Grazie mille! Questo articolo, me lo faccia sapere un sacco di cose che prima non ho capito!

Wally, I'd better control my spending well in 2010.

Referring back to:

http://www.interest.co.nz/news/top-10-10-gareth-morgan-targets-rbnz-refo...

RBNZ staff kindly referred me to:

'The Reserve Bank's new liquidity policy for banks'

http://www.rbnz.govt.nz/research/bulletin/2007_2011/2009dec72_4hoskinnei...

From page 12:

"To satisfy growing credit demand, banks will need to borrow from a variety of sources, with increased emphasis on customer deposits and longer-term markets. As a result, lending rates should automatically move higher without the Reserve Bank necessarily needing to move the official cash rate to the same extent. With short-term wholesale market rates not likely to rise as much, the attractiveness of the New Zealand dollar as a destination for "˜carry trade' investors could be reduced.18 Through these channels, the policy has the potential to have a role in assisting monetary policy."

Things have changed. Don't forget this is about first consolidating the core-funding minimum at 65% and then progressing with two more phases, to 70% and then 75%. Thankfully......, we won't be headed back to 90%. From page 11:

"For the initial implementation of the policy, locally incorporated banks are being required to maintain a one year core funding of at least 65 percent. Under current estimates, the banks all have a ratio above this minimum, but only slightly above in most cases.17 However, prior to deregulation in the 1980s, the Reserve Bank estimates that the ratio would have been significantly higher, around 90 percent."

Thankfully ...... ?

Why has there been all the hand-wringing over supplementary instruments to the OCR when the answer must have been glaringly obvious to those responsible for controlling inflation? Who are ..... ?

What, or who, would have restrained, "...those responsible for controlling inflation," from employing this change in monetary policy earlier?

If this policy changed had been enacted earlier, say 2003/4 - would the following have been higher or lower:

1) track of the OCR,

2) track and volatility of NZD,

3) house prices,

4) national debt,

5) national savings rate,

6) CAD?

Given it has been shown RBNZ won't turn into a pumpkin by midnight if it varies 'core funding', and that doing so is unambiguous in terms of 'moneytree' and fiscal policy seperation (independence) what other parameter might complement inflation targetting? Maybe CAD, in some way?

Answers to:

http://www.interest.co.nz/news/summer-chart-series-why-economic-and-tax-...

Cheers, Les.

les,

I think the core funding ratio is a response to the Dire liquidity issues that NZ faced during the Global crisis....( I understand that there was a point where money was very hard for NZ to borrow)
When you have banks that borrow short term and lend long term.... you are vulnerable , in terms of liquidity, during a crisis.

I think the core funding ratio is not something to play around with... The higher the better.
It should have nothing to do with controlling inflation.

What is CAD..??

cheers

Roelof
It is about the robustness of our banking system.

Not just unpredictable Phil but sneaky as....consider the rush to spend the cash and yes to borrow and splurge, if a rise in gst to 20% is hinted at. Just the sort of event to be on Bill's mind but he has to time it right...too early and the good data evaporates before the election...too late and he misses the voter reward for the good data event.
I suspect the overpaid boffins in Treasury will be tasked to determine the 'right' time to leak the gst 'news'. Nov first 2011 would be about right. Time then to get the good data out for the aug sept oct period. What do you think?

roelof - just clocked your comment mate. Will have to answer later, (I do have some)poss. in new year. Have a good one, cheers, Les.

PS - In the interim consider our Capital Adequacy Ratio is Basel standard 8%, but the TARAs in Singapore have theirs at 12% and if we move our 'core funding' from present 65% back to say 1980's 90%, effectively our CAR would be back around 11%. Just food for thought and then as you digest that maybe you can tell me, if I want to start a bank (with no cash-over-counter ops) could I do so with just Tier 1 capital and then loan out 12.5 (1/0.08) times that amount, albeit as per Basel II risk-weightings?

Huhhh, must go. Cheers, Les.

Yeah good point Wally, I suppose if you had something big you wanted to buy coming up and you knew a big GST increase was coming, you would want to get in and get it before the increase.
I duno if it would change behaviour much on smaller purchases.

Oh they will try Phil..I got my wording wrong too..the leak will happen well before the change in gst date, thus giving peasants time to splurge and Stats NZ time to cook the numbers for release just before the election. It's called the 'Piggy Put'. Works a treat. Most punters chase the furniture and high tech crap along with whiteware and vehicles but it can spread to putting deposits down on house builds and reno jobs. Buying that truckload of grog and a gross of rum. Good for at least 6 months of smiles and BS in the media about recovery and growth.

roelof - I made a mistake with, "How did you come up with the relationship between Core funding and CAR..?? ie. Core funding at 90% will give us a CAR of 11%." See my 12.38pm, and I should have said something like, 'inflation effective CAR' being 90/65 times the present CAR of 8%. In other words, in terms of inflation throttling, we'd need to move CAR to 11% to have the same effect as 'core funding' at the RBNZ's estimate of 90%, in 1980's, "before deregulation". I'm certainly no whizz on all this either and just trying to learn, but as a 'kinesthetic' type that get's messy!

Plus are you absolutely sure with, "You can't just simply lend out 12.5 times your capital"¦. Your ability to lend depends on your ability to borrow (get deposits)." ??

"In July 1988, the Basle Accord removed the fractional reserve system and replaced it with the "capital adequacy system". Under the capital adequacy system, banks can lend up to a set multiple of its capital. The current rules mean a bank can issue about 12.5 times its capital. Should a bank, which is already fully loaned, wish to lend some more, it can simply issue new capital. By raising £80 million in new capital a bank can lend £1 billion. Of the £80 million, only a small proportion needs to be equity. The rest can be loan stock. In other words, by issuing a certain type of loan a bank can authorise itself to issue a great deal more." From:

#9 here, http://www.bendyson.com/the-cause-of-the-financial-crisis/how-did-we-end...

Hence my musing in that direction.

Have to sign off now, but am looking forward to carrying on with this, so would be grateful for any further thoughts, comments. Have a good night, cheers, Les.

Roelof - thanks, yep, I understood the "round and round" multiplier effect from the good RBNZ paper, among others, that penny dropped a wee while ago. It was only after reading around a bit more that I developed more concern about the CAR/8% "pretend it" into reality question and wondered if there is not this other "pretend it" multiplier working along side the "round and round" one. (Good terms these, Roger T will hate em'!!) Now I'm really late to get the bike out and that's because I was lazy in the past. I thought I'd just Google the name John Tomlinson, who is the author of that article on Ben Dyson's website that I referred you to, in particular item 9. Here's an interesting page from his website, that I've not read it in detail, but he analyses some balance sheets from Barclays Bank plc and looks like (at first glance) he is proving the "pretend it" into reality question, what do you think:

http://www.honest-money.com/talk.htm

Really must go, cheers, Les.

MELBOURNE house prices soared by 17 per cent in the first 11 months of 2009, outstripping growth in all other capital cities, new figures show.

The latest RP Data index, compiled from Valuer-General's figures, indicates the Melbourne median house price hit a new record of about $580,000 in November.

Interesting that Australia has capital gains tax and stamp duty that house prices rise regardless - so if such measures were adopted here it would make no difference - house prices would still rise.

http://www.smh.com.au/business/housing-prices-soar-17-to-record-20091231...

Les,

I discovered John Tomlinson a few yrs ago... Have his stuff filed away. ( very good )
If u take the time to really study his stuff... it will help make sense of a few things.
His background story about how the banking system evolved from goldsmiths who stored gold for people and issued reciepts, gives a picture of how the modern banking system "pretends it" into reality.... In any other field , it would be fraud.

There is much misinformation out there... Conspiricy theories.. people who preach half truths... and lead us down the garden path.
"Honest money" is well worth printing out...

Also print out this speech... it is very good... helps to clarify a topic that has most of us a little bit lost at sea, in terms of understanding.

http://www.honest-money.com/images/LordCaithness-HOL0209.pdf

Cheers

Roelof

Roelof - thanks for spending the time to put me right. I think that 4th 'money creation' demon in the door-knob was a smudge that I've managed to wipe off, and it came about after trying to reverse think some incomplete, maybe "half truths", and misleading stuff I'd come across. (Plus me being thick at times don't help!) I've scanned some of the stuff you've recommended, thanks again. I'm waiting for some rain to re-read and study more thoroughly. That said, this learning and unlearning experience hasn't changed my general views on moneytree system and policy reform. Indeed blundering around the ratios has further confirmed my belief in the need for such - especially the sensible utilisation of 'public credit' in a 'mixed' more stable money supply system. Plus, given the actual evidence, also how we'd benefit from Kiwbank, and also regional/city council banks, operating on a similar basis to the Bank of North Dakota system, meaning we could pay less tax, and less rates. Thanks again, cheers, Les.

Roelof - thanks again for spending some more time on this with your 10.34pm, on the 2nd comment. I appreciate a good few of the points you make but I'll get back to you on that with a more considered response. Referring back to your 10.59pm on the 1st, so yep, here what you say, and what theRBNZ doc. says, but I'm wondering if RBNZ might need to look at rewriting some of that in the light of where they are going with 'core funding'. I found these bits interesting:

From the intro - "On the other hand, the Bank believes the active use of prudential instruments to achieve price stability is rarely effective and usually involves some loss of efficiency in the allocation of resources." - re. 'core funding' (cf) changes I wonder if they really believe that now?*

#6. ".....by applying some, albeit relatively few, rules to banks as to capital adequacy and connected exposures, and having a range of supervisory intervention powers to deal with significant problems if they arise." - It looks like things have changed, ditto above, although am concerned cf might still be loopholed given AB hasn't specified proportions of the components in cf?

# 12. "We believe that there would be potential dangers in extending the scope of existing prudential powers to pursue price stability, including a loss of clarity in the objectives." - sure, but ditto above.

# 13. "For instance, if there was a concern regarding heightened activity in the housing market, a prudential power might be exercised to increase the risk weight on bank lending for housing in the measurement of a bank's capital adequacy, the aim being to establish a disincentive to banks to lend to this sector." - OK, so they ain't faffing with risk weights in the CAR calc, but the cf change is having the same effect, and I wonder if AB has finally said enough is enough, he can get two birds with one stone here, given he's suggested (apparently in a Listener article) ustilising mortgages taxes as a supplement to OCR, maybe meaning he's not so puritanical about unambiguous moneytree and fiscal policy seperation? Plus, I recall in an Int.co article a while back by BH, something about AB mentioning restraining lending to diary - in other words very sector specific and perhaps more evidence of a less puritanical orthodoxy? (Sorry about the religious terms, but we all know it's more about faith than science.)

# 18. "While efficiency is not defined, we interpret this as requiring the Reserve Bank to:

avoid unnecessary instability or volatility in the general level of prices, asset prices, interest rates or exchange rates;" - So the kind of vol we've seen in NZD wasn't obviously wasn't considered as, "unnecessary instability or volatility." Ha, ha, yeah right.
* Bernard Hickey: Reserve Bank a world leader in setting policy

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=106...

"The Reserve Bank describes this side effect of the core funding ratio as an automatic stabiliser for the economy, helping to raise interest rates when the economy is heating up without the central bank having to hike the official rate. This, in turn, will help exporters by keeping the exchange rate more stable at a lower level."

However, I repeat the questions I asked in my 12.07pm, Dec 30th. Why have we had to suffer with AB having one hand tied behind his back, for so long? Hopefully he'll be able to keep this other hand free long enough to, effectively, meet more of the criteria in #18 - because with just the one hand on the OCR it's been a dismal failure, IMO - just ask the exporters, (and importers) who've suffered, or left, or not even bothered to expand, or start up.

Cheers, Les.

Wally - I'm getting to you, hopefully before TC completely traumatises you. Just be strong.

@Les, maybe instead of Bollard saying, "enough is enough, {we} can get two birds with one stone here," it was more along the lines, "Dude, stuff this, like I've sorted the Brisco lady, like now let's get both these bast*rds in one hit." Hard to imagine?

http://www.stuff.co.nz/the-press/business/3194226/Bollard-buys-up-spoof-...

(Utter disgrace, you shouldn't read these.)

http://publicaddress.net/assets/PublicAddressBooks/PDFs/Preview_NZReserv...

http://www.publicaddressbooks.com/

les- I hear what you are saying. I don't think they will rewrite that document... by much.
I still say this policy is ONLY about liquidity issues.
I really don't see how it can have much impact on price stability or the exchange rate.

I also still believe it would be foolish to play around with it.. I just can't see how moving the core funding ratio from, say 50% to 80% is going to make alot of difference.
A bit like trying to put out a fire by pissing on it.

The side effect of introducing this poicy will be a shift in interest rates of 10-20 basis points ( according to the reserve bank). ..This sould be just a "one off" adjustment.

Banks can still borrow UNLIMITED amounts of money offshore... as long as the maturity of those loans is more than 1 year.

The reality is that nothing has changed...
We still need to borrow offshore to fund our Current Account Deficit.
The Govt still need to borrow $250 mill a week to pay its' way.

That money has to come from somewhere.

We all know that using the OCR to control the CPi is a terrible tool.
It cause heaps of "collateral damage".
In the Global Economy of Capital Flows , moving the OCR to our own drumbeat, becomes counter intuitive, and we witness things happening that theory says should not happen.

I believe Alan Bollard has both hands tied behind his back because he now sees the impotence and limitations of the OCR, in a Global World .
Just like Air filling a Vacum, Money will FLOW into NZ if there is a large differential between our interest rates and those of ( mainly) Japan and USA.
He has said as much by saying he is reluctant to raise the OCR because it may cause the $NZ to rally.

Another reason, is the view that Central banks hold about allowing Money Supply to be completely elastic and that their role is to influence the demand for credit.
AND the way they do that is to create a downturn by lifting interest rates....??
To most of us that seems stange... and to most of us the collateral damage that results ... does not seem right.

In answer to your question..... It is not Alan Bollards hands that is the problem... It is the "tools" in his hands that are the problem.
He is having to use the wrong tools for the wrong job.
The way he uses those tools , or how carefully he uses those tools is not going to make much difference to the outcomes.
looking at #18 .... "avoid unnecessary instability or volatility in the general level of prices, asset prices, interest rates or exchange rates...." one would have to say that those tools don't work... that well

cheers Roelof

les... What I'm trying to say is that I don't think using prudential policy to achieve monetary policy outcomes is a road we should go down.

there are risks in doing that and the I outcomes would be that great.

I'm trying think of an analogy.... Is it a bit like playing around with the Companies Act in order to make Companies more robust..???

I do think the core funding policy is a good idea thou.... but I don't think it will make much difference to monetary policy outcomes.

Cheers Roelof

Roelof - your 10.34pm, on 2nd, firstly, not bad after a few beers! Thanks.

I like your point, "Central banks and Economists have lost their way when it comes to understanding the impact that Money supply growth and debt has on an economy." and from may 2004 to Aug 2007 the OCR went from about 5.5% to 8%, while M3 money increased 30% from $116,000 million to $149,000 million. I've understood that to be a hot money availability effect, that while we were increasing OCR, given the expansive shelter of fixed rate mortgages, banks could borrow short (and cheap) knowing the lag in moneytree policy deployment meant roll-over risks to lending long would be covered by the fact that OCR was only ever going in their favour, in terms of continued availability (and increased margin....) which is one of the birds AB is also taking aim at with the 'core funding' changes, it appears.

I think I've nailed seeing inflation as volume of money (as opposed to the CPI); the dilution effect caused by expansion/increased creation; wealth transfer and tax effect; plus things wot money is, although I like the idea of 'currency of contract' which I think wraps up all three quite well. The other aspect I've come to appreciate more is the increasing effect on money supply that interest on debt has. As the interest component isn't created when debt is created, it has to come from more of the same, more debt+interest, from a 'whole system' perspective that is. Which leads me onto thoughts about public credit.

If we (NZ) need a bridge to be built say, the money most probably has to be created (borrowed) to do it. (At this point let's think of this money as the 'currency of the contract', as well, but I'll continue to use the term money.) NZ borrows the money, builds the bridge and sets about repaying the debt+interest, via our taxes. The debt is backed by gov. and, the physical asset which is comprised of material, effort and information. The money supply was increased by $bridge (including interest). As the debt is repaid back, money is destroyed, but interest on the debt is still outstanding - thus left in the money supply and has expanded it by the interest component - which probably compounded a wee bit. (A lot probably.) Why is it different for RBNZ and Treasury to issue sufficient 'currency of contract' ($bridge) as debt, but with no interest payable? The job gets done; value* is created; demand for money is matched to supply of material, effort and information; money is created and is (maybe*) destroyed, but the tax payer is not hunting for yet more money/taxes to repay the interest (which will compound nicely), meaning less tax to pay in two ways - 1) we don't have to pay the interest component - $250mio pw I believe, and compounding nicely, which is the killer, and 2) the inflation this component causes is negated, hence less indirect taxation by the 'inflation' dilution demon.

*Maybe not, as equivalent value is created - currency is asset backed - it could be sold (sorry TC**) like, gold, silver a.n.other commodity and the money (creation) expansion contraint is because the asset has a finite (net present) value, like a finite chunk of a.n.other commodity that we could use as 'currency of contract'. If still not happy with run-away money expansion, AB could always see if Milton Friedman wants a ride (in the ute, nice one Jacko) - which would steer things be back to full reserve banking, as from what I've read he's agin it and maybe we should be looking at that kind of change. (Yes, Wally, when hell freezes over.) ** Maybe I wouldn't, but I'd be looking to operate things privately where possible, and perhaps be into PPPs in some places.

*Back to maybe not, let's consider how much of the debt in the present 'round-and-round' system gets retired/destroyed? It's out there doing it's job, creating value, the difference is, 99.9999% is doing so while generating interest. I want to substitute some of that 'round-and-round' money supply with interest free 'public credit', thereby doing the same job, creating value (asset-value-limited public works) - to get the tax advantages, see a more stable money supply and more stable NZD, which I think may be more probable by at least having a system of mixed public and commercial credit.

I'd not be wasting time on this if there were not evidence to support the approach. Although I have to say the idea of 'the social credit' does kinda go against the grain, as does a lot of the benefit system we have. In fact I was somewhat taken aback when GM went on about his 'Big Kahuna', which is another idea, IMO, not to be dismissed out of hand with the usual lazy TINA response. But as for 'the social credit', I find it hard to hack the idea of people just plucking money off 'The Moneytree' for nothing - so we better just leave that as the preserve of the banks, because we can trust them, can't we?

Cheers, Les.

Les....who convinced you that an opinion was of greater value if it filled a book and not just two lines on a page?

Wally - who convinced you everything meaningful must only be said on bumper stickers? (Get a bigger VDU, don't be tight.) Enlighten and enjoy.

Hi Les,.... It will take me a while to digest what you have written.. You said this:

"The other aspect I've come to appreciate more is the increasing effect on money supply that interest on debt has. As the interest component isn't created when debt is created, it has to come from more of the same, more debt+interest, from a "˜whole system' perspective that is. Which leads me onto thoughts about public credit. "

Are u sure about this..??
If we want the illusion of never ending growth... then I would kind of agree with those comments.. BUT
Surely it is possible to pay the interest component of the debt without it affecting money supply...???

Remember it is the DEMAND for CREDIT that expands or contracts the money supply.
The Reserve bank has no direct control of Money Supply. It is completley unfettered.
It is you and me, as individuals, and collectively as a nation that determines if money supply expands or contracts.... If we borrow, it expands... if we pay back, it contracts.
Obviously, if it contracts then there would probably be an economic downturn.. as we would be "tightening our belts" and repaying debt.. ( or we may be repudiating debt).

Think of yourself and your own household, and the attitudes you have to debt.
You are aware that any interest you pay on debt is a use of money that u could have spent elsewhere.
The interest on debt doesn't have an effect on Money Supply, ... it has an impact on your spending choices... you forsake consumption or saving for paying interest.
That is if you are honest and prudent.

If you are imprudent... then you maintain or improve your current lifestyle by borrowing more and more ( never ending growth ).... using the new debt to pay the interest on the old debt... ( this is like increasing your "household" money supply )
At some point your little Ponzi scheme will collapse... and you will either repudiate your debt.... or you will somehow pay it back.
At that point "money Supply" will contract.. ( your household "money supply" ).

cheers Roelof

roelof,

The interest on debt doesn't have an effect on Money Supply, "¦ it has an impact on your spending choices"¦ you forsake consumption or saving for paying interest .... The interest on debt doesn't have an effect on [the volume of?] Money Supply, "¦ it has an impact on your spending choices"¦ you forsake consumption or saving for paying interest...using the new debt to pay the interest on the old debt"¦ ( this is like increasing your "household" money supply )...At some point your little Ponzi scheme will collapse"¦

I think that is the point, that if (national, rather than household) borrowing keeps increasing, the component of the money supply that is committed to interest payments must grow, perhaps exponentially - there is nowhere else for interest payments to come from except further borrowings (on aggregate)...is there? Hence (to a large degree), the attraction of public credit.

Cheers

Martin H...

""“ there is nowhere else for interest payments to come from except further borrowings (on aggregate)"¦is there? "

Yes and No... Interst payments do not expand or contract the money supply.. It is the new borrowing ( or paying off of debt) that expands or contracts the money supply.

Prudent people ( nations) don't borrow more to pay interest.. They foresake consumption or savings to pay the interest and down pay the debt.

Borrowing money to pay interest ...and then borrowing more to pay the increasing interest costs... sounds like Bernie Madoff.... a ponzi scheme... :)

In that case there is only one outcome.. ( for poor old Bernie it is "doing Time" )

Roelof, Martin - thanks for taking the time to read and think about 'there are reasonable alternative' propositions. Debating stuff through and making the intellectual effort might lead to some useful co-developed ideas/outcomes. Just dropping in, will look at this more later.

Fast and Frustrated - what can we say, just not a team player eh? You should run for PM, it seems you got one of the major qualifications, NO, and I mean that dogmatically, NO. "This Wally is not for U-turning." LoL, funny indeed.

Cheers, Les.

Martin, in regards to your question to les about John Tomlinsons' assertion that paying off loans does not decrease the money supply..

my answer is yes and no....

I'm also still trying to connect all the dots....

The money creation process takes place principally through transaction accounts... which is M1 money ( I think).

I don't want to confuse things ... unless I can understand things in simple terms ,I keep my mouth shut...
I've learnt that when it comes to this money creation system , one has to question and inquire into almost everything one reads.

This a great information source as well as what John Tomlinson writes. Modern money mechanics.

http://www.archive.org/details/ModernMoneyMechanics

Cheers Roelof

Roelof, Martin - re. the problems with debt+interest and interest not able to be paid off without more of same, ie. debt+interest, see:

Money as Debt II Promises Unleashed (Pt4)

http://www.youtube.com/watch?v=0-O_yGEI_0U&feature=PlayList&p=879A14495D...

Part 3 is also useful, but Gringon nails it here in Pt4. (Have still to study your comments in more detail, but this expalnation seems clear.)

Wally - shame YouTube don't do a wireless version. Any response to mine, to your very, very, very funny "Pure Humbug" dismissal, on the Kiwibank does something or other thread?

Cheers, Les.

Fast and Failing - your responses, laughable:

"with politicians being in charge of the money supply" - I didn't suggest that, look back at the comment and try again.

"your thinking that public/social/citizen.peasant credit would work in the real world." - There is evidence that is has, and it does work, as cited and referred, evidence that you continue to ignore, why? I don't want to ignore it because I think it will benefit NZ and me personally, via lower taxes. Why do you continue to ignore it?

As for the last two sentences, why don't you specifically address the points I was making about associated policy change and reform, rather than lazily ignoring them and winding out this tired dogmatic retoric?

As for power warping the human mind, sure, but what of cynisism transforming into apathy? What happens next? Oh, it's happening already, but you want to ignore that too - maybe you can afford to and don't give a damn. However many on the right side of 35-40 probably don't and won't if they come realise 'there are reasonable alternatives' (TARA) instead of the defeatist TINA dogma some, and you, continue to spout.

How about address the points in the sequential way that I addressed your original points.

Cheers, Les.

Good to see some indepth debate going on, really keeps those bumper sticker boys quiet. Mind you, they only don't want to acknowledge to having read anything that is going to make their past efforts look, well, past it.
Taken a lot to catch up, so very little time before I have to hit the pillow, thus I will be committing a crime in the bumper sticker boys eyes and using some useful links to show some state in the US of A that are moving into the doey with a lot less hui and encompass the "public credit will be more inflationary" myth.

Firstly from Ellen Brown re Bank of North Dekota and encompassing info re your capital adequacy and core funding Les:
http://www.truthout.org/01031003

http://moneyaswealth.blogspot.com/2008/10/minnesota-transportation-act.html
from a website full of great stuff:
http://moneyaswealth.blogspot.com/2009/02/caution.html

http://www.khavariforgovernor.com/bankofflorida.html

Re Inflation
http://www.moneyreformparty.org.uk/money/the_economy/inflation.php

http://one-simple-idea.com/DebtAndMoney.htm

Roelof, I put it to you that the current private debt based monetary system is systemically inflationary, but in a none interest attached monetary based system new money would not automatically debase what is currently in circulation until what is in circulation exceeded sustainable supply and would infact bring down the cost of living if spent into circulation to build social infrastructure such as sustainable natural power sources?

http://www.prosperityuk.com/prosperity/articles/negcon.html

Im over you Wally my darling friend, moving on with the business in an attempt to prevent Johny Key, the central banker on sabatical, from destroying the possibility of KiwiBank becoming our lifeline to economic sovereignty. Isn't just great to see the public credit movement beginning to flurrish around the globe.

You back again..............Lawdy , don't they have special homes for the poor deluded paranoid delusional conspiracy theorists ? ............ At least the people who write the myriad of links you supply , can construct a coherent sentence . Just a pity that they're all writing a load of old bollix .

Between the 87 election and that in 08 the number of votes won by social credit or it's spawn dropped from about 105000 to about 1200...clearly the voting public have weighed up the theory..and tossed it in the rubbish bin of failures. But don't you let that stop you Iain and les and TC..and don't forget you are expected at the first meeting of the year for all Flat Earth Believers.

Milton who?

You heard of him Wally? Probably just some flake .....

"It is neither feasible nor desirable to restore a gold-or-silver coin standard, but we do need a commitment to sound money. The best arrangement currently would be to require the monetary authorities to keep the percentage rate of growth of the monetary base within a fixed range. This is a particularly difficult amendment to draft because it is so closely linked to the particular institutional structure. One version would be:

Congress shall have the power to authorize non-interest-bearing obligations of the government in the form of currency or book entries, provided that the total dollar amount outstanding increases by no more than 5 percent per year and no less than 3 percent.

Quoted from: A Program for Monetary Stability, by. Dr. Milton Friedman, Fordham University Press (N.Y. 1960, 1992), pgs. X, 66-76, 100-101; and, Free to Choose by Dr. Milton & Rose Friedman, Harcourt Brace & Co. (San Diego 1980, 1990), pgs. 307-308."

http://www.themoneymasters.com/?page_id=14

"Dear Mr. Carmack, As you know, I am entirely sympathetic with the objectives* of your Monetary Reform Act"¦You deserve a great deal of credit for carrying through so thoroughly on your own conception"¦I am impressed by your persistence and attention to detail in your successive revisions..Best wishes,

Milton Friedman" Nobel Laureate in Economics; Senior Fellow, Hoover Institution on War, Revolution and Peace

http://www.themoneymasters.com/

* Sec. 4. ONE HUNDRED PERCENT (100%) RESERVE REQUIREMENT. Section 19(b)(2)(A-D) of the Federal Reserve Act is hereby amended to raise the Reserve Requirement ratio for financial institutions, in equal monthly increments of eight and one-half percent (8.5%), to one hundred percent (100%), during the said transition period. No existing reserve requirements shall be reduced, but shall be increased as the overall Reserve Requirement ratio incremental increase surpasses them.

I wonder what the Austrians would say?

"Ideologically, [sound money] belongs in same class with political constitutions and bills of rights." In the name of civil liberty and civilization itself, the Fed should be abolished." Apparently said by, Ludwig von Mises.

Iain - cracking links. Even though I'm not 100% sure on the history of what we have now, how it works and the conspiracy stuff I find a complete turn-off, it's that kind of 'real world' evidence that substantiates 'there are reasonable alternatives' and make it worthwhile exploring. Plus, there is so much resistance from the TINAs. Not surprsingly those innthe banking sector, they lose market share, other in the FIRE sec. would be negatively impacted too. Eg. people who need assets to keep inflating, who trade on instability, who use leverage instruments like CFD's to buy access to stock, I dunno, say copper stocks for instance. Even if one didn't enter the market that way and went physical, you'd be keen others did to generate the amplified momementum one might benefit from - Wally, what do you think, are things that 'Fast and Furious' in the copper pit? (PS - still waiting for you to address my points on that other thread.)

Roelof - yeah, I acknowledge your questions, will keep thinking and reading (when I get time now!) and as said to Iain I'm not without doubt in some areas, but they seem less important when compared to understanding the benefits of some of the ideas we've been discussing, plus when people like Milton Friedman are pulling in the same direction it helps get over the pain of putting in the effort to understand the grey bits, that clearly people like him, Ron Paul and others actually do understand - and I regard none of them as flakes, well Maggie didn't regard Milton F as a flake, of that I'm sure. Re. Freidman again, I made this comment on anther thread on Int.co:

"Bill Still and his ideas for monetary reform had good support from Milton Friedman. Nathan's Economic Edge does a review of Still's recently released "˜The Secret of Oz' doco, with article title -"IT'S NOT WHAT BACKS OUR MONEY, IT'S WHO CONTROLS ITS QUANTITY" (Apologies for capitals, just copied it from the website.)
http://economicedge.blogspot.com/2009/11/secret-of-oz-its-not-what-backs...

more here:

http://economicedge.blogspot.com/2009/11/still-report.html

The blogs comments are worth a read on both articles. In the second Bill Still explains Friedman's input to his research on the "˜Money Masters' doco:

"During the editing process of "The MoneyMasters" I called Milton Friedman. He was a prof. at Stanford at the time and he wasn't hard to get in touch with. I asked him if he'd take a look at an early version of the film and comment. When he called back he slapped me hard: "Boy, if you kill the Fed and don't fix fractional reserve banking, you've done nothing." So, we scurried around and emphasized ending fractional reserve banking to a much greater degree. This is why I worry about Ron Paul's approach. He's got everyone hating the Fed, when the real virus is fractional reserve banking practiced by the commercial banks."

Yeah, RBNZ, I found them really helpful. I must have given em' a laugh with my clumsy questions though, and they are probably still picking themselves up off the floor about the one you helped square me on. Let us know how you get on.

Cheers, Les.

Fast and Frustrated - just learning mate, but have learnt enough to know not to listen to TINAs like you, because TARAs are here. How do things work in the copper pit? How about answer my questions in the same way I attempted to answer yours? Why can't you?

@ Les: I'm not sure the views of Milton Friedman are as solid as the once were.

http://www.bearishnews.com/post/2730

This should cheer you up no end Les: In the UK children aged five will be given compulsory lessons on managing their finances from next year as part of a range of new measures for primary schools....what say you Les...will the social credit fluff be one of the lessons and if so will the tiny tots break out into laughter before the lesson is over?

Les : If they teach 'em a condensed version of Warren Buffett's ways I would agree . But being merry olde England , I'm sure they'll stuff it up with a confusing mish-mash of socialism / political correctness / and Keynesiansm .

Hey RT...how's your Canadian lot doing...I'm up 1.5 cents today!

12g here. Anticipate report on gold deposit drilling at banho.

Fast and Funny - well I suppose that does qualify as humour, of a sort I suppose. Shame about the lack of evidenced based, reasoned debate. Have a nice day in the pit, cheers, Les.

Roger - "I'm sure they'll stuff it up with a confusing mish-mash of socialism / political correctness / and Keynesiansm." Yeah, they'll probably be able to buy the Unit Standards from us! Plus, they'll probably get taught more about TINA than TARA, just like here too. Cheers, Les.

TARA : Tuscon Avian Rescue and Adoption foundation ...............They rescue parrots , Les . Who's a pretty boy , then . Lessie wanna cracker ?

[ thanks Wally ]

Iain,

http://www.appropriate-economics.org/ebooks/kennedy/chap1.htm

here's an example of half truths , misinformation and misleading information. ( this is the link you posted)

Do you believe what this person has written..?? Is she right..???

I believe the author is incorrect about some of the things she says... and after reading that document, one is left more confused.

She makes sense until she says..." Money does not only help the exchange of and services but can also hinder the exchange of goods and services by being kept in the hands of those who have more than they need. Thus it creates a toll gate where those who have less than they need pay a fee to those that have more money than they need. This is by no means a fair deal".

She is expressing an ideology... That paragraph has got NOTHING to do with money.

Money is money... It is a medium of exchange , a unit of account , and a store of value..... ( Whether I have got more than you is irrelevent to this discussion )

She says that we pay interest on everything we pay for.... She is using twisted logic to make her point. It is simply incorrect.

She says that Interest is the major cause of rising prices..... That is not correct.

Many "debt free Money" people believe ALL money is "loaned int existence" Do u agree with that..??
I have found that to be incorrect.

Heres' a question........ Why has Russia NOT boomed since the Revolution in 1917..??
(I can't answer the question because I have not done the work.)

Surely its' Monetary and banking systems must have "covered all the bases' in regards to the criteria that most "debt free money" people require.

Money brought into existence by the state..??? Brought into existence without interest..?? No private banking system..???? Each according to their need..??

I do know enough about our own monetary system to know that there are things wrong with it.

BUT it is not the abomination you think it is.

The evolution of double entry book keeping, the bond market, the stockmarket, banking..etc have all been part of the reasons the west has had such a proliferation of innovation and relative prosperity over the last 200 or so years.

Does that mean we should not change things... NO... Of course we should.. That is the Nature of our world.. change
Should we change our Monetary system.... I think so..
Would a debt free Money system work... ???? I don't think so.. I'm not sure. Human Nature will never change... greed and self interest will corrupt things.
I can see good reasons for Government to create money at times...

One of the reasons Central Banks moved away from controlling the Quantity of Money is because it is almost impossible to do so , with any accuracy .. The economy IS NOT a mechanical machine. It is dynamic, and dances to its own tune.
( I do believe that a Market economy is the best system for ongoing innovation and progress.)

How on earth will "debt free money" people controll the quanity..????

I'm not having a go at you here..
I'm here to learn.... And what I have learnt does not always agree with what you state as fact... and that is cool.. I am always open to being corrected and shown a different way of looking at things.

Have u ever watched these videos.. Great to get a background on how money evolved in our Capitalistic system

http://video.google.com/videoplay?docid=-545930454338776455#

It is a shame that the is so much bullshit out there about this subject.
There are some really good ideas out there ... but they get diffused among the Crap, and end up being called crap.... Thats' a shame.

Cheers Roelof

[ Note to Wally : If you're trekking thru the woods , and chance upon a 800 lb. bear asleep on the path - quietly go around - do not poke the Ruddy thing with a stick ! ]

Jeez Wally

Roger - am all for a bit of banter, but found that kind of insult to Iain a liitle hard to take. It was senseless and stupid. Notwithstanding how liberal the team are in censoring, I can't see a place for such on this kind of blog. Honestly I didn't think this topic would be that important to folk, that when frustrated things would descend into mindlessness, stupid insults like that. What a waste. Maybe I'm not taking this seriously enough and don't really appreciate the resistance there might be around this kind of topic, as it appears there was in the past. I had thought with GFC, like many in the US, people on Main Street NZ would be as pissed as those on Main Street USA, but maybe we haven't suffered like them, so folk here don't see the need, or it's just the FIRE bias in the readership? Come to think of it, I suppose those who enjoy the huge advantage they seem to have now, would fight tooth, nail and childish insult when up agin it.

By the way, I'm a little less than 800lb, but in a couple of weeks you may well find me sleeping in the forests around Marlborough, hopefully after the dogs have found a pig or two. Should be fun, but not for poor Piggles! (No offence meant BNZ.)

Cheers, Les.

Yup , you're right Les . The 9 .00 a.m. post was not in the spirit of the site .

Hey ; your forthcoming sojourn to the delights of the Marlboughrian hinterland sounds awesome . ............Our freedom and resources , which allow us such experiences , are what makes us proud of this fine land , girt-by-sea . Excellent ! Pop the piggies with glee .

Tippy toeing around the 800 lb. grizzly , I would say wot Bernard ( remember Hickey , he used to hang around here...........Heard he cleared off to Oz.............Everyone else does .........Did he leave any gummy bears in the office ? ) admonished us with , on several occassions , that humour - even if well intended - can more easily mis-fire , as words on the screen , compared to a face / face encounter . What the Bumper Sticker Boys think is funny , is of varying degrees Les funny to others . In this case , offensive to at least one .............. Ahhh , gonna inch out of here now ..............Only bears I want on me person are sweet little ones , no big furry feckers ...........................Arrrrrrrrrrrrrrrrrrrrrrh .

Wally - I'd no problem with the 'good as you get' kind of mildly sarcastic smoko-room banter going on, between us. I think it helped with encouragement to get the discussion (bear) into useful places than might otherwise have been the case. However, if a debate descends to direct personal insults, whether against me or not, as far as I'm concerned it's probably the end of the debate, no matter who thinks they won, and as far as I'm concerned having the last word isn't that important it has to be an insult.

As for the comment concerned, I was only indirectly insulted by what was said, or more accurately, what was communicated. A picture speaks a 1000 words, which is a communication technique others in NZ's blogosphere have recognised. With that imagery you seemed to want to make a comment that was not just an insult, but an ugly insult as well. Whether you lost the argument or not who cares, but it seemed you'd lost the plot by that stage and I would not have wasted more time engaging with you on the subject because I would have concluded you had little else to say of any significance. Trading insults benefits no one, I've no time for it.

Roelof, Iain - will check back later to so if you've more contributions, eg. any extra info from RBNZ, Roelof.

Cheers, Les.

Thankfully the vast majority of voters also see social credit ideas as silly and unworkable, as well I suspect, as very un democratic even though that term is now a part of the Party image "The NZ Democratic Party for Social Credit". What is democratic about having a govt dictate what we may do with our wealth because that is exactly what would happen under a social credit system?
The current system allows the market to determine the cost or value of money based on supply and demand with a central bank expected to control the quantity of money in supply in all its forms. This is proving very difficult given the carry trade operating within the open market with a free floating Kiwi. But it is not impossible and the RBNZ has finally evolved a core funding tool to regain control. We have the right to shift our capital anywhere in the world without having to go cap in hand to wgtn to ask a beaurocrat for an approval as was the case in the past.
If fools fail to accept the cost of their debt can rise with a change in the value of credit(floating rate)then so be it. let the lessons be learned. The same goes for stupid govt. Borrow to much(1 billion a month NZ) and a rise in the cost of that credit will destroy....ask the Greeks!.

Wally - I'd like to respond to your 7.45am as well, but that will have to wait till later today. Cheers, Les.

We want you to rest , Iain . Honest we do . Take it easy buddy . .........You work too hard . Grab an improving book and a cuppa tea : Kick back , and be good for yourself .............. Somehow , some-way , we'll muddle through , in your absence .............. Rest !

Wee mistake, I meant this line to read, "In the same way it has finite limit in a debt based system, except we would [not have a debt and] not pay interest on the debt - and we'd not pay it on over-running projects, as we do now.

Roelof

"Gosh"¦ Using Simple logic"¦.

If the money creation mechanism , as described in those videos , is true , Then how would you explain the need for our banks to borrow off shore..??? How do you explain the need for our banks to compete for retail deposits..???
How do you explain the urgent need for Many Western Banks to recapitalize"¦???"

Here's my attempt at answers:

Paying off the loan principle extinguishes the money that was created by the bank. Here's why. Say you went to the bank a got a loan, before you spent the money you have a credit in your cheque account and a debit in your loan account for the same amount. After you spend the money (and say the person you pay has an account at the same bank), all that happens is that the credit in your cheque account is transferred to someone else's account. So whether the money is spent or not is immaterial, when it's paid back, it's extinguished, because you have to get some money from someone else's account (ie earn it, and therefore reduce the balance of their account) in order to pay it back. So when you pay it back it's extinguished. Paying back interest is the problem. Because there will be insufficient money in the system to pay it unless more is being loaned out all the time (ie new money has to be created), and in the long run this is impossible.

Banks borrow offshore simply because they are operating a business in a competitive environment. Deposits are deposits and if it's cheaper than competing locally (because of dumb attempt to manipulate the market price of money via the OCR) for deposits. So a NZ bank that didn't borrow offshore would be at a disadvantage. Of course it's really market arbitrage going on. The Reserve Bank has a high OCR to try an mop up liquidity and in the end this sucks money out of the rest of the world.

Banks need to grow deposits and loans in order to survive, because they charge interest - see above.

Western Banks have needed to recapitalise because of increasing levels of defaulting loans. A defaulted loan reduces the shareholders funds (less the recovery value of the collateral). It's money created by the loan but it's still real. So the shareholders have to stump up if the ratios are to be maintained.

Iain so you did read that other post. Look forward to your reply.

How did Lincoln fund the civil war when he faced a credit liquidity problem?

John Walley : A : By growing crops of genetically modified potatoes ! ............ Oooooh , hang on a mo' , by Lincoln , were you referring to the College/Uni , ...... ....... or to the geezer in the funny hats ?

Les....why in NZ in 08 did so few vote for something you say offers so much? North Dakota has used its bank to be tax collector and credit overlord in the state since the start of the 1900s, so why didn't many other states follow this pathway? That's tens of millions versus how many voters in ND?
You should look into the reasons why the dollar was allowed to float.
What is the difference between Kiwibank paying a dividend to the govt and the NDB system...Kiwibank is not the IRD....the NDB is the North Dakota tax dept. Do you really want the bank you borrow from or save with, also being in charge of deciding whether to do a tax audit on you....I don't.

RT, what did you think about pna?

Funny that...pna cops a wet season that shuts down some activity. I await the BanHo gold deposit revaluation move which must happen soon. According to GS the Pukham mine is into richer copper ore this year and next. I just wish I were in Laos and able to keep an ear open when the drilling crews hit the pubs after work. Any of those 'prospects' could be a boomer. Been a super two days with 20K a day but I know it will fluctuate. Hope the union members at that big hole in South America stay out for 6 months!

"Why that might be is another debate" ...no Les it goes to the heart of the matter. The people have decided and social/public credit lost. They do not want a bar of it.
"Seems dumb to me"...same again Les...tens of millions in this case say "NO"...but you say they must fail to understand otherwise they would support it. That's what you think and you told us so here..."I suspect for the same reason "“ people are not sufficiently informed of their ideas".
It does not wash Les. The ideas have been dismissed by the people. Stop telling the people they don't know as much as you and that if they did they would support this social/public credit foolishness.

Ah so Shaun son, yes I miss news every time I fro brick at tv. We have very clean brain also. You want chips with that?

My copper stock is up another 2 % overnight . But am getting hammered on the exchange rate - unlike the gardener - I don't hedge . US down to 74 c NZ today . And as you say , all power to the Southern Chuqui Union Members ( S.C.U.M. ) . They'll be getting chilly , but no chilli , in Chile , today .

"Socred had no cred so it got almost no cash."

I'm supporting particular themes in that concept that people like Abraham Lincoln did, the people of Guernsey and ND have also, and NZ did in the past. I don't care about Socred and whatever they may have hamstrung themselves with in terms of policy or organisation. Yawn.

Recognising things are less simple, less linear and tending to an equilibrium state, as per orthodox theories of economics, leads me to the 'complex adaptive systems' approach, unabashed 'cherry picking' and perhaps being seen to behave like a sphere in a two-dimensional world.

I wonder if we are going around in time wasting cirles now Wally, and if it's perhaps time to disengage, in an agreeable way?

Cheers, Les.

PS - I never suspected you as a Libertarian, more especially after you suggested finishing Mark and I off in the oven!

Fred - "Are you suggesting that a "public credit" could be issued to allow infrastructure to be built.". Yes, and only that, for the 'inflation restraining' reasons stated above.

"So this would be a bond of some sort, ... " No, because we can issue a bill (with no debt and no interest) just as we can issue a bond, yielding a debt. This would be the same as bank credit, but issued by RBNZ to Treasury. This credit would be exactly like Lincoln's 'Greenbacks', but electronic bankcredit, and so as you say,

"The only way these notes would be worth anything is if they could be used to clear taxes." Correct, just like private bank credit and just like Lincoln's 'Greenbacks'. It might help you to swot around that and the Guernsey example on Ellen Brown's website.

I hope that helps. Cheers, Les.

Les

A zero coupon bill is a banknote. So the the debt free (tagged to only be spent on worthy infrastructure) note issued by the RB to treasury is worth what? when it's eventually presented back to the RB.

This system is therefore this:

- RB can print a note at will and issue to treasury, subject to the proposed use of it meeting certain criteria.
- Someone (probably a politician) decides on the priority of merit of all competing investment options.
- Only those that meet the "debt free" criteria are chosen (ie they pay for themselves).
- The money in circulation is backed by real assets . . . but what does that actually mean.

The problem is, as I said earlier, any $ in circulation is, in reality, an unrealised demand on labour (ie it's realised as a demand when the owner of it attempts to spend it) and it needs to be extinguished at some point in time when it is redeemed back to the issuer.

This amounts to the state being the/a banker . . . fine, but here I sit with Wally and Mark Hubbard, let the state compete with other bankers, and let them all issue their own "market money".

Thanks I have read the Ellen Brown and the Thomas Greco links, but will continue.

Storeman - Bona fide $NZ ? exactly how many should there be and what do you do if there are too many, who is left with the non bona fide notes. Bretton Woods at the end of the war faced this question. And the US said yes our $ will be bona fide, trust us, because we will back it up with gold (fixed at whatever it was) $27 per ounce. They reneged in 1973, and now it's backed up by the most powerful military force in the world . . . until . . .

Fred Said ;.. "Paying off the loan principle extinguishes the money that was created by the bank. Here's why. Say you went to the bank a got a loan, before you spent the money you have a credit in your cheque account and a debit in your loan account for the same amount. After you spend the money (and say the person you pay has an account at the same bank), all that happens is that the credit in your cheque account is transferred to someone else's account. So whether the money is spent or not is immaterial, when it's paid back, it's extinguished, because you have to get some money from someone else's account (ie earn it, and therefore reduce the balance of their account) in order to pay it back. So when you pay it back it's extinguished. Paying back interest is the problem. Because there will be insufficient money in the system to pay it unless more is being loaned out all the time (ie new money has to be created), and in the long run this is impossible."

Fred... That does not make much sense to me.... If I borrow $10,000 from the bank and then , over time , pay it back... are you saying that when I finally pay it back the money ceases to exist..????

cheers Roelof

Iain,

I just checked out the link you gave.

http://www.khavariforgovernor.com/bankofflorida.html

Do you accept what This Guy is saying..????

I don't... I think the guy has no idea how fractional reserve banking actually works..
He's dreaming.

Cheers Roelof

Roelof,

When you borrow any amount from the bank a debit is created in your loan account and an equal credit is created in your deposit account. So the money was created out of nothing. You pay it back and the two entries are extinguished. Problem is you still have to pay the interest and that has to be generated out of something real (your effort) as opposed to what the bank did (which is Iain's issue I think).

Yes it's all those things, a, b and c, but as an "unrealised demand on labour" have a look at the Thomas Greco links that Iain provided, that was my thought after reading those. So you "own" some money and you spend it, on something, then the person selling it has to replace it (takes effort), or spend it on a service, and that's time directly.

Les,

It just DOES NOT WORK LIKE THAT. ( in my view)

Take the absurdity of Khavari's proposal.
He catagorically states that if he gets $100 in deposits , he can lend out $900.

In my view this is complete nonsense.... absolute Crap.

Come on Les, just apply some common sense... Some simple logic.

I'm not disputing that banks can create credit... They can.
But not like Khavari describes..... his plan is simply ridiculous..

Morgan stanleys research is a bit more believeable... $137 loaned out for every $100 deposited.
Have you read Modern Money Mechanics..?????
If you have read it and STUDIED it you would see that what Khavari describes, and what you seem to accept, is actually not possible.
There are some real limitations on how and where the money creation process takes place.
Read Modern Money Mechanics and see if you can figure it out.
Follow the story of the early goldsmith bankers, and apply it to todays banking system.

What are the modern day equivilents of the Goldsmiths "promisory notes"...?????

Answer that and u are onto something...

Shit.... if something does not sound right and seems to defy common sense and logic then one has to dig deeper and study.... logically figure it out.

AGAIN.... why do our banks have to borrow so much muney off shore..???

M3 money is about $210 billion... According to your logic , since the banks only need $100 to create $900.... our banks only need to borrow $25 billion offshore.. ( in fact their total deposits only need to be $25 billion).

How much have nZ banks borrowed offshore.... $163 billion..!!!!!!!!!!

Les, how do you reconcile that..???????

Cheers

Roelof

Fred said..."Yes it's all those things, a, b and c, but as an "unrealised demand on labour" have a look at the Thomas Greco links that Iain provided, that was my thought after reading those."

I would have thought labour costs would be reflected by Prices..???This is moving into another arena of debate.

I think that from the perspective of trying to understand Monetary systems it is best to limit the definition of money to those A, B and C things.
And principally to the fact that money is a tool to facilitate transactions .

Is money "an unrealised demand on labour"..... I don't know.. I have not thought about it... At first glance it seems a confusing way to define money. I'll have to read what Thomas Greco says.

Cheers Roelof

Roelof - re. Khavari's statement, there are two aspects I don't accept, 1) he makes the mistake with, "If the bank pays you 2% for your CD and lends it at 5% on 9 times as much money, you can see this is a really good deal "“ for the bank.", see my comment above. 2) This seems to be based on the thinking that that he can take your 100 deposit, call it the 'reserve' and lend 9 times that amount out - in one hit - NOT using the round-and-round process as implied by his error about how much interest is made (5% on 900) and paid (2% on 100) - which belies the error in his thinking.

One can see how easy it is to get confused by this, and Mr Khavari too I think, because when I contructed my simple spreadsheet, based on the 'round-and-round' method, and as shown in the G.Lawrence, RBNZ paper, the numbers we get for 10% reserve, for an initial deposit of 100 are, cumlative total deposits taken 1000, cumlative reserve held 100, cumlative loans made 900 - hence it looks like Khavari sees the 100 cumlative reserve, and the 900 cumlative loans made, thinks he'll take a 100 deposit to cover the (cumlative) reserve and whizz out 900 in loans (in one step) taking 5% on that, but only paying 2% on the initial 100 deposit - which is incorrect, according to m' wee spread sheet experiment. Knock one up and see it to believe it. Let me know how you get on. Cheers, Les.

PS - test the sheet with Pytel's numbers to get 6.41 on loan per unit deposit, for the 100-86.5 = 13.5 reserve. Then pop in say 1% reserve and see how things look - scarey. Then imagine going beyond zero, as per Pytel's numbers for the Brit banks he looks at.

Nicholas... YES... I completlely agree with you. Bang on.!!

BUT.. ( there's always a but ) ...What Fred is saying is that...

Firstly , the deposit is "created out of thin air"... full stop end of story.
Secondly, when the loan is paid back .. the money is extinguished "back into thin air"....full stop end of story.

That is not how it works.
You have described the first part of the story really well... ( you must be in the banking industry.?? )

Can you explain the second part of the story... the repatriation of the loan.

You have actually described how banks can "create Credit" and the limitations that they are constrained by... Brilliant.

I'm going to save what you have written... Very good explanation
Cheers Roelof

Roelof - just to be clear I agree Kvalri is incorrect, and you can tell by how he is looking at the revenue side of things. Yep, I'll study all that, but suggest you also repeat the spreadsheet. Seeing is believing, and it's based on the round-and-round process, we agree on. Les.

Thanks for the link Fred.

I'll read thru it.
Do u agree with what Nicholas Arrand said..??

I think he is correct , in what he says.... Bang on

Cheers Roelof

Yes I agree with that. As soon as the deposit is created in the current account, it could be withdrawn from the bank altogether, irrespective of whether it's paid to someone else "in house" or not, so the bank needs to hold reserves to cover this eventuality. If it is withdrawn as cash, the bank needs cash in it's vault to cover this. However, since on average only a fraction of the deposits are withdrawn as cash the cash reserves need only be that fraction of the deposits. And if all payments are made electronically between banks, and if no money leaves the country on average the reserve fraction required can even be less. So if there was no such thing as cash money, and no means of moving the money overseas, and all the banks trusted each other 100% then the fraction could be zero. But whatever happens, if interest is charged, and there is no growth, then eventually there will be no money available to pay the interest and banks will be forced to foreclose individuals or go bust themselves (or there is inflation ie. the illusion of growth). This is a mathematical certainty and is the fatal flaw in the system, unless there is a means by which money is extinguished and for the explanation of how that can be done see Thomas Greco.

The fixes (there has to be a reason why it won't work though :), otherwise it would have been done before I guess;

- Remove legal tender exclusivity on banknotes.
- Allow anyone to issue notes. Rules are they have to be "sound money" ie presented back to the issuer and redeemed for whatever is backing them.
- Government makes a market for the issuing and trading of these notes and enforces the redemption process (ie prevents fraud) and keeps a securities register, in the event that someone issues too many. This is done "on line".
- Open up the reserve bank. Anyone can have an account, in fact every registered entity/individual automatically has an account, but it doesn't have to be used. The reserve bank is no longer an exclusive method of settling between banks all entities can use it to settle between each other. Reserve accounts are always in credit only.
- Charge a transaction tax on all payments settled via the reserve account.
- Charge a tax on all balances in the reserve account.
- All taxes extinguish money.
- No income tax, just death duties, and these are settled in the form of the assets themselves, which the Government then sells - extinguishing the money.
- Taxes can be paid in foreign currency, or any sound local currency.
- Government "seeds" new industry and sector banks eg local bodies are encouraged to set up banks to foster local/regional development (they can issue their own notes also).
- Nationalise the stock exchange
- Float all SOE's the money received is "extinguished".
- Fund public infrastructure by stock exchange floats instead (as opposed to sovereign bills and notes issued by the NZDMO - this makes Iain happy)
- High powered money is used to pay for a GMI (as per Gareth Morgan), this is paid for by Seignorage. This can be regarded as the Social credits "social dividend" It's simply an electronic credit in your reserve account.
- Close down the IRD.
- Pay all public servants with foodstamps (just kidding) - it's also "printed" money.
- Limit the size of the Government (spending) by some rule - not sure how this would be done, so as to balance the money supply.
- Interest rates are set by the market, the Government doesn't try and regulate them.
- Agencies are set up to take deposits to the reserve account. You will be charged for this and balances are charged a negative interest so you will be encouraged to use a one of the non government owned banks. ie the Government policy is to "chase" money into the banking system where it can be productively invested.
- No Government Guarantee on banks, if you want security deposit it with the RB, and you will be charged for it, or you can buy shares, via the safety of the Government run stock exchange. Moral hazard avoided.

That's about it I think, would it work?

Nicholas, has anyone suggested a scheme such as above and what do you reckon?

Nicholas - "we didn't just "˜make up' the funding", sure, I don't believe banks can do that either, and derive revenue the way Khavari seems to believe in his campaign sloganeering, that is, mis-interpreting the FR, 'round-and-round' money creation system to mean a bank can immediatley pretend into thin air a $900 loan from a $100 deposit, reclassified as the reserve, however, Steve Keen's bank credit leading Fiat article rationalises actual money supply growth, (against a theoretical trajectory) and seems to back-up the article on Pytel's blog:

http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html

"The deposit creation process is at the heart of the banking system servicing the public and stimulating economic growth. The modern banking instruments of securitisation, hedging, leveraging, derivatives and so on turned this process on its head. They enabled banks to lend more out than they took in deposits. According to Morgan Stanley Research, in 2007 UK banks loan-deposit ratio was 137%. In other words the banks were lending out on average £137.00 for every £100 paid in as a deposit. Another conservative estimate shows that this indicator for major UK banks was at least 174%. For others like Northern Rock it was a massive 322%."

So hey, don't hold back on, "...securitisation did alter the landscape after about "˜92; but that's a whole new, and complicated, discussion!"

I'm really keen to hear how the things were altered and how that might line up with Keen and Pytel's stuff.

Cheers, Les.

Thx for the invitation, Les, but I will have to defer to the length of time I have been out of the markets, and have never been one to guess at the truth. In a market that evolves by the minute, a good few years is an eternity! From '92 onwards the Securitzation; Options Trading and Derivatives Divisions came to dominate almost all the commercail and investment banks of the wetern world. They became complicated, as we now know, beyond most rational understanding. So it does not suprise me that asset/liability management got so far out of balance. Even the NAB in our neck of the woods came a cropper in the options market about 6 years ago. This 'enlightenment' is what perhaps saved our banks from too much recent damage. But I shall, like you, continue to read this site with as open a mind as possible, and learn from others.

Les, his Blog is worth keep an eye on lots of interesting comments.
Andrew

http://gregpytel.blogspot.com/

Les, You are getting Close..!!!

Khavaris' view is complete bollocks... crap.

But , in theory banks can create Credit ... just like you did with your spread sheet.

In the real world....banks have to balance their books... there are constraints.

Sounds like a HUGE contradiction..........????????????

What Nicholas wrote is worth printing out........ It will anchor you to the real world.. It is so easy to get lost at sea with this stuff...

What is the modern day equivalent of the Goldsmiths "promisory notes"..?????
Think about it...????
Read the first 4 pages of Modern Money Mechanics.... study them.

I'm not trying to be a smart arse.... I'm tring to get you to go down the trail I went down ... A few lights came on ..and I gained some understanding.

I'm still learning thou... all the time... I've got to a point where I can see if something does not sound right...????

cheers Roelof

I've yet to read Steve Keens article ...will do that later.

Les,

The current system demands exponential growth and produces an unearned wealth transfer. But it's OK since here in NZ there is plenty of room and resources left so we can carry on for many years yet. I agree, the cure needs to match the ailment.

But off the planet Les? I'm a little miffed take a look at a few of these and then tell me I'm the one off the planet http://www.classiccmp.org/transputer/finengineer/ :)

"There's no reason we can't so same, on an ongoing basis for public capex".....here is the problem Les...yes the RBNZ could do the same and yes the govt would be able 'invest' it on capex and yes by charging tolls and tax they could suck the spending back out of the money supply because the capex spending would enter the market as you know...BUT....the demand for inputs to the capex would distort the market...take the example of cement. Assume the govt dreamed up twenty new bridges, two big tunnels and several dozen electorate builds like schools and stuff....the demand for cement would push up the price...it would mean anyone who was about to build a house with their own capital was actually competing against the state's QE capex splurge. So you get less private investment. The whole effort of the capex is wasted.
Not to forget, on past performance in every country, you will get 'bridges to nowhere'.
lastly, have you thought about just how difficult it would be to put a stop to the QE capex state splurging!!!...surely you do not expect the political party in power to stop with the pork slicing.! Two things Les....Market distortion and political corruption.

Wally - just a wee 'scan in', can you be more specific here please, "Not to forget, on past performance in every country, you will get "˜bridges to nowhere'."

Which countries?

When?

PNA fading today maybe(?), I think she'll come right though, good gapping/marching last few days, eh. No real fade, just temporary correction/profit taking(?) - hope you did, if not load up on next dip I guess, looks like it's only going north, (Roger take note.) Anyway who cares, if long back in 03/09, would you care? Hope you went then, would have been a great call, whether physical or margin - either way both benefit, eh, but on margin approx 15-10x ('pending on golf buddies) or more so - all good.

I forgot, why?

Cheers, Les.

You should have advised an option on cement (is that correct terminology?).

I think you should put that down as an area to be investigated Les...look at it as a learning exercise. Start with the bridge in Alaska, then expand you research into other political wasteful splurging aimed at buying votes.
Currently when the govt decides to dish out some pork, the funding is within the budget. Not enough money?...they borrow it from overseas and so the control to inhibit stupid spending on pork arrives as a fiscal deficit number and invites a public dressing down from a ratings agency if it is not lying which seems to be the case these days. Take that restriction away and give the Cabinet the money printing machine with no limits other than their own imagination and do you think greed for power would win?...bloody right it would.
As with the corruption and graft going on currently in the States..the 'fistfights' for states to get Washington pork from the 'stimulus' bullshit...it would be no different here and indeed we have our own versions happening right now. Look at the screaming for roads and bridge funding. These are the demands sorted by Cabinet. Even Key was in on this pork allocation with his cycle track.
All that is just the 'pork corruption' Les...you still have to deal with the damage that public credit capex would cause in the open market. Pick you input for trouble: Labour..steel..cement..wood..transport..freight..
it comes down to socialisation of the market...a backward step to central planning idiocy..and our govts couldn't plan a pissup in a pub!!!

I understand Japan has a few Bridges to nowhere...( bridges that only serve a few people)
http://www.highbeam.com/doc/1G1-20486931.html

I agree with Wally.

In general , I think the process could well become corrupted and we would end up with decision making based on political motives.

KW John - Hot pick - along with full reserve banking and equity funding, some would have it that the next step is gold backed currency - so buy calls on Catapillar and steer clear of the national parks! Cheers, Les.

Wally - your point about open market impacts, sure, so as you seem keen on this:

http://www.interest.co.nz/ratesblog/index.php/2009/12/30/summer-chart-se...

that is a some form of volume regulation, control the volume fraction of "˜public-Greenback-credit' for public capex, rather than relying on the banks not to drive a coach and horses through RBNZ's 'great OCR complement hope' - because I think that is all it is, a hope, until smarter people than them find the stable door. Better to let RBNZ be in more direct control of money supply, via 'regulating' what goes into the public capex projects. In addition give RBNZ power to vary 'fractional reserve'. Yep, I know, lots a 'tools' with which they could screw things up, but the same has been true of not having enough adequate tools/methods.

Re. your open government 'value-for-money' committee idea, extend that kind of thinking to the management of the public capex investment programme - probably something we need now anyway, as you infer.

Cheers, Les.

" Public-Credit " : LES : Pop it into the " Global Warming " bag ,.... coo to it ,... pat it on it's furry little head occassionally . ............. . But get a grip . Get back into the real world ........... Re-join the moving -and--shaking groups . The Luddites ain't going anywhere ............ If yer have a lapse of nostalgia , the Gold-Standard / tofu-munching / Social-Credit loonies ( bless their passion for a truely hopeless/useless cause ) , will still be around ; annoying , unwashed , and barefoot ; they'll never go away.........But in the mean-time , come back into the light , the warm glow of our incandescent light , re-join us , Les .

"... regulating' what goes into the public capex projects"...how would the RBNZ do this Les?...Cabinet decides on the budget spending...not the RBNZ!! See where your idea falls over?...your PC system invites govt to hand power to the RBNZ..getting the ocr out of their hands and a floating currency was like WW2...if you think they would hand over capex decisions..you really need help!.
Fair go Les"¦.give it up as a case of serious sillyness. Move on!

You got it Les..."never mind".
Back to the real world where debt cost, holds the govt back from slicing toooo much pork...from splurging like there is no tomorrow...and retains some value to the Kiwi so the debts incurred by past govts can be paid off in the foreign currency the lender has a right to receive.

Wally - your solution is that, "Regulation is the only answer!".

So what might that be? To regulate what exactly? Can you give an assessment of effectiveness based on some sort of evidence?

"value to the Kiwi" - how much is that market building worth in Guernsey? How much is NZ's state housing stock worth? Asset value backed.

Roger - I can't imagine your solution is, "Carry on regrdless", although I might be wrong. So what is your solution? Evidence?

Cheers, Les.

Les,

Aha, your "public credit" is the same as quantitative easing, ie the RB buys and holds the asset, except in this case instead of being an arcane banking instrument it's the bridge or cycle way. Wrong for all the reasons above.

Limit fractional banking? ie go back to the fractional reserve requirement that was dropped some years ago. To me these two ideas have the opposing effect. First you want to free up credit for worthy public projects by issuing public credit (as if this should be or could be at a lower interest rate than otherwise), then limit credit expansion by reducing the leverage.

There is nothing wrong with a low fractional reserve requirement (or as it is now prudential management) because what it does is allow cheaper and greater amounts of credit to be delivered to the market driving interest rates down and seeking out all worthy investment prospects. If certain public works don't make the investment rate of return hurdle then they shouldn't be done. What is wrong is the public guarantee of private banks.

If there was anything in that list of ideas above that I would bring to the top it would be the one to "open up the reserve bank account to all" the rate should be zero percent because it's zero risk. But the rate can be reduced below zero to chase money into the banks (replacing the OCR). What this would do would be to make the banks genuinely compete for deposits but leave everyone with the take my money out of the banking system system and banking directly with the RB. This would have the same effect of reducing the money multiplier.

I am now convinced that there is no such thing as the debt free money that Iain talks about, and that a fiat currency will never be "sound money" (but it should be extinguishable and that's what opening up the RB to public deposits will effectively do), nor should it be. There is no point in going back to a gold backed currency. You mentioned "tokens" sound money can't be tokens.

Samsung could bribe us with plasmas.
Free McDonalds, if they got the job.
Panasonic... maybe tellys and heating.
Anyone know of a good house building multinational?
got it. Fullers of Chiswick wins

Roger - interesting responses, "Some good legislation . Some proper , competent watch-dogs . And a policy of " No one is too big to fail . No exceptions." I won't bother asking what and how. However, I thought this was amusing, "Gumnut aren't meant to be landlords to the indigent . No way ! That screws with the genuine rental market . Which is a legitimate business in this fair land , girt-by-sea ." I remember one or two pieces from BH where I think he referred to it as the main business in NZ, with other bits bolted on, or something like that. As for "genuine" and "legitimate", ha, ha - you can see why some might be indignant, or was it indigent??:

http://www.interest.co.nz/ratesblog/index.php/2009/06/26/bernard-hickey-...

Fred - you mis-read I think, the RB does'nt hold the asset - it's provides the 'currency of contract' (money) to create value and ends up being more in control of money issuance, as reserve bank credit, that is, debt+interest free - just like it issues coins and notes now - also debt+interest free. The difference is, when brought into the general money supply, this RB PC also creates value (a proportion of the capex cost). Notes and coins don't create value when brought into existence, hence the difference, 'asset value backing', - not the same as if you just print more notes and coins, or QE for a bank bond to improve liquidity by trickle-down. So this would give RB more control over base money (via trickle-up) and the general money supply and by giving them the power to vary banks reserve fraction, also better control over the subsequent M aggregates - which is something they struggle with now, via just the OCR, notwithstanding any measure of extra 'faith' generated by the core funding changes. (See the Steve K article you shared.)

Back to PC for creating public assets, funding finite projects - the evidence is there, "...how much is that market building worth in Guernsey? How much is NZ's state housing stock worth?" Get a valuation. Look at the evidence.

KW John - "1) Let the NZ taxpayer HIRE a government. etc, etc .... just "˜good' governance." I think thats a good way to look things, and this PC/capex thing. An SMT wouldn't get sign off from a board if a project don't meet vfm criteria, and a good proactive board would also be asking questions about capex to create value, eg. in NZ's case extra power generation.

"No representation without taxation". Maybe that'd get people inventivised not to avoid their tax:

http://www.interest.co.nz/news/summer-chart-series-how-rich-stopped-decl...

Cheers, Les.

Les, Iain

Here's why I think a public credit/debt free money system doesn't work.

- There's no such thing as debt free money. A debt free asset has nothing owing on it, if it is a public good asset, it goes back into the same category of "assets" such as fresh air, clean water, oil in the ground, un-mined minerals, ie all those things the economic system tries to draw into it by exploiting, but before it does these things don't exist for it, (and this is a fundamental flaw in the system).

- All money in circulation is an unrealised demand on labour. It only has value when it is spent, or it's value is realised when it's spent, and it can only be spent on buying something (which would need to be replaced by someone's effort) or getting someone to do something for you.

- This is why the accumulation of vast amounts of money in the banking system is wrong and Iain calls them evil, and when people realise what it means, because a person's time is their ultimate "private property" and when every bit of it is owned by someone else, it's revolt against bankers. It's not the bankers fault it's the product of interest, the exponential function and time (approximately 70 years). It's why something has to be done eventually, Les's TINA or TARA.

- With a fiat currency there is no need for taxation (KW . . . what happens to representation?), this is only needed to create a demand for the stuff, it's not redeemable for anything else. The Government has the ability to print infinite amounts of the stuff (ie demand all labour) at will. This is why the "public credit" view says it's OK if we "just print a little bit of debt free stuff" so long as it's spent on a public good (the "free" state house in Iain's links).

- With the global reserve currency now a fiat currency (since 1973), and being printed in vast quantities . . .

"just like it issues coins and notes now "“ also debt+interest free. The difference is, when brought into the general money supply, this RB PC also creates value (a proportion of the capex cost)."

Notes and coins when issued create a one off gain for the issuer, that's called seigniorage. Can the purchaser of these (if they are fiat) get anything back when they are returned back to the issuer - no - because it's fiat money, it's not gold backed, and it's not sound money. What is the only way to legitimately "purchase" a note? It has to be earned, worked for or exchanged with something of value. So, when you hold one of these notes, it's your private property, your "contract" (and/or legitimate expectation) with the issuer is that they won't issue "too many". Seigniorage in a fiat money system is the unearned return from issuing the note/coin in the first place (after the printing cost/cost of the gold coin)

So, you are going to fix this by ensuring any new issued currency is backed by an asset, if the RB doesn't hold the asset (that it just "gave" away the money for, then it must also "give" away the asset . . . to whom? it's public property, then they hand it over another department). Now this new money backed by this asset, so let's just say it's tagged as "Iain's statehouse at number 42" (ie remove it's fungibility), then the holder of that note has every right to rock up to the issuer and say, hand over number 42 please.

Wally, appraised on the % of GDP of the total government sector including local bodies. For every % point reduction they get a bonus. Target 20%. Exclude SOE's that return dividends, any losses incurred by SOE's to be deducted.

Fred - "There's no such thing as debt free money." Wrong, go look at the evidence.

"...but before it does these things don't exist for it,". Wrong, they exist, they just need transforming into value, as an asset. So all that is required is a contract, hence my term about money as the 'currency of contract' - that's all it is, like as you say an "unrealised demand on labour"

But suppose we have demand for the asset/project (eg. Lincoln's war), we have labour and resources, but no 'currency of contract'. We could write contracts that met ALL the needs of ALL involved in the trading of these goods and things to meet the demand. We know why we don't do that. So use the 'currency of contract' instead, which is good for conversion into other things and tax obligations. We could either 'rent' that currency from a lender, or....do what Lincoln and the people of Guernsey did - go check it out. It's evidence. (See Money Masters DVD,etc, on YouTube.) Tell me where they went wrong?

Cheers, Les.

I'll disprove it in a couple of sentences.

An entity owns something, an asset, it's debt free, nothing owing on it, in any form whatsoever, the owner has no obligation of any sort to the rest of society, Zero!. Result no (extra) money in circulation, it's impossible for there to be any. The entity can be an individual, company or a sovereign.

An entity owns some money. It's always going to be someone else's debt/desire to own, by definition, otherwise it's worthless because no one will accept it. If it's sound money the issuer will swap it for something of value.

The other idea I had KW involves a more direct approach to getting good govt. Ministers would be wired up with 'dog collars' and have battery packs for bracelets. Then every time the circus that is Parliament kicks off, we all get to vote on which one deserves a jolt. Or it could be ongoing and the jolt is delivered as soon as the 'worm' reaches a critical point. This would help focus the Ministers on their jobs and raise a bundle in advertising revenue, especially from agricultural service providers! No reason why the opposition should not be in on the fun and games. This would bring life back to Parliament and give new meaning to Noddyland's democracy. What say you John?...think of the productivity gains to be had!.

Les,

Thanks - will keep looking, and post a response here in a while.

FYI, A lot of work being done here re monetary reform by NEF in the UK...
The referenced work linked below addresses counter arguments and historical lessons. More of an extreme makeover than being discussed here, but addresses many of the issues of money creation and seniorage.

http://www.neweconomics.org/sites/neweconomics.org/files/Creating_New_Mo...

Cheers

haaahahahaa! RT,

I didn't think anyone would try and wade through it all... you'll get callouses on ya neurons! I just picked a few interesting chapters. Yep its hard to find comprehensive works on the subject between 'magic roundabout' sites and fragmented bits of historical info., but there still seems to be enough history of public credit to suggest that it has worked in the past and could do again, provided the parameters are defined and understood. I haven't come across any instance where it was tossed out through being abused, or because it was not working. The most common denominator for canning it seems to be pressure from interests vested in the status quo. Wherever it has been tried, in whatever variant, it seems to have been successful while it was operating.

Anyone have any evidence to the contrary?

It seems to me that there are enough smokin' synapses around here figuring out a local solution anyway... who says it has to be a historical model, if the principle is proven, and lessons learnt (which is why its important to know if it has ever actually resulted in systemic failure).

Les, Fred and Wally are getting and sharing (thanks guys) some real insight and ideas on monetary / system reform in general... Where's Raf gone?

Cheers,

OK, carry on.

Just back on-blog for a quick scan. Blast, I was enjoying this, looks like SN might have spolied it!

SN, Fred - was 1/2 way through a response to your 12.03pm Fred, will carry on with that, once real world behaves. Plus I owe you one SN from way back up there. Will be onto it, but non-blog world pressed in, arrggh.

Will read, study and get back into it tomorrow, or day after.

From another thread a wee while back I recall Raf saying he's on hols, maybe Iain too. Good thing about this blog malarky is being able to pick it back up when we get the time.

"... Les and Iain's system" - Nope, Abe Lincoln's (and others, ok I admit it.)

Cheers, Abe.

Errrr Abe I've not read any of your posts. They shot you dead.

Fred - quick scan back in on blog, "..but I see now how Les and Iain's system could be implemented and again it needn't be the "socialisation" of the system."'

What convinced you? Be very specific, thanks.

Cheers, Les.

Les,

In my three easy 9 steps it's spelled out. . . . maybe it's not . . . try number 4. I actually had a long post which I condensed to the nine points. I guess the key thing is the bond the agency would issue to the RB representing the asset being built (state house, motorway or bridge) would be transparently valued. On top of that there would need to be a process to balance the budget, ie limit the printing of $. The sound money question.

TC = the chairman

Les - I mean that if a solid feet-on-the-ground system evolved out of this that would work in Aus just as well, and if there is a motivated lobby there... opportunities for cross-fertilisation, and combined 'clout' could arise from a coordinated approach... and the B4 (and beyond) would sit bolt upright if it grew legs.

Fred,
#3, You mean write a cheque to extinguish sovereign debt?

Im coming ASAP Public Creditors, I have just found another aspect that when the private bankers get the right political puppets (Muffets - Monetarist Finger Puppets)
they make the plain vanilla modern version of the Goldsmiths scam exponentially worse. I am afraid its going to be longer than a bumper sticker, but will cover all previous questions.

Back to the thread....anyone believe we have a reason to expect consumers to go about splurging once again...I don't. I am however most confident we can expect to see a deluge of spin and BS throughout the poodle media all year long. QV is not the first to kick this crap off. It started a week ago with another bloody 'survey'. What I look at are the countless adverts from the big retail chains which tell me they are desperate to sell their 'stuff'. Ready for the tax increases are we?...the council thieving rates and the petrol taxes...gst will be going up....oh yes it bloodywell will.

Fred, Iain, et al, and Storeman - your Jan 10 2.01pm and NEF ref, that is a real big heap of bumper stickers - very useful, basically says in lots and lots of words what we've been honing and homing in on, here. Notably, quoting Lincoln from the outset too. There's a more accessable read here, a lot fewer bumper stickers:

http://www.xability.com/tp2000/general/essay.htm

Essentially it's no brainer stuff, and it always has been, way before we started batting it around here, with my prime interest being stable money supply to yield a more stable ex.rate on the bird for the benefit of the tradeables sector; but there are more benefits, as we've seen. As for, "It would be fantastic to have an economic think/do/lobby tank with teeth, and no tribal affiliations here.." There is one:

http://www.interest.co.nz/ratesblog/index.php/2009/11/20/special-report-...

http://www.interest.co.nz/ratesblog/index.php/2009/09/24/exchange-rate-r...

It's one reason I support them. Just as they kept on breaking the ice about affective asset taxation (CGT etc,) that helped build confidence in others to discuss it rationally and purposefully, I see the same role for them on this topic. On that score it's a case of JDI from here on. However anyone with even a few smoking synapses left knows that is where it will get really hard - many people make their wealth by inflation and related cycles and they won't want that 'wealth' creating mechanism messed with:

http://www.interest.co.nz/ratesblog/index.php/2009/08/05/have-your-say-h...

But we shouldn't give up so easily - never say die, eh.

NEF; first time I've come across em', but have come across related schools of thinking. NEF's strap-line got me sitting up, "economics as if people and the planet mattered". Go read 'Small is Beautiful' by Fritz Shumacher, useful stuff, as are the works and thinking of his son Christian and some of his associates.

Job done here methinks, with the batton passed on, time for some hols, cheers, Les.

Deep in the bowls of the RBNZ..beneath the massive vaults and down a steep flight of steps there is a chamber reserved for those who piss the governor off...carved into the solid matai door are the letters S.O.C.R.E.D. Circa 1910 to 2008. RIP. Those sent down there for a spell ... never annoy Alan again.

I don't want to screw this thread up, but two pints (sic)

Both may be good ways of developing these issues

1) Storeman Normans point-

"The most common denominator for canning it seems to be pressure from interests vested in the status quo. Wherever it has been tried, in whatever variant, it seems to have been successful while it was operating.

Anyone have any evidence to the contrary?"

2) I really do think our local example should be thoroughly scrutinised/'promoted' if it holds up to the glare

(http://publiccreditorbust.blog.com/2009/09/11/michael-joseph-savage-expl... nicked from Ians site)

Les,

The NEF paper ? Which one was that I have had a read through their site do you have a specific link?

Cheers

KWJ, Fred - yeah, that one, have a squizz at this first though to get an easy overview, or if your'e feeling a bit Rogered:

http://www.xability.com/tp2000/general/essay.htm

Cheers, Les.

Les,
Yes the NEF paper is a good start. I made similar suggestions earlier.

The world changed forever, because of world- power shift/ / population & environmental problems/ worldwide recession/ shortage of some natural resources & money/ climate changes - just to name a few. This is a grave scenario humans never experienced before.
Under such fast moving circumstances we must leave behind traditional ways of thinking. Therefore it is secondary if initiatives are coming from the left or right, a form of central planning involving the government (Mark, Les we can't just spread them on a loaf of bread and eat them) or not "“ a collection of positive results for companies/ nation is important. Also Classic Economic models are passé.

Les, NZMEA needs a new philosophy and the adoption of some form of a "Scenario Planning". Under excessive economic international competition/ protectionism we need new ideas and fresh blood "“ a new orientation. For the upcoming situation and beyond first "System thinking" is in my view the way to go - a frame- work with priorities, achieving economic sustainability, independence, balance, wealth and happiness for the people of New Zealand "“ together !

Cheers Walter

Fred, its the nations credit owned by public of the nation, used to unlock the resources of the nation in the public interest, thats why historically it has been called the nations Public Credit facilities.
http://en.wikipedia.org/wiki/First_Report_on_the_Public_Credit

As for conspiracy theories, the world is awash with them for sure, and we have been trained to laugh at everyone of them, but as sure as history has been chapter after chapter of slaveminded elitists exploiting their fellow human being's to the ultimate depths of degredation without empathy, I don't believe humans of a similar mind don't still inhabit the world today and must be guarded against with great vigilance.

There are those who present that this great global credit bubble was a bumbling mess, I say to them if we take Paua poaching as an example, there is the recreational fisher who grabs a small number of extra's above the legal limit set at sustainable levels, he thinks that his little fiddle ain't going hurt in the wider scheme of things, but he is mistaken because if many other little takers are of the same thinking they will collectively have a large detrimental impact on the fishery, you could call that a bumbling mess. But, you then get the organised gang who buy a 38 ft boat,scuba gear and a specific building to take massive numbers of Paua to sell for massive profit, these people are in a league above those of a bumbling mess, they know full well that their conspiring for financial gain is undoubtedly going to have a massive detrimental impact, maybe even destroy the fishery, but they carry on regardless, they are not a conspiracy theory but a conspiracy fact.

For an example in the current predatory lending scam, have a look at this and tell me if its conspiracy theory or conspiring to exploit in fact? You can read the great article on deregulation by bankers insiders in US Congress, but please watch the video a little down on the right hand side - video of the month - Hedge funds and the global crisis, pretty confident no-one will find it a yawn, or we are really in trouble:
http://www.gamingthemarket.com/deregulation-catalyst-to-a-crash.html

"study actions of the past that formed the present to attempt to decipher what caused human upheaval and what didn't, this often involves research into many factions, and if one can see that by picking the good out of different factions and discarding the bad"....2.25am....!

Les, I have a couple of pages written up, anyone else interested? I'm happy to send a copy to be critiqued. I'm still not sure whether there is a logical flaw in the thing.

Hmmm , just following that link , YOGI : page 4 : " Neo-classical competitive general equilibrium (GE) theory is frequently represented as paradigmatic of the exogenous money approach.. ....money exogeneity can be approached in two different ways .". ... ... Oh goody , 3 bizarrely convoluted equations on page 6 . 3 ways , then , not two ......Carry on ........ Page 7 : " Neo-classical New Monetary Economics (NME) can be interpreted as fusing evolutionary and quantitative endogeneity ...... " I thought so , too ........onwards ......Aha , page 11 : " ....fiscal endogeneity ..... the government budget constraint is given by (6) D = G - T + iB = dB + dM ......" .........zzzzzzzzzz zzzzzzzzzzzzzz zzzzzzzzzzzz snork , gurgle , zzzzzzzzzzzzz zzzzzzzzzzzzzzzzzzz

Les, forget that paper :) Take this "The government budget constraint is given by
(6) D = G - T + iB = dB + dM where D = deficit or surplus, G = government spending, T = tax revenues, i = interest rate, B = national debt, dB = change in national debt, and dM = change in monetary base", and the word fiat is only mentioned once.

It's totally based on the assumption that money has to be worth something and that in order to spend it a Government has to tax it first. It's based on the assumption that money is gold or a commodity, that the Government has to take from society first in order to do it's thing. Well it used to be, but we now live in a digital age, its now just a bit in a computer.

Recognise the fact that a fiat currency is worth nothing unless it can be demanded back in taxes. You can't make it debt free. It's the payment of the tax that relieves it of it's debt. When it's paid back it needs to be extinguished. In a fiat currency the money supply is infinite in theory but in reality it is limited by the ability to tax. The problem with the current structure of the system is that it is based around the assumption of sound money/money actually worth something but no one has said errr in itself it's not worth anything, well they do and Zimbabwe is in the same sentence.

Then the minute someone says OK we'll just print it, then that is thought of as abhorrent so the idea goes no further and the Public Credit/Social Credit idea is discredited. Where public credit/social credit goes wrong is that it is sold as "debt free" money when it isn't, it still needs to be paid back.

How's ya holiday going?

No , cobber . I have been called a " right Fred " on many occassions , and much worse besides , but I am not the esteemed gentleman , above . ........ . At times I do lapse into a pseudonym ............The " Walter Mitty " desire to be leading a different life ................ But I leave it clear that the sad gummy-bear-sucking dribbling-drooling- fool is ..........ahhhhhhhh ............me !

Les - sent it again.

KW - pick me :)

Iain/Les - It's OK to offer to sell something you don't own so long as you PROMISE you will get one if someone offers to buy one.

Done

Sorry folks, that post on just what public credit is and why it is needed is on its way. Fred, I received your monetary reform draft, I am afraid you don't quite comprehend the break down of checks and balances in international banking, the cross ownership of the multiple layers of banking and the equity markets, and how they use their ability to expand and contract credit supply to drive target markets up or down to create inside trading opportunities.
The piece I'm putting together, I believe, will explain much, is taking much revision of many sources. One of which was this that I think many here will appreciate from the respected Bill Moyer, the interveiw and series of articles from Mother Jones are most insightful:
http://www.pbs.org/moyers/journal/01082010/profile.html

We're saved...we are saved...the missing Key has returned and he has a plan...oh yes he does and you are going to be let in on this plan come Feb 9th...will it be Bill's 6 part 'strategy' version two...probably! Will it consist of humbug, hot air, blather, hope and BS all dressed up to keep the peasants bewildered but content to wait another year and then another and another...... Probably.
Is it more likely to be a stewed TWG leg of dreams with some burned Brash sauce on top along with pork slices and benefit broccoli?
Polly wanna cracka?

Les, please don't just copy- paste.
"Climate change" not "Global warming" is the term to use.

http://www.esf.org/media-centre/press-releases/ext-single-news/article/b...

Cheers Walter

I loved this well written article and great website. Very informative. Keep up the good work!