Clayton -
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.
The truth is that the currency is not debt backed but its debt based. It’s all backed by the assetts of the people but someone has to go into a bank and get an interest bearing loan before any money is put into circulation.
“What is Mr. Still’s ideal monetary system?”
He says the state should issue money…and spend it into existence…like Greenbacks. I know, I know…there are several concerns I have about that. His whole mantra is “its not what backs the money, its who controls the quantity.” I have no idea how the mechanics of such a system would work.
I just find it an interesting mental exercise to try and picture a monetary landscape that can accommodate growth without the inherent leverage of fractional reserve lending. I don’t know what it is. Just trying to get there.
“The truth is that the currency is not debt backed but its debt based. It’s all backed by the assetts of the people but someone has to go into a bank and get an interest bearing loan before any money is put into circulation.”
This is an excellent distinction Tomozope. And explains why everyone (that has some form of asset) is a stakeholder in MODEST inflation (save for sovereign wealth funds)…which troubles me. Okay, thats a broad generalization - but true for the most part I believe. And it also demonstrates that the only way to stop a deflationary spiral is a restructuring - i.e. let the market clear, THEN provide the stimulus.
http://www.lewrockwell.com/north/mom2.html
Thanks for the link Clayton! I’ll check it out once I get back from Chicago.
"I have no idea how the mechanics of such a system would work. "
I guess it depends. If the government wanted to finance all of its operations through the printing press (taking the US as an example) that would mean roughly $3.5 trillion of new money. No matter what measure of the money supply you use, that would be a huge expansion of the money supply in one year. That would lead prices to skyrocket, and demand for money would likely fall in expectation of rising prices, driving prices even higher. True, we wouldn’t have any direct taxes but inflation of that magnitude would likely be much more destructive to the economy.
“I just find it an interesting mental exercise to try and picture a monetary landscape that can accommodate growth without the inherent leverage of fractional reserve lending. I don’t know what it is. Just trying to get there.”
I don’t believe fractional reserve banking as practiced now leads to wealth creation. Money is simply the medium of exchange. The creation of new money, however it is brought about, does not lead to an increase in new goods and services. Fractional reserve banking through the suppression of interest rates diverts resources to what the market previously deemed unprofitable (or less profitable) ie unsustainable investments in higher order goods (goods farther away from the consumer). Any expansion of the money supply will divert purchasing power to those who get the new money first.
My ideal monetary system is simply to let the market decide what would be used as currency. The dollar was originally privately minted and became wide spread because of its reliability.