw in your analogy to Iraq, Craig, is that there is no way of validating a coming recession before it has arrived. It takes 6 months after a recession has begun to have enough data to declaratively state that a recession did in fact occur. Hence, regarding recessions, preemptory actions are generally called for when leading indicators point to a possible recession. Which is what the Fed did and House did.
Posted by: David R. Remer at January 25, 2008 02:35 PMwomanmarine, both parties pushed this, it is afterall, and election year, and each side figured they could score points with their constituents given this shared awareness of an election year by both parties. The Congress would have acted on this with, or without Bush. Bush is along for the ride because if the economy tanks, the last vestige of any positive legacy is gone.
Posted by: David R. Remer at January 25, 2008 02:37 PMAh, but GW “veto” Bush doesn’t have to go along with any of it. He has pushed for this and went the unprecedented mile of negotiating. Something he has rarely done.
David:
The gaping flaw in your analogy to Iraq, Craig, is that there is no way of validating a coming recession before it has arrived. It takes 6 months after a recession has begun to have enough data to declaratively state that a recession did in fact occur. Hence, regarding recessions, preemptory actions are generally called for when leading indicators point to a possible recession. Which is what the Fed did and House did.
I don’t disagree with your comments here. My concern is that the media is not expressing itself at all like you are here. Most americans believe we are in a recession.
I have no problem with a stitch in time saves nine. It is the panic and emotion of fear that I am trying to address.
This actually is a small problem. I think you will probably agree with me at least in part. The problem of the United States financially isn’t what is happening now it’s the future. It’s not the age wave, and it’s not entitlements, but rather it’s health care. Well I’m not saying the other issues are not problems to deal with, I’m saying that the small standing next to health care.
So we are in a routine slowdown, and the fed, congress and the president are on top of it, and their solution is imperfect but in the end it will work. In terms of a threat to our country, it looks like the powers that be have a good handle on things.
As you have done so well so many times, quickly we need to turn attention back to the issue that is a threat. We need to keep the focus on solving the health care crisis. A recession/slowdown isn’t a crisis (unless you are the one layed off). At least it’s not a crisis for the country as a whole. Health care is a clear crisis. It is real and it is daunting.
Your and my disagreement is that I think our government institutions will prevail and solve the issues. You are for a more dramatic approach of removing incombants. Either way, I suppose it doesn’t much matter, as long as the issue gets resolved. $150 billion is peanuts compared with some of the numbers you have brought to all our attention.
Your post is well written and timely. I hope it’s a short lived topic so you can refocus us back on the gorrilla in the room.
What is fascinating is how the larger issue, one of the best kept secrets in America, continues to be hush-hush.
Isn’t anyone a little bit curious why the economists who said the $140 Billion economic stimulus package won’t help if the people don’t spend it, and use it to pay down debt instead?
Why not?
THE GOOD PART: The proposed $140 Billion economic stimulus plan, if people spend it, in the short-term, will buy a little more time, because a time-lag is the only thing preventing a collapse of the PYRAMID scheme.
THE BAD PART: The proposed $140 Billion economic stimulus plan, in the long-term, is like trying to put out a fire by throwing gasoline on it.
The fire is actually growing bigger, and will be harder to put out later.
It is also unlikely that the out-of-control Congress will also cut spending, and the debt will grow ever larger to nightmare proportions, and inflation will increase.
Our monetary system is a PYRAMID scheme, which all collapse eventually.
It is a mathematical certainty.
In year 1950, the M3 Money Supply was $135 Billion.
By 2005, the M3 Money Supply grew to $10.15 Trillion (75.2 times more money in existence).
But, did we all become 75.2 times wealthier? No.
The problem is a result of a fractional banking system in which 90% of every new loan is new money created out of thin air.
But a LOAN = PRINCIPAL + INTEREST
But all money in existence is only PRINCIPAL.
So, where does the INTEREST come from?
The government will try to buy more time via nefarious methods.
One or more of the following must happen:
- (01) create more new money to delay the collapse of the PYRAMID (such as the recent government $140 Billion economic stimulus package in JAN-2008). However, that creates more inflation. Between year 1950 and 2005, the M3 Money Supply increased from $135 billion to $10.15 trillion (that’s 75.2 times more money).
- (02) those with money must spend more money to allow more new money to be created out of thin air (but peraonal nationwide debt is already over $20 Trillion).
- (03) more National Debt (already $9.2 Trillion)
- (04) plunder Social Security (e.g. $12.8 Trillion borrowed and spent out of Social Security)
- (05) plunder pensions (PGBC is $450 Billion in the hole)
- (06) increased productivity.
- (07) increased products and/or natural resources (e.g. oil, steel, etc.) to sell to other nations to bring money back.
- (08) the wealthy share their wealth (not likely to any significant extent).
- (09) increases taxes on the wealthy (but tax the wealthy too much, and they might up and move their wealth and businesses to another country).
- (10) increased productivity via increased population.
- (11) increased productivity via illegal immigration (cheap labor).
- (12) more bank fees (i.e. to increase reserves for more loans),
- (13) reduce taxes to encourage more spending.
- (14) reduce interest rates to encourage more spending (but this creates more debt).
- (15) foreclosures.
- (16) the PYRAMID finally collapses when there is finally too much debt and inflation to delay the inevitable collapse.
- (17) some day, to avoid the inevitable collapse, the government nationalizes the banking system, and the government can then print the money it needs (interest free), and use taxes to remove excessive money (inflation), and use spending to control deflation. And if there is too much of either, the voters will know exactly who to hold accountable. Also, change the lawful 10% usury limits to 0%. For example:
- “The government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the tax payers will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity. - Abraham Lincoln, assassinated President of the U.S.
With the current PYRAMID monetary system, eventually, the debt and inflation will become impossible to deal with (as with any PYRAMID scheme).
We will not be able to create more debt to create more money.
We will not be able to spend our way out of the collapse.
We will not be able to print (money) our way out of the collapse (due to inflation).
We will not be able to immigrate our way out of the collapse.
We will not be able to procreate our way out of the collapse.
We will not be able to increase productivity enough to avoid the collapse.
We will not be able to tax the wealthy enough to avoid the collapse.
We will not be able to untax our way out of the collapse.
We will not be able to maintain exponential growth.
None of this is likely to change as long as too many voters continue to repeatedly reward corrupt, FOR-SALE politicians with 95% re-election rates.
At any rate, the voters will get their education one way or another, and have the government that they deserve.
womanmarine:
Craig:You mean with Bush pushing this “package”, like he pushed Iraq?
Interesting.
Actually, not quite. More accurately, I think the current hysteria over a possible recession illustrates to all of us a part of how Iraq happened.
The actual data about the imminant future is mixed. you cannot have low initial claims of unemployment and recession. can’t happen. In addition, you can’t have low inventories and believe a recession is near. It is very hard. At the same time there is of course all of the negative news that is real from the financial companies. The information is like it was before we went into Iraq. (mixed).
Look at the media!! the obvious impression from the media is that we are in recession. In addition there is pressure to conform. There is a rush to judgment just like Iraq.
We need to learn to hold our fire a bit longer. We need to not get on the train so quickly and “let the inspectors do their job”.
Bush is not pushing recession right now, so that part is different. I am saying that the current hysteria over a possible recession gives us a clue into why our nation was led into Iraq. We are seeing a process that is not unlike the war build up.
We may enter a recession. I’m not getting on the first train out of town. I’m going to let the inspectors do their job.
Posted by: Craig Holmes at January 25, 2008 04:14 PMSupposedly it will be “good” if people go out and spend it…every poll I’ve seen puts 47-50% of people putting the “rebate” into their savings account…up to 40% of others will be using it to pay bills that have already been accrued by purchases…doesn’t look like there will be any consumers providing economic stimulation…
My “rebate” is going straight into the bank.
Posted by: Rachel at January 25, 2008 05:06 PMRachel:
Good for you!!!! I would expect the economy to be doing better by then anyway.
I think the main benefit to this stimulus package is a confidence builder than the fed, congress and the pres can work together.
Look for an unexpected positive surprise. The current emotion doesn’t match the facts. It will take a clear postive fact to get people out of their herd mentality and thinking again.
It might be the jobs report due out in a couple of weeks. there is every indication that we should get a good job report for January.
Posted by: Craig Holmes at January 25, 2008 05:49 PM“My “rebate” is going straight into the bank”
Wise move, you’re going to need it, and a whole lot more, to help offset the enormous taxes you will be paying in the very near future.
Posted by: kctim at January 25, 2008 05:54 PMSince tax season is already upon us wont a lot of us be getting tax refunds between February and May? The current plan for the “rebate”(which I guess is for the ‘07 tax year) is to start mailing them between May and August. Seems they could wait on the whole plan until mid year without to much problem or mail the rebates out with the refund checks.
Posted by: j2t2 at January 25, 2008 07:00 PMWise move, you’re going to need it, and a whole lot more, to help offset the enormous taxes you will be paying in the very near future.Yes, a whole lot more.
Maybe not this year, or next year, but eventually, when we can’t borrow, spend, tax, immigrate, procreate, and tax our way out of the the eventual collapse of this pyramid scheme.
Yet, President Woodrow Wilson destroyed that with the Federal Reserve Act in 1913, which put the international banking cartel in charge of creating the United States’ money. Later, Woodrow Wilson stated:
Isn’t there something strange about the President and many economists telling us to spend, borrow, spend, borrow, and spend some more?
I just heard one economist say a very smart thing (paraphrased) a few minutes ago: “Perhaps we should take the recession now, rather make the problem bigger later” ?
Hmmmmm … that’s liable to make some bankers and government flunkies angry, such as the likes of David Rockefeller who stated:
Craig Holmes wrote: It might be the jobs report due out in a couple of weeks. there is every indication that we should get a good job report for January.
Never mind that the replacement jobs pay less than the previous jobs. Several companies are reporting that they are planning job cuts.
And this states unemployment in the United States rose sharply last month (DEC-2007) and government figures released late Friday show the number of new jobs was at its lowest level in four years.
Still, one or two statistics doesn’t tell the whole story.
Posted by: d.a.n at January 25, 2008 07:45 PMCraig said: “I have no problem with a stitch in time saves nine. It is the panic and emotion of fear that I am trying to address.”
Well, the panic was in no small part brought on by the Fed. Reserve’s 3/4% interest rate cut, not seen in more than a quarter century. And done in an emergency meeting, no less. And that meeting was called because some crook stole 7.2 billion dollars from a European Bank, making it appear to the FED, that the global central banking system was far worse off as a result of the sub-prime mortgage spill over into the banking sectors. (Actually, when you think about it, the banking system is still shy 7.2 billion, the reason changed is all.)
“This actually is a small problem. I think you will probably agree with me at least in part.”
I will tell you whether I agree or not in 6 months. This could have been a catastrophe headed off by the prompt and steep actions, or it the data may show this was not an economic earthquake, just a heavy laden Wal-Mart semi rolling by.
“Bush is not pushing recession right now, so that part is different. “
Yes, I loved Bush’s speech. ‘The economy is strong, that is why we need emergency stimulus and the sooner the better.’ Typical illogical, thoughtless Bushism.
“I’m not getting on the first train out of town. I’m going to let the inspectors do their job.”
I am with you. And the stimulus, for the diluted effect it is going to have, could have cost half as much if politics had not gotten into the formula. The economic impact of 1 extra food stamp dollar was $1.73 in new economic activity. The economic impact of 1 dollar of business incentive, a whopping $0.23 of additional economic activity generated, perhaps, at best, $0.32.
Posted by: David R. Remer at January 25, 2008 08:51 PMCraig, I agree the long term structural threat to our economy is unfunded entitlement mandates.
Dramatic drops in GDP growth however, which may portend recession is a real threat. Recessions have a natural tendency to become vicious downward spiraling cycles. Recessions are to be avoided, or made very short lived, so that they do not create other long term structural threats like years of deficits fighting them.
I also agree, this sub-prime mortgage bubble should not be allowed to become a recession, or pop the credit card industry bubble, so that we can indeed get on with addressing the long term structural economic threat to both economy and 10’s of millions of American’s quality of living.
Posted by: David R. Remer at January 25, 2008 08:59 PMDan:
I understand your point. We did have one month of weak data. We had the same thing in September. It was revises away. Data goes through several revisions until they get all of the data in.
One months data needs to be confirmed with other data. Right now the other data is making those numbers look like an anomaly. Initial jobless claims going down is inconsistent with the figures you site.
To this data there is no evidence of a recessionary trend in the employment data.
The trend which are more like three month numbers show a slowdown.
Posted by: Craig Holmes at January 25, 2008 09:01 PMkctim said to rachel: ‘Wise move, you’re going to need it, and a whole lot more, to help offset the enormous taxes you will be paying in the very near future.”
I don’t think rachel is one of the wealthiest 1 or 5% who need to fear higher taxes from Democrats, kctim. Or, are you doing the Republican scare tactic again? Sorry, but it has all the spook of the Dumb little Casper the Friendly Ghost, these days. That wolf cry recording has been heard hundreds of times too often to be taken seriously anymore.
Posted by: David R. Remer at January 25, 2008 09:08 PMd.a.n, in a very real sense, the instant one introduces a non-commodity based currency, a pyramid standing on its apex is created. The reason our pyramid doesn’t fall over is because the right and left bases of our pyramid are resting point to point against the inverted pyramids of China and Saudi Arabia, India, and Japan. Which in turn have their bases resting against the bases of Russia, Malaysia, Taiwan, Indonesia, and Australia. Which in turn are building inverted pyramids in Eastern Europe, Africa, and S. America.
The interesting twist to this house of cards is that America’s pyramid may be the first to fall, but, we are so packed together that none of our neighbor’s pyramids will crash to their side like ours, they will only tilt and lean on ours laying on its side. Ours may be the only one to fall over completely for many decades. China, India, Russia, and Japan may just be able to keep the rest of the world’s pyramids fairly balanced on their apex. We’ll have to wait and see.
Posted by: David R. Remer at January 25, 2008 09:18 PMAnd the likes of China will make sure to take advantage of our resources to help prop their economy back up again. Just without the rights and freedom…
Posted by: Rhinehold at January 25, 2008 09:20 PMCraig, something may be amiss with the data. The housing sector has been constricting employment for more than a half year now. It was followed by no new hiring in the after market housing markets Lowe’s and Home Depot and hardwares. Now, financial institutions are laying off in ever larger numbers, and globally as well. Mortgage companies have been laying off. Realtors are finding other lower income jobs and part time jobs.
It may be that manufacturing exports are creating enough jobs to offset these other losses. But, given the GDP drop in China, that may not continue to be the case. As you say, we will have to wait and see what the revised numbers and trends show in April for Nov. thru Jan. I wouldn’t lay any bets one way or the other.
Our government has been caught too many times massaging the data to fit its political ends. A very, very dangerous activity for us all.
Posted by: David R. Remer at January 25, 2008 09:26 PM$1,200 bucks (me and my wife)? I’m thinkin Vegas Baby…..
There’s no such thing as a bad tax cut. Or a bad tax rebate for that matter. Can I have my check now?
Seriously, if they don’t give the money to me they’ll just blow it on something else. If you believe Ron Paul this stimulus might stop the invasion of Iran. At least I’ll tip the dealers and no speed boats will be harmed.
Resulting deficits will be an effective—I would go so far as to say, the only effective—restraint on the spending propensities of the executive branch and the legislature. The public reaction will make that restraint effective.
-Milton Friedman
Craig Holmes wrote: The trend which are more like three month numbers show a slowdown.Short term trends, forward or backward, don’t tell the whole story.
The long-term trend is what is important.
The more serious and long-term trends of the last 30 years are what are truly revealing … a number of things that did not all come about by mere coincidence; a number of things that are becoming increasingly obvious even to some of the most blinded.
Short-term, a $140 Billion economic stimulus may buy a little more time-lag to avoid a collapse, keeping the money supply growth slightly ahead of the debt growth, but that can’t last forever, and the eventual collapse of the pyramid money-system comes closer and closer every day. And, ironically, the $140 Billion stimulus package will bring it closer. A few economists are acknowledging this, but they are always careful to avoid acknowledgement that this has been a long time coming.
David wrote: d.a.n, in a very real sense, the instant one introduces a non-commodity based currency, a pyramid standing on its apex is created.Yes, but only if it is controlled by private banks that charge interest.
The problem with interest is that it requires more and more money to be created.
Imagine a large circle that represents all money in existence.
Now, imagine (inside the large circle) a small circle representing interest for someone loaning money and charging interest.
Before long, that interest circle becomes larger than the money in existence.
That creates the pressure to create more money, since each LOAN = PRINCIPAL + INTEREST
If the money system is controlled by the government only, and does not allow usury, the money supply becomes stable, and inflation can be controlled by eliminating some money, and deflation can be controlled by creating some money, but a stable amount of money can be achieved that is not a pyramid-scheme requiring exponential growth to avoid collapse.
The money system is now one of the nation’s major problems, thanks to President Woodrow Wilson who signed the Federal Reserve Act in 1913, giving the privately owned international banking cartel the power to create the United States money. Later, Woodrow Wilson stated:
- “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.” - Woodrow Wilson, President of the U.S. 1913-1921.
The only long-term way out of this mess is what President Abraham Lincoln recommended, and William Lyon MacKenzie King, former Prime Minister of Canada, recommended. The government must control the money system, and it must eliminate usury. Usury has not only moral problems, but practical problems.
David wrote: The reason our pyramid doesn’t fall over …That’s temporary, only as long as they are loaning the U.S. more and more money to buy their low cost goods built with their cheap labor.
That’s not protection or immunity for them or us. It’s a bad thing for everyone. That will simply make the collapse worse globally (later).
We may also see foreign investors buying out troubled corporations and organizations in the U.S.
Then, the ultimate sell-out will be complete when our nation no longer belongs to us.
It’s only a matter of time.
The inevitable can be delayed a long time perhaps, and that fools a lot of people, but we’re seeing the many costs and effects, and perpetual accelarating growth can not be sustained, unless major reforms are successful.
David wrote: … is because the right and left bases of our pyramid are resting point to point against the inverted pyramids of China and Saudi Arabia, India, and Japan.Yes, as long as they continue to loan us more money to buy their products made with cheaper labor (more productivity), and we squeeze out a bit more here and there with illegal immigration, more borrowing, more money printing, more debt, and a stable flow of oil. Interrupt one or two things, and we may not be able to delay the inevitable collapse any longer.
Also, if China can’t keep sustain their exponential growth, which will not be possible for ever, they will be in a very bad way too.
That is, 3% of growth this year is more than the 3% of last year, since 3% of this year is larger than 3% of the previous year.
That’s exponential growth.
That’s accelerating growth.
Perpetual, exponential, accelerating growth and pyramid money systems are not sustainable.
What ever happened to sustainability?
What ever happened to ZERO growth?
What ever happened to ZERO population growth?
Perpetual accelerating growth and sustainability are not compatible.
That is why we see more National Debt, more nation-wide personal debt, more corporate debt, more borrowing, more spending, more money-printing, pressures to increase productivity, pressure to increase illegal imigration (cheap labor), pressures to lower interest rates to make credit easier to get for people already in debt up to their eyeballs, more pressures to plunder pensions (e.g. PBGC $450 Billion in the hole) and Social Security Surpluses ($12.8 Trillion borrowed and spent from Social Security), resulting in increased foreclosures, inflation, unemployment, and now a $140 Billion economic stimulus package.
David wrote: Which in turn have their bases resting against the bases of Russia, Malaysia, Taiwan, Indonesia, and Australia. Which in turn are building inverted pyramids in Eastern Europe, Africa, and S. America.That’s a bad thing. That will simply make the collapse global and worse, since all of these nations have pyramid money systems too, and tinker with their currencies for an advantage. However, the U.S. has more debt, massive entitlements, energy vulnerabilities, and a U.S. Dollar that is already falling drastically against all of those other currencies.
David wrote: The interesting twist to this house of cards is that America’s pyramid may be the first to fall, …Maybe. I predict the U.S. will be first, but it is not far fetched that it could happen in China first.
David wrote: … but, we are so packed together that none of our neighbor’s pyramids will crash to their side like ours, they will only tilt and lean on ours laying on its side.Perhaps, since none of the other nations have the long list of problems we have. But they have loaned us a lot of money (e.g. China has over a Trillion). If the U.S. collapses, economies world-wide will be affected, as we are witnessing of late.
David wrote: Ours may be the only one to fall over completely for many decades. China, India, Russia, and Japan may just be able to keep the rest of the world’s pyramids fairly balanced on their apex. We’ll have to wait and see.Perhaps. China’s predicament is serious due to a massive population of 1.3 Billion. China’s CO2 emissions may exceed the U.S.’s by 2010. Japan has massive national debt (as a percentage of GDP) and limited natural resources.
But they are all on the same doomed course if they continue with pyramid money systems based on usury.
These pyramids can not avoid collapsing since they rely on unsustainable exponential growth.
QUESTION # 1: Why do governments choose to borrow money from private international banks and pay huge sums of interest, when the government could create interest free money, itself?
QUESTION # 2: Why create money as debt? Why not create a stable amount of money?
QUESTION # 3: How can any pyramid money system depend on perpetual accelerating growth to sustain it? It can’t. All pyramid systems eventually collapse.
QUESTION # 4: What needs to be done? Why and who will oppose it? What is the obvious problems with usury?
Some may be saying this is all pie-in-the-sky, or unnecessary, but it may very well be the only thing that avoids a major collapse of our current pyramid money system.
Posted by: d.a.n at January 26, 2008 12:56 AMWith all this serious conjecture, I just wanted to inject a little lighter note.
A funny post I saw somewhere made note of how people will spend their refunds at Walmart buying Chinese goods, while Washington borrows money from China to fund the refund…..
I’ve always wondered about the name pyramid scheme, shouldn’t it be inverted pyramid scheme? I mean the pyramids have lasted for eons…. and are the epitome of stability.
The only problem with calling currency a pyramuid scheme, is when you print your own currency, why would you need more and more investors to pay off? Isn’t a growing GDP more investors? Isn’t a growing GDP what we want? Gee…maybe it works!!!!
Seriously, this rebate seems more like a two party pay off to voters than an economic stimulus, but then maybe that’s the psychology needed. Wheeeee!!!
George in SC said: “There’s no such thing as a bad tax cut. Or a bad tax rebate for that matter.”
Except when the cost of them destroys your children’s future in your country.
There is a fundamental rule about our American system that Republicans and Libertarians just don’t get. Really basic.
It is the role of the the American people to dictate to government representatives what they want their tax dollars spent on. This is fundamentally built into our system.
It is politician’s responsibility in government to insure the people get the bill for what they ask government to spend, and to insure the people’s demands do not exceed the people’s ability to pass on a balanced budget and low or non-existent debt to the next generation. This is also fundamental to our system and at least Libertarians get this part, rhetorically.
But, Republicans simply can’t stand this part of our system because it stands between them and pandering through both increased spending and tax cuts, to become the majority party and keep it. Thus they abdicate this fundamental responsibility the instant they get majority status. The proof is everywhere evident in the last 7 years.
As the minority party, Republicans exert fiscal responsibility pressures through rhetoric on government rather well. But in power, especially since Nixon, they just don’t have the political will to cut spending as the options to do so are all so dislikable and threatening to reelection.
“While President Nixon talked a tough line on the need to curb spending, “discussions of ways to cut expenditures…came to no conclusion, partly because the options were all unpleasant…”9 The President blamed the move to deficit financing on the weakening economy. It also was in 1970, that he told reporter Howard K. Smith, “Now I am a Keynesian in economics.” It is sentiments like this that perhaps explain the emphasis on spending enhancement during the modern era.?”
Quote is from the Joint Economic Committee Study on Budget Surpluses, Deficits and Government Spending. Virtually all Republicans wining office will quietly and secretly become a Keynesian (liberal) in economics after being elected, because cutting spending is diametrically opposed to the goal of getting reelected.
So take Romney’s, Giuliani’s, McCain’s, and Huckabee’s rhetoric with a grain of salt, they will all follow Nixon’s path, though perhaps not so confessingly. Take Ron Paul seriously, but, don’t count on his having ANY support from Congress for ANY of his radical economic approaches. There is nothing like a reelection reality to make the staunchest fiscal conservative turn Nixon, with that old enduring rationalization, “I can’t do any good if I am not reelected”. And the capitulation on conservative principles cascades to failure from there.
This is why fiscal discipline, if it is to come to America, will have to come as a mandate from the people, ready and willing to forgive their politicians the hardships of spending cuts. That scenario, so far, eludes reality. But, voting out incumbents who don’t proceed toward that end is how fantasy can grow into reality.
Posted by: David R. Remer at January 26, 2008 04:23 AMd.a.n, interest is not required for tribal societies of hunter gatherer’s. But, it is essential to modern societies as works are required to support huge population nations which no single entity can afford to build or maintain. Ergo, credit and interest, are essential. Interest reflects not just risk in lending, but, future value of present dollars loaned and opportunity cost of having giving up one’s money in lending to another. Interest is a fundamental reality of justice, fairness, and necessity of modern societies, dating back several thousands of years.
The trick is to manage it responsibly as our forebears of the early 19th century did with wisdoms like: “Neither a borrower nor lender be (if avoidable)”. Everyone said it right through the 1950’s and it acted as a psychological inducement toward responsible lending and borrowing, and the 19th century achieved the industrial age on borrowing, interest and lending of capital, and responsibly overall until monopolism and industrial barons came to dominate the economy and government.
d.a.n said: “Perhaps, since none of the other nations have the long list of problems we have. But they have loaned us a lot of money (e.g. China has over a Trillion). If the U.S. collapses, economies world-wide will be affected, as we are witnessing of late.”
But, it is important to note that China and India are emerging economies, like ours was in the 1940’s and 1950’s. It is precisely that vast untapped productive potential of their large but, checked population numbers that positions them to endure an American economic collapse, much as we endured and prospered out of the Depression, the Dust Bowl, and WWII unprecedented national debt.
China and India are investing in education of their people on a massive scale and move millions more each year into productive paying jobs competing in the global interdependent exchange of goods and services. They may experience declines in GDP growth resulting from America’s treasury bond ratings dropping from AAA status. But, they will continue to grow on the strength of their domestic economy and new relationships with other nations in the world not so invested in the U.S. economy and government solvency.
In a nutshell, it may be bad, but, not the end. Collapse here won’t be the end of Americans, either. It will be excruciatingly painfully transformational. And questionable whether would ever be able to recapture our former economic strength after having defaulted on international obligations or defaulted on the domestic unfunded mandates, which may, I say may, lead to civil conflict and, or Revolution.
Posted by: David R. Remer at January 26, 2008 04:53 AMI find it quite interesting at how high the inequality figure is for the US…even more interesting to see with which countries the US shares a high disparity in income…and who has a much higher equality of income.
Inequality of income according to country
Posted by: Rachel at January 26, 2008 09:42 AMgooglumpugus wrote: A funny post I saw somewhere made note of how people will spend their refunds at Walmart buying Chinese goods, while Washington borrows money from China to fund the refund…..Yes, this should be telling us something.
googlumpugus wrote: I’ve always wondered about the name pyramid scheme, shouldn’t it be inverted pyramid scheme? I mean the pyramids have lasted for eons…. and are the epitome of stability. The only problem with calling currency a pyramuid scheme, is when you print your own currency, why would you need more and more investors to pay off?It is doomed to collapse, LOAN = PRINCIPAL + INTEREST, and total INTEREST is constantly bumping up against total money in existence, creating pressure to create more money out of thin air, and pressure to do other nefarious things too. But printing more money causes more inflation, economic instability, bubbles, recessions, and depressions. It is doomed because it is fundamentally flawed.
googlumpugus wrote: Isn’t a growing GDP more investors? Isn’t a growing GDP what we want? Gee…maybe it works!!!!That is what one of the things needed to avoid the DEBT from finally catching up to the amount of money in existence.
But 3% growth of GDP from this year is actually more than 3% growth of last year, and so on.
That is exponential growth, which is unsustainable.
Perpetual accelerated growth can not last forever in a world with finite resources.
googlumpugus wrote: Seriously, this rebate seems more like a two party pay off to voters than an economic stimulus, but then maybe that’s the psychology needed. Wheeeee!!!It is a delay tactic to increase the lag-time between DEBT and more money created out of thin air to keep the pyramid scheme from collapsing.
For those that want to truly understand the truth so simple that it repells the mind, see this 47 minute video (Note: slow start up takes a few seconds).
David R. Remer wrote: d.a.n, interest … it is essential to modern societies as works are required to support huge population nations which no single entity can afford to build or maintain. Ergo, credit and interest, are essential.We’ll have to agree to disagree on that.
Usury is what makes the money system a pyramid scheme (or, upside-down pyramid scheme, as pointed out by googlumpugus) that is doomed.
Usury (interest on debt) is what dooms any money system to eventual collapse.
The eventual collapse is a mathematical certainty.
It may take decades or centuries, but it is inevitable.
Here is why (the reason is so simple, people are incredulous).
- “Only small secrets need to be protected. The big ones are kept secret by public incredulity.” - Marshall McLuhan, media “guru”
Imagine a large circle that represents all money in existence (PRINCIPAL).
Without INTEREST, the amount of PRINCIPAL is stable.
Now, introduce usury (loaning money and charging INTEREST).
However, LOAN = PRINCIPAL + INTEREST.
Therefore, imagine (inside the large circle) a small (and growing) circle representing INTEREST (which is debt).
Why? Because the INTEREST to pay off the LOAN must come from the existing PRINCIPAL.
Before long, without adding more money created out of thin air, the INTEREST and DEBT will exceed the PRINCIPAL.
That creates the pressure to create more money out of thin air, since each LOAN = PRINCIPAL + INTEREST
It is a doomed system.
It is an upside-down pyramid.
These other side-effects we see (GDP growth, more productivity, illegal immigration, lower interest rates, etc.) result from pressures to keep the debt from exceeding the money in existence.
Consider the Federal Reserve’s (a privately owned bank) that is allowed by law to loan 9 times more PRINCIPLA than in their existing reserves.
The banks charge INTEREST on each LOAN, and LOAN = PRINCIPAL + INTEREST
But it gets worse.
For each dollar re-deposited back into the the fractional (9:1 ratio) bank system (a closed loop monopoly bank system), it can be used to create 9 times more new money out of thin air.
Depending on the size of each loan, that PYRAMID scheme can continue until 90 times more money has been created out of thin air.
For example, let’s say the Federal Reserve bank has $1111.11 in reserves.
That means it can make a loan of 9 times that, which is $10,000.00 .
90% of each deposit (the 9:1 ratio of the Federal Reserve) can then be used for another loan of money created out of thin air …
(001) 90% of that $10,000.00 (when deposited again) can be loaned out again, to create a new loan of $9,000.00 of money created out of thin air.
(002) 90% of that $9,000.00 (when deposited again) can be loaned out again, to create a new loan of $8,100.00 of money created out of thin air.
: … . : … . : … . : … . : … . : … . : … . :
(088) 90% of that $1.16 (when deposited back again) can be loaned out again, to create a new loan of $1.045 of money created out of thin air.
: … . : … . : … . : … . : … . : … . : … . :
(132) 90% of that $0.011 (when deposited back again) can be loaned out again, to create a new loan of $0.01 of money created out of thin air.
_________________________
TOTAL SUM of new PRINCIPAL = $99,888.89 (of money created out of thin air from initial $1111.11 in reserves).
But where does the INTEREST come from, since LOAN = PRINCIPAL + INTEREST , and the bank creates only the PRINCIPAL for each new loan?
One more more things must happen to delay the inevitable collapse (in which total DEBT catches up with total money in existence):
- (01) create more new money (such as the recent $140 Billion economic stimulus package in JAN-2008). However, this creates more inflation. Between year 1950 and 2005, the M3 Money Supply increased from $135 billion to $10.15 trillion (that’s 75.2 times more money).
- (02) those with money must spend more.
- (03) increased productivity, increased products and/or natural resources (e.g. oil, steel, etc.) to sell to other nations to bring money back.
- (04) increase taxes on the wealthy.
- (05) increase productivity via increased population.
- (06) increase productivity via increased illegal immigration (cheap labor).
- (07) reduce interest rates to encourage more borrowing and spending (but this creates more debt).
- (08) plunder pensions and other systems (e.g. $12.8 Trillion borrowed and spent from Social Security surpluses).
- (09) the PYRAMID finally collapses, foreclosures, bankruptcies, unemployment, shrinking middle-income classs, learn the hard way.
Finally, when the bank forecloses on someone, they have converted money out of thin air into real property and assets. The rich get richer, and everyone else gets poorer (by design).
David R. Remer wrote: Interest reflects not just risk in lending, but, future value of present dollars loaned and opportunity cost of having giving up one’s money in lending to another.That is the classic argument for rationalizing usury.
However, the moral argument is really trumped by the practical argument. All pyramid schemes collapse.
Exponential growth is unsustainable.
Sustainability and perpetual accelerated growth are incompatible.
David R. Remer wrote: … interest reflects not just risk in lending, but, future value of present dollars loaned and opportunity cost of having giving up one’s money in lending to another.Some courts already make personal loans in excess of 10% illegal because it is call usury.
So, why is a little usury OK?
But, again, the moral issue is only half of it. There is still the mathematical certainty that usury is an unsustainable pyramid system.
David R. Remer wrote: Interest is a fundamental reality of justice, fairness, and necessity of modern societies, dating back several thousands of years.Yes, sadly, it is our current reality, but it is not one of justice, fairness, and necessity.
Also, thousands of years ago, usury was considered parasitic and immoral, and is still considered today as immoral in a few nations.
Unfortunately, today, in many nations, most people dream of making all the money they need from the money they have, without doing any work.
Americans spend too much time playing with money; constantly trying to manipulate it to get an advantage on someone else.
I understand the reality that this is not likely to change … that is, not until it becomes too painful … when the inevitable collapse occurs.
It may take a long time, but it will happen unless it is changed to a sustainable model, in which usury is not allowed, the money supply is nearly constant, and government creates money (NOT private banks charging usurious interest that is always struggling to create more money to stay ahead of the ever growing DEBT).
David R. Remer wrote: The trick is to manage it responsibly as our forebears of the early 19th century did with wisdoms like: “Neither a borrower nor lender be (if avoidable)”.Yes. Don’t borrow, and don’t loan.
That is exactly the model some economists are recommending.
It could be accomplished by doing what Canada did: Nationalize the banks. Eliminate usury. Government creates a stabile money supply that targets ZERO inflation.
Usury, however slow and controlled, will still lead to the same inevitable result (collapse).
It takes a long time, depending on the size of the economy, which fools people, but the end result will always be the same. And we have seen historical examples of it.
David R. Remer wrote: Everyone said it right through the 1950’s and it acted as a psychological inducement toward responsible lending and borrowing, and the 19th century achieved the industrial age on borrowing, interest and lending of capital, and responsibly overall until monopolism and industrial barons came to dominate the economy and government.The Great Depression was (partly only) due to the collapse of the pyramid money system. After World War II, massive debt existed. Therefore, from 1945 to 1976, massive (double-digit) inflation resulted from excessive money printing. After 1976, other systems began to be plundered (e.g. Social Security), and nation-wide debt started to grow. The pressues from the pyramid scheme began to fuel many other problems and behaviors to delay the collapse of the pyramid scheme.
David R. Remer wrote:Yes, but China has a huge population and fewer resources.d.a.n said: “Perhaps, since none of the other nations have the long list of problems we have. But they have loaned us a lot of money (e.g. China has over a Trillion). If the U.S. collapses, economies world-wide will be affected, as we are witnessing of late.”But, it is important to note that China and India are emerging economies, like ours was in the 1940’s and 1950’s. It is precisely that vast untapped productive potential of their large but, checked population numbers that positions them to endure an American economic collapse, much as we endured and prospered out of the Depression, the Dust Bowl, and WWII unprecedented national debt.
The Great Depression (which started before the stock market crash of 1929) was the collapse of the pyramid scheme, which started in year 1913 (thanks to Woodrow Wilson who later regretted it).
It took a LONG time for things to get better, but the cycle was simply restarted. We are now starting to see the signs of the end of that same cycle. We may delay end of the cycle, but we will not escape it. Eventually, the DEBT will exceed the capacity to create any more DEBT, and all of the other mechanims (e.g. natural resources, productivity, illegal immigration, etc.) will not be sufficient to prevent it. It may take many years (or decades), but the cycle exists, and reason and logic can not allow it to be ignored or refuted. The math is not that complicated. We should all ask ourselves about the need for more and more (exponential) growth, and WHY it is necessary. The answer is simple. That is part of what is preventing the DEBT from catching up to the money in existence. China, Japan, Germany, and other investors in U.S. debt are actually helping to bring about the collapse in the U.S. by borrowing trillions from the U.S. That is helping grow the monster ever larger.
David R. Remer wrote: China and India are investing in education of their people on a massive scale and move millions more each year into productive paying jobs competing in the global interdependent exchange of goods and services. They may experience declines in GDP growth resulting from America’s treasury bond ratings dropping from AAA status. But, they will continue to grow on the strength of their domestic economy and new relationships with other nations in the world not so invested in the U.S. economy and government solvency.Sure, but how long can that exponential accelerated growth be sustained?
Sure, we are consuming China’s and India’s resources (from their cheap labor), but how long can that last?
Here is an analogy.
There are 5 people stranded on an island, and they all had a job.
One Chinese person who fishes.
One Eastern Indian who hunts meat.
One Asian who gathers firewood.
One Japanese who gathers fruit and vegatables.
One American who eats and consumes, but leaves a few crumbs for the rest.
Obviously, the Chinese, Eastern Indian, Asian, and Japanese would be wise to throw the American off the island.
How long before Chinese, Eastern Indian, Asian, Japanese, and other investors in the astronomical U.S. Debt realize they’ll never get repaid?
David R. Remer wrote: In a nutshell, it may be bad, but, not the end. Collapse here won’t be the end of Americans, either.Yes, it will be bad.
It is a cycle. Recovery may take a long time. What is sad is that we learn nothing from it and the pyramid scheme will probably start all over again, just like it started over after the Great Depression.
Again, the problem is usury. Not just a moral issue, but a practical problem that can easily be proven mathematically to be doomed.
David R. Remer wrote: It will be excruciatingly painfully transformational. And questionable whether would ever be able to recapture our former economic strength after having defaulted on international obligations or defaulted on the domestic unfunded mandates, which may, I say may, lead to civil conflict and, or Revolution.Recovery may not be possible for a long, long time.
- “U.S.A.’s balance of payments deficits is so strong and irreversible, that we must accept that at some future date there will be a run against the U.S. Dollar. Probably the kind of disorderly run that precipitates a global financial crisis.” - Dr. Paul A. Samuelson, Nobel Prize Winner in Economics, year 2005.
Today, the U.S.A. is borrowing $3 Billion per day.
Trade deficits represent borrowed money leaving the country.
Other nations should be wondering if their investments in our debt are a wise investment.
It’s a simple math problem.
We will eventually exceed our capacity to sustain more debt, create more growth, become more productive, and repay our loans.
The question is not IF.
The question is WHEN.
Could the U.S. Dollar crash ?
The problem has been growing for some time (not really just the last 8 years, but actually since the bottom of the last collapse in the 1920s).
We should discourage this $140 Billion stimulus package, and start getting some fiscal sanity.
Unfortunately, that isn’t likely to happen by repeatedly rewarding incumbent politicians with 95% re-election rates, and many voters are already making plans for their rebate checks.
Perhaps enough voters will agree when they are jobless, homeless, and hungry?
d.a.n.,
While I’m not quite sure I agree with the idea that interest is evil, I will agree that usury may well be. The difference being that usury is unfair compensation. Fair compensation is what capitalism is all about.
Money is a fiction. While tying it to a precious metal may be alluring to some, I think that would be disasterous.
What really matters is trust in economic stability. If I invest money, will I lose it? Do I have any realistic hope of fair return? Those are the critical questions. Money doesn’t do anything. You can’t eat it, and you can’t live inside it. GDP may be measured in dollars, but it involves labor and products, not paper or coins
(unless you operate a mint).
I’m not sure the mathematical certainty you speak of is there, d.a.n.. This isn’t physics. Money is an artifice. Even if a monetary system collapses, life will go on. The wealthy do fine, everyone else struggles and many will die, but people will still eat, grow food, and buy and sell items, perhaps through barter.
Hopefully there are enough realists out there to recognize the idiocy of the 30’s and not repeat it. But alas, there are no guarantees. We sure as hell haven’t been able to stop war. That’s the real economic disaster I fear. Idealology is simply the propoganda through which people obtain power in hopes of controling and creating wealth and resources. WWII was Germany’s answer to the poverty created in WWI, as well as Japan’s attempts to grab resources.
Moving away from oil is our best defense against both a World War and economic collapse.
Entitlements are something we CAN pay for. They must be allocated properly and attitudes toward what is fair may need adjustment, but they ARE within our means.
Posted by: googlumpugus at January 26, 2008 07:07 PMgooglumpugus wrote: d.a.n., While I’m not quite sure I agree with the idea that interest is evil, I will agree that usury may well be. The difference being that usury is unfair compensation. Fair compensation is what capitalism is all about.The moral issue is not as important as the practical issue.
The Federal Reserve creates PRINCIPAL and charges INTEREST.
Where does the INTEREST come from?
To keep the pyramid from collapsing, more money must be created.
There are other nefarious sources (e.g. productivity from illegal immigration, etc.), but none will resolve the problem.
googlumpugus wrote: Money is a fiction.Money is a tool. The monetary system can be abused like most any system. And itiis. It is a pyramid scheme. It’s not hard to prove.
googlumpugus wrote: While tying it to a precious metal may be alluring to some, I think that would be disasterous.That isn’t necessary, and has some obvious problems. All commodity backed currencies have some problems too. That is not that solution.
The problem is usury (i.e. charging INTEREST), which means the money supply must increase exponentially to create more money to pay the INTEREST + PRINCIPAL.
The existing money supply must continue to increase, or the pyramid collapses.
See the circle inside a circle example above, or see this page.
googlumpugus wrote: What really matters is trust in economic stability. If I invest money, will I lose it?If only it were that simple.
Usury will always fail, because it is a pyramid system. It is mathematically impossible to sustain indefinitely.
Here are a few clues to the problem.
Notice all the talk about GDP growth?
Notice the illegal immigration to increase productivity?
Notice the incessant obsession with interest rates?
Unfortunately, few economists will come right out and tell you the facts.
The monetary system is a pyramid scheme, and the period between the cycles depends on the magnitude of abuses.
We’ve been very abusive for the past 30 years, and it has accelerated us closer to the inevitable collapse.
googlumpugus wrote: Do I have any realistic hope of fair return? Those are the critical questions. Money doesn’t do anything. You can’t eat it, and you can’t live inside it. GDP may be measured in dollars, but it involves labor and products, not paper or coins (unless you operate a mint).To answer your questions, take a look at this 47 minute video. This is what most Americans do not understand, but suspected something wasn’t quite right for a long, long time. Unfortunately, monetary theory is not taught in public schools and it has not inspired any blockbuster movies.
googlumpugus wrote: I’m not sure the mathematical certainty you speak of is there, d.a.n..I am. I have a minor in math and major in electrical engineering. But neither is required to understand the problem. David R. Remer understands that it is an upside-down pyramid scheme. He believes we need it. I don’t. I think it will result in anohter inevitable depression. He doesn’t. Either way, there is a cycle. How severe each is depends on many variables. But sooner or later, we’ll have to pay the piper.
googlumpugus wrote: This isn’t physics. Money is an artifice. Even if a monetary system collapses, life will go on.No, it is simple math.
Sadly, there will be increased death, poverty, and crime. Crime is already rising.
googlumpugus wrote: The wealthy do fine,The wealthy almost always do fine.
googlumpugus wrote: … everyone else struggles and many will die, but people will still eat, grow food, and buy and sell items, perhaps through barter.Hmmmmm … you seem to be describing a depression? That is not far fetched.
googlumpugus wrote: Hopefully there are enough realists out there to recognize the idiocy of the 30’s and not repeat it.I hope so, but doubt it due to the rampant delusional and blind loyalty to the two-party duopoly.
googlumpugus wrote: But alas, there are no guarantees. We sure as hell haven’t been able to stop war.No, we haven’t. We have had 7 wars in 90 years.
Worse, the Iraq war was based on a web of lies and exaggerations.
googlumpugus wrote: That’s the real economic disaster I fear. Idealology is simply the propoganda through which people obtain power in hopes of controling and creating wealth and resources. WWII was Germany’s answer to the poverty created in WWI, as well as Japan’s attempts to grab resources.Exactly.
googlumpugus wrote: Moving away from oil is our best defense against both a World War and economic collapse.Your intuitions are correct.
googlumpugus wrote: Entitlements are something we CAN pay for. They must be allocated properly and attitudes toward what is fair may need adjustment, but they ARE within our means.I don’t think so, becasuse of the $12.8 Trillion borrowed and spent from Social Security, an approaching 77 million baby boomer bubble, and dozens of other pressing problems. Also, Medicare is in worse shape. And the revenues all come from taxes ONLY on those making less than $97,500 (i.e. these caps are regerssive).
Please see this comment in the RED column.
Posted by: d.a.n at January 26, 2008 07:45 PMDavid:
Craig, something may be amiss with the data. The housing sector has been constricting employment for more than a half year now. It was followed by no new hiring in the after market housing markets Lowe’s and Home Depot and hardwares. Now, financial institutions are laying off in ever larger numbers, and globally as well. Mortgage companies have been laying off. Realtors are finding other lower income jobs and part time jobs.It may be that manufacturing exports are creating enough jobs to offset these other losses. But, given the GDP drop in China, that may not continue to be the case. As you say, we will have to wait and see what the revised numbers and trends show in April for Nov. thru Jan. I wouldn’t lay any bets one way or the other.
Look at this quote from Jeremy Siegel
Most importantly, although fourth quarter earnings are expected to post a 21.2% decline from 4th quarter of last year because of the debacle in the financial sector, the other nine sectors are expected to report an extraordinary 11.6% earnings gain. There is still much to be optimistic about going forward.
There is no doubt that housing and financial sectors are in a recession, and a serious one. On the whole however the numbers are encouraging as far as corporate profits.
If we look at the employment data, it definitely is pointing to a slowdown. Sept - December are low, just not recessionary. If we speak from data that has confirmation, it points to a slowdown.
However, slowdowns of course can lead to recessions.
Posted by: Craig Holmes at January 26, 2008 08:03 PMRachel:
I find it quite interesting at how high the inequality figure is for the US…even more interesting to see with which countries the US shares a high disparity in income…and who has a much higher equality of income.
That is an interesting piece you put up there. What I also find interesting is that the countries at the top are among the most socialistic on the planet. They have the highest amount of federal spending (near 50% of gdp) and are slow growing countries.
Craig:
Good for you!!!! I would expect the economy to be doing better by then anyway.
You mean my house that’s been up for sale for an entire year, price lowered 4 times in a market where the value of housing has done nothing but fall for 2 years will be sold by then????
Posted by: Rachel at January 26, 2008 10:30 PMWhat I also find interesting is that the countries at the top are among the most socialistic on the planet. They have the highest amount of federal spending (near 50% of gdp) and are slow growing countries.
What does it profit a country if it has mega-economic growth and loses its soul, starves its people, lets them die without medical care, lets people remain uneducated because they can’t afford tuition….
We really need to decide if our people exist only to serve economic “growth” or if economics should exist to serve the people! Growth cannot be sustained throughout the entire world all the time by everyone…so our choice had better be the latter.
Posted by: Rachel at January 26, 2008 10:35 PMRachel:
You mean my house that’s been up for sale for an entire year, price lowered 4 times in a market where the value of housing has done nothing but fall for 2 years will be sold by then????
When did you buy your house?
What does it profit a country if it has mega-economic growth and loses its soul, starves its people, lets them die without medical care, lets people remain uneducated because they can’t afford tuition….
What does it profit a country if you decline and become weak because of socialism? There is a balance here. Shoot, lets just become communist and then inequality will be solved.
We really need to decide if our people exist only to serve economic “growth” or if economics should exist to serve the people! Growth cannot be sustained throughout the entire world all the time by everyone…so our choice had better be the latter.
We decided that with the civil war. Of course we don’t want economic growth at all cost. It’s a balance thing.
I agree with you that economic inequality is a serious and real issue by the way. I just don’t want to solve it the way the top countries on your list have solved it. There must be another way short of a doubling of our federal government.
Posted by: Craig Holmes at January 26, 2008 10:53 PMd.a.n said: “Usury (interest on debt) is what dooms any money system to eventual collapse.”
I don’t think this comment indicates any understanding of money at all, d.a.n.
Money is nothing more than a scorecard. You can have a lot of scorecards or just one scorecard, it doesn’t alter the game, the players, or the outcome.
Money once was a large rock with a hole in it. No intrinsic value. Later, money became sea shells. No intrinsic value. Just counters. Then money came to be made of precious war weapon making metals. At this point, money has some intrinsic value for its ability to be melted down and reshaped into weapons. But, still no intrinsic value other than what the buyer and seller agreed upon. Then came paper money, no intrinsic value, just a scorecard of who owes who how much in basic labor/time units, approximately agreed upon.
Again, it doesn’t matter how much money supply there is, except as the players of the barter agree or disagree on. Money is still just a scorecard. Cheat at the scorekeeping, and you will make enemies. Keep a fair score (transparent and accurate for parties to see), and enemies will have to be made for other reasons.
Interest is payment for opportunity cost. I loan you money, I can’t invest my money I loan you elsewhere to earn 5%, so I ask you for interest on my loan approximating the opportunity cost of my foregone 5% plus 1 or 2% for having selected you and not someone else to loan my money to. You agree to the 6 or 7% because you can’t or won’t find a better deal elsewhere to meet your need to borrow.
When all is said and done, it is just a scorecard. Which is to say, for the entire history of mankind money has always been intrinsically worthless, except for the scorecard value humans agree to impose upon their rocks, sea shells, or colored paper.
What is intrinsically valuable is human labor hours and skills. Human labor hours and skills can directly provide life as in food, water, shelter, hygiene, health care. What your comment appears to fail to grasp is that if the money system collapsed tomorrow at Noon, by 12:01 P.M., one minute later, economies all around the world would continue. What would change is the scorecards and scorekeepers. That’s all. And the new scorecards would be human labor symbolized by some other currency item, perhaps coins, perhaps diamonds, perhaps units of wheat.
And the new scorekeepers would be the ones with the power to defend against challengers for the job of scorekeeper. Therein lies, btw, the historical link between money and war. But, farmers would still farm, those who own their land outright, metal workers would still make metal though for less consumers of it, and shoe makers would still make shoes though fewer of them for fewer people who could afford them. And farmers would continue to farm to buy the metal farming implements needed to continue to grow wheat, and the metal workers would continue to make metal to trade with the shoe makers to protect their feet from splattering liquid metal, and the shoe makers would continue to take the metal in exchange for shoes to give to the farmers in exchange for wheat. That is an economy, with, or without money.
Therefore, a collapse of the money system would not spell the end of the human race or economies. It would spell the end of wealth for a vast number of people in the world, and grotesque privations as those who used to be money changers, are forced to learn a new skill or die for lack of basic resources. The overpopulated world would not be overpopulated anymore. But, human societies, economies, and cultures would continue, very likely in better balance with their environment and each other after a 45% or so reduction in the world’s human population.
This is fundamental economics. So fundamental, many an economics course doesn’t even cover this. So fundamental, many economics instructors have never thought of it, or questioned it. Too bad for students. But, then our education systems have been for crap for a number of decades now.
So, if your concerns regarding interest and money are hitched to the fear of inhumane depopulation of the world to reasonable levels, then I will agree with you. But, understanding what money and interest are and why they are, negates the idea that if this money system collapses, it is the end of the world. That is simply not true. If this money system collapses, another will immediately take its place, complete with scorekeeping tokens, interest, debits and credits, and a very few controlling the value of the tokens in order to insure trade, transparent bookkeeping, and collectability on debts and payment of debts with precision to insure fair trade instead of war.
googlumpus said: “While I’m not quite sure I agree with the idea that interest is evil, I will agree that usury may well be. The difference being that usury is unfair compensation.”
You are right, interest is not good or evil, interest is an agreed upon price to be paid for opportunity cost. I loan you my money, I lose the opportunity to buy things with it for myself, and you pay me interest at an agreed upon rate or price, as compensation for my opportunity cost.
However, then you said: “Fair compensation is what capitalism is all about.”
Wrong! Capitalism works best with the least losses in efficiency when fair compensation is exercised and enforced. But, it is NOT what capitalism is all about. Capitalism is all about maximizing profitability with the available resources at hand to trade. Which can be summarized by the following golden rule of capitalism: Extract the highest selling price the buyers are willing to pay, while holding the costs of providing the good or service to the absolute minimum, and in so doing one maximizes the reward for one’s time and effort. That is what capitalism is all about. The implications of that golden rule of capitalism have filled volumes, but, you would be hard pressed to find conflicting volumes about the golden rule of capitalism which is obvious to all successful entrepreneurs, managers, and graduates of business and economics.
The heart and soul of capitalism is best illustrated in any book on managerial accounting. Which is all about accounting for the value/cost of time and motion to produce a product or service, and determining the highest possible price market to target for sales of one’s product or service. Capitalism is all about the difference between the cost to produce and the price obtained as sale.
Posted by: David R. Remer at January 27, 2008 01:42 AMd.a.n said: “David R. Remer understands that it is an upside-down pyramid scheme. He believes we need it. I don’t.
As I explained in my previous reply, if it fails, it will be resurrected. Perhaps with different rules, but, money and interest are absolutely necessary to trade beyond the inefficiencies of the barter system.
“I think it will result in anohter inevitable depression. He doesn’t.”
Incorrect. As I have written many, many times in this column, I believe America’s economic system is indeed headed for a devastating depression and reorganization if the voters do not take control of their politicians and keep them to their Constitutional purposes. But, it is also clear, that the world’s economy is no longer as dependent upon ours as was the case 30 years ago. Many nation’s economies will slow if America’s goes down, but, theirs will not go down with ours.
China for example, may see its GDP drop from 11% to 3% if our economy goes under. 3% of course is regarded as healthy in America. In fact, if China can’t get a handle on runaway inflation, America’s economy going down could be just the prescription they would be looking for. Something our own politicians should, but are too blind to consider.
Posted by: David R. Remer at January 27, 2008 01:50 AMCraig said: “There is no doubt that housing and financial sectors are in a recession, and a serious one. On the whole however the numbers are encouraging as far as corporate profits.”
There are two dimensions to a health economy. Healthy producers/suppliers, and healthy consumers. Our current situation reflects, as you say, healthy producers/suppliers. The date too, as you imply, point to not so healthy consumers. If consumers do not return to health quickly, their lack of consumption will affect the health of producers/suppliers to our domestic economy. Hence, the rationale for the stimulus aimed at consumers. And hence, the need for that stimulus to actually have its intended effect.
My concern is, it may not for both conceptual reasons of the stimulus package itself, as well as the credit card bubble portending the other foot dropping. Bank of America, writing down massive amounts on its balance sheets just sent me letters indicating their intent to raise my credit card rates to 29%. Reason: their balance sheet. My credit situation has only improved over the years I have had their credit card. There is no other rational explanation.
Their official reason is entirely bogus. They cite Trans Union without an explanation. My Trans Union report indicates that while my overall debt level has gone down, my debt level with Bank of America has increased.
Bank of America offers me generous short terms to increase my debt, and when I take them up on their offer, they cite my debt load as justification for raising my interest rates to near 30%. My credit and payment records are exemplary otherwise. Needless to say, I am rejecting their terms and closing the accounts. But, millions of other Americans are not in a position to do that.
I think you can see how the credit card companies are creating a self-fulfilling prophecy for massive credit card defaults by raising the interest on their card holders to usurious levels in the attempt to keep their shareholders happy. It is a self fulfilling economic bubble burst in the making.
Posted by: David R. Remer at January 27, 2008 02:01 AMDavid,
Perhaps what I should have said was properly functioning capitalism is about fair valuations. Distortions do occur, but in theory at least, the market will correct these.
Posted by: googlumpugus at January 27, 2008 03:31 AMgooglumpugus said: “Distortions do occur, but in theory at least, the market will correct these.”
Yes, in theory and practice unregulated capitalism will inevitably lead to corrections with immense human suffering and costs as the price, as in the Great Depression, or the horrid privations of Charles Dickens’ world in England during its period of free unfettered capitalism.
Of course, socialist systems can have corrections occur as well with great human suffering as the cost. Which is why there are no pure socialist nor capitalist economies in the world today. All the productive and stable economies have government oversight and intervention as needed in place to mitigate the effects of blind greed, the kind which fails to see it is killing the goose that lays the golden eggs. Regardless of whether that blind greed emanates from the people up, or the capitalists down.
The very definition of economics is the study of how finite resources are distributed amidst infinite demand. Government’s should incorporate economic systems which foster the least civil unrest and threat of revolution while promoting the greatest prosperity for the people of the nation presently, and in the future.
When you think about it, it is one helluva dynamic balancing act under the most optimal circumstances. Which is why one cannot realistically discuss economics without lengthy discussion of political systems as well, and vice versa. They are inextricably interdependent in modern stable societies.
d.a.n wrote: “Usury (interest on debt) is what dooms any money system to eventual collapse.”Not true, and I will try to prove it below.David R. Remer wrote:I don’t think this comment indicates any understanding of money at all, d.a.n.
I understand the monetary system much better than most people, and provide the PROOFs below, and invite anyone to dispute the facts or conclusions (below).
It is actually a simple math problem.
PROOF # 01: USURY:
LOAN = PRINCIPAL + INTEREST
LOAN = DEBT
PRINCIPAL = MONEY_IN_EXISTENCE
The Federal Reserve creates the PRINCIPAL from thin air which is 9 times more new money than its reserves.
That is, each new LOAN = 9 x SOME_MONEY_ALREADY_IN_EXISTENCE.
Or worse, new money is often created without being based on SOME_MONEY_ALREADY_IN_EXISTENCE, which increases the MONEY SUPPLY.
However, the INTEREST for each new LOAN does not yet exist.
QUESTION: Where does the INTEREST come from?
ANSWER: either from MONEY_IN_EXISTENCE, or more money must be created out of thin air.
Imagine a home loan. The INTEREST can be 2 or 3 times the PRINCIPAL.
Imagine a large circle representing all MONEY_IN_EXISTENCE.
Imagine a small circle inside the larger circle representing INTEREST.
If people make a LOAN and charge INTEREST, the INTEREST must come:
- (a) from MONEY_IN_EXISTENCE
- (b) OR new money created out of thin air.
So, to avoid the collapse, the Federal Reserve creates more money out of thin air, and the game continues.
But the game can not continue indefinitely.
Why?
Because eventually, like playing the game of Monopoly in which one person can print all the money they want, they will eventually own everything, and everyone else is broke, or hopelessly deep in debt.
And that is the cruel truth of this pyramid scheme. It is about using and exploiting others.
It not only is a moral issue, but simple mathematics is a practical issue.
Unfortunately, too many Americans like to play with money to make money, rather than create value to make money.
PROOF # 02: MONEY SUPPLY:
In year 1950, there was $135 Billion of M3 Money Supply in existence.
By year 2005, there was $10.15 Trillion of M3 Money Supply in existence.
That is an increase by a factor of 75.2 (e.g. $10.15 Trillion / $135 Billion).
Did the U.S. become 75.2 times wealthier?
Especially since the population also doubled since year 1950?
No. What happened was massive amounts of new money were created out of thin air.
For every dollar in existence, it permits 9 times more to be created out of thin air for each new individual loan.
PROOF # 03: INFLATION:
In year 1950, one U.S. Dollar bought more things.
In year 2008, one U.S. Dollar is worth about one-ninth as much (about 11 cents).
____INFLATION_______
CPI (CPI=100 for year 1967)
650 + - - - - - - - - -X
600 + - - - - - - - - -X
550 + - - - - - - - - -X
500 + - - - - - - - - X
450 + - - - - - - - - X
400 + - - - - - - - - X
350 + - - - - - - - -X
300 + - - - - - - - X
250 + - - - - - - - X
200 + - - - - - - -X
150 + - - - - - - -X
100 + - - - - - -X
050 +XXXXXXXX
000 +_______________YEAR
1 1 1 1 1 1 1 1 1 1 2 2
8 8 8 8 8 9 9 9 9 9 0 0
0 2 4 6 8 0 2 4 6 8 0 2
0 0 0 0 0 0 0 0 0 0 0 0
PROOF # 04: HISTORY OF MONEY:
Please watch this well-made 47 minute video, and then try to explain how any part of it is false.
PROOF # 05: WEALTH DISTRIBUTION:
Incessant inflation and the pyramid scheme money system is one of the major reasons for the growing disparity.
How can it be that most of the people that work and create value are all in debt to the banks that receive the INTEREST on LOANs created out of thin air?
In year 1980, 1% of the U.S. population owned 20% of all wealth.
By year 2008, 1% of the U.S. population owned 40% of all wealth.
Rest assured, that the design of the fractional banking was not a mere coincidence, and neither were these other 10+ abused systems that have been hammering Americans since the cycle restarted after the Great Depression.
PROOF # 06: FAMOUS QUOTES throughout HISTORY:
Please see these famous quotes.
Then try to find quotes that praise usury and fiat money systems.
NOTE # 01: Returning to a commodity, gold, or silver currency is not required.
NOTE # 02: The problem is INTEREST, which is Usury. Usury presents not only a moral issue, but a mathematical problem (i.e. a practical issue).
NOTE # 03: I doubt, any time soon, most people in the world will understand the problem and demand monetary reform. Unfortunately, monetary theory is not taught in public schools and has not inspired any blockbuster movies. It won’t change until people finally understand the moral and mathematical problem that makes the pyramid scheme unsustainable (by design, for those that benefit from it).
Unless all of those simple proofs can be disproved, they must be accepted as true.
After all, David, you also already wrote in response to my statement …
d.a.n wrote: “The fractional banking system (i.e. Federal Reserve, a privately owned bank) actually is little more than a pyramid scheme.”
David wrote: Not true. It is a pyramid scheme, but also much more, a somewhat independent regulatory body for the economy, and as current events demonstrate, a needed regulatory body. Though not always competent.
To say it is “also much more” is not proof.
To say it is “an independent regulatory body” is not proof.
To say it is “a needed regulatory body” is not proof.
Those are all conclusions. Not proofs.
The problem is provable, and what is provable is that all pyramid schemes eventually collapse (and possibly restart).
Pyramid schemes always collapse eventually.
Then the cycle can begin again, as it did after the Great Depression.
David wrote: Money is nothing more than a scorecard. You can have a lot of scorecards or just one scorecard, it doesn’t alter the game, the players, or the outcome.Coin and paper itself are merely inanimate objects. They are not the problem.
Coin and paper are not evil, but that does not mean they can’t be abused.
Pencilz dont misspell wordz. People do.
Spoons don’t make people fat. People do.
Guns don’t kill people. People do.
Money doesn’t make people greedy. People do.
Thus, the problem is not the object (or system), but the PEOPLE that abuse the object (or system).
A money system is more than a mere scorecard.
A money system can be used to exploit other people.
It has rules, and those rules can be abused to cheat some players. People do that.
One obvious way to cheat is predatory lending or usurious INTEREST rates.
The Federal Reserve Banks clever fractional lending and money creation system is ingenious.
It’s no wonder they like it.
Another way to cheat is the banks receiving INTEREST from money created out of thin air.
Another way to cheat is to simply create money out of thin air (which causes inflation).
David wrote: Again, it doesn’t matter how much money supply there is, except as the players of the barter agree or disagree on.Not true. As the money supply increases, it creates inflation.
Thus, to prove your statement true, you must prove that inflation does not matter, is good, and does not create economic instability.
David wrote: Money is still just a scorecard. Cheat at the scorekeeping, and you will make enemies. Keep a fair score (transparent and accurate for parties to see), and enemies will have to be made for other reasons.Now you are on the right track.
Cheating is problem. People cheat people. Creating too much money out of thin air is cheating, and creates inflation.
David wrote: Interest is payment for opportunity cost. I loan you money, I can’t invest my money I loan you elsewhere to earn 5%, so I ask you for interest on my loan approximating the opportunity cost of my foregone 5% plus 1 or 2% for having selected you and not someone else to loan my money to. You agree to the 6 or 7% because you can’t or won’t find a better deal elsewhere to meet your need to borrow.INTEREST is not only usury, but it creates a mathematical problem. See PROOF # 01 above.
David wrote: When all is said and done, it is just a scorecard. Which is to say, for the entire history of mankind money has always been intrinsically worthless, except for the scorecard value humans agree to impose upon their rocks, sea shells, or colored paper.The problem is the erosion of value, and the people that don’t understand why it happens, and who benefits from it.
Again, it is like playing Monopoly in which one person (banker) can print all the money they want. Before long, the banker owns everything, and everyone else broke or deep into debt. All the Federal Reserve (and other fiat-funny-money systems) have to do is keep inflation growing enough every year to avoid the collapse of the pyramid scheme.
David wrote: What is intrinsically valuable is human labor hours and skills. Human labor hours and skills can directly provide life as in food, water, shelter, hygiene, health care.Yes, money from value is good. Money from money is problematic, and creates a pyramid that will collapse.
David wrote: What your comment appears to fail to grasp is that if the money system collapsed tomorrow at Noon, by 12:01 P.M., one minute later, economies all around the world would continue. What would change is the scorecards and scorekeepers. That’s all. And the new scorecards would be human labor symbolized by some other currency item, perhaps coins, perhaps diamonds, perhaps units of wheat.Sadly, the cycle would restart.
So? Just because we learn nothing from it does not justify it, nor prove there is not a better way than a doomed pyramid scheme.
There is a better way.
David wrote: And the new scorekeepers would be the ones with the power to defend against challengers for the job of scorekeeper.Yes, if we don’t learn from it, and we simply restart the pyramid cycle.
David wrote: Therein lies, btw, the historical link between money and war.True. You are making my case for me. The problem is not money, but the abuse of money systems by some PEOPLE to use and exploit other PEOPLE.
David wrote: But, farmers would still farm, those who own their land outright, metal workers would still make metal though for less consumers of it, and shoe makers would still make shoes though fewer of them for fewer people who could afford them. And farmers would continue to farm to buy the metal farming implements needed to continue to grow wheat, and the metal workers would continue to make metal to trade with the shoe makers to protect their feet from splattering liquid metal, and the shoe makers would continue to take the metal in exchange for shoes to give to the farmers in exchange for wheat. That is an economy, with, or without money.Again, you are making my case for me, because bartering is completely different from a money system with usury, where the bank is debasing the value of your assets by excessive money printing.
David wrote: Therefore, a collapse of the money system would not spell the end of the human race or economies. It would spell the end of wealth for a vast number of people in the world, and grotesque privations as those who used to be money changers, are forced to learn a new skill or die for lack of basic resources. The overpopulated world would not be overpopulated anymore. But, human societies, economies, and cultures would continue, very likely in better balance with their environment and each other after a 45% or so reduction in the world’s human population.True, and I never asserted that the inevitable cyclic collapse of the Banks’ fractional money pyramids would result in the end of the human race.
The issue is will we learn from it, and restart the same cycle, as we did after the Great Depression, or understand the problem and resolve it?
David wrote: This is fundamental economics. So fundamental, many an economics course doesn’t even cover this. So fundamental, many economics instructors have never thought of it, or questioned it. Too bad for students. But, then our education systems have been for crap for a number of decades now.Yes, as I’ve written before, you won’t learn about the pyramid nature of the banks fractional banking and fiat money system (a system now used world-wide) in public schools, and no one has made a blockbuster movie about it.
However, I am a bit confused by your statements.
First, (1) you admit that the money system “is” a pyramid system,
(2) but you then rationalize (or merely accept?) the need for the Federal Reserve, and interest (usury),
(3) but end by using an example of bartering (which is not usury).
David wrote: So, if your concerns regarding interest and money are hitched to the fear of inhumane depopulation of the world to reasonable levels, then I will agree with you.Well, that could be (e.g. war) the result of economic collapse. Crime was very high during the Great Depression. Wars could result.
However, the issue is simply that the Federal Reserve Bank’s (and most other foreign banks) fiat money and fractional banking schemes are an upside-down pyramid scheme that is:
- (1) morally flawed,
- (2) and mathematically flawed and doomed to collapse, restart, collapse, restart (until we finally learn from the painful consequences)
David wrote: But, understanding what money and interest are and why they are, negates the idea that if this money system collapses, it is the end of the world. That is simply not true.No, I have never asserted anywhere that it was the end of the world, so that’s not the issue at all.
The issue is quite simply that the fiat money systems and charging of interest (usury) are (1)morally and (2)mathematically flawed, and the proofs are laid out above.
What tricks a lot of people is quite simply how long it takes for the collapse to occur.
But the wealthy banker and their wealthy friends don’t care, because they have assets. 1% of the U.S. population now owns 40% of all wealth (up from 20% in year 1980).
Yes, it will be difficult to change, and it is difficult for many to accept the fact that we’ve all been victims of an ingenious pyramid scheme for almost 100 years; but it is true.
Peoples’ minds are repelled by the simple truth, and refuse to believe it, no matter how much evidence is provided.
And that very human trait is what the cheaters in the world rely on.
- “Only small secrets need to be protected. The big ones are kept secret by public incredulity.” - Marshall McLuhan, media “guru”
David wrote: If this money system collapses, another will immediately take its place, complete with scorekeeping tokens, interest, debits and credits, and a very few controlling the value of the tokens in order to insure trade, transparent bookkeeping, and collectability on debts and payment of debts with precision to insure fair trade instead of war.Yes, but what type of money system?
Why does it have to be the same thing (with INTEREST and usury)?
Why restart the same cycle again, like we did after the Great Depression?
d.a.n wrote: David R. Remer understands that it is an upside-down pyramid scheme. He believes we need it. I don’t.Yes, hopefully with different rules.David wrote:As I explained in my previous reply, if it fails, it will be resurrected. Perhaps with different rules, but, money and interest are absolutely necessary to trade beyond the inefficiencies of the barter system.
However, I do not believe INTEREST (usury) is necessary. And the lack of usury does not require bartering.
d.a.n wrote: “I think it will result in another inevitable depression. He doesn’t.”Usury and the money system that is a pyramid scheme … you do agree that it will lead to an inevitable collapse and depression?David wrote: Incorrect. As I have written many, many times in this column, I believe America’s economic system is indeed headed for a devastating depression and reorganization if the voters do not take control of their politicians and keep them to their Constitutional purposes.
My assertion is that the pyramid-scheme-type money system and usury will be the major contributing factor (among others), and I don’t think you believe that. Right? Since you are saying we need the Federal Reserve and INTEREST (usury).
That is, you don’t see the issue of usury (i.e. INTEREST) as a major contributing factor to the depression cycle? And I do.
David wrote: China for example, may see its GDP drop from 11% to 3% if our economy goes under. 3% of course is regarded as healthy in America. In fact, if China can’t get a handle on runaway inflation, America’s economy going down could be just the prescription they would be looking for. Something our own politicians should, but are too blind to consider.Inflation and debt is a problem for all nations that bought into the pyramid-scheme (with usury and fractional lending) money systems.
The U.S. Dollar has fallen faster than the Chinese YUAN for several years (among all other major international currencies).
The solution to this problem is simple in theory, but will be difficult since a few with vast wealth and power control it, and will oppose it.
SOLUTION:
- (1) Make usury illegal. Courts make INTEREST rates for personal loans over 10% illegal. So, if a lot of INTEREST is bad, how can a little INTEREST be good? If inflation is bad, how is a little inflation good?
- (2) The government must nationalize the banks and control the currency. It should create the money it needs, INTEREST FREE.
- (3) If inflation is too high, some money in circulation can be removed. If there is deflation, the government can create and spend some money. If they do a bad job of it, the voters know EXACTLY who to hold accountable. Currently, the Federal Reserve is a privately owned bank, and the voters have little (if no) control over it.
By the way, here is an organization (kiva.org) that loans money (INTEREST FREE).
The rate of default is 0.1% for $3,710,535 in ended loans.
Why would people do this?
Because helping others helps all of us, helps people help themselves, helps people off of welfare, helps people be less needy, etc.
At any rate, we will get our education one way or another, and we will have the government that we deserve.
d.a.n said: “As the money supply increases, it creates inflation.”
And decreases recessionary pressures, and feeds hungry people, and shelters homeless people, and builds infrastructure to improve quality of life.
Your looking at it in a remarkably one sided slant. Here you are talking about the politics of money management: Weighing the benefits and risks of increasing or decreasing “inanimate objects’ called money. But, you talk of it as evil on the one hand, while on the other saying it is not money which is evil but, the the people wielding its power.
I’m sorry, but, in this real world, the Fed’s decision to cut interest rates last week is going to buy beneficial time for 100’s of thousands of employees to remain employed. That is a good thing, is it not?
d.a.n said: “Again, you are making my case for me, because bartering is completely different from a money system with usury, where the bank is debasing the value of your assets by excessive money printing.”
Hardly. Barter is not possible nor efficient for trade of the magnitud