Money as debt, again.

Economics Economics Questions
21

I think It very simply boils down to property and contract.

Your signature (or promise) creates money. When you enter into a contract you convey title to a negotiable instrument containing your signature which represents your promise to pay and receive title to something in exchange.

When you contract with the U.S. banking monopoly cartel and sign a loan at the bank you do not receive title to anything. You receive private credit.

The problem in the U.S. is not really the banking cartel. The problem is not really the monopoly of the banking cartel. The problem is the monopoly of legal tender and government requires you to pay all debts in federal reserve notes or u.s. coins. It is very easy for people to barter exchange using something other than government property. It is impossible to pay property taxes, etc. in anything other than government property. When bartering it is easy to appoint a third party arbitrator both parties agree to settle disputes outside of the courts. But when paying alleged government debt the only arbitrator available is the courts which only recognize legal tender.

In my opinion the theory of money as debt when using the banking cartel is correct because if you go to a bank and create money with your signature you receive title to nothing in return.

However if you go to a used car dealer and sign a note in exchange for a car title is conveyed. The dealer has title to a negotiable interest secured by the real property in the event of a default which has real value. You received a car which has real value.

I think it is easy to concede the point that when doing business with the banking cartel it is arguably debt but money is not always debt.

22

My take on the Austrian school vs. the “money as debt” idea is that both are true in a sense. Although some of our money represents outstanding debt to banks, not all of it is. For it to be true, our economy would have had to start this way where no one had “money” in hand and all money received had to start as bank loans. Although the percentage of the stock of money representing debt increases in a fractional reserve banking economy where governments and people borrow money to pay for things, that percentage can also decrease if people pay back loans and increase the supply of available goods and services relative to the total stock of money.

Those who say that all money is debt are wrong as they are trying to interpret everything through what is happening now when not all money in circulation comes from what is happening now. Those who say that no money is debt are also wrong because we have national deficits owed to banks with interest to prove that some of the money in circulation represents debt. Banks who traded “mortgage backed securities” were trading debt. These debt certificates were found worthless because did not represent the real ability to pay.

23

There’s a bit more to it: it’s not as if the State is just some isolated phenomenon that randomly showed up. The bankers and the State have a symbiotic relationship. Do you really think the Obama family has more power than, say, the Rockefellers?

24

Banks have no power other then the power that is manufactured for them by the State. You make it sound is if the bankers are this sovereign independent entity.

The nature of the State is such that it can only benefit one group at the expense of another. So relationships are bound to form with somebody. So I don’t see what the point is in portraying bankers as some “financial nobility”, unless you believe that the problem is the bankers per se and not the State. If you can only remove the bankers, then all of a sudden, the State will work for the people, blah blah blah… This is socialist nonsense which Griffin falls prey to because he must cling on to the myth of the State.

Mises also believed in the limited State, but at least he knew where the power comes from - the apparatus of compulsion and coercion. Not bankers who’s money is worthless without the State’s privileges.

What do you mean by power? Obama is just a bureaucrat who gets a hard on from being in charge of the bureaucracy.

And the Rockefellers… what power do the Rockefellers have over you exactly?

25

After thinking about this for a bit, money is debt to the extent that it was created via fractional reserve banking. The lower the reserves, the higher the proportion of money as debt. Via FRB, an entity (a bank) can earn interest on (invest, purchase labor with) non-existent capital – capital they never owned, yet they use to compete for resources with legitimate capital owners and BENEFIT FROM IT. Without FRB, money is just money (capital). I can either save/spend/invest my $100 on my own or I can lend them to you at interest, and that’s it – just my capital being lent to you.

The state enters the picture only through legitimizing and protecting FRB, but it’s the FRB itself that directly affects the answer to the question.

Z.

26

No, that’s just the point - the state and the banks are part of the same apparatus. Certain banks support the state and the state supports certain banks. So I think of the banks as part of the state, even if they aren’t part of its official machinery.

They helped get the Fed started, which fed the State, and they influence policy through various means…which is only possible because of the State…which would be much smaller without the banks, etc. Once again, they are part and parcel of the same disease and I don’t think it makes for cogent analysis to artificially delimit the more powerful members of the banking industry (nor, for instance, the military-industrial complex) from the state proper.

27

Every government program, new agency, or any other scheme has its special interests. So what’s your point?

Again, you make it sound as if banks have some natural power independent of the State. Maybe God created the inflationary bank on his 7th day?

The State makes the banks operate in such a way that it benefits itself. Of course, the bankers are more then happy to cooperate in this partnership. But all power that bankers have is political in nature. Political power can only stem from the State apparatus. The Evil beast is the State apparatus. There is no “financial nobility” except in the minds of the socialists who conflate economic power with political power.

And to remove the coercive influence of banks, what must you destroy? The banks or the State?

Because the socialists are sure that it is the bankers that are the source of coercion and not the State. But you know they have it backwards, don’t you?

The two entities - banks and State - do not operate at the same level. Do you see what I mean. There is no financial nobility.

28

It seems you agree in sentiment, if not in word. I am not saying banks are independent, but that they are interdependent. The minarchists and socialists are wrong to think it’s all the banks’ fault (Griffin doesn’t, but I’m not defending him), but it would still be an error to imagine that there is one monolithic thing called the State that operates independently of everything else. For that matter, there is the military, and the state-biased media. They are all arms of the leviathan. For instance, taking down the “State” itself would just result in it coming right back if the media convinced the people that’s what needed to happen. Again I’m saying let’s not be overly reductionist.

29

Of course when I say the State, I am also referring to all that gives it life.

30

I think we need to attack some of the problems with these videos, after watching them i am now even more confused, although i do recognise many flaws with them.

31

The heart of the matter is that they confuse two things, one indeed a problem, and one an irrelevance.

The problem is that banks can allow people to spend money that “isnt really there.”

  1. Say there is one television in the world, and it costs 100 dollars. You are the only one with 100 dollars, so you can buy the TV. But if the banks write checks to 10 people for 1000 dollars apiece [whether they charge interest or not is irrelevant], those people can start bidding for the TV. The price of it will go up, and you wont be able to get it [if $100 is all you have]. In other words, banks, by using fractional reserve banking, can give other people more money without changing the amount of goods in the world. This is bad, and its called inflation.

  2. The truth is, this can be done with out a bank. All the govt has to do is start printing momey and giving it out to everyone but you, and you will suffer the same fate. Its exactly the same problem, inflation.

The money is debt crowd see nothing at all wrong with the govt printing the money, as in method 2. Which shows right there that they know not what they are talking about. In fact, they seem to think it is a good thing, for some insane reason or other.

But if the bank does it [method 1], that’s bad, according to them. Because you have to pay the money you got [in the form of a check] back to the bank. That’s what they don’t like, debt.

Now I think even they are not so mad as to think borrowing and paying back is bad. What really gets their goat is that you have to pay back more than you got. In others words, there is interest to be paid. That is the great evil, according to them.

They figure anyone who has to pay interest will be forever in debt, or at the very least, get poorer. After all, you have to give back more than you got, right? How can this be good? Little do they realize that a good businessman thinks about these things. He will only borrow money at say 5% if he thinks he can use the money to improve his business and get say 10% back on the money he borrowed.

So thats what they are against, interest.

Then they read up and found out that in actual practice the govt doesnt really print much money anymore. When they want to “print” new money, they [I think this is the method] use a computer to put more money into a bank’s account. The bank then puts the money out in the street by [horrors] LENDING IT OUT AT INTEREST. Thus all new money [which you remember they think is a good thing to have, more paper money] comes into the world in the form of debt [a bad thing, according to them].

Thus, they conclude, we have turned the economy upside down, changing good into bad, guarenteeing our destruction.

A total moronic mishmash? Yes.

Have you a specific q?

32

Hey Dave thanks for getting back, I’ve been watching theses ‘MAD’ documentaries, ‘Mises - Money, Banking & the Federal Reserve’ and listening to Rothbard in ‘Banking and the Business Cycle’ over and over again. I’ve got a couple of questions.

Is all the fiat money in existence loaned money ?

The producers of these documentaries claim that there isn’t enough money to pay back both interest and principle, they claim all money in the market place is loaned money and that the money is destroyed or hoarded once interest is paid back, preventing the people from ever paying off debt. If there is no debt there is no money (I hope they just mean paper money). So Is money destroyed or hoarded when the loan is payed back as suggested in this 10 minute video ?

If it is destroyed it seems to me that money then becomes a form of debt and we can never pay off P+I with just P. If it isn’t, fiat money can then re-enter the market place and pay off others Interest, ending this shit forever.

thanks again mate.

33

OK I am over my head here, but I’ll contribute what I can.

From Wikipedia on Money Supply:

In short, there are two types of money in a fractional-reserve banking system[18][19]:

  1. central bank money (physical currency, government money)
  2. commercial bank money (money created through loans) - sometimes referred to as private money, or checkbook money

So that all the coins and paper money are not loaned money.

The United States used to have a positive savings rate. Meaning the country as a whole made enough money to pay their bills and put some away in the bank. How did people have the money to save? Were they not up to their ears in debt? Was not the interest rate on a loan higher than the interest rate on savings, making them foolish to save the money instead of paying their debts? So it seems the reality doesn’t match their description.

Also, who are we talking about, an individual, or the whole country at once? Any individual can pay off his debts, by working and making money and paying off his debts. It happens all the time.

So I guess we are talking about the whole country having to face the music at the same time, march into the bank with whatever they have, and pay up. And the site claims there just isn’t enough money around to do this. Because all the money in the world is only equal to the principal. No money was created to match the interest. So there is 10% less money in the world than there “should be”. [If the interest rate is 10%]. Maybe that’s what they mean.

My response: I heard a recent Tom Woods video where he says that a bank can lend roughly 10 times as much money as it has in physical money. Using that, paper money makes up about 10% of the money supply. Interest rates are rarely 10%, so the paper money could be used to pay the interest.

But I suspect the mistake is deeper than that. I think that somehow the amount of paper money is not what really counts, but the wealth of the nation,meaning it’s resources and tangible objects, things you actually use. Take an extreme example. If I owned everything on the face of the Earth, owed the bank $1.10, and there was only a single dollar bill in existence [which was in my pocket], I somehow think I would not have a problem. A way would be found. But I don’t have a clear picture of how this really works.

Do they explain what they mean by this? Does someone in the bank put a match to it, or bury it underground forever?

I think they mean that since the money loaned was not physical, when the debt is payed, it goes back to the Twilight Zone where it came from. But I think that’s a mistake, since the bank still retains the RIGHT to bring it back from the Twilight Zone at a moment’s notice. Again, Since I don’t know what they mean, I can’t really say.

34

Hey Dave, sorry to push further, but like you said i’d better know my opponants argument, and I’ve definatly met my match.

I wonder could you point me in the direction of the Tom Woods video and the data that proves the US had a positive savings rate.

What your saying using your last example makes sense to me but i doubt it will convince my mate, i haven’t replied to her yet.

35

Saving Rate: http://innovationandgrowth.wordpress.com/2010/01/04/national-savings-at-the-lowest-level-since-the-depression/

also http://research.stlouisfed.org/fred2/data/PSAVERT.txt

and http://www.bea.gov/BRIEFRM/SAVING.HTM

Your google search will give you all you need.

Turns out that the PERSONAL savings rate is and always has been positive, sometimes at over 11%

The negative savings rate everyone is talking about is “the sum of personal, corporate, and government savings, net of depreciation”. And it’s only very recently been negative.

LOL didn’t know the govt saved at all.

Tom Woods: The only thing in the video is that banks need roughly 10% of the money they lend actually in the bank [or on deposit with the federal reserve]. I added on the rest.

At any rate, we have a better source for finding out how much physical monay is around. Voila:

Here’s some definitions from the wiki on “money supply”. I refer you to there for background. Then you will know all that I do about it. At any rate:

So that M0 is paper money and coins, and M3 is everything together.

Now this page has a table at the bottom of M0 and all the other M’s month by month since 1959. Eyeballing it quickly, it looks like M0 varies from 6 to 10 percent of the highest M available. I rest my case.

36

Dear Mr. Lawson

These freshly printed paper US Bonds, T-Bills, Dollars and other security instruments that the US government sells to people in industrialized nations have no value, except that they are redeemable for title to privately owned businesses, factories, casinos, hotels, farms, land, ports, breweries, refineries, forests, ports, breweries, refineries, and other privately owned assets located in the USA that were created by previous US generations instead of Gold.

Some sources estimate that the title to 25% of privately owned US located assets with recorded deeds and/or titles are now listed as foreign owned (http://economyincrisis.org/articles/show/1072) and this percentage is increasing rapidly.

Our payments for foreign oil, manufactured assembly parts, and foreign raw material suppliers are handled in essentially this same manner.

What will we do when we have nothing of value to sell to the foreigners who work to make the things that we consume? I do not believe that they will work for free.

37

BINGO!

“Often, the percentage of the total money supply consisting of physical banknotes is very small. In the United States only around 10% of the “M2” money supply actually exists in the form of physical banknotes or coins. The rest exists as credits in computerized bank accounts. See Money supply.”

That’s from

So it IS 10%. I feel so pleased.

38

Thats great mate, thanks again for all your help. i now feel i have complete confidence in the argument again (all) money as debt.

My orginal opponant has unfortunatly lost interest in the subject, but i have gained as a result, and i’m sure others will challange, many people are falling for these ideas, but its the solutions the film makers present that should be feared.

Thanks Dave