Why do people think countries need centrally planned money?

Lol, thanks for the support. I will honestly never understand it. I mean people get so irritated at me for trying to explain how the monetary system works. I'm not even talking about what the Govt should or shouldn't do, I'm simply just explaining how the system operationally works. It's very very weird that people take such extreme positions based on nothing but quack theories in their head and they refuse to even attempt at understanding what someone else is trying to say.

 

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This from a guy whose avatar reads 'better red then dead'?

Are you stuck in 1961?

 

My theories are Austrian economics, the only economic theory that has accurately predicted all the busts of the past century.

Mainstream economic thought has created the depression we're now in.

The inability to fathom the concept of free market economic is indeed close minded.

 

You are just making things up. We are not in a depression right now. And you guys don't accurately predict all the busts that happen.

 

In my opinion, only centrally planned money could have enabled a Space Race or the elimination of a natural rate of unemployment usually associated with capital based, market economies.

 

1) how do you figure? If the fed buys any assets at all then where does the fed get that money from? Its freshly created money!

2) Many of my courses were in economics and commerce! Mind you this was back in the 1980's

 

There were competing currencies in the US up until 1913. Let's go back to that system.

 

then how do you explain that the feds balance sheet is mushrooming out of control??

 

Yeah, lets go back to that system... and what are you going to do when your employer refuses to pay you in gold or silver coins and instead gives you a company script that only he will honor and then sets up a store and jacks the prices up??

What are you going to do when you walk into the "Company Store" with your BossBucks Monopoly money and find out that a can of (*)(*)(*)(*)ing Cambells soup costs you 10 of your BossBucks and your employer only pays you 50 bossbucks a week? You going to quit? Move to another employer who will do the exact same thing?

Is that freedom to you? Being given money that you can only spend with your employer and no one else? How is that freedom??

How is freedom living in "Company Town" where the employer owns the house you live in, "sold" to you with your worthless "Bossbucks" money and then if you quit or go on strike, you get kicked out of your house and out onto the street. That is freedom to you? Freedom for your boss maybe, for you it is slavery!

If you think wage earners in this nation are going to be paid in Gold and Silver coins you are absolutely insane!!

The reason we created legal tender laws to end the exploitative practice of company towns and company stores and the terrible poverty companies inflicted on their workers through the use of exploitative private currencies!

When are you libertarians going to answer that particular problem huh? You trust the free market so much, well tell me how being paid in company script is a free market?

 

Lol, what do you mean "mushrooming out of control". They created ~$1.7 trillion in reserves. Banks do not lend reserves, banks do not spend reserves. The private sector never touches reserves unless we exchange our deposits for currency.

I have explained this to you 100 times and you refuse to even try to understand how the Fed works with the banks. The Fed's balance sheet does not affect the private sectors balance sheet.

 

You don't get it. Where does the person get the money from to purchase the debt in the first place. When the Fed replaces Govt debt with reserves, they aren't adding more assets to the system, they are replacing one asset with another. The debt still exists and the Govt still has an obligation to pay it. It is simply a liquidity swap and nothing else.

Yes, I can tell you are still stuck in the gold standard days of economics which was mainstream in the 80s. Even I was taught the same bullcrap that the Fed creates our money. They create a form of money that is usable in the real economy, but they do not create the amount of money you and I have. They just allow us to exchange our deposit accounts with physical currency.

 

Scrip was a common practice in early mining towns, but not as payment on wages, but as advancement on wages. Even in the cases of where it was used for wages, such as during the Depression (long after legal tender laws and the establishment of the Federal Reserve), it benefited the employees by keeping them employed. A terrible thing, I know. They should have gone to live in the streets rather than upset the notion that only government can manage monetary systems.

In Fishback, Price. “Did Miners Owe Their Souls to the Company Store? Theory and Evidence from the Early 1900′s.”, studies were published which showed that prices were only a few percent higher, and that to cover what were, essentially bookkeeping costs associated with accepting scrip, that scrip usually being an advance on wages.

Johnson, Ole S. The Industrial Store, Its History, Operation and Economic Significance. confirms this.

If you have evidence to the contrary, and not just specious polemics, but actual studies polled from among the thousands of companies and millions of workers who availed themselves of scrip, please post them.

Are you arguing that they weren't before? Was scrip a huge problem and, if you claim that it was, can you provide us with some historical evidence that it was mostly abused rather than respected?

Not that the system we have is much better than what you describe. The governments, through their central banks, fix interest rates and steal your wealth through inflation. It's wrong if companies do it, but not wrong when politicians do it? Might is right, apparently.

You have evidence of this? I've never heard this argument. Ever. I think it would have been far easier, and incurred far less difficulties with balking Supreme Courts that needed to be reformed in order to support legal tender laws, to simply outlaw the practice of paying in scrip. The problem is, the practice wasn't in danger of being outlawed because no one was really against it at the time.

Long after legal tender laws were imposed in the US, scrip was still in use. So, apparently, the laws you claim were meant to prevent scrip did little to stop the practice. If anything, it probably encouraged greater use of the practice. Even governments, during the Great Depression, issued scrip. Legal tender laws are what prevented scrip from becoming forms of national currency and exchangeable on more open markets. Government doesn't like that sort of competition, so scrip remained relatively isolated among the thousands of companies that used it. Were the government not in the business of controlling the money and centrally planning the economy, the free market would, as history shows, have brought about one or a few "high powered" scrips that would have displaced many of the smaller scrips and become de facto forms of common-tender money.

What did in scrip wasn't your valorous politicians courageously acting on behalf of the poor, downtrodden worker. It was personal income taxes. Imposed during WWII on all workers, the government wasn't going to put up with getting a cut of your labor in the form of company scrip.

Well, seeing as your "problem" probably wasn't as much of a problem as you would like us to believe, perhaps you can back up your charge: what made it not a free market?

 

Lol, competing currencies is the dumbest idea ever. Logistically it would be a disaster and lead us to be a 3rd world country. Might as well start learning Chinese, once they take us over since we can't afford a military with Wal-Mart bucks.

 

from what I understand the fed created over 1 trillion in order to buy toxic assets from the banks. So you are saying this is not correct?

 

because you cant see the difference between assets and debt...thats your problem. If the government borrows 1 billion then thats a debt. If a bank buys it then its still debt but if the fed buys it then its monetized and it becomes currency.

 

trust me.......even in the 80's that keynessian crap was being taught!

 

you still dont understand that the US is at the mercy of china, japan, and the middle east buying your debt do you?

 

They purchased toxic Govt MBS's from the banks. But, what you gotta to understand is the way these MBS's were bought did not require your money or any money that actually existed. Banks bought these with bank money and they bought them specifically from the Govt (aka F&F).

Accounting wise this is how it works.

Bank creates a mortgage for $100k
Bank
A | L
Mortgage - $100k | Deposit - $100k

Govt purchases mortgage from the bank giving the bank a spread on the interest

Govt Balance sheet
A | L
Mortgage - $100k | Collateral (house) - $100k

Banks Balance Sheet
A | L
Reserves - $100k | Deposit - $100k

Now the Govt pools together these mortgages and sells them as MBS's. So another bank comes in and purchases the MBS from the Govt which are claims to the principal and interest payments of the house.

Banks Balance Sheet
MBS - $100k | Deposit - $100k

Govt Balance Sheet
A | L
Mortgage - $100k | MBS Liability - $100k


So all the banks did was swap their reserves for MBS's. No new money out of the original $100k was created. So the banks were stuck with $1 trillion of these MBS which were owned by the Govt. So once again the Govt owns the claims to the houses as collateral.

So the Fed comes in to pump reserves back in to the system so that the banks are stuck with these worthless toxic assets preventing them from them from having the necessary capital to lend money to the people. So the Fed comes and says alright we will take these toxic MBS's off your balance sheet.

Banks Balance Sheet
A | L
Reserves $100k | Deposits $100k

Govt Balance Sheet
A | L
Mortgage $100k | MBS liability $100k

Fed Balance Sheet
A | L
MBS due from Govt - $100k | Reserves $100k

If you break down this process all that exists is $100k in mortgages, $100k in deposits, and a house. Nothing was created in this entire process accept the Govt has to pay the Fed, which ends up mostly paying themselves... instead of owing the banks.

 

That's a debt to the Govt... it is an asset to the private sector. You are acting as if Govt debt is your debt. In this case Govt debt is your asset.

The person is owed that money regardless. The Govt would just rollover the debt, the Primary Dealers would purchase it, and the Govt would give the debt owner back his money. All the Fed does is liquidate the debt earlier so that there is more liquidity in the system.

 

alright...so the government bought those toxic assets and then bunded them and resold them as you say. Question for you....where did the orriginal mony come from to buy those assets? You say they bought them and resold them? However from what I understand is that those assets were not resold but rather are sitting on the fed's balance sheet? Is this not correct? And if so, then why is the fed's balance sheet growing? Is as you say they bought the assets, then re-bundled them and sold to other banks the fed's balance sheet should of grown temporarily and then shrunk again after the sale correct?

 

incorrect....you are assuming that there are always buyers. Remember that the fed needs to constantly buy in order to push rates down. A debt must eventually be paid...either with new debt or savings from tax revenues or by monetizing it. There is no fourth way. And from what I see they are not raising new revenues,, they are in a limited way paying off old debt with new debt....but the remainder is just monetized.....otherwise interest rates would be a heck of alot higher now from a lack of buyers!

 

It came from thin air. The bank created it out of thin air and gave $100k deposit to the home seller

Yes, mortgages are long term assets and will be on the Fed's balance sheet for a while. The way the Fed and Govt deal with the payment of the MBS's I'm not 100% sure. Because I think the Fed can roll the debt over and keep them on their balance sheet as long as necessary to support the number of reserves. But like I said, I'm not 100% sure yet on how the Govt deals with the Fed compared to the banks or the private sector.

No, I'm saying the Fed bought them off the banks.

Step 1) The bank lent the money
Step 2) the Govt took the loan off the banks back by giving them reserves
Step 3) Another bank purchased an MBS from the Govt WITH reserves
Step 4) The Fed purchased the MBS from the bank WITH reserves.

The only money that was actually created in this entire process was the money that the home seller received. Everything else is just bank money where they profit off the interest and use the principal as collateral.

 

There are always buyers. They are called the primary dealers. They are mandated to participate in every auction and make sure there is a market for Govt debt. The Fed uses this debt to manipulate interest rates based on the amount of money the Govt spends. If the Govt spends a lot like they did the last 2 years, then the banks are going to have much more Govt debt than reserves and are not going to be able to lend.

So the Fed comes in and replaces this debt with reserves so the banks have the ability to lend. And increase in reserves lowers the borrowing cost between banks which in turn lowers the interest rate.

But the Fed does not monetize the debt since the money already exists.

Yes, the Fed did this BECAUSE the Govt spent so much money. Otherwise there would not be enough reserves in the system and interest rates would sky rocket. The Feds needed to load the banks up with reserves so that they could keep interest rates down BECAUSE the Govt was spending trillions of dollars in to the economy and the Primary Dealers (which are banks) could not handle that much money with out more reserves.

I keep saying this over and over. The Fed does not give us money. They create a "form" of money that makes Govt spending usable in the real economy.

 

Ok they only bought the toxic assets with reserve money as you say. OK question for you. True that banks cannot loan out reserves but they can still leverage reserves......assuming a 20 to 1 ratio ( in fractional reserve banking) that 20 to 1 can add an extra 20 billion for each 1 billion in reserves added by the fed correct?

And still there is the problem of the fed buying those toxic assets, even if as you say it was paid for with reserves remember that the banks can still leverage those reserves!