Hidden Secrets of Money

[johnyj]

Let's use a simple example.
Fed loans US gov 1bil + 1% interest.
The US gov now has 1bil. Where does it get the 1% interest portion from to repay the debt? It has to be created first via someone else borrowing it into existence.

Assuming the U.S. tax base is productive enough, the 1% interest can be paid from production. It does not have to be paid though additional borrowing.

Now the US gov repays the fed, but what about the new borrower? Where do they get the funds from to repay their debt + interest.

I assume you are referring to the problem that if all U.S. debt is paid back, there would be no more dollars. That is only a problem if the new borrower's debt and interest must be paid with dollars, and that problem exists with any currency -- even a gold-backed dollars, since no dollars would exist that could be bought with gold.

Every new loan must be collateralized by something, hence if the economy does not expand fast enough to create new assets as collateral we get credit inflation. Existing assets must be artificially revalued higher in order to support new debt. Think of home prices, the underlying value of the home never changed. If you read the original Fed Reserve act, holding US government bonds was illegal. The fed could only lend against SHORT TERM self liquidating bills from the private sector. Ie The fisherman's IOU's would be the collateral for new fed credit. This was changed when they ammended the fed reserve act in the 1930's. Banks got in bed with the government and slowly Tier 1 capital assets became government bonds.

Gold's role was to extinguish debt. I bring a bank note(LIABILITY) and exchange it for Gold(Asset). Do you see the difference with your example? I am not extinguishing 1 form of debt(liability) with someone elses. Money is anything that extinguishes debt. It does not have to be gold, however ONLY production can repay debt. Everything else is merely a form of credit. We do not have "money" present in our system, it was removed in 1971.

A healthy bank backed its deposits by 2 things. Gold and real bills(self liquidating credit which matured into gold). This required trust, now trust requires prudence which is a virtue. You had to be sure the fisherman would make good. The economy could be expanded to the extent of your prudence. This is a functioning free market system. Money is backed by the productive capacity of your economy. We have nothing of the sort today, hence the boom(counterfeit credit) and bust nature of our system.

The reasoning behind gold was simple. Gold was and is the most saleabile ie liquid asset. You could get rid of large volumes of it without depressing the bid side. Real bills were the second most liquid credit instruments, since they matured in gold and were backed by real production.

I agree with you about the value of a gold-backed currency, but you lost me here. How does this relate to the belief that the principle plus interest exceeds the money supply and therefore can't be paid off?

All these borrowing and IOU things have a common paradox: One can not lend out something that does not belong to him (That would be crime). So before the FED lend out money to the government, it must have the ownership of those money at the first place. This means that every dollar belongs to FED at the moment they were created. It also means that FED are exempt from the interest burden since they never need to pay it to anyone

[redwhite037]

Have you guys seen "The Money Masters"? Very interesting documentary on the history of the USD

[twiifm]

I agree with odolvlobo explanation.

I think many people confuse private debt and govt debt.   They are not the same thing.

Private sector needs debt to engage in business in order to profit.  Govts don't need to profit.   Heck they have power to print money.   Govt role is to keep the economy going.   

Whether deficits matter or not in the long run is debatable.   Japan runs a deficit 300% of GDP and it hasn't collapsed yet.

 

[newtypeseed]

btc can hidden money

[bobdutica]

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.

The U.S. Constitution does not permit the Federal Government to print paper money.  The framers of the Constitution were very aware of the inflationary dangers of paper currency from their experience during and shortly after the American Revolution with the printing of Continental currency and the destructive inflation that quickly made it worthless. The Constitution permitted only the "coining" of money from precious metals like gold and silver. One mistake they did make was to permit the Federal Government to borrow money. This left the door open for central bankers to get their foot in the door.

• 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?

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"

By playing one government against the other, these central bankers controlled the major governments of Europe. The United States resisted getting involved with central bankers for a great part of its first 120 years or so, during its greatest period of economic growth in history. Large bankers got together in a secret meeting at Jekyll Island, Georgia in 1910 to devise a plan to create a cartel controlling the central banking function for the United States. These bankers represented the Rockefellers, J.P. Morgan, and the Rothschilds and Warbugs of Europe. Also in attendance were the U.S. Secretary of the Treasury and Senator Nelson W. Aldrich, father-in-law to John D. Rockefeller, Jr. and grandfather to Nelson Aldrich Rockefeller (future Governor of New York and Vice Presidential Candidate). They were unable to get their plan passed by Congress in 1910. The American people were opposed to a central bank, and the Congress would not pass the plan into law. Only after disguising the plan by making no reference to being a bank, and using the name "Federal Reserve" were they able to get Congress to pass it in 1913. Its stated goals were not its real goals, and the Federal Reserve has never accomplished its stated goals in its history. Its real goal was profit for the central bankers and control over the government leaders.

Bottom line: the Federal Reserve, along with the European central banks, is a vehicle for the central bankers to get control over each of the governments. A strong case is made in both of these books for the argument that these central bankers desire to consolidate all the world's government into one worldwide government that they control.
 

[BlockChainLottery]

Have you guys seen "The Money Masters"? Very interesting documentary on the history of the USD

Does that include the time before the federal reserve system?

[BlockChainLottery]

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

What is wrong about the FRB part?

From what I'm reading, bank lending creates deposits, and the limit on amount of new money is the willingness from others to borrow it.
The problem of this system is that in case of the federal reserve, privately owned banks earn money on creating money out of nothing.
Other countries often own their central banks, and get dividend. These countries earn money by making new money, getting hidden tax by creating inflation,
and getting normal taxes.
I'm going to throw some new thoughts about this here.

• To run a wealthy country, a lot of money is needed (national debt is a result of that). People are willing to pay only so much taxes.
  Without inflation (hidden taxes) it wouldn't be possible without turmoil.
• Inflation is good for the economy, because it promotes spending.
• Policy to keep the prices stable is needed because that's a good characteristic of money. A gold standard couldn't do this, because of the fixed supply.

...
In my example, I am the issuer of the currency. Perhaps the example was not clear. The point is that debt-based currency does not have to be created to pay interest. Interest can be paid with production. The paradox becomes real when the interest exceeds production because then the excess interest can only be paid by new debt, and a collapse is inevitable.

Can you explain what you mean with interest can be paid with production. Don't use the fish example, because I can't use fish to pay loans at my bank, nor can a government.

The dept can only be paid with dollars. And dollars bear interest. When all dollars are used to extinguish dept, still dept exists.
The system will be doomed because production or real economy can never keep up with creating new dept.

[odolvlobo]

• To run a wealthy country, a lot of money is needed (national debt is a result of that). People are willing to pay only so much taxes.
  Without inflation (hidden taxes) it wouldn't be possible without turmoil.

Inflation causes economic problems. It is a poor method of taxation. Anyway, if a government must go continually go deeper into debt then it is spending too much.

• Inflation is good for the economy, because it promotes spending.

Increased spending is not the ultimate goal. You could easily increase spending by giving each person $1 trillion, but in the end that will accomplish nothing except for creating massive inflation

• Policy to keep the prices stable is needed because that's a good characteristic of money. A gold standard couldn't do this, because of the fixed supply.

You can't keep prices stable and have inflation. That's a contradiction.

[odolvlobo]

...
In my example, I am the issuer of the currency. Perhaps the example was not clear. The point is that debt-based currency does not have to be created to pay interest. Interest can be paid with production. The paradox becomes real when the interest exceeds production because then the excess interest can only be paid by new debt, and a collapse is inevitable.

Can you explain what you mean with interest can be paid with production. Don't use the fish example, because I can't use fish to pay loans at my bank, nor can a government.

I catch fish and exchange my fish for currency and pay the interest. I am effectively paying the interest with fish, and I don't have to issue more currency to pay the interest. As long as I can catch enough fish to pay the interest, the debt does not grow and there is no need to issue more currency.

The dept can only be paid with dollars. And dollars bear interest. When all dollars are used to extinguish dept, still dept exists.

The amount of dollars represents the amount of debt (ignoring the other Fed assets), so there will be no debt left over.

The system will be doomed because production or real economy can never keep up with creating new dept.

The system is doomed if production can't keep up. If/when interest rates return to historical levels, we are doomed.

[Carlton Banks]

(just in case anyone else is confused, bank loans or government bonds are definitely not repayable in fish, hence fish only absorbs loan interest from informal debts)

[odolvlobo]

(just in case anyone else is confused, bank loans or government bonds are definitely not repayable in fish, hence fish only absorbs loan interest from informal debts)

Gee, I wonder how a fisherman could possibly pay off a mortgage then. You misinterpreted my analogy in two ways, so i will be explicit:

This and other videos claim that since interest must be paid with dollars and dollars are debt that there can never be enough money to pay to both interest and debt. My claim is that this is wrong because the results of production (fish in my example) can be exchanged for dollars, which can then be used to pay the interest. Additional debt is not needed to pay the interest. This works as long as production is greater than the interest, even if all assets are bought with debt.

[bl4kjaguar]

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.

The people's credit pays for everything in this country; the State is bankrupt and beholden to its creditors, and it has made a fiction out of each person with an SSN in order to operate in corporate receivership with respect to your assets.

My Birth Certificate is from the USSR and it has my Christian name (Father, Son, Holy Spirit). When it was translated and apostilled, my name was transposed in order to create a fictitious entity (Jewish name) so that I may participate in the American SSN bankruptcy insurance underwriting system.

Queen Elizabeth controls and has amended Social Security; additionally, every branch of State and government is a registered business
Source
Moar reading

Declaring independence does not revoke the charter and it does NOT give you title to the land; this means that the Crown still has allodial title to the land.
A people declaring independence from one government/system are most likely just going to be moving into a bigger cage.



If you want to understand the money system, it is a LONG trek full of surprising info and you first need to understand history; actually, the system itself is not as important as picking the lock of your cage; here are your guideposts:
David Merril ("lawful money")
Patrick Devine ("We The People Shareholders")
The Informer

Good luck.

[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?

[Carlton Banks]

(just in case anyone else is confused, bank loans or government bonds are definitely not repayable in fish, hence fish only absorbs loan interest from informal debts)

Gee, I wonder how a fisherman could possibly pay off a mortgage then. You misinterpreted my analogy in two ways, so i will be explicit:

This and other videos claim that since interest must be paid with dollars and dollars are debt that there can never be enough money to pay to both interest and debt. My claim is that this is wrong because the results of production (fish in my example) can be exchanged for dollars, which can then be used to pay the interest. Additional debt is not needed to pay the interest. This works as long as production is greater than the interest, even if all assets are bought with debt.

You seem to think that selling a self replenishing resource magically invents new monetary units, as the self replenishing magic rubs off on the money system. It does not.

[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.

[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.

[odolvlobo]

Gee, I wonder how a fisherman could possibly pay off a mortgage then. You misinterpreted my analogy in two ways, so i will be explicit:

This and other videos claim that since interest must be paid with dollars and dollars are debt that there can never be enough money to pay to both interest and debt. My claim is that this is wrong because the results of production (fish in my example) can be exchanged for dollars, which can then be used to pay the interest. Additional debt is not needed to pay the interest. This works as long as production is greater than the interest, even if all assets are bought with debt.

You seem to think that selling a self replenishing resource magically invents new monetary units, as the self replenishing magic rubs off on the money system. It does not.

No I don't. Now you are just being absurd/stupid/trolling. I wrote that your "new monetary units" are not necessary.

[Erdogan]

There is a lot of confusion of interest. Do you think the money volume must increase because of interest?

That is far from the truth. Interest is paid from one person to another person. It does not create money, nor destroy them.

The lender delays his consumption, so the loaner can consume before he has otherwise earned his money. The lender gets conpensation for the delay as interest. The loaner has to pay for the privilege of advancing in the queue for consumption. That is all.

The rate of interest is the value the loaner puts on the right to consume early. The lender puts a value on the disadvantage of the delay. The price (the interest) is resolved in the market.

There is a vast difference of this time preference among different actors. It depends of all circumstances they find themselves in. Some just wants or needs to consume now, whether he has earned or not. This is often rational. Think of a capable person with no savings, who suddenly finds himself in a family with wife and child. Others can delay their consumption, often indefinately, transferring their debt holdings through generations.

Of course nowadays these simple facts are hidden, since money is created in droves in the form of notes and credit, and the interest rate is held artificially low, using that new money to manipulate the market.

[dissident]

gold backed currency would not solve anything... most people who promote gold own gold, just like bitcoin, and they'd love to see a gold standard because they'd stand to 'gain' from it... they are profit mongers.

Gold would be fractional reserved like any other currency and would not meet the needs of 21st century commerce. Gold is a commodity.

It remains to be seen if credit based currency issued by the government treasury would really work that much better than debt based currency issued by a central bank.  The main problem we have to day are exchange rate differences and automation which has eliminated a lot of jobs and lowered their salaries. Just in the last 10 years where I work machines are able to pump out twice the product or more in just 10 years... what can't be made faster with automation is shipped to china to get done.

[twiifm]

gold backed currency would not solve anything... most people who promote gold own gold, just like bitcoin, and they'd love to see a gold standard because they'd stand to 'gain' from it... they are profit mongers.

Gold would be fractional reserved like any other currency and would not meet the needs of 21st century commerce. Gold is a commodity.

It remains to be seen if credit based currency issued by the government treasury would really work that much better than debt based currency issued by a central bank.  The main problem we have to day are exchange rate differences and automation which has eliminated a lot of jobs and lowered their salaries. Just in the last 10 years where I work machines are able to pump out twice the product or more in just 10 years... what can't be made faster with automation is shipped to china to get done.

Just curious.  Have you read Lights in the Tunnel?  http://www.amazon.com/Lights-Tunnel-Automation-Accelerating-Technology/dp/1448659817/ref=sr_1_1?s=books&ie=UTF8&qid=1396045622&sr=1-1&keywords=lights+in+the+tunnel

Its similar to what you are concerned about?  Great book