Real Bills One More Time (part II)

http://thedailybell.com/2429/After-the-Dollar-What-Comes-Next.html

Posted by bionic mosquito on 06/04/11 09:38 PM

(In further reply to Bischoff)

You continue to argue that inflation is not inflation because of some legal distinction or some accounting principle, as if some legislation or FASB decree can change the economic nature of the event.

There certainly is a legal and contractual difference between credit and receivables. There is also an accounting difference - each has its own place in the balance sheet. There is different treatment in the case of bankruptcy.

But economically there is no difference. Both capture the deferment of final payment for goods received today, albeit under different legal/contractual principles. All of your goings on about standard accounting principles and the difference of governing law do not change this economic fact.

Now here is where you say "I don't understand the difference" and I say "I don't know how to explain it better." You are one who is convinced that legislative action can change economic reality. You likely will never understand the difference.

Now, in any form (credit or receivable), the economic issue is the same. As Wimpy would say "I will gladly pay you on Tuesday for a hamburger today." It matters not to Wimpy how the seller books the transaction.

Why is it inflationary? Because it is fractional reserve. Why is it fractional reserve? You answered the question yourself. You say there is not enough gold (if you recall, gold = money, money = gold) to support production. (Not enough gold: another false concept, but not important to this discussion).

Not enough money (gold), but somehow through the magic of pixie dust man create some. Just like Bernanke and B of A.

Don't tell me (but I know you will anyway) that it is backed by gold. If the gold was there, then there would be enough gold to support production. But you say there isn't enough gold to support production. There either is enough gold or there isn't. You cannot argue both to be true at the same time.

Real Bills One More Time

http://thedailybell.com/2429/After-the-Dollar-What-Comes-Next.html

Posted by bionic mosquito on 06/04/11 11:06 AM

(In reply to Bischoff)

"Money = Gold

"Gold = Money

"However, with the greater demand for products, the amount of gold used as currency was insufficient to also pay for each of the production steps in bringing an item to market. Unless there was a way to finance the production steps without the use of gold, the gold tied up to finance production would leave no gold with which to make purchases.

"The answer to the shortage of gold to finance both production and trade, lay in the development of a "redeemable" currency. Producers within a production chain for items in immediate demand by the consumer were financed by producers each other by drawing "Real Bills". These "Real Bills" were settled at the end of ninty days, after the end product had been sold.

snip-----------------

While recognizing the possible utility offered by real bills, I will suggest that I could not have written a better description of the fractional reserve and inflationary nature of this credit instrument. (Yes, it is credit).

Thank you, Ingo. As in our dialogue yesterday, I find in your words a better statement than any argument I might make on my own. I could save myself much trouble if you would only agree to take my part in our disagreements.

A Further View on Centralized Government

http://thedailybell.com/2426/Why-Europe-Doesnt-Have-Leaders.html

Posted by bionic mosquito on 06/03/11 04:56 PM

While we are waiting for Ingo to gather his thoughts, I would like to expand further regarding my comments about Lincoln's War and the loss of the states' voice.

Declaration of Independence

When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.

Thomas Jefferson makes clear that the people have the right to disband government if the people believe that government is not serving its proper role. Was the South doing something beyond this such that Ingo feels compelled to applaud Lincoln's use of utter devastation? Jefferson makes clear that people are justified to disband the Union, yet Ingo argues that Lincoln was justified to maintain the Union under all circumstances (as he has previously stated). Does Ingo suggest that it is 'just' that a government can compel obedience by such force, even when the people decide that a change in government is in order? What would Jefferson say?

Ninth Amendment: The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.

Tenth Amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The Ninth and Tenth Amendments make clear that Federal powers are limited only to those enumerated, and those not enumerated are retained by the states or the people.

Kentucky Resolution (penned by Jefferson): That the several states composing the United States of America are not united on the principle of unlimited submission to their general government; but that, by compact, under the style and title of a Constitution for the United States, and of amendments thereto, they constituted a general government for special purposes, delegated to that government certain definite powers, reserving, each state to itself, the residuary mass of right to their own self-government; and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force; that to this compact each state acceded as a state, and is an integral party, its co-States forming, as to itself, the other party; that this government, created by this compact, was not made the exclusive or final judge of the extent of the powers delegated to itself, since that would have made its discretion, and not the Constitution, the measure of its powers; but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress.

We see from Jefferson's words that the states did not assume a position of unlimited subservience to the federal government, and that acts of the federal government that go beyond the enumerated powers are null and void.

Virginia Resolution (penned by Madison): That the Constitution of the United States, having delegated to Congress a power to punish treason, counterfeiting the securities and current coin of the United States, piracies, and felonies committed on the high seas, and offenses against the law of nations, and no other crimes, whatsoever; and it being true as a general principle, and one of the amendments to the Constitution having also declared, that "the powers not delegated to the United States by the Constitution, not prohibited by it to the States, are reserved to the States respectively, or to the people," therefore the act of Congress, passed on the 14th day of July, 1798, and intitled "An Act in addition to the act intitled An Act for the punishment of certain crimes against the United States," as also the act passed by them on the -- day of June, 1798, intitled "An Act to punish frauds committed on the bank of the United States," (and all their other acts which assume to create, define, or punish crimes, other than those so enumerated in the Constitution,) are altogether void, and of no force.

We see from Madison's words that the federal government has authority to punish only a very limited set of crimes, also specifically citing the Tenth Amendment.

Finally, is it likely that those wise men who sat in Philadelphia during that hot summer of 1787 would have supported the document if they knew it came with the right of the Federal government to declare war on their home State if there was some disagreement, or even, in fact, if the State later decided to secede? Would the States have ratified the document if they knew that, to enforce the Union under all circumstances, the Federal government would consider as acceptable the type of devastation that was ultimately unleashed on the South - both the military and civilian devastation?

Of course, the answer to both questions is no. Yet Ingo clings to the notion that Lincoln's actions were justified. It is damnable, and it is irrational to conclude that somehow the 17th Amendment carried more weight in diminishing the voice of the States than Lincoln's war did.

Global Government, Part II

Posted by bionic mosquito on 06/01/11 02:25 PM

Ingo, one question mark per question will suffice. I get it.

"How can you overcome central control when local culture, will, norms and self-reliance is checked and subject to central control now."

Just because it is so in some places doesn't make it so everyplace. Just because it is so at a specific times doesn't make it so at all times.

How can you overcome central control? Central control cannot last; this has been proven countless times. The Soviet Union is gone, now made up of a dozen separate states. Czechoslovakia is gone, broke in two. Yugoslavia is gone, with a half-dozen states standing in its place.

There will be more. As Cat Writer suggests, the EU will not stand as currently configured, it will break. Iraq will break in three. Afghanistan never was one, and will not be anytime soon despite having a central government in name only. Look at the Caucasus, a cauldron of factions.

It is not so difficult to envision that this will be true for the US as well. Yes, the central government might remain in form, but the power will be removed once the checks bounce (literally or figuratively, it won't matter). People will look to local solutions, as the national ones will fail, as they most definitely will.

A few hundred cannot contain a few million or a few billion by any means - force or otherwise - if the protection racket no longer is functioning.

I have mentioned before Jacques Barzun "From Dawn to Decadence" and Martin Van Creveld "The Rise and Decline of the State." Neither could be described as a radical; both come to a similar conclusion from different approaches. The centralized and all-powerful state is coming to an end, and we are living it.

"Do you advocate violent overthrow of the controlling elite...???"

Violence only in self defense.

"If not, then why hasn't central control been eliminated already...???"

It will likely never be eliminated, but it can be greatly diminished, and certainly decentralized. It has been decentralized where the promises failed. It will be decentralized where promises are yet to fail but will fail, as they must.

Too many non-productive supported by too few productive, with the ratio getting worse (BTW, IMHO this is why they opened the door to China and India - try to suck in a couple billion productive people to change the math. It isn't working, but that is a different subject). This cannot continue. The use of force, a new currency, the UN, the ECB, the IMF, the elite - none of them can change the very basic laws of economics.

When it fails, we will see Human Action. In some places, the new boss might be just like the old boss. In other places, less control will be the rule. In any case, decentralization will offer people more choices.

Global Government

http://thedailybell.com/2426/Why-Europe-Doesnt-Have-Leaders.html

Posted by bionic mosquito on 06/01/11 09:52 AM

"One of the main tenets of Money Power is centralization. This is in fact its most important dominant social theme. The world needs global government. A New World Order. Western elites are not far from their goal actually."

DB is quite astute in pointing out that "Western elites are not far from their goal actually."

Global government is not in our future; it was implemented in our past. All the structures were put in place post WWII. The UN, IMF, and the World Bank are such structures. NATO is another. The US Dollar is another.

A legislative / executive body in the UN. A central bank in the IMF. A lending arm in the World Bank. NATO as the military arm. And the dollar as the world's currency.

The tumult of the first half of the 20th century was the revolution. With central banking and fiat money in force, two world wars to consolidate power and initiate the institutions necessary.

And post 1945? A continued consolidation via an "enemy" - first the Soviets, then the Muslims (consider the foresight of establishing Israel in 1948, a full forty years before it was needed. Consider the work needed to bring the world's support to the Jews, such that this action would be taken.). Wars fought via the US military (the anchor of NATO), authorized solely by the UN, with the congress sheepishly going along.

Consider instigating a financial crisis to bring the IMF and World Bank back to prominence, when (over the previous 10 - 20 years these institutions grew to be despised wherever they entered, even irrelevant).

World government is here. Much work was done before 1945 to make it so. Events since then can be understood simply as further consolidation of power - as DB often says, for control. Nothing more.

The region from Vietnam to the Caucasus was one of the last holdouts to this control. And consider where the physical battles have been fought, almost continuously, throughout this region.

It seems a few holdouts exist: Iran, Libya, and perhaps a few others. And what of powers such as China and Russia? It strikes me that they play the game, do the dance. Leaders there also have a lust for power, and take actions that keep their power in place. Many times these actions align with the desires of those behind global government, it seems.

World government is here, increasing its consolidation and control since 1945. It is a testament to the strength of the machine that the population of the west for the most part continues to fear that world government is a risk of the future, when in fact it has occurred in the past.

Fortunately, it will not work; centralization never can. There are too many vested interests for their own little kingdom of power; these won't go along so easily. Even more important: as force increasingly becomes the only tool left available to the elite, more people will rebel. As the promises of increased security in exchange for less liberty are broken, more people will rebel. When control relies on force instead of passive compliance, enough people will withdraw consent.

Unfortunately, it will be a painful transition.

More on Fractional Reserve Banking

http://thedailybell.com/2326/A-Mises-Media-Classic-Money-Banking-and-the-Federal-Reserve.html

Posted by bionic mosquito on 05/18/11 02:42 PM

I find this video worthwhile for those not yet exposed to the systematic depredations of the monetary system. In other words, a good introductory video.

The fixation of the Mises Institute (or at least many people associated with it) on the "fraud" of fractional reserve banking is like a lead weight around the neck of this very fine institution. Read the contract. The money is not yours once you deposit it. Understand bankruptcy law as relates banking - you do not have first claim on your deposits, you get to stand in line with the other creditors, many of whom have claims senior to yours.

FRB certainly can be viewed as inflationary to the money supply; FRB certainly adds risk to the enterprise and those doing business with it. But it isn't fraud. Therefore I find no reason by which to "stop" it in a free-market-based system.

Posted by bionic mosquito on 05/19/11 09:25 AM

In reply to: Posted by John Danforth on 05/19/11 08:44 AM

"This is the reality, but this is not how it is sold. It is sold to people as if the bank is a storehouse for their savings and a way to turn their paycheck into usable currency. Not one in ten knows what the real relationship between themselves and their bank really is."

Not to be too blunt, but ignorance of the contract and the law does not allow us to enjoy a contract of our wishes.

Why on earth do depositors need FDIC insurance if they, in fact, have first claim on their deposits? When the FDIC decides to take down an insolvent bank, the good assets go to another institution, the "insurance" pays off the depositors. Why don't the good assets just get sold to pay off the depositors? Why, in fact, is the money not there in the first place? Where did it go if it is mine? How can I get paid interest unless the bank has lent the money to someone on my behalf? Why don't I have to pay a fee for storage for my assets, if in fact the bank is storing them for my use on demand?


"Again, the local bank lends funds that are not someone's savings nor their own: in payment for doing a few hours paperwork they hold title to your real estate, and if you miss a few payments, they end up with the physical asset. What has happened? What has happened was the consummation of a fraud. The fake money itself is fraudulent. The way it is legitimized is fraudulent. The laws that make it legal tender are evil. Perhaps in free banking the practice could be decriminalized, but only if the fraud element is removed, so people know exactly what they are getting into and have the choice to opt out."

There are many practices around the system of banking that a) only occur in an extreme magnitude due to government dictate and protection, and b) may also be fraudulent. But fractional reserve banking, in and of itself, is not one of these.

FRB, in a free market system, is a perfectly viable option for banking and money / credit. If a bank gets carried away with the practice, it will fail; its notes would trade at a great discount. This discipline of failure will be the best check and balance on the system; additionally, strip away the government created idea of limited personal liability and the system will very well discipline itself.

Even today, I would have no complaint about FRB absent the government backing of the entire cartel via the Fed and FDIC (to name two of many enabling agencies). The crime is in the government protection, not in the practice itself.

Of course, I would continue to state that FRB is inflationary to the money supply, but the impact will be only to members of society that utilize or transact in the specific currency being overly expanded. Here again, the crime today is the legal tender laws, giving us little choice, at least little choice absent large risks and consequences.

Such is my view of Real Bills; it is also fractional reserve banking (watch Ingo come out of his chair when he reads that, telling me some law passed by some legislature can defy economic reality). My only point and criticism with real bills is that it is an inflationary expansion of credit (well that and the false idea that there is not enough gold for a modern economy to function. Well probably a couple of other fallacious notions, but that is beside the point). That people choose to use it is entirely up to them in a free market. I even might find use for real bills, if we ever see free banking again, and if free banking results in market participants creating credit in this way (here again, watch Ingo jump).

Same for FRB: in a free market, there will certainly be fractional reserve banks. Mises himself seems to have accepted this. He also accepted the idea that the market would keep the excesses in check.

Too Late to Tinker Around the Edges??

http://thedailybell.com/2135/Anthony-Wile-IMF-Austerity-Is-Headed-to-America-Watch-Out.html

I cannot help but notice a connection to today’s editorial by Mr. Wile and the editorial a few days ago by Mr. Hultberg and his new political party. Without rehashing all of the discussion from the aforementioned editorial, it would seem Mr. Hultberg’s “practical” solutions fall directly in line with the promotion of austerity, and that the solution lies – not in a complete rethinking of the relationship of government and society – but in a better management of government, with ALL of the control systems remaining in place.

As Mr. Wile said quite well, “Rather than question the fundamental alignment between the public and private sector – the basics of regulatory democracy – the IMF treats a country like a business and prescribes cost-cutting, privatization and other methodologies that address the symptoms instead of the cause.”

I will offer a few quotes from today’s editorial:

FT: This must involve cutting spending, reducing entitlements and raising taxes.

Barr: While the solution to that problem surely lies in more responsible policy – lower spending, a less ridiculous tax code….

Wile: But the real message in Barr's article, like the FT's, has to do with IMF-style remedies in my view. The phrase "less ridiculous tax code" seems to bear that out.

Wile: The conversation, as we can see in the above articles, is constricted. The problem is always defined as too much government spending. The solution is to demand more revenue from the citizens' affected and to slash the public services that many have grown to depend on.

Wile: IMF provisions featuring privatization, tax hikes and public sector "austerity" are designed in my view to provoke the very public anger that Western elites are counting on to fuel a conversation about yet MORE centralization and MORE governmental control – of a "transparent" and "disciplined" type.

Wile: The conversation is constantly to be focused on "better" government, not less of it.

And what will be the likely result of such “practical” solutions as offered by Mr. Hultberg and others like the IMF?

Wile: The result is a controlled social implosion that the powers-that-be can capitalize upon to introduce a new system, presumably a more globalized one, complete, perhaps, with a global central bank administering a new currency.

Finally to the point that “practical” solutions are no longer sufficient, and in fact only a distraction from the true problems:

Wile: One doesn't merely need "less" of what is currently offered. What is needed is a discussion featuring the fundamental freedoms that gave Western-style democracies their strength to begin with. The US 's vibrant economy in particular was built without a graduated income tax and without a central bank. There were no centralized regulatory authorities and no over-arching military-industrial complex.

I would only modify one portion of the statement. The US’s vibrant economy in particular was built without an income tax of ANY kind. The current income tax and the current central bank both were born at the same time, the dreadful year of 1913.

Now, I will say, I wrote all of the above in real time: capturing my thoughts as I read the editorial, and before reading the conclusion. Imagine my surprise, when at the end of today’s editorial, I read Mr. Wile’s conclusion, which is exactly the opposite of everything I gathered (and commented above) while reading the editorial:

Wile: While an even more radical downsizing might be preferred, Hultberg's proscriptions are at least a start and go far beyond the IMF-style conversation now being prepared for the US.

Mr. Hultberg supports a flat income tax, when the vibrant economy of the US was built with NO income tax. Mr. Hultberg supports a Federal Reserve, with a mandated policy to inflate 4% per year, when the vibrant economy of the US was built with no such mechanism of evil. Mr. Hultberg offers a dialogue exactly within the framework of those preaching austerity: fiddle around the edges of a failed system, yet not questioning the system itself.

The conclusion of Mr. Wile’s comments today seems counter to all of the analysis in the editorial.