–All in this one short, simple page: How to know more about economics than your friends.

35 thoughts on “–All in this one short, simple page: How to know more about economics than your friends.”

1. WOW, Great. Maybe , perhaps a real basis for understanding.
   But, Roger are you ready to defend or endorse any challenges?
   “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha

   Quote RMM,”There is an analysis of “sovereignty” at “Lunch really can be free.”

   Think of the U.S. government as the God of the dollar. The government originally wrote the laws that created the dollar. Thus, like God, the government created the dollar from nothing.”

   IF so, would you agree:(There must be one and only one issuer if sovereignty
   is desired)?
   Fiat must be created in order to redeem something of value into anything of value.
   If not, there would be only the impossible transferring value via barter.
   There must be a issuer of the sovereign currency be it colorful paper, coin, or printed dots.
   Call it a Central Bank, or a Monetary Group, whatever you like but it must exist and it must be able to control the quality and quantity of the sovereign currency. The total of which it is custodian of and not owner of, since the sovereign group being the owners of the entirety expect their sovereignty to redeem their fiat “on demand for any goods or services”.

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2. 1. No, I don’t agree with “only one issuer”.
   2. Yes, fiat is the alternative to barter.
   3. Yes, there must be an issuer, although bitcoin has clouded that somewhat

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   1. First #3. Bitcoin or any other type of money that does not carry:
      “The full faith and credit of the sovereignty” or is not legal tender is only ‘fiat barter, that is acceptable between parties with out the sovereign guarantees.
      Now, re:# 1.
      OK, you don’t agree with “only one issuer”.
      How do you feel about the fact that it has been legislated that a group of private for profit banks may legally “print all sovereignty guaranteed money they wish regardless of quality and quantity.
      And regardless of reserves or capital requirements, yes even it 100% were to be mandated.They would need only to issue loans of $100 trillion among themselves and deposit these loans in their select groups banks and they will have not only 100% reserves but also 100% capital on their balance sheets.
      Don’t believe it, then tell me what was the “systemic failure” that would have collapsed the monetary system? If the Feds did not honor what the banks had printed…total collapse !
      A secondary issuer MUST have the same guarantees or the money would not be worth any more than “bitcoins”
      Thank you for your cosideration and hopefully your reply

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      1. You just disproved your own “only one issuer” hypothesis.

         All U.S. banks create dollars by lending. Those dollars are backed first, by the borrowers’ and then by the federal government’s, full faith and credit.

         You too can create dollars — by borrowing. First, your full faith and credit (which might include your house, if it’s a mortgage) backs the debt, and then, the federal government’s full faith and credit, backs those dollars.

         As for bitcoin, think about this: What gives them value? The full faith and credit of the system.

         If the system had no full faith and credit, bitcoin would have no value.

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3. Our politicians and press create the confusion with constant reinforcement and presentation of ideas that lead us to believe the Federal budget and spending process are no different than our personal budgets. Repeat often enough and the ideas become religion.

   This blog posting is one of your clearer explanations, IMO.

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4. Very nice Rodger – hurray… You’ve made me a believer…

   Why have electronic prices dropped significantly in the last 20 years. When the whole flat screen TV concept began – I saw TVs priced at $15k – $20k. Today, a much more technologically advanced TV costs a fraction – maybe $3k. Why am I bringing this up?

   Because your logic is completely flawed – and you should know this. I’ll answer your questions too.

   Looking at equation 1., why would anyone want less federal debt?

   Answer: Because the amount of money in one’s pockets is irrelevant in terms of purchasing power. More money simply dilutes purchasing power – the amount of things you can afford actually goes down as more debt is issued. The reason is simple – the wealthy have first access to credit – they borrow tons on credit and invest it – earning the rate of inflation and more. You are a fool if you agree with expanding the amount of debt in the system.

   Looking at equation 2., why would anyone want less federal spending (i.e “smaller government”)?
   Answer: Because Federal spending outside of tax receipts is simply another layer of tax. Think you are paying 15%, 25%, 35%? 45% to 50% is more like it – and your trusty government is not even asking for your permission. Agree with it – you are a moron….

   Looking at equation 3., why would anyone want smaller deficits (since the government cannot run short of dollars)
   Answer: Thieves can never run short of homes to steal from? Does that make thieves a good thing? Smaller deficits? we should have NO deficits. Deficits are an extra layer of taxes as I mentioned above. All outstanding money is a claim on some good or service – it’s obvious that only the amount of money has been growing – otherwise you and the others on this forum would not be complaining. How good are the large deficits working for you? Another item that if you agree with you are not too bright.

   Looking at equation 4., what is the best way to avoid inflation (reduced value of the dollar)? No, not decrease Supply. Remember equations #1, #2 and #3. The answer is to increase Demand.
   The best way to avoid inflation (an increase in prices as per your own definition) is to increase the demand for that good and service – which in turn would mean an increase in prices. LOL… that is sure simple to understand – NOT…. I also have a question – you want to increase demand for what exactly? And while you are at it – let me know how you will accomplish that. The best way to avoid inflation is to leave the money supply as is – there is not a single need, not one, to increase it – unless you are a fraudster. Not bright either.

   Looking at equation 5., what is the easiest way to increase Demand? Increase the Reward for owning dollars (interest).
   Answer: So you want to increase the amount of dollars in circulation – and by supply and demand – the value of the dollar relative to goods and services will decrease. If you disagree – than explain why TVs are now a fraction of what they were a few years ago. The answer is that they are cheaper because the supply of TVs has gone up – therefore, the price relative to dollars willing to purchase TVs has gone down.

   Yes, if you increase the interest – there will be more demand for dollars – but if you are doing the 2 together – you are not doing much. So why even do it Rodger?

   I see your point slightly though. The government has the power (granted by the people) to defraud the population via the issuance of more currency. If they do it in a well thought out way – like they’ve done up to now – nobody would see the impact. How would anyone know that 100 million were stolen – if the 100 million are taken across a 17 trillion dollar economy? And it’s not like accounts are being debited to do so – just create the 100 million and it’s the same impact. Why do you think the government quote loses unquote billions every single year? And while the government probably knows exactly what I am typing on this blog at the moment, they still don’t have a technology to identify where the billions go year in and out.

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   1. OMG. A perfect example. Did you even look at what was said?

      You said, “More money simply dilutes purchasing power.”
      Wrong. Look at #4. Demand/Supply = Value. That’s D E M A N D / Supply = Value. As always, you omit DEMAND.

      You said, “Federal spending outside of tax receipts is simply another layer of tax.”
      Federal spending has absolutely nothing whatsoever to do with federal taxing. Even if federal taxing were $0, the government could double, triple, quadruple its spending. One day you really should try to read Monetary Sovereignty

      You said, “We should have NO deficits”
      Clearly, you have no idea about the differences between Monetary Sovereignty and monetary non-sovereignty.

      You said, “The best way to avoid inflation (an increase in prices as per your own definition) is to increase the demand for that good and service
      Not just my definition; the world’s definition. Those few crackpots who have invented the definition that Supply = Value thankfully are laughed at.
      Not “increase the demand for that good and service.” Inflation does not refer to individual goods and services. How will you increase the demand for all goods and services?

      TVs are cheaper because they are mass produced. Production cost has gone down with increased production volume.

      Your last paragraph is such a mish mash of paranoid ranting about the government, there is no way to respond, one way or another.

      Under any circumstances, this will be my last response until you demonstrate you understand, or even want to understand, the differences between Monetary Sovereignty and monetary non-sovereignty.

      Better yet, go to a site devoted to quantum mechanics and tell the writers they are wrong about quantum chromodynamics. Your understanding there will be the same as it is here, and your contributions as valuable.

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5. == Off topic ==

   ARE POOR PEOPLE LAZY?

   The higher the average level of hatred among the public, the more people vilify the poor as “takers” and “lazy parasites.” The haters claim that poor people would become rich if they “just worked harder.” (Luck, circumstances, and connections are supposedly irrelevant.) The haters also claim that people would stop working if they received a Basic Income Guarantee (BIG).

   Experiments have shown the latter claim to be a lie. Over and over it has been proven that when people get a basic income guarantee that is enough to live on, they do not become lazy or dependent. On the contrary, they become supercharged entrepreneurs.

   Otjivero, Namibia was a village with 70 percent unemployment, plus rampant crime, alcoholism, and AIDS. Over 42 percent of children were malnourished, and few children attended school. Otjivero is surrounded on all four sides by the electric fences owned by rich white farmers. Otjivero is a microcosm of Namibia, Africa, and the world.

   In 2008 a coalition of churches, trade unions, NGOs and AIDS organizations decided to see what a small BIG would do to the lives of the extreme poor. Every man, woman, and child in the village (about 1,000 people) was given 100 Namibian dollars per month ($13 USD), just to see what happened. The experiment lasted four months (August to December 2008.)

   Result: Otjivero became a village of entrepreneurs. Freed from spending their days trying to meet basic needs, people focused on bettering their lot. They started small businesses, and enrolled their children in school. People with chronic illnesses benefited from better nutrition. The people put half the money into a common pool, and used it to build a new post office and a medical clinic. Crime rates fell, as did alcoholism and average household debt.

   One woman used her first BIG payment to buy two chickens for 25 Namibian dollars each. Within a year those two chickens had produced 40 offspring. Nowadays she sells one chicken for 30 dollars. If she were to sell all her chickens, she says, she would turn a profit, after deducting the cost of feed, of about 1,000 Namibian dollars. She used her second BIG payment to buy seed corn, and she now has healthy-looking rows of corn growing in front of her hut.

   Before the introduction of the basic income, village women prostituted themselves to earn money for food, while the men stole and poached. The men spent the rest of their time sitting idle in front of their dilapidated huts, using alcohol to drown their sorrows. A person who is in absolute poverty has no energy left to concentrate on anything but eating, sleeping and trying to forget. But once everyone had enough to eat, progress came very quickly. Soon, many villagers had to hire employees.

   (About 20% of Namibia’s population is white. They hated all this, since the BIG caused a slight narrowing of the wealth gap. They made up lies that the BIG caused an increase in crime and alcoholism.)

   Another experiment in Canada proved that people actually work MORE when they are given a Basic Income Guarantee.

   Both experiments proved that a guaranteed income works with, rather than against, low-wage earners, and removes the “welfare wall” — the point when there is no financial incentive to working. Both experiments also proved that a Basic Income Guarantee is not a “hand-out,” but an investment.

   The haters claim that a basic income should only be enough for a person to survive on, so as to encourage people to engage in economic activity. In reality, this would sustain poverty. A basic income should be high enough to live on. Only then does it encourage entrepreneurship.

   As for the claim that most people are lazy, and would become more so with a basic guaranteed income, prison inmates could sit all day doing nothing, but their desire for work is so keen that they regard work as a privilege.

   >>Let’s look closer at the Canadian experiment…

   Beginning in 1974, Pierre Trudeau’s Liberals and Manitoba’s New Democratic Party government gave money to every person in Dauphin, Manitoba who fell below the poverty line.

   Under the program—called “Mincome”—about 1,000 families in a town of 8,000 received monthly checks . Anyone in Dauphin living below the poverty line received help with no questions asked. Single mothers were able to put their kids through school. Low-income families didn’t scramble to pay their rent each month.

   Trudeau’s government wanted to know what would happen if every poor person in town received a guaranteed income. Would they continue to work?

   An army of researchers interviewed the “Mincome” families, and also interviewed people in nearby rural towns who didn’t receive “Mincome,” so their statistics could be compared against those from Dauphin.

   The researchers gathered enough data to fill 2,000 boxes of documents. Their work continued for four years, despite howls from right-wing creeps that Canada “couldn’t afford it” (despite being Monetarily Sovereign).

   In 1978 an economic recession hit Canada, and the right-wingers finally succeeded in killing the program. The recession had caused prices to increase 10 per cent each year, so that payouts to families under “Mincome” had increased accordingly. “We can’t afford it! And besides, why pay parasites for simply being alive?!”

   Some Canadians said, “It will cause hyper-inflation!” (Food Stamps, Medicare, and Social Security do not cause hyper-inflation in the USA; nor would a basic guaranteed income.)

   Trudeau’s Liberals, already on the defensive for an overhaul of Canada’s employment insurance system, ended the program, and withheld any additional money to analyze the data that had been amassed.

   The 2,000 boxes of documents were stuffed into a Winnipeg warehouse. The findings were never analyzed. No report was ever written, and the corporate media made sure the whole thing was forgotten. Pain, poverty, and inequality returned to Dauphin. (In)Sanity returned at last, and right-wingers slept soundly for the first time in four years — although they whined that the Dauphin experiment had “cost” the Canadian government $12.8 million. (In reality, it did not “cost” the Monetarily Sovereign Canadian government one cent.)

   In 2004, Evelyn Forget, a professor of health sciences at the University of Manitoba, started fighting the Canadian government to get access to the boxes. Five years later she succeeded.

   The data showed that everyone in Dauphin who received a monthly check continued to work. The only people who worked less were new mothers and teenagers. Mothers with newborns stopped working because they wanted to spend time with their babies. Teenagers worked less because they weren’t under as much pressure to support their families. Therefore teenagers spent more time at school, and more teenagers graduated.

   The people in Dauphin who did continue to work were no longer slaves. They did not have to take the first job that came along. They could wait for something better that suited them. And they had an easier time finding work, since it is much easier to switch jobs when you have an income than it is to find a job when you have no income.

   During the four-year experiment, hospital visits dropped 8.5 per cent. Fewer people went to the hospital with work-related injuries. There were fewer emergency room visits from car accidents and domestic abuse. There were also much fewer mental health visits.

   (In any US or Canadian hospital, much of the illnesses and injuries result from poverty. Accidents and illnesses dissipate when people are given financial independence and control over their lives.)

   And of course, crime dropped to nearly zero, since Dauphin was a town with zero poverty.

   Unfortunately the professor, Ms. Evelyn Forget, does not understand economics or Monetary Sovereignty. Therefore she calculates that in today’s terms, an 8.5 per cent decrease in hospital visits across Canada would “save” the Canadian government $4 billion each year. ($4 billion is the amount that the Canadian government is now trying to cut from social programs, as part of Austerity Mania.)

   Ms. Forget is now working on a “cost-benefit analysis” to see what a guaranteed income program might “save” the Canadian government if it were implemented today. She’s already worked with a Senate committee investigating a guaranteed income program for all low-income Canadians.

   Despite Canada’s insane lurch to the right, the idea of a Basic Income Guarantee (BIG) resurfaces in Canada every ten or fifteen years, only to be killed by rich people and their evil minions, plus average people’s extreme hatred.

   For example, the Royal Commission on the Economic Union and Development Prospects for Canada recommended a “universal income security program” in 1985. Former Prime Minister Jean Chrétien toyed with the idea in 2001 as a part of his government’s “war on poverty.” Conservative Senator Hugh Segal is still convinced it is the right way to go.

   Unfortunately these movements always die, for two basic reasons…

   [1] The movements have no grasp of Monetary Sovereignty. They often speak of taxing the rich to pay for a Basic Income Guarantee. They also do not understand economics, and have weak answers (or no answers) when opponents scream, “It will cause hyper-inflation!”

   [2] Greed, fear, and hate. Too many people at all economic levels want to widen the gap between themselves and everyone below them. They hate the idea of anyone below them “getting something for nothing” (but they are okay with rich people getting mountains of money for nothing). They think that “poor people’s gain is my loss.” Their hatred legitimizes austerity, which worsens their own pain every day. And the worse their pain becomes, the more they cling to their hatred like a security blanket, which worsens their pain still more. They insist that poverty is caused by laziness. And they smugly dismiss the facts of Monetary Sovereignty, preferring to believe that any Basic Income Guarantee (BIG) program would be “redistributive.”

   A variant on this hatred is the “jobs guarantee” dogma that is so popular with the people at the NEP blog.

   (And yes, it is HATRED. Why demand that people work at some lousy job? Why not simply give money to people so they can become entrepreneurs and create their own jobs? Of course, to question anything at the NEP blog is to be an “obnoxious twat,” in the words of one idiot that sometimes comments here.)

   As a result of this mass hatred, most people today work harder than ever, yet fall deeper into poverty each day, worldwide.

   As Rodger says, bigotry is extremely expensive for all but the rich.

   Or as I say, bigotry is masochism.

   Martin Luther King, Jr. spent the first half of his career fighting for civil rights, and the second half trying to overthrow the nexus between militarism, racism, and poverty. Essentially he shifted from racial issues to economics. In his last book (“Where Do We Go from Here: Chaos or Community?” published in 1967) he wrote…

   “I am now convinced that the simplest solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income. A host of positive psychological changes will result from widespread economic security. The dignity of the individual will flourish when the decisions concerning his life are in his own hands, when he has the assurance that his income is stable and certain, and when he knows that he has the means to seek self-improvement.”

   SWITZERLAND

   Last year the idea of a Basic Income Guarantee gained much traction in Switzerland. An initiative collected 126,000 signatures and handed them over to the government on 4 October 2013. The petition proposes to give every citizen a monthly paycheck of 2,800 Swiss francs ($3,136 USD) or 33,600 francs per year. ($37,600 USD).

   The proposal was, in part, the brainchild of a German-born artist named Enno Schmidt, a leader in the basic-income movement. “I tell people not to think about it for others, but think about it for themselves,” Schmidt says. (He speaks English.) “What would you do if you had that income? What if you were taking care of a child or an elderly person?”

   Schmidt says that when people have no financial worries, their creativity and entrepreneurialism are unleashed. He compares the BIG campaign to a civil rights movement, like women’s suffrage or ending slavery.

   Switzerland is the third most expensive country in Europe to live in, after Norway and Iceland. Fortunately Switzerland has Monetary Sovereignty, since its currency is not the euro.

   Unfortunately, Swiss politicians are as corrupt as any other politicians. A date for a referendum is yet to be confirmed, and politicians will postpone it forever if they can.

   As noted above, every Swiss citizen, rich or poor, would get $37,600 USD per year. Naturally this idea terrifies the rich, since it would reduce the wealth gap, and would generate competition, since $37,600 USD per year would create entrepreneurs. Further terrifying is the thought that the “free market” might actually become a free market. Therefore rich people in Switzerland are doing everything possible to kill the idea. No doubt they have increased the bribes they pay to Swiss politicians.

   NOTE: The rich and their politician-servants actually favor a basic income guarantee, as long as it ends up widening the gap between the rich and the rest. For example, right-wing politicians in Washington increasingly favor the idea of a basic income of $10,000 a year, under the condition that all social programs are fully privatized (Food Stamps, Social Security, Medicare, etc.)

   Politicians know that $10,000 a year is ridiculously low, and that if all social programs were eliminated, the middle and lower classes would be worse off than ever. And with everything privatized, all money that goes into people’s hands would flow straight to the top. Milton Friedman wanted a basic income for all, as long as all social programs were privatized. So if you start hearing politicians talk about a basic income guarantee, pay close attention. Most likely it will be a scam to widen the gap.

   Some rich people just want things to stay as they are. Glencore plc is an Anglo–Swiss multinational commodity trading and mining company headquartered in Baar, Switzerland. Its CEO, Ivan Glasenberg, says, “I can’t believe that Switzerland would cause such great harm to its economy.”

   In reality, a Basic Income Guarantee would boost the (real) economy of any nation that has MS, as long as the income is sufficient to thrive on, and social services are not privatized. Also, a BIG could only work if certain laws were passed, such as rent control.

   What stands in the way of a Basic Income Guarantee and a better world?

   Greed, fear, and hate.

   Still, the idea never totally dies. In 2009, more than 50,000 German citizens signed a petition to the German parliament, the Bundestag, asking for a BIG.

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6. OK Roger, now you’re really going to get through to people. Thank you. I’ve always been bothered by the ‘inflation – $ value’ implications of what you argue but now I begin to understand. But still why not give everyone million dollar cheque tomorrow? Why not abolish taxes immediately? Why did governments give up monetary sovereignty to join the euro? Could you address some of these issues. Seems the implications are a rather terrifying comment on those in power. And I don’t buy the ignorance argument. Keep up the good work. Best wishes, Nick

   ________________________________

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   1. ” . . . still why not give everyone million dollar cheque tomorrow? “
      Demand/Supply = Value. That large an increase in Supply would exceed the likely increase in Demand.

      Ten years ago, I predicted the euro would be a disaster, and I have written repeatedly that the euro is a disaster.

      It was the result either of economic ignorance or part of the plan to widen the gap between the rich and the rest.

      Based on subsequent actions,I vote for the latter.

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7. RMM, “You just disproved your own “only one issuer” hypothesis.

   All U.S. banks create dollars by lending. Those dollars are backed first, by the borrowers’ and then by the federal government’s, full faith and credit.”
   Reply by justaluckyfool:
   Perhaps a clarification of ‘only one issuer is needed.
   When banks create dollars by lending they actually create physical money,
   they just like the Fed increase the money supply. They do not have to WITHDRAW present money from their banks-this makes two separate entities “money gods”.
   What if the PFPB (Private For Profit Banks ) were to lend every member of the sovereign group that earns less than $100,000 per year
   the amount needed to give them as a standard of living. Would that take care of your 9 points to prosperity?
   BUT no, PFPB are in business ‘to maximize the profits for the top 10%.

   you too can create dollars — by borrowing. First, your full faith and credit (which might include your house, if it’s a mortgage) backs the debt, and then, the federal government’s full faith and credit, backs those dollars.
   Reply by justaluckyfool:
   No,no, you do not create dollars by borrowing, when you borrow from a bank,
   it is an admitted fact, the bank creates the dollars.

   As for bitcoin, think about this: What gives them value? The full faith and credit of the system.
   If the system had no full faith and credit, bitcoin would have no value.
   Reply by justaluckyfool:
   Asked and answered. As for bitcoin, it’s system is not a sovereign government guaranteed system and it’s value is simply it’s own “full faith and credit”-Does that work for you?

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   1. “When banks create dollars by lending they actually create physical money. . . “
      1. There is no physical money
      2. Banks do not “withdraw” money when they lend. They create money.

      “. . . lend every member of the sovereign group . . .”
      All that would do is put millions of monetarily non-sovereign people into debt.

      You have been reading this blog for years, and still you make comments like those??? It truly is discouraging.

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      1. RMM,”“When banks create dollars by lending they actually create physical money. . . “
         1. There is no physical money
         Reply: Isn’t the check “fiat currency” guaranteed to be redeemed for goods and services.
         2. Banks do not “withdraw” money when they lend. They create money.
         Reply: Yes, exactly that which the “money god”.

         RMM,”“. . . lend every member of the sovereign group . . .”
         All that would do is put millions of monetarily non-sovereign people into debt.

         You have been reading this blog for years, and still you make comments like those??? It truly is discouraging.
         Reply:
         The word ‘ lend’ was used solely for the purpose of making it legal for the PFPB to issue the money using their legislated right.
         Note, no repayment required if the money is spent.
         Would we need -healthcare insurance?
         Would we need student loans?

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8. Hey Rodger, did you happen to hear today that our liberal president is asking Congress for $3.7 billion in order to give some immigrants a slice of bread before kicking them out of the country? And Congress is balking because it doesn’t seal enough cracks in our border? How humane. But my question is this: isn’t the Young Migrants from Central America Trust Fund nearly out of money? I was sure that the fund didn’t have enough money in order to… Wait, what’s that? There isn’t a Trust Fund? You mean Congress can, if they want, simply create the needed money without levying a new tax or somehow “borrowing” it? The hell, you say! And wait – what’s that? They can also create, with the stroke of a pen, all the money that’s needed to send more troops into Iraq or Blecchistan or wherever, any time they want to rattle some sabres? And there’s no Foreign War Trust Fund? Gosh, what a foreign concept.
   Meanwhile, on a totally unrelated topic, I sure hope we figure out some way to pay for the much-needed highway repairs and some way to make sure our seniors receive all of the Social Security money they’ve been promised. Maybe we should pay more taxes into a Trust Fund.

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   1. Good comment. Of course, President Obama isn’t a liberal. He’s a right-winger in liberal’s clothing.

      Cutting Social Security, increasing FICA, appointing a committee to cut the deficit, agreeing to the sequester, setting the record for deportations and asking for billions to increase deportations even more, are not the best descriptions of a liberal.

      Obama is far to the right of President Reagan.

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      1. Yes, I suppose I should have put quotation marks around the word “liberal” in that sentence!

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      2. “Obama is far to the right of President Reagan.”

         St. Ronnie was sent by God. Obama is a Muslim, a Communist, a fascist, a war-mongering hater of American values, a worshipper of Karl Marx and Milton Friedman, a tree-hugging servant of Wall Street, a Jew-loving anti-Semite, and a black disgrace to the White House. 🙂

         But seriously, what do we mean when we say that Obama is far to the right of President Reagan? We mean that Obama is more a servant of the rich than Reagan was. If Reagan wanted to spend massive amounts of money, he simply did it, whether or not it widened or narrowed the gap between the rich and the rest. Regan’s preferred way of widening the gap was to deregulate.

         By contrast, everything Obama does is designed to widen the gap. Deregulation, austerity, privatization, the works. All presidents follow orders from the rich, but Obama more than any of them.

         In 1979 the US Congress stopped having its “debt ceiling” crises. Reagan never tried to re-impose this circus. The idiocy was not brought back until 1995 when Republicans gained control of the House.

         If Reagan were president today, he would be a “big spending liberal.”

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9. Great piece Rodger:

   One thing to add to your list of things that act as collateral for the US Dollar. You referenced paying for debts (taxes mainly) that you owe to the Govt. But you should also include valuable services that only the Govt provides. For example, if you would like to travel abroad you need a passport. And the only entity with the authority to issue a US passport is the Federal Govt (or its agents). And the only thing that the Govt will accept in a trade for a passport is its own fiat money. So its not just our obligations that Govt promises to satisfy with dollars, it also promises to accept its money in exchange for very valuable services that it is the monopoly provider of.

   There is no evidence that interest rates are THE mechanism for controlling inflation. You have no proof that #’s 4 & 5 can be controlled with interest rates. But your first 3 equations are spot on. Zimbabwe had 900% interest rates and still had hyper inflation. Therefore either:

   A) even higher interest rates would have solved the inflation problem

   or

   B) Interest rates cannot possibly overcome the inflation problem that comes with an too much supply of money. Because demand for a currency is not just based on interest rates, but on all the other things included in your collateral list (not to mention private goods and services for sale in a particular currency)

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   1. Good thought re. government services.

      It’s long-accepted economics that raising interest rates “strengthens” a currency (i.e. increases its value). All nations have done it to affect the Import/Export ratio.

      Interest rate control also is the primary method the Fed has used to control inflation, successfully.

      Why does it work? Value = Reward/Risk. A prime Reward for owning money is interest.

      In some cases, however, the Risk may be so great, even a high Reward is not sufficient to attract buyers.

      Zimbabwe’s problem was not money supply. It was fundamental economics, starting with a massive shortage of food, which resulted in increased prices. Unfortunately, the government response was to create more money.

      The increased money supply was a result, not a cause, of the hyperinflation. That almost always is the case with hyperinflations.

      As I have said frequently, the federal deficit should increase to just below the point where interest rate control no longer is able to control inflation. At that time, deficits would need to be reduced.

      Fortunately, the U.S. never has come to that point in all our 240 year history. Our biggest economic problem always has been too little deficit spending — as it is right now.

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      1. [1] I say that inflation is the product of the interaction between the supply and demand of money, goods, and services. In this equation, interest rates are an important factor, but not the only factor. If we want to stimulate demand for money, goods, and services, then we can use interest rates. Or we can lower taxes. Or we can start a world war. Or we can increase the money supply. Or we can commission a total overhaul of US infrastructure (bridges, tunnels, harbors, highways, etc.). And so on.

         Inflation hawks look only at the supply of money, and nothing else. They ignore the demand for money, plus the supply of and demand for goods and services. They have to ignore these things, because it’s the only way they can justify their false claim that our only options are austerity or hyper-inflation.

         [2] Rodger says that an increased money supply is a result, not a cause, of hyperinflation. This is true, because hyper-inflation is simply the loss of the public’s faith in and credit of the monetary system. Fiat currency is based on confidence. When people believe that a currency is worthless, the currency becomes worthless. A government can try to compensate by creating more money, but this is like claiming there are more leprechauns after people have stopped believing in leprechauns.

         Zimbabwe’s solution was to drop the US dollar as its official currency on 12 April 2009. Weimar Germany’s solution (1923 & 24) was to drop the German Mark as its official currency, and switch to a new currency, the Rentenmark. When confidence in the monetary system was restored, Germany went back to using the German Mark, and gradually phased out the Rentenmark.

         (Wikipedia claims that Weimar hyper-inflation happened because “there was no gold available to back the currency.” This claim is nonsense. The loss of “full faith and credit” can occur with or without gold. Indeed, it is “full faith and credit” that gives monetary value to gold.)

         [3] Rodger says, “Fortunately, the U.S. never has come to that point in all our 240 year history. Our biggest economic problem always has been too little deficit spending — as it is right now.”

         I would amend Rodger’s statement to read, “Fortunately, the U.S. never has come to that point in all our 240 year history, with the exception of major cataclysms such as the War of Independence, the Civil War, and both world wars.”

         Since we are not currently at cataclysmic war, we need the US government to create more money. A LOT more. (We also need laws that will keep the money from directly flowing to rich people, and from being siphoned off by the financial sector.)

         The USA faced the potential of severe price inflation during both world wars, because there was too much money in people’s hands (unemployment was effectively zero) and not enough consumer goods available to buy (because of rationing). The US government’s solution was to pull money out of circulation. This was done during the First World War by encouraging all Americans to buy Liberty Bonds, and during the Second World War by instituting a federal withholding tax, and by encouraging all Americans to buy War Bonds. These bonds (i.e. special Treasury securities) were non-marketable, since the idea was to get money temporarily out of circulation. After WW II, the US government encouraged people to buy US savings bonds, which were then gradually phased out.

         Wikipedia claims that these bonds were used to “finance” the world wars. This is more nonsense. Where did the money come from to buy the bonds in the first place? From the US government, of course, via the massive creation of money for the war effort.

         There were also problems with inflation during the US War of Independence, since the British deliberately counterfeited US bank notes. There were also problems during the War of 1812, since the USA did not have an established nationwide monetary system.

         But these were unusual circumstances that do not currently apply.

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         1. Not entirely true.

            Austrians, what you call money hawks, as well as 99% of economists do not differentiate between money and debt. Zimbabwe had and still doesn’t have a credit based economy.

            All the money created immediately became available for spending and it got spent driving prices to the moon. In the US, the money is owed – its akin to shorting stocks. You are borrowing dollars and selling them short- hoping you will get repaid with interest. If the payee remains on good terms for the life of the loan, you are set.

            Credit also borrows production from the future, so it also has an impact on long term employment as well as purchasing power. Essentially, you won’t consume tomorrow what you consumed today via borrowing. When you have to repay 700 a month for a car loan, that’s 700 that could have been disposable income, but it’s not.

            I think we will eventually realize that this system doesn’t work at one point, but the illusion keeps getting larger by the day. Golden eggs can really come out of a hens arise.

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      2. RMM,”Value = Reward/Risk. A prime Reward for owning money is interest. ”
         Reply: Perhaps in a loan but not in Value of Money.
         Money value=Money god’s ability to redeem.
         The Fed has to date shown 100% redemption on demand.
         *Even* on the printing of the PFPB issuance.
         Why is it not recognized that the Fed was FORCED to ‘make that money redeemable’, making those banks to big to fail since failure would would
         destroy the ‘Value’ of the money.
         What if the PFPB had to make good (redeem) a loss of just a little 5%
         of their derivatives (US banks over,$140 trillion alone) , that would be $7 trillion. Would there be a ‘systemic failure’ or would the Fed make good so as to ‘maintain the value of the dollar’?
         May I repeat:
         [PDF] OCC’s Quarterly Report on Bank Trading and Derivatives …
         … $175.8 trillion. In Q2, credit derivatives were $15.5 trillion, making total
         derivatives $182.1 trillion. Graph 1.

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         1. Just one more comment on “To be monetarily sovereign there must be only one issuer of the sovereign currency.”
            N.B.-
            ” China Bank acquires Plantersbank | ABS-CBN News
            http://www.abs-cbnnews.com › Business
            Sep 18, 2013 · China Bank and Plantersbank on Wednesday signed a memorandum of agreement for China Bank’s acquisition of more than two-thirds of Plantersbank’s …
            China’s ICBC Moves – WSJ – The Wall Street Journal
            online.wsj.com/news/articles/SB…
            Jan 22, 2011 · Business China Bank Moves to Buy U.S. Branches ICBC Signs a Deal for Bank of East Asia’s Retail Outlets
            Fed approves Chinese bank purchase of US bank – Yahoo News
            news.yahoo.com/fed-approves-chinese-bank-purchase-us-bank…
            May 09, 2012 · The Industrial and Commerce Bank, China’s largest bank with total assets of approximately $2.5 trillion, is 70.7 percent owned by the government of China.
            First US approval for Chinese bank purchase – FT.com
            http://www.ft.com › Companies › Financials
            Industrial & Commercial Bank of China has gained US approval to purchase an…

            Private For Profit Banks issue sovereign money via loans. As a result of their issuance (creating money at 30 or 40 times leverage) , the Fed had no choice but to honor that issuance over suffer a ‘systemic failure’
            That is a collaspe of the faith and credit of the dollar.
            How will your children sleep, your grandchildren also knowing
            CHINA will have that awesome power?
            Thank you for hearing me out.
            Thank you for at least considering the challenge.

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      3. RMM says, “As I have said frequently, the federal deficit should increase to just below the point where interest rate control no longer is able to control inflation. At that time, deficits would need to be reduced.”

         This would be an interesting real life experiment just to find out what/where that point is. Sort of reminds me of the mechanism behind nuclear power production of electricity. The CONTROL rods are gradually moved away from the uranium pile short of melt down, to maximize steam production. (Also as a metaphor = nairu?, non accelerating increasing rate of unemployment.)

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      4. “It’s long-accepted economics that raising interest rates “strengthens” a currency (i.e. increases its value). ”

         Yes, but you know what else is “long-accepted economics”? Ricardian equivalence, loanable funds, money multiplier, representative agents, DSGE models, marginal productivity theory, etc. A sure-fire way to not win an economic debate is to reference many other economists that believe something.

         “ll nations have done it to affect the Import/Export ratio.”

         That has almost nothing to do with inflation

         “Interest rate control also is the primary method the Fed has used to control inflation, successfully.”

         The Fed has had almost nothing to do with fighting inflation. There has been no inflation because real wages have been flat for 40 years. This has absolutely nothing to do with interest rates.

         I of course agree with your last two lines, but again. The main point here is that you have no evidence that high interest rates lower inflation and that low interest rates increase inflation. None.

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         1. Sorry, but you have it backwards. If something is well accepted in science, it is the doubter who needs to provide evidence that the well accepted science is wrong.

            It’s not enough to say that because scientists were wrong about the earth being the center of the universe, they therefore are wrong about everything else. It is you must supply proof when you disagree with the mainstream.

            (I said, “All nations have done it to affect the Import/Export ratio.”) You said, “That has almost nothing to do with inflation.”

            Not true. Inflation is the reduction in the value of money. That reduction affects the Export/Import ratio. To increase exports and reduce imports, nations reduce interest rates, which reduces the value of their money relative to other nations’ money, making exports more attractive.

            “The Fed has had almost nothing to do with fighting inflation.”
            Again, not true. This is one of the Fed’s two primary jobs (the other being the clearing function.)

            The proof of interest rate effects has to do with Demand/Supply = Value. Raising interest rates increases the demand for many types of money: Savings accounts, checking accounts, CDs, Money market funds, overnight loans, NOW accounts, all types of bonds, preferred stocks and others.

            By increasing the demand for many types of money, the overall value of money is increased, which is counter inflationary.

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         2. If the doubter has to prove the argument, there is zero chance they will ever win an argument.

            If it’s the doubter that’s arguing your point, the doubter will have to prove it. When he/she does, you’ll simply say that the source of the prove are the wealthy who want to increase the gap.

            What is your motive Rodger? Something tells me there is something else behind your arguments.

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            1. Perhaps,maybe RMMs motives:
               Ten 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. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
               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. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)

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         3. Me said, “If the doubter has to prove the argument, there is zero chance they will ever win an argument.”

            Clearly, that is not true, else there would be zero progress in science.

            In fact, the only way a new theory replaces an old one, is for the new theory to provide better proof.

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         4. Rodger says, “The only way a new theory replaces an old one, is for the new theory to provide better proof.”

            That’s only true, Rodger, when theories are not politically charged.

            If a theory is politically charged, then the only way a new theory (or new paradigm) replaces an old one is

            (a) When champions of the old theory physically die off.

            – or –

            (b) When a new theory enhances the One Percent’s power over the Ninety-Nine percent.

            Today, theories in astronomy are not politically charged (unlike Galileo’s time). Therefore astronomy proceeds like an orderly science. However climatology is politically charged, as are the social sciences. Thus, people have varying opinions. Some people are logical and scientific. Others are haters and babblers.

            Medicine is always politically charged. Bloodletting was used for 2,000 years because of politics. The nonsense behind bloodletting maintained the social status of physicians. Anyone who questions the reigning medical “science” faces potential punishment (e.g. Ignaz Semmelweis in the 1800s). Also, medicine is wrapped up in monetary profit. Consider how doctors promoted cigarettes in the 1900s. Or consider the pharmaceutical industry today. Profit and politics.

            Economics and historiography have always been politically charged. Even today, most people reject the facts of Monetary Sovereignty.

            In some cases, politics retards science. In other cases, politics promote science — e.g. weapons technology.

            The more politically charged a science is, the more it operates as a religion, with tenets held on faith alone. Austrian economics, for example, is pure religion, and the antithesis of science. Here is Ludwig von Mises championing his approach called “praxeology”…

            “Praxeology is theoretical and systematic, not a historical science. Its statements and propositions are not derived from experience. They are not subject to verification or falsification on the ground of experience and facts. Economics can never be experimental and empirical. Economics, like logic and mathematics, is a display of abstract reasoning. The ultimate yardstick of an economic theorem’s correctness or incorrectness is solely reason unaided by experience.”

            This is from von Mises’ magnum opus “Human Action: A Treatise on Economics” (1949). In Austrian economics, actual experience, physical facts, and empirical investigation are irrelevant. Therefore austerity, inequality, and the “free market” are good, regardless of their evil effect.

            Austrian economics is a right-wing religion, with no basis in reality. Young people like it, since they have little experience of reality. (Young people like Ayn Rand’s garbage for the same reason.)

            If a science is non-political, then, “The only way a new theory replaces an old one, is for the new theory to provide better proof.” (Both rational and empirical proof.)

            An example is aerodynamics, where there is little or no bickering. Either an airplane gets off the ground, or it doesn’t.

            I regard the study of Monetary Sovereignty as a science. It is based on observable facts that can be replicated anywhere. Its tenets are testable and falsifiable. It is rationally coherent and empirically sound. It cannot be refuted using genuine science.

            MS can only be denied via nonsensical religion.

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         5. You are correct, of course, but it depends on the definition of “better.” 🙂

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      5. “Sorry, but you have it backwards. If something is well accepted in science, it is the doubter who needs to provide evidence that the well accepted science is wrong.”

         I definitely agree with your description of the burden of proof wrt to “science”. Unfortunately, you are the one that has this backwards. You are making the positive claim. You are asserting that interest rates increases decrease inflation. But the only evidence you’ve provided to support your claim is that ‘other economists believe it’. That is a classic logical fallacy (argument from authority). I am simply saying that you have no evidence to support your position. I am not saying that interest rate increases raise inflation and I am not saying that interest rate decreases lower inflation, only that the evidence doesn’t support your position.

         “It’s not enough to say that because scientists were wrong about the earth being the center of the universe, they therefore are wrong about everything else. It is you must supply proof when you disagree with the mainstream.”

         Its not enough to say that because the mainstream of economics (which you deride daily) believes A that it must be true. Claim A must stand on its own merits, this is why real science has peer review.

         “Not true. Inflation is the reduction in the value of money.”

         No, inflation is a rise in the general price level. Exchange rates fluctuate constantly. The dollar can be weakening relative to the Euro while at the same time appreciating vs the Yen.

         “That reduction affects the Export/Import ratio. To increase exports and reduce imports, nations reduce interest rates, which reduces the value of their money relative to other nations’ money, making exports more attractive.”

         Where is the evidence for this statement? There is no correlation between interest rates and the trade deficit for the USA

         “Again, not true. This is one of the Fed’s two primary jobs (the other being the clearing function.)”

         The two stated jobs of the Fed are price stability and full employment. Just because Congress passed a law that says this is the Fed’s mandate, doesn’t mean the Fed can actually deliver the results.

         “The proof of interest rate effects has to do with Demand/Supply = Value. Raising interest rates increases the demand for many types of money: Savings accounts, checking accounts, CDs, Money market funds, overnight loans, NOW accounts, all types of bonds, preferred stocks and others.”

         I would never say that higher interest rates don’t do the things you’ve described here, only that traditional supply\demand curves don’t apply to money annd thus inflation. Which is why you can’t provide any evidence that interest rate increases lower inflation.

         “By increasing the demand for many types of money, the overall value of money is increased, which is counter inflationary.”

         With interest rates being the lowest on record, have you found that you are refusing income because the value of money is decreased? I would counter by saying that regardless of what the interest rate is, the demand for money is practically infinite.

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10. quatloosx,
    I have a theory as to why NEP doesn’t like BIG but likes JG. The people behind NEP (Wray, et al) are getting their toes wet from semi-acceptance into the mainstream as they actually are part of a university that offers monetary sovereignty as part of their econ curriculum. In short, they want to be accepted as much as possible and they’re going to do it by appealing to tradition, i.e., jobs and earning a living. The BIG is, for them, leaning too much in the direction of a “handout”— non-tradition!

    If the NEP people want to get anywhere with least resistance they must not sever their connection to traditional thinking. To go BIG is to go soft and be rejected. They have to look as tough and practical as possible. Unfortunately, their drawback is the bureaucracy they would need to get the JG going while BIG is just a matter of political will and common sense as born out by the Canadian/Namibian experiments. The institutions/bureaucracy/technology are in place and ready to go, nothing new needed for a BIG.

    As a side note to Georgiaman above, he needs to realize, among other things, that technology stimulated by people having more income increases their purchasing power directly by 1) having more income, 2) indirectly by mass production’s ability to lower unit costs and prices, and 3) stimulating employment to handle the increased demand which pays the cost of hire or overtime. Additionally, as science and know how increase, the ability to do more with less improves, fighting inflation in the process. The real and the financial world are a feedback loop which, by investment in people, serves everyone in the loop.

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11. A simple explanation of money.

    There are many kinds of money, but two are very important in the economy; call them state money and bank money. Both kinds of money are simply credit.

    State money works like this: The Federal Government buys goods and services and hires labor from the private sector, in order to accomplish the public purposes for which it was constituted. The Treasury issues checks to pay for the purchases. The Federal Reserve Bank cashes the checks, printing money as necessary to cover the bills. The money circulates around in the private sector, facilitating transactions and satisfying demand for private dollar savings. Eventually, much of the money returns to the Treasury in the form of tax payments, where it is dumped into a giant shredder, having fulfilled its intended purposes.

    Bank money works like this: Banks make money by borrowing at wholesale and lending at retail. They get loanable funds from two sources: deposits from the private sector and loans from the Federal Reserve. Because of fractional reserve banking, they can “lend” the same dollar to more than one borrower, as long as there’s enough in reserve to cover actual withdrawals on any particular day. The Fed makes sure that there’s adequate reserves to cover demands for credit, loaning state money to banks as necessary. The public purpose in having the Fed loan banks money is to have a source of credit that is not market-dependent, ie will not dry up in an economic downturn. Fractional reserve and the fact that banks can borrow at will from the Fed mean that bank money has large effects on the economy.

    State money is a tax credit, and bank money is best understood as a claim on state money. A bank can loan you the money to pay your taxes, but it does so by transferring reserves to the Treasury’s accounts at the Fed, and creating a corresponding liability on your part to repay the bank.

    So how does this explanation relate to Rodger’s 5 formulas?

    1. Money is credit. If you have a credit, somebody owes you something. Therefore money is also debt. This is the critical thing that people don’t comprehend. They think that money is “kinda like gold, only made out of paper…or something…” Once you understand why money = debt, you never think about the national debt in the same way.

    2. Federal spending + non-federal spending + net exports = GDP. Simple accounting. Would probably hold under any monetary system, fiat or gold-backed.

    3. Federal deficits = private income. Probably should say federal deficit = net increase in private savings. The difference between what the Federal government spends and what it takes in in taxes is the deficit. Also equals the net tax credit gained by the private sector, denominated in dollars.

    4,5. Gotta think about these. But #1 is the biggie – once you get people over that the battle is won.

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12. Response to Auburn–

    Re. the effect of interest rates on prices: Not sure what you would consider “proof.” I could provide evidence, and you could say, “That’s not proof,” forever.

    Here are some evidences:
    1. The Fed successfully has controlled inflation by raising interest rates whenever inflation threatened. See: http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=FuJ
    2. Raising interest rates makes a currency more valuable in exchange for other currencies. This increase in value makes imports cheaper. Because imports are a large part of the CPI, raising interest rates reduces CPI and every other measure of inflation.
    3. Raising interest rates increases the Demand for a currency. Inflation = 1/Value of a currency (The greater the Value, the lower is inflation.) Value = Demand/Supply. Therefore, increase the Demand for a currency reduces inflation.

    If the above aren’t sufficient proof, what would be? Also, remember, you have not supplied ANY contrary proof.
    ————————————————————————————
    I had said, “Inflation is the reduction in the value of money.” You said, “No, inflation is a rise in the general price level.”

    I’ll make it clearer: Inflation is the reduction in the value of money compared with the value goods and services.
    ————————————————————————————-
    You said, “The two stated jobs of the Fed are price stability and full employment.”

    The Fed does not have the tools to create full employment, which is a function of every economic effect known to man: Imports, exports, weather, wars, productivity, automation, immigration, taxation, federal deficit spending, legislation and on and on and on.

    Do you really believe all the actions by the President, Congress and the private sector don’t have as much effect on employment as the Fed’s ability to change interest rates.
    ————————————————————————————–
    You said, “traditional supply\demand curves don’t apply to money and thus inflation.”

    Really? The laws of Supply and Demand don’t apply to money?? Is this a new invention of yours? This is one you will have to prove.

    Or are you saying that the supply/demand curves for some forms of money are different from the curves for baseballs, chickens and tires? If so, I’ll agree that for every commodity, the curves are different.

    But Price (Value) always = Demand/Supply (unless the price is fixed by a monopoly, in which case neither Demand nor Supply affect price.)
    ————————————————————————————–
    You said, “With interest rates being the lowest on record, have you found that you are refusing income because the value of money is decreased? I would counter by saying that regardless of what the interest rate is, the demand for money is practically infinite.”

    And therein lies your misunderstanding. If the Demand for anything were infinite, the Value of that thing would be infinite.

    Money is an investment. As an investor, you can choose to hold money or you can choose to hold non-money assets, such as stock, real estate, etc.

    Your decision is based on Demand = Reward/Risk.

    Many forms of money pay interest (Savings deposits, money market accounts, repos, etc.) The Reward for holding these investments is interest. If interest goes up more than Risk, Demand rises.

    Money is but one of many possible investments. Do you own any stock? Do you own any real estate?

    If so, you have proved that you prefer owning a certain amount of stock and real estate more than owning the same Value in money,

    Thus, your Demand for money is not infinite, any more than your Demand for stock and real estate is infinite. QED

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