I Watched The Secret Of Oz

[Executive Sadman]

So we've got to swap debt backed currency with printed currency to get out of the mess. As KD seemed to be saying, with a debt money system, we cant have growth and contract the money supply.

What i dont get is how every past example he used of the banks inflating credit to get everyone in debt, then contracting it to force forclosures and buy up stuff for cents in the dollar, if the banks are clobbering us now, why are they allowing the govt to do massive schemes to stop foreclosures, and not buying up housing for cents in the dollar.

Isnt it just the stupidity of politicians, rather than some big bank conspiracy. Surely the banks would be lobbying against ZIRP and the various schemes helping keep people in their homes?

[Dorkins]

As I understand it, he wants the Treasury to start printing money and spending it directly into the economy. I can't see how this would be terribly different from what we have now, where the central bank prints money to buy Treasury debt (which the Treasury then spends into the economy) except with the added step of the Treasury selectively defaulting on the debt it owes the central bank. This might happen pretty soon anyway.

Anyway I don't buy it, he's another 'more money = better' advocate like the nutters in power, just a different flavour. Clipping the coins is not the path to riches, even if it feels that way at first.

[Executive Sadman]

As I understand it, he wants the Treasury to start printing money and spending it directly into the economy. I can't see how this would be terribly different from what we have now, where the central bank prints money to buy Treasury debt (which the Treasury then spends into the economy) except with the added step of the Treasury selectively defaulting on the debt it owes the central bank. This might happen pretty soon anyway.

Anyway I don't buy it, he's another 'more money = better' advocate like the nutters in power, just a different flavour. Clipping the coins is not the path to riches, even if it feels that way at first.

I guess it makes sense in so far as the banks can already create money out of thin air, so the govt may as well do it directly.

I just dont see how it helps our current situation. The money supply needs to keep expanding in double digits just to pay off old debts, which itself seems either inflationary and/or impoverishing and impossible to break with the unsustainable increase in money supply (given that wages are only growing negligibly)

[TheUsualSuspect]

I guess it makes sense in so far as the banks can already create money out of thin air, so the govt may as well do it directly.

I just dont see how it helps our current situation. The money supply needs to keep expanding in double digits just to pay off old debts, which itself seems either inflationary and/or impoverishing and impossible to break with the unsustainable increase in money supply (given that wages are only growing negligibly)

The principle is that at present we allow banks to create money, then pay interest on it.

By directly controlling the money supply, there would be no interest to pay.

There are some holes in the proposal, but the basic idea seems sound to me. Why do we allow banks to create money out of thin air then pay them interest ? It's an unsustainable process for one thing. Every pound created by banks means that (at say 5% interest) needs to be paid off with £1.05. That small increase multiplied up is where the banks are making their profits and there is surely something wrong with the system when the BoE (or the Government) could create the same money with no additional cost.

There's also a problem with things as they are that in creating such debt, more debt must be created just in order to pay off the interest. In the example above, unless 5 pence is created as debt by the banks, then there is no way to repay the interest.

Debt is money in the current system. If everyone paid off their debts, there would be no money if you pursue it to the nth degree.

[Stay Beautiful]

So we've got to swap debt backed currency with printed currency to get out of the mess. As KD seemed to be saying, with a debt money system, we cant have growth and contract the money supply.

What i dont get is how every past example he used of the banks inflating credit to get everyone in debt, then contracting it to force forclosures and buy up stuff for cents in the dollar, if the banks are clobbering us now, why are they allowing the govt to do massive schemes to stop foreclosures, and not buying up housing for cents in the dollar.

Isnt it just the stupidity of politicians, rather than some big bank conspiracy. Surely the banks would be lobbying against ZIRP and the various schemes helping keep people in their homes?

Banks and Govmint hand in hand skipping through the tulips, bless

[200p]

Follow the yellow brick road.

[easy2012]

So we've got to swap debt backed currency with printed currency to get out of the mess. As KD seemed to be saying, with a debt money system, we cant have growth and contract the money supply.

What i dont get is how every past example he used of the banks inflating credit to get everyone in debt, then contracting it to force forclosures and buy up stuff for cents in the dollar, if the banks are clobbering us now, why are they allowing the govt to do massive schemes to stop foreclosures, and not buying up housing for cents in the dollar.

Isnt it just the stupidity of politicians, rather than some big bank conspiracy. Surely the banks would be lobbying against ZIRP and the various schemes helping keep people in their homes?

Think he have a few good points but also being terribly selective and bending the truth on some of the historical event. He said things like the bankers intentionally reduce money supply to create crash etc, and then some banks fail in the process - that doesn't make sense. Also, sounds like he is supportive of those farmers who wanted to use silver as money, and so he is effectively pro inflation. That which was what the tug of war was about - farmer wanted cheap money, banker's wanted money that preserved its purchasing power.

Think the interest payment element sort of constrained how much the government can borrow. Without that anchor, it will be interesting how much the government can print.

You can have growth without quantity growth if the velocity goes up. Also, as long as money supply expansion is more or less inline with expansion of total real value in the economy (which it bound to, as more stuffs are made each year), then I don't see a problem with money supply expansion.

[CHF]

i think the phrase 'banks create money out of thin air' should be banned from this site. Like one of those clever swear word filters that swaps it for another word.

[uncle rogi]

i think the phrase 'banks create money out of thin air' should be banned from this site. Like one of those clever swear word filters that swaps it for another word.

[1929crash]

As I understand it, he wants the Treasury to start printing money and spending it directly into the economy. I can't see how this would be terribly different from what we have now, where the central bank prints money to buy Treasury debt (which the Treasury then spends into the economy) except with the added step of the Treasury selectively defaulting on the debt it owes the central bank. This might happen pretty soon anyway.

Anyway I don't buy it, he's another 'more money = better' advocate like the nutters in power, just a different flavour. Clipping the coins is not the path to riches, even if it feels that way at first.

For a start, you wouldn't have to pay interest to the banks for spending money on public services.

That would reduce their power to influence policy.

He's not advocating reckless inflation of the money supply, but nor is he advocating reckless contraction of the money supply. In any event, with fractional based banking creating and destroying money out of anto thin air, the supply of purchasing power becomes beyond the ability of the state and of political power to control.

[1929crash]

i think the phrase 'banks create money out of thin air' should be banned from this site. Like one of those clever swear word filters that swaps it for another word.

Why? Because it's an unpleasant truth?

[CHF]

Why? Because it's an unpleasant truth?

No, because its a simplistic falsehood that gets people looking in the wrong direction at the wrong issues.

[CHF]

How jolly clever of you. Have a biscuit.

[Dave Spart]

As I understand it, he wants the Treasury to start printing money and spending it directly into the economy. I can't see how this would be terribly different from what we have now, where the central bank prints money to buy Treasury debt (which the Treasury then spends into the economy) except with the added step of the Treasury selectively defaulting on the debt it owes the central bank. This might happen pretty soon anyway.

Anyway I don't buy it, he's another 'more money = better' advocate like the nutters in power, just a different flavour. Clipping the coins is not the path to riches, even if it feels that way at first.

Have you actually watched the movie?

[Bloo Loo]

All very well in theory.

course, the other problem is we live in a democracy.

I can hear the conversation now.

Doctors: You know Dave, we feel we are worth a few quid more in our pay packet.

Dave:..Thanks Doctors, for calling me Dave...No problem...Ill issue it tommorrow...now you will promise to spend it..wont you...we dont want you just making yourselves richer.

[1929crash]

All very well in theory.

course, the other problem is we live in a democracy.

I can hear the conversation now.

Doctors: You know Dave, we feel we are worth a few quid more in our pay packet.

Dave:..Thanks Doctors, for calling me Dave...No problem...Ill issue it tommorrow...now you will promise to spend it..wont you...we dont want you just making yourselves richer.

How does this scenario differ from the current situation?

[Dorkins]

Have you actually watched the movie?

Yes thanks. I'll admit he's not a standard Keynesian, but I don't believe his thesis that we have the wrong type of money and not enough money in general. We have far too much money, or at least too much credit. Printing is not the answer to that, deflation and defaults are.

Edited September 23, 2010 by Dorkins

[Dorkins]

For a start, you wouldn't have to pay interest to the banks for spending money on public services.

A government that only spent the taxes it raised wouldn't need to pay interest to spend money on public services. HM Government lives in its overdraft by choice.

[Bloo Loo]

How does this scenario differ from the current situation?

plenty...the cost to borrow the extra to pay the doctors will need to be added to the bill.

If government just issued money...well...it costs nothing...no discipline required....hyperinflation every year.

[1929crash]

plenty...the cost to borrow the extra to pay the doctors will need to be added to the bill.

If government just issued money...well...it costs nothing...no discipline required....hyperinflation every year.

It just issues money now, but the cost of the bankstas has to be added on.

[Bloo Loo]

It just issues money now, but the cost of the bankstas has to be added on.

no, someone has to BUY the debt to supply the money.

In a free issue system, there isnt even the incentive to put effort into selling it....thye just print it.

In my view, money has to represent something...ie, it is a monetising of a thing...Gold is a good base because of its physical properties and rarity.

Currently, it is a monetising of human labour....and nothing is more degradable than that.

[Executive Sadman]

Yes thanks. I'll admit he's not a standard Keynesian, but I don't believe his thesis that we have the wrong type of money and not enough money in general. We have far too much money, or at least too much credit. Printing is not the answer to that, deflation and defaults are.

I watched it at an ungodly hour, so maybe fell asleep a little toward the end, but he seemed to go over the same points again and again, maybe he raised these points maybe he didnt or maybe the audience is left to assume and fill in the gaps

1. QE/Printing should be temporary and used only in parts of the economic cycle to 'tide the economy over' ie on projects that will save money later on (ie roads, power stations), the complete opposite is happening today, banks using it to re-inflate stock and house prices, government using it to pay welfare bills and keep people out of work or in non-jobs, not to create temporary jobs until the economy recovers.

2. IIRC KD suggested banks/savings and loans (building socs) would still exist, only the fractional reserve system would be gone - every pound loaned would need another in reserve. Private borrowing defaults would still be punishable by repossessions and so forth to avoid moral hazard.

3. Conventional taxes and interest rates and inflation targeting will still be used to ensure a stable currency backdrop.

Obviously given our politicians were so kneejerk gung-ho about no strings attached QE, putting this power in their hands doesnt seem like much of an improvement of it being in the banks hands.

That said I like the theory, just have reservations about the practice.

[TheUsualSuspect]

no, someone has to BUY the debt to supply the money.

In a free issue system, there isnt even the incentive to put effort into selling it....thye just print it.

In my view, money has to represent something...ie, it is a monetising of a thing...Gold is a good base because of its physical properties and rarity.

Currently, it is a monetising of human labour....and nothing is more degradable than that.

I'm still to be convinced by the MMT theory, but your point that 'someone has to buy the debt to supply the money' is partly why the theory exists. It is not necessary, from a logical standpoint, for a country to rely on an external agency to create that country's money supply. I think you mentioned in an earlier post that it would lead to a licence to print money, but that is the very thing that the proposal suggests is happening now... why pay the interest on it is the question ?

I did mention though that there were some holes in the proposal and I think that the limits on how much money can be created is one of them. At present we rely on a brake mechanism that is supposedly dependent upon risk assessment. I would suggest that certainly over the last 30 years there is no such thing, as the dysfunctional Risk Assessors have proven time and again that they have no ability in this area. I have no particular need to sell this idea, but until some limit is proposed, then yes, there is the potential for abuse, but we already live in such a system.

As to your point about money representing something. This, according to (ahem) Marxist theory is the reason that there is such corruption in the current setup. Money is not a commodity. It represents nothing other than trust. Thus money, to use your comment is not monetising anything. I don't quite understand your comment about Gold as it seems tangential and not really relevant to the issue being discussed. As a basic principle though, the 'Western' world is increasingly obsessive about accumulation of money, failing to understand it has no value and is not real wealth. It can evaporate in an instant.

Money has no inherent 'value' other than the trust placed upon it and that is why I find your last comment strange. It seems a clumsy attempt to describe Marxist principles, but using a strange defensive language. Labour cannot be monetised, it has real value. It IS money only if one believes in money as a store of value, which it does not inherently possess.

Apologies if I'm making a clunky attempt to describe this. I never quite know on this site whether people are genuinely debating or just throwing around slack comments, so I've merely attempted to give my position in a very simplistic way.

[TheUsualSuspect]

i think the phrase 'banks create money out of thin air' should be banned from this site. Like one of those clever swear word filters that swaps it for another word.

If the phrase "banks create wealth" is also banned then I would be happy to concur.

[Georgia O'Keeffe]

i remember this from my youth, i really liked tick tock