Would you like money without government?

Uncategorized 8 Minutes

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.
======================================================================================================================================================================================

Over the years, many people have written to this blog, stating their beliefs that the federal government, or the Federal Reserve Bank, or the private banks should not be allowed to create dollars. Instead dollars somehow should be created by “the people.”

There even have been proposals in Congress to eliminate the Fed and to create “debt-free” money, a functional impossibility (Some form of debt is what gives all money its value.)

Nevertheless, while I question most of their arguments, there is a program that should please them: Bitcoin.

Bitcoin are Internet money, neither created by, nor regulated by, any recognized government. They are created by smart computer geeks, the same sort of people who have given us smart phones, video games and the Internet itself (as well as the ACA website).

Bitcoin, being a form of money, need controls — controls over payment and availability. If you pay someone in bitcoin, that person needs to know that you actually own the bitcoin you’re spending, and you need to be able to prove you paid those bitcoin.

The concept is quite clever:

How does Bitcoin work?

Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa.

The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoin that are actually owned by the spender.

Every transaction system requires verification. Typically, verification involves a central verifying agency. For instance, the New York Stock Exchange verifies (“clears”) the trades of member organization. The Federal Reserve Bank verifies (“clears”) payments of dollars through member banks.

Bitcoin transactions too, require verification, but this is not done by a central exchange. Rather, computer technology makes it possible for every “member” (i.e. everyone using bitcoin) together to handle verification.

Each bitcoin user is part of the blockchain. And it is the blockchain — all the users together — that verify every exchange of bitcoin.

Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system.

(As an aside, in the same way, stocks could be traded without stock exchanges and dollar payments could be processed without a central clearing agency like the Fed.)

So why use bitcoin? Here are some excerpts from coindesk.com’s “Why use bitcoin?”.

It’s fast
When you pay a cheque from another bank into your bank, the bank will often hold that money for several days, because it can’t trust that the funds are really available. Similarly, international wire transfers can take a relatively long time. Bitcoin transactions are generally far faster. Transactions can be instantaneous [under certain circumstances].

It’s cheap
Your credit card transactions are instantaneous too. But your merchant (and possibly you) pay for that privilege. Bitcoin transaction fees are minimal, or in some cases, free.

Central governments can’t take it away
The (Cyprus) Central Bank wanted to take back uninsured deposits larger than $100,000 to help recapitalize itself.

That can’t happen with bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

I agree that bitcoin are fast and cheap, though not really faster nor cheaper than current dollar alternatives. But that third “advantage” — Central governments can’t take it away — is just plain wrong.

Central government can do anything they please within their borders. If, for whatever reason, the U.S. government unilaterally decided to make bitcoin transactions illegal or taxable, the value of the world’s bitcoin would plummet.

Further, there are guiding hands behind bitcoin, whether the hands of Satoshi Nakamoto, the pseudonymously named inventor(s) of bitcoin, or the hands of whatever group currently is in control. And those hands, by necessity, have the power to change the rules at any time they choose. They, in fact, constitute the “central government” of bitcoin.

There are no chargebacks
Once bitcoin have been sent, they’re gone. This makes it difficult to commit the kind of fraud that we often see with credit cards, in which people make a purchase and then contact the credit card company to make a chargeback, effectively reversing the transaction.

The ability to reverse a transaction is an important consumer protection. A credit card user, who receives a damaged or incorrect product, can stop payment by calling the credit card company. Bitcoin does not allow that protection.

People can’t steal your important information from merchants
Most online purchases today are made via credit cards. Credit cards are insecure. Online forms require you to enter all your secret information (the credit card number, expiry date, and CSV number) into a web form.

Bitcoin transactions don’t require you to give up any secret information. Instead, they use two keys: a public key, and a private one. Anyone can see the public key (which is actually your bitcoin address) but your private key is secret.

In that sense, bitcoin are more secure than credit cards, though credit card users are safe, if they merely look at their monthly statements. Any fraudulent charges can be challenged and deleted. No credit card user should lose money to fraud.

It isn’t inflationary
The problem with regular fiat currency is that governments can print as much of it as they like, and they frequently do. This causes the value of a currency to decrease.

This is called inflation, and it causes the price of goods and services to increase. Inflation can be difficult to control, and can decrease people’s buying power.

Bitcoin was designed to have a maximum number of coins. Only 21 million will ever be created under the original specification. This means that after that, the number of bitcoins won’t grow, so inflation won’t be a problem. In fact, deflation – where the price of goods and services falls – is more likely in the bitcoin world.

Complete nonsense:

First: The value of a dollar is based not only on supply, but also on DEMAND, a fact often forgotten by inflation hawks. That is why there has been no relationship between federal deficit spending and inflation for at least 40 years. (See: Federal deficit spending doesn’t cause inflation; oil does Tuesday, Apr 6 2010)

Second: In the real world, inflation exists. If additional bitcoins are not created, each bitcoin will increase in value, a process known as “deflation.” Most economists decry deflation, because it discourages purchasing today, for fear prices will be lower tomorrow — a recessionary phenomenon.

Third: The exchange value of bitcoin has changed massively in the past year, making bitcoin one of the highest risk investments in recent years.

Fourth: Notice the words “designed to” and “original specification.” If usage of bitcoin grows, is there anyone who believes the invisible hands guiding bitcoin won’t create more bitcoin?

It’s as private as you want it to be
Sometimes, we don’t want people knowing what we have purchased. Unlike conventional bank accounts, no one knows who holds a particular bitcoin address.

And that is why they have been so popular for illegal transactions. They are untraceable by outsiders and by the law. And bitcoin users think sovereign nations won’t step in and force changes to the rules? Really?

You own it
There is no other electronic cash system in which your account isn’t owned by someone else. Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you. It is then up to you to jump through whatever hoops necessary to get it cleared so that you can access your funds.

And what exactly do you own? An invisible, secret system that can be changed at a moment’s notice, by the invisible, secret hands that control bitcoin. To whom do you complain when something goes wrong?

You can ‘mine’ bitcoins yourself
You can certainly buy bitcoins on the open market, but you can also mine your own if you have enough computing power. After covering your initial investment in equipment and electricity, mining bitcoins is simply a case of leaving the machine switched on, and the software running. And who wouldn’t like their computer to earn them money while they sleep?

Part of the verification process involves a procedure called “mining,” and “miners” receive bitcoin for their effort. The process, however, requires computer power, with presumably the biggest computers making the most money — a perfect “rich-get-richer” process. (Explain to me again how that is an improvement over today’s money allocation.)

Bottom line, complaints about the dollar usually are related to distrust of the government or of banks. But bitcoin is run by a form of “government,” that is even less accountable to its money users than is the U.S. government (if that’s possible).

Bitcoin may be a temporary solution to the privacy problem, but so far as I can see, that’s about it. And I feel confident governments, wanting taxes and legal control, soon will “correct” that solution.

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)

—–

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

THE RECESSION CLOCK
Monetary Sovereignty Monetary Sovereignty

As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise.

#MONETARY SOVEREIGNTY

Published by Rodger Malcolm Mitchell

MBA Northwestern, business turnaround expert, economist

Published

14 thoughts on “Would you like money without government?”

  1. I think the “debt-free money” people who want to abolish the Fed are arguing that money today is created only by banks, and not by government, and that it should be the other way around. They don’t view money created by government without issuing bonds as a form of debt.

    Like

    Reply

    1. You’re right, there are many of those. There also are those who don’t trust the government to create money (because it creates “too much”), but want some sort of “people’s money.”

      Money doesn’t spontaneously appear from the sky. Someone has to create it. So the bottom line question may be, “Whom do you trust?”

      Like

      Reply

  2. Your analysis of bit-coin is succinctly perfect. At best it could be viewed as a commodity. It works well with exchanges involving illegal activities, and those engaged in that type of commerce encourage its use, though for all the reasons you pointed out , bit-coin doesnt serve well as a reliable store of value. As a medium for exchange, it does have attractiveness for being relatively private and anonymous, but also extremely risky from its lack of accountability, and its inherent volatility drastically reduces its acceptance. This pseudo digital currency ,or commodity, doesn’t work well as a measure of account for all its flaws you’ve already pointed out. Besides, as long as anarchy isn’t the accepted social norm, it is highly unlikely any currency can work outside government acceptance and regulation. Compliments to money such as rebates, loyalty programs , and coupons work well outside of government involvement, but of course have limited shelf lives, exchange functions, and you cant pay your taxes with them. At best ,bit-coins , and other alternatives for fiat currencies , will remain in the fringe.

    I dont want the government meddling in my personal affairs, but that being said, i do want the government concerned with promoting a better standard of living , hopefully benevolently concerned with its citizens general welfare. This obviously assured only through educated attention , reflection, and engagement from a functioning democracy. . Today, it appears this process is obscured by misinformation and distraction, sadly undermining the wonderful potential we all could be enjoying. As long as money remains the life blood of modern society, and in serving this function retains its necessary artificial scarcity, than governments need to fiscally operate within deficit arenas. Otherwise they wont be able to counter excesses of hyper capitalism.

    Could you please elaborate on why money created from direct government spending , instead of pretending to borrow it from themselves through bond sales, is or isnt debt, outside of what seems to be semantics. Agreeing that the idea of all money is a claim against or for something. Also, what do you think of Dennis kucinich and his ideas. Atleast he seems to some what get the futility of concentrating on balanced budgets and government debt for their own purposes , not as indirect measurements of fiscal policy. .

    Like

    Reply

    1. Re. your questions, some are answered at: https://mythfighter.com/2011/06/20/why-a-dollar-bill-is-not-a-dollar-and-other-economic-craziness/.

      T-bond sales are not debts, of the federal government, though they are debts of the Federal Reserve Bank.

      To buy a T-bond, you instruct your bank to debit your checking account and credit your T-bond account at the Federal Reserve Bank. A T-bond account is essentially a bank savings account.

      So all you have done is transfer dollars from your checking account to your savings accounts. As all bank accounts are debts of the bank, T-bond accounts are debts of the Federal Reserve Bank.

      To “pay off” you T-bond, the FRB debits your T-bond account and credits your checking account. None of this is functionally related to federal deficit spending.

      There could be deficits without T-bonds and there could be T-bonds without deficits.

      Read Kucinich’s proposal and see if you believe he understands Monetary Sovereignty.

      Like

      Reply

  3. [1] THE BITCOIN SCAM

    There can be no money without government of some sort. As Rodger explains, bitcoin has a “government” that consists of shadowy entities who issue arbitrary rules. Their claim that bitcoin is “money without government” reveals them to be scammers.

    [2] ALL MONEY IS DEBT

    On a more general level, people who speak of “debt-free money” do not understand money. They think that all money is lent to us by banks, or by China, or by whatever. They want the Treasury to issue money directly, as though dollars were Civil War-style “greenbacks.” They call this “debt-free money.” If you tell them that the Treasury already issues money directly, and not as loans, they become angry. They reject the truth. They are as cement-headed as are gold bugs. Examples include Ellen Brown and her vast disciples.

    Actually there can be no such thing as “debt free money,” since all money is debt, although not all money is issued as loans. A dollar is a debt because it is a claim to ownership of a dollar’s worth of the “full faith and credit of the United States.” You can spend the debt (i.e. spend the claim to ownership). That is, you may trade it for a good or service. Or you can destroy it, deposit it, leave it in your pocket, or throw it away. Whatever. (In the same way, a bitcoin is a debt — i.e. a claim to ownership of an agreed-to amount of the bitcoin system. It’s “worth” depends on participants’ trust in the system.)

    Since a dollar bill is a claim to ownership, it is not “money.” It is a currency bill. Actual money only exists in the computerized ledgers of banks, although it can be represented on a computer monitor. As Rodger says, “No one has ever seen a dollar.”

    There are other forms of negotiable instruments (e.g. stocks and bonds, property deeds, vehicle titles, etc, etc). All these are claims to ownership.

    A loan is also a debt (a claim to ownership) but of a more personal kind. If I lend you $100, and I ask for 10% interest, then I have a claim to $110 dollars from you. It is a claim-upon-a-claim, since the $110 is itself a claim on the “full faith and credit of the United States.”

    I do not mean to confuse. I only say there are many ways to avoid facing the truth of Monetary Sovereignty. The truth is important because without it, the gap between the rich and the rest continues to accelerate.

    [3] TOADIES, SWINDLERS, AND WRECTHES

    As Rodger explains, inflation hawks overlook the demand side of the equation.

    a) This is deliberate on the part of the rich and their toadies (pundits, professors, and politicians). They use this trick to justify the continual widening of the wealth gap.

    b) Hucksters use this trick (ignoring the demand side) in order to swindle you out of your money. For example, people who trade “shares” in “gold exchanges” want you to buy their “shares” as “protection” against the “hyper-inflation” that is always imminent. (“The dollar will crash! Protect yourself! Give me your money now!”) Likewise, bitcoin hucksters want you to think the USA faces imminent hyper-inflation, so that you buy bitcoins for your “safety.” They want you to surrender to bitcoin’s dictates so you can have “freedom.”

    c) Average people pose as inflation hawks in order to justify their hate and their selfishness. If I say, “Austerity is good, because we face inflation caused by the government printing too much money,” then I am really saying, “I alone am entitled to entitlements. All you other people are takers.”

    Such clowns do not want to understand money. They hate their lives, and they resent everyone around them. When they say, “The USA faces hyperinflation!” they mean, “All you bastards will soon perish, and good riddance!”

    Hence I say that among average people (as distinguished from the rich and their toadies, and from swindlers) the rejection of the truth of Monetary Sovereignty is not a failure of intellect, nor is it a product of external brainwashing. Rather, it is a failure of moral character. Show me an average person who smugly rejects the facts of MS, and I’ll show you a mean-spirited little twit who only cares about himself.

    [4] THE BIG LIE

    When bitcoin hucksters claim that bitcoins are “inflation proof,” they are using the Big Lie for their own gain. Bitcoins are created from thin air, with arbitrary rules. They are purely digital, and they are moved around digitally. The bitcoin scammers claim that this is different from regular money. They promote (and exploit) the lie that regular money is not like bitcoins; that regular money is physical and limited, and that those who create it (i.e. the U.S. government) have a shortage of it.

    CONCLUSION:

    People at all levels have motives for denying the facts of MS.

    The rich and their toadies do it to widen the wealth gap.

    Hucksters do it to swindle you out of money.

    Average people do it to indulge their spite and their selfishness, and because they want to narrow the gap above them, and widen the gap below them.

    Therefore, when I see anyone deny the facts, I do not think he is stupid per se. I regard him as greedy, or as a swindler, or as a selfish little toad.

    All of the above clowns cheer for austerity and the Big Lie.

    Like

    Reply

    1. I can’t seem to access that link, but I agree that the central question in real-world economics, is, “Will this widen or narrow the gap between the rich and the rest?”

      MMT academics often forget this central question. They write dry lengthy articles about banking theory that no one really reads.

      Meanwhile the gap continues to widen, the depression continues to worsen, and the middle class continues to face extinction. Three fourths of Americans are living paycheck-to-paycheck, with zero savings. Many get no paycheck at all.

      Amid such desperation, I have no time for long abstruse articles about banking theory and technical minutiae. We are under ATTACK. The federal government is doing everything it can to widen the gap.

      Here’s a random example…

      Federal taxes add 20% to the cost of the average airline ticket. There is a Federal Excise Tax, Federal Segment Fees, and a TSA security fee –- all of which monies are extracted from the economy and destroyed.

      And now with this recent “bipartisan budget deal,” the federal TSA fee will more than double to $5.60 for each leg of an air journey, thereby sucking another $730 million per year out of the economy.

      Before 9-11, airlines were responsible for doing their own passenger and baggage security screening. Then Washington created the TSA as yet another means to extract money from the lower classes, and thereby widen the gap. In 2002 the TSA sucked $1 billion out of the economy. Now the TSA sucks $2.3 billion per year out of the economy. On 1 July 2014 this extraction will increase to $3 billion per year with the added TSA fees.

      And since Washington keeps applying austerity, the airports now want to double their Passenger Facility Charges from the current $4.50 (per flight leg) to $8.50.

      The number of aviation fees has increased from six to 17 over the past two decades, while the total amount paid per year has multiplied from $3.7 billion to $17 billion. The federal parts of that are destroyed.

      Meanwhile, so-called “sin” products like alcohol and tobacco are taxed at a lower federal rate than air travel.

      It’s part of the “bipartisan budget deal.” No wonder Paul Ryan is so proud of it.

      The purpose of federal taxes on airline travel is to widen the gap. The rich fly in their own jets, and thus do not pay federal taxes.

      Like

      Reply

    2. Do banks gain when they create money almost out of nothing through the loaning process? Our present monetary system is functioning perfectly, isn’t it? Public purpose is being served, standards of living are sky rocketing towards the stars. Our monetarily sovereign nation is the most exemplary example of a monetary system in the history of the world, isn’t it?

      Like

      Reply

  4. Well done, Rodger! On ‘topic’, you’re a higher power! Astray, e.g., on ‘gun control’, you’re by logic’s rules just another ‘False Authority’. Your credibility is critical to the U.S.’ eventual grasp and adoption of MS ………..

    Like

    Reply

    1. This is confusing to me in three ways.

      1. I thought bitcoin was electronic. Why does he have a bitcoin certificate?
      2. I thought bitcoin was its own unit of account. How can a bitcoin certificate represent a fixed dollar amount rather than a fixed bitcoin amount? (I hear bitcoin has gone from $1200 per to $400 per in the past couple of weeks, because China has outlawed certain uses of it).
      3. How does having the QR code work? Why is it less secure on TV than anywhere else, if scanning it can steal it? How is it secure anywhere?

      Like

      Reply

Leave a comment