Guernsey: An example of a low inflation, debt free money system where money supply...

hatrickpatrick

...equals productivity.

http://kentfreedommovement.ning.com/profiles/blogs/the-magic-isle-of-guernsey-by-bill-still-director-of-the-best-doc

tl;dr, Guernsey's state issues money whenever it needs work done, to pay for that work. The money is actually created, as in it fully exists - it is not a loan owed back with interest which will have to come from another loan. It is not a never ending cycle of debt.

Some extracts:

When it wants to create some private work or service, it just issues the money it needs to pay for the work. The Guernsey government has been issuing it's own money for nearly two centuries. During that time, the money supply has mushroomed to about 25 times its original size; yet the economy has not been troubled by price inflation, and it has remained prosperous and stable.

But the question may arise,what keeps them from printing too much. They watch inflation closely, and the calculations are all completely transparent, run by a committee of citizens, and open for all to see on their website.
That's all they care about; Is this causing inflation? They expand as much as they want as long as it causes no inflation.They don't care about theory. Born out of desperate need, they found out the secret of money and have gone quietly gone about using it and thereby have a high standard of living and very low taxes.
Fortunately, the Guernsey experiment is not an aberration. It has been tried time and time again, and when the quantity is controlled in the public interest, always with success. The bankers, however inevitably attack these in-the-public-interest, debt -free government issues of money. Debt-free money is in everyone's interest except bankers'. Typically, they will use their money and influence to create some financial emergency then bribe sufficient politicians to convince them to vote for legislation giving the bankers monopoly on issuing all the nation's money as a loan, thereby stripping the nation of its ability to issue its own money debt free.
During the depths of depression of the 1930's, the majority of economists in the US discovered this monetary reform solution. In 1936, Frank D. Graham, professor of economics at Princetown University offered his perspective in the American Economic Review:
"What we need is not control of banking but a government monopoly of the supply of money, with commercial banks left to lend on short-term...out of capital funds, debenture borrowings, and real time deposits. Such a system... is a [n] indispensable prerequisite to regulation of the money supply on which all attempts to bring greater stability into our economic system, through monetary means, must inevitably be based. We are certainly not likely to get stability so long as the supply of money remains even partially in the hands of those who have no responsibility for the total issue and no motive to do other than increase it as far as law, and a merely selfish prudence, will permit.

I've been looking for something like this literally for years.

Could such a credit system survive in Ireland? Why, if this model is successful, do we still use the batsh*t insane model of "all money is debt, there is always more owed than there is in existence"?

Has anyone heard of this scheme before? Why aren't we doing it here to circumvent the banking problems we have? Why don't we just say "You guys sort out your sh*t, in the meantime we're going to use our own currency internally so that life doesn't grind to a halt here"?

It's working in other places too. The Bitcoin economy online is growing hugely and it's not debt, and it's not regulated by banks anywhere. It's not perfect by a long shot, but it's sure as hell better than what we have now for our real economy.

Opinions?

Victor

But the Guernsey pound is tied to Sterling, so the Guernsey government would need to produce vast amounts of money before it could create problems.

Given the small size of Guernsey's (and Jersey's and Isle of Man's) economy and the fact that they are tax havens with strong inward investment, those governments can do things that others can't. Importantly they have stong control on unemployment via residence restrictions, no government debt, balanced budgets and high GDP per capita.

They can also largely avoid parish pump politics.

hatrickpatrick

But what if we, the Irish citizens, took our own initiative and started using a black market currency of some kind?

What if we completely sidelined the system where our money supply is based on debt which can never be paid back, and we created our own tokens for trading with?

Seriously I mean money is worthless anyway, it's only given power by people's consent to give it power. What if I, as a farmer, started issuing a new type of credit to my employees, and accepting the same for my produce? What if other farmers and shopkeepers in the area liked the idea and started accepting it too?

What if we simply agreed, by common consensus, no longer to be bound by the existing monetary system but to try out a new one? Why is this regarded as unrealistic?

Do you agree that the current system of money supply makes absolutely no sense at all?

Central bank issues £100
£100 is owed back with 10% interest
The extra £10 doesn't exist.
Eventually it is borrowed from the central bank, also with 10% interest.
So now, the £100 can be paid back, but a further £1 is now owed in debt, and that doesn't exist either.

See the problem?

hmmm

hatrickpatrick wrote: »

Central bank issues £100
£100 is owed back with 10% interest
The extra £10 doesn't exist.
Eventually it is borrowed from the central bank, also with 10% interest.
So now, the £100 can be paid back, but a further £1 is now owed in debt, and that doesn't exist either.

See the problem?

No, your example is nonsense, as is the utterly bizarre understanding of monetarism of those postulating these specious diatribes about fiat money, debt and gold backed currencies.

And no, I won't be replying any further, it hurts my brain to even try and understand the arguments that are being made.

hatrickpatrick

hmmm wrote: »

No, your example is nonsense, as is the utterly bizarre understanding of monetarism of those postulating these specious diatribes about fiat money, debt and gold backed currencies.

And no, I won't be replying any further, it hurts my brain to even try and understand the arguments that are being made.

How is it nonsense exactly?
Money is issued as a loan by the central bank. That loan is eventually owed back with interest.

Ergo, at any given time, there is always more money owed in debt than there actually is in circulation in the economy. No?

If I'm missing something, point it out...?

Victor

hatrickpatrick wrote: »

If I'm missing something, point it out...?

Taxes (and other government income) and government expenditure.

hatrickpatrick

Victor wrote: »

Taxes (and other government income) and government expenditure.

But those taxes are still money, and as far as I can see, that money never actually exists at all if it's originally issued as debt with interest due...?

Irishstabber

Taxes are a by product of the never ending cycle of government debt obligatons and the economic/financial systems that have sprung up in the last couple of centuries.

This nonsense that "its too complicated, dont be suggesting utter hogwash" that is aimed at views(factual views) such as the OP's is ludicrous.

At the end of the day if a government issued its own currency or "credit union" without interest or a reasonable interest rate, and controlled that money supply, then taxes wouldn't be as high and we as a society would be much better of.

Anyone who doesn't see that is either been deluded by the shambolic state that the financial world has gotten us into or is profiting from said system.

At the end of the day its a catch 22 because if we tried to change it on a large scale the "world economy" would collapse. Merely because that is how the system is set up.

Frankly I wouldn't give a damn if the current economic and monetary systems in the world collapsed while we pursued a change in that system for the betterment of society.Its already a feckin shambles anyway.

Simply put the OP is correct if a governement issues bonds to acquire capital well then when the term is up we end up paying interest.

Victor and Hmmm may call it black and white with shades of but frankly put its just black and white anything else is a by product of the system created by the establishment of a privately owned central bank in almost every country on the planet which controls said countries money supply.

AnnyHallsal

Irishstabber wrote: »

Taxes are a by product of the never ending cycle of government debt obligatons and the economic/financial systems that have sprung up in the last couple of centuries.

This nonsense that "its too complicated, dont be suggesting utter hogwash" that is aimed at views(factual views) such as the OP's is ludicrous.

At the end of the day if a government issued its own currency or "credit union" without interest or a reasonable interest rate, and controlled that money supply, then taxes wouldn't be as high and we as a society would be much better of.

Anyone who doesn't see that is either been deluded by the shambolic state that the financial world has gotten us into or is profiting from said system.

At the end of the day its a catch 22 because if we tried to change it on a large scale the "world economy" would collapse. Merely because that is how the system is set up.

Frankly I wouldn't give a damn if the current economic and monetary systems in the world collapsed while we pursued a change in that system for the betterment of society.Its already a feckin shambles anyway.

Simply put the OP is correct if a governement issues bonds to acquire capital well then when the term is up we end up paying interest.

Victor and Hmmm may call it black and white with shades of but frankly put its just black and white anything else is a by product of the system created by the establishment of a privately owned central bank is almost every country on the planet which controls said countries money supply.

What about imports, or using these tokens abroad?

I wouldn't like to live on what Ireland produces domestically or be unable to go abroad because such a currency was internationally worthless.

murphaph

In a system as outlined above, how would a private citizen buy a house, for example? (I presume the "no debt" aspect applies to citizens as well as government)

I personally think debt as a concept has existed since time immemorial. "Money" is just a token for "work done", so you are borrowing the labour of others to buy your house, which you repay by working in exchange for "tokens" (money).

Irishstabber

AnnyHallsal wrote: »

What about imports, or using these tokens abroad?

I wouldn't like to live on what Ireland produces domestically or be unable to go abroad because such a currency was internationally worthless.

I'm not for one second saying I have the answers all I was doing was seconding the OP. He is right in what he said. The remedy to change it would be complicated im sure but if you google alternatives to money I'm sure a few concepts would be feasible.

The way things are at the moment there will always be a disparity between rich and poor because one side will always have more than the other. Its built into the system any deviations from the current system would be short term or short term localized ie Norway.

EDIT: That should be alternatives to the current monetary system

Tipp Man

There is absolutely nothing wrong with debt - in fact for business it is probably a necessity, without it business would certainly be much slower growing and some types of business may never get going.

The problem is that governments and indviduals in some/most of the Western Economies lost the run of themselves in the last few years and spent way beyond their means on borrowed money. The governments were throwing money at every Tom, Dick and Harry either in the form of huge welfare or huge salaries. Then Tom, Dick and Harry got delusions of grandeur and went off buying BMW's and mansions they really shouldn't and couldn't afford. And now the chickens have come home to roost people will blame anything bar the real problems, that is banks lending too freely and people/governments borrowing like there's no tomorrow and seemingly forgetting that the most important principle of borrowing money is actually paying it back

Printing money like mentioned in the OP would never work in Ireland - our solution is always to throw money at problems rather than address the underlying cause - which is why the government expenditure has exploded in the last decade or so. Without having to have/borrow the money then the government in Ireland would literally have the printing presses running 24/7 - which it must be said a lot of people would be delighted with (in the short term) as then we could litteraly throw as much money as they wanted at the "underpriviledged in our society" Thats when the real problems would begin

Debtocracy

Tipp Man wrote: »

There is absolutely nothing wrong with debt - in fact for business it is probably a necessity, without it business would certainly be much slower growing and some types of business may never get going.

Without increasing debt the economy would crash. This is because there is not enough money in the existing supply to service the existing debt load. So basically you always need new debt to pay off the old debt. One could take your opinion therefore and claim that debt keeps the economy ticking over. But this would be analogous to proposing that more drugs will keep an addict happy. Eventually the economy will overdose on debt, and the Ponzi scheme of using new debt to pay off old debt will break down.

The principal of debt isn’t so bad, it’s the application of interest that’s the killer. There is always enough money in the existing money supply to pay off the principal of the loan (because you get this money), but the interest puts a debt burden on the economy that cannot be dealt with. The system could be maintained somewhat if the interest profits of banks got 100% spent (not loaned) back into the economy of the debtors, but the profits of banks tend to get stuck up in the higher classes of society, get locked into the financial gambling economy or loaned back into the debtor’s economy. Given that the interest profits of banks are not recycled, the only way that debtors can service their debts is through the creation of new money, done by either central or commercial banks issuing loans through fractional reserve lending.

Tipp Man wrote: »

And now the chickens have come home to roost people will blame anything bar the real problems, that is banks lending too freely and people/governments borrowing like there's no tomorrow and seemingly forgetting that the most important principle of borrowing money is actually paying it back

Which can either be achieving by generating money to pay it back, or using a new loan to pay it back (as governments do).

Tipp Man wrote: »

Printing money like mentioned in the OP would never work in Ireland - our solution is always to throw money at problems rather than address the underlying cause

The debt based monetary system is the real cause, the cancer in the financial system. Neither austerity nor stimulus can provide a solution as neither of these can reduce the debt to money ratio – austerity reduces money relative to debt while stimulus increases debt relative to money. If we retain the current monetary system there is only one long term solution – default, deflation and depression. The ECB printing cannot reduce the debt to money ratio because all the money it creates is through debt. Therefore, if it is not possibly to create debt-free money, the only solution is to reduce the debt to money ratio through default. Paying back debt will not reduce the debt to money ratio as this reduces the money supply. This is what happened in the Great Depression in the U.S. where the money supply was substantially reduced when the rate at which money was being destroyed through loan payments greatly exceeded the rate at which new money was being created through the issuing of new loans.

So basically as long as we stay within the current Ponzi scheme monetary system, there are no solutions to the problem, only methods to kick the can down the road for as long as possible. As societies throughout the world become more educated, the demand for a less destructive and dysfunctional monetary system will increase.

hatrickpatrick

murphaph wrote: »

In a system as outlined above, how would a private citizen buy a house, for example? (I presume the "no debt" aspect applies to citizens as well as government)

I personally think debt as a concept has existed since time immemorial. "Money" is just a token for "work done", so you are borrowing the labour of others to buy your house, which you repay by working in exchange for "tokens" (money).

But here's the scenario today:
Hundreds of people in America want cars
Hundreds of people in America want jobs
Hundreds of car factories are closing.

We have the raw materials, the technological ability, and the initiative to build and drive cars. Money is just the oil in the machine, and what's happened is that the oil has dried up so the machine can't run. This is an absolutely insane situation. They money simply doesn't exist to make the system work, it's all debt.

The system revolves around perpetual borrowing to pay off debts from the last round of borrowing, and the interest keeps mounting up and up until the whole thing becomes top heavy and collapses.

hatrickpatrick

Tipp Man wrote: »

There is absolutely nothing wrong with debt - in fact for business it is probably a necessity, without it business would certainly be much slower growing and some types of business may never get going.

I never said debt was a problem. I said INTEREST was the problem. The fact that ALL money is created as debt WITH INTEREST means that there is NO money in existence. EVERY cent in your pocket is owed back to a central bank somewhere with interest which can only be created by borrowing more money from the central bank - with interest. Ergo, no money actually exists. What exists is a perpetual system of mounting debt.

The problem is that governments and indviduals in some/most of the Western Economies lost the run of themselves in the last few years and spent way beyond their means on borrowed money.

Define means? Look at my previous post. We have the raw materials to build cars. We have people who want jobs. we have people who want cars. Yet unemployment balloons and car factories close. Why? Because this artificial concept, the facilitator, is not working the way it's supposed to work.
When a system doesn't work, you change it until it does work.

And now the chickens have come home to roost people will blame anything bar the real problems, that is banks lending too freely and people/governments borrowing like there's no tomorrow and seemingly forgetting that the most important principle of borrowing money is actually paying it back

What is it supposed to be paid back with? If the first euro ever in existence comes from the central bank and is owed back with 10% interest, where's the extra 10 cent going to come from? It doesn't exist! Oh wait, the central bank will LEND it to us - with further interest. Never ending debt cycle instead of actual money.

Printing money like mentioned in the OP would never work in Ireland

Again, outline why? IF I'm willing to accept a new type of currency instead of a bank issued one for my work, and if I'm willing to pay my employees in that currency, what would happen if everyone in the country also started accepting it, and this currency wasn't controlled by a bank but by the real factors - supply and demand?

- our solution is always to throw money at problems rather than address the underlying cause - which is why the government expenditure has exploded in the last decade or so. Without having to have/borrow the money then the government in Ireland would literally have the printing presses running 24/7 - which it must be said a lot of people would be delighted with (in the short term) as then we could litteraly throw as much money as they wanted at the "underpriviledged in our society" Thats when the real problems would begin

Problems such as what? If we know how to build things and we have people who are unemployed and want jobs, and we have people who want to buy those things, why should we be held back by an artificial concept of OUR creation, which simply doesn't behave the way we intended it to behave?

BANZAI_RUNNER

every sovereign country has the right to print its own currency , but they choose not to , instead they get a private organization ( i.e. central bank / federal reserve ) to print it and then lend it to the government , which is crazy , have a look on youtube for America :freedom to fascism , its explained on that , and also have a look for Money as Debt 2 , they cover it too

murphaph

hatrickpatrick wrote: »

But here's the scenario today:
Hundreds of people in America want cars
Hundreds of people in America want jobs
Hundreds of car factories are closing.

We have the raw materials, the technological ability, and the initiative to build and drive cars. Money is just the oil in the machine, and what's happened is that the oil has dried up so the machine can't run. This is an absolutely insane situation. They money simply doesn't exist to make the system work, it's all debt.

The system revolves around perpetual borrowing to pay off debts from the last round of borrowing, and the interest keeps mounting up and up until the whole thing becomes top heavy and collapses.

I ask you again as that is not really an answer to my question...

I work a 9-5 job. I need food to eat and I'd like a house to live in and a car to drive around. Can you explain to me how I can get those things in a debt/money free system?

I presume I work my normal job in exchange for these things somehow...but how?

hatrickpatrick

murphaph wrote: »

I ask you again as that is not really an answer to my question...

I work a 9-5 job. I need food to eat and I'd like a house to live in and a car to drive around. Can you explain to me how I can get those things in a debt/money free system?

I presume I work my normal job in exchange for these things somehow...but how?

You would still be paid for your work, you could still use that money to buy things you need.

The difference is, the money would actually exist. It wouldn't actually be non existent money which is owed back with interest to a central bank.

Why can't the central bank issue money not as a loan, and not with interest?

Doesn't it strike you as rather bizarre that every cent in circulation adds up to less than the total amount owed back to the central bank which loaned it all out in the first place?

I'm simply talking about a system in which money actually exists, rather than a perpetual build up of interest over time.

EDIT: Let me clarify the above:
You would still work your 9-5 job, and you would still be paid for that. Let's call the new currency "witcoins" (yes this is indeed a play on bitcoins)

It's still worthless. It's still just a number printed on a piece of paper. But just like with the money which exists now, we all agree to accept it as legal tender. You would be able to spend your witcoins on products in the shops. But the witcoins would actually exist, they wouldn't exist only as debt. The first shop to open using witcoins wouldn't have to pay back the sum of the witcoins AND a little extra (which it could only get through further borrowing) to a bank.

Victor

BANZAI_RUNNER wrote: »

every sovereign country has the right to print its own currency , but they choose not to , instead they get a private organization ( i.e. central bank / federal reserve )

Excuse me, the central bank is not a private organisation, it is an arm of the government. It has merely been given a name (and other features), just like An Garda Siochána, the Department of Social Protection or the Railway Safety Commission.

hatrickpatrick

Victor wrote: »

Excuse me, the central bank is not a private organisation, it is an arm of the government. It has merely been given a name (and other features), just like An Garda Siochána, the Department of Social Protection or the Railway Safety Commission.

It's irrelevant.
The fact still is that ALL money is debt, and there is ALWAYS more money owed in debt than actually exists in circulation.

Victor

hatrickpatrick wrote: »

It's irrelevant.
The fact still is that ALL money is debt, and there is ALWAYS more money owed in debt than actually exists in circulation.

So what?

Debtocracy wrote: »

Without increasing debt the economy would crash. This is because there is not enough money in the existing supply to service the existing debt load. So basically you always need new debt to pay off the old debt.

No, I think you are deliberately obfuscating. You forget that wealth can be created. I grow some vegetables to sell to you. You process the vegetables and deliver them to a supermarket. The supermarket sells them. We each make a profit. The government takes its cut of the profits in taxes. It pays off its debts.

hatrickpatrick, you do realise that the central bank pays dividends to the government, yeah?

Also, do I really need to go into exactly how beyond screwed (you think it's bad now?) this country would be if Bertie and the rest of them had their grubby hands in the supply of money too?

Good loser

hatrickpatrick wrote: »

I never said debt was a problem. I said INTEREST was the problem. The fact that ALL money is created as debt WITH INTEREST means that there is NO money in existence. EVERY cent in your pocket is owed back to a central bank somewhere with interest which can only be created by borrowing more money from the central bank - with interest. Ergo, no money actually exists. What exists is a perpetual system of mounting debt

You cannot have money without debt i.e. person A owing money to person B.

Otherwise everybody would have all the money they wanted, which would make money valueless.

Interest is the price person A pays for the loan from person B. Effective demand is met by supply at the market rate of interest. If I could borrow €1 m from you at 0% per cent per annum and lend it out at 10% I wouldn't need to work.

Your proposition is absurd. Move on.

hatrickpatrick

Victor wrote: »

So what?

So eventually the whole thing becomes top heavy and collapses. Wash. Rinse. Repeat.

We can do whatever it takes to fix this crash but we're just kicking the can down the road until the next one.

Good loser wrote: »

hatrickpatrick wrote: »

I never said debt was a problem. I said INTEREST was the problem. The fact that ALL money is created as debt WITH INTEREST means that there is NO money in existence. EVERY cent in your pocket is owed back to a central bank somewhere with interest which can only be created by borrowing more money from the central bank - with interest. Ergo, no money actually exists. What exists is a perpetual system of mounting debt

You cannot have money without debt i.e. person A owing money to person B.

Otherwise everybody would have all the money they wanted, which would make money valueless.

Interest is the price person A pays for the loan from person B. Effective demand is met by supply at the market rate of interest. If I could borrow €1 m from you at 0% per cent per annum and lend it out at 10% I wouldn't need to work.

Your proposition is absurd. Move on.

And yet we end up in the ridiculous scenario I pointed out on the first page, where we have demand, we have supply, and we have people who want jobs, but the artificial middleman isn't working the way it's supposed to and because of that, nothing can happen.

Money supply is supposed to match the number of goods and services produced. So why doesn't it?

BANZAI_RUNNER

just google Wir Bank and you will learn about the Wir which is a currency in circulation and accepted in Switzerland , alongside the Swiss Franc , it is a debt free community currency , which has been used for building projects among other things , although there is not a huge amount of it and its not a script currency , it still works , perhaps the model could be adopted on a larger scale , but i'm sure the Bank$ters would do their best to block it

hatrickpatrick

Once gain can I direct everyone back to my car factory analogy.
We have people who want cars.
We have the skills to build cars.
We have the raw materials to build cars.
We have people out there who want jobs.
We have car factories standing empty, and people having to walk everywhere, despite the first 4 points here.

What's missing? An artificial concept which is required as 'oil' to make it all work. Yet we have the physical ability and desire to produce and drive cars, the only reason we can't is because an artificial entity is getting in the way.

Why does the money to do this not exist, if the demand and the supply is there? Money supply is supposed to match the amount of goods and services produced and demanded, so why doesn't it?

hatrickpatrick

hatrickpatrick wrote: »

Once gain can I direct everyone back to my car factory analogy.
We have people who want cars.
We have the skills to build cars.
We have the raw materials to build cars.
We have people out there who want jobs.
We have car factories standing empty, and people having to walk everywhere, despite the first 4 points here.

What's missing? An artificial concept which is required as 'oil' to make it all work. Yet we have the physical ability and desire to produce and drive cars, the only reason we can't is because an artificial entity is getting in the way.

Why does the money to do this not exist, if the demand and the supply is there? Money supply is supposed to match the amount of goods and services produced and demanded, so why doesn't it?

Because the workers won't get paid until the car is sold judging by your analogy, and if the workers aren't paid then how can anyone buy the car without first seeking credit based on income that will be received once the car is sold.

You totally ignored the point that the central bank is an ARM of the government which actually pays dividends to the state. Of course this doesn't fit in with your idea that money-crazy bankers own everything and keep all the profits for themselves.


You sir, have no argument.

Good day.

murphaph

hatrickpatrick wrote: »

You would still be paid for your work, you could still use that money to buy things you need.

The difference is, the money would actually exist. It wouldn't actually be non existent money which is owed back with interest to a central bank.

Why can't the central bank issue money not as a loan, and not with interest?

Doesn't it strike you as rather bizarre that every cent in circulation adds up to less than the total amount owed back to the central bank which loaned it all out in the first place?

I'm simply talking about a system in which money actually exists, rather than a perpetual build up of interest over time.

EDIT: Let me clarify the above:
You would still work your 9-5 job, and you would still be paid for that. Let's call the new currency "witcoins" (yes this is indeed a play on bitcoins)

It's still worthless. It's still just a number printed on a piece of paper. But just like with the money which exists now, we all agree to accept it as legal tender. You would be able to spend your witcoins on products in the shops. But the witcoins would actually exist, they wouldn't exist only as debt. The first shop to open using witcoins wouldn't have to pay back the sum of the witcoins AND a little extra (which it could only get through further borrowing) to a bank.

You still haven't answered my question though...

I understand that you want to use an alternative worthless token than the currently printed version from the various central banks.

What I do not understand is how do I buy a house with this new token without borrowing more of them than I have presently to buy one? (thereby putting myself in debt).

Why would anyone lend me any of their witcoins for free? Surely they'd rather spend them on things for themselves.

hatrickpatrick

Victor wrote: »

So what?
No, I think you are deliberately obfuscating. You forget that wealth can be created. I grow some vegetables to sell to you. You process the vegetables and deliver them to a supermarket. The supermarket sells them. We each make a profit. The government takes its cut of the profits in taxes. It pays off its debts.

How do I buy the vegetables from you without money? First I need to get money, and if no money already exists, I borrow some from the central bank. with interest.

The fact still remains that at any given moment there is more owed back to the central bank than actually exists in circulation. It's a simple equation:

x is the amount of money loaned by the central bank: y is the interest on it. z is the total amount of money in circulation. a is the total amount owed back in debt to the central bank.

0 + x = x.

a = x + y.
z = x.

Therefore, a > z.

How are people not seeing the problem with this? Is it not ludicrous that the only way to pay off debt is to create even bigger debt, which will one day have to be paid off with yet bigger debt?

hatrickpatrick

murphaph wrote: »

You still haven't answered my question though...

I understand that you want to use an alternative worthless token than the currently printed version from the various central banks.

What I do not understand is how do I buy a house with this new token without borrowing more of them than I have presently to buy one? (thereby putting myself in debt).

Why would anyone lend me any of their witcoins for free? Surely they'd rather spend them on things for themselves.

I never said there would be no debt in this system, I simply said that some money would exist without ever being debt.

You could borrow money. But it would be physically possible for there to be enough in circulation for you to pay back that debt without anyone creating more debt to pay it back.

For instance, commercial banks could create debt. But the central bank wouldn't. Those banks wouldn't create money by borrowing it and owing more than they borrowed back to the central bank.
Just one option. Anything would surely be better than the idiotic system we have now whereby all money comes into existence as totalling less than the amount owed back to whoever created it.

hatrickpatrick

hatrickpatrick wrote: »

I never said there would be no debt in this system, I simply said that some money would exist without ever being debt.

You could borrow money. But it would be physically possible for there to be enough in circulation for you to pay back that debt without anyone creating more debt to pay it back.

For instance, commercial banks could create debt. But the central bank wouldn't. Those banks wouldn't create money by borrowing it and owing more than they borrowed back to the central bank.
Just one option. Anything would surely be better than the idiotic system we have now whereby all money comes into existence as totalling less than the amount owed back to whoever created it.

We've all seen Zeitgeist too, you know?

Scofflaw

hatrickpatrick wrote: »

How do I buy the vegetables from you without money? First I need to get money, and if no money already exists, I borrow some from the central bank. with interest.

The fact still remains that at any given moment there is more owed back to the central bank than actually exists in circulation. It's a simple equation:

x is the amount of money loaned by the central bank: y is the interest on it. z is the total amount of money in circulation. a is the total amount owed back in debt to the central bank.

0 + x = x.

a = x + y.
z = x.

Therefore, a > z.

How are people not seeing the problem with this? Is it not ludicrous that the only way to pay off debt is to create even bigger debt, which will one day have to be paid off with yet bigger debt?

As long as the economy grows, not, it's not ludicrous. The idea of interest-bearing debt based money is fairly straightforward - it's based on the expectation of growth in the value of what can be bought with money. So long as money is invested productively, that works - it breaks down when money is invested in unproductive assets such as houses.

A simple example is of a farmer (A) who is more productive than the farmer (B) next door, and who wants to buy part of B's land, which he believes he can use more productively than B does. Farmer B produces 5 money a year from the land A wants to buy, and prices the land at 50 money (10 years production). Farmer A reckons he can produce 7 money a year from the same land, so it's worth his while buying it. We'll add that each farmer initially makes 20 money a year, because that lets us do some sums later on.

If A cannot borrow the money to buy the land, he must wait until he has saved up sufficient to buy the land outright. Say he can put aside 5 money a year - it will be 10 years before he can buy the land.

If, on the other hand, he can borrow the money from a bank, he can buy the land now. If he's right about being able to produce 7 a year from the land, he'll be able to pay the bank back in a little over 7 years.

Looking from outside, farmer A taking over the land has increased the value of the economy by 2 money yearly, so it's a good deal from the point of view of the local village, because they benefit immediately from the increased production.

None of that requires interest, but there's nothing in it for the bank if it doesn't charge interest. Why would they bother risking their capital?

So if the bank charges 10% over the lifetime of the loan, farmer A will have to pay back 55 money to the bank. Is he worse off than if he'd saved the money? No - he'll still be able to pay back the bank in less time than it would have taken to save the money (7 years 10 months).

So the scenario looks like this without debt-based money:

|A Income|A Savings|A Net Income
Year 1|20|5|15
Year 2|20|5|15
Year 3|20|5|15
Year 4|20|5|15
Year 5|20|5|15
Year 6|20|5|15
Year 7|20|5|15
Year 8|20|5|15
Year 9|20|5|15
Year 10|20|5|15
Total|||150


and this with it:

|A Income|A Repayments|A Net Income
Year 1|22|7|15
Year 2|22|7|15
Year 3|22|7|15
Year 4|22|7|15
Year 5|22|7|15
Year 6|22|7|15
Year 7|22|7|15
Year 8|22|6|16
Year 9|22|0|22
Year 10|22|0|22
Total|||165


From farmer A's point of view, a debt-based money system is better for him. And for the local economy, it's also better, because they benefit from the increased production.

That's why we do it, basically - interest-bearing debt-based money both allows and encourages productive investment.

cordially,
Scofflaw

Irishstabber

Scofflaw wrote: »

As long as the economy grows, not, it's not ludicrous. The idea of interest-bearing debt based money is fairly straightforward - it's based on the expectation of growth in the value of what can be bought with money. So long as money is invested productively, that works - it breaks down when money is invested in unproductive assets such as houses.

A simple example is of a farmer (A) who is more productive than the farmer (B) next door, and who wants to buy part of B's land, which he believes he can use more productively than B does. Farmer B produces 5 money a year from the land A wants to buy, and prices the land at 50 money (10 years production). Farmer A reckons he can produce 7 money a year from the same land, so it's worth his while buying it. We'll add that each farmer initially makes 20 money a year, because that lets us do some sums later on.

If A cannot borrow the money to buy the land, he must wait until he has saved up sufficient to buy the land outright. Say he can put aside 5 money a year - it will be 10 years before he can buy the land.

If, on the other hand, he can borrow the money from a bank, he can buy the land now. If he's right about being able to produce 7 a year from the land, he'll be able to pay the bank back in a little over 7 years.

Looking from outside, farmer A taking over the land has increased the value of the economy by 2 money yearly, so it's a good deal from the point of view of the local village, because they benefit immediately from the increased production.

None of that requires interest, but there's nothing in it for the bank if it doesn't charge interest. Why would they bother risking their capital?

So if the bank charges 10% over the lifetime of the loan, farmer A will have to pay back 55 money to the bank. Is he worse off than if he'd saved the money? No - he'll still be able to pay back the bank in less time than it would have taken to save the money (7 years 10 months).

So the scenario looks like this without debt-based money:

|A Income|A Savings|A Net Income
Year 1|20|5|15
Year 2|20|5|15
Year 3|20|5|15
Year 4|20|5|15
Year 5|20|5|15
Year 6|20|5|15
Year 7|20|5|15
Year 8|20|5|15
Year 9|20|5|15
Year 10|20|5|15
Total|||150


and this with it:

|A Income|A Repayments|A Net Income
Year 1|22|7|15
Year 2|22|7|15
Year 3|22|7|15
Year 4|22|7|15
Year 5|22|7|15
Year 6|22|7|15
Year 7|22|7|15
Year 8|22|6|16
Year 9|22|0|22
Year 10|22|0|22
Total|||165


From farmer A's point of view, a debt-based money system is better for him. And for the local economy, it's also better, because they benefit from the increased production.

That's why we do it, basically - interest-bearing debt-based money both allows and encourages productive investment.

cordially,
Scofflaw

That is all fact, I don't disagree. But do you not see where the fundamental flaws in that system are? We must have exponential growth year on year to sustain it. Thats just not possible and we are ever nearing a tipping point where we will not be able to sustain such an economy.

FRB has a tipping point and its quite near. Sometime this century the system will ultimately fail.

Debt cannot realistically service debt. We all say it to average Joe who borrows and borrows to fund his lifestyle but we just seem to ignore the fact that our economies are built on the same principals.

Scofflaw

Irishstabber wrote: »

That is all fact, I don't disagree. But do you not see where the fundamental flaws in that system are? We must have exponential growth year on year to sustain it. Thats just not possible and we are ever nearing a tipping point where we will not be able to sustain such an economy.

FRB has a tipping point and its quite near. Sometime this century the system will ultimately fail.

Debt cannot realistically service debt. We all say it to average Joe who borrows and borrows to fund his lifestyle but we just seem to ignore the fact that our economies are built on the same principals.

I think the system is flawed because it relies on constant growth (effectively, exponential growth) on a limited planet - but for exactly that reason, the debt is not actually being serviced by further debt, but by growth, and that is not the problem in the system.

If the system starts with 100 money, and 100 value that can be bought by that money, what you're saying is that interest means that over some period of time, the money grows to 110, and therefore more money has to be created to allow that debt to be paid back. That's wrong, though - money is only useful to purchase value, so at any given time the total money in the system is the price of all the value. If there's 100 money in the system, and 100 value, then the price of 1 value is 1 money. If there's 110 money in the system, and 100 value, the price of 1 value is 1.1 money, which is inflation.

So at any time, all debts can be settled by exchanging their money value for the appropriate amount of purchasable value. Creating additional debt is not necessary - we could literally call a halt tomorrow, work out the amount of money in the system, work out the amount of purchasable value, and settle all monetary debts through exchanging them for value.

This works because money has no intrinsic value - it's only an exchange token for value. I appreciate that there are people who want "money" to have some intrinsic value in itself - against gold, usually - but even that only shifts the final measure to the value ascribed to gold. The only real effect of such a system is to reduce inflation by tying a gold weight to the feet of the money supply - something to the ultimate benefit of those who own capital and the ultimate detriment of those who owe debt.

The reason that debt seems constantly to run ahead of value is because it does. That's not because it's being created in order to service existing debt, but because it's a lien against the creation of value in the future.

Something that buggers this up, of course, is the creation of a valuation bubble such as our property bubble, where the value ascribed to houses gets tied to the belief that house prices will only go up, and it becomes worth placing higher and higher valuations on houses in the belief that you'll be able to resell them for yet more. That's a party that has to stop at some point, and when it does, the price of houses will rocket downwards towards their non-asset value as a place to live. Since debt is created in order to fund the bubble, and the amount of debt is in proportion to the bubble valuation, then when the bubble pops and the valuation falls, there is a massive debt overhang.

There's an obvious parallel there for the world economy in general - if we hit resource limits, and there comes a point when we're unable to create further value to match debt being created, then the system breaks down - as it should, because it would no longer be useful. However, the lesson of history is that value changes form rather than simply hitting a limit.

cordially,
Scofflaw

pacquiao

Isn't it who controls the supply of promises that is more of a problem?

pacquiao

pacquiao wrote: »

Isn't it who controls the supply of promises that is more of a problem?

Possibly the most pertinent sentence I have ever read on the matter, bravo sir!

hatrickpatrick

Scofflaw I'm not ignoring your post, I'll respond to it later today or tomorrow when I have a bit of time to read it thoroughly. Apologies if you thought I was walking away from the debate - hatrickpatrick never walks away from a debate :P

I will however respond to the most crucial section:

None of that requires interest, but there's nothing in it for the bank if it doesn't charge interest. Why would they bother risking their capital?

My argument is that the CENTRAL bank - the bank which originally creates the money - shouldn't be a for profit organization. It should exist solely to provide a service.

Money creation, in other words, should be a public service, not a profit making exercise. That way the monetary system would be aimed at oiling the wheels, as it's supposed to do - not aimed at making a profit, with any wheel oiling merely a nice side effect.

carveone

Scofflaw wrote: »

I think the system is flawed because it relies on constant growth (effectively, exponential growth) on a limited planet - but for exactly that reason, the debt is not actually being serviced by further debt, but by growth, and that is not the problem in the system.

Just my 2c - there's a book/videos on this topic by Chris Martenson called The Crash Course. The video series was done in 2007...