Where the banks got the money...

[youngdan]

The problem is twofold. The fed can inflate and the regular banks can inflate through fractional banking. What is needed is zero inflation and zero deflation. Get rid of the Fed altogether. Get rid of the 10% reserve requirement so that the 10 times multiplier is gone and it is fully reserved. Bank could only lend money they actually had. This would be a radical change but I think we could agree on this.

From this point there could be no deflation. Then the currency would be backed to prevent the US Treasury from increasing the supply.


The arguments for increasing it by say 3% could come later. A dishonest way of goosing the economy a bit imo.

[Kensington]

The problem for the banks was, of course, that they were not being paid back. The net effect of that was that the credit system, from the commercial paper market to more general large loans, froze up. If one wants to be specific, it was the Credit default swaps that were the real culprit. These huge irresponsible bets destroyed the financial sector. No financial institution knew what they owed and to who they owed it.

We are in agreement in the causes, but we need to find the right solution. Ron Paul's Gold-Standard idea has been feted in the press. He has got a tremendous amount of exposure.

Dennis Kucinich, on the other hand, has got little if any cover and what he has got, tended to focus on his position on the War. How many people have heard of Kucinich and the American Monetary Institute? The answer, of course, is practically no one..

Ron Paul's monetary policies are allowed to be discussed on the MSM precisely because they cannot work. They are unrealistic and the bankers know this and tolerate it because they know it is not a threat.

Real monetary reform, as proposed by Dennis Kucinich and Austin Mitchell in the UK, is blacklisted. The Government needs to take back control of the money supply. The problem is, those who advocate it, will not be given the free reign enjoyed by the Ron Paul revolution. True monetary reform may well need a real, more traditional revolution.

[Kensington]

Youngdan,

Yes, i agree. The Gold-Standard would have to immediately be discarded as it would lead to great deflation. The only way to ensure that there is not deflation is by requiring the banks to have a 100% standard and lending them this money debt-free from the treasury. Every single penny of credit-money would be backed by Government-issued permanent money. It could be done in the morning with no inflationary effects. One is simply converting the temporary credit money into real money.

I would say that the treasury would have to increase the money supply. There is a lack of money, i believe, in the economy as is and an increasing money supply is needed to facilitate growth, if we do indeed want economic growth, which will no longer be a necessity.

Inflation would not be a serious problem in a debt-free money system. The Government could easily change the money supply if it did become a problem. A lot of new money could be created to fund Ireland's offshore wind farms and other renewable developments.

[youngdan]

You say they can not work as a matter of faith. I just explained that deflation could not occur if the fractional system was abolished.

It worked fine for 150 years.

Forget about those CDSs, the reason they became an issue was because the credit instruments actually started to default.


For the sake of the discussion, lets say the government now controls the money supply and the fed is gone.

Also can you link what Kucinich says

[youngdan]

The very important difference, however, is over our different understanding of inflation. The classical view is that inflation ensures when there is too much money chasing too few goods'. That does not mean that the money supply should never increase. As Keynes pointed out, increasing the money supply will only cause inflation if there is not a subsequent increase in supply.

Having the ability to increase the money supply is, therefore, very important. It needs to occur in order to facilitate economic growth and will not necessarily lead to inflation. China is a perfect example. For hundreds of years they have managed to keep prices relatively stable despite a huge influx of metal and currency. A stable currency is not a good idea.

Holland become a global power because of its banking system and increasing money supply. A growing money supply leads to economic growth, if regulated properly. A Gold-standard would lead to deflation in the short-term and stagnation in the long-term.

But, this idea that inflation is caused by 'too much money chasing too few goods' does not make much sense if you examine it. During the Celtic Tiger years, we did not see 'too few' goods. Marketing, advertising and choice increased dramatically. I do not think that it is fair to say that there was 'too much money'. Poverty rates increased during our glory years and if you ask anyone, even during the best of times, they will say that there never is enough money and that there are too many goods; not too little. When was the last time you heard a company say that they are selling too much and need to reduce there market? Inflation is not caused primarily (if at all) by too much money, it is caused by debt-based money.

The lack of purchasing power, the gap between wages and prices is caused by debt. The price of goods is unnaturally high due to a company's need to pay off crippling debt and interest. A consumer's purchasing power is unnaturally low due to his need to pay off his debt. Inflation, the difference between wages and prices, is a characteristic of a debt-based monetary system.

In a debt-free money system, there would not be that unnatural gap between prices and wages, therefore there may not be a serious risk of inflation.

So, expanding the money supply is sometimes necessary and the Government should have that option. It should also have the option to decrease the money supply. 'Printing money' does not always cause inflation and inflation itself is a characteristic of a debt-based monetary system.

I just don't see what you are trying to say, does increasing the money supply lead to higher prices or does it not.



Inflation is always bad, it robs people of their savings. It is just theft. Just because they may not understand what has befallen them does not make it right. Some people use this devalueing to their own advantage. Anyone who sold a house in 85 has been robbed of most of it's value. Older people have been robbed of their savings.

If inflation is good for the economy then why is all the basketcase countries not booming. The reason is that inflation is the best method ever for making 99% of the people poorer. They will have more money but not more value.

A currency is just a medium of exchange. It should be static like every unit of measurement.

Changing it to a unit 10% smaller makes as much sense as me changing an inch to 10% shorter so that my mickie would now be 10 inches like I always wanted.

[20000miles]

I'm going to agree with youngdan - particularly with the last post.

Money is simply a medium of exchange. And unlike consumer goods or producer goods (where more of these goods is considered economically better), the same is not true of money. In the case of money, more is not preferable to less, as any amount of money is able to perform its specific function.

Secondly, it is clear to me that the only thing that can cause a "general, sustained rise in prices" is a monetary expansion. All other alleged causes of inflation, like "cost-push" inflation are non-sense. The effects of inflation aren't uniform, however. Those that recieve the newly created money will have the chance to spend it before prices rise, while those who get it last will get to spend it when prices have already risen. There is a distributional element to it as well. So basically, what makes you think we can trust the government to manufacture our money for us?

Thirdly, an economy with a gold standard and full-reserve banks, where the money supply is increasing at say 1%, and the economy is growing at say 3%, there will be a rise in the purchasing power of money. However, this fall in prices isn't bad, and the result isn't poverty but prosperity.

EDIT:

I think this graph is an excellent analysis:



http://www.capitalism.net/articles/A...Deflation.html

[youngdan]

I have faith in Kensington and would be disappointed if he were unwilliing to deny the government the ability to steal 10% of the money supply each year but because the bumpkin citizens are stupid.

[Kensington]

Increasing the money supply will lead to inflation if there is not a subsequent increase in the supply of goods and services. For an economy to grow, there has to be an increasing supply of money. If there is a falling supply of money, there is an economic recession.

In the case of money, more is not preferable to less, as any amount of money is able to perform its specific function.

If a gold-standard was introduces, there would be massive deflation. This would lead to economic disaster. There is no way that our complex economy could survive on the money supply that would be afforded by a full Gold-Standard system. Less money in an economy is a bad thing. It can be a very bad thing indeed.

Whatever about the United States during the Great Deflation, it is clear that things are very different today. It is clear that the economies of the US and Europe would have collapsed if deflation had been left to occur. There would have been devastation if the Government had not propped up the money supply.

The present money supply in the economy needs to be retained. This can be done simply by mandating that banks hold 100% reserves. These reserves should not be held in Gold as there simply is far too little, but in Government created permanent debt-free money. It would be very simple to do and lead to no economic disruption.

The Government, advised by the business community and other experts, should also have the option of increasing the money supply (or decreasing it), if necessary. A Gold-Standard would put a nation's money supply at the mercy of speculators.

Dennis Kucinich's monetary policy is similar to Franklin's, Jefferson's, and Lincoln's position. They believed that the money supply should be controlled, not by private bankers, but by Congress.

Kucinich is connected with the American Monetary Institute The American Monetary Institute

The Social Credit movement, founded by C.H. Douglas, was very popular during the early part of the last century.

Social Credit - Wikipedia, the free encyclopedia

[youngdan]

"If a gold-standard was introduces, there would be massive deflation"

You keep repeating this with no reasoning on explanation behind. It is in my mind absurd and their must be a flaw in your thinking. Why do you think there would be a deflation.

[Oblivion]

Most of it never actually existed.