Whiteism Cultural Constituencies: States of Mind: Centre Ground

Tribute-at-the-Cenotaph

The Years of Culture Begin In Earnest

 

http://www.theguardian.com/commentisfree/2015/may/09/tony-blair-what-labour-must-do-next-election-ed-miliband*

 

December 2014 I named 2014/15 as the Year of Culture.

 

https://unitedstatesofeverywhere.wordpress.com/2014/12/30/1415-whiteism-years-of-culture/

 

In that piece I described the first signs of a rise of social/political blocs based not on economic rationale, (the ‘traditional argument’ about the production and division of wealth), but on sub national groupings I characterised as cultural constituencies.

 

I described examples of Cultural Constituencies around the world, including the Scottish National Party in the British Isles. I predicted that the recent referendum for Scottish independence (although it ended in defeat), was far from the end of this cultural dynamic and that the rise of the Scottish National Party would inevitably have an effect on British polity.

 

So much has been proven to be the case, but the results of the recent British General Election offer more insight into cultural constituencies.

 

Against every prediction and poll that preceded the election, the Conservative party managed to obtain an outright majority in the House of Parliament. This means that they can implement a political program without the need for coalition.

 

In contrast their Liberal Democrat coalition partners saw support in the country collapse. This was another cause for some surprise. After all the logic goes, if the Conservatives get credit for the past five years, why do Liberal Democrats get condemnation for exactly the same program?

 

The Labour Party, despite the anticipation (at least on the ‘left’) that their campaign would take flight, stalled in mid air and then nose dived straight into the airstrip. Again, everyone professed surprise. Not me though.

 

From U.S.E. November 12 2014:

 

‘Ed Miliband is being slowly skinned alive by the press in England. Every day there is a fresh story detailing Millibands latest fall in the polls and  warning of the terminal damage he is doing to Labours chances of getting elected next time. It’s not only the press pack who are on Milibands tail. It seems that an ever larger group of his own MP’s are openly briefing against him as well. So what is the cause of all this dissension and hostility?

 

….Ed Miliband refused to go along with the stitch up on Syria last year. ….That makes him downright dangerous.’

 

I made it clear that the question of Ed Millibands ‘fitness’ to be prime minister was decided there and then. The press and political insiders continued their campaign of vilification. The result was inevitable.

 

But this alone wouldn’t explain the story of how Labour busted out in their traditional heartland of Scotland- reduced to just one seat! The Scottish response to Milliband was an exact mirror image of the English response. Whatever the English liked about Milliband, the Scots detested and visa versa.

 

This in turn has provoked an intense battle to interpret the meaning of the election result -just as the meaning of the referendum is still contested long after the result was supposed to be sealed and delivered.

 

The key to this struggle is Gaelic identity (characterised in Saxon media as ‘dangerous’ and ‘destructive’ ‘nationalism’), against Saxon identity. It seems that every Saxon pundit has been mobilised across the territory to destroy the very idea of an alternative to the Saxon mindset in these islands. This is especially true of the so called Saxon ‘left’. It looks like a national media wartime mobilisation reminiscent of EuroMaidan Kiev.

 

The more strategic elements of this Saxon Maidan are now looking down the road of federated agreement between Scotland and England and the creation of an exclusively English parliament. Two key elements that work in tandem with this new arrangement are:

 

Abandonment of the European Convention on Human Rights and its replacement with a Saxon Bill of Rights and

 

Redrawing the electoral boundaries within England, making it virtually impossible for the Labour Party to ever win an outright majority again.

 

In the midst of all this domestic constitutional upheaval, more conflict is set to crystallise around the promised referendum on EU membership. The Saxon Maidan could quickly start to look like a northern SYRIZA fighting against the continental Germans.

 

With this rather more sober perspective on a Conservative victory, it starts to look like success for the Conservatives might prove to be something of a poison chalice. So why were mainstream Conservative Party hacks willing to bid themselves into a potentially perilous and marginalised position?

The answer can be found in the fate of failed party leaders Ed Milliband of the Labour Party, and Nick Clegg leader of Liberal democrats.

Consider the striking image of three main party leaders at the Cenotaph for the VE DAY celebrations, two of them political dead men walking (their resignations were already common knowledge). This is a graphic illustration of the danger of failure in this febrile contemporary political atmosphere. Political ghosts at a political funeral. And the system and the position of its major actors is even more brittle than appears on the surface.

 

The cost of political failure has gone up considerably because the analysis underpinning individual politicians is no longer trusted. In the Good Old Days there were a couple of alternative approaches to politics based on economic rationale. You were either in favour of redistribution or you were not etc.

 

Individual politicians might be challenged, but the ideas behind individuals were sacrosanct. It was simply a matter of finding individual politicians to represent the idea. But now Ideas are to be discarded along with the people who came up with them. Because these ideas don’t represent economic rationale which is universal but cultural constituency which is specificThe politician no longer REPRESENTS the universal ideal, the politician IS the cultural specific.

 

Once you understand this, Barack Obama and Hillary Clinton and David Cameron and Jean Marie Le Pen and Vladimir Putin all start to make a very clear kind of sense.

 

There can be no doubt that this VE day marks the end of an era. For the first time since the end of WWII ‘western’ leaders refused to turn up for the Victory Parade in Moscow. The message here is unmistakable. Another major piece of the international post war settlement is broken off, dead and gone. But this is an indicator of something even more profound. Just and the international post war consensus is over, so the domestic post war consensus is finished also.

 

Which brings us to the Conservative surprise victory and in particular the size of their majority which exceeded even revised exit poll estimates produced on election night.

 

The difference between what the Conservatives were predicted to get and what they actually got can entirely be accounted for by accommodation to the Saxon cultural constituency. Lets look at the Conservative Party program in terms of characteristics of a Cultural constituency as I have described them:

 

They make permanent rather than transitory demands

Conservatives are committed to:

 

  • Permanent reduction in the size of the state and welfare.
  • Permanent budget surplus
  • Privatising the National Health Service
  • Redrawing electoral boundaries to permanently advantage their constituency
  • Withdrawing from the European bill of Rights and creating an Anglo Saxon Bill of Rights
  • Substantially renegotiating the terms of the European Union Agreement with, and
  • Possibly leaving the European Union.

 

Willing to compromise on periphery, completely unwilling to compromise on core; creating new spheres and forums for co-operation, even international organisations that encompass Cultural Constituencies. But less and less willing to negotiate with their own national governments.

 

Conservatives are floating the idea of federalisation with Scotland, this will cause consternation throughout the old guard of the establishment.

 

In addition to this innovation, as part of ongoing negotiations with the EU they will try to form a bloc of nations to enhance their bargaining power. This will confound the commentariat in the press.

 

The Conservatives can reach an accommodation with the SNP but NOT with the BBC and the British Medical Association and the Guardian and so on. What commentators don’t understand yet is that cultural constituencies are all about settling internal scores, in some sense externalities are almost an irrelevance.

 

So initially it might seem a little odd to think of a Conservative administration in conflict with ‘government’, after all they are supposed to be the government. But the conflict is between Saxon cultural constituency and the British establishment the ‘deep’ state and the post war settlement. As I explain cultural constituencies are:

 

Condemned by the post war establishment; Pundits and politicians of the post WWII order are not going to like these groups. And they are going to act against them.

 

And the key cultural characteristic of the Conservative majority is perhaps most tellingly:

 

Economic demands secondary or irrelevant.

 

and

 

Profound realignment of politics within constituencies; Less and less will traditional areas of contention and politics operate within cultural constituencies. The members will tend to see what they have in common over what they have in difference.

 

The Saxon cultural constituency is an economic disaster for working class people. It will achieve for the material well being of English society as a whole what the Kiev government has achieved for the majority of Ukrainians.

The Conservative party is run by a cabal of elite public school educated multi- millionaires that express the material interests of a tiny minority of English society. This observation is not seriously challenged by anyone within the English media. The gulf between the political elite and the hoi polloi is summed up by the incident in which David Cameron forgot which football team he supposedly ‘supported’!

 

The bizarre dislocation between fact and fantasy illustrated by Camerons gaffe went largely unremarked because now there is an unspoken agreement among the Saxons. There really is a conspiracy here! No more dissent within the ranks of the Saxon cultural constituency.

 

The fact that Poroshenko is a billionaire and represents the interests of an economic elite makes no difference to the Ukraine Maidan. Just as ‘Economics’ makes no difference for Maidan Ukraine, ‘Economics’ will make no difference for Maidan UKraine.

 

At a fundamental level, what is striking about the Conservative cultural constituency agenda is the extent to which it exactly mirrors the program of Monetarist Tony Blairs New Labour program. This illustrates the intimate relationship between Monetarism and Cultural constituencies. As I explain here:

 

https://unitedstatesofeverywhere.wordpress.com/2015/02/03/purple-haze-or-down-the-rabbit-hole/

 

So here is the American/Saxon dream as summed up by Tony Blair*

 

‘The centre ground is as much a state of mind (!!!!-AP), as a set of policies. It means that we appreciate that in today’s world many of the solutions will cross traditional boundaries of left and right. (ref cultural constituencies). We need not just to be comfortable with this; but actively to seek out the alliances to embrace those outside our tribe as well as within it.’ (ref cultural constituencies)

 

‘We win when we understand the way the world is changing and make sense of how those changes can be shaped for the good of the people.’(by which he means Saxons ref cultural constituencies.)

 

Here Blair plays the role of a slightly noisier ghost of Banquo with some evident relish. But who can blame him, after all:

 

“blood will have blood”,

 

which encapsulates cultural constituencies to a tee.

update

Yikes! That was quick..

Tories go to war with the BBC

David Cameron, infuriated by the corporation’s election coverage, appoints BBC critic John Whittingdale to “sort out the BBC” ahead of the royal charter review next year

http://www.telegraph.co.uk/culture/tvandradio/bbc/11598450/Tories-go-to-war-with-the-BBC.html

 

update15 May 2015

Chukka Ummuna widely seen as the heir apparent to the ‘Modernising’ wing of the Labour Party threw his hat into the leadership contest and then…er took it out again. Now why would that be I wonder?

 

chukka

The politician no longer REPRESENTS the universal ideal, the politician IS the cultural specific.

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Do Banks Create Money? or No Big Deal

 

 

To get a real insight into whether banks do indeed create money, we must first sharpen the focus of our enquiry:

 

If banks do create money, what kind of money do banks create?

 

For instance, do banks print foreign money?

 

It has been rumoured that in the past North Korea has printed North American dollars, but for the most part this practice is frowned upon and we can say that generally banks and governments refrain from printing each others currencies.(Although that might change in the Eurozone quite soon).

 

Do banks create their own private money? Is there such a thing as Lehman dollars?

Banks printing money in this form is not generally held to be the case, (at least not yet), but we can come back to that later.

 

Since it is clear that private banks don’t create money in general we have refined the question to:

 

Do banks create the national money used by you and I? Or to phrase it using democratised money theory language: Do private banks issue Government Issued Money?

 

And of course, when you put it in these terms, the answer has to be ‘no’.

 

Problem solved to my satisfaction at least.

 

But maybe not quite to yours.

 

In my last post I commented on a quarterly bulletin of the Bank of England that seems to suggest that banks do indeed create the majority money in circulation in the form of debt. This capitulation to the radical interpretation of economics piqued my interest. Putting aside the question as to whether banks do or don’t create money, why would the Central Bank retreat from earlier positions and just as importantly, why would it do so after all this time?

One plausible reason for a tactical concession to the insurgents is to better position the Monetarists for the next assault in their ongoing campaign to control the future of money.

 

It could be that central banks are positioning themselves so that it is not such a big shock when they come clean about derivatives being money. The message will be; Sure, private banks and financial institutions print money of one kind or another; they always have. So what’s the big deal? Perhaps the arrival of this political concession actually means that the time is approaching when the shadow economy will be coming out of the shadows.

 

This would be a reasonable assumption if there is a need for some kind of normalisation of interest rate policy. It will be impossible to significantly and permanently raise global interest rates without some corresponding amendment of national and international banking and exchange rules. These rules would need the justification of a new worldwide orthodoxy on money and banking. This might be the actual truth behind all those predictions of a world currency.

 

If orthodoxy were to concede that derivatives were to be regarded as a form of money it would confirm what I have been arguing for more than five years. But I don’t think I will be celebrating my intellectual success. Any successful attempt to conflate bank credit or anything else with Government Issued Money can only serve one purpose: to discredit and denigrate cash money. And that is nothing short of a disaster for you and for me.

 

There is a horrible synchronicity here between both orthodox and unorthodox wings of the monetary conflict; Monetarists and radical Bitcoiners. The message from Bitcoiners and Monetarists alike is leave government cash behind, the battle has moved on.

 

Bitcoiners argue that their cryptocurrencies are democratic and free from central bank oligarchy control and therefore better than cash. Monetarists argue for a technocratic ‘non politicised’ control of money issuance; effectively privatisation of money control in a credit card world. Both result in the end of cash money guaranteed by the state, under political control. Both result in the privatisation of the issuance of money.

 

In the light of these developments the strategic imperative for us is to ague for the sole primacy of Government Issued Money as the only form of currency. Let me explain why.

 

There has been a constant attack on the use of cash for at least two decades and this attack has been centred around the point of contact between cash and banking. The introduction of numerous legal requirements on bank reporting of activity as well as private petty restrictions on how much cash you can depots and withdraw have had a chilling effect on cash based banking.

 

At the same time cash has been increasingly frozen out of commercial activity- many utilities are virtually impossible to purchase with cash unless you use prepaid cards and are extorted by the utility provider for the privilege.

 

For the past six years or so this attack on cash has been masked by the attack on savings deposits expressed through negative interest rates. Not only do deposits not pay interest, but bank accounts and their supposed contents are rapidly losing their legal status.

 

The end game in all this is bail ins where banks simply convert deposits into shares, which you are not even allowed to freely trade! If bank credits really are money as the Bank of England paper argues, on what basis is this being done? Follow the actions not the words and you will at least begin to question any supposed conversion of monetary orthodoxy to radicalism.

 

It is possible to cut through the confusion between cash and credits illustrated by comparing the decision to hold goods, cash or credit.

 

Let us say that due to deflation you decided to put off purchases, that is to say to hold cash or bank credits. Are the risks and benefits the same in each case?

Holding and using cash offers the benefits of anonymity and privacy. Does bank credit offer this?

Cash money offers the benefit of dealing with no ratification, in other words no-one oversees and confirms any deal you might choose to make. Does bank credit offer this?

Cash money is legal tender, it has to be accepted in settlement of debt. Does bank credit offer this?

Cash money offers complete liquidity. Does bank credit offer this?

Bank credit is subject to seizure, forfeiture and conversion (as in bail ins). Does cash money suffer from this?

Cash money clearly offers a number of benefits and guarantees that bank credit cannot. Bank credit suffers in the comparison with cash money.

 

It should be clear from this that as bank credits become denigrated by the state it increasingly becomes necessary for central banks to delegitimise cash to at least a corresponding amount. Because if only a very small minority of the general population decided cash was the better option that would cause a lot of problems.

 

Only around 3-5% transactions are cash and this proportion will significantly diminish further if Monetarists have their way. But if usage of cash was to increase significantly, the plans of Monetarists would start to run into serious trouble in short order.

 

Firstly, cash is hard to take back in a way that credit is not. Paying off bank created debt ‘dissolves’ credit money but cash money has to physically be withdrawn from the economy which is much more difficult to do- this means hard inflation. The kind that central banks cannot control except by raising interest rates.

 

But even more important is the relationship between cash money and banking reserves. Cash money is directly created by central banks and obviously bank deposit credits are not (this is the essential complaint of unorthodox economics). The creation of cash money directly affects the amount of reserves required to be held by each private bank and by the central bank.

 

Bank credits can be created forever without necessarily altering the requirement for reserves. If people take their physical money out of the banking system for use they are effectively calling it into physical existence– forcing the banks to actually print and therefore again forcing them to raise interest rates.

 

These two reasons why bank credits are not Government Issued Money are still within the bounds of standard economics but there is a further more fundamental reason within Democratised Money theory.

 

I have argued previously that money makes a proclamation as part of a general contract between issuer and user.

This proclamation takes the form of the Base Interest Rate which determines the nature and scale of the economy. It is something that is universally applicable to the same extent. It affects everyone equally.

It is inextricably bound up with the specific contract of the money itself. Once this printed money proclamation goes out the door of the central bank it cannot be undone.

 

The cumulative effect of these non- undoable operations is the recorded element of the currency. You can’t undo a money issue interest rate or the effects it has on the economy but you can use the next money issuance to offset the effect. In other words vary the interest rate from issuance to issuance.

 

In contrast, bank credit is a specific, not a general contract. Credit is offered on an individual basis. The ‘proclamation’ from the lender is concerned with what the individual borrower must do, not the general economy. Because of this the issuance of bank credit requires a separate individual contract, unlike money where the contract is part of the money. This ‘money’ creation through debt is subject to ratification by the legal system; it can be undone if deemed onerous or illegal, unlike cash money.

 

The cumulative effect of credit creation by private banks does have a massive effect on the economy. But it is not a general effect like money, it is a cumulative private effect. When you borrow from a bank you have to deal with the economic power structure as a lone individual instead of as a citizen member of society dealing with a central bank. In other words it is the ultimate codified example of divide and rule.

 

If as I argue, Monetarists want to create a Permanent Credit Economy, (that is a decentralised planned economy, with banks deciding who gets credit to do what),

Then deceiving propaganda giving bank credit the status of money can only be to their advantage.

 

We should oppose it.

 

 

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The Truth Is Out- Or Is It? or Do Banks Print Their Own Money? Part 1

dosh

 

The Truth Is Out: Money Is Just An IOU, And The Banks Are Rolling In It

David Graeber

http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

 

https://s3.amazonaws.com/s3.documentcloud.org/documents/1698915/monetary-reform.pdf *

 

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf #

 

The charge that private banks create money in the form of debt and that debt money creation caused the credit crunch is a major charge against the financialised world economy and orthodox economics. This charge targets the Federal Reserve and central banks across the developed world as authors of the problem.

 

If this is an accurate understanding of the way the economy works then the solution to the credit crunch and its aftermath is relatively straightforward: ‘End the Fed’ and effectively nationalise it (and all central banks), and money making powers for socially desirable projects (such as reconstructing capitalism along traditional lines!). Proponents of this type of approach action include Ellen Brown on her ‘Web of Debt’ blog and Professor Steve Keen.

 

This argument does have a number of positive aspects to recommend it. It is underpinned by the desire to reconstitute a commons – money which serves everyone. It is a political solution that emphasises the need to have a political confrontation with the Monetarists that have hijacked the monetary system.

 

And all of this becomes ever more relevant in the light of a recent discussion paper by Frosti Sigurjonsson commissioned by the prime minister of Iceland* exploring the possibility of nationalising the money creation process. Iceland is noted for adopting a non mainstream approach to the credit Crunch and its consequences, nationalisation would be more of the same non orthodox approach. The most significant thing is that this approach again argues that a political solution to the Credit Crunch and financialisation is possible.

 

But it is not just the ‘unorthodox’ that are offering new ways of looking at money philosophy. A discussion paper by the Band of England ‘Monetary Analysis Directorate’# makes the admission that banks do in fact, print their own money, just like the insurgents claim. This document is startling for a number of reasons and well worth reading.

 

In a Guardian opinion piece by David Graeber more or less gets the tone of the insurgent ‘victory’:

 

‘Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy“, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox (‘insurgent’- AP), positions more ordinarily associated with groups such as Occupy Wall Street are correct’

 

Surely, the first question that arises from this development has got to be: Why now? The Orthodoxy after decades if not centuries of standard monetary theory is now suddenly throwing in the towel and telling us the great unwashed occupy insurgents were right all along!

 

As David Graeber puts it:

‘Why did the Bank of England suddenly admit all this? ‘

And the answer?

‘Well, one reason is because it’s obviously true.

Hang on a minute, its obviously what you want to hear, but does that mean it is necessarily true?…and even if that is so, truth did not seem to be a consideration before…To be fair, David Graeber senses that this is not really an adequate explanation so he offers the following elaboration:

‘The Bank’s job is to actually run the system, and of late, the system has not been running especially well. It’s possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.’

 

Which itself leads to many more questions than it answers; Why has the Bank of England decided to deep six the elite it served so faithfully now? Better to turn to the paper itself, which after a first reading the text turns out to be a little more subtle and nuanced than might be supposed from reading the Guardian opinion piece about it.

 

In fact the paper itself turns out to be essentially a semi-orthodox defence of QE that smuggles a number of unorthodox ideas in the body of the argument, a kind of intellectual Quantitive Easing if you will. Nevertheless, the concessions it makes appear to be remarkable.

 

Still it would be good to keep this question in your mind as we proceed:

Why would the keepers of monetary orthodoxy need to make concessions to opposing points of view and why now?

 

Lets have a look at the concessions themselves. First of all the concession that private banks make money:

 

‘The reality of how money is created today differs from the description found in some economics textbooks:’

 

  • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

 

  • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.

 

The paper goes on to say that ‘lending’ out and ‘multiplying up’ of existing deposits in banks is little more than a childs bedtime story:

 

‘While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality’

 

So bank lending is not related to deposited money from the public in any way; the money is created from scratch. However, the paper repeatedly and forcefully argues this is not carte blanche to print:

 

‘Banks themselves face limits on how much they can lend. In particular:

 

  • Market forces constrain lending because individual banks have to be able to lend profitably in a competitive market.
  • Lending is also constrained because banks have to take steps to mitigate the risks associated with making additional loans.
  • Regulatory policy acts as a constraint on banks’ activities in order to mitigate a build-up of risks that could pose a threat to the stability of the financial system.’

 

Having disposed of deposit and money multiplier orthodoxy, the Bank of England goes on to attack the Monetarist quantity of money theory as another bedtime story:

 

‘In no way does the aggregate quantity of reserves directly constrain the amount of bank lending or deposit creation…..

Rather than controlling the quantity of reserves, central banks today typically implement monetary policy by setting the price of reserves — that is, interest rates’.

 

Cutting through the circumspect language, the core message is clear: The quantity of money is not a concern for the Bank of England. Targeting money quantity is voodoo economics; in other words the amount of money in the economy does not directly lead to inflation or anything else. The right wing shibboleth of hyperinflation through excessive printing is dismissed as a childish preoccupation, just like deposits and money multipliers.

 

Now we have got all that out of the way we can have a look at how things really work:

 

‘Banks first decide how much to lend depending on the profitable lending opportunities available to them — which will, crucially, depend on the interest rate set by the Bank of England’.

 

Let us be absolutely clear; this means the end of ‘risk’ as a supposed factor in the activities of banking. The ‘risk’ that lenders undertake in return for the ‘reward’ of interest is the risk of not making a profit – NOT the risk of losing their money. If a money lending institution makes no profit it will cease to exist just as surely as if it had lost all the ‘money’ it had ‘bet’ on various business enterprises.

 

And the paper freely admits that profitability is the province of the central bank. The Bank decides what will be profitable and what will not be profitable through the medium of interest rates. It must logically follow that the amount of ‘risk’ in the economy is entirely the creation of the central bank. (If you doubt this for even a second, just consider that this is exactly what ‘Too Big To Fail’ actually means…).

 

David Graeber makes this point quite elegantly in his Guardian piece:

 

There’s really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit.

 

And here is the Bank of England making the point ever more clearly:

 

‘The ultimate constraint on money creation is monetary policy.

 

By influencing the level of interest rates in the economy, the Bank of England’s monetary policy affects how much households and companies want to borrow. This occurs both directly, through influencing the loan rates charged by banks, but also indirectly through the overall effect of monetary policy on economic activity in the economy. (my emphasis). As a result, the Bank of England is able to ensure that money growth is consistent with its objective of low and stable inflation.’

 

Leaving the last bit aside for a moment, this again makes explicit the proclamation function of interest rates that I have discussed before. Bank money loans are made and bank deposits called into existence on the basis of the central bank proclamation of what will be profitable. Risk is not a factor. Amounts are not a factor. The only significant factor is the proclamation of profitability as expressed through interest rates. This is precisely democratised money theory as applied to credit.

 

Lets apply this radical orthodox/unorthodox anlaysis to the historical devleopment of democratised money and see what we come up with.

 

The economy is divided into two spheres; state and private.

 

  1. High interest rates are a central bank proclamation.

 

They proclaim the extent tow which the economy will be profitable by decree; i.e they say you should be able to make at least this much (base interest rate plus bank mark up) on any investment you undertake.

 

Profitablility expressly and explicitly means efficiency.Too many low productivity workers is inefficient- rationalise them. Government lending for social services is inefficient- cut back on it and so on…

 

This rationale describes the intent and effect of the famous Volcker interest rate rise that kicked off the Monetarist project in earnest. High interest rates served the Monetarist objective of diminishing the state and all ‘indulgent’ inefficient capitalist business.

 

  1. Low interest rates are a central bank proclamation.

 

They proclaim that the economy will be not be profitable by decree. i.e. they say you should be able to make little or nothing (base interest rate plus bank mark up) on any investment you undertake.

 

Lack of profitablility expressly and explicitly means inefficiency- many low productivity workers employed in low wage, low value added service sector jobs. Government lending for Quantitive Easing and TARP supported by low interest rates

 

This describes the intent and effect of the famous Bernanke interest rate slashing that kicked off the Q.E. project in earnest. Low interest rates served the Monetarist objective of making the state the entire guarantor of the post credit crunch economy, protecting all ‘indulgent’ inefficient financialised business.

 

High interest rates in the 80’s signalled shrinking the state, the end of ‘socialism’ and the consumer society post war settlement.

Low interest rates in the ‘00’s signalled an UNPRECEDENTED EXPANSION of the state in order to usher in an age of socialism for the rich….

 

Next time, Q.E.

But bear this in mind;

 

If banks really do print money, how come you never hear of anyone caught trying to get through airport customs with bunches of bank statements hidden in their underpants?…

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Using Democratised Money Theory to Understand Bitcoin

imagesPoints from previous posts on Democratised Money Theory can be taken and applied to Bitcoin and other Cryptocurrencies. This can give an interesting insight into all forms of money.

 

Democratised Money Theory:

 

Money is a contract – a set of words and images that embodies a decree. (This is the decree gold and silver bugs get confused about when they refer to fiat money). This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in form of the central bank interest rate in respect of that specific contract.

 

Applied to Bitcoin:

 

Bitcoin is a set of words and images that embodies a contract. This is what Bitcoin is in its totality that and nothing else. In its form, Bitcoin differs from government money in how and where that contract is recorded. In the case of Bitcoin the contract is recorded in programming code form. This is the decree that Bitcoin embodies, which is intended to function exactly the same as the decree embodied by government issued money. Programming code embodies the method and thence the rate at which Bitcoins can be ‘mined’ or Bitcoin ‘decrees’ made. It effectively decrees the rate of creation of decrees!

 

But this is really no more than a marketing device. By making the issuing of Bitcoin decrees ‘automatic’, the creators of Bitcoin are seeking to obscure their role as the Authority which delineates the terms and form of Bitcoin. They do this precisely because the people who might adopt Bitcoin don’t like the idea of conforming to a given authority. The ‘anonymity’ of ‘Satoshi’ is more of the same marketing…. a personification of the commons; ‘Everyman’ and ‘No One’

 

Bitcoin is a commercial contract as opposed to a state sponsored contract in the case of Government Issued Money.. Despite the best efforts of Bitcoin advocates to obscure the fact, Bitcoin is at its core a business proposition and in this it differs fundamentally from state issued money which is at its core a political proposition.

 

This points to a fundamental difference. State issued money is derived from the commons, crypto currencies are not. Crytocurrencies, like all ‘democratised’ currencies, represent an exact inversion of the developmental dynamic of state issued currencies.

 

State issued currencies began their existence in the commons operated for the benefit of all, and were appropriated for the benefit of a minority. This process culminates in the creation of specific forms of privately issued Democratised Money.

 

Democratised currencies such as derivatives and Bitcoin were created and developed by a minority supposedly for the benefit of all. Democratised money and Government Issued Money begin at opposite ends of the money spectrum and move in opposite directions.

 

There is no point in simply describing the differences between state issued money and democratised money as they are now. At best this will offer you a blurred snapshot of the development of money in the 21st century. You have to describe the trajectory of development of both democratised privately issued money and state issued money simultaneously and how they will affect each other as they develop.

 

Democratised Money Theory:

This money contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another. The contract is issued by the relevant legal authority which is the body authorized to mount that specific proclamation upon that specific transferable medium.

Applied to Bitcoin:

 

The Bitcoin contract is recorded as code which can be transferred from one processor to another. The proprietary name that is given to the contract and its mode of transference is the ‘Blockchain’. The blockchain in its totality serves as both decree and record of Bitcoin whereas individual notes serve as decree or record of government issued money. But the blockchain cannot be owned by any one person; unlike a money note (or all money notes), which can be transferred, stored and even destroyed by its owner. (Although interestingly it is a crime to modify and deface modern banknotes. Now why would that be?…)

 

(As a secondary point of interest, bank credits are not money despite what many insurgents argue. Bank credit transactions require a separate and autonomous mode of record, disqualifying them as money.)

 

There may be some confusion over the designation of the ‘relevant legal authority’. In this case it is the creators of the blockchain code and the issuers of Bitcoin. The authority to do this is vested in private property which is a totem of capitalist states. Satoshis have legal authorization to issue Bitcoin, although final rights are reserved by national governments.

 

Democratised Money Theory:

 

The validity of a money contract depends on the extent to which it decrees the nature of the real economy. The ‘value’ of that money contract is an expression of its validity. In other words: The money contract is valid to the extent that it decrees the nature of the real economy. Not ‘reflects’ the nature of the economy, decrees it. It is valuable to the extent it is valid. This comprehensively defines the value of money.

 

Applied to Bitcoin:

 

Trade and creation are ubiquitous in human society. Human beings purposefully alter the environment around themselves continually and without exception. This is the real economy. The control of this alteration is the purpose of politics and economics. Money is one method of implementing this control. A piece of money is a decree of who will do what where and when. It is specific to the extent that this serves the purpose of the issuer. It is generalised to the extent that this serves the interest of the issuer.

Bitcoin contract is specific in that it serves the interests of ‘Satoshi’ to create a privately issued digital currency through ‘mining’ and recording transactions on the Blockchain.

The Bitcoin contract is generalised to the extent that it operates as a store of wealth and to a much more limited extent as a means of exchange and transfer.

 

I have previously used the example of a train ticket to illustrate another aspect of money but the metaphor can be useful in this context too:

 

  • All train tickets are contracts.

All pieces of money are contracts.

 

  • All train tickets are the same in function and distinct from other contracts.

All money is the same in function and distinct from other forms of contract.

 

  • You need a valid train ticket to access the rail system.

You need a valid piece of money to access the economy.

 

  • Train tickets are specifically valid in terms of the journey you are permitted to undertake

Money is specifically valid in terms of the economic activity you are permitted to undertake

 

  • A specific train ticket contract decrees a type of journey will take place

A specific piece of money contract decrees a type of economic activity will take place

 

  • A train ticket is valid to the extent that the journey it decrees will take place, does take place

A piece of money is valid to the extent that the economic activity it decrees will take place, does take place

 

  • A train ticket is valuable to the extent it is valid

A piece of money is valuable to the extent it is valid.

 

(NB. Claiming gold is naturally money is like getting on a train with a piece of Stephenson’s Rocket in your hand and claiming it gives you a right to ride!)

 

The decree aspect of Bitcoin is well illustrated by the apocryphal ‘10,000 Bitcoin For A Pizza’ story.

 

Bitcoin, like any form of money, does not reflect reality or the economy. If it did, then the first Bitcoin would be designated as worth the totality of the economy, the first and second would each be worth half the economy, the first, second and third would each be worth one third of the economy and so on… This is obviously nonsense

Since money does not reflect the economy as it is or was, it must instead decree the economy as it is going to be.

 

In the case of the Bitcoin Pizza, 10,000 Bitcoin didn’t call the pizzeria that made the pizza into existence.

It didn’t call the flour purchase for the pizza into existence.

It didn’t bring the pizza man into work to make the pizza. All this stuff was already there.

But what it did, was to call this specific pizza into existence.

Bitcoin like all other money, decrees how the world will be from now on.

 

Once the Bitcoin Pizza transaction was successfully completed, the Bitcoin became both decree and record and its value was accordingly modified.

 

Democratised Money Theory:

 

A money contract is valid to the extent that everyone complies with the terms of the decree it embodies. A money decree is complied with to the extent that the amount and terms of money contracts issued compare with the amount and terms of economic activity undertaken for the same territory and time span.

 

Applied to Bitcoin:

 

Here is a ‘sketch’ graph which roughly illustrates the dollar value of Bitcoin since its beginning. The graph is useful in illustrating the decree function of Bitcoin. I have marked five significant points on the graph:

NEWGRAPH

1.Bitcoin the beginning has no recording function, so no value added there. The mining protocol decrees Bitcoin is virtually valueless.

 

2.Bitcoin records some few transactions; ‘wealth store’ value increases. This leads to an increase in mining which decrees Bitcoin is again virtually valueless.

 

3,4.The number of Bitcoin records begins to accumulate rapidly, especially in relation to the number of fresh decrees issued because it is becoming harder and more specialised to ‘mine’. The increased cost of ‘mining’ is effectively a decree of greater value.

 

5.The validity of recent decrees increasingly comes under question. Bitcoin is having trouble making the real world conform to what it proclaims. This is reflected in the recording function. Bitcoin falls in ‘value’

 

 

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Kentucky Fried Crackernomics Or Would You Like A Breast Or A Leg? Or The Mark To Market Of The Beast Or When the S**t Hits The Fan

o-UNIVERSITY-OF-KENTUCKY-570

‘Since 1971, U.S. citizens have been able to utilize Federal Reserve Notes as the only form of money that for the first time had no currency with any gold or silver backing.

This is where you get the saying that U.S. dollars are backed by the “full faith and credit” of the U.S. Government. In other words, Nixon implied; take our paper dollars or don’t’.

http://buygoldandsilversafely.com/gold/what-really-backs-the-us-dollar/

 

It can’t be often that a concise and illuminating illustration of the nature of money pops up in the nexus between tattoos and professional sports. Once in a blue moon perhaps. Nevertheless….

 

Here are three important characteristics of money:

 

  1. Money is a contract- a set of words and images that embodies a decree. (This is the decree gold and silver bugs get confused about when they refer to fiat money). This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in the central bank interest rate in respect of that specific contract.

 

  1. This contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another.

 

 

  1. The contract is issued by the relevant legal authority– which is the body authorised to mount that specific proclamation upon that specific transferable medium.

 

From the above we can go on to say:

 

  1. The validity of a money contract depends on the extent to which it decrees the nature of the real economy. The ‘value’ of that money contract is an expression of its validity.

 

In other words: The money contract is valid to the extent that it decrees the nature of the real economy. Not ‘reflects’ the nature of the economy, decrees it. It is valuable to the extent it is valid. This comprehensively defines the value of money.

 

5. A money decree is valid to the extent that everyone complies with the terms of the decree it embodies. It follows from this that a money decree is valuable to the extent that everyone complies with it.

 

6. A money decree is complied with to the extent that the money contracts issued compare with the amount of economic activity undertaken for the same territory and time span.

 

Which brings us to Kentucky Wildcats fan Rock Wright and his tattooed leg.

 

What is fascinating about Rock’s tattoo (and his leg to a lesser extent..) is that it functions more or less the same way as money. In fact, Rock has sort of turned himself into a piece of money!

 

Lets compare Rock and his leg tattoo to my three important characteristics of money:

 

  1. Money is a contract- a set of words and images that embodies a decree. (This is the decree ‘insurgents’ get confused about when they refer to fiat money).This decree element is a vital component of a money contract. It decrees the economic environment for the life of the money contract. This decree is expressed in the central bank interest rate in respect of that specific contract.

 

Rock, (the legal issuing authority*) has created a tattoo that makes a clear decree about what the future sports environment (economy,)will be. The subject of the decree is the activity of the Kentucky wildcats. The environment,(economy), the Wildcats are operating in is the Championship league. The term of the decree is up until the championship concludes with one winner which will be the Wildcats at which time Rocks money/tattoo will be retired as a decree and become a record.

 

  1. This contract is mounted on a transferable medium. Something that can be securely transferred from one owner to another.

 

Rock can transfer his allegiance from the Kentucky Wildcats to the Cincinnati Dipsticks (I’m grasping ), any time he wishes. Rock is not exactly a transferable medium, but in many societies tattoos were used as marks of ownership and allegiance. And marks like this may be used as such again…

 

  1. The contract is issued by the relevant legal authority– which is the body authorised to mount that specific proclamation upon that specific transferable medium.

 

*Rock is both the medium and the issuing authority as he owns his own body and can do with it what he likes.. Since this is the case, he has control over his body and what gets tattooed on it -at least for now….

 

From the above we can go on to say:

 

4.The validity of a money contract depends on the extent to which it is corresponds to the real economy. The value of that contract is an expression of its validity. It is valid to the extent that it corresponds to reality. It is valuable to the extent it is valid.

 

The validity of Rocks tattoo should be fairly obvious. If the Wildcats get spayed in the championships neither the tattoo or Rock himself is going to look too smart to anyone who sees them. If Rocks decree comes off he looks like a pretty cool, smart guy (at least to some people),  if it goes wrong, well Rock has got a plan for that too. Rock has got ‘faith’ in the Wildats and gives them ‘full credit’.

 

  1. A money decree is valid to the extent that everyone complies it.A money is decree is complied with to the extent of the amount of contracts issued compared with the amount of economic activity undertaken.

 

Because only Rock has got a Wildcat tattoo decreeing 40-0, the tattoo and the decree don’t look too good to most people right now- faith is medium to low. But if every fan in the league as well as every member of every team (including the Wildcats opponents!!) had a tattoo like Rock, a Wildcat Championship victory would be a shoe in. A self fulfilling prophecy. The decree would be ubiquitous and in full force.  Just like successful, valuable money is in any given territory.

 

There is something more we can say about tattoo money. The article refers to ‘Tyler Black’ who also had a decree tattoo just like Rocks.:

‘We still like Wright’s odds more than Tyler Black’s.

Black, also a Kentucky diehard, had a 2014 Kentucky national championship tattoo branded on his leg before last year’s SEC tournament, even though the Wildcats lost 9 regular season games.’

 

Now that we have more than one money decree tattoo, we can start to build up a history of ‘Wildcat Tattoo Money’. Comparing the relative validity of each tattoo while at the same time taking them in their totality means we can build up a picture of this currency over time. Just like we can with ordinary currency. And if everyone in Kentucky had a tattoo for every season….

 

New International Version

‘There is a time for everything, and a season for every activity under the heavens:’

 

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Parade or Crying In The Rain

 http://www.theguardian.com/business/2015/mar/18/federal-reserve-expected-end-zero-interest-rate-era

 

I have argued (in a different context), that the second world war ended not with the declaration of VE day or VJ day, but with the fall of the Berlin Wall forty or so years later. Challenging the date of victory challenges an entire perspective on the meaning of the Second World War.

 

Your perspective on the Second World War rests on understanding the objectives of each side and to what extent each side achieved those objectives. In other words understanding objectives is a necessary part of understanding what constitutes victory.

 

The Victors in the second world war did not achieve all their objectives on VE day or VJ day, that only happened with the re-emergence of a reunified Germany. The Saxon elite fought a long, silent war to achieve the reunification of Germany for forty years after the official cessation of hostilities. This might lead you to ask who the real enemy was….

 

The same is true with the Battle Of The Credit Crunch. We are coming closer to a declaration of victory and the announcement of a victory parade. As far as the mainstream economic data coming out of America and Britain goes, the Saxon team is on the home straight.

 

We are informed that unemployment is falling. Economic growth is (sort of), gaining traction. Compared to the basket case that is the rest of the world economy, things are not too bad, Saxon elites lay claim to some kind of normalisation in Britain and the USA. And so it is reliably reported, interest rates are going to move upward towards the ‘new normal’.

 

Note that ‘new normal'; it is important.

 

But first, take a quick look at the crowd behind the barriers as the great and good prepare for their triumphant circuit. Hoots of derision and catcalls greet the declaration that Fed interest rates will rise- after all haven’t we heard this over and over the past decade? Why will now be any different?

These catcalls are at least in part, justified. The hoi polloi have noted that whenever one of the floats breaks down or a bit player falls over while executing a tumble, a rain of digital ticker tape money descends from the skies distracting the attention..

 

This parade still isn’t really going anywhere they argue, so how can they do without the free Federal Reserve supplied ticker tape?

 

Lets see.

 

There are differing positions regarding interest rates –they are either going up, or down, or staying the same. The three possible options for the future of the economy are:

 

  1. That an economic collapse will come. There are not many still pushing this line outside a dedicated few on the libertarian wing of economics. And when a collapse of some kind is predicted, it tends to be focused on an outside factor such as war with Russia.

 

  1. That interest rates will stay low or even fall further because the financial system cannot afford to see them rise- this is because modern finance is in essence a Ponzi scheme that needs a constant influx of free money from the government. Increasingly there is a new twist in the discussion on low interest, the international blowback element. The argument here is that raising interest rates in the USA will screw the world economy and therefore America will come under increasing pressure will stop this happening.

 

3.Interest rates will rise to a new normal interest rate (see Guardian article).

 

Discounting the possibility of outright collapse, I would argue that the stay low or go lower faction is missing an important trick. Since they don’t believe interest rises are possible, they don’t analyse the proposed extent of any possible rise. This is a major error because insight into the specific target rate that central banks are seeking to achieve gives real insight into their thinking.

 

The new figure for a target interest rate is given in the Guardian article as 2.75%-3 %. What would an achieved rate of 2.75% or 3% actually mean for the Saxon elite?

It would mean that they had achieved the real objective of the Credit Crunch war; to secure a permanent, secure position for Democratised privately issued money in the form of derivatives in the world economy.

Long term interest rates since the post WWII period have averaged around 5%. The significance of this figure is that it represents the total ‘book’ value on state issued money as I explain here:

https://unitedstatesofeverywhere.wordpress.com/2014/02/13/the-great-escape-or-moby-dick-in-space/

Since the interest rate is an expression of the total state money economy, it follows from this that 2.5%, half the long term average rate,would represent half the traditional post war American economy given over to democratised money.

 

3%, which is 60% of the long term interest rate average, would represent 60% of American economic activity denominated by the American state and 40% given over to democratised money.

 

By way of comparison what would it mean if central bank interest rates in Eurozone or Japan stay low? This would reflect the extent to which these respective economies have been supplanted by derivatives. The lower the interest rate, the higher the proprtion of your economy that has been leached to derivatives.

 

The derivatives/state money balance is expressed through the ‘health’ or otherwise of the banks. One of the key mistakes the economic ‘insurgents’ make is to confuse the defence of democratised money with the defence of banks and bankers. Since the banks and financial institutions are the purveyors of democratised money, they are inevitably saved alongside the democratised money they produce. But this does not mean that this was the prime intention of Monetarist politicians in implementing QE. This is a perfect example of needing to understand the real objectives in a war before you can understand the meaning of defeat or victory.

 

The specific crisis that sparked the Credit Crunch was a failure in interbank lending. Financial institutions did not want to make temporary loans of state money to each other because they feared the massive and unknown amounts of derivatives that they all carried on their books. This was effectively admitting that there was a possibility that the value of these derivatives was heading towards zero..

 

But this was never a liquidity problem. This was an exchange rate problem between the value of state issued money and privately issued democratised money. The problem was that democratised money was effectively worth nothing compared to state issued money.

 

Quantitive Easing firstly:

 

Bought these derivatives at their maximum possible denominated value using state money. This is exactly the same as a central bank intervening in currency markets to lower the value of your own currency while propping up the value of another currency (democratised money).

 

At the same time QE lowered interest rates effectively to zero. Opening up a channel of ‘sabotaged’ money to the banks. This effectively declared the ongoing state denominated economy to be dead. (see previous two articles) because money issuance effectively acts as an economic proclamation about what the nature of the economy will be so long as that particular example of money is around…

 

On the surface (remember the difference between real objectives and stated objectives) this QE money was supposed to go into the real national economy through the banks to stimulate economic activity. It other words it was advertised as being standard state issued money. But what it actually did was go into international speculation or was just recycled to the central banks. In other words it was actually sabotaged or denuded state money. (see previous articles)

 

I do believe that there were a number of politicians who genuinely believed that there was a possibility that this sabotaged money could have gone into the national economy. And of course when it became clear that this was not happening they asked the question: Why not?

 

And the answer they got was this:

 

‘It is far more profitable for us to invest overseas. The more profit we make the sooner we will repair our balance sheets. The sooner we repair our balance sheets the sooner the crisis will be over. So what is it to be: repair the Credit Crunch or national investment?’

 

Faced with this question the useful fools folded and chose repair the credit crunch.

 

So what did this mean?

 

It meant that wealth extracting opportunities in Britain and America were competing with wealth extracting opportunities anywhere in the world for this QE money. The Monetarists has succeeded beyond their wildest dreams. They had ripped off the cover from Anglo Saxon economic society and exposed it completely to the winds of international competition!

 

And when did Anglo Saxon society begin to ‘recover’?

 

When it began to compete with the terms and conditions and profitability of the most exploited parts of the world. So you have a recovery for the monetary system but no recovery for you….

 

A hyper victory for Globalisation.

 

And how can Japan and Europe recover?

By doing exactly the same thing.

And why haven’t they ‘recovered’ yet?

Because they are still trying to hang on to the shreds of their respective societies.

But we have got Abenomics and we have got ECB QE so it won’t be long….

 

I can’t write much more because the thought of this is making me sick to my stomach, nevertheless;

 

So the Saxon economies become more profitable in comparison to the global economy so the QE cash returns ‘home’. So the overseas economies enter a period of crisis because of the withdrawal of QE liquidity, so their terms and conditions have to fall, which draws the hot cash back to their economies, which means our economies are less competitive by comparison, which means another attack on our terms and conditions.

 

And they expect you to stand there in the rain clapping and cheering as they march past…..

New International Version
For it seems to me that God has put us apostles on display at the end of the procession, like those condemned to die in the arena. We have been made a spectacle to the whole universe, to angels as well as to human beings.

1 Corinthians 4:9

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Lest Ye be Vexed……..

Subsequent to my post: ‘If I had A Hammer’ some of the main points I made were discussed on a Maidsafe.org thread

 

(https://www.maidsafe.org/t/negative-interest-rates-and-when-robots-will-set-monetary-policy/3262/14)

 

probably via Dave Harrison @ TradeWIth Dave who contributes significantly to our overall understanding of new forms of money as they appear and evolve.

 

Despite the wise injunction not to ‘Listen at doors…’ I nevertheless proceeded to absorb and then respond to the comments I found there.

I am always keen to discuss my analysis since this is the best way I know to develop and deepen my own understanding of the Democratisation Of Money. Furthermore I am always in favour of the most robust kind of discussion on the basis of the premise that it is impossible to edge a knife on a block of butter. If you really want to sharpen your understanding sparks must fly!

 

The whole thread became increasingly unwieldy so I am anable to reproduce it in any kind of coherent order here. Obviously, you can see it all at the address above.

 

I have dealt with the points I think are most illuminating. I have put the points in bulleted quotation marks and my answers in italics.

 

From Janitor

 

  • ‘Duh… Worthless paper has no intrinsic value. That wasn’t too hard!’

 

Money is not paper or gold or anything else, it is a legal instrument recorded on a transferable object. Nothing is money until it is designated as such by the relevant legal authority. The mortgage on you house is written on paper, does that mean it is worthless because the paper is worthless? What nonsense! The value comes from what is printed on the piece of paper, not the paper itself.

  • ‘A real money is always worth something because even copper or iron money can’t ever be cheaper than the material it’s made from.’

 

I’m pretty sure this sentence doesn’t actually make sense; nevertheless refer to Greshams Law:

http://en.wikipedia.org/wiki/Gresham%27s_law

 

  • ‘I don’t know where he got the idea that money produces wealth. Money is wealth which produces nothing. That’s exactly what it’s supposed to do – be a medium of exchange and store of value. Money doesn’t “extract” anything, no clue where that Perry guy got those nonsensical ideas.’
  • ‘I don’t know where he got the idea that money produces wealth.’
  • ‘A currency of course doesn’t produce wealth’,

Capitalist economics claims that money produces wealth. If they do not:

What do Capitalists claim Capital is then?

What do Capitalists Capitalism is then?

What do Capitalists claim mean by ’ investment’?

What do Capitalists mean by ‘return on investment’?

 

  • ‘…it just helps it circulate. It doesn’t extract wealth,’

 

Even in its simplest terms, this statement is plainly self contradictory.

How can wealth ‘circulate’ unless it is extracted from one place so it can be ‘circulated’ to another?

In what form can wealth ‘circulate’ if not in the form of money?

What do you understand by the term ‘accountancy’?

What do you think accounts are for?

 

 

  • Because this post is about the nature of money, I think you should define “money” (it seems you mean “currency” rather than “money”?)

 

noun

noun: currency; plural noun: currencies

a system of money in general use in a particular country.

 

 

What do you imagine the difference is between ‘currency’ and ‘money’? Define this difference. If you know of any valid legal difference in the definition of currency and money please explain it. I used the term money specifically and advisedly.

 

  • Money (such as gold) has inherent value. You can coat airplane windows with it, enhance conductivity of connectors in your iPhone, etc. A currency can be intrinsically worthless, but then you could make it clear which one you are referring to to.(sic)

 

Gold can be used as money, but so can shells, pieces of paper etc. Money is a legal instrument. (see above). Aeroplane windows are irrelevant.

 

  • “It is a license, a legal permit, to extract value from within the society.”

But in a free society there’s no way to limit that. I don’t have to accept your money, I can pick any of several private currencies or forms of money that circulate around.

 

I also can (sic)

 

-(?) For some reason you have been unable to finish this sentence- were you confused? What did you mean to say?

 

Janitor says:’ I don’t have to accept your money’

This is simply wrong: You do have to accept my money in settlement of debt, legally ordered payments, in payment of taxes etc etc . Look up the meaning of ‘legal tender’. The government has mandated this. Your statement is evidence of painful ignorance.

  • “If there were an infinite number of possible profitable ways to utilise money what would the effect be on interest rates? Despite the fact that there would be little or no risk, interest rates would be high.  They’d be high because there’s more demand relative to supply. Money is supposed to be scarce, otherwise it’d be worthless or close to worthless and people would not want to hold on to it (or denominate their labour or products/services in it).

 

This does not in any way refute the point that interest rates are a product of demand, not risk; in fact you simply restate the first part of my point, albeit in a somewhat less elegant way.

 

Then you make the strange generalisation: ‘money is supposed to be scarce’. Based on what theory? Can you provide a definition of scarce? You suggest that people would not want to denominate goods and services in any particular money if it were not scarce. People within a given territory have no choice as to whether they have to hold the currency of that territory. They are required to hold that currency-in order to pay taxes for example, as I explained above. You either repeat what I say, in which case you are sort of on the right track, or else you deviate from my description and go into a ditch…

 

  • “And what would be the effect of an opposite environment of high risk and few profitable ways to utilise money? Then interest rates would be low because there would be little or no demand for money.I’m not sure this dual (high risk + few profitable ways to utilize it) hypothetical setup is valid.

 

Really? Because that is the setup we are in right now!

 

 

  • If risk is high, interest will be high. That’s regardless of how one wants to utilize money. If there are few investing opportunities, interest rates would be low because of a relative lack of demand.

 

You try to characterise ‘risk’ as some invisible abstract force of nature that cannot be located within concrete tangible reality. By conflating risk and interest you hope to glide past their supposed relationship: ‘If risk is high, interest will be high’. is a statement of religious faith dressed up as economics. There is no risk outside of investment opportunitiesor the lack of them. If there is, show me where it is!

 

  • Currently in the world there is too much capacity in most industries worldwide, so consequently although risk is small, there’s no demand for money (actually individual currencies, but since you didn’t make this distinction I’m playing along) simply because building another steel mill is likely to make that debt bad (i.e. you won’t make money from it).

 

‘Currently in the world there is too much capacity in most industries worldwide’ Another meaningless generalisation! Raw material producing industries and finished commodity industries to say nothing of services, cannot be lumped together in this way.

 

From Seneca

 

  • Interesting, but he doesn’t address the effect of inflation and deflation. In a deflationary period the value of money increases, so despite ZIRP/NIRP, which doesn’t increase the nominal value of a particular amount of money, the “real” value still increases over time through deflation. I think that undermines his entire argument? At least, if the deflation fully compensates the decrease in interest rate, then it does.

 

This goes right to the heart of my argument, which I am afraid you haven’t really understood. You cite the beneficial effects of deflation on the value of money as a way of offsetting the non-beneficial effects of ZIRP. You argue that in theory at least, deflation and ZIRP could effectively’ net-out’, meaning that there would be no losers in a system which would be in your terms, self regulating.

 

The first and most obvious problem with this is that it is highly unlikely that the people who are disadvantaged by ZIRP are the people who would be advantaged TO EXACTLY THE SAME EXTENT by deflation. When I put it in these terms I am sure you can see what I mean. In other words, if you are getting no interest on your savings, you are told you must take the money out of the bank and buy a boat with it, why?- because you will save a lot of money! But what happens if you don’t want to buy a boat?

 

From this it should be clear that even if ZIRP/Deflation could by some stretch of the imagination be described as OVERALL neutral, it has to be admitted that it causes massive wealth transfers from individuals within the system. Because it effects different MONEY FUNCTIONS differently.

 

The second problem with your suggestion flows directly from this:

Deflation and Inflation are in no sense ‘real, they are estimations based on aggregated information produced by governments. They are primarily political tools. I am sure you are aware that the methodology for calculating inflation/deflation figures has been regularly amended in every major economy, usually to suit the political requirements of the time. There is no clear, real and genuine way to calculate deflation, so the idea that this misty, indeterminate figure from the future can be used to offset the very real concrete lack of interest from today is a bit of a stretch….

 

The third problem is the main one I was trying to describe and it flows from the above two points I have made. You are describing monetary policy as a totality which is to say, you are concerned with the TOTAL amount of money netted out. But money is not like that. It is not a single contract that comes to maturity and is then paid out. Money is constantly being issued and retired, there is never a time when it is accounted for in totality. The amount of money and the ‘real’ value it represents is a constantly moving target. So there will never be a time when it will be possible to say what the discrete outcome of any action will be. The only way to understand money is as a series of ‘waves’ of contracts and the effect that these contracts have IMMEDIATELY. The effect of the money issued during the credit crunch was to save the lives of the banks. It does not matter what the ‘real’ value of this money was, in terms of the banks or the overall economy, without it the banks would have died. Just like a billionaire would die in the desert without a single bottle of water to keep him alive.

 

Money is not a totality- it is a collection of functions.

 

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