Posts Tagged ‘central bank’

Legal Ownership Of Money

November 13, 2014

I have run the idea of the legal ownership of money past a number of the people that have been responsible for my own awakening. But I have received no response at all.

The idea is getting no milage at all.

Yet, I don’t see how this concept is not the lynchpin of the entire construct.

The Kenynesians decry the glut of savings and argue for greater state intervention and centralisation. The Austrians decry the debasement of the currency and decry state intervention and the centralisation of power.

Neither theory however, takes into account the fundamental asymmetrical exchange brought about by the unilateral ownership of the currency.

Of course, the Austrians are closer to the mark because in advocating sound money they effectively advocate greater power for individuals and entities to freely interact. But as far as I can tell, even Austrians are not explicitly in favour of full unencumbered ownership of money by society.

The nature of money is the single fundamental construct upon which everything else is built. Politics, taxation, Collateralised Debt Obligations or Credit Default Swaps are all derivatives of the nature of money. Politics does not influence the nature of money but rather exploits it. Similarly, fiscality or any of the fancy credit instruments mentioned above, have no bearing on the nature of money. Quite the contrary rather. They exploit it.

Politics could of course take the upper hand in advocating a different monetary system. This would entail however taking some rather uncomfortable if not dangerous positions against rather powerful and entrenched interests.

In my view therefore, the fundamental reality of the exchange of something we own outright for something we do not own and owe interest on, is the ultimate driver of all political, economic and social development.

Not only that.

But the continuous exchange of something that is intrinsically valuable (skills, ideas and time) for something that arithmetically does not maintain its original value of exchange (money), must arithmetically and necessarily result in the concentration of wealth in the hands of the ultimate owner of the currency. Thus this is a dynamic that can only result in the concentration of power and the full dependence of society on a progressively ever more pervasive and obtrusive state with all the concomitant ramifications regarding personal liberty that entails.

The ultimate owner of the currency has successfully drawn a boundary around society. Regardless of what happens within that boundary at the political, economic or social levels, the owner of the currency will always and everywhere expand the amount of money and credit in circulation. Thus, regardless of what happens within the boundary, the owner of the currency will enjoy an increasing revenue stream fuelled by compound interest calculated on an ever increasing quantity of money and credit.

This monetary construct therefore, thoroughly neutralises the political process. Political infighting between the right, the center and the left is therefore but a distraction, albeit a very useful distraction. In fact, the greater the political polarisation becomes and the more complex regulation and fiscality become, the greater is the resultant revenue stream for the ultimate owner of the currency.

In this context, wars, famines, humanitarian interventions, economic depressions, unemployment and crisis are an absolute manna for the ultimate owner of the currency who stands to gain regardless the underlying conditions. The greater the activity, the more strident the politics and the larger the dislocation, the greater the revenue stream becomes for the ultimate owner of the currency.

This monetary system is arithmetically skewed to impoverish. It cannot be otherwise. Granted the time line may be rather long but the result is arithmetically inevitable and preordained.

This monetary system cannot contemplate prosperity for all because this would inherently distribute profit in the hands of the many.

The arithmetic of this monetary system are geared towards concentration. Politics has no bearing whatsoever in changing this fundamental dynamic. Politics only serve to bring about ever greater regulation, intervention and complexity thus driving ever greater profits towards the owner of the currency. And the evidence is everywhere.

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Money And Liberty II – (The Monetary Straightjacket)

September 23, 2012

Money facilitates interaction between individuals. Money is a place holder for the value we assign to our skills, ideas and knowledge thereby allowing us to exchange anything at any given moment without stumbling on problems such as perishability. By eliminating the temporal issues of barter, money allows the division of labor thus specialization.

Money therefore cannot exist prior to there being and idea or an item to exchange. That being the case, it is not money that drives the economy; creativity drives the economy and money facilitates the exchange.

The more money is accumulated in profit, the more goods and services can be accumulated thereby simultaneously expanding the economy and wealth.

The above would be great if individuals had the right to choose what to use as money and if the accumulation of money occurs amongst  individuals that exchange goods, services and ideas. This is the ideal market economy.

If for whatever reason a government successfully endows an entity with the task of creating money and at the same time, makes the use of this variety of money an obligation enforced by law, the the role of money changes significantly and so does its utility.

When government mandates the creation of a central bank and tasks it to create the currency to be used by society, the currency that will be created will necessarily be debt based. This is inevitable because on one hand there would be no need of a central bank if the currency was either value based or a fixed amount of fiat currency and, on the other hand, the central bank must be paid for their activity.

The moment a central bank is instituted and the currency it creates is made the only legal tender, all individuals that have ideas and skills to exchange are placed at an immediate arithmetical disadvantage.

In simple terms, there are four problems:

– The first and most pernicious problem is that there is nothing to constrain the creation of the currency and credit. Quite the contrary. The central bank is encouraged to create currency liberally because that’s how it makes a living.

– The second problem arises from the excessive creation of currency and credit because in allowing the unchecked creation of currency, the central bank gradually devalues the purchasing power of the money it circulates.

– The third problem arises due to the routing the newly created currency takes in order to be injected in the economy. Newly created credit enters the economy through exclusive gates controlled by the central bank and the entities that gravitate around it such as commercial banks and other financial institutions. As first users of newly minted currency and credit, these entities enjoy a disproportional purchasing power advantage over any other entity that receives the money farther down the line. Although marginally ahead of children who perceive a weekly allowance, the salaried consumer or the recipient of government assistance are the very last recipient of newly minted currency so that by the time the currency reaches their pockets, the cost of living has already increased considerably. In this construct, the central bank and its acolytes are always a few steps ahead of the rest of society.

– All of the above is obviously a strategy that is limited mathematically because there is an absolute point past which the currency can be debased no more.

When this dynamic is allowed to run its course undisturbed, eventually, all profits will gradually but inexorably concentrate in the financial sector and, with the profits, so will the productive capital of society as well as political power.

During this cycle, society is gradually divested of savings and is burdened with debt. If the debt is not assumed directly by individuals, the state will overspend on behalf of citizens and will then try to recover the sums through taxation. As this dynamic evolves, individuals gradually work longer and harder just to stay in place till, towards the end, they are on the proverbial hamster wheel. At this point, the majority of individuals are stuck in jobs they hate and prospects of new jobs are dim. Similarly, numerous individuals may be employed by entities whose policies they may not necessarily agree with but are in no position to contrast because their life style depends on them keeping the job – this is particularly the case for people employed by government and by para governmental agencies such as the UN for example.

Like all pyramid schemes, as this monetary system reaches its arithmetical limit, the underlying economy no longer generates sufficient profit to service the debt. At this point, individuals and corporations have to liquidate assets in order to try to repair their balance sheet. However, as more individuals try to do this, demand wanes, asset prices collapse, tax revenue dwindles, sovereign deficits worsen and this dynamic engenders an increase in unemployment just at the time that government is short of revenues and has already ransacked public funds.

All the while, as financial entities acquire progressively more political clout, they become the first and only recipient of public funds and enjoy accounting privileges. Conversely, personal debt is not forgiven nor is it reduced.

At this point, society is hostage to the banks.

Make no mistake. This is only the beginning of what is to follow because if there are hostages there is necessarily a demand that must be met or else…

A question to readers…

September 23, 2012

I would like your input and comments and the input and comment of anyone you care to forward this post to.

The question is:

1) What is the role of a central bank?

2) Give reasons as to why the role of the central bank could not be carried out by any of the already existing civic institutions.

I will have follow up questions depending on what answers we get

 

 

Money and liberty

September 20, 2012

Individuals have nothing and are nothing outside of their ideas and skills.

In order to survive and eventually improve our circumstances we can only exchange our skills and ideas against those of others. Nobody can hope to improve their lot without interacting with others.

Money facilitates the exchange. Money is a neutral vehicle of exchange.

In the absence of money, the exchange of skills and ideas is cumbersome and time consuming. By allowing us to place a value on our skills and ideas, money facilitates the division of labour thus literally allowing us to buy time to do more of what we feel is more rewarding.

Therefore, money is an intimate and integral part of the fabric of society.

Money is an abstract concept. It does not matter what is used as money. What does matter is that two individuals must agree that something is a viable medium of exchange. Since we are trading our skills and our ideas, we have the natural right to choose what vehicle of exchange we wish to make use of.

Money is our natural right because our ideas and skills are our natural right. If our skills and ideas make us what we are, then by extension, the medium of exchange we deem suitable to represent our efforts is just as much a natural extension of what we are.

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Now imagine this.

Imagine two individuals that wish to trade skills and ideas with each other.

Imagine further a third individual who is a purveyor of money.

Imagine finally, that the two individuals that have skills and ideas are obligated by law to make use of the money supplied by the purveyor.

In this simplified context, it is clear that the two individuals that wish to trade with each other are at an arithmetical disadvantage to the purveyor of money.

The purveyor of money creates money to continuously buy from one individual and sell to the other. Simply by creating more money as needed, in the long run the purveyor of money will own the ideas and skills of both individuals.

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When organized society surrenders to a central bank the right to choose what constitutes money, the central bank will create money as needed and will end up owning the entirety of the productive capital of society  – i.e. the central bank owns you – that is “owns” you with an “n” as opposed to “owes” you.

Granted the time line can be rather long. But the arithmetic underpinning the system is solid.

If society relinquishes the right to choose what money should be, by default a third party like a central bank that has no skin in the productivity of society will invariably opt for a debt based monetary system. The question is not why would it. The question is: why wouldn’t it.

When the central bank of the hegemon convinces other countries to accept its variety of debt based money as a reserve currency, then all countries that accept will in time too be completely bought out economically and politically.

These are arithmetical realities.

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Central bank apologists point to the confusion and the scams  that were perpetrated prior to the establishment of a central monetary authority.

Far from me to dispute the fact other than to say that we have traded fraud perpetrated by individuals upon individuals for institutionalized and organized fraud perpetrated by a selected elite upon the entirety of society.

Worse still.

The logic inherent in debt based money must necessarily and arithmetically result in the constant expansion of government. This is because it is impossible to institute debt based money by limiting its creation. Debt based money must necessarily be created liberally and excessively. If that were not the case, then a value based monetary system or a system based on a fixed amount of currency would be employed instead, thereby obviating the need for  a central bank. So debt based money must necessarily be spent in order to fulfill its role. Spending is induced through the use of leverage brought about by the creation and the expansion of the credit markets and is driven by liberal spending at government level as well as through para-governmental entities such as the United Nations, the IMF, the World Bank and sundry NGOs.

By the time debt based money comes full circle as it inevitably must, individuals and governments are mired in debt, wages are low, government is the principal employer and/or provider of benefits, political entities run policy (unions), industrial capacity is excessive, pricing power is low, the natural environment is devastated and sovereigns are saturated with each other’s sovereign debt leading necessarily to self monetization of their own debt.

Self monetization of sovereign debt in a context of Floating Exchange Rates calculated on one particular reserve currency, means that the entire construct of sovereign currencies, predicated on sovereigns buying each other’s sovereign debt, has failed. When the mathematical limit of this pyramid scheme is reached, sovereigns must necessarily and inevitably make a last stand by buying their own sovereign debt hence the various QE, ESM, EFSM, OMT and more to come to a sovereign near you.

All the while the central bank issuer of the reserve currency laughs all the way home… i.e. all the way to the bank.