Hidden Secrets of Money

[bobdutica]

In 1944, at the Bretton Woods conference, 44 countries met and agreed that they would all peg their currencies to the U.S. Dollar, and that the U.S. Dollar would be pegged to gold. In 1991, President Richard Nixon unilaterally removed gold backing to U.S. Currency.

Look what happened to the price per ounce of candy and the price of a First Class Postage stamp up to 1970 and after 1970 on this chart. Inflation, inflation and more inflation!

[DPoS]

So where does the interest has to come from? Or is this way too simplistic?

usury by design is against nature's law where money is created from money

default is the only balancing in that regard so the power of who may default and who may not is quite the key to the kingdom


if you have paid attention to the financial mess the last 7 years you will see much debate lies on who and how they default

[twiifm]

In 1944, at the Bretton Woods conference, 44 countries met and agreed that they would all peg their currencies to the U.S. Dollar, and that the U.S. Dollar would be pegged to gold. In 1991, President Richard Nixon unilaterally removed gold backing to U.S. Currency.

Look what happened to the price per ounce of candy and the price of a First Class Postage stamp up to 1970 and after 1970 on this chart. Inflation, inflation and more inflation!

What about economic growth after Nixon shock?

[bobdutica]

In 1944, at the Bretton Woods conference, 44 countries met and agreed that they would all peg their currencies to the U.S. Dollar, and that the U.S. Dollar would be pegged to gold. In 1991, President Richard Nixon unilaterally removed gold backing to U.S. Currency.

Look what happened to the price per ounce of candy and the price of a First Class Postage stamp up to 1970 and after 1970 on this chart. Inflation, inflation and more inflation!

What about economic growth after Nixon shock?

After the Nixon shock in 1970, the U.S. Economy was stagnant until the early 1980's. A common phrase in the mid 1970's was "stagflation".

[roslinpl]

The other day I saw this video.
And I came across many more videos saying more or less the same.
It is very clear that the people behind such videos are against the current system.
That makes the message that they are spreading and explaining a bit colored.
Now, I'm not an economist. I really don't know how much of it is true (maybe all, I don't know).
I'm hoping that there are people roaming these forums that have more understanding of the subject, and would take some time to explain some stuff.
Because I'm thinking that every system has its flaws, but our current system can't be all bad, right?
I suspect some nuances can be made regarding this subject.

Here are some questions that I have about this video:

• Does it really work as the video claims it to be?
• Does the same yield for the Euro or Yen for example?
• Would a gold standard really solve all our problems, or would it create others?
• Why would a sovereign country give the right to make money to a private corporation with stockholders, so that they can collect interest? They could just do it themselves without having to pay interest.
• Does it really only work if the system collapses every 150 years or so, which would be the logical future as pictured by the video?
• If the current system only works if new debt is created to pay the interest on the principle, why aren't a lot of economists rebelling against it?

Thanks for sharing your thoughts and this link.
It was very interesting to hear and to read.
Now I can go to sleep and think about this during lying in a bed...

I must say - there are things on this world that I cannot imagine why it is like it is.

[twiifm]

What about economic growth after Nixon shock?

After the Nixon shock in 1970, the U.S. Economy was stagnant until the early 1980's. A common phrase in the mid 1970's was "stagflation".

I remember that.   But elasticity from removing gold standard allowed Friedman to use monetary policies to address stagflation.

[Erdogan]

Nowadays, newly printet money that resides in the mint or in the central bank, does no harm, even better if people don't know about them.

The idea of the traditional gold standard, is that bills are backed and redeemable, so, just like not yet distributed coins, with the gold in the banks and the same amount of redeemable bills in the market, it should be fine, just as good as the gold, if distributed.

Now here is the problem. Printing just a little more bills than there is gold, works fine, because most redeemable bills will not be redeemed. Then you can print even more, just a little. Only after some time, maybe decennia, the public will suspect that there is not enough gold to redeem.

At that point, the redeemability will be cancelled. Then we are at it again, with uncontrolled fiat.

So there is int the end no other choice, with gold, than to use gold directly as money. This is perfectly implementable today, with plastic coins or cards that contain fractions of grams of gold. You could also have redeemable bills, but they have to be privately issued with no government guarantee, so a suitable frequency of bank runs can keep the people alert and the issuers in check. The same goes for deposits for electronic payments.

Bitcoin changes all this.

[berliston]

What about economic growth after Nixon shock?

After the Nixon shock in 1970, the U.S. Economy was stagnant until the early 1980's. A common phrase in the mid 1970's was "stagflation".

I remember that.   But elasticity from removing gold standard allowed Friedman to use monetary policies to address stagflation.

Don't you think that it's time for changes as Bretton Woods system has outlived its usefulness ? it's time for a new standart

[bobdutica]

Absolutely! Something like Bitcoin would be a much better standard. Then the greedy politicians would not be able to inflate it.

[bitaxed]

This is my opinion:

• Does it really work as the video claims it to be?

Yes, the concepts exposed in the video are sound (it is a simplification, of course).   

• Does the same yield for the Euro or Yen for example?

Not so different.

• Would a gold standard really solve all our problems, or would it create others?

*All* our problems? Absolutely, no. The question is different: do you want an economy based on a fiat system monopoly imposed by law and managed by few private corps?

• Why would a sovereign country give the right to make money to a private corporation with stockholders, so that they can collect interest? They could just do it themselves without having to pay interest.

Ehm, long story... Anyway, many "public" services are managed by private corps. Interest is necessary to discern good and bad investments. Unfortunately, in this system debts can be easily monetized/socialized: the rule is private profits, public debts.

• Does it really only work if the system collapses every 150 years or so, which would be the logical future as pictured by the video?

Any human creation has an explicit or implicit expiration date, why a monetary system should be different? The real problem is the damage produced by a wrong imposed monetary system: it boost bad investments, misallocation of resources and corruption.

• If the current system only works if new debt is created to pay the interest on the principle, why aren't a lot of economists rebelling against it?

No economist can find a job if the fiat currency system collapse: they are part of the pyramid but in a better position than you.
[/list]

Do you see the pyramid created by the fiat system?

[ShireSilver]

The idea of the traditional gold standard, is that bills are backed and redeemable, so, just like not yet distributed coins, with the gold in the banks and the same amount of redeemable bills in the market, it should be fine, just as good as the gold, if distributed.

Now here is the problem. Printing just a little more bills than there is gold, works fine, because most redeemable bills will not be redeemed. Then you can print even more, just a little. Only after some time, maybe decennia, the public will suspect that there is not enough gold to redeem.

At that point, the redeemability will be cancelled. Then we are at it again, with uncontrolled fiat.

So there is int the end no other choice, with gold, than to use gold directly as money. This is perfectly implementable today, with plastic coins or cards that contain fractions of grams of gold. You could also have redeemable bills, but they have to be privately issued with no government guarantee, so a suitable frequency of bank runs can keep the people alert and the issuers in check. The same goes for deposits for electronic payments.

Exactly, which is why I made Shire Silver, credit card sized units with small amounts of gold and silver in them. They make gold and silver as easy to use as the paper notes, so you don't need the paper in the first place.

But yeah, bitcoin has certainly made a strong case for being the primary digital currency, with physical currency like mine being relegated to physical exchanges.

[Erdogan]

The idea of the traditional gold standard, is that bills are backed and redeemable, so, just like not yet distributed coins, with the gold in the banks and the same amount of redeemable bills in the market, it should be fine, just as good as the gold, if distributed.

Now here is the problem. Printing just a little more bills than there is gold, works fine, because most redeemable bills will not be redeemed. Then you can print even more, just a little. Only after some time, maybe decennia, the public will suspect that there is not enough gold to redeem.

At that point, the redeemability will be cancelled. Then we are at it again, with uncontrolled fiat.

So there is int the end no other choice, with gold, than to use gold directly as money. This is perfectly implementable today, with plastic coins or cards that contain fractions of grams of gold. You could also have redeemable bills, but they have to be privately issued with no government guarantee, so a suitable frequency of bank runs can keep the people alert and the issuers in check. The same goes for deposits for electronic payments.

Exactly, which is why I made Shire Silver, credit card sized units with small amounts of gold and silver in them. They make gold and silver as easy to use as the paper notes, so you don't need the paper in the first place.

But yeah, bitcoin has certainly made a strong case for being the primary digital currency, with physical currency like mine being relegated to physical exchanges.

Shire Silver... which I also am the owner of a few of.  

[OROBTC]

...

In partial defense of Nixon in 1971 (?!), if he had NOT stopped France et al from taking our gold at that price ($42.22 / oz IIRC), then ALL of our gold would be GONE!

I'm a FOFOA fan (but not FOFOA, duh..., smile,,,).  He came up with an idea that if the Treasury just put out the call that they would buy any and all gold for an arbitrarily high price (say $10,000 / oz) that would instantly set a worldwide floor of that price, and pretty soon gold would rise even higher.  Bang!

FOFOA is the guy who made the "$55,000 / oz" idea famous in the Au Community.  He writes dense stuff, but if you follow gold, this is excellent reading, highly recommended:

fofoa.blogspot.com

[Erdogan]

...

In partial defense of Nixon in 1971 (?!), if he had NOT stopped France et al from taking our gold at that price ($42.22 / oz IIRC), then ALL of our gold would be GONE!

So it was the plan from the beginning. Also next time? Print redeemable bills, print like crazy, the cancel redemption, because else all our gold could be gone? Maybe the swiss should have a go on it next time. Or maybe the scam will be seen through, and bitcoin will be fully implemented instead. We can hope.

I'm a FOFOA fan (but not FOFOA, duh..., smile,,,).  He came up with an idea that if the Treasury just put out the call that they would buy any and all gold for an arbitrarily high price (say $10,000 / oz) that would instantly set a worldwide floor of that price, and pretty soon gold would rise even higher.  Bang!

FOFOA is the guy who made the "$55,000 / oz" idea famous in the Au Community.  He writes dense stuff, but if you follow gold, this is excellent reading, highly recommended:

fofoa.blogspot.com

[CurbsideProphet]

There are two excellent books that describe the history of the central bankers of Europe and how they loaned money to the various governments, and how they played one government against another by financing wars, often financing both sides -- profiting from both.

The first book is a short, quick read at only 136 pages. It is: "None Dare Call It Conspiracy"
The second book provides much more detail and is 588 pages, but still very readable. It is  "The Creature From Jekyll Island"

Neither of those books will tell you how money is actually created.
Every new loan must be collateralized by something, so where is this collateral being held?
Did those authors tell you it is held at the DTC? Did they tell you how to get that collateral back and liquidate the bonds that were written against it?

Nope, uncollateralized loans are made all the time.  Large companies can get loans without collateral based on cash flow alone.  High net worth individuals can also serve as guarantors in lieu of collateral.

This discussion is about how banks create money, not private lending.

What's the difference?  A loan is a loan and you said "every new loan must be collateralized."  Every loan doesn't have to be collateralized (I don't care what you're talking about) every loan needs to weigh risk (interest rate) along with the borrower(s) ability to repay.  That's no different for a government or any individual.

[johnyj]

Most of the video (except the FRB part) is correct
...

What is wrong about the FRB part?

FRB does not create money, it just created larger amount of checkbook numbers in bank's account, prove that money has been stored there, but those numbers can not be spent, if there is a bank run, those numbers will vanish quickly. The base money will never increase by means of FRB

[Erdogan]

Most of the video (except the FRB part) is correct
...

What is wrong about the FRB part?

FRB does not create money, it just created larger amount of checkbook numbers in bank's account, prove that money has been stored there, but those numbers can not be spent, if there is a bank run, those numbers will vanish quickly. The base money will never increase by means of FRB

A larger amount of checkbook numbers is money.

[johnyj]

Most of the video (except the FRB part) is correct
...

What is wrong about the FRB part?

FRB does not create money, it just created larger amount of checkbook numbers in bank's account, prove that money has been stored there, but those numbers can not be spent, if there is a bank run, those numbers will vanish quickly. The base money will never increase by means of FRB

A larger amount of checkbook numbers is money.

It is an illusion of money, like after you deposite your money at MTGOX, the web interface shows you a number on your account, and you think that money is real  

[bl4kjaguar]

There are two excellent books that describe the history of the central bankers of Europe and how they loaned money to the various governments, and how they played one government against another by financing wars, often financing both sides -- profiting from both.

The first book is a short, quick read at only 136 pages. It is: "None Dare Call It Conspiracy"
The second book provides much more detail and is 588 pages, but still very readable. It is  "The Creature From Jekyll Island"

Neither of those books will tell you how money is actually created.
Every new loan must be collateralized by something, so where is this collateral being held?
Did those authors tell you it is held at the DTC? Did they tell you how to get that collateral back and liquidate the bonds that were written against it?

Nope, uncollateralized loans are made all the time.  Large companies can get loans without collateral based on cash flow alone.  High net worth individuals can also serve as guarantors in lieu of collateral.

This discussion is about how banks create money, not private lending.

What's the difference?  A loan is a loan and you said "every new loan must be collateralized."  Every loan doesn't have to be collateralized (I don't care what you're talking about) every loan needs to weigh risk (interest rate) along with the borrower(s) ability to repay.  That's no different for a government or any individual.

When YOU get a loan, is the bank your creditor? What collateral is involved? If banks are depositing your promissory note for value when you sign a mortgage, who exactly is brokering that transaction?

[bobdutica]

Most of the video (except the FRB part) is correct
...

What is wrong about the FRB part?

FRB does not create money, it just created larger amount of checkbook numbers in bank's account, prove that money has been stored there, but those numbers can not be spent, if there is a bank run, those numbers will vanish quickly. The base money will never increase by means of FRB

A larger amount of checkbook numbers is money.

It is an illusion of money, like after you deposite your money at MTGOX, the web interface shows you a number on your account, and you think that money is real  

When the Federal Reserve buys a U.S. Treasury bond, it credits the U.S. Treasury with new money, created out of thin air. The only collateral is "the good faith and credit of the U.S. Government." The Treasury can spend that money, illusory or not, for real goods and services. It does this over and over again, thus causing inflation, a hidden tax on everyone who holds dollars.