Why must currency be debt backed?

Economics Economics Questions
1

I suppose that’s a “provocative” enough title.

I’ve recently discovered Byron Dale via Bill Still’s doc “The Secret of Oz”.

I understand a lot of folks here have an unfavorable view of Mr. Dale…that’s fine…I really don’t know much about him except from Mr. Still’s various documentaries.

But, I must say…I have a hard time poking holes in his assertion that “every dollar we have in circulation was created as interest bearing debt.”

That’s basically all I know about his theories, and that of Mr. Still.

There are, however, many unintended consequences I can envision with “interest free currency” such as that Mr. Still broadly outlines. I’d like to save that for another discussion, if possible.

But, lets say Mr. Dale is right…all legal tender in this country is born of an interest bearing note.

Why does it need to be this way? I’m not indicting fractional reserve lending - not yet, anyway - which I view as merely a lever - in an unsubsidized monetary system.

Debt backed currency makes a lot of sense if one is a major stakeholder in a society. It keeps society productive and willing and able to consume not to mention much easier to control (considering a stable legal framework to enforce such contracts.)

Just browsing this forum…I just saw Bill Still’s doc last night for the first time and am sure there have been great discussions about it and my question in general.

I apologize if this has been covered repeatedly. If its no trouble - some links to the posts would be helpful - I’ve searched, but nothing regarding the “secret of oz” or Bill Still comes up. And, searching for “debt as money” doesn’t yield much at first glance (except for the ten FALSE patriot myths…thread - which I will delve into currently.

p.s. Mr. Still seems very keen on the Bank of N. Dakota…I imagine that the overwhelming majority of N. Dakotan’s what to do what’s “right” - but, I’m skeptical. But, not nearly as skeptical as I am of the Federal Reserve.

2

“Debt backed currency makes a lot of sense if one is a major stakeholder in a society. It keeps society productive and willing and able to consume not to mention much easier to control (considering a stable legal framework to enforce such contracts.)”

I’m not sure what you mean by this. What’s your reasoning behind debt backed currency keeping society productive and able to consume?

There was a member who I haven’t seen active in a while named Tomozope who participated in a lot of these threads arguing on the side of Byron Dale if I remember correctly. He was difficult to reason with to say the least and I think everyone here will back me up on that. He made a thread a while back. Not entirely sure how relevant it is but there you go.

https://forum.freecapitalists.org/t/a-close-look-at-the-theory-of-inflation/9201

There’s also this thread that goes on forever. There’s probably a lot of good info buried in there if you care to wade through it all.

https://forum.freecapitalists.org/t/austrian-keynesian-theories-vs-mathematical-facts/8856

3

Is money really backed by debt? In a sense, part of it yes. Another part no.

I started into libertarianism and monetary policy and history through Mr Still video “The Money Masters”. I loved it. I watched three times in one month. But later on studying and researching I became quite decived by the information he is giving. I even went to his forums to ask for my doubts and when pointing out the “weak spots” he replied arrogantly and without really answering to my questions, just dodging them. I was not very impressed obviously.

His claims that the Fed is a private institution, etc… He is misleading to say the least, and streches reallity. It was a great deception since I loved the Money Masters.

4

Our currency is “debt backed” in the sense that it can be created by the creation of new debt via fractional reserve banking.

However not all monies are debt backed in this way.

5

David,

I’m still around.

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But, lets say Mr. Dale is right…all legal tender in this country is born of an interest bearing note.

Why does it need to be this way?

It doesn’t have to be this way.

7

David:

I guess what I’m getting at is Debt backed currency is a form of indentured servitude. And, if thats the case…that’s a pretty strong backing.

Thanks for the links.

I’ll have to check them out later when I’m off work.

8

Hugo:

Yeah, that’s where I am too I suppose. I’m skeptical about the state issuing currency. I guess I just need to understand the mechanics of issuance a bit better.

9

Tomozope - are you advocating something like Mr. Still is?

10

There was an article by Bob Murphy a few weeks ago covering “Debt Based Money”:

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“I guess what I’m getting at is Debt backed currency is a form of indentured servitude. And, if thats the case…that’s a pretty strong backing.”

I’m curious, are you saying this because the banks issue new money but expect to be paid the principal and interest in return (meaning they take more than they give so to speak)?

“Thanks for the links.”

No problem, I hope they help.

12

Tomozope - are you advocating something like Mr. Still is?

I guess I don’t understant your question. Can you please explain more in detail?

13

There was an article by Bob Murphy a few weeks ago covering “Debt Based Money”:

Thanks Tex!

David:

No, I made that statement on the supposition that Byron Dale is correct - every dollar in circulation was born of an interest bearing note. If that is indeed the case, which I’m inclined to agree with currently, it seems the citizens are indeed indentured servants of the state.

Let me be clear…I have no problem with fractional reserve lending provided its not subsidized. You wanna lever up, so be it. Leverage is a tool. Use it wisely.

Tomozope: I guess what I’m getting at is…what else is there besides a debt backed currency? I’m open to anything. Is gold it? Or can the state actually issue a currency that is stable and not backed by debt?

thanks folks!

14

Tex:

Read the article. It is a great explanation of simplifying fractional reserve lending. There is one unintended consequence of that arrangement - Brown still does a days worth of chores for Smith to service the interest. Now, there are many variables as to why that is so…Maybe Brown is a poor manager. Maybe his services are marginal. Maybe he likes too much beer…What I believe the author leaves out of the arrangement is this - if Brown can’t accumulate enough profits to pay the interest w/out doing chores for Smith…what is the incentive for Brown to continue on the treadmill? Assuming that Brown is indeed a smart manager, his services aren’t marginal, and doesn’t drink away his profits…and still must resort to performing chores for Smith - what is Brown’s incentive? Ultimately that has to be answered by Brown. What can he do differently to increase his profit margin?

Regardless. That is a micro level anecdote explaining fractional reserve lending. What it does not accomplish is explain how commercial banks are subsidized into funding the treasury and then using those proceeds to then make loans to the community and charge interest based on the subsidized profits of funding the state. To me, that is usury. And, if thats our monetary system…we need to fix it.

15

“Regardless. That is a micro level anecdote explaining fractional reserve lending. What it does not accomplish is explain how commercial banks are subsidized into funding the treasury and then using those proceeds to then make loans to the community and charge interest based on the subsidized profits of funding the state. To me, that is usury. And, if thats our monetary system…we need to fix it.”

From my limited understanding of how commercial banks operate…they can “purchase” a t-bill yielding x% from the treasury, turn around, post that as reserves for FDIC and Federal Reserve reserve requirements…lend out 90% of the principle and collect interest from 100% of what they loaned to the treasury AND collect interest on the 90% they loaned out to the community.

If that is correct. That is usury.

16

“No, I made that statement on the supposition that Byron Dale is correct - every dollar in circulation was born of an interest bearing note. If that is indeed the case, which I’m inclined to agree with currently, it seems the citizens are indeed indentured servants of the state.”

Why do you think this makes us indentured servants? I’m asking genuinely because some people approach this in different ways so I want to make sure I’m understanding exactly what you’re saying.

“Let me be clear…I have no problem with fractional reserve lending provided its not subsidized. You wanna lever up, so be it. Leverage is a tool. Use it wisely.”

I have mixed feelings as to how this would be dealt with on the free market, but I would agree with you that it should not be subsidized or supported in anyway by the state.

“I guess what I’m getting at is…what else is there besides a debt backed currency? I’m open to anything. Is gold it? Or can the state actually issue a currency that is stable and not backed by debt?”

The government could simply print notes (or create them electronically) rather than using the federal reserve to monetize debt. It’s certainly possible to have the state issue interest free notes. It doesn’t have to be tied to gold, but if it’s not then there’s nothing to keep the printing presses in check and thus inflation would be high.

However, the free market is also capable of issuing money and that is vastly preferable to having the State continue to issue currency in whatever form it does.

17

“From my limited understanding of how commercial banks operate…they can “purchase” a t-bill yielding x% from the treasury, turn around, post that as reserves for FDIC and Federal Reserve reserve requirements…lend out 90% of the principle and collect interest from 100% of what they loaned to the treasury AND collect interest on the 90% they loaned out to the community.”

I’m pretty sure that when a commercial bank buys treasuries its reserves go down. This is a textbook example of how the Fed tries to lower the money supply in any monetary economics or banking class (the Fed sells its treasuries to commercial banks who pay the fed with reserves, thus reserves go down and the the banks have to lower their outstanding loans to comply with reserve requirements).

18

David:

Thank you for your responses. I believe as we communicate more, we’ll agree more.

As for your first question. I think it makes us indentured servants because the federal reserve is not directly accountable to congress. People talk about the “bailouts”…thats minor leagues…not even AAA ball…everyone who knows knows its the QE. They’ve (the fed) opened up their balance sheet to god knows what kind of shady assets…all kinds of debt backed by shady collateral that they would HAVE NEVER, and HAVE NEVER, EVER accepted before…now, without congress’ explicit approval - i.e. the people’s consent…what else does that make us? And, where does it end? Once you go down a road…it becomes familiar…what are we opening ourselves up to in the future?

In your final response is essential what I understand to be Mr. Still’s answer…“its not what backs the money its who controls the quantity.” That’s the whole point of the wizard of oz, as he sees it. That silver would upset the gold bankers control over the quantity of money. They’d have more competition…and thus less control.

I appreciate your comments! Thanks!

19

No problem, I enjoy these conversations when people remain civil and are open to new ideas.

I would agree that the Fed has taken drastic and shady actions. I wasn’t quite sure where you were going with it because sometimes people say we’re indentured servants because the banking sector charges interest on the money it creates so eventually all the money goes to the bankers (that’s not what I think btw). As an anarchist, I don’t believe Congress speaks for or represents me, but I understand your point about transparency and how there isn’t very much of it right now.

“In your final response is essential what I understand to be Mr. Still’s answer…“its not what backs the money its who controls the quantity.” That’s the whole point of the wizard of oz, as he sees it. That silver would upset the gold bankers control over the quantity of money. They’d have more competition…and thus less control.”

What is Mr. Still’s ideal monetary system?

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It does not have to be.