Banks: Medieval slavery

[schola]

I read a lot. It's helpful to get at issues such as this one from all perspectives. There's been a lot of good material posted in this thread already, but here's another piece that I think explains very clearly the current collapse and how banking and the nature of money caused it. It's not perfect but it's pretty good.


Economics 101: Without the ♥♥♥♥♥♥♥♥ - Liberty Forest

He's not lying when he says this is 101-type material. This is basic stuff here. Read it once. If it makes your head spin, go outside, get some fresh air, and come back in and read it again.

I don't mean to sound rude or anything, but I've noticed a lot of people in this forum like to debate issues without really knowing anything about the subject matter. Do you homework and then you can argue about it, mmkay?

[Brutha]

He asks a very good question, and so far no one in government (that I know of) has answered:

Of course you don't know of the mainstream answers to those questions if the only thing you read is non-mainstream articles about the issue.

"Why do governments choose to borrow money from private banks at interest when government could create all the interest-free money it needs?"

The theoretical justification is the assumption that government would print too much money when it would get that money for free and in the process cause too much inflation.
Especially during war to finance the war and before elections to spend it on projects which produce jobs in the short term and are harmful to the economy in the long term.

Create a small village for all Steve Pavlina forumists, using that currency in the article?

Today there are quite a few local currencies in existence. While most of them aren't strong they exist.
Global Guerrillas: THE RESILIENT COMMUNITY: SCRIP
http://lietaer.com/crisis2008.html
There's even a region in Germany where you can buy nearly everything you need via a local currency.

He's not lying when he says this is 101-type material. This is basic stuff here. Read it once. If it makes your head spin, go outside, get some fresh air, and come back in and read it again.

Well the as Federal as Federal Express claim just isn't true. Federal Express doesn't have something like the FOMC that controls it in which the majority of the people are appointed by the president.
The profits of Federal Express that exceed those 6% also don't go to the government.

[schola]

Brutha, have you heard of this experiment in local currency during the Great Depression? It was an experiment with demurrage currency.

12 Steps To Freedom & Wealth
On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl made economic history by introducing a remarkable complimentary currency. Wörgl was in trouble, and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job, and 200 families were penniless. The mayor, Michael Unterguggenberger, had a long list of projects he wanted to accomplish, but there was hardly any money with which to carry them out. These included repaving the roads, streetlights, extending water distribution across the whole town, and planting trees along the streets.

Rather than spending the 40,000 Austrian schillings in the town's coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as 'stamp scrip'. This requires a monthly stamp to be stuck on all the circulating notes for them to remain valid, and in Wörgl, the stamp amounted 1% of the each note's value. The money raised was used to run a soup kitchen that fed 220 families.

Because nobody wanted to pay what was effectively a hoarding fee, everyone receiving the notes would spend them as fast as possible. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings. This offer was rarely taken up though.

Of all the business in town, only the railway station and the post office refused to accept the local money. When people ran out of spending ideas, they would pay their taxes early using scrip, resulting in a huge increase in town revenues. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge. The people also used scrip to replant forests, in anticipation of the future cash flow they would receive from the trees.

The key to its success was the fast circulation of scrip within the local economy, 14 times higher than the schilling. This in turn increased trade, creating extra employment. At the time of the project, Wörgl was the only Austrian town to achieve full employment.

Six neighbouring villages copied the system successfully. The French Prime Minister, Eduoard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, Unterguggenburger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea.

At this point, the central bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The people unsuccessfully sued the bank, and later lost in the Austrian Supreme Court. It then became a criminal offence to issue 'emergency currency'.

The town went back to 30% unemployment. In 1934, social unrest exploded across Austria. In 1938, when Hitler annexed Austria, he was welcomed by many people as their economic and political saviour.

Quoted from 12 Steps To Freedom And Wealth by Bart Klein Ikink.

[liamona]

Originally Posted by Brutha

Of course you don't know of the mainstream answers to those questions if the only thing you read is non-mainstream articles about the issue.

I don't only read non-mainstream articles about it. Did I miss mainstream ones that have critiqued the job the Federal Reserve's been doing? That call for its abolition?

The theoretical justification is the assumption that government would print too much money when it would get that money for free and in the process cause too much inflation.
Especially during war to finance the war and before elections to spend it on projects which produce jobs in the short term and are harmful to the economy in the long term.

So what we have now—in the non-theoretical real world with the Federal Reserve—is hunky-dory? Isn't the whole point to having a central bank to stabilize the economy?

Well the as Federal as Federal Express claim just isn't true. Federal Express doesn't have something like the FOMC that controls it in which the majority of the people are appointed by the president.

Yeah, that's right. That's an interesting thread that schola provided the link to from the Ron Paul Forums. However, after reading the replies (especially the ones that provide alternative information to the original poster), I'm more confused than ever. Economics is definitely not my forté, but I am trying my best to understand it.

[Brutha]

I don't only read non-mainstream articles about it. Did I miss mainstream ones that have critiqued the job the Federal Reserve's been doing?

Why should an article that defends the Fed from a mainstream perspective have to critique the job the Fed's been doing?
If you only read articles that fit into your preconceived idea that the Fed is doing a bad job the chances of picking up a defense of the Fed (or better central banks in general, I know it's much less complicated if one just focuses on your own country).

Understanding the theoretical reasons why things are done the way they are done is valuable, even when you don't agree with the way things are done.
The claim that there are no theoretical reasons just shows that someone hasn't gone through the trouble of understanding them (with is fine if you just want to discuss the Fed, but isn't when you want to write long articles/videos about abolishing the Fed).

Once you do understand the theoretical reasons you (as in the person who fight against the status quo) know the tests that your alternative has to pass to be better than the status quo. Or you can argue why you disagree with the conventional reasoning and think that other tests might be more important.

Brutha, have you heard of this experiment in local currency during the Great Depression? It was an experiment with demurrage currency.

12 Steps To Freedom & Wealth

Thanks for the link to that story.

[Acting Like Godot]

There is another big group of people in the world who disagree with interest. They're the Muslims.

If you look at their banking systems, you'll see that they have a concept that interest, or riba, as they call it, is immoral. Therefore the Islamic finance world has developed various ways of lending money without charging interest.

For example, in Islamic finance, instead of charging interest, the bank may use a profit-sharing concept (mudharabah). What it means is that if a bank has lent you money to run your business, then instead of charging you interest, the bank will simply take a share of your business profits every month.

Economically it works out to more or less the same thing, because the fact is, in the rest of the world, you would have paid interest to the bank, out of the profits from your business anyway.

You see that the fundamental difficulty is that money has a value. Just as you would not have a habit of letting strangers temporarily live in your house for free, or lending your car for some time to strangers for free, you would not let strangers have your money for some time, for free.

No, just as you would charge rent for letting a person use your house or car, you would charge rent for letting a person use your money. Except that the word for "rent" in this context is simply "interest.

[Brutha]

You see that the fundamental difficulty is that money has a value.

Using money has value but money itself has no inherent value, it's just paper.

[liamona]

Originally Posted by Brutha

Why should an article that defends the Fed from a mainstream perspective have to critique the job the Fed's been doing?

It doesn't have to—I was just wondering, since it seems like you were hinting that I missed it, if some article answered the question the movie "Money as Debt" asked:

"Why do governments choose to borrow money from private banks at interest when government could create all the interest-free money it needs?"

If you only read articles that fit into your preconceived idea that the Fed is doing a bad job the chances of picking up a defense of the Fed (or better central banks in general, I know it's much less complicated if one just focuses on your own country).

I hardly think only those with alternative viewpoints of the Fed question whether or not it's doing a good job. And I think it's reasonable to ask, since a central bank's primary role is to protect the economy from wild up and downswings, isn't the U.S.'s doing a bad job?

Understanding the theoretical reasons why things are done the way they are done is valuable, even when you don't agree with the way things are done.

Yes, I agree, and I DO want to understand, honest.

The claim that there are no theoretical reasons just shows that someone hasn't gone through the trouble of understanding them (with is fine if you just want to discuss the Fed, but isn't when you want to write long articles/videos about abolishing the Fed).

Do you think that Ron Paul and Jim Rogers are wrong to call for its abolition? They make some compelling points:

"From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts."

"Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy."

~Ron Paul, "Abolish the Fed"

"Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday.

Asked what he would do if he were in Bernanke's shoes, Rogers, who slammed the Fed for pouring liquidity in the system and accepting mortgage-backed securities as guarantees, said: "I would abolish the Federal Reserve and I would resign."

From: "Jim Rogers: 'Abolish the Fed."

Once you do understand the theoretical reasons you (as in the person who fight against the status quo) know the tests that your alternative has to pass to be better than the status quo. Or you can argue why you disagree with the conventional reasoning and think that other tests might be more important.

That's a good point. I don't know what would be better than the Fed.

[Brutha]

Do you think that Ron Paul and Jim Rogers are wrong to call for its abolition? They make some compelling points:

Ron Paul certainly doesn't want to let government print interest free money whenever governments wants to.

I believe that to be a responsible politician you shouldn't simply call for the abolishment of something but explain how your alternative would look like.

And I think it's reasonable to ask, since a central bank's primary role is to protect the economy from wild up and downswings, isn't the U.S.'s doing a bad job?

To answer that question you have to know what your alternative entails.

Maybe they should have simply got better people than Alan Greenspan and choosing better people to run the organization would produce better results.

On alternative is to have multiple competing currencies run by different entities.
By the way I did a bit more reading and found that initiating competing currencies is also technically forbidden in Germany even when there no enforcement on the law at the moment as there was in the US in the Liberty Dollar case.
Buying something with a competing currency can get you theoretically up to five years in prison.

[Manomanman]

Taking out a loan is voluntary, paying taxes to a feudal lord is not.

Modern people volunteer for their own slavery.

[Manomanman]

Originally Posted by liamona

Do you think that Ron Paul and Jim Rogers are wrong to call for its abolition? They make some compelling points:

I bought into the anti-Fed argument last election, but I think it's just a ruse. The Fed does create the "business cycle", which sends mixed-messages through the credit markets, but there is something to be said of the amalgamation of large sums of capital in the U.S. which allows businesses to do things that wouldn't otherwise be doable.

I see a lot of Fed bashing floating around, but what's the alternative? If we had been on a gold standard since 1913, little of the economic expansion of the past 90 years would have been possible.

[Brutha]

I see a lot of Fed bashing floating around, but what's the alternative? If we had been on a gold standard since 1913, little of the economic expansion of the past 90 years would have been possible.

The last gold standard broke down in 1971 not in 1913.

You can have a Fed and a gold standard and you can have no gold standard and no Fed.

[Manomanman]

Originally Posted by Brutha

The last gold standard broke down in 1971 not in 1913.

You can have a Fed and a gold standard and you can have no gold standard and no Fed.

But it didn't prevent dollar devaluation, which is the point of having a standard. We were technically on the gold standard, but in practice we weren't, and dollars were not exchangeable for gold past 1931 or something like that.

[ar81]

Originally Posted by Brutha

The theoretical justification is the assumption that government would print too much money when it would get that money for free and in the process cause too much inflation.
Especially during war to finance the war and before elections to spend it on projects which produce jobs in the short term and are harmful to the economy in the long term.

If you nationalize banks, government would have extra income from interests to pay any spending, without printing money, raising taxes or debt.

Yeah, people say nationalizing is socialist. But if you do not nationalize government will be forced to subsidize banks in a socialist fashion. Winners are bankers and everyone else would pay. I do not mind about US keeping its banks, if Americans are willing to subsidize them, with interests, unemployment, inflation, bailouts and direct socialist subsidies like the toxic assets buy plan.

If banks are nationalized, Americans will not have to subsidize them, and interests would go to education, health and infrastructure. And nationalizing won't produce as much inflation as banks are producing now, but it would have a nice effect on govt deficit.

Nationalizing is a matter of money, not ideology.