Real reason for national debt.

[Fusion pimp]

A quick blurb from the book I'm reading- This is not speculation, this is fact. I've tried to explain this to people, but they don't seem to grasp it.. this guy explains it much better than I can.


THEY PRINT IT - WE BORROW IT AND PAY THEM INTEREST

An example of the process of currency creation and its conversion into \"people's debt\" will aid our understanding. The Federal Government, having spent more than it has taken from its citizens in taxes, needs (for the sake of illustration) $1 billion. Since it does not have the currency, and Congress has given away its authority to create it, the government must go to the creators for the $1 billion. But the Federal Reserve, a private corporation, does not give its currency away for free! The bankers are willing to deliver $1 billion in currency or credit to the federal government in exchange for the government's agreement to pay it back with interest. So Congress authorizes the Treasury Department to print $1 billion in U.S. Bonds, which are then delivered to the Federal Reserve bankers. (The bonds are a kind of \"IOU\" that bears interest.)

The U.S. Treasury prints $1 billion in bank notes. The printing cost is about $20.62 per 1,000 bills - it costs the same irrespective of the denomination - the cost of printing a $1 note is about the same as for a $100 note: about .0206 cents. The Federal Reserve \"buys\" these bills from the U.S. Treasury, paying only for the printing costs. The bills are then exchanged at full face value for the bonds. The government uses the currency to pay its obligations. What are the results of this fantastic transaction? Well, the government's bills are paid all right, but the U.S. Government has now indebted the people to the Federal Reserve bankers for $1 billion plus interest!

Since this process has been going on since 1913, the people are now indebted to the bankers to the tune of trillions of dollars. The people are taxed billions of dollars each month just to pay the interest on this \"national debt.\" With both the principal and the interest climbing every month, there is no hope of ever paying off this \"debt.\" The working people of the United States now \"owe\" the approximately 300 banking families and their consorts more than the assessed value of all the assets in the United States. And realize, the bankers got all this for the cost of paper, ink, and bookkeeping!

THE MOUNTAIN OF DEBT

You say this is terrible! Yes it is, but this is only part of the sordid story. Under this \"debt-currency\" system, those U.S. Bonds referred to above have now become assets of the banks, called their \"reserve.\" Regular commercial banks use these assets to issue loans to individual and commercial customers. Since the banking laws require only about a 12% reserve, this means the banking fraternity can lend up to eight times the amount of the bonds they have on hand. As a result of the $1 billion discussed here, they can lend $8 billion to private customers at interest. This means that together with the $1 billion lent to the government, the bankers can lend out $9 billion at interest for the original cost to them of about $400,000 for the printing! And because the Federal Reserve bankers have been granted a monopoly, the only way our people and businesses can get currency to carry on trade and expand industry and farming is to borrow it from the bankers!

[Mobius]

What isn't mentioned is the foreign debt. USA is unique in that the US Dollar is used as the de facto currency in many parts of the world. In fact, if all the US dollars currently outside the USA were to suddenly arrive back in the country, you would go bankrupt overnight, and the US economy would collapse instantly. (Of course, that'd drag the world instantly into depression too!)

However, the reason the USA can keep the printing presses running is because it is 100% guaranteed that the vast majority of those dollars will never ever again see the shores of the USA. In effect, this has been \"free money\" for the USA: you print it, get your dollar's worth of X from country Y, but you never need to buy back that dollar bill, because it is being used by others as THEIR currency.

This is one of the main reasons why the USA can sustain such staggering overseas debts: the actual numbers do NOT reflect the large percentage of that money which will never ever have to be paid back.

[DCrazy]

And who sets the interest rate? The Federal Reserve! Which has a bit of a vested interest in not seeing out economy go down the shitter. So the \"interest rate\" does not keep going up month after month.

Also, who is the government repaying? Bond holders, for one, which can be the Fed, private citizens, or foreigners. So much for not getting that money back; the whole reason this cycle keeps happening is to pay you back!

This whole spiel reeks of Mises. And it's one step away from being crackpot theory what with its mention of \"banking fraternities\". Surprised they didn't mention the New World Order or the Jewish conspiracy.

[Cuda68]

Good God - wonder where Enron took there lead from. This gives me a belly ache and a head ache. If I think on this too much I may also get the squirts.

[Duper]

p.s. the Federal Reserve is technically a privately owned Bank and not a divition of the US government. This changed back in 1928 I think around Christmas durning an \"emergancy session\" with very few there to vote on it. hmmm....

[Fusion pimp]

Dcrazy,
if you think this \"spiel\" is untrue, I urge you to do some homework. This isn't a conspiracy theory, this is how our system works.New World Order, huh? I don't buy into that kind of crap.

Can you tell me what controls the value of our dollar?
Do you know the rate of inflation?
Do you know what fractional reserve banking is?
Can you tell me how/why our interest rate is determined?

no, no..quick, don't look on the net.


Mobius-
That isn't \"free money\" at all, we still have to pay the face value plus interest to the federal reserve for injecting that currency into our economy or any other. The American people take on the liability.The only way for us to **profit** from our money going overseas is if we loaned it at a higher rate than the interest rate at which the Federal Reserve is charging us- which does happen, not often, but it does. Regardless, the interest from that money is used for Government spending and not used to to repay the debt to the Federal Reserve, thus leaving the American tax payers to foot the bill. That doesn't mean there is no value to the dollar being used abroad-can you guess why?

[Zuruck]

Well, I think there are plenty of other reasons as well. As someone who works close with the Fed Reserve Bank of Chicago, they do make quite a bit of money.

I heard once awhile back that the profit margin of the Reserve was somewhere around 85%, whereas Microsoft's amazing profit margin hovered around 40%.

[Palzon]

i say let's eat the rich.

[Skyalmian]

[DCrazy]

Dcrazy,
if you think this "spiel" is untrue, I urge you to do some homework. This isn't a conspiracy theory, this is how our system works.New World Order, huh? I don't buy into that kind of crap.

Can you tell me what controls the value of our dollar?
Do you know the rate of inflation?
Do you know what fractional reserve banking is?
Can you tell me how/why our interest rate is determined?

1) The money market.
2) Approximately 2% IIRC. Since our GDP growth is at about 4.7% inflation is healthy up to that point.
3) I know exactly what fractional reserve banking is thank you very much. In fact, I can tell you that the amount of money created each period by fractional reserve banking is equal to the multiplicative inverse of the required reserve ratio set by the Fed times the amount of money in the economy. It's called the money multiplier.
4) Our interest rate is determined by the Federal Open Market Committe buying and selling U.S. Treasury bonds at the desk. This alters the amount of money in the economy and supply/demand logic sets in, altering the interest rate. They process these transactions, as well as short-term loans to banks, in order to move this interest rate towards the target rate.

I do happen to be an Econ/CS double major.

[Fusion pimp]

1) The money market.

Translated- consumer confidence, which is why you hear those buzz words often.

2) Approximately 2% IIRC. Since our GDP growth is at about 4.7% inflation is healthy up to that point.

I agree, 2% inflation would be VERY healthy for 4.7% GDP. Here's the problem, we've seen a 7% loss on our dollars value in two weeks.

3) I know exactly what fractional reserve banking is thank you very much. In fact, I can tell you that the amount of money created each period by fractional reserve banking is equal to the multiplicative inverse of the required reserve ratio set by the Fed times the amount of money in the economy. It's called the money multiplier.

Nice, I'll eat crow.. but, I am a bit surprised that they actually teach this stuff. Since you know about FRB, you obviously see the danger/harm to our economy and how it's a Ponzi Scheme. Is it something you've studied through school( did they just touch on it?) or, is it something you've learned on your own?
Franctional reserve banking is a death sentence to our economy.

One last question I forgot to ask- Being a econ/cs major, were you aware of the process(described above) of getting currency into our economy? By equating the above blurb with NWO, etc.. are you suggesting that the article is incorrect? If so, I'd like for you to explain the process, who's involved in each step and what their responsibility is.

[DCrazy]

Consumer confidence is related to the goods and services market, NOT the money market. Consumer confidence affects demand. The money market deals with the relationship between the amount of money in the economy and the current interest rate on lending that money.

Anything with the word \"consumer\" in it is related to the goods and services market. Consumers make up a fraction of the amount of lending going on; the biggest debtors are businesses and the government.

Inflation (the change value of the nominal dollar with respect to the real dollar, easily estimated by comparing the consumer price index for this year against the base year) is not the same as the value of the dollar with respect to other countries' currencies. Inflation CAN cause a depreciation in the value of our currency, but just because it CAN does not mean it MUST.

Our currency has been on a downward spiral since shortly after the Bush administration came in. This is good and bad; good because it re-adjusted the worldwide value of the dollar closer to where it belonged post-dotcom, but bad because it means that our dollar is worth less and people want less of it.

Barry, if our currency had inflated 7% in two weeks, bread would cost 7% more now than it did two weeks ago. Extrapolating that to an entire year, that would mean 364% inflation! We do not have 364% inflation, I don't care who you ask.

I'm aware of how currency gets put into the economy. I didn't equate your snippet with conspiracy theories, I just wanted to point out that it's one of the favorite arguments of those paranoid of a Zionist banking conspiracy taking over the U.S. economy. Literally, all you have to do is insert the word Zionist in front of \"banking fraternity\" and you have a well-recognized crackpot theory.

Why are you surprised they teach what fractional reserve banking is? If they didn't, economists would be pretty much useless, wouldn't they?

[edit] And it seems I was wrong on 2% inflation. Bureau of Labor and Statistics puts us at an increase in the CPI of 3.1% since April 2005.[/edit]

[Fusion pimp]

Consumer confidence is related to the goods and services market, NOT the money market. Consumer confidence affects demand. The money market deals with the relationship between the amount of money in the economy and the current interest rate on lending that money.

In theory,but consumer confidence directly relates to the value of our dollar, it can work no other way, they're overlapping.

Barry, if our currency had inflated 7% in two weeks, bread would cost 7% more now than it did two weeks ago. Extrapolating that to an entire year, that would mean 364% inflation! We do not have 364% inflation, I don't care who you ask.

I'm sorry, but the the result of currency inflation does not show overnight. I'm not talking about price inflation. Don't confuse the two.Price is directly affected by currency(supply/demand, Both price and currency), but currency inflation does not generally equate to price inflation overnight, or over two weeks.Unless you'd like to use Argentina, Bolivia and Brazil as an example, hyperinflation anyone?

I'm aware of how currency gets put into the economy. I didn't equate your snippet with conspiracy theories, I just wanted to point out that it's one of the favorite arguments of those paranoid of a Zionist banking conspiracy taking over the U.S. economy. Literally, all you have to do is insert the word Zionist in front of \"banking fraternity\" and you have a well-recognized crackpot theory.

Just because it seems paranoid doesn't mean they're not after you. Kidding.

The reason I posted this is because I realized that most people have absolutely no clue how our system works, and, with our economy in shambles(yes, it is.) people are going to lose their asses when the manipulation ends and they need to know how to protect themselves.

Why are you surprised they teach what fractional reserve banking is? If they didn't, economists would be pretty much useless, wouldn't they?

uhh, because ruining our economy slowly and nobody is taking notice? Or at least doing something about it. I can't imagine too many people fully understanding it and sitting back while taking the beating.

[edit] And it seems I was wrong on 2% inflation. Bureau of Labor and Statistics puts us at an increase in the CPI of 3.1% since April 2005.[/edit]

Do me a favor- Start with the 1913 CPI and work your way up to present day(or as close as you can get), notice the consistency up until '83 when they manipulated the calculation of the base index. Compare the 1970( or any date prior to '83) CPI using the \"new method\" of calculation. Tell me what you see..

Looking forward to your response.

[DCrazy]

Essay mentioning the 1983 change to rental equivalence First scholarly paper I found on a Google search. Only mentions the change in the first section, but gives enough background for me to understand what you're talking about.

Yay for the Internet, because I was unaware of the 1983 change (at first I thought you were referring to the '90s change to chain-weighting which is provably more accurate).

Now, I haven't the time to look through the BLS stats at the moment, but I assume that I should somehow come to the conclusion that the change in inflation measurements was introduced to mask a real inflation problem in this country. I will make no such conclusion until I have read over the stats and done a little bit more digging on this change.

My initial thought is that, given the constant buying/selling in the housing market since the 80's that rental equivalence would be a far better indicator of living cost, as almost nobody can afford a home with cash. Therefore the mortgage rates, which are tied to the Fed's target rate, play a huge role in this portion of the CPI, which means that as the Fed diddles with the interest rates the CPI changes unnecessarily (the cost of living hasn't changed so much as the amount of interest being paid on the loan, and given constant buying/selling, fewer people will be sticking around to see equity accumulating in their home).

[Fusion pimp]

Now, I haven't the time to look through the BLS stats at the moment, but I assume that I should somehow come to the conclusion that the change in inflation measurements was introduced to mask a real inflation problem in this country. I will make no such conclusion until I have read over the stats and done a little bit more digging on this change.

Fair enough- I appreciate you giving enough weight to my claim to at least research it. I think you're going to be quite surprised. I'm assuming you're going to give this a fair shake,if so, you'll have no choice but to see how they have manipulatd the calculations of the base index to make the figures appear less threatening. Basically, the index got too big, so they started with a new base.

[DCrazy]

Alright, I see nothing suspicious. I grabbed the 1950-1982 and 1983-2005 monthly CPI tables from BLS and put them in an Excel spreadsheet (which you can get here if you like). I've annotated it with big events that correspond with the inflation trends.

Just because the base has changed does not invalidate the numbers. It just means you can't compare pre-83 to post-83 numbers. You also can't make any conclusions about inflation trends around the year 1983. Prior to the change, inflation was measurably plummeting (12% to 4% in three years!). From 1983 on for the next 6 or 7 years it holds steady around 4%.

Now this might arouse your suspicion, but not mine. Looking at the graph (sheet Chart1 in the XLS) the pre-1983 economy seems to be in a wildly swinging series of cycles. In fact, lots of people blame the Fed for creating those cycles by fiddling with interest rates too much. I won't debate that point.

Compare the pink lines (growing averages) between Chart1 and Chart2. Now compare each with its trendline. The end of the pre-83 GrowAvg line comes close to the beginning of the post-83 GrowAvg line, but each slopes its own way in the direction of its trendline. This is perfectly normal, and why I see nothing wrong with the data.

[Fusion pimp]

You also can't make any conclusions about inflation trends around the year 1983. Prior to the change, inflation was measurably plummeting (12% to 4% in three years!).

Great! You see exactly what happened, the only thing you're missing is why it plummeted.Inflation wasn't \"plummeting\" at all and the proof lies in the method of calculation. Keep looking!
Once you discover the new method of calculation, apply it to pre-'83 and see what you come up with. Conversely, apply the old calulation method to post-'83 and see what you come up with.

Then, take it to your professor(s)and let 'em fiddle with it.

the pre-1983 economy seems to be in a wildly swinging series of cycles. In fact, lots of people blame the Fed for creating those cycles by fiddling with interest rates too much. I won't debate that point.

You're making my point for me. At what point in time did the economy start wildly swinging pre-'83?

Don't call it quits just yet. The devil is in the details.

Then, if you wish, we can discuss the change in calculation of unemployment reports.

[DCrazy]

There's a big difference between blaming the Fed's misguided changing of interest rates and blaming the Fed's existence. The argument that the snippet from your post makes is that centralized banking is the cause of economic woes.

[Fusion pimp]

I typed a 4 paragraph post and I received a \"debug mode.. somethingorother\" when I tried to post it. I'll try to post it later.

[Fusion pimp]

I still can't post it... I'll try to start another thread.

\"cannot obtain common word list\"...

can't even post it in a new thread.
what gives?

[Jeff250]

Government conspiracy?

I opened a thread on this issue here:
viewtopic.php?t=10305

[Fusion pimp]

I know what the article implies and whether I agree with its implication is beside the point.I believe greed is more of a factor than their mere existence. Can they exist without ripping off the public? Sure they can.
The convo evolved into something much broader and we're in agreement that what the article states is exactly how our money is injected.Keep rolling with this- I think once you see the manipulation it will beg more questions that will force the student in you to find the answer.At a minimum it will force you to realize that the numbers are not a real reflection of our economic standing.

I do believe the manipulation of the numbers is a conspiracy to dupe the easily deceived into believing we're in better economic shape than we really are. Why else would they manipulate the numbers when they got too big for public comfort, to reflect a lesser CPI, lower unemployment rate, etc.? Could it be that if the public found out the real numbers we would lose consumer confidence(there's the buzz words again)and send our economy in a self-perpetuating downward spiral by way of a devaluing dollar? It's weird, people tend to spend less when they're getting less for more.

What scares me is- you are the only one who has responded. The public doesn't seem to care,or maybe they simply don't understand it. The truth is, it's not very complicated and people need to know about the lifeblood of our society. Most are probably content receiving their 1.25% interest in their saving account without realizing they're not even beating the rate of inflation, simply the slowest possible rate at which you can go broke.

[DCrazy]

This is the point where I have to make a choice. Either I can continue this conversation, definitely winding up lodging my foot firmly in my mouth, or I can admit that I am beginning to get into a topic far over my head.

Barry, while I really enjoy talking about economics, I am just a student. Everything I've said so far I have confidence in. Past this point, however, I do not have full confidence in my understanding. So rather than lie and pretend I know what I'm talking about, I'll have to unfortunately end it here.

Now I'm not saying you're right -- I am far from convinced. I don't think that any specific manipulation of numbers by the BLS on behalf of or affecting the policies of the Fed has deceived the American public into believing that we are in a far better economic situation than we really are. I also don't think that the method this country and many European countries use to create currency (the paper representation of money) contributes to economic chaos, because merely our mutual trust in the concept of the dollar is enough to make deals hold. When people begin doubting the validity of the currency itself, then it's time to panic.

But that's as far as I can take it. I'm sorry to disappoint you Barry, but far too often I have ventured forth in debate knowing jack sh*t about what my mouth is spewing. I've still got a few years of study ahead of me, so maybe later I'll be well-equipped to debate this argument to its end. But right now I'm just too dumb.

[Fusion pimp]

D,
You've just restored my faith in the internet.
Seriously, that took a lot of courage and I completely respect you for stepping up and posting that. I think you're far from \"dumb\". The answers are out there and I hope you one day do have the desire(and time) to explore. I discovered our economic situation by accident back in the late 80's/early 90's and have been facinated ever since-firstly, why we're in this boat and how to keep mine floating without losing buoyancy. One question lead to another, then another and so on, which is why I was sort of pressing you to dig without giving out the answers.Each rock you turn over becomes more interesting and informative, it forces you to search out more rocks to explain your findings under the last.At least that's how it has worked for me.

Before you hang your hat, may I convince you to at least read this?
http://home.hiwaay.net/~becraft/VieiraMono4.htm

It's not very long but, it will give you an idea of the inherent dangers FRB poses to our economic future. It's a pretty smooth read and everything is easily verifiable.It will also help fit some pieces of the puzzle together that I am 100% sure will help with future understanding as a student.

Thanks for being honest with me.


B-

[Diedel]

How come then, that under the Clinton administration, the U.S. of A. had no debts, but had an overplus?

Part of getting into debt is spending more than you have.

[DCrazy]

Diedel, we had no DEFICIT, i.e. the government was taking more money in per year than it was spending.

[Fusion pimp]

Dcrazy is correct, there's a difference between deficit and debt.Deficit is the amount over budget..

Did you have a chance to read that article, D?
My only complaint with it is that toward the end, the author paints with some big strokes instead of stating the facts and letting the reader draw his/her own conclusion.

[DCrazy]

I started reading it while I was doing my radio show today, and I think I've found the thesis of the article:

The FRS is simply an elaborate device set up to accomplish these rather simple ends in a highly convoluted, and thereby deceptive, way.

According to the author, convoluted = deceptive. This is wrong. The source code to the X11 windowing system is convoluted, for example. That doesn't mean it's deceptively covering the fact that it sends whatever you're doing over the network, or any other purpose other than its intended goal. It's an inherently complicated system and the details of its implementation reflect that. The same for the Federal Reserve system.

As far as the whole gold standard/silver standard stuff (the following paragraph), what countries base their currency on gold today? Answer: ZERO. No country on Earth uses gold as the basis of its currency. And why is gold a better standard than "full faith and credit" in the US government? The value of fiat currency is subject to the same forces of supply, demand, and scarcity that currencies based on physical goods are.

Fiat money is more resilient to change; that's why we use it. That doesn't change the fact that if a government decides to just keep printing currency, they will cause inflation.

First, modern political money is the prime means by which the government operates a scheme of OPPRESSIVE, HIDDEN TAXATION through increases in the supply of money that generate systematic increases in the prices of goods and services (what the public calls "inflation").

Lie. When prices go up wages go up. The major debate in economics is whether prices go BACK DOWN or if they are "sticky". I'm sure Birdseye has a strong opinion on that point. And all the following points fall apart as they are explicitly based upon their predecessors.

I did a bit of Googling on the author, Dr. Edwin Vieira, Jr. While purportedly a Harvard graduate four times over (bachelor's, master's, Ph.D., and JD!), he shows up on sites like this with headlines such as "Central Banking and the New World Order". I don't know how much I can trust this guy.

[Fusion pimp]

I don't have time to make a detailed response to your post, I'm going varminting in about 15 minutes. I will follow-up later, when I get home.

Simply because he associates himself with NWO does not mean he is wrong. Take the facts, toss out the rest.It's a solid rule when reading anything that starts with facts and ends in opinion.

I'm really looking forward to addressing your statement about the gold standard.
I hope you really don't believe that a fiat/fudiciary currency is as solid as a commodity based currency.

Catch ya when I get back and thanks for reading it.

B-

[fliptw]

the problem with the gold standard? you can't go back to it. Why? The value of gold is entirely by fiat. So going back you'd wind up with the possibilites of someone holding the world hostage with dirty bomb and fort knox. No thanks.

the value of something is ultimately set by agreement of the parties concerned with it, the modern fiat system makes setting this a bit easier for global commerce and it does make it easy to say the FRS can unilaterly choose to screw over the value of the dollar, but the fact most of the values of the currencies of the world are directly pegged to the US dollar makes such arrogance unlikely due to the potentially negative impact on international relations and trade.

[DCrazy]

Not to mention those who belong to the Federal Reserve system kind of want their money to have some value... I fail to see the incentive in devaluing the U.S. Dollar to nil when all your \"wealth\" is measured in that currency, especially when it all exists on paper and not in cash anyway.

[Fusion pimp]

the problem with the gold standard? you can't go back to it.

That is true- but, only due to our current system of currency. The system would have to collapse in order to return to a commodity based money.

Why? The value of gold is entirely by fiat.

Not true, gold has many industrial uses, intrinsic value, etc.Even in its indutrial uses, gold is most often recoverable. The beauty of attaching our money to a commodity is that inflation only exists when more commodity is injected into our system and it's self limiting. Under a full commodity based system, they cannot print more money than is backed by the commodity.They can only mine for gold when it's economically profitable in comparison to alternative investments to mine. Self limiting.Gold is in no way fiat, the scarcity of gold promises an eternal value. But, you say, what if a huge supply is found and it drops in cost? Under a commodity based system, the cost of goods and services follow. Under a commodity based system, you never really lose *value*.. again, it's self-limiting and that alone controls inflation.

I'm not even going to get into the fact that gold/silver is a valuable asset that is tangable tradable and usable, unlike our 'floating dollar'.

So going back you'd wind up with the possibilites of someone holding the world hostage with dirty bomb and fort knox. No thanks.

Not even worth replying to.

Not to mention those who belong to the Federal Reserve system kind of want their money to have some value... I fail to see the incentive in devaluing the U.S. Dollar to nil when all your \"wealth\" is measured in that currency, especially when it all exists on paper and not in cash anyway.

D,
Do you realize how much money they're inserting into our economy weekly? 4-6 **billion**, that is not a typo.. 4-6 billion a week. Law of supply/demand? They're not intentionally devaluing our dollar, it's a natural consequence of a floating dollar.

Fiat money is more resilient to change; that's why we use it.

That is absolutely false. Explain to me how a floating value is more resiliant than a fixed, self-limiting value?

That doesn't change the fact that if a government decides to just keep printing currency, they will cause inflation.

I think you've missed something. Under a commodity based system a government doesn't print more currency, it can't.. it's limited to the supply of commodity!!!!

Lie. When prices go up wages go up.

That is usually true, however, they generally don't go up the same percentage(or more) than inflation.Make sure you add into the increasing wages the additional income tax that you're paying, the additional taxes for goods and services you're paying on that inflated rate also, because that is not factored into the rate inflation.

I did a bit of Googling on the author, Dr. Edwin Vieira, Jr. While purportedly a Harvard graduate four times over (bachelor's, master's, Ph.D., and JD!), he shows up on sites like this with headlines such as \"Central Banking and the New World Order\". I don't know how much I can trust this guy.

Like I said earlier-Take the facts, toss out the rest. It's a solid rule when reading anything that starts with facts and ends in opinion.

[Fusion pimp]

the modern fiat system makes setting this a bit easier for global commerce and it does make it easy to say the FRS can unilaterly choose to screw over the value of the dollar,

If you go back and read the article it's abundantly clear that the FR *is*, in fact, raping the American people by their congressionally sanctioned method of monetization. Let's assume for the sake of argument that they have no control over the floating dollars value, isn't it enough the American people have to assume the liability of repaying the debt of face value plus interest when they've only incurred the cost of actual printing?

but the fact most of the values of the currencies of the world are directly pegged to the US dollar makes such arrogance unlikely due to the potentially negative impact on international relations and trade.

Uhhh, you may want to check into the Euro.

[DCrazy]

the problem with the gold standard? you can't go back to it.

That is true- but, only due to our current system of currency. The system would have to collapse in order to return to a commodity based money.

Not so sure it would have to collapse but it would take an INCREDIBLY co-ordinated effort.

Why? The value of gold is entirely by fiat.

Not true, gold has many industrial uses, intrinsic value, etc.Even in its indutrial uses, gold is most often recoverable. The beauty of attaching our money to a commodity is that inflation only exists when more commodity is injected into our system and it's self limiting. Under a full commodity based system, they cannot print more money than is backed by the commodity.They can only mine for gold when it's economically profitable in comparison to alternative investments to mine. Self limiting.Gold is in no way fiat, the scarcity of gold promises an eternal value. But, you say, what if a huge supply is found and it drops in cost? Under a commodity based system, the cost of goods and services follow. Under a commodity based system, you never really lose *value*.. again, it's self-limiting and that alone controls inflation.

First of all, you're thinking of representative money, not commodity money. Commodity money can be melted down into something worth exactly what it says it's worth.

Secondly, I will cite Wikipedia here, only because it directly makes my point.

Perceived Stability offered by Gold Standard

The gold standard, in theory, limits the power of governments to cause price inflation by excessive issue of paper currency, although there is evidence that before World War I monetary authorities did not expand or contract the supply of money when the country incurred a gold outflow. It is also supposed to create certainty in international trade by providing a fixed pattern of exchange rates. The gold standard in fact is deflationary, as the rate of growth of economies generally outpaces the growth in gold reserves. After the inflationary silver standards of the 1700s, this was regarded as a welcome relief, and an inducement to trade. However by the late 19th century, agitation against the gold standard drove political movements in most industrialized nations for some form of silver, or even paper based, currency.

Under the classical international gold standard, disturbances in the price level in one country would be wholly or partly offset by an automatic balance-of-payment adjustment mechanism called the price-specie-flow mechanism. (Specie refers to gold coins.) The steps in this mechanism are first: when the price of a good drops, because of oversupply, capital improvement, drop in input costs or competition, buyers will prefer that good over others. Because the stabilization of currencies to gold, buyers within the gold based economies will preferentially buy the lowest priced good, and gold will flow into the most efficient economies. This flow of gold into the more productive economy will then increase the money supply, and produce sufficient inflationary pressure to offset the original drop in prices in the more productive economy, and would reduce the circulating specie in the less productive economies, forcing prices down until equilibrium was restored.

Central banks, in order to limit gold outflows, would reinforce this by raising interest rates, so as to bring prices back into international equilibrium more quickly. In theory, as long as nations remained on the gold standard, there would be no sustained period of either high inflation, or uncontrolled deflation. Since, at the time, it was believed that markets internally always clear (See Say's Law), and that deflation would alter the price of capital first, it meant that this would reduce the price of capital, and allow more growth as well as long term price stability.

However, in practice this turned out not to be the case: it was wages, not capital, that depreciated in price first. The reasons for this effect, described by Malthus at the time, and later given more formal expression by Amartya Sen, have to do with the ability of holders of capital to arrange the terms of selling of capital, whereas workers cannot indefinitely delay their need to eat. The price of food relative to wages soars, and there are negative consequences, including famine.

I'm not even going to get into the fact that gold/silver is a valuable asset that is tangable tradable and usable, unlike our 'floating dollar'.

Yeah, when you can get your hands on it. The U.S. government didn't allow U.S. citizens to claim the gold that its notes said they were worth. Citizens were barred from trading in gold.

So going back you'd wind up with the possibilites of someone holding the world hostage with dirty bomb and fort knox. No thanks.

Not even worth replying to.

His point is that whenever your currency is representative of a commodity, that commodity's perceived value and existence are the two most critical factors holding up your economy. In a fiat money system, it's the country's perceived "value" and existence -- or how much you believe the politicos and central bank are doing what they can to maintain economic stability.

Not to mention those who belong to the Federal Reserve system kind of want their money to have some value... I fail to see the incentive in devaluing the U.S. Dollar to nil when all your "wealth" is measured in that currency, especially when it all exists on paper and not in cash anyway.

D,
Do you realize how much money they're inserting into our economy weekly? 4-6 **billion**, that is not a typo.. 4-6 billion a week. Law of supply/demand? They're not intentionally devaluing our dollar, it's a natural consequence of a floating dollar.

Taken from the U.S. Bureau of Engraving and Printing website:

• The Bureau of Engraving and Printing produces 35 million notes a day with a face value of approximately $635 million.
• 95% of the notes printed each year are used to replace notes already in circulation. 45% of the notes printed are $1 notes.

That means that the amount of currency put into the economy is $222 million a week, or $11 billion a year. As a fraction of GDP ($12 trillion in current dollars, which is the proper figure to use since we're comparing with currency and not value) it is 10.9%. This would piss off monetarists, as our Real GDP only rose 4.8% over the past year, but is leftover from the expansionary monetary policy used by the Fed to soften the latest recession (increase money supply -> lower interest rates -> spur capital investment -> increase GDP).

Fiat money is more resilient to change; that's why we use it.

That is absolutely false. Explain to me how a floating value is more resiliant than a fixed, self-limiting value?

A REAL academic paper comparing the gold standard to fiat money and some alternative regimes

That doesn't change the fact that if a government decides to just keep printing currency, they will cause inflation.

I think you've missed something. Under a commodity based system a government doesn't print more currency, it can't.. it's limited to the supply of commodity!!!!

Who sets the exchange rate of gold? Who makes the law that they can't print more money than they have gold? How easy would it be to change those numbers to "more accurately reflect our current gold supply and economic situation?" For better or for worse it can be done.

Lie. When prices go up wages go up.

That is usually true, however, they generally don't go up the same percentage(or more) than inflation.Make sure you add into the increasing wages the additional income tax that you're paying, the additional taxes for goods and services you're paying on that inflated rate also, because that is not factored into the rate inflation.

The only part I agree with you on is the progressive tax portion. As wages increase some find themselves in higher tax brackets. This is known as an automatic stabilizer, as it is one of the things built into our economy that keeps it from overheating. I used to be a firm opponent of a graduated tax system until I actually learned how it works.

I did a bit of Googling on the author, Dr. Edwin Vieira, Jr. While purportedly a Harvard graduate four times over (bachelor's, master's, Ph.D., and JD!), he shows up on sites like this with headlines such as "Central Banking and the New World Order". I don't know how much I can trust this guy.

Like I said earlier-Take the facts, toss out the rest. It's a solid rule when reading anything that starts with facts and ends in opinion.

[/quote]
The problem is the opinion is completely intertwined with the facts. A real scientific paper does not use passionate words, it does not provide opinion in its data, and does not cherry-pick information to prove its hypothesis. Not to mention a paper like yours should be using induction (using information about the FRS to prove why it's a bad idea) instead of its preferred method of deduction (starting with the fact that the Fed is a bad idea and highlighting examples of why).

[Fusion pimp]

First of all, you're thinking of representative money, not commodity money. Commodity money can be melted down into something worth exactly what it says it's worth.

No sir, I'm not thinking of representative money. I can see how you'd draw that conclusion by my use of the word printed instead of coin.

Yeah, when you can get your hands on it. The U.S. government didn't allow U.S. citizens to claim the gold that its notes said they were worth. Citizens were barred from trading in gold.

Actually., that's not true- until 1933 citizens could exchange notes for gold and 1968 for silver.

His point is that whenever your currency is representative of a commodity, that commodity's perceived value and existence are the two most critical factors holding up your economy. In a fiat money system, it's the country's perceived \"value\" and existence -- or how much you believe the politicos and central bank are doing what they can to maintain economic stability.

I'm not speaking of a representative money system, my argument is for a true commodity based system.
But, you're correct, that is his point and it is 100% true.

Taken from the U.S. Bureau of Engraving and Printing website:


# The Bureau of Engraving and Printing produces 35 million notes a day with a face value of approximately $635 million.
# 95% of the notes printed each year are used to replace notes already in circulation. 45% of the notes printed are $1 notes.

I didn't say they were *printing* 4-6 billion/week, I said inserting. Big difference. Refer to the fractional reserve practice and you'll find your answer.

Who sets the exchange rate of gold? Who makes the law that they can't print more money than they have gold? How easy would it be to change those numbers to \"more accurately reflect our current gold supply and economic situation?\" For better or for worse it can be done.

Alchemist throughout history have been unsuccessful in turning base metals to gold, how in the wold could they coin more gold if they don't have any? Again, you're assuming representative and I've said from the start, commodity!

The problem is the opinion is completely intertwined with the facts. A real scientific paper does not use passionate words, it does not provide opinion in its data, and does not cherry-pick information to prove its hypothesis. Not to mention a paper like yours should be using induction (using information about the FRS to prove why it's a bad idea) instead of its preferred method of deduction (starting with the fact that the Fed is a bad idea and highlighting examples of why).

If you're able to identify the difference between opinion and fact, separating the two shouldn't be an issue. You're suggesting that his opinion invalidates the facts.

For the record- I am arguing for a true commodity based system, not representative/fudiciary or fiat.

[Fusion pimp]

Couple of things about your paper-

1. It's tied to the FR of St Louis.
2. They never addressed commodity money- only representative money.Since the inception of representative money they've practiced methods of fractional reserve.

Please read the the first paragraph of the conclusion-

The key words in favor of the fiat system are \"credible nominal anchor\".

The real disadvantage to a commodity money is the high rescource cost, but isn't that inherent to its value?

We can go 'round-and-'round and ultimately it's going to come down to this-

Full faith vs. Intrinsic value

[DCrazy]

OK, since you're talking about a real, bona fide gold system, I see what you mean.

Couple of things about your paper-

1. It's tied to the FR of St Louis.

Didn't you say something about "extracting the facts"? And there's a big disclaimer at the bottom about how this does not necessarily represent the views of the St. Louis brach of the Fed. One of the things about research, even when the gov charters it, is that those in charge understand that sometimes research has to go against the grain. The paper I linked to actually states flat out that a commodity system is the only system whose stability we can measure consistently. It's a treatment of the measurable facts.

2. They never addressed commodity money- only representative money.Since the inception of representative money they've practiced methods of fractional reserve.

Section II, paragraph 1, sentences 1-3:

The classical gold standard prevailed from 1880 to 1914. It provided a simple rule for domestic monetary authorities and for the international monetary system. The rule was to maintain the value of national currency in terms of a fixed weight of gold. Following this rule ensured long-run price stability through the automatic operation of a commodity-money standard.

The paper states that from 1880 to 1913 the manner in which our representative money was treated was equivalent in all measurable aspects to a true commodity system. The Fed was created in 1913. Prior to this point there was no central bank to execute fractional reserve banking. However, fractional reserve banking has been practiced since at least as far back as the Medici family in Italy.

Please read the the first paragraph of the conclusion-

The key words in favor of the fiat system are "credible nominal anchor".

The real disadvantage to a commodity money is the high rescource cost, but isn't that inherent to its value?

No. Read the part about "gold technology shocks" and you'll see that since the high resource cost is not fixed it is susceptible to the same problems as the value fiat money, but subject to a different trend.

We can go 'round-and-'round and ultimately it's going to come down to this-

Full faith vs. Intrinsic value

Well, it's not that simple. I'd say it's more like "Intangible value vs. tangible value". About the only thing our currency is good at is burning. Gold can be made into jewelry, etc. So yes, your point still stands.

[catch22]

FYI, this is one of the best threads I have read in a long time.

Props to FP and Dcrazy.

I have questions (reguarding the original discusion), which I'll post after I do a bit more reading.

[Gooberman]

x2, I've been keeping up with this thread. I just don't know near enough to add anything.

[Zuruck]

as someone close with the federal reserve bank of chicago, you guys are on par, keep it up, it's good reading.