To Richard Daughty –
Dear Mogambo Guru, I was recently informed that someone had said rude things about me on the Internet, so I Googled myself, and it was you!
http://news.goldseek.com/RichardDaughty/1184943780.php
Well, I should be crushed, because you’re one of my favorite commentators, and I even quoted you at length in my book. But in truth, being one of your fans, and fans being notorious for going to great lengths to get attention, I’m actually excited to have caught yours. So I’m going to overlook the fact that you called me an insufferable lowlife halfwit lawyer moron and ignorant twit, and assume that this was just your vulnerable side feeling threatened. Or, as somebody said in another blog I found that mentioned us both, you’re stuck at the stage of “appalled outrage.” That blog is called “They Laughed at Noah” (I love this title!), and is here:
http://theylaughedatnoah.blogspot.com/2007_07_01_archive.html
Another blog I came across spent 12 pages discussing my book and its ramifications. It is here:
http://www.wakeupfromyourslumber.com/node/3408
The author says, “Ellen Hodgson Brown, a brilliant [I highlight "brilliant"] attorney in Los Angeles, has written a book titled Web of Debt, which dissects and exposes the entire game. . . . Miracles are possible if we just take back control of our money and follow the U.S. Constitution.” I also found while Googling that Mogambu Guru came up 38,000 times, and Ellen Hodgson Brown came up 526,000 times. As you would say, “ha ha ha!” But that’s rude, so I’ll just quote the blog called “They Laughed at Noah,” which directly addresses your critique of my article. After succinctly summarizing some points made in my article, the author writes:
“This is so simple, but so hard to believe. It’s like standing up from a game of Monopoly to find that you’ve been playing for real. And when you read others who explain the money system in these terms, you get the same emotional sequence:
“* amused, complacent toleration
“* a growing sense of unease
“* dawning, half-incredulous understanding
“*appalled outrage
“So it is with one of the latest of these explainers, Ellen Hodgson Brown. But there is a world of difference between diagnosis and prescription. Here is hers, and halfway into here is a riposte from Richard Daughty, aka The Mogambo Guru. Please note that Daughty is not contradicting the diagnosis, only the proposed solution. He is permanently at stage (4) in the above sequence.
“Now, what do we do about it? Daughty’s usual response ‘We’re freakin’ doomed!’ reflects his pessimism about attempts to save the system as a whole . . . .” Posted by SACKERSON
So what do we do about it? I probably got over-ambitious trying to make a case for overhauling the whole monetary scheme in a short article, something that took me 500 pages in a book, so I’ll try to clarify a few points here. Pardon the length, but you see the problem: it takes some verbiage to break through centuries of conditioning the other way.
My two favorite reference books on monetary reform are Ed Griffin’s Creature from Jekyll Island and Stephen Zarlenga’s The Lost Science of Money. Both are gold mines of information, but they come to diametrically opposed conclusions. Griffin is a Goldbug who thinks we should return to gold as a medium of exchange, while Zarlenga is a Greenbacker who thinks we should take the power to create money away from the banks and return it to the government. Despite this fundamental difference, both authorities conclude that the only solution to the federal debt crisis is for the government to issue fiat money, buy back its own bonds, and void them out; and this is what I was proposing in my article. I imagine you fall into the Goldbug camp; and while I agree with Zarlenga on the ultimate solution, I myself am a heavy investor in gold and gold stocks, as well as a paid subscriber to two investor services promoted in The Daily Reckoning, so we’re probably not that far apart. What you mainly take issue with is my suggestion that it would actually be less inflationary for the government to buy back its bonds and void them out than to continue with the system we have now, so let me try to clarify that point.
Under the current system, the privately owned Federal Reserve and private commercial banks buy the government’s bonds that are not sold at auction, using money created out of thin air with accounting entries. Then they use these government bonds as the “reserves” for creating many times their face value in new debt-money issued by the banks as loans, and the government still owes principal and interest on the bonds. So you would have to agree, I think, that it would be less inflationary for Congress (as distinguished from the private Federal Reserve) to buy back the bonds with money created out of thin air, since Congress could void out the bonds and get them out of the system altogether. It would be less inflationary because the bonds would not still be floating around forming the basis of mountains of new debt-money issued as loans. I went so far as to suggest that “monetizing” the bonds by turning them into interest-free U.S. Notes would not be inflationary at all, since neither the bondholders nor the government would have any more money than they had before. You took exception to my notion that government securities are already part of the money supply and that replacing them with government-issued fiat dollars would therefore not lead to price inflation, since the overall money supply would remain the same; so I’ll try to clarify that point here.
There are many different definitions of the money supply. Everyone agrees that physical cash – coins and paper currency – belong in it; this is called M0. Beyond that, M1, M2, M3 and L (“broad liquidity”) add increasing levels of assets traded “as if” they were money. Money is variously defined as “a medium that can be exchanged for goods and services,” and “assets and property considered in terms of monetary value; wealth.” In the broadest sense, then, money might be said to be anything having a definite present market value, which can readily be “liquified” or turned into cash. In a November 2005 article on FinancialSense.com titled “M3 Measure of Money Discontinued by the Fed,” Bud Conrad observed:
“As financial markets have changed, the classical measures of the money supply have become less relevant. . . . With less regulation of the banking system and more substitutes for simple cash, it’s no longer clear what to include in ‘money.’ Money used to mean the cash people carried in their pockets and the checking and savings account balances they had in their banks, because that is what they would use to buy goods. But now they have money market funds, which function almost as checking accounts. And behind many small-balance checking accounts are large lines of credit. And with credit cards acceptable for almost everything, it is possible to get by with little cash at all. Today if you buy a house, most of the money probably comes from a mortgage that will be fed into a complex pool of securitization (mortgage backed securities) managed by Fannie or Freddie Mac. The money might not come from the traditional banking system. And if you get a floating-rate loan, your mortgage may end up in the portfolio of an institution that issues commercial paper, which in turn could be purchased by a money market fund whose shares look a great deal like… money. The point is that credit is what we use to buy things so credit is a form of money. The broadest definition of credit is all debt.”
Indeed, except for coins, which compose only about one one-thousandth of M3, our entire money supply now comes into existence as a debt to the private banking system (including the private Federal Reserve). According to Murray Rothbard, virtually all money currently in circulation has come from “monetized” government debt.1 Government securities are traded around the world just as if they were money. A few decades ago, Congressman Wright Patman asked officials at a Federal Reserve Bank to show him their “reserves” and was shown nothing but government bonds.2 U.S. Treasuries make up a third of Mainland China’s official foreign exchange reserves and more than two-thirds of Japan’s. Foreign central banks keep their reserves either as cash or as government securities. They treat the securities as a form of cash that pays interest.
Individual savers look at their holdings of government securities in the same way. That was the point of my hypothetical that you objected to, involving a brokerage account containing stocks, bonds and cash. In my own account at Scottrade, I have stocks, mutual funds and cash, with the amount of cash going up or down depending on whether I’ve bought or sold something that day; but I always look at the bottom line to see how much “money” I have, and Scottrade does too, reporting the bottom line as the “total account value,” whether it’s in stocks, funds or cash. The point of my hypothetical was that if I had money in government bonds, and the government replaced them with cash, I would not feel I had any more money than I had before, prompting me to go shopping, driving prices up. To me it would all just be my “savings,” in various forms that paid interest or dividends or capital gains, or not. The government, too, would not be any richer than before. The cash it got when it sold the bonds at auction would already have been spent, and it wouldn’t get any more spending money just because it changed the character of its debt from securities (I.O.U.s or promises to pay later) to U.S. Notes (legal tender or payment now). It’s not like the government ever actually intended to keep its promise to pay the debt later. The government never pays off the principal portion of its debt. It just pays the interest and rolls the debt over from year to year. That’s why Dick Cheney could say “Reagan said deficits don’t matter.” The only practical effect of converting U.S. bonds to U.S. Notes is that the government would no longer have to pay interest on these instruments-representing-financial-value. Quoting from my own book on this point:
“The federal debt hasn’t actually been paid off since the presidency of Andrew Jackson nearly two centuries ago. In all but five fiscal years since 1961 (1969 and 1998 through 2001), in fact, the government exceeded its projected budget, adding to the national debt. The federal debt not only hasn’t been paid off but it can’t be paid off, because if it were, the money supply would self-destruct. The federal debt has been the basis of the U.S. money supply ever since the Civil War, when the National Banking Act authorized private banks to issue their own banknotes backed by government bonds deposited with the U.S. Treasury. . . . Economist John Kenneth Galbraith wrote:
“In numerous years following the [civil] war, the Federal Government ran a heavy surplus. [But] it could not pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.”
“In hearings before the House Committee on Banking and Currency in 1941, Wright Patman asked Marriner Eccles, then Governor of the Federal Reserve Board, how the Federal Reserve got the money to buy government bonds.
“We created it,” Eccles replied.
“Out of what?”
“Out of the right to issue credit money.”
“And there is nothing behind it, is there, except our government’s credit?”
“That is what our money system is,” Eccles replied. “If there were no debts in our money system, there wouldn’t be any money.”
“Commercial bank loans alone cannot sustain the money supply because they are self-liquidating: when they are repaid, the debts are extinguished and the money they created goes out of existence. Only the federal government is in a position to continually roll over its debt, refinancing it from year to year, paying the interest but never paying off the principal. In 2005, when M3 reached $9.7 trillion, the federal debt had hit $8 trillion. It is hardly an exaggeration to say that the money supply is the federal debt and can’t exist without it.”
What I was arguing for in my article, then, was for Congress to replace the federal debt (the government’s I.O.U.s or bonds) with “real” money that was not interest-bearing and could form the basis of a stable money supply, one that would not need to be inflated every year to cover the interest on the debt. As Thomas Edison said:
“If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.”
There is more to be said, but it’s 3 am and I’m tired, so may I send you a book instead? I really did enjoy your writing, right up until now!
Best wishes, Ellen Brown
There are some subtleties here that I’m not sure Daughty, you, or I fully understand — or have articulated.
Best I can tell, Daughty is making a distinction between cash/base money and debt/credit money, and you are not.
This makes both of you wrong, and both of you right; depending on “what for”.
From the data I’ve seen, consumer price inflation (for real, not just the government CPI lies) very closely tracks base money (M1) in specific.
Financial asset prices, on the other hand, seem to track the higher Ms… and we probably don’t have Ms high enough to track the influence of all the forms of credit out there (i.e. “derivatives” in the abstract).
Interestingly, as you point out, bonds are effectively “money” in this sense, as they are legal collateral, and more importantly, brokerage collateral.
So if the “who” in question is banks and brokerages, indeed, to them, bonds are money.
But if “who” is regular folks, the monetary base is money, and only that which effects this base will effect “inflation” in the consumer price sense.
Of course, that whole nice neat analysis is torpedoed by observing that consumer prices can be heavily influenced by import prices, which are in turn heavily influenced by exchange value of the currency, which is in turn influenced by interest rate (which is in turn semi-influenced by money/credit quantity and global perceptions thereof).
Thus we find ourselves in a situation with monetary base shrinking, credit money collapsing, yet the dollar’s exchange value falling, interest rates falling, import prices rising, and consumer price inflation rising!
Response to A. Krowne,
You wrote “From the data I’ve seen, consumer price inflation (for real, not just the government CPI lies) very closely tracks base money (M1) in specific.”
Please look at the chart here: http://www.shadowstats.com/alternate_data
M1 has been going _negative_ since mid 2006, perhaps you meant M2 which is closer in reality to your statement
As to Ellen Brown,
If memory serves the money the US Treasury is using to pay the goverments bills comes from the Fed, which involved the Congress creating the Bills/Bonds/etc that were handed to the Fed as collateral so that the Fed would loan the US Treasury the money. The “first” thing in the cycle that was “created out of thin air” was the Bonds/Bills/etc, then came the Federal Reserve notes. So, if Congress wanted to buy back the Bonds they would have to create Bonds to get the money to buy the Bonds, a circular argument. Unless the money is created “outside” of the US Treasury/Federal Reserve loop it would be a pointless excercise. Also, unless you think you can influence the Congress to create money outside of the Fed then this is just some meaningless mental “what if” scenerio. I think you would be better off trying to influence a President to do something via Executive Order, but as Nixon said “nobody every lost an election by inflating the money supply”.
The only way they will lose is if they don’t do a good job at creating jobs with the expansion of that money supply
The solutions to our problems are simple. Either open the Mint to gold and silver or replace fractional reserve banking with government issued debt free fiat currency (issued directly from the Treasury – not via the Fed).
You cannot issue fiat to replace bonds without making fractional reserve banking illegal and greatly constraining the financial system. You must do both at the same time – or hyperinflation would ensue.
My simple question: How do you get the banks back into line? That monster will not go down without a fight. A very big fight. A very very big fight. A fight uglier and nastier than you can imagine. How likely is it that we can get the banks back to full (or close to full) reserves? How likely?? And how do you do it? You know what happened to Germany in the inter-war years. You know what happened to Lincoln. You know what happened to Kennedy.
If you allowed the issuance of fiat to replace bonds in the current financial environment you would end up with hyperinflation and chaos. Why would I keep paper dollars if I know they are going to be depreciated Weimar Republic-style?
Your solution is viable if you have a way of getting the banks to accept sane banking practices (full reserving banking). How do you address that issue?
Thanks Karma – funny you should ask! I’m just now finishing up an article on that very subject, titled “Putting the Genie Back in the Bottle: How We Can Take Back the Banks.” To be posted shortly (never as shortly as I think, but soon).
Look forward to it.
By the way, I heard your radio interviews on-line. You sound sweet, but tired. Why you ever took up this fight is beyond me.
I recommend you keep quiet for a few years, and rest. Buy a farm. No one can engage in war continuously, even if the fight is a just one.
There are others who can fight for you.
Let me know if you need an ally. I got this!
Ha! Funny you should ask. I AM tired. The irony is, I dread public speaking. I’ve worked all my life to get up to where I have to do the thing I most dread. I like writing though, and the hot topic of the day is what’s wrong with the economy. As Morpheus told Neo –
The Matrix
MORPHEUS: Let me tell you why you are here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life. There’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad. It is this feeling that brought you to me. Do you know what I’m talking about?
NEO: The Matrix?
MORPHEUS: Do you want to know what it is?
Neo nods.
MORPHEUS: The Matrix is everywhere. It is all around us, even now in this very room. You can see it when you look out your window, or when you turn on your television. You can feel it when you go to work, when you go to church, when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.
NEO: What truth?
MORPHEUS: That you are a slave, Neo. Like everyone else, you were born into bondage, born into a prison that you cannot smell or taste or touch. A prison for your mind.
Ellen this is in reply to your entry of June 20th, 2008.
You mentioned The Matrix is it because you are aware of the information in the link below?
http://www.rumormillnews.com/cgi-bin/forum.cgi?noframes;read=153287
When you are nothing, you become everything.
Let go.
I prefer: “There is no spoon”.
Mmm, let go of what exactly? Here’s my personal situation: I’m divorced and the caregiver for my mother, a karma I haven’t figured out how to escape. Where I do escape is into my computer, where I tackle the problem of the world economy. My other option, which I ponder fondly but for my mother, is an organic farming community in Ecuador. I’d like to let go of the radio interviews, and maybe I will, but in the meantime I committed to do a 2-hour presentation in July that will wind up on youtube, so I’m busily developing a power point for it. I’m also just finishing an article titled “Putting the Genie Back in the Bottle: How We Can Take Back the Banks.” I do actually have a plan . . .
Speaking of being overworked, I never addressed the entries from Aaron and Jeff above. Good ones too! Sorry. Ed Griffin and Stephen Zarlenga, the leaders of the “goldbugs” and the “greenbackers” in monetary reform, both state that the only way to deal with the federal debt is to pay it off with accounting-entry dollars. It’s not a hypothetical; the government will soon be facing bankruptcy because we can’t afford even the interest on our debts. We have to do something. So what would happen if we paid off our bonds with accounting-entry dollars? The Chinese only bought the bonds in the first place because they didn’t know what to do with the dollars sloshing around in their economy. They could have turned the bonds back into dollars at any time and spent them, but they didn’t because there was nothing to spend them on. There still won’t be, as far as I can see. They can buy a chunk of some big banks desperate for funding, but that’s liable to happen anyway. I really don’t see what the difference is whether they’re holding our dollars as bonds or as dollar bills; they can spend them either way if they want. The only difference is that we don’t have to pay interest on the dollar bills.
I am trying (and might fail) to update myself on this conversation after a half-year hiatus, but here goes.
I take it the implicit question underlying the discussion is “what would happen if the debt problem was taken care of by monetizing it” (either by greenbacks or gold), to bring an end to the current monetary regime or at least just “reset it.”
In specific, would this be inflationary or deflationary? Mogambo and Brown may or may not come down on opposite sites of this question, depending on how it is phrased and interpreted, but I will assume they do (respectively).
My answer is “it would be both”. I would expect broad-based credit markets deflation, along with base money supply expansion (by definition) and consumer price inflation. Interestingly, the only difference between that projection and what is going now is that we are having slighty money supply (M1) *contraction*. But credit markets are deflating, and consumer prices are soaring, already.
That is because the failure of the system has already begun in an /endogenous/ manner. The only actor failing to play their part is the Fed, which still refuses to “print” in the conventional sense. They are like a screaming toddler in an amusement park, refusing to leave and getting dragged out by their parents. But they will have to leave this fantasy-land eventually, with natural forces playing the role of the parents.
The CPI inflation we are seeing now stems from “spill out” from the credit markets, where credit dollars had been “sterilized” for decades. That sterilization was only ever temporary because there was dramatically insufficient real growth associated with it. The spill out can also be thought of as a “run on structured finance”, a “run on the banking system”, a “flight to safety”, and a “crack up boom”. They are just different ways of referring to the current incarnation of an ancient phenomenon.
This is why we can have so much CPI inflation without M1 expansion. Dollars that previously were not available to bid up commodities are now doing so, and higher M-dollars are being put to speculative uses. In partial response to Jeff, no, I don’t think M1 is an accurate reading on true consumer price inflation for a 2-year timescale, but look at the long run (decades) and you will see that it is.
I expect it won’t be long until M1 reverses again, soars, and its correlation to consumer prices becomes strongly positive.
Dollars will be printed, overseas dollars will come home to roost, and former-structured finance dollars will continue to flow into commodities and precious metals. It is inevitable. The upshot is that while the credit-money supply will contract, the “base” money supply will expand and consumer price inflation will soar, probably faster even than that.
I agree. Some very carefully concocted combination of policies could get us from here to there:
Open the Mint to the paranoid libertarians (allow their “canary in the mine” paranoia to control govt spending and the inherently corrupt banks), restrict frb, issue debt-free fiat to finance sustainable technology and farming…and hope to God we get the combo right. Moving each lever at the right time in the right sequence will be everything.
Or we die trying.
Ohhh…and one more thing. My koan obviously didn’t work on you.
Well, my point was that it sounds as though you’re going to have to let go of something, because you’ve got a lot of balls swinging in the air. The fewer balls, the better.
I let go of a social network, debt, high-pressured legal work, striving for an academic position and am basically living frugally but happily in hiding from the world. I’ll come out once the starvation, and civil and economic chaos ends.
I therefore don’t predict coming out of my shell in my lifetime.
An interesting facet of the debt money fractional reserve system is that it must continually expand. If it quits expanding it dies. Thus the quest for world dominion. Another interesting aspect is that it works in reverse faster than in forward, much faster in fact. In reverse the money supply disappears, thus bringing on depression…..
Ellen, you are doing yeoman work on letting the country know about the beast on our backs. Many Many Thanks ! !
Thanks! Yes, I was just going to write about the dollar “collapsing.” How can money collapse? It’s just a means of exchange, an accounting tool for trade. Our currency can collapse because it isn’t really money; it’s debt. Or as Sir Josiah Stamp said, it’s sleight of hand, conceived in inequity and born in sin. Time for new rules! Ellen
New rules ? How about the law of weights & measures ?
There’s nothing new under the sun.
Why do the goldbugs today not espouse the bimetallic (gold+silver) standard like which existed prior to the “cime of ‘73″ (1873)? Or is it as fraught with peril as a gold-only standard as it’s as controlled by the bankers as much as gold is?
To Jeff: Please read her book. You can download it for $10. If government exercised its seignorage priviledge, it can create fiat money itself, and pay off the debt to the Fed. Very apt, as the Fed created it out of nothing anyway. Then we wouldn’t have to be paying interest on it via our income taxes.
Hi Jack, actually Ed Griffin recommends the old silver standard for valuing the dollar in his book “Creature from Jekyll Island.” The problem is, silver and gold don’t always move in tandem, so it’s hard to have a gold standard valued in silver. Thanks for the kind words!
An Alternative to Capitalism?
The following link, takes you to a “utopian” article, entitled “Home of the Brave?” which I wrote and appeared in the American Daily which is published in Phoenix, Arizona on March 14, 2006.
http://www.americandaily.com/article/12389
John Steinsvold
Ellen,
Thank you for lighting up the match, this could be the start of highly needed revolution in the monetary system.
Just a polite reminder: You were going to finish a new article, providing a roadmap showing us how we get from “here” to “there” (“Putting the Genie Back in the Bottle: How We Can Take Back the Banks” ).
I haven’t see it yet.
The financial world is imploding and before civilization breaks down and the internet is closed off, you may want to post it on your website.
Time is running out.
I know. I was in South America at a book fair (looking for a Spanish publisher — I need a small Latin country to try my plan!), then in Michigan speaking at a peak oil conference, and now am trying to do another revision. There’s a printing flaw in the third edition and I can’t get Lightning Source to stop printing them, so I have to do a fourth edition and hope the third gets superseded. That’s about done now though and I was just lying in bed thinking of a clever way to start this article. . . . Maybe I can rework that title. The one I was thinking of is,
“Brother, Can You Spare a Quadrillion? Why the Bailout Failed and What Will Work.” Ellen
Instead of trying to rein in the banks, why not do away with those parasites? Adam Smith pointed out that the textile industries of Manchester and Birmingham flourished for 100 years before a bank opened in either city. Credit was of a do it yourself kind known as the real bills doctrine.
If you are stuck on a topic, then you probably aren’t being radical enough.
The US Treasury could print up all the money to retire the bonds. Then, when people needed a 5% simple interest loan to buy a house, they’d just apply to the government. Banks would be anachronisms.
Warren ….. you would still have a currency created by an elite. The structue would still be hierarchical …. but with a new head.
Put perfect people into an imperfect system and guess what you get ? An imperfect system.
You cannot pour new wine into old wineskins.
I quite agree; my solution exactly. In fact I’m now thinking the states could do it, since Congress doesn’t seem to be coming around. The states could buy their own banks and issue credit created with accounting entries just as private banks do; but the interest would go back to the state, and they could make very low interest or even zero interest loans for state and local projects. I’m not actually stuck on a topic; I’ve got dozens of them. I’m stuck on administrative problems. But I see light! Coming soon . . .
Ellen …. if you want to decentralize power, great. Why stop at the states ? Bring the power right down to the individual.
And why are you defending yourself against a gold-bug? Especially against a particularly nasty one like this guy. I had such high regard for you until you admitted that this guy is one of your favorite commentators. Just kidding. I still respect you. But he is ridiculous. I will probably be raked up one side and down the other by him for just saying that. But it nauseates me to see such a fine researcher and intellectual such as yourself attempt to parley in those sort of circles.
Ellen, I didn’t read your article and I am only going by the quotes in the mighty mogaboboo’s article but I think I can help.
Starting with his words:
“Perhaps it was the way my eyes were bugging out in stunned disbelief at what I was hearing, but for some reason she attempts to explain it by saying, “Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. The dollars would just replace the bonds, leaving the total unchanged. At that, I was sure that she was kidding me!”
Right here it is obvious that the mobuto king doesn’t understand what you are presenting to him. What he can’t perceive is the liquid nature of US. Treasuries nor the monetary concept of velocity versus quantity. For example, you can own a $100 bond. I could own a $100 dollar bill. Now I could buy a $100 dollar jacket or your $100 dollar bond and you could buy a $100 dollar jacket. Lets say I buy your bond and you buy the jacket. (Two Transactions) Now the merchant who sold you the jacket can buy my bond for $100 dollars (One Transaction) and now I can buy a jacket for $100 dollars from the merchant (One Transaction) leaving the merchant with the $100 bond and $100 dollar bill. Shouldn’t the merchant have $200 dollars? He sold two jackets. Didn’t he? (copyright) Besides that fact we have four transactions. That is important later.
Could this be achieved with any other commodity than US. Treasuries? It is debatable. However, I would strongly argue in the negative. Here is why. Treasuries are instantly liquid and thus instantly convertible to cash. Now, one person might make money on a sale of bonds for cash and the other lose. However, taking out costs, there is not an aggregate net change. Your gold-bug mosquito wrangler can’t see this because he has bug-eyes for shiny metal that he can physically hold a quantity of. Thus he entirely loses site of the deeper nature of money. He will never see it.
“She even starts to admit it when she says, “When the Federal Reserve and commercial banks buy government bonds with money created out of thin air, they don’t void out the bonds. Two sets of securities – the bonds and the cash – are created where before there was only one.” Exactly!
But as I pointed out in my full metal–JACKET scenario the bond was as good as cash. In your quote you point out, why when we create the cash do we have to create or keep the bond? If we had just created the $100 dollar bill without the $100 bond — at any stage of the process — then the demand for jackets would have been cut in half to some other product as the merchant would have had to purchase a good after selling his first jacket instead of a bond thus giving purchasing power back to me who demanded a second jacket causing jacket inflation!!!!
“But then Ms. Brown mysteriously says, “This inflationary duplication could be avoided by allowing the government to redeem the bonds itself and then removing them from the money supply.” Huh? Inflationary duplication?”
Here is where the number of total transactions (velocity) come into play. Lets start at the beginning. You have the bond and I have the cash. Now, as you said prior, if the government created another $100 bill and bought up the $100 bond and destroyed the bond (One Transaction), then you and I would both have $100 dollars. Now we go to the merchant and we both buy jackets (Two Transactions). The exact same outcome occurs. Two jackets were bought and the merchant has $200 dollars of liquid purchasing power, but we did it in three transactions instead of four.
In this situation if the government created another $100 dollar bill while destroying a $100 dollar bond we avoid what you coined as “inflationary duplication” because we did not create another $100 bond. If we had we would have $200 dollars cash and $200 in bonds. How many jackets would that buy from the merchant?
The manilly vanilly mc I think missed these finer points. It is not always about quantity. It is about the seamless transition velocity. Would anybody dare argue that fast moving money doesn’t cause inflation? Isn’t that what we call a hot economy?
It is this nature of velocity that provides the rationale for categorizing US. Treasuries as a money measure if even at the end of the tail.
In conclusion I have proven that buying and destroying bonds with new cash would not affect the overall purchasing power of society or the number of potential transactions. And if you dare argue that the merchant has nobody to sell his $100 dollar bond to all I would say is he spends his $100 bill first. You figure out the rest!
Now we could have made this all much easier for everyone if the government had NEVER created the first $100 bond and only a $100 bill. If that were the case we would only have a $100 bill in the economy and theoretically less inflation under mac attack’s rules of quantity of money. Ellen AT WORST is suggesting we correct an already certain inflation as we will for certain have to create more bonds and cash to cover the old bond’s principal and interest due through the most rational proposition….we do what should have been done from the START!!! Ellen is neither wrong or in any danger of stimulating any more inflation than what is already coming.
If there is any error in this please give a heads up and somebody can fix it or something.
Well spoken and true, Gregory.
Check these 2 sites out ;
http://www.uncommonwisdomdaily.com/critical-update-3-6949
http://weiss.streamlogics.com/Oct1-2pm/
The trends are not logically going in a direction thats totally demand driven , but rather Trust in solvency over Intrinsic value of any one certain currency , and if you consider how China is evolving with their holdings worldwide , the dollar has become a paper with no intrinsic value any longer in terms of trust in what backs its considered worth .
Read this news article to grasp the situation ;
http://www.marketwatch.com/story/rare-earths-are-vital-and-china-owns-them-all-2009-09-24?link=kiosk
Ellen when you wrote your response on June 20th, 2008 it is because you are aware of the information found in the link below?
http://www.rumormillnews.com/cgi-bin/forum.cgi?noframes;read=153287
Elisa, Welcome to the forum. I can’t speak for Ellen, but after a quick scan of this article I confess I’m impressed. It’s contains much “behind the curtain” information. Very much.
I recommend the read, for those who don’t already know this stuff. I personally found very little that was new to me, but nothing that I would disagree with. It does what it claims: explains “the Matrix” and the overlords who run it.
Cheers,
Jere, Thank you for your reply . i agree with you in the importance of all of us to realize that there are dark forces “behind the curtain”, orchestrating the fall of the world’s economy with the purpose of consolidating power in a few hands. The Matrix., euphemistically called The New World Order.
Remember that the Matrix empire’s days were numbered. Re-watch all three, especially Matrix Revolutions.
The Matrix touches on the spiritual realm. There is Good and Evil. The Good has provided all of the tools for victory, if we are willing to utilize them.
It depends on what you mean by money from nothing. Virtually all money today is merely a legal agreement. All money comes from nothing except pennies, nickels, dimes and quarters. Legal agreements work. Consider a community currency system: the members “create” money when they pay for another member’s work with credits of some sort. The money is extinguished when the “debt” is paid off by work in return. That is a perfectly good and valid system. Even if you call gold “money,” it is only money because you have mutually agreed on it. You could agree that pretty rocks would be money, or tobacco leaves, or printed parchment paper. It’s the agreement that makes it money.