The consequences of Bitcoin

SeanW

Government created money

Well, we already have that ...

A public bank, that can exclusively utilize money creation, means no private interests profit from the ability to create money (that would be undemocratic); the public bank satisfies the demand for credit, and it can restrict the issuance of credit irrespective of deposits,

Ermmm ... you basically want to nationalise the banking system. While that may have benefits, it also risk politicising the issue of loans, with politically connected individuals and groups having easier access to credit, and general public service dynamics (hour long tea breaks and other rampant inefficiency) being promoted. Avoiding negative interest would mean the service would have to be subsidised in some way. There would also be no competition in the financial sector as there would only be a single Savings & Loan type institution - the governments bank. Your system would also abolish Credit Unions, it must be noted.

(based upon avoiding inflation)

Can I take it that you concede avoiding inflation (which punishes savers in the lower classes and ONLY the lower classes) is a good thing? I.E. at least similar to avoiding deflation?

You are also wrong, in your attempted rebuttal of how fractional reserve makes a mockery of the gold standard, because you don't even address the actual criticisms I put forward there; much of the money is not backed by anything, which is contrary to the entire point of a gold standard.

I didn't - I admitted that FRBing a complicated issue with benefits, drawbacks and potential pitfalls. As I said, it even divides the Austrian economic community. I just wonder if abolishing FRBing would provide more benefits than its potential costs.

Suspending convertibility under your system, will happen immediately upon there ever being a bank-run, because when the reserves run out, there goes convertibility.

The paper money would always be convertible, that's the whole point: if you have cash in hand, it's either gold coins or Treasury claim checks. That's the main thing. In the event of a run on a single bank, the bank must either call in or sell its loan book to raise the money. Deposit insurance would also help prevent people losing money if a single bank failed - and also in preventing bank runs in the first place since if a bank is in trouble, you don't have to run out and grab all your money because the insurance is there if it eventially falls - hopefully preventing bad news = bank run in the first place.

Of course, if there were ever a run on all banks simultaneously the system would indeed collapse and only people who kept their cash (coins and claim checks) would avoid losses.

So you have to measure the benefits of FRBing (a number of competing institutions providing subsidised banking services plus interest on money stored) versus the systemic factors of the money multiplier plus the potential - albeit remote - of a systemic collapse.

KyussBishop

SeanW wrote: »

Ermmm ... you basically want to nationalise the banking system. While that may have benefits, it also risk politicising the issue of loans, with politically connected individuals and groups having easier access to credit, and general public service dynamics (hour long tea breaks and other rampant inefficiency) being promoted. Avoiding negative interest would mean the service would have to be subsidised in some way. There would also be no competition in the financial sector as there would only be a single Savings & Loan type institution - the governments bank. Your system would also abolish Credit Unions, it must be noted.

That's not what I've described at all, what I've described makes private banks full reserve, which obviously is nothing like a nationalization as there would still be private banks (and private investment brokers).

What I want takes money creation out of the hands of private actors; it is totally undemocratic, to leave the power to create money in private hands, where it is used to extract profits from money created out of nothing, and where those profits are regressively concentrated among a small banking elite (who like to collude with finance, to use that ability to blow huge asset bubbles for fraudulent personal profit, like we've seen with the housing market).

You try to sidestep the whole point here, that this is totally undemocratic and regressive situation; not only in the political/economic/social power it gives these private actors, but in the total lack of accountability there is for their misuse of those powers.

SeanW wrote: »

Can I take it that you concede avoiding inflation (which punishes savers in the lower classes and ONLY the lower classes) is a good thing? I.E. at least similar to avoiding deflation?

This is not a policy I do or don't advocate, but if you're that worried about inflations effect on the lower classes, then you can easily have the public bank give all deposits below €100,000, enough interest to fully counteract inflation, which would totally eliminate your primary concern here.

SeanW wrote: »

The paper money would always be convertible, that's the whole point: if you have cash in hand, it's either gold coins or Treasury claim checks. That's the main thing. In the event of a run on a single bank, the bank must either call in or sell its loan book to raise the money. Deposit insurance would also help prevent people losing money if a single bank failed - and also in preventing bank runs in the first place since if a bank is in trouble, you don't have to run out and grab all your money because the insurance is there if it eventially falls - hopefully preventing bad news = bank run in the first place.

Of course, if there were ever a run on all banks simultaneously the system would indeed collapse and only people who kept their cash (coins and claim checks) would avoid losses.

So you have to measure the benefits of FRBing (a number of competing institutions providing subsidised banking services plus interest on money stored) versus the systemic factors of the money multiplier plus the potential - albeit remote - of a systemic collapse.

Nobody can provide such a guarantee, because most of the gold doesn't exist. Such a system would only last until a big enough economic depression hit, triggering such a widescale bank run, like happened in the 1930's.

Your solution to widescale bank runs is great as well: Let the whole system collapse, exclusively so the few that got out early, can convert to gold. Brilliant.

That is a ridiculous system, which has already failed spectacularly. I've put forward one that is democratic; is completely immune to bank runs, insolvency, undemocratic money creation, and regressive profits; does not waste enormous resources digging useless yellow metal out of the ground; and is accountable to the public.

The system you're advocating is not even democratic for christs sake; not only are your arguments against my proposal weak (vague claims of potential government mismanagement, when we already know private banks misuse their money creating powers, leading to massive worldwide economic destruction), but what you advocate is automatically worse through being inherently undemocratic as well.

SeanW

That's not what I've described at all, what I've described makes private banks full reserve, which obviously is nothing like a nationalization as there would still be private banks

But they wouldn't really be "banks" at all, their role would be that of a glorified vault. They would only be able to offer negative interest or high fees. As such they could never compete against the public bank.

What I want takes money creation out of the hands of private actors; it is totally undemocratic

Not entirely since you do have the choice of where to keep your money: you can always take it out of the big bad bank and bring it to a credit union. Wherever it's kept, you earn interest on it and the service is partly subsidised.

This is not a policy I do or don't advocate, but if you're that worried about inflations effect on the lower classes, then you can easily have the public bank give all deposits below €100,000, enough interest to fully counteract inflation, which would totally eliminate your primary concern here.

Yes, it may but there are a number of problems that may arise:

1. The private banks could never offer this especially since they could never issue loans. I.E. they would be even more uncompetitive.
2. Private investments may also be hurt/skewed if inflation was too high (more than a few percent)
3. Since the government would have to pay for inflation (in one way or anoter), there would be massive political pressure to massage inflation figures downwards. Even today, when the government benefits from inflation they're dishonest, like the Federal Reserve in the U.S. which is keeping inflation low: but only if you don't count food and fuel (basic necessities) because they're "too volatile" ... :rolleyes:(Translation: we're debasing the currency on an unprecedented scale and people are seeing the consequences in the supermarket and petrol station, but we don't want to draw attention to it).

Nobody can provide such a guarantee, because most of the gold doesn't exist. Such a system would only last until a big enough economic depression hit, triggering such a widescale bank run, like happened in the 1930's.

Again, that is a potential pitfall.

Your solution to widescale bank runs is great as well: Let the whole system collapse, exclusively so the few that got out early, can convert to gold. Brilliant.

I never said I would be happy if that happened. Indeed, the possibility that it might happen has to be factored into any decision as to whether to allow FRBing or not, and then at what margins.

The system you're advocating

I'm not married to the idea of FRBing. I just think the cost of scrapping it must be weighed against the benefit of doing so. And I'm just not sure if it stacks up. As I said, it's complicated and depends on your perspective.
Again, as I said the issue even divides the Austrian Economics community.

scamalert

you people went of the rails about 3-4 pages back as it seems now topic turned on gold and banks.

KyussBishop

SeanW wrote: »

But they wouldn't really be "banks" at all, their role would be that of a glorified vault. They would only be able to offer negative interest or high fees. As such they could never compete against the public bank.

That's still not nationalization, and they are still banks (and can setup as separate investment brokers if they want too). Why on earth should we allow these private banks to have the undemocratic privilege, to create money from nothing, just so they can compete? That's ridiculous.

If they can't compete, that's their problem, they shouldn't be given undemocratic powers just so they can.

SeanW wrote: »

Not entirely since you do have the choice of where to keep your money: you can always take it out of the big bad bank and bring it to a credit union. Wherever it's kept, you earn interest on it and the service is partly subsidised.

Where do you get this idea? In the system I put forward, nobody can create money from nothing, all banks are full reserve; if you want to invest your money, you go to heavily regulated investment brokers, or invest directly yourself.

Sure, you can choose to keep your money elsewhere, but nowhere you go will be allowed to create money.

SeanW wrote: »

Yes, it may but there are a number of problems that may arise:

1. The private banks could never offer this especially since they could never issue loans. I.E. they would be even more uncompetitive.
2. Private investments may also be hurt/skewed if inflation was too high (more than a few percent)
3. Since the government would have to pay for inflation (in one way or anoter), there would be massive political pressure to massage inflation figures downwards. Even today, when the government benefits from inflation they're dishonest, like the Federal Reserve in the U.S. which is keeping inflation low: but only if you don't count food and fuel (basic necessities) because they're "too volatile" ... :rolleyes:(Translation: we're debasing the currency on an unprecedented scale and people are seeing the consequences in the supermarket and petrol station, but we don't want to draw attention to it).

What I propose there, easily allows the complete abolition of the problem you put forward, of inflation harming the savings of the least well off, regardless of anything you mention above.

Investment would also never be harmed, because the public bank can always satisfy demand for money (but it would have a mandate, to avoid excess inflation while satisfying that demand).


The inflation you talk of in the fuel and food markets is privately caused inflation, through speculation and price fixing on those markets; it is hypocritical, to rail against even the hint of government caused inflation, while ignoring privately generated inflation.

It's the usual "anti-government-everything" nonsense, where the economically right-wing warp their arguments into convoluted knots, trying to pin the blame for everything on government, while pretending private industry (including banking) can do no harm, even when the harm is staring them in the face.

SeanW wrote: »

I never said I would be happy if that happened. Indeed, the possibility that it might happen has to be factored into any decision as to whether to allow FRBing or not, and then at what margins.

I'm not married to the idea of FRBing. I just think the cost of scrapping it must be weighed against the benefit of doing so. And I'm just not sure if it stacks up. As I said, it's complicated and depends on your perspective.
Again, as I said the issue even divides the Austrian Economics community.

The reason the Austrian community is divided, is because they are (by and large) anti-government-everything, with every single economic and political agenda revolving around precisely that.
One exception is Bill Still (a Libertarian ex-presidential candidate), he advocates a system pretty similar to what I am describing.

The fact is, the only way to democratically control money creation, for a countries primary currency, is through government; most of the Austrian community would never agree to that, for purely political reasons.

The system I've described, solves almost all of the fundamental flaws the fractional reserve system exhibits, and provides full democratic control and accountability over money creation (whereas private control over money creation is inherently undemocratic), and all the arguments as to why it might be bad, are largely ancillary and easily dealt with.

SeanW

Actually, I've done some further reading over the last 24 hours and indeed there is more anti-Fractional Reserve Banking Austrian economics than I thought. Including Austrian alternatives, e.g. simply ban the lending of money from demand-deposit accounts (e.g. checking/current accounts) and restrict it to savings and term savings type accounts. So Credit Unions and private Savings and Loan banks could continue to exist and offer valuable services, but they would require the saver to formally lend the money to them to lend it on in turn rather than just leave in a demand-deposit account.

So yes, I could get behind the abolition of FRBing, under the right circumstances:

1. That the regulatory conditions still permitted a strong, solvent, competitive private banking system.
2. Honest currency - that you get rid of all funny money in the same fell swoop.

What I propose there, easily allows the complete abolition of the problem you put forward, of inflation harming the savings of the least well off,

That would certainly help but it would be expensive, and I still think we'd be better off with honest money.

The inflation you talk of in the fuel and food markets is privately caused inflation, through speculation and price fixing on those markets; it is hypocritical, to rail against even the hint of government caused inflation, while ignoring privately generated inflation.

Agreed, in part: some inflation is privately caused by gambling on grain and oil futures, these are the things that the rich use to beat inflation and seek deflation in a fiat currency system.

Gold is better for this purpose because it's main uses are ornamental and wealth storage - you don't eat gold nor do you fill your car/bus/train/ship/airplane/tractor etc with it, nor does it have many industrial uses.


But to suggest it's only private actors driving up prices is ludicrous. I've already demonstrated how changes in monetary policy in Ireland correlated with almost exponential increases in property prices, additionally large amounts of money have been created by the Federal Reserve in the U.S. Consider this chart showing the money supply up to 2006; it's known that the Fed stopped publishing the M3 (total) money supply figures but within the year they did that, the M2 measure equalled what the M3 total was the year before.

And of course since then there's been bailouts, multiple rounds of Quantitative Easing, TARP, and some suspect large scale purchases of U.S. Treasuries.

How the hell would that not cause inflation?

KyussBishop

SeanW wrote: »

Actually, I've done some further reading over the last 24 hours and indeed there is more anti-Fractional Reserve Banking Austrian economics than I thought. Including Austrian alternatives, e.g. simply ban the lending of money from demand-deposit accounts (e.g. checking/current accounts) and restrict it to savings and term savings type accounts. So Credit Unions and private Savings and Loan banks could continue to exist and offer valuable services, but they would require the saver to formally lend the money to them to lend it on in turn rather than just leave in a demand-deposit account.

So yes, I could get behind the abolition of FRBing, under the right circumstances:

1. That the regulatory conditions still permitted a strong, solvent, competitive private banking system.
2. Honest currency - that you get rid of all funny money in the same fell swoop.

That setup, for the private system, would work (and is pretty similar to what I advocate, just minus the public bank), but then the question becomes:
Do you want a static money supply or not? (not even a question of deflation vs inflation, but a question of whether the money stock should change at all)

If you want the money supply to be adjusted in any way at all thereafter, money needs to be created; in order to do this democratically, government would need to do it (either through a public bank lending money, or through spending).

SeanW wrote: »

KyussBishop wrote:

What I propose there, easily allows the complete abolition of the problem you put forward, of inflation harming the savings of the least well off,

That would certainly help but it would be expensive, and I still think we'd be better off with honest money.

It wouldn't be any more expensive than the private banking system paying interest on invested money; it would in fact be less expensive, because you wouldn't have private banks taking a cut for themselves.

Either way, it's not a policy I specifically advocate, it's just one option that can undo that particular concern.

SeanW wrote: »

Agreed, in part: some inflation is privately caused by gambling on grain and oil futures, these are the things that the rich use to beat inflation and seek deflation in a fiat currency system.

Gold is better for this purpose because it's main uses are ornamental and wealth storage - you don't eat gold nor do you fill your car/bus/train/ship/airplane/tractor etc with it, nor does it have many industrial uses.

You don't need gold to stop that: You just need proper regulations and enforcement, to clamp down on this speculation.

SeanW wrote: »

But to suggest it's only private actors driving up prices is ludicrous. I've already demonstrated how changes in monetary policy in Ireland correlated with almost exponential increases in property prices, additionally large amounts of money have been created by the Federal Reserve in the U.S. Consider this chart showing the money supply up to 2006; it's known that the Fed stopped publishing the M3 (total) money supply figures but within the year they did that, the M2 measure equalled what the M3 total was the year before.
...
And of course since then there's been bailouts, multiple rounds of Quantitative Easing, TARP, and some suspect large scale purchases of U.S. Treasuries.

How the hell would that not cause inflation?

Banks create the money with their loans, and it is the banks that are directly responsible for putting out insanely overleveraged (and fraudulent) 'liar loans', which pumped up the asset (housing) bubble.
Through that, the banks also created the mess that necessitated government shoring up of their reserves (that or watch the entire banking system implode).

That's the perfect example, of trying to pin something that is the fault of the private banking sector, on government; it's like saying a guy running and profiting from a ponzi scheme, knowing it would collapse and cause massive harm, is not at fault because the police didn't stop him, and that it's really the fault of the police for not stopping him.

SeanW

That setup, for the private system, would work (and is pretty similar to what I advocate, just minus the public bank)

Your system would disadvantage the private banks by giving the public bank unfair competitive advantages:

1. The public bank could print as much money as it liked and lend it out at whatever rate it liked, the private bank would have to actually borrow money to lend it on.
2. The public bank could - as policy as you suggest - use interest payments to compensate lower class savers for inflation, the private banks would have to earn every cent to pay their savers who lend them money.

This would not lead to a strong, vibrant, competitive private banking system, nor can I imagine any circumstances where it would.

but then the question becomes:
Do you want a static money supply or not? (not even a question of deflation vs inflation, but a question of whether the money stock should change at all)

I'm not in favour of serious expansions of the money supply, no. I think that the cash in a persons hand should never depreciate (unless scarcity, supply/demand etc raises the real cost of something, then its price can inflate), and if someone puts money into a savings account they should rewarded with an increase in the absolute value of their savings (again, unless supply/demand etc raises the real cost of something).

That said, with the responsibility for issuing cash reserved for the national Treasury (not a central/public bank) there would be flexibility. For example, the Treasury could give someone claim checks (cash banknotes) for small amounts of god that they hold or mint various denominations of coins for larger amounts as a service, the Treasury could also choose to maintian either a specie standard, where every dollar/euro etc in cash has a set amount of commodity to back it, or a (credible) reserve standard where the Treasury offers claim checks redeemable against the commodity, but where the number of claim checks may exceed the amount of gold etc in reserve.

So the Treasury would have some leeway, how much gold to buy, when and to whom to offer minting services, whether to use a specie or reserve system etc. Best of all, no need for bank.

You don't need gold to stop that: You just need proper regulations and enforcement, to clamp down on this speculation.

Agreed but remember its just basic common sense: if something is used as a form of wealth storage, its price will go up: gold, synthetic diamonds etc are perfect for this because their main uses are ornamental, historically wealth storage anyway.

Banks create the money with their loans, and it is the banks that are directly responsible for putting out insanely overleveraged (and fraudulent) 'liar loans', which pumped up the asset (housing) bubble.
Through that, the banks also created the mess that necessitated government shoring up of their reserves (that or watch the entire banking system implode).

True but the Central Bank has a lot to say about this: they set interest rates, they lay down reserve ratio requirements, and this is the key point: they expand the M1 type money supplies by buying T-Bills, engaging in Q.E. etc. So yes, the Fed/ECB etc call the shots and are responsible for the consequences. Much like our own fair isle where we're part of the Euro, Germany etc was percieved to need a low interest rate so they imposed a low interest rate on all of Europe, e.g. Ireland (overheating), Greece (incompetent and corrupt) etc with disastrous consquences, both economic and humanitarian.

Even Keynesian advocates of counter-cyclical policy would say that's a bad idea and in this case they'd be right!

When the central banks are so powerful and making decisions that underpin everything, it's really questionable to say it was the private banking systems fault.

hatrickpatrick

Kyuss, the problem with the "lending = money supply" paradigm is interest - in a system in which more loans have to keep being made in order to pay off the last round of loans, people in general (businesses in particular) are consistently in debt, inflation is an inevitable consequence, and saving money becomes next to impossible.

The concept that the bank will lend me 100 quid to open a cafe as long as I give them back 150 (assuming 50% interest for ease of example) is fine if everyone else is also getting loans this creating the 50 needed to repay the initial loan, but what happens if instead of spending it, someone wants to save their money for future use? Instantly you've created a glitch in the game of musical chairs.

The nice thing about bitcoin is that there are exactly as many chairs as people playing - it's impossible to use bitcoins which haven't actually been "minted" by the system, the concept of spending bitcoins which don't exist as anything other than a potential future bitcoin is impossible. If you don't have them, you can't use them.

This doesn't make banking impossible, but it does pretty much make interest based lending impossible and it also makes fractional reserve banking impossible, two concepts which in my own opinion are central to explaining why mainstream currency is so f*cked up and has such regular meltdowns. With bitcoin, it's impossible to do any of that.

In all honesty I don't understand why we use an interest based currency in the first place. Hypothetically speaking, what would happen if central banks issued loans consistently with 0% interest? You only pay back exactly what you borrowed?

KyussBishop

SeanW wrote: »

Your system would disadvantage the private banks by giving the public bank unfair competitive advantages

It's simply a question of who gets control over money creation: Government (through spending or a public bank), or private banks.

We already know private banks having that power is undemocratic, so that leaves government control as the only democratic solution. It's not private banks place to be creating money out of nothing, which they then use for regressive profit seeking.

If private banks require undemocratic powers for profit, then fúck them. The money creation and investment providing roles, can be performed perfectly well without them.

SeanW wrote: »

I'm not in favour of serious expansions of the money supply, no. I think that the cash in a persons hand should never depreciate (unless scarcity, supply/demand etc raises the real cost of something, then its price can inflate), and if someone puts money into a savings account they should rewarded with an increase in the absolute value of their savings (again, unless supply/demand etc raises the real cost of something).

That said, with the responsibility for issuing cash reserved for the national Treasury (not a central/public bank) there would be flexibility. For example, the Treasury could give someone claim checks (cash banknotes) for small amounts of god that they hold or mint various denominations of coins for larger amounts as a service, the Treasury could also choose to maintian either a specie standard, where every dollar/euro etc in cash has a set amount of commodity to back it, or a (credible) reserve standard where the Treasury offers claim checks redeemable against the commodity, but where the number of claim checks may exceed the amount of gold etc in reserve.

So the Treasury would have some leeway, how much gold to buy, when and to whom to offer minting services, whether to use a specie or reserve system etc. Best of all, no need for bank.

In that system, government only exchanges claims checks (as good as money) 1:1 for gold, making it 100% reserve effectively, which will suffer from deflation (and all of the regressive effects of that already pointed out, where it stacks the cards against the least well off).
This also means the entire introduction of new money into the economy, happens regressively, with people owning gold mines getting enormous free spending power out of nowhere.

Why should gold producers be given such enormous power over the money supply, which they exclusively profit from? Same problem as with private banks, different industry; people owning gold mines get massively regressive and undemocratic power over both the money supply and determining how that money gets spent into the economy (since they are directly paid and decide where to spend it).

That's even more undemocratic than private banks current powers: Private banks only get to siphon off profit from created money, through interest, and spend that (which is bad enough); here, the gold mining industry would get to directly decide where all of the new money in the economy is spent.

SeanW wrote: »

True but the Central Bank has a lot to say about this: they set interest rates, they lay down reserve ratio requirements, and this is the key point: they expand the M1 type money supplies by buying T-Bills, engaging in Q.E. etc. So yes, the Fed/ECB etc call the shots and are responsible for the consequences. Much like our own fair isle where we're part of the Euro, Germany etc was percieved to need a low interest rate so they imposed a low interest rate on all of Europe, e.g. Ireland (overheating), Greece (incompetent and corrupt) etc with disastrous consquences, both economic and humanitarian.

Even Keynesian advocates of counter-cyclical policy would say that's a bad idea and in this case they'd be right!

When the central banks are so powerful and making decisions that underpin everything, it's really questionable to say it was the private banking systems fault.

You are trying to absolve private banks of widespread fraud here, and trying to pin the blame for that fraud on central banks; that's among the most disingenuous/dishonest arguments that can be encountered, from any right-leaning economist, which specifically tries to put private banks above the law.

Central banks only get to determine the cost for the borrower, not 'how much' or 'where'; banks get to decide where, and 'how much' is determined by demand from within the economy, and by how much banks fraudulently breach lending regulations/requirements, in order to stoke demand further, and how they stoke asset bubbles, to further warp increased demand for loans into a particular area of the economy.

After private banks fraudulently and catastrophically misused their undemocratic money creating privileges, they should have this ability removed, never to be returned again (it does not even need to be in their hands, for a well functioning economy).

KyussBishop

hatrickpatrick wrote: »

Kyuss, the problem with the "lending = money supply" paradigm is interest - in a system in which more loans have to keep being made in order to pay off the last round of loans, people in general (businesses in particular) are consistently in debt, inflation is an inevitable consequence, and saving money becomes next to impossible.

The concept that the bank will lend me 100 quid to open a cafe as long as I give them back 150 (assuming 50% interest for ease of example) is fine if everyone else is also getting loans this creating the 50 needed to repay the initial loan, but what happens if instead of spending it, someone wants to save their money for future use? Instantly you've created a glitch in the game of musical chairs.

The nice thing about bitcoin is that there are exactly as many chairs as people playing - it's impossible to use bitcoins which haven't actually been "minted" by the system, the concept of spending bitcoins which don't exist as anything other than a potential future bitcoin is impossible. If you don't have them, you can't use them.

This doesn't make banking impossible, but it does pretty much make interest based lending impossible and it also makes fractional reserve banking impossible, two concepts which in my own opinion are central to explaining why mainstream currency is so f*cked up and has such regular meltdowns. With bitcoin, it's impossible to do any of that.

In all honesty I don't understand why we use an interest based currency in the first place. Hypothetically speaking, what would happen if central banks issued loans consistently with 0% interest? You only pay back exactly what you borrowed?

I agree with you fully about the problems of debt-based money (even if I disagree with the details a bit), and, even more than a public bank, I advocate use of debt-free money, through government use of money creation for spending.

The problems with Bitcoin (much lost in the thread by now, as it has only been discussed by-analogy, with the gold standard), mainly revolve over how it is destined to become extremely severely deflationary over time.

With the public bank I propose (a bank which directly uses money creation for lending), you could pretty much set a 0% interest rate if you like, or even fully write-off debts without consequence (because it's impossible for such a bank to become bankrupt, or to have balance-sheet issues in general).

I'm not totally sure of the reasons why that may be a good/bad idea though (one potential bad, is that the debtor could defer repaying it forever - positive interest would make this burdensome); certainly, a public bank would have literally no use at all for the interest payments, because all money they receive is just taken out of circulation, and when new money is needed it's just created.

You can sidestep that altogether though, and keep interest payments on debt-based money, so long as you find a way to add enough debt-free money to allow for the interest payments: For that, you can just use government spending of debt-free money.

SupaNova2

KyussBishop wrote: »

If you want the money supply to be adjusted in any way at all thereafter, money needs to be created; in order to do this democratically, government would need to do it (either through a public bank lending money, or through spending).

I don't see it as undemocratic. People choose one currency over another, just as buying iPhone's over a Samsung Galaxy is a vote for iPhone, choosing currency X over Y is a vote for X. People would choose the currency that is best managed, including how its money supply is managed. Its actually more democratic, now you are forced to accept national currency and its management, you don't get to vote on how it is managed, you don't get to democratically direct its management. In an environment of choice you have a say.

SupaNova2

KyussBishop wrote: »

I agree with you fully about the problems of debt-based money (even if I disagree with the details a bit), and, even more than a public bank, I advocate use of debt-free money, through government use of money creation for spending.

Can you not see the problem with this, the potential for cronyism times 100.

Expanding currency in a market environment through loans, the money goes to those who can use the loan for a project that will show a return. Banks would give it to those who can provide the biggest return, or those who have the best projects that meet some demand.

Can you explain how government would expand money, how do they decide who to give money to if not based on return? Their best friends? We can't all go to a voting booth to decide whether Tom's software start-up should get money over Sarah's organic food.

KyussBishop

SupaNova2 wrote: »

I don't see it as undemocratic. People choose one currency over another, just as buying iPhone's over a Samsung Galaxy is a vote for iPhone, choosing currency X over Y is a vote for X. People would choose the currency that is best managed, including how its money supply is managed. Its actually more democratic, now you are forced to accept national currency and its management, you don't get to vote on how it is managed, you don't get to democratically direct its management. In an environment of choice you have a say.

You're not addressing what I have described as undemocratic, you are misrepresenting it as a discussion over choosing currency.
It's not a matter of choosing currency (something I don't necessarily disagree with, since government decide how taxes are paid), it's a matter of choosing who gets to create money; that is a vast political/economic/social power, and having it concentrated in the hands of a small private elite, is inherently undemocratic.

If you choose gold, you hand that power to private interests who control gold mining, if you choose fractional reserve of any kind, you hand that power to private banks, if you choose commodity 'x', you hand that power to the dominant players controlling the market for 'x'.

Bitcoin is actually remarkably good at evening the playing ground in this particular aspect, in how it is mined through computing power (and, well...through hard-set limits in the money supply, slowing down growth itself), just at the cost of inevitable deflation.


If you want to avoid all of the regressive effects of deflation, and want a currency where money creation is controlled democratically, then you're going to be hard pressed to find something better than government-controlled fiat currency.

KyussBishop

SupaNova2 wrote: »

Can you not see the problem with this, the potential for cronyism times 100.

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

We have seen how the private banking and financial industry have zero accountability (something there would immediately be more of, under government), and you are arguing that private banks should retain the privilege of being able to undemocratically create money?


This is the perfect example of the pure hypocrisy of your stated views: You 100% ignore the cronyism that you can see plain as day in the private system, and speculate that something similar or worse would happen with government in control.

It's nothing more than the usual 'private good' 'public bad' nonsense; do you not see how Austrian (and general economically/politically-right) ideology is so deliberately blind to bad things happening in the private sector? (even where it amounts to blindingly obvious fraud and illegality)

SupaNova2 wrote:

Expanding currency in a market environment through loans, the money goes to those who can use the loan for a project that will show a return. Banks would give it to those who can provide the biggest return, or those who have the best projects that meet some demand.

Can you explain how government would expand money, how do they decide who to give money to if not based on return? Their best friends? We can't all go to a voting booth to decide whether Tom's software start-up should get money over Sarah's organic food.

Only debt-based money requires a return (because you have to repay the debt + interest). Debt-free money, can be spent without needing to return a profit.

You're also completely wrong about banks. They pissed enormous amounts of money away on a property bubble, that will never see a full return. The people running the banks did this for personal profit in the short-term, and are letting everyone else pick up the mess.

Your argument amounts to nothing more than a vague implication of cronyism from government, when exactly what you describe was done by the private banking system:
Bankers best friend, property developer 'x' takes out massive loans to put into construction projects, banker and property developers collude along with members of the financial industry to crap out poor-quality loans, inflating the housing asset-bubble, and to sell the debt for a killing on the financial markets.

High-ups in the banks, the property developers, and those in the financial industry make craploads of short-term personal profits in salaries and bonuses, and walk away from the mess completely unaccountable, when it all implodes.


Exactly the kind of cronyism you cynically assume government will undertake, is what has happened in private industry! It is an enormous and hypocritical double-standard, that you display absolutely no cynicism towards private industry, and display it all towards government, even though we know private industry has already done what you speculate over, and government has never used money creation in a corrupt way like that.


That is something that makes me so cynical about Austrian views, how there is the view that private industry can do no evil; that is why it is bad to read authors who express such irrational views (which is practically all of the more well known historical Austrian writers):
No matter how hard you try, you can't tune that stuff out and take only the good stuff from those authors; the irrational crap will always sink in through repeated reading of the same assertions. That is why Austrian writing comes in giant tomes, huge books which try to bombard you with so many of those assertions, until they sink in through repetition.

SupaNova2

KyussBishop wrote: »

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

It isn't a private system, it is a quasi-private system that uses government debt as base money, where interest rates are centrally controlled, and moral hazard is in overdrive as government stands in the waiting to bail the whole lot out.

That is something that makes me so cynical about Austrian views, how there is the view that private industry can do no evil; that is why it is bad to read authors who express such irrational views (which is practically all of the more well known historical Austrian writers)

Why are you talking about Austrian views? Where in the thread have I said private industry can do no evil? It would be better if you stopped fighting your right wing caricatures, and concentrate on the people actually posting in the thread.

SupaNova2

KyussBishop wrote: »

You're not addressing what I have described as undemocratic, you are misrepresenting it as a discussion over choosing currency.
It's not a matter of choosing currency (something I don't necessarily disagree with, since government decide how taxes are paid), it's a matter of choosing who gets to create money; that is a vast political/economic/social power, and having it concentrated in the hands of a small private elite, is inherently undemocratic.

It is addressed only you can't see the very simple and obvious link, by choosing currency you choose who gets to create and manage the currency. There is not much power to be had in inflating or deflating a currency no one chooses to use or accept.

KyussBishop

SupaNova2 wrote: »

KyussBishop wrote:

We have 'cronyism times 100'; it is the private banking and financial system, that worked with one another to abuse money creation privileges, to pump up gigantic asset bubbles (particularly in housing) for massive short-term personal profit, and imploding a significant portion of the world economy along with it.

It isn't a private system, it is a quasi-private system that uses government debt as base money, where interest rates are centrally controlled, and moral hazard is in overdrive as government stands in the waiting to bail the whole lot out.

I didn't say it was a private system, you are misrepresenting me to create a straw man that you can reply to, so you can avoid replying to what I actually said.
Private banks have the ability to create money; this is a privilege that exercised almost entirely by private banks, and it is undemocratic.

The exact criticism you put forward, against what you think government might do, has (as explained in my previous post) already been done by these private banks!

You just try to sidestep this entirely here, because you are deliberately blind to any wrongdoings undertaken by private industry.

SupaNova2 wrote: »

Why are you talking about Austrian views? Where in the thread have I said private industry can do no evil? It would be better if you stopped fighting your right wing caricatures, and concentrate on the people actually posting in the thread.

I'm talking about Austrian views as that is where the ideological views lie, from every frequent poster contesting my posts.

You are, in your previous posts, hypocritically presenting speculative potential for government abuse as a reason not to remove money creation out of private hands, even though the exact thing you are pre-emptively criticizing government for, has been done (on an enormous scale) by private industry.

This fits perfectly with the usual Austrian hypocrisy, which is hyper-critical of government, and fails to apply the very same standards/criticisms to private industry; that omission is the 'do no evil' stance, where it comes to private industry, which you do nothing to dispel here.

SupaNova2

KyussBishop wrote: »

The exact criticism you put forward, against what you think government might do, has (as explained in my previous post) already been done by these private banks!

It is not just private banks though, CB's lowering interest rates, governments stimulating housing through tax breaks all had their role. And when it all went to crap government predictably bails the whole thing out. There is no need for good management if their is no punishment for bad management. Private banks yes, private system no. Your government scheme is not bad because it is government, but because it throws out P&L.

How does a centralized government system decide between allocating money to Paul's softawre start-up or Sarah's organic food?

KyussBishop

SupaNova2 wrote: »

It is addressed only you can't see the very simple and obvious link, by choosing currency you choose who gets to create and manage the currency. There is not much power to be had in inflating or deflating a currency no one chooses to use or accept.

People may choose what currency to trade among themselves with, but people do not get to decide the dominant currency a government uses.
Government decides that, based on how they demand taxes be paid (which is a policy decision people can have a democratic role in deciding); if taxes need to be paid in a particular currency, that is what will spur demand for that currency, making it become dominant.

If government is forced to use any currency other than one they control, for taxation and spending, then this is undemocratic, because it gives those who control money creation, great power over government, politics, the economy and society in general.

Even where you choose a currency to trade amongst with other private citizens, you do not get to choose who gets to create and manage that currency, and then you have zero democratic control over who gets to create and disperse it. This it true for practically all commodity-based currencies.

Again, you try to sidestep the point, that private control over money creation is inherently undemocratic.


So that is three things:
1: It is undemocratic to force government to utilize a currency they do not control, because those who do control the currency gain power over government; it is a vital part of national sovereignty.
2: Whatever currency a government demands in taxes, will become dominant (given the right level of taxes); this does not have to exclude use of alternative currencies.
3: Private control over money creation is an inherently undemocratic ability, because it vests those who have that power, great control over politics/economics and society overall.

Your desired monetary system, is undemocratic. The one I propose, is not (and even the arguments you put forward against mine, consisting of speculative concerns of government misuse, are precisely things private banks have done to misuse their privileges).

SupaNova2

KyussBishop wrote: »

Government decides that, based on how they demand taxes be paid (which is a policy decision people can have a democratic role in deciding); if taxes need to be paid in a particular currency, that is what will spur demand for that currency, making it become dominant.

Government can simply accept taxes in more than one currency, just because government now specifies taxes be paid in their badly managed monopoly currency does not mean this always has to be the case.

Again, for your democratic currency, how does it decide between allocating money to Paul's software start-up or Sarah's organic food?

KyussBishop

SupaNova2 wrote: »

It is not just private banks though, CB's lowering interest rates, governments stimulating housing through tax breaks all had their role. And when it all went to crap government predictably bails the whole thing out. There is no need for good management if their is no punishment for bad management. Private banks yes, private system no. Your government scheme is not bad because it is government, but because it throws out P&L.

How does a centralized government system decide between allocating money to Paul's softawre start-up or Sarah's organic food?

I don't argue that government did not contribute to the crisis. I am talking about money creation though, which private banks directly engage in by extending loans.

You are trying to shift the blame for private banks abuse of money creation, onto government. I know that government can reign in money creation if private banks misuse of it gets out of hand, but that does not change private banks misuse/abuse of it.


Lets also not forget, that central banks are staffed almost entirely with ex-banking/financial industry people, with plenty of revolving doors there, who are in a perfect position to corrupt the processes within the central bank (not to mention the massive lobbying power of banks/finance in general, brought about through undemocratic profits from private banks money creating abilities).


My system doesn't throw out Profit & Loss (I assume that's what P&L is) either, as a public bank can still extend debt-based money, which requires borrowers to turn a profit.

You don't need a bank, with control over money creation (EDIT: a public one, which doesn't use FRB, but direct money creation), to turn a profit though; you just have to manage the amount of money in the economy carefully, and be careful not to put too much into one area (both things that can cause inflation).


Government can decide where to allocate loans, the same way the private system does: Evaluate the credibility of someones business model, their creditworthiness etc., and do all the necessary basic checks and due diligence required to determine if it's something worthy of a loan.

KyussBishop

SupaNova2 wrote: »

Government can simply accept taxes in more than one currency, just because government now specifies taxes be paid in their badly managed monopoly currency does not mean this always has to be the case.

Again, for your democratic currency, how does it decide between allocating money to Paul's software start-up or Sarah's organic food?

Again, taking taxes in a currency government does not control, gives the controllers of that currency great power over government, if government comes to rely upon it for spending; that is undemocratic.

SupaNova2

Pointing out private banks are not only to blame is not shifting blame, simply pointing out they are not the only ones to blame. Is that so hard to understand? I can't really address most of your post, as you advocate debt based currency where P&L is important then debt free currency where it is not.

Again, taking taxes in a currency government does not control, gives the controllers of that currency great power over government, if government comes to rely upon it for spending; that is undemocratic.

Government wants taxes paid in currency X, or the equivalent value in Y or Z. Government then spends that tax money. Where does this great power over government come from?

KyussBishop

SupaNova2 wrote: »

Pointing out private banks are not only to blame is not shifting blame, simply pointing out they are not the only ones to blame. Is that so hard to understand? I can't really address most of your post, as you advocate debt based currency where P&L is important then debt free currency where it is not.

The issue wasn't who was to blame in general, the issue was who abused money creation. The private banks are solely to blame for abusing money creation, and government are partially to blame for the ensuing crisis, for not reigning them in.

That is private banks abuse of money creation, not government abuse of money creation.

You'll need to clarify what your criticism is regarding P&L, because it is not at all obvious at the moment.

SupaNova2 wrote: »

Government wants taxes paid in currency X, or the equivalent value in Y or Z. Government then spends that tax money. Where does this great power over government come from?

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

Private control over currencies which are dominant in an economy, is inherently undemocratic by itself anyway, due to the privileges it grants those controlling the currency or money creation within that currency.

Such a system could potentially work, so long as government had a currency it directly controlled, but even then you don't escape the undemocratic nature of helping to generate demand for a private currency, giving it and its controllers significant privilege (or the inherently undemocratic nature of private control over money creation itself).

SeanW

KyussBishop wrote: »

I don't argue that government did not contribute to the crisis. I am talking about money creation though, which private banks directly engage in by extending loans.

Point is the public central banks create money too: and unlike the private banks that actually have some restraints (someone has to deposit €100 in cash for the private banking system not individual banks per se) the central bank can just print money out of absolutely nothing. Central banks lay down monetary policy, currency supply totals, interest rates, fractional reserve ratio requirements and so on.

Yes the private banks had a lot to do with it but what happened in Ireland was not a surprise to a person guided by either Austrian OR Keynesian economics.

1. Austrian school economists believe that when you inflate the supply of loanable funds to lower interest rates beyond what the free market demands, that extra money WILL, in one way or another, go into malinvestment.
2. Keynesian economists believe that if you inappropriately use fiscal or monetary stimulus measures when an economy is overheating (our government had a series of giveaway budgets and our central bank, the ECB had low interest rates to support Germany) that you will cause the economy to overheat and crash.

So let's dispense forever that our current difficulties are because we had too much private profit and not enough government.

Yes the private banks had a lot to do with it but you can't absolve government of its role.

Lets also not forget, that central banks are staffed almost entirely with ex-banking/financial industry people, with plenty of revolving doors there, who are in a perfect position to corrupt the processes within the central bank

True, but to think your public bank would be much better requires a certain naievte.

All aspects of human life are subject to imperfection and corruption to some degree. That's why I favour a monetary system with only limited flexibility. Less power = less power to abuse.

My system doesn't throw out Profit & Loss (I assume that's what P&L is) either, as a public bank can still extend debt-based money, which requires borrowers to turn a profit.

But you admit yourself the public bank wouldn't care about interest because it would have no use for the interest it recieved: their main source of funding would be the printing press.

Government can decide where to allocate loans

Do you seriously believe that this would not lead to graft and political pandering?

KyussBishop wrote: »

The private banks are solely to blame for abusing money creation, and government are partially to blame for the ensuing crisis, for not reigning them in.

That's right, central banks never print money to buy government bonds, they don't set interest rates, reserve ratio requirements, and they don't print cash of nothing to back their policies ... oh wait! They do!

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

How does that "guarantee demand" or "create priviledge?"

Seriously. If the local tax office decided to accept road tax payments in Bhutanese ngultrum, how would "grant a priviledge" to the Bhutanese or "guarantee demand" for ngultrum?

I put it to you that the other currency would have to be superior in some way in order for people to want to use it, for paying taxes or anything else.

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

That's the whole point! I WANT to put the brakes on governments ability to debase the currency and cause inflation. Pretty much by definition this requires forcing the government to either save during the good times (what Keynesians consider good fiscal practice) or stop spending, or borrow.

Private control over currencies which are dominant in an economy, is inherently undemocratic by itself anyway, due to the privileges it grants those controlling the currency or money creation within that currency.

Not if you have freely competing currencies. If you want to use local scrip established by your local chamber of commerce. If you want to use gold or silver or synthetic diamonds, you use them. If you want to use the bits of paper funny-money the government says is money, you use that. Ditto for bitcoins. You use the currency you think is best for your needs, both for spending and perhaps a different one for saving, or borrowing.

In any case the system I have proposed (gold standard, either speice or reserve) maintains a public currency while offering limited flexibility (by design). It also has the benefit of being debt free, and as such helping to preserve the integrity of ANY system of private saving and lending built on it.

KyussBishop

SeanW wrote: »

Point is the public central banks create money too: and unlike the private banks that actually have some restraints (someone has to deposit €100 in cash for the private banking system not individual banks per se) the central bank can just print money out of absolutely nothing. Central banks lay down monetary policy, currency supply totals, interest rates, fractional reserve ratio requirements and so on.

You don't understand endogenous money: Money creation, at both the bank level and central bank level, is driven (in one case directly, in the other indirectly) through banks extending loans, and it is purely private banks that have abused their money creating abilities in this crisis.

Private banks extend loans, and shore up their reserves later, and if there are not enough excess reserves in the system then the central bank will not refuse to issue more into the system, as not doing so would cause chaos as loans already given out, have to be recalled.


You also cut out vitally important context from my post, which would not require me to bother repeating myself here if you hadn't discarded:
You are trying to shift the blame for private banks abuse of money creation, onto government. I know that government can reign in money creation if private banks misuse of it gets out of hand, but that does not change private banks misuse/abuse of it.

SeanW wrote: »

Yes the private banks had a lot to do with it but what happened in Ireland was not a surprise to a person guided by either Austrian OR Keynesian economics.

1. Austrian school economists believe that when you inflate the supply of loanable funds to lower interest rates beyond what the free market demands, that extra money WILL, in one way or another, go into malinvestment.
2. Keynesian economists believe that if you inappropriately use fiscal or monetary stimulus measures when an economy is overheating (our government had a series of giveaway budgets and our central bank, the ECB had low interest rates to support Germany) that you will cause the economy to overheat and crash.

So let's dispense forever that our current difficulties are because we had too much private profit and not enough government.

Yes the private banks had a lot to do with it but you can't absolve government of its role.

By requiring government to reign-in bank lending with higher interest rates, you are asking for more government and less private profit.

I explicitly didn't absolve government of anything either; government is responsible for not reigning in private banks, and private banks are responsible for massive abuse of money creating privileges.

SeanW wrote: »

True, but to think your public bank would be much better requires a certain naievte.

All aspects of human life are subject to imperfection and corruption to some degree. That's why I favour a monetary system with only limited flexibility. Less power = less power to abuse.

Your former statement is nothing more than a flimsy assertion which you don't back up with anything; private banks just destroyed a significant proportion of the world economy, by abusing their undemocratic money creation powers, I want a public bank which is both democratic and accountable, and on those grounds is inherently better.

More of the usual hypocrisy from Austrians, where private corruption and fraud is ignored, and public corruption/fraud is asserted; you have all the evidence you need, of massive corruption in private banks, and your defense of them, is handywaviness about corruption in public banks without anything to back it up.

We've seen what inflexibility, i.e. lack of resilience in the face of crisis, does to a monetary system: It causes it to destroy itself, like the gold standard in the 1930's.

I want a monetary system that runs the economy to its maximum potential (that means, not having the utterly stupid situation of leaving masses of people unemployed, every time there is a private-sector crisis), I don't want to have a deliberately crippled/half-assed system, that causes real harm to people in its inefficiency, just because economic conservatives assert (without any backing at all) that everything other than their rigid/archaic system, would be bad.

SeanW wrote: »

But you admit yourself the public bank wouldn't care about interest because it would have no use for the interest it recieved: their main source of funding would be the printing press.

A public bank could decide to charge interest if it wanted, it is only a policy decision.

SeanW wrote: »

Do you seriously believe that this would not lead to graft and political pandering?

You mean, like private banks fraudulently overextending loans into property development and purchasing?

Again, your statement amounts to a 100% unbacked speculative assertion, that it would lead to that, when past precedent shows overwhelming private abuse of money creation, and nothing from public banks (which already exist throughout the world, even in the US in North Dakota).

It's the usual conservative fearmongering about any change whatsoever; this fearmongering is reserved exclusively as well, only for policies which disagree with the persons own desired policies, and is never applied to their own.

SeanW wrote: »

That's right, central banks never print money to buy government bonds, they don't set interest rates, reserve ratio requirements, and they don't print cash of nothing to back their policies ... oh wait! They do!

What precise abuse did central banks commit, using money creation, then? What you are describing are all completely normal operations of the central bank, there is nothing abusive there.

You don't seem to understand the monetary system at all, particularly how money creation is endogenously led, through bank loans.

You can pin negligence on central banks for not reigning-in private banks, sure, but you can't pin abuse on the central banks, when the private banks were fraudulently pissing out overextended loans, displaying both malice in intent, and outright abuse of privilege (not just negligence).

SeanW wrote: »

KyussBishop wrote:

Allowing the use of privately-controlled currencies for taxation, undemocratically grants a privilege to those who hold influence with those currencies, by helping to generate guaranteed demand for those currencies.

How does that "guarantee demand" or "create priviledge?"

Seriously. If the local tax office decided to accept road tax payments in Bhutanese ngultrum, how would "grant a priviledge" to the Bhutanese or "guarantee demand" for ngultrum?

I put it to you that the other currency would have to be superior in some way in order for people to want to use it, for paying taxes or anything else.

Eh, because you can pay taxes in that currency, automatically giving it a massive leg-up over all other non-tax-extinguishable currencies, and if that currency does gain dominance, the people with most influence in money creating powers with that currency, gain significant undemocratic privilege, and additional undemocratic control over politics, economics and society.

SeanW wrote: »

KyussBishop wrote:

Also, by mandating government spend through money they do not control, requires government to go to private lenders to get money for spending if and when any deficit spending is required, thus indebting government to those private lenders (which is also undemocratic).

That's the whole point! I WANT to put the brakes on governments ability to debase the currency and cause inflation. Pretty much by definition this requires forcing the government to either save during the good times (what Keynesians consider good fiscal practice) or stop spending, or borrow.

You don't even give a toss that it is outright undemocratic, and gives private actors (principally those in control of expansion of the money supply, and those with a lot of clout in finance/banking) massive control over politics.

What you want, amounts to handing over massive undemocratic control to private actors who pull the purse strings; that sums up Austrian ideology rather well, but you'll never hear it admitted straight out, because by and large its supporters don't have that kind of honesty.

Your statements about government control over money creation, again, amount to nothing more than assertions, and you are extremely hypocritical as well, in not noting private control over money creation causing exactly those problems, and helping to decimate the world economy.

It is such blind total hypocrisy, and a total lack of care for any kind of democratic principles, and the entire argument reduces down to totally unbacked assertions; it makes more plain than most arguments, just how corrupt the entire Austrian ideology is, at every level (yet it's supporters will still feign indignation, at the suggestion that it is expressly created and maintained by an entire industry of wealthy and corporate interests, looking to directly corrupt politics, even while it is blindingly obvious that this is the end-result of the views they themselves advocate).

SeanW wrote: »

Not if you have freely competing currencies. If you want to use local scrip established by your local chamber of commerce. If you want to use gold or silver or synthetic diamonds, you use them. If you want to use the bits of paper funny-money the government says is money, you use that. Ditto for bitcoins. You use the currency you think is best for your needs, both for spending and perhaps a different one for saving, or borrowing.

In any case the system I have proposed (gold standard, either speice or reserve) maintains a public currency while offering limited flexibility (by design). It also has the benefit of being debt free, and as such helping to preserve the integrity of ANY system of private saving and lending built on it.

It doesn't matter if you have freely competing currencies. A dominant private currency, means private domination over money creation for the countries primary currency, which is de-facto undemocratic.

A gold standard does not offer a publicly controlled currency, it offers a currency where money creation is controlled by private interests that own gold mines, and foreign countries that own gold mines (principally China - so you're handing part of your countries sovereignty over to them too).

You also have no clue what debt-based vs debt-free money is, because a gold standard is most definitely debt-based where the gold is being used as reserves, for a fractional-reserve system (with only the tiny proportion of gold not going directly from the ground to banks, being debt-free).

SeanW

You don't understand endogenous money: Money creation, at both the bank level and central bank level, is driven (in one case directly, in the other indirectly) through banks extending loans

Yes, but the central bank prints new money out of nothing, while the private banks have to have something to back their loans via a reserve ratio requirement.

And as I said, I'd be OK with getting rid of Fractional Reserve Banking, so long as the currency itself was 'hardened' to prevent either public or private institutions from debasing it. FRBing is not something I care massively about especially since it's built on worthless central bank paper anyway.

and it is purely private banks that have abused their money creating abilities in this crisis.

You cannot possibly be serious?

You also cut out vitally important context from my post, which would not require me to bother repeating myself here if you hadn't discarded:
You are trying to shift the blame for private banks abuse of money creation, onto government.

Huh? I clearly stated that the private banks had a lot to do with it, clearly they made loans they shouldn't have. It's somewhat naieve to assume that the central banks had no say, no control, and no blame for the boom and bust.

In fact - and this is the point I have to repeat - the boom and bust cycle we have suffered was predictable from both Keynesian and Austrian economic views.

By requiring government to reign-in bank lending with higher interest rates, you are asking for more government and less private profit.

Yes and No:
Yes: Central banks currently control the money supply, interest rates and all the rest so clearly the responsibility is with them to limit credit expansion when there's any risk of a bubble or economic overheating. The ECB designed monetary policy for the needs of Germany etc during the early-mid 2000s disregarding the needs of the perimiter countries (Ireland, Greece etc) for higher interest rates to prevent unviable lending. Furthermore in both of these cases irresponsible monetary policy was matched at national level with irresponsible fiscal policy.

That's a central point of Keynesian economics which you should know since you - like Keynes - advocate massive government intervention in monetary policy.
No: In an Austrian system, the currency is hardened and credit supply is determined by the amount of loanable funds which in turn is restrained by the supply of savings in the banking system. Debt-bubbles cannot occur - or at least get burst sooner - because as soon as people stop saving and start borrowing and spending like there's no tomorrow, interest rates shoot up like a rocket and it becomes financially unviable.
Likewise if everyone starts saving like crazy, the supply of loanable funds goes way up and interest rates fall.
In short, a nice equilibrium between encouraging people to save while making credit available for sensible uses.

Austrians believe that if you lower the interest rates below what a free market would demand, the funny-money will find its way into unviable uses, either one way or another.

It's the usual conservative fearmongering about any change whatsoever; this fearmongering is reserved exclusively as well, only for policies which disagree with the persons own desired policies, and is never applied to their own.

If I understand your "public bank" idea correctly, you want to put politicians in charge of the printing press.

Any understanding of modern political history must red-flag this idea for potential trouble. For example, if we had your public bank under Fianna Fail in the last decade, it's reasonably safe to suggest that there would have been no limits on lending to property developers or mortage seekers to fuel the property boom. Politicians pander to vested interests: that's a given in the real world. Also not specific to FF but a concern generally is that the bank would be used for electioneering, heck they fired the tax collectors every election year in Greece for gods sake and here in Ireland the gov't won the 2002 and 2007 with giveaway budgets, even the dreadful waste of money that was the SSIA scheme was timed to release a flood of cash just before the 2007 election. Do you seriously think the public bank wouldn't grant heaps of mortgages while simultaneously giving generous interest to savers just before an election, when it's controlled by politicians?

I don't like the current central banking system, not by any means but even that crap we have now is better than having the printing press directly in the hands of politicians.

What precise abuse did central banks commit, using money creation, then?

Central banks set interest rates too low - a catastrophic bust was inevitable regardless of whether you were looking at it is a Keynsian or n Austrian.
They also debase the currency to buy government debt, sending screwy price signals and stealing wealth from savers by having more units of money representing the same total level of wealth.

You don't seem to understand the monetary system at all, particularly how money creation is endogenously led, through bank loans.

I understand it perfectly. At a 10% RRR, the FRB system multiplies the level of cash by, ironically enough 10-fold. So if the Central Bank gives me €100 and I put in a demand deposit account, it becomes €1000 through Fractional Reserve Banking.

But the Central Bank prints the baseline currency supply and in most cases it sets the Reserve Ratio Requirement. So it has ultimate and final responsibility for the total (i.e. M3) money supply. Which the Fed doesn't even publish now.

A gold standard does not offer a publicly controlled currency, it offers a currency where money creation is controlled by private interests that own gold mines, and foreign countries that own gold mines (principally China - so you're handing part of your countries sovereignty over to them too).

The Treasury in my system would have limited control: it could choose to stop buying gold any time it liked. It could give preference to its former central bank gold reserves as the basis of new currency, give preference to buying gold from it's own national citizens before buying any from foreign sources (e.g. a national citizen walks into the Treasury with some old jewelry for smeltering and gets in return either some gold coins or a claim-check). It could also choose whether to have a specie or reserve system, or perhaps in a very extreme scenario with public agreement, alter the value of the claim checks.

You also have no clue what debt-based vs debt-free money is, because a gold standard is most definitely debt-based where the gold is being used as reserves, for a fractional-reserve system (with only the tiny proportion of gold not going directly from the ground to banks, being debt-free).

Straw-man much? I am not advocating Fractional Reserve Banking, as I said many Austrians think poorly of it as you do. But yes, for me the main thing is that cash has real value. But as I said it's hard for me to get excited about the ills of fractional reserve banking when the system is built on government funny-money anyway. The main thing for me is that the CASH that the system is built on is both hard and debt free. After that I would be happy to discuss abolishing FRBing. No doubt abolishing FRBing or raising RRRs would improve the stability of the financial system. But I can't get excited about the prospect when it's still just going to be worthless paper underneath it all.

KyussBishop

SeanW wrote: »

Yes, but the central bank prints new money out of nothing, while the private banks have to have something to back their loans via a reserve ratio requirement.

And as I said, I'd be OK with getting rid of Fractional Reserve Banking, so long as the currency itself was 'hardened' to prevent either public or private institutions from debasing it. FRBing is not something I care massively about especially since it's built on worthless central bank paper anyway.

The argument is not over who can create money creation, it is over where it was abused.

SeanW wrote: »

You cannot possibly be serious?

What is your counterargument?

SeanW wrote: »

Huh? I clearly stated that the private banks had a lot to do with it, clearly they made loans they shouldn't have. It's somewhat naieve to assume that the central banks had no say, no control, and no blame for the boom and bust.

In fact - and this is the point I have to repeat - the boom and bust cycle we have suffered was predictable from both Keynesian and Austrian economic views.

You're trying to pretend we are having a different argument again: We are not debating over apportioning blame for the crisis as a whole, we are debating who abused money creation.

SeanW wrote: »

If I understand your "public bank" idea correctly, you want to put politicians in charge of the printing press.

Any understanding of modern political history must red-flag this idea for potential trouble. For example, if we had your public bank under Fianna Fail in the last decade, it's reasonably safe to suggest that there would have been no limits on lending to property developers or mortage seekers to fuel the property boom. Politicians pander to vested interests: that's a given in the real world. Also not specific to FF but a concern generally is that the bank would be used for electioneering, heck they fired the tax collectors every election year in Greece for gods sake and here in Ireland the gov't won the 2002 and 2007 with giveaway budgets, even the dreadful waste of money that was the SSIA scheme was timed to release a flood of cash just before the 2007 election. Do you seriously think the public bank wouldn't grant heaps of mortgages while simultaneously giving generous interest to savers just before an election, when it's controlled by politicians?

I don't like the current central banking system, not by any means but even that crap we have now is better than having the printing press directly in the hands of politicians.

I am arguing that money creation should be democratically controlled, you are arguing it should be controlled by a private elite who have dominant control over your currencies commodity.

You are trying to pre-emptively slur democratic control over money creation, by asserting (without any backing) that it would be run corruptly, while ignoring the massive private corruption/mismanagement of money creation, which precisely mirrors the exact unbacked pre-emptive criticism you placed on government.

In your system, as we can see right now, there is zero accountability for private banks abuse of money creation; in my system, any government abuse of money creation, is immediately something they can actually be held accountable for, and thrown out of office over (so it would be stupid for them to inflate a property bubble, when they will bear the full brunt of responsibility, unlike FF, who got massively hammered even without full responsibility).


It's democratic and it runs better, and even in the face of a property or general economic crisis (lets say, even one caused by mismanagement), it is far more resilient than the private banking system would ever be on its own, because it is immune to bankruptcy and can write down debts wherever needed; we have been in crisis for half a decade now due to private banks, and my system would be able to end such a crisis far more quickly, and would be able to maintain full employment in the process.

SeanW wrote: »

KyussBishop wrote:

What precise abuse did central banks commit, using money creation, then?

Central banks set interest rates too low - a catastrophic bust was inevitable regardless of whether you were looking at it is a Keynsian or n Austrian.
They also debase the currency to buy government debt, sending screwy price signals and stealing wealth from savers by having more units of money representing the same total level of wealth.

Interest rates are not money creation. That allows private banks to abuse money creation, not the central bank.

You have not described a single abuse of money creation there, all you have described are basic central bank operations, which are in no way abusive; your stretched claim of 'debasement' is also false, because the mechanics of inflation and foreign exchange rates, depend upon the level of economic activity and excess money, which can be soaked up by increasing economic activity.

SeanW wrote: »

I understand it perfectly. At a 10% RRR, the FRB system multiplies the level of cash by, ironically enough 10-fold. So if the Central Bank gives me €100 and I put in a demand deposit account, it becomes €1000 through Fractional Reserve Banking.

But the Central Bank prints the baseline currency supply and in most cases it sets the Reserve Ratio Requirement. So it has ultimate and final responsibility for the total (i.e. M3) money supply. Which the Fed doesn't even publish now.

The money multiplier is a myth, that is not how endogenous money works.

When a bank extends a loan, it creates money/deposits, and a bank can keep on doing this within reserve and capital requirements; the reserve requirement is not even hard set, because when the reserve requirement is hit, central banks will increase reserves in the system (or there would be a crisis), and so the real limit on banks is the capital/asset requirements (whatever the borrower puts forward as collateral).

There are better explanations (I did a better effort than this in reply to SupaNova2, way back, though omitting capital requirements), but this is very different to loanable funds and the money multiplier.

SeanW wrote: »

The Treasury in my system would have limited control: it could choose to stop buying gold any time it liked. It could give preference to its former central bank gold reserves as the basis of new currency, give preference to buying gold from it's own national citizens before buying any from foreign sources (e.g. a national citizen walks into the Treasury with some old jewelry for smeltering and gets in return either some gold coins or a claim-check). It could also choose whether to have a specie or reserve system, or perhaps in a very extreme scenario with public agreement, alter the value of the claim checks.

So in other words, yes, control over money creation is in the hands of private actors, because you have to buy gold off of those private actors; that is undemocratic.

In that situation, you just give citizens who can covertly buy up foreign gold, and sell it to government, greater undemocratic power.

SeanW wrote: »

Straw-man much? I am not advocating Fractional Reserve Banking, as I said many Austrians think poorly of it as you do. But yes, for me the main thing is that cash has real value. But as I said it's hard for me to get excited about the ills of fractional reserve banking when the system is built on government funny-money anyway. The main thing for me is that the CASH that the system is built on is both hard and debt free. After that I would be happy to discuss abolishing FRBing. No doubt abolishing FRBing or raising RRRs would improve the stability of the financial system. But I can't get excited about the prospect when it's still just going to be worthless paper underneath it all.

Okey sorry, I thought FRB was part of what you were still advocating.

The full-reserve gold standard there, would still exhibit all the problems of undemocratic private domination over money creation, of permanent deflation and how that serves to regressively concentrate wealth upwards, among all the other problems of deflationary currencies; you would pretty much guarantee a volatile, crippled economy, which would not be able to maintain full economic activity, and which would fly apart upon encountering a big enough economic crisis.

SeanW

The money multiplier is a myth, that is not how endogenous money works.

When a bank extends a loan, it creates money/deposits, and a bank can keep on doing this within reserve and capital requirements; the reserve requirement is not even hard set

Fair enough, that article suggests, the banking system has short circuited the RRR expanding the money supply well beyond what it should be. If that's true, then it's absolutely not something I could ever support.

KyussBishop wrote: »

The argument is not over who can create money creation, it is over where it was abused.

True, but I think that the world Central Banks have a lot to answer for on this point.

What is your counterargument?

My counter-argument is simply this: The political class (not just Ireland but to a certain extent worldwide) has shown itself to be completely untrustworthy especially with fiscal policy. You know this because when I suggested that any deflationary aspects of a gold standard currency (in monetary policy) could be counteracted by wealth taxes (in fiscal policy) you were less than impressed, suggesting IIRC that any such tax would be just one corrupt/Thatcherite government away from being watered down or abolished.

But AFAIK you want those same people to have direct control over the printing presses. That doesn't seems to be a good idea, frankly. As much as I have a problem with the current Central Banking system (and I assure you that I do) it is better that there be a layer of abstraction between corrupt electioneering politicians and the control of the money supply. Even Ron Paul accepted this, putting numerous safeguards into his various "Audit the Fed" bills to prevent political interference in the Federal Reserve System operations.

You're trying to pretend we are having a different argument again: We are not debating over apportioning blame for the crisis as a whole, we are debating who abused money creation.

They're the same arguement. Whoever abused money created caused the boom and bust. I am looking for restrain on anyones ability to debase the currency, especially the cash, which only a central/public bank can do.

I am arguing that money creation should be democratically controlled, you are arguing it should be controlled by a private elite who have dominant control over your currencies commodity.

I am arguing that currency should have real value, and should be restitant to debasement. Since gold - unlike grain, energy products etc - has a primarily ornamental and wealth storage functions, it's the best choice for a commodity currency.

You are trying to pre-emptively slur democratic control over money creation, by asserting (without any backing) that it would be run corruptly,

Being in the slightest bit familiar with politics should make anyone leery of putting the printing press directly in the hands of the political class.

In your system, as we can see right now, there is zero accountability for private banks abuse of money creation;

True, but there should be consequences: banks that go below their reserve ratios (under todays system) should have their transactions declined. Your own link clearly demonstrates the problem.

But what if Buyer Bank doesn’t have enough Reserves – if it’s at its Reserve Requirements limit already, or worse still, if its reserves are zero? Will the Central Bank refuse to transfer funds that Buyer Bank doesn’t really have?

I hope the answer to that question is now obvious: of course it won’t. The Central Bank will either give Buyer Bank time to find the Reserves, or lend them to it.

That is but one of the many problems that desperately require real (libertarian/Austrian) solutions.

Ultimately the reason for this is the same reason that the government (and as such the people) of Ireland have had foisted on us the responsibility for paying off bank bondholders - this what I consider to be a myth that banks cannot be allowed to fail and that bondholders in general must be treated a sacred cows. Banks need to be let fall when they act stupidly, then the banks that remain would act a lot less irresponsibly. I.E. constantly being told by government "we won't let you fail" is a powerful incentive to be irresponsible and take stupid risks ... "Heads, I win, Tails you lose" is the saying that best describes the resulting Moral hazard.

in my system, any government abuse of money creation, is immediately something they can actually be held accountable for, and thrown out of office over (so it would be stupid for them to inflate a property bubble, when they will bear the full brunt of responsibility, unlike FF, who got massively hammered even without full responsibility).

Fianna Fail are still around despite their flagrant abuse of fiscal policy and the same is true of similar parties in Greece and Iceland.

It's democratic

Even if I accepted that what you're proposing is "more democratic" that wouldn't necessarily mean it was better.
For example, would you rather live in:

1. A democracy where 51% of the people regularly vote to gas the other 49%.
2. An absolute monarchy where the King guarantees the full set of human rights - even to a libertarian standard - to all citizens?

and even in the face of a property or general economic crisis (lets say, even one caused by mismanagement)

Like Zimbabwe?

because it is immune to bankruptcy ... and would be able to maintain full employment in the process.

Because it has the ability to print money like it's going out of style?

Interest rates are not money creation. That allows private banks to abuse money creation, not the central bank.

The central bank is ultimately responsible for interest rates and uses money creation as a tool to set that level.

You have not described a single abuse of money creation there, all you have described are basic central bank operations

So debasing the currency, stealing from savers and inflating asset bubbles are "basic central bank operatios?" Well **** me.

your stretched claim of 'debasement' is also false, because the mechanics of inflation and foreign exchange rates, depend upon the level of economic activity and excess money, which can be soaked up by increasing economic activity.

If the money supply is expanded, then the wealth of existing currencyholders is reduced. So if Mick McWorker has €1000 to spare, he might as well blow it and some more, because if he leaves it in the bank or in cash under the mattress, it will only be worth ~€900 and something in todays money this time next year.

This is a negative consequence of allowing the money supply to be expanded. As far as I am concered, it's debasement.

So in other words, yes, control over money creation is in the hands of private actors, because you have to buy gold off of those private actors; that is undemocratic.

As above: I would prefer that the working and middle classes were empowered with hard money, the benefit of that outweighs any theoretical "it's less democratic than giving politicians the printing press" stuff. Democratic =/= Better.

In that situation, you just give citizens who can covertly buy up foreign gold, and sell it to government, greater undemocratic power.

In that situation, you could place a limit on the amount bought from any one individual. Again, a hard currency system managed by the national treasury would have some flexibility, but by design not enough to have large scale debasement.

Okey sorry, I thought FRB was part of what you were still advocating.

Again, not a huge fan of FRBing, especially the kind that allows the multiplication of M0/M1 type currency 10,000 fold. But again, when it's all just worthless government paper underneath it all, you can't blame me for not getting excited about it.

The full-reserve gold standard there, would still exhibit all the problems of undemocratic private domination over money creation, of permanent deflation and how that serves to regressively concentrate wealth upwards, among all the other problems of deflationary currencies

There is no regressive concentration of wealth upwards because of the fact that the rich can hold assets in whatever they want today (including holdings of oil and food futures) so lets dispense forever this notion that you're "getting" the rich with inflationary monetary policy. The prime beneficiary of a non inflating or (to a limited extent) deflating currency would be the lower classes, encouraged to and rewarded for being financially sensible, ultimately giving the lower classes strength in secure, rewarding savings.

you would pretty much guarantee a volatile, crippled economy, which would not be able to maintain full economic activity, and which would fly apart upon encountering a big enough economic crisis.

The greatest economic expansion in human history (the industrial revolution) occured with gold currency and a limited but adequate, free private banking system. There is no reason we could not continue making everyones lives better with a hard currency.