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Worth watching

The Biggest Scam In The History Of Mankind - Hidden Secrets of Money
https://www.youtube.com/watch?v=iFDe5kUUyT0#t=0

This is by far the best video about money creation!  :)

The FRB part could be listed as a separate fraud, because that involves money circulation, most are checkbook number in banks, it does not increase the amount of base money that banks can loan out (a fraud in a fraud  ;D)

When the central bank directly or indirectly buys debt instruments created by the government, the money comes from its own "checkbook": the only thing "backing" that money are the same debt instruments it buys. Then, this money becomes the "reserves" for commercial banks to make loans from their own "checkbook": both reserves and commercial bank loans are "checkbook money," and both increase the money supply, although the latter kind by a much larger factor.

It is a very simple process, not that complex as you described. Don't use loan or IOU, it will be much easier to see the truth without them

Notice this: If banks loan out 90% of the deposit and those money were put under mattress by someone, then banks will immediately lose the ability to further loan out any money (money creation through FRB will stop). Although at the same time their checkbook are full of customer deposit record (All those deposit records are not money, just records. But banks call them M1)

Before we can even begin to discuss whatever you are trying to prove, I must make the following observations:

1. Commercial banks do not primarily rely on deposit money, but rather on reserve money created by the central bank against government debt. So the money commercial banks loan is always debt, issued either by the central bank or themselves.

2. It is impossible for the public to keep 90% of commercial bank money "under the mattress" because:

2.1. Less than 3% of the money supply exist in physical form.

2.2. Loans must be repaid with interest, so the public must not only return that money to their creditor banks but also give them additional money, which in turn must be created by the central bank against additional government debt.

Loan or debt means some value to be paid in future, it involves a value in a different time. Without a time axis, it is very dangerous to discuss the concept of loan, because that lacks a whole axis of freedom and you will easily mix different concept together. A $100 can not exist at two points on the time axis at the same time. If it did, one of them is an illusion, banks are creating this illusion to everyone in the name of loan

And, central bank create money to buy government debt, not against government debt, this video explained it very well

The government only becomes indebted when the central bank (or anyone else) buys its debt instruments - rather than the resulting debt.

Nobody can buy a debt only created by their own act of buying it.

This video is really a masterpiece ! thanks for sharing .

+21

Thanks for sharing, good stuff to know about it...

So there is no real money?

It is all debt based on debt with eternal interest compounding on top until mathematically impossible repayment quantities are achieved ... sounds legit.

And they used to call Bitcoin a ponzi...

I really loved this video, thanks for sharing it. I even posted it on facebook, and it sparked up a huge conversation between my friends. Way to go OP!

I think most of these are lies that told by reserve banks. Due to the complex nature of "LOAN", maybe only one in a thousand understand how it really works. But looking from the view of the central bank, things are much eaiser to understand

A loan is a very complex operation, it involves several steps:

1. Banks first acquire the base money. Without base money, they can't loan out anything. They can get base money from their own savings, from FED or other financial institutions, when they are running out of base money, they will broke like Lehman

2. Once they had some base money, say $100, they could loan out $90 to the borrower, they credit the borrower's account with $90, at the same time, they must deposite $10 to FED as reserve

3. Since the borrower's account are credited with those $90, the effect is that the money they loaned out are immediately deposited back into the banking system (either in the same bank or another bank), thus the base money never leave the banking system. This happened almost instantly. Now they have the base money back, they could lend those out again, only 10% less each time, due to reserve requirement

But this chicken and egg loop require that they must have base money at the first place. Historically base money is gold, produced by miners, but now it is created by FED, produced by adding numbers in the checkbook

Money and debt are totally seperate concept, banks always trying to combine them together just to disguise their scam. Money is just a measure of the value of the debt, you can pay back the debt using anything like labor, security, assets, etc...

Thanks for sharing, love the video. Going to share on my facebook too and see what comment I get..

Maloney's newest video is really brilliant.
I admire him for how he tries to explain and visualize complex relationship comprehensibility.

Unfortunately most people still think this is total rubbish and worst conspiracy theories when they see videos like this.

Are you sure? I think most of the educated people will understand if they watch this video. It's a no brainer: No matter how hard they work, they can't create that huge amount of wealth that banks did, so banks must be acquiring those wealth through a very easy way, no hard working at all

Previously there is no such video that can explain it clearly, books from economy schools are full of text and formulas, which just spread many misconceptions about money creation

Well, I can only speak about my personal environment which are mainly people in Germany. Most of them have studied.
Maybe it's a German thing. But they don't understand it or they understand it, but don't want to let it be true.
The not so "long educated" people often understand the situation faster and better then the ones you stayed too long in university etc.
Of course there are also some who understand the situation and are taking the right steps, but they are clearly the minority.
It's frustrating...

Of course most of the people who already had an idea about economy won't agree with a conflicting idea at first, but they will start to compare the concept in the video with what they learned from school and start to think. Another reason is that they fear the powerful entity, so most possibly those higher officials in the government will understand it first

I think this video is still a bit too long, if it can remove the FRB part (what presented in video is a common misconception anyway), reduce the steps to 3-4, it will be much more convincing

Fractional-Reserve banking is essential to understanding precisely what you are failing to understand: how money becomes debt. It starts with fractional-reserve banking, then evolves into central banking.

over 650.000 clicks in just a few days, thats cool!

Suppose that you have a $100 bill and 0 reserve requirement, you loan out and deposit back this same $100 note for 10,000 times. You have created lots of transactions and deposit records, but you did not create any money: you still have that $100 bill

However, in the common FRB misconception (also in this video), you have created 1 million dollar in the process! FRB add the same dollar at different time together again and again. But this calculation is just a measurement of the money turn over volume, it does not change the money supply: The maximum money that you can loan out at any given moment will always be $100, no new money were created

So, banks use the FRB to create an illusion that lots of money are created during FRB process, at the same time they quietly created some base money for themselves. Since the number of base money is dwarfed by the checkbook money generated by FRB, they could easily claim the ownership of those base money without being noticed. But since all the checkbook money comes from the base money, they will naturally own all the checkbook money later on

The practice of FRB started from goldsmith, but even then, the base money is gold. They must first have gold to run FRB, and in order to acquire gold, they must do business or work just like anyone else. But today, central banks just create base money out of nothing. Notice that unlike checkbook money, which is backed by a corresponding debt, base money is not backed by anything, this video successfully explained this critical concept very well

What is far more malicious than the Fractional Reserve Banks is the Federal Reserve. That means that there is at all times an interest rate attached to every dollar, a fraction of which 'leaks' to banks.

Consider, for a second, the absolute most 'ideal' situation that could ever arise from this. Consider a scenario in which all of the wealth of the entire population is taxed by the US Government every year at a rate of 100%. A scenario in which the US Government has no expenses other than interest to the Federal Reserve. A scenario in which the bankers always spend all money allocated  to them. Assume an auction interest rate of  1.1%, and assume that the federal reserve is buying bonds at an interest of 1% to keep rates down. Assume the firest $100 is borrowed into existence on Year 0. Assume that the federal reserve paid all profits to the treasury, even though it really doesn't. Also, assume that the US Government never actually asks the Feds to expand the monetary base. In other words, when we did nothing other than pay back our unpayable debt.

In order to prevent a default, the original $100 principal would have become a $270.75 debt by Year 100 (the Federal Reserve System was created in 1913, now its 2013). Although on Year 0, the bankers would have only had $0.10, or about 0.1% of the money supply, by Year 100, the bankers would have 0.26% of the entire money supply to spend. Over the 100 year period, the government has paid them $17.05 in what is effectively 'free money.' Contrast this to how the rest of the population had everything taxed from them and not a dime spent on them except for the original $100 in existence.

Fun, right?

This really opened my eyes; I knew it was bad but not this bad.  Thank you for sharing this, I would've never seen it otherwise.  Time to save up in Bitcoin...

Edit:  Also, it seems Maloney does not consider Bitcoin a money, but a currency; I can see why he would believe this, since Bitcoin, in its simplest form, is nothing more than a distributed ledger (numbers in a system as one might call it), but I believe the aspect which makes Bitcoin a money is the fact that its supply cannot be increased (without consensus anyway), which does make it suitable as a store of wealth, unlike a currency.

A shame, but from his standing point, if you're invested primarily in gold and silver, you'll want others invested in it as well.  I'm the same way with Bitcoin.

So all those transactions are illusions? Is the house I bought with the borrowed money (sorry, it is not money) also an illusion? Is the resulting inflation also an illusion? If I default on a bank loan, will my default also be an illusion?


Each dollar the bank loans and the borrower deposits into a new bank account exists in two bank accounts at the same time, so the loaner and the borrower can and usually do spend it at the same time.


The money created by central banks is created in exchange for government promises of paying it back plus interest, just like the money created by commercial banks is created in exchange for the promise of private entities to pay it back plus interest. It is exactly the same process, whether the borrower is respectively public or private.

This is the only flaw in Maloney's monetary ideas: his conceptual distinction between "money" and "currency" does not resist a serious examination.

Thanks for sharing knight22
 ;D

You can envision debt as money without thinking about interest.

Who can create new money as debt? Anybody. Here is how:

Imagine a bunch of people, all have something of value, but only one person has a 1 $ federal note. He can obviously buy something with the note, and so can the next holder of the note.

Then, the current holder lends the note to a friend. In exchange, he gets a cheque that he can transfer to otheres, that is, the note says: Pay to the holder of this cheque 1 dollar, signed by that person. This can just be remembered, if everybody knows each other, but it is easier to write it down on a piece of paper. Is this checque just as good as money? Yes, if you trust that the person writing the cheque always have, or can aquire the dollar bill in time.

We have now one dollar bill and one cheque circulating, both are good money. Every person that has the dollar note, can lend it out against a cheque. Let's say this repeats 10 times. We now have 1 dollar note and 10 cheques circulating as money. The more money supply, the higher the prices, or which is the same thing, the lower is the value of each unit of money.

Guess what happens if suddenly each cheque holder demands the same dollar note? This is what we have now, circulating debt is 10 times the volume of the actual money notes.

The money in your bank account statement are illusions, but when you withdraw or spend them, banks must deliver base money, that is true money. If they are running out of base money, they will have a bank run like Lehman. The risk of a bank run normally is low because they can borrow base money from other banks. If you default on a bank loan, it means those base money they gave it to you are forever lost, that will cause a huge problem for them, so they need more fresh base money from FED as bailout.

Once base money entered the circulation, they will never become more, just become less and less through each lending, because more and more of them will be deposited as reserve at FED.


Not at the same time. Before the loan process started, that dollar belongs to bank; after that, the dollar belongs to borrower. The borrower then have the ability to spend that dollar, but the original bank lose the ability to spend that dollar, they only have a number saying that customer A owes them that dollar


They are very different

Commercial banks can only loan out base money again and again and create lots of checkbook entrys like account statements, but they can not create base money. It they are running out of base money, they must wait for more customer deposit, or sell valuable assets to FED in exchange for base money. For them, the base money they received from FED is as valuable as any other base money, totally exchangeable

However, when FED running out of base money, they do not need to sell assets to anyone in exchange for base money. They just create it out of nothing. On the contrary, they buy assets (for example government bond) with those base money, means those base money belong to them directly after the creation. Can you see the difference here?

The misconception comes from the claim that commercial banks can create money through loaning. In fact, they can only create lots of checkbook entries, but they can not create base money. If this puzzle is cleared, then rest is all clear

Of course, from a higher abstraction level, both commercial bank and FED loan out base money that does not belong to them: Commercial bank's base money comes from other customer's deposit, and FED's base money comes from printing, both stealing but at different degree. Since commercial banks also have their own base money reserve acquired through normal business operations, their lending operation is maybe 50%-80% stealing, while FED is 100% stealing from other social members ;)

Suppose you deposit $1,000.00 into your bank. Before loaned by the bank, the money belongs to you (unless you consider your act of depositing it as a donation to the bank). When the bank loans it, the money goes into the borrower's account without living yours. Then, both of you can spend it, regardless of whether at the same time or not, and whether by withdrawing it from the bank or not, which is precisely why the money supply increases (to simplify things, imagine the borrower has an account in the same bank as you and after the loan is credited in his account both of you simultaneously spend that money merely by transferring it to other two accounts in the same bank).

Even though the video has their facts right, it should be noted that he his exaggerating greatly: yes, the money is created this way. But don't forget there are -many- laws created to counter this. I won't ever say this is enough, and that it is a fair system, but the effect the video describes is smaller than it might seem from the video.

People on earth are all, knowingly or not, "agreeing" with this system by living in the community. If you don't want it, no matter how stupid it sounds, you have to move to somewhere with no government that uses no IOUs or taxes.

Before the flames: I'm not saying I agree on the current monetary system, I'm just making sure people don't interpret it wrongly.

Can't wait to watch it at home. Thx.

You're right, there are many laws that govern the creation of currency in the US, but I think if you have zero background in finance, this video is awesome in explaining the big picture on how it's created, you know?

That's true, it's great info for people less informed on economics, but I thought it would be a good thing to make this clear ;) In the video the system is called a "lie" and a "scam", but it's not. I agree that the system is sneaky, under-the-belt and unfair, but it's neither a lie or a scam.

Most people don't understand the system and yes, if they did they wouldn't agree. However, the system is created to be able to trade easily without having to take your horse to the market and trading it for some food. In my opinion there have been made an extremely big amount of mistakes and wrong choices by the government for personal interest, but without that, the system would be a very good system. It's not the system that's wrong, it's the people trying to achieve personal gains with it.

Debt-based money is unsustainable because it requires an exponential growth of the money supply: when money is debt, paying interest on this debt requires creating more money, hence more debt.

The thing is, the system didn't have to be debt-based in the way it is now. That's one of the things he actually explains in the video.

Not really. He never actually states what "intrinsic worth" is, other than "a store of value." Obviously Bitcoin is a store of value. So, IMO, his definition is accurate, albeit vague.

Only, there is a "lie" and there is a "scam." One such lie being inherent in the concept of unpayable debt, because, of course, an IOU is a promise to pay someone a specific amount, and when that IOU is inherently unpayable you are lying. The scam, of course, is fractional reserve banking with a M0 of effectively 0.

True, but that's not really what I'm trying to say. I'm saying the system itself isn't a scam or a lie. You are right about the unpayable debt, but that the debts are unpayable isn't the fault of the system: it's the fault of the banks abusing the system to create more money for themselves (=> people trying to achieve personal gains). About the scam part, I think it's quite discussable what you want to call the fractional reserve banking amount, but it's a result of, once again, the people going for personal gain.

Now, it's in a humans nature to do everything for personal gain, so I won't say I'm surprised by it. A bank is a commercial enterprise with just 1 goal: profit. So it's obvious they'll do anything for personal gain. It's the stupid decision of the people (government="the people") to let banks regulate the financial sector on earth.

So all by all, it's not a lie in my eyes: it's just a few people playing the game extremely smart, and a lot of people being blatantly stupid. The ones playing it smart (the banks) are open and quite transparant about it, people just don't understand it. I repeat, it's sneaky, under-the-belt and mean, but not a lie.

I watched all 4 episodes and it sums up things pretty nicely, but I thought two claims in the 4th episode didn't make too much sense. He claims that Fed buying bonds from banks via check (from account of balance 0) is essentially money popping into existence. Then he goes on to say that the govt's debt can only get higher because they always have to borrow more to pay off debt because money can't be created. Isn't that a bit contradictory?

In addition, the gov't can in fact balance the budget to start having profit in order to start paying off the principle on the debt. Suppose the govt shut down all together and continued to collect same amount of taxes, the debt would be paid off in 7-8 years right?

Um, no.

The government =/= the Fed. So the debt can only go higher, and that debt is constantly to the Fed.
The debt wouldn't be paid off because there isn't enough M0 in existence to do so. The only way inwhich the government could pay off its debts in the form of taxes is by passing that same amount of debt to the citizens.

You don't seem to understand how the system actually works.

He believes gold can be money without eventually producing a debt-based monetary system: his being aware of how history repeats itself should make him know better.

Actually after you say M0, it makes more sense. So basically if the debt was still below M0, we'd still have hope, but now, there's no turning back?

Exactly. Only, since the moment we started debasing the $ only the Federal Reserve was authorized to control the money supply. Since they're in it for profit, they'll obviously never make enough money for the USG to get out of debt.

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=BASE&scale=Left&range=Max&cosd=1984-02-15&coed=2013-10-16&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Bi-Weekly%2C+Ending+Wednesday&fam=avg&fgst=lin&transformation=lin&vintage_date=2013-10-22&revision_date=2013-10-22

http://www.usgovernmentdebt.us/usgs_line.php?title=Gross%20Public%20Debt&units=b&size=l&year=1980_2018&sname=US&bar=0&stack=1&col=c&legend=&source=a_a_a_a_a_a_a_a_a_i_a_a_a_a_a_a_a_a_a_a_a_i_a_i_a_a_a_a_a_a_a_a_g_g_g_g_g_g_g&spending0=1245.04_1358.83_1541.32_1825.66_2069.58_2386.32_2779.40_3064.65_3356.11_3666.80_4066.29_4514.18_4977.40_5368.73_5717.97_6035.95_6351.18_6590.71_6761.75_6974.78_7080.52_7320.74_7879.78_8578.76_9331.24_9990.33_10655.37_11355.45_12550.50_14598.95_16371.13_17671.99_18998.95_20228.20_21291.08_22256.68_23267.82_24300.81_25345.46

Money was debt-based from the beginning. When the tax debt to the state mafia was payable in barley, then barley was money. When it was payable in a specific metal, than this specific metal was money. The interest rates in ancient mesopotamia were much higher then today.

The moment you deposit your $1000 into your bank, they are not yours anymore, you are only left with a certificate that they belong to you.  (your account statements). What really happened is that you loaned these money to the bank, and now bank take over the ownership, leave you with an IOU statement. If the bank shut down the second day, you lose all your money, but that risk fall upon you as soon as you put your money in the bank, not when bank shutdown (comparing this with depositing your money to MTGOX  :D)

And then banks loaned those money to another people. When you try to spend your money, they will provide you with corresponding base money to spend

Since they always have a base money buffer with millions of dollars to deal with the daily transaction, so you might have an impression that both of you can spend the same money at the same time (In fact both of you are just spending a small part of a large base money pool that grows and shrinks with each custom withdraw/deposit). Since banks usually put a daily withdraw limit on each account, this pool will handle the daily variation very well. Normally 500 customers will make this pool very stable

But if all those 500 customers spend at the same time, things will be different. In financial crisis, people were panic selling assets and billions of money are requested to be withdrew from a certain bank, and they just don't have enough base money to deal with it

So, FRB is like insurance, as long as majority of people feel confident with their money in bank, there is no problem, but if there is a panic and all the people start to withdraw at the same time, they will find out there is only 10% of their account deposit in the bank that can be withdrew

Of course banks are pushing all-electronic banking so that all the money never left this large base money pool. I'm still studying the possible consequence of this move

Dealer:


No, this wrong. This is like saying Bernie Madoff's scheme was sneaky, smart but not a lie.

The system is a fraud and the levels of deception that are employed to hide it from the people are disgusting. They use the full weight of their lackeys in the mainstream media to obfuscate and sometimes the weight of the paid off justice system to keep the level of fraud out of criminal courts by paying token fines (using their very same funny monies).

It is one huge fucking fraud, up and down the river, no matter which way you look at it ... you apologists (mostly economists and academics) for such a massive scam are more part of the problem than the solution, you have been there in one form or another since 1913 egging it on and apologising for it while poor people are getting ripped off and their savings eroded and while driftless shysters and Wall St. banks who do no work for millions get away scot free.

You cannot stand before your creator and claim ... it is not a lie, IT CLEARLY IS A GIANT LIE AND A FRAUD PERPETRATED AGAINST ALL WHO USE IT ... and most of them are coerced to use through threat of violent force of the State.

Take your medicine and fess up, you have been willing accomplices in ripping of huge swathes of the populace from their hard earned savings. You are part of the evil until you denounce it.

He says:

Gold is good money because it has intrinsic value: No, that is at best a reason for it to start to have a value in ancient times.

Fiat has value because the actors agree upon it: No, it has value due to reservation demand.

The system is unsustainable because of the interest: No, it is unsustainable due to  government overconsumption that is paid by sucking the guts out of the money system by printing and credit expansion.

But it is hard to get everything right, (especially when I define what is right  :)), overall a nice video.

You must make up your mind: either the money I deposited into the bank still belongs to me or it no longer does: it cannot be both.

+1

However, I would like to point out that any fraud only takes advantage of a mistake people already make before the fraud is devised. In this case, the mistake is the confusion between monetary value and its representation inherent in any commodity-based form of money.

It depends on how do you define the word "ownership"

You loaned your money to the bank, legally you still have the ownership, because anytime you can request a withdraw and bank have to pay you

But as soon as you deposited your cash into the bank, you have physically lost the control (physical ownership) of those money and there is a risk of default on bank's side. If the banks default, you can go to a court and sue them, but it is not a guarantee that you can get your money back. (That's the reason there is a FDIC to further protect savers) This is the same as sending your money to exchange and that exchange were hacked and shutdown

This is precisely why the money loaned from a bank account into another is "duplicated": "anytime" both depositors can "request a withdraw and the bank has to pay" them, simply because "legally" they still "have ownership" of their money.

Put more simply: the bank does not withdraw money from any of its accounts to loan part of its balance.

Of course they don't, each account statement is kept intact. But what happened behind the scene is: Money from all the accounts are added together, there is no label on their money saying that this is Alice's money and this is Bob's money, they are all bank's money and they are all moved into a single large account, and bank constantly withdraw from this account to deal with each customer's withdraw request and loan out to other customers

A similar example is an exchange: There are many people deposit money into the exchange, but they all deposit to the same bank account. The exchange never separate those money they received, they just show corresponding balance (a number) on your account, so that you can start to trade using their platform. When you withdraw, they send corresponding money from their account to your bank account and reduce the number (account balance) that you see on your account

Ty knight, and also another great great old school vid that will shed some light into your eyes on the fed and its roots is money masters-

http://www.youtube.com/watch?v=HfpO-WBz_mw

http://www.intellectualtakeout.org/sites/www.intellectualtakeout.org/files/value_dollar_value_chart.png

Wow, its surprising how much a dollar's worth varied before the Federal Reserve was created. 

They did add a lot of stability. The continual loss of value has been extremely stable ever since they have been in charge.

I know but what the heck. What even caused it to go down that much before the federal reserve. Was that 40% loss of value really just due to fractional reserve? Shouldn't that add additional demand as well to compensate for the additional supply, at least in the long term?

The worst and most fatal system apologists and therefore more part of the problem than a solution are those people who postulate that the one huge fucking fraud began one hundred years ago.
The truth is: The fraud began with systemic Organized Violence, which was installed around 10'000 years ago, as the non-patriarchal, self-sufficient communities have been collectivized, patriarchized, patronized, subjugated and destroyed. The Society is no more the humankind; the civilist (homo oeconomicus) is not a human. Central Banks are only inherent symptoms in the system: the Society.

If "each account statement is kept intact," then what happens "behind the scene" is irrelevant: it is only relevant that a fraction of the same bank deposit remains legally mine while also legally belonging to its borrower: we both have the same money, and we both can and usually do spend it at the same time.

You both have the same money on the bank's checkbook, but you can't both spend it at the same time, since base money which is spendable never get duplicated

1. Alice deposit $100 into her account
Alice account balance: $100
Bob account balance: $0
Bank money pool: $100 (This money comes from Alice but now belongs to bank)

2. Bank loan out $90 to Bob:
Alice account balance: $100
Bob account balance: $90 (there is another record saying he owe banks $90)
Bank money pool: $90 (Bank take out $100, deposite $10 at FED due to 10% reserve requirement, and loan the rest to Bob. These $90 return to the bank money pool since Bob's account is in the same bank)

3. Both Alice and Bob withdraw $50 at the same time:
Alice account balance: $50
Bob account balance: $40
Bank money pool: -$10
A negative value means now the bank went broke

Notice that bank's money pool get smaller and smaller after each loan action, because of the reserve requirement

When number of accounts in the bank increases, bank's money pool will increase to $1000 or $1,000,000, both Alice and Bob can fully withdraw their balance without causing a bank run, but that just mean some of the other accounts lose the ability to withdraw at the same time

In fact, even banks have millions of users, they could all come to bank requesting withdraw during a crisis, and bank will have to borrow money from other banks to deal with it, that is why LIBOR rate (short term lending rate between banks) usually spike up during such time

I suggest you do a little research on how commercial banks indeed work. You can start by reading this public-domain workbook on the subject by the Federal Reserve Bank of Chicago: http://bit.ly/18OX3r7. Here is an excerpt:

Yea the Modern Money Mechanics is a great document to start with. I strongly suggest anyone to read it.

Mike Maloney has been continuously putting out great content. I'm not 100% on board with everything he says. But he is definitely a shining light in the precious metals community.

Its a bummer Maloney still is taking a cautious stance on Bitcoin. Everything I could find on him and his stace on Bitcoin demonstrates that. Only if he took time to sit down and truely understand it... He would probably be pushing it alongside Gold / Silver =)

IMHO I don't think he'd like it because he's a big proponent of "intrinsic value", and he'd argue that Bitcoin doesn't have as much intrinsic value as Gold. Which it doesn't, but it exchanges that for greater utility & safety.

What they said is actually true, depends on how you take it. They indeed created a lot of checkbook money, and all those checkbook money are counted in their assets and liability statistics

But they never tell you the difference between checkbook money and base money, doing so will reveal the obvious

Is it really difficult to understand my example? Why there is a LIBOR rate? If commercial banks indeed can create money for themselves, they never need the FED to bailout them

Commercial banks can only loan so much money: they must retain a fraction as reserves (otherwise there would be booms and busts every week). Additionally, long gone are the days in which those reserves were something other than checkbook money from the central bank. Today, the majority of the money supply is credit, whether created by central or commercial banks. In other words, reserves are no longer what their name implies (for which reason, Peter Schiff once suggested the Department of the Treasury changed its name to "Department of the Debt").

This statement is true depends on what you mean by the word "money supply": The majority of M1 is credit (checkbook money). However, there is a minority of M1 called M0, which is base money created by central banks

In fact, most of the people are unaware that M0 and M1 are totally different things: Since M1 include M0, they must be the same type of things with different scope right? (I remember decades ago, some guy laughed at their neighbor: You only got 4MB RAM drive? I have a 40MB hard drive!)

When you see the word money, you could always first ask: Is that base money or checkbook money? And I had an impression that many professors in economy schools don't understand this question

Running the risk or becoming repetitive, "long gone are the days in which those reserves were something other than checkbook money from the central bank" (just replace "reserves" by "base money").

http://en.wikipedia.org/wiki/Money_supply

Every country has its own terms of base money, some call it M1, some call it M0, or MB, but basically they are very similar. Base money is not a secret, but just described in a very misleading way, since from account point of view they are also numbers. But if you want to trace how money flows, you must use the base money, that is the only money that can be spent

Please explain what exactly do you mean by "base money." Since it is "not a secret," I guess you have no reason not to reveal it.

Just look at this example, no matter how many times banks loan out the money, MB never change
http://en.wikipedia.org/wiki/Money_supply#Example

This also means that M1 in reality could never reach 10x of MB if the reserve ratio is 10%, since that will put all the MB at reserve and no money available to spend

That is why it is called the "monetary base." Likewise, the base of your building never changes, or your building would collapse.


Reserves are just money not loaned. At the beginning, the monetary base contains "excess reserves." As commercial banks loan those excess reserves, the money supply increases to up to ten times the remaining (not excessive) reserves.

The other thing you guys aren't taking into account is that some "reserves" (actually, all of them, depending on how you think about it) are just more debt. Some forms of debt (like certain instruments other banks make) can serve as reserves to "insure" deposits. Thus the banks can always "switch off" debt, just like the federal reserve an the government do, to achieve basically the  same end.

In reality, there is no m0. The entire concept is dumb, since if all the debt was repaid, there would be no money supply (except, I suppose, some Federal Reserve Notes owned by the Federal Reserve). That's why the entire argument about gold (or bitcoin, or whatever) denominated currencies causing deflation is stupid, because we could have literally the exact same system denominated in gold as we do right now, since everything we use is debt right now anyway. The only reason why USD isn't denominated in gold is to prevent the public from seeing the exchange of IOUs for what it really is.

Quoting myself in #68:



The migration from reserves in gold to reserves in credit is the process of money completely becoming debt. The present stage of that process would not be possible with gold still acting as money. Central banks know that, which is why they try (and mostly succeed in) making people totally forget that gold ever could be - or even was - money.

As for (partially) denominating dollars in gold, this was the case until 1971. The reason why Nixon severed the link to gold was because other countries were withdrawing their gold, which, unfortunately, thanks to fractional-reserve banking also belonged to the USA.

This was a very educating watch. Thank you. I suspected that there was a scam behind all this printing press and currency out of thin air business, but I did not think it was running that deeply. Murdock and Mavrodi are just small fry by comparison.

I would also recommend everyone to watch the first episode:
http://www.youtube.com/watch?v=DyV0OfU3-FU

It really puts the difference between money and currency into perspective.

And Bitcoin fills the criteria of being money, while dollar is only a currency.

Although Mike Maloney is doing a great job educating people, his distinction between money and currency is flawed. He believes that money was originally sound (as gold) then got corrupted, when it was corrupted from the beginning. If he went deep enough to find the flaw, then he would see the fundamental deficiency of gold, which Bitcoin overcomes.

And the fundamental deficiency of gold is....? That it's not easily transferable? It was about as easily transferable as anything, when it was used as currency. :\

This video was really well done but contains a few critical inaccuracies.

1) The government doesn't need to issue bonds to pay for its deficits, it also doesn't need deficits to issue bonds.

2) More importantly, the government doesn't need to tax to pay off its existing bonds. The latter point is obvious, the US govt is paying its maturing bonds and interest payments while still running a deficit.

3) The government cannot "steal" prosperity from future generations as this video implies. That is literally impossible. The goods and services that are produced in the future cannot be sent back in time to be consumed in the present. When the government spends, it is taking labor and resources away from the PRESENT. As an example, the fuel, steel, and manpower that was squandered in the Iraq War did not come from the future, even though we ran major deficits and issued new bonds, it came from today.

I really wish they would correct these things, I can't get behind it or share it in its current form. At least #2 and #3.

1) I don't even know what the heck this means.

2) I get what you're saying but you're not being entirely fair. In FY 2013 I'm seeing a budget deficit of about 718 Billion and interest (on just treasury securities) of 416 Billion. That means over half the deficit is from the interest on treasury securities alone. If you throw in pensions, and count their appreciation as interest, and you take into account the fact that with less spending usually means less revenue as well, you might be able to argue that the deficit might not exist at all if we didn't have to pay any interest.

3) The government can theoretically "steal" prosperity from future US generations. Goods and services made overseas are currently flowing into the US. Future generations may have their goods and services flowing overseas. Thus, we 'stole' future generation's goods and services and are consuming "them" now.

What don't you understand about #1? The US government is the issuer of all US dollars and has infinite capacity to issue dollars. Therefore, it doesn't need to borrow to pay for its spending. It also doesn't need to tax for its spending, although as a practical matter it is generally wise to do so or else the nation would likely face massive inflation. Those are characteristic of a sovereign fiat currency. I'm not endorsing these characteristics, but they are the realities of our system.

You're talking about trade deficits in #3. There is an important distinction here from federal deficits. We could have trade deficits even if we never ran federal deficits or even if we were on the gold standard. If Americans bought foreign goods with gold, the foreign entities holding that gold could buy domestic goods with that gold in the future. I don't consider that stealing, though, since it's all voluntary trade. But I think my point stands and that the video is being misleading, the government cannot steal from future generations by deficit spending or by issuing treasury bonds. The closest we can come to stealing from the future is by depleting or destroying natural resources, in my opinion.

Except the US Government doesn't print US Dollars, the Federal Reserve does. And the federal reserve doesn't just give those US Dollars to the US Government, it only lends them to the US Government.


No, I'm not talking about trade deficits in general, I'm talking about a very specific kind of trade deficit.

You see if we're spending more gold than we're taking in, then our future generations maybe won't be able to continue that practice, because they won't have the gold to do so, but they will still be able to keep any products & services they produce, if they want. That's not stealing, although perhaps it is leaving a poor inheritance.

However, if we're borrowing gold/usd/etc... then our future generations perhaps will not only no longer be able to continue that practice, but they will also have to pay back our debts plus interest. So they WON'T be able to keep many of the products and services they produce, because many of those are going to pay off the debt. That's stealing, because we are actually taking future generation's products and services away from them - the products and services they, themselves, produced, not anything we gave them -  without their consent.

The US Treasury, and more specifically the Bureau of Engraving and Printing, does the actual printing but I'm considering the Federal Reserve as a part of the government anyway. Yes I know they have shareholders and they're not entirely public, but the US dollar is still a sovereign currency.

You said that "future generations may have their goods and services flowing overseas." That would be a trade surplus, which a lot of Americans in the manufacturing sector would actually be quite happy with. The dollars held by foreigners today allows them to buy US goods and services in the future, and the reason they hold them is because of trade deficits in the past. When an American sells dollars for Yuan to a Chinese person so that he can, lets say, take a vacation in China, there is no "debt." If that Chinese person takes those dollars and buys a treasury bond, all that entitles him to is a nominally greater amount of dollars in the future. He isn't entitled to any real goods and services, at least not more than any other person with dollars is. You can say that the existence of dollars held by foreign entities could raise the prices of American goods, taking away the purchasing power of dollars held by domestic entities, but that's the case with any dollars in existence.

The US government doesn't (completely) control the trade deficit, in other words they don't control whether existing dollars (or bonds) in domestic hands are put into foreign hands. They control fiscal policy. When they issue a bond to a person and collect present dollars, they repay him with future dollars down the road and that person can buy future goods and services with those future dollars. That's it.

If you take what the video says at face value, they make it sound like our children are going to have to word extra hard to make extra stuff and then send it into some sort of wormhole all because treasury bonds exist. We're not taking, and in fact can't take, any goods and services away from future generations. It's a critical point to grasp, I think. I used to think that the national debt and deficits were stealing from future generations as well, because I was misinformed, and I'd hate to see others misinformed in the same way.

Even assuming the Federal Reserve WAS entirely public and didn't pay any dividends, it would make absolutely no difference assuming they continued their current policies. The US Dollar may be a sovereign currency except the US Government still can't just print it and spend it into the economy as a substitute for borrowing. Lets look at what you said:

The government doesn't "need" deficits to issue bonds, but there is no real reason why they would borrow money they don't need, so what the heck.
The government DOES need to issue bonds to pay for its deficits, because thats the only way the Government can get additional spendable currency (aside from taxing more obviously).

The fact that the Federal Reserve pays dividends just makes the "value leak" from the US Dollar into the pockets of bankers that much bigger. In either case, you still have a problem currency, and you still have government issuing bonds to pay for its deficits.

You're trolling so very bad right here its not even funny. The point of working is to make money, and the point of that money is to buy goods and services. Being forced to work, while not making any money, or getting compensated with other goods and services, is known as slavery.

If you work, then spend all your money for goods and services, you're not being stolen from, you're spending your money. If you work, and then SAVE your money, you're not being stolen from either, because you still have your money which you can spend. If you work, and then DON'T spend your money, but still don't have any money saved due to no fault of your own, THEN you are being stolen from, because you have been enslaved.

A trade deficit is where a country has some savings, and spends them, so that more products and services come in than go out.
A trade surplus is where a country works hard, so more money comes in than flows out, so its savings grow.

Both are natural states for a country to be in. There is only so much money, so naturally sometimes you'll get it and sometimes you'll spend it.

When its stealing from future generations, is when you spend MORE money than you're savings, and then you never pay off that debt. Now, future generations work - earn some money - but neither get to spend it or save it, because its going to pay off the debt that YOU made. That is stealing. Saying that a trade surplus is a good thing, so that's something the manufacturing sector should be happy about, is like saying jobs are a good thing, so we should enslave people, so they're happy they have a job. Obviously its not the job people want, its the money resultant from that job, and the products and services that money can buy.
And that's exactly what we're doing. Our children are going to have to work extra hard to make extra stuff to sell that extra stuff to get money to pay off the debt that we caused. There is a reason why if your father runs up his credit card then dies and leaves you 0 money, you're not responsible for paying off that credit card bill. Its because being born into debt is being stolen from. That seems amazingly obvious.

It seems you've granted me that the Federal Reserve is part of the US Government. Yes it has shareholders, yes it's largely autonomous, but it was created by the US Government and sends its profits to the US Treasury.

When the US Treasury issues treasury bonds which are then purchased by the Federal Reserve, the result is that the government has more dollars to spend and it didn't get those dollars from taxation. The bonds go from one place in the government to another place in the government, new dollars are created, and then those dollars can be used for government spending. It says this is in the video itself. I'm arguing that this whole process (issuing bonds to be bought up by the fed reserve) is a formality and logically unnecessary.

I didn't talk at all about anyone being forced to work, nobody is going to be forced to work.

Maybe try thinking about it this way, obviously we have a bunch of federal debt that existed long before you and I were born. I'm assuming you're an American here. You and I don't have to work extra hard for the bonds that were issued during WWII.

Or what if the US had absolutely zero trade with other nations, everything was domestic. Would you grant me that deficit spending and issuing treasury bonds would not be stealing from future generations in that scenario? The same logic supports the conclusion that we are not stealing from future generations in a world with international trade.

Also I strongly recommend you read this book: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf . That is what opened my eyes to a lot of new things. The first two chapters are quite relevant.

For the sake of illustrating my point, you could also picture a world where international trade exists but every treasury bond is held by the federal reserve. They hold trillions as is, but lets just make that 100% of outstanding bonds for this example. I would argue that this is equivalent to a world where treasury bonds don't exist at all and the US Treasury just prints currency as it needs to cover deficits, even though the national debt would still technically exist. We count the treasury bonds held by the federal reserve in debt figures, so that hardly seems extreme.

How could the debt or deficits be stealing from future generations there?

*SIGH*
No, I haven't. I simply said that if it WAS part of the US Government - which it isn't - it still wouldn't matter.
Exactly, and YOU said it could do this without issuing new debt. Which it can't.
Except this is not a net-0 process.

Look, here's what you're saying. You're saying that the government is printing itself money, lending that money to itself, and paying that interest back to itself, which you say is effectively the same as if they were just printing the money and spending it into the economy directly. And that would be true, if that's what they were doing.

First off, only profits of the Federal reserve are turned over to the treasury. That means anything necessary to maintain its balance sheets, or pay its obligations (including the dividends to banks) aren't handed over. So, the Fed's "profit" amounts to 94% of the interest it earns from the loans it makes to the US Government. What you don't seem to understand is that the US Government is always paying out more interest to the bonds that the Federal Reserve now owns than the Federal Reserve actually collects, because of the Open Market. The Open Market says that the Fed doesn't directly buy bonds from the government at auctions, but buys them from, guess what, the open market. So what happens is that the banks re-sell the bonds on the open market for a profit.

Throughout this whole process, there are 'leaks'. Where US Government interest money is not all going back to the treasury, but is instead being diverted into the pockets of banks. Even a single tiny leak kills your supposed theory of the IOU exchange being a net-0 process. There are lots of REALLY BIG leaks going on right now.

Ok, how do you pay off debt other than by working.
Actually, we do.
Or what if the US had absolutely zero trade with other nations, everything was domestic. Would you grant me that deficit spending and issuing treasury bonds would not be stealing from future generations in that scenario? The same logic supports the conclusion that we are not stealing from future generations in a world with international trade.

The fundamental deficiency of gold is that it makes no distinction between itself as a representation of monetary value and the monetary value it represents. Bitcoin makes that distinction by representing monetary value as a private key then metarepresenting as a public key.

Inflation can finance far bigger deficits than taxes because people mistakenly blame it on merchants. Additionally, turning debt into money provides the perfect disguise for inflation as it makes money self-inflationary.


Using just inflation to pay public debt would destroy the currency too rapidly, which is why whoever controlled the government created the income tax along with the central bank.


We are stealing wealth from the future by:

1. Destroying or failing to create productive capacity - by misallocating resources.

2. Forcing future generations to repay outstanding debt instead of producing.


Mike Maloney's mistake is to be found instead in his distinction between "money" and "currency."

And what is the significance of this? You're trying to say its easier with Bitcoin to check how many Bitcoins other users have?

It needs to be updated for BASEL III Accord from BIS.
It is Agreed but not yet implemented it further reduces the "backing" of currencies and interlocks the main currency pairs with each other's debt as the backing.  Reduces the value of gold and hard assets for central banking account settlement.

I agree w/ everything you said except "Forcing future generations to repay outstanding debt instead of producing." The national debt is in dollars, not in goods and services. Future generations produce goods and services, not dollars. The US Govt has an infinite capacity to produce dollars. The productivity (and wealth) of future generations depends on the productive capital that is available to them.

Misallocation of resources by our government, now THAT is a real problem.

Again I'd recommend everyone read "Seven Deadly Innocent Frauds of Economic Policy" which probably does a better job explaining the points I'm trying to make. http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

I'd also again challenge theonewhowaskazu or anyone else who'd like to try to answer this: "What if the US had absolutely zero trade with other nations, everything was domestic. Would you grant me that deficit spending and issuing treasury bonds would not be stealing from future generations in that scenario?" If you agree that's not stealing, then how does the fact that there's international trade change the question?

And again my other question, what if the Federal Reserve held every treasury bond, regardless of whether there is international trade or not. Would moving treasury bonds from the US Treasury to the Federal Reserve be stealing from future generations?

I'm not here to defend the US monetary system, I'd like to see a change and that's one reason I support bitcoin. But I see no reason why we should be using false statements to attack the current system when there are plenty of other valid criticisms to pursue.

The only problem you seem to be having is that the government DOESN'T have that capacity.

It BORROWS those dollars. Every dollar in circulation is either a dollar of national debt, or a dollar of somebody's personal debt. Eventually, people won't continue to lend to a country with always increasing debt. And when they stop, then the only one left to lend is the Federal Reserve, and the system collapses.

Are you telling me that dollars do not represent goods and services? Have we so deeply mistaken money by debt as to forget it was ever money?

However, in a sense you are correct: the damage to productive capacity, social infrastructure, social cohesion, and the environment will outlive any reengineering of the monetary system to solve the debt problem.

The confusion between money and its representation is the basis for that between debt and money. For further information, please read this: http://bit.ly/Z9cRyY (http://bit.ly/Z9cRyY).

China PBOC (Chinese Central Bank) is front-running the Fed's taper, by tapering first.
http://www.bloomberg.com/news/2013-11-20/pboc-says-no-longer-in-china-s-favor-to-boost-record-reserves.html
“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday.