AMI Perpetrated Innocent Fraud
Posted by WARREN MOSLER on January 3rd, 2011
For all practical purposes, fractional reserve banking ended in 1934 when we went off the gold standard. Today’s banking is not reserve constrained.
At best, this is a case of innocent fraud.
Telling that Kucinich was convinced to go along with this.
Nor are there any critics in the media I’ve seen who know any better.
AMI wrote:
Dear Friends of the American Monetary Institute,
(Please pardon multiple emails)
A positive note and appeal on the last day of the year:
On December 17th, major progress occurred towards monetary reform when Congressman Dennis Kucinich (D, Ohio) introduced legislation which changes a corrupt private money system using bank credit for money, into to a sustainable and just system based on using government created money, under our constitutional system of checks and balances. It ends whats known as fractional reserve banking!
He called it the National Employment Emergency Defense Act (“NEED”) HR 6550 because it would solve the unemployment crisis our nation is in. It solves many other crises as well. Please ask your representatives, whether Republican or Democratic to read it here http://www.govtrack.us/congress/billtext.xpd?bill=h111-6550
This is an important monetary step forward for our people and for humanity. Progress consists of taking such steps in the right direction, educating people and gaining their support. It will take time and a sustained effort. It needs to be supported, both verbally and financially. We deeply thank those of you who are giving such support.
Now if you have not gotten to that stage yet, the American Monetary Institute does need your help: If you understand the importance of what we do, and appreciate the work we do, please make a tax deductible donation to the institute of $25, $50 or more, by sending your check payable to the:
American Monetary Institute
P.O. Box 601,
Valatie, NY 12184
You can also donate through PayPal using the donate buttons at our website at http://www.monetary.org
If you have not yet read The Lost Science of Money book, this is a good time to order it, at our home page.
The stage has been set by Congressman Kucinich for 2011 to be an important year to discuss and gain support for this “NEED” Act, HR 6550. Thats a part of what we do. Please help the American Monetary Institute continue to develop materials that educate our citizenry on how beneficial this non-partisan Act would be for our nation and give what you can.
I hope you had good Christmas holidays and wish you a Happy New Year!
Warm regards,
Stephen Zarlenga
January 3rd, 2011 at 3:38 pm
Kucinich is not an economist, but that does not excuse him. As a responsible player in a position of political power, he (and his staff) should have investigated this further before committing. Disappointing.
AMI is an interested party. It’s advertising for donations and selling product. They have a professional obligation to meet relevant professional objections. So far, not so much. Telling.
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January 3rd, 2011 at 4:59 pm
Again and again, people who are interested in understanding how the money, banking, and financial systems should work are confronted with unnecessary challenges and obfuscation. Having read Steve Zarlenga’s book ‘Lost science of money..’, on my way to discovering MMT and the ideas being promoted by the up-to-date chartalist crowd, my guess is that many of the members of the AMI crowd (Michael Hudson apparently acts as an adviser, though not the primary policy maker; Dennis Kucinich and spouse have been associated with the organization and that fact may account for the recent action by the Congressman) may simply be be willing to follow someone who points out a lot of historical mythology combined with a limited sprinkling of historical facts.
From my point of view (biochemist, retired), I was attempting to learn about MMT a year or so ago when Tom Hickey recommended in a comment on billyblog that I read LR Wray’s book on ‘Understanding modern money..’. I appreciated the recommendation, followed that advice, and have gotten to the point where I agree that the arguments appear consistent; however, I have yet to arrive at the point where I might feel comfortable attempting to argue points with experienced economists, bankers, and other financial experts. In reading this blog as well as around 8-10 others, I notice that commenters who are unfamiliar with basic concepts invariable find stumbling points. I recall several instances where Warren Mosler is quoted as having conducted conversations with banking and financial professionals who apparently did not take his points seriously enough to incorporate his insights/suggestions in their subsequent actions. It appears that in order for the modern money proponents to get their message across more effectively, they must conduct a more comprehensive/effective educational program; the efforts at The Pragmatic Capitalist represent a useful starting point. However, I think that a YouTube program account devoted to teaching the fundamentals using animation/cartoon strategies might be effective. I realize that I do not have the requisite skills, however, other interested individuals/parties might.
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Tom Hickey Reply:
January 3rd, 2011 at 5:31 pm
One of the problems I see is professional economists avoiding serious debate with MMT economists. I suspect it is because they are not conversant with the operational details of central banking, monetary accounting (how many of them have read Godley & Lavoie?), finance (how many are familiar with Minsky), and the day to day of the commercial banking system. I do see quite a bit of misrepresentation of what MMT is purportedly about, with wave of the hand dismissals. Kind of difficult getting any traction in that environment. What to do about it?
I agree that it would be nice to have more exposure of MMT in non-professional settings like YouTube. Actually, there was recently a nice counterpoint there when someone put up a funny but erroneous cartoon explanation of QE and someone else quickly countered with the same cartoon characters and a correct explanation. But take a stab at which one went viral? I guess MMT isn’t sexy enough. How to sex it up? :)
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Jim Baird Reply:
January 4th, 2011 at 11:30 am
The original went viral because it was funny, and it had a clear villain in “The Ben Bernank”. The response didn’t because it was a dry recitation of the truth.
I have been thinking of trying to put something like this together, although having an 11 month old crwaling around really cuts into the free time. One thing I think is key is the old Mary Poppins song: “A spoonful of sugar helps the medicine go down” You have to be engaging and, god forbid, funny if you’re going to get people to listen.
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beowulf Reply:
January 4th, 2011 at 12:58 pm
You ever come across Rick Boettger, business school professor who wrote “The Deficit Lie” in the mid-90s? Excellent writer and his economics aren’t too shabby either. He’s retired now, but still keeps it real in a weekly column.
In a nutshell, our national debt is fine as long as it is less than our national WEALTH. And our wealth, by any measure, is at least ten times as much as our debt…
The Fed can purchase every single dollar of new U.S. Treasury debt by the simple device of writing a check that creates brand-new money, just as we did to finance WWII. This money is not sucked from the private sector. Rather, it is poured into a desperately cash-squeezed private sector.
Blaming the debt and the Fed for our problems is like blaming the doctor giving you a transfusion after a car accident for your pain, because you fear blood and needles. The debt and Fed are in fact pouring monetary lifeblood back into our economy.
http://www.kwtn-blue.com/2010/03/rick-boettger-minority-treason.html
WARREN MOSLER Reply:
January 5th, 2011 at 6:38 am
it’s one of the out of paradigm deficit dove positions that’s a major contributor to the problem
beowulf Reply:
January 5th, 2011 at 11:26 pm
When you look under the hood, yes, Boettger’s out of paradigm but not much of a deficit dove. Rhetorically (and that’s why I mentioned him to Jim Baird), he frames the issues very well even though he does get off track vis a vis monetary operations.
January 3rd, 2011 at 8:49 pm
I wish Krugman would embrace MMT. He receives a lot of attention.
I’ve sent Mankiw a few emails about MMT. No response. Brad Delong wrote back asking me “What is MMT?”.
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Winslow R. Reply:
January 3rd, 2011 at 11:09 pm
Brad Delong has long history with MMT.
http://econlog.econlib.org/archives/2004/03/economists_brid.html
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Jim Baird Reply:
January 4th, 2011 at 11:24 am
I’ve been meeting up with Delong in various mailing lists and blogs since the late 90s. He’s smart, but extremely arrogant, and doesn’t believe that anybody outside the “Club” of Serious Professional Economists has anything worthy to contribute. (the crew at UMKC are not considered serious; I suppose Jamie Galbraith might be, but not to extent he quotes from non-Club members)
He does not understand reserve (or any other kind of) accounting, and doens’t think he has to. Oh, and he’ll also unceremoniously delete the comments of anyone who disagrees with him at his blog.
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January 4th, 2011 at 6:27 am
I thought MMTers use 1971 instead of 1934 ?
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Jim Baird Reply:
January 4th, 2011 at 11:33 am
1934 ended domestic convertibility. That was how the Fed was able to maintain interest rates at 3/4% short, 2.5% long from 1941 to 1951. Bretton Woods (1946) reestablished international convertibility, but that didn’t matter for the domestic banking system. 1971 ended Bretton Woods.
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Ramanan Reply:
January 4th, 2011 at 12:06 pm
Yes I know .. though the dates are not firm in my head.
If the money multiplier theory held in some period and not the present period (which of course does not) how come the BoE was able to target rates before 1934 ;-)
http://www.bankofengland.co.uk/statistics/rates/baserate.pdf
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Tom Hickey Reply:
January 4th, 2011 at 1:08 pm
1971 was the unilateral move by the US (Nixon). It was ratified by international agreement in 1973. So different dates are often quoted.
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Ramanan Reply:
January 4th, 2011 at 1:56 pm
No issues with dates – I am saying that the money multiplier theory didn’t work then as well.
Tom Hickey Reply:
January 4th, 2011 at 3:00 pm
I was just setting the record straight. Some MMT’ers use 1971 and others 1973. Both are correct in different ways.
Regarding the multiplier, I think it was ex post accounting then, too, but there were real reserve constraints due to convertibility that affected money supply and this had to be managed by the cb/treasury. I assume that the banks acted like they do now in credit creation (capital constrained), and it was government that was responsible for reserve management through its various levers and this involved convertibility. But I am not sure how that worked operationally.
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January 4th, 2011 at 11:15 am
Warren,
Your “all or none” appeal is neither realistic nor pragmatic. At least what the AMI states in its letter is far better than what is currently perceived as reality. It’s a good step in the right direction. You simply don’t go from a totally misguided way of seeing things to complete understanding in one leap.
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Tom Hickey Reply:
January 4th, 2011 at 1:04 pm
But, Mike, the Kucinich proposal developed by MAI basically ends commercial banking, so it could never get anywhere politically. The financial sector is not going to commit suicide by letting something like that pass. It would strangle finance in the US, and the US would see its financial sector migrating to friendlier places, taking capital with it.
On the other hand, MMT is about removing a few politically imposed restrictions, which could get political traction if people understood the issues. I don’t see this as over the top. It a system update, not a change in the whole operating system. The problem I see with AMI is the issues are confused and the solution is impractical.
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Tom Hickey Reply:
January 4th, 2011 at 1:05 pm
MAI should be AMI.
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January 4th, 2011 at 12:46 pm
As a follow-up re my prior comment regarding a hypothetical MMT account at YouTube suggested above, I had in mind a model animation form which was brought to my attention by my daughter who has absolutely no background in either economics, finance, or animation; she simply thought the information presentation form was entertaining.
As an example, David Harvey (sociologist) gives a 31+ min lecture titled ‘The crises of capitalism’ in the video at:
http://www.thersa.org/events/vision/vision-videos/david-harvey-the-crises-of-capitalism
Then, an 11+ min animated condensation of the gist of D Harvey’s talk is presented at:
http://comment.rsablogs.org.uk/videos/
At the RSA website, other examples are presented to illustrate the technique for animation of other lectures.
I came across another example of animation which differed slightly from that used at the RSA site; it is being used to promote ideas at the PostCarbon Institute website (www.postcarbon.org) to promote a book by one of their members – Mr Richard Heinberg. I received a reply from a member of that organization – Mr Tod Brilliant – to my inquiry regarding the animation technique; his reply:
‘As far as animations go, it may be a solid bet to simply pen a script. Keep in mind that you’ll want to limit your effort to somewhere around five minutes, as attention spans (so sad to say) flag mightily and views drop when you get much past that IN GENERAL (always exceptions). Once you’ve done this, it may be easier to attract someone who would want to foot the bill to have it made. The team we used, Monstro Design, cost us about $5500. The team who makes the RSA animate versions charges closer to $15,000.’
Note that I have not heard from Mr Heinberg as he is apparently busy with other inquiries, however, the implication of Mr Brilliant’s response is that this sort of endeavor would require input from an individual or team who would conceive the idea and an artist or art team who would perform the animation. Needless to say, both of these roles are beyond my capabilities.
At the Scottish Monetary Reform site – ‘Debt- and deception’ book: (http://www.scottishmonetaryreform.org.uk/2010%20film%20springflash/index.html),
we see a humorous explanation for understanding money matters is available at:
http://www.scottishmonetaryreform.org.uk/2010%20film%20springflash/index.html
Were I an economist, I might be able to figure out just what are the stumbling points which apparently prevent my peers from understanding the ideas behind the modern money (MMT) concepts. Surely, if the ideas are sound and are presented at a simple enough level, most people with a high school/college education could comprehend them. When I was learning about MMT, it seemed as if the forced concession by the Nixon administration to design legislation to facilitate the conversion of the money/currency to fiat paper inadvertently (perhaps, an example of serendipity) did the citizenry a favor by potentially eliminating a role for the Fed Reserve to act as the central bank. Is this the key stumbling block? Why do so many find the idea of use of precious metals as currency? Why does anyone not recognize that the board members of the private Fed Reserve system act as politically-motivated individuals which can be discerned when the minutes of the Fed Reserve meetings are published? Any number of small discrete points might be made and presented in visual form if some effort were put into designing animated videos; if the points were made so explicitly that non-economists could get the point, the main-stream economists and politicians might even understand.
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January 4th, 2011 at 1:11 pm
I think there is confusion here on the meaning of the phrase “fractional reserve banking”.
I understand the phrase (as do others) to mean a system in which private sector banks have the right to create money. This is in contrast with so called “full reserve” where the only money allowed in central bank created, i.e. monetary base.
This is the sense in which Milton Friedman uses the phrase here: http://nb.vse.cz/~BARTONP/mae911/friedman.pdf
See his footnote 3, p. 247, and footnote 17, p.259.
This is also the sense in which an AMI publication uses the phrase. See: http://www.monetary.org/rights.htm
And I am sure this is the sense in which Kucinich uses the phrase.
Warren is saying something different. I’m bound to have got something wrong here, but he is saying something to the effect that in 1934 or whenever the US came off the gold standard, the maximum allowable ratio of private bank created money to monetary base (traditionally 10%) came to an end. I.e. a rule to do with a fraction came to an end.
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Tom Hickey Reply:
January 4th, 2011 at 1:26 pm
Ralph, the way I understand it, and the way that proponents of this proposal apparently understand it, too, is effectively to set the capital requirement at 100%, whereas banking is currently about leveraging capital. That ends commercial banking as we know it.
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January 4th, 2011 at 1:22 pm
Re my reference to Friedman above, there is a clearer exposition by Friedman of what he means by “fractional reserve banking” on p.247, item No.1 under the “Proposal” heading. The meaning is as per the one I suggested above.
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January 4th, 2011 at 3:32 pm
Tom, “end commercial banking as we know it” – that’s putting it in too strongly. Banning fractional reserve (in the above Friedman sense) simply outlaws one activity that commercial banks currently engage in: creating money out of thin air. They would still be free to accept deposits (all of which would be base money) and lend that money on.
Also the total amount of money would not necessarily change much. That is, while abolishing commercial bank created money would drastically reduce the total money supply, this reduction can be made good by increasing the amount of base money.
The basic attraction of banning fractional reserve is that commercial bank created money is pro-cyclical, as was nicely demonstrated in the recent credit crunch. That is loans / commercial bank created money expanded up to the start of the credit crunch. Then come the crash, half the population deleverages, and this type of money contracts. I.e. banning fractional reserve should bring better stability.
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Neil Wilson Reply:
January 4th, 2011 at 6:06 pm
Banks don’t create money out of thin air. They create bank deposits and loans.
You can convert any fractional system into a 100% reserve system simply by converting the state’s insurance policy into actual borrowed currency from the central bank.
If you can monitor whether a bank is operating a 100% reserve, then you can monitor whether their equity ratio is adequate.
And given that the banks have already given the regulators the slip, what makes you think that they’ll not do the same with 100% reserve? After all that is why fractional reserve came about in the first place – its uses the minimum amount of the stuff of real value. Everything else is just promises.
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WARREN MOSLER Reply:
January 5th, 2011 at 6:47 am
as previously noted, a 100% reserve requirement only alters the cost of funds/return on equity
a 100% capital requirement eliminates leverage and for all practical purposes gives a bank no advantage over a private lender.
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Andrew Reply:
January 5th, 2011 at 11:10 am
There is an implication here that this is bad. Why is this bad?
Tom Hickey Reply:
January 5th, 2011 at 2:29 pm
Reading the Kucinich/AMI proposal, I believe the latter is really what they are calling for in outlawing non-government money creation. Under 100% reserve, i.e., no fractional reserve, banking , the bank is still “creating money” (loans created deposits) and that is outlawed. They don’t realize that banks don’t lend out deposits so they are confused about the operational mechanics. But if they want banks out of the money creation business entirely, as the proposal states, then it would seem that they have to have banks loaning out their own capital $-4-$.
WARREN MOSLER Reply:
January 5th, 2011 at 8:58 pm
right, they don’t even understand it enough to make a coherent proposal
Andrew Reply:
January 5th, 2011 at 6:49 pm
And again, this is bad because…? (I’m not suggesting it isn’t bad, I just want to understand why it is.) Would this make all banks “investment” banks?
WARREN MOSLER Reply:
January 5th, 2011 at 9:08 pm
a 100% capital requirement would mean a return to non bank lending, as there would be no point to using a bank for lending, which would likely require a lot more govt. deficit spending to sustain output and employment.
that works for me- lower taxes for a given size govt, etc.
but for a nation that ‘believes in’ smaller deficits it’s highly problematic
January 4th, 2011 at 5:12 pm
In my experience, aside from the sheer inertial force of conventional concepts and notional frameworks, and aside from the vested interests in these (tenure, corporate financing, etc.) the main problem I face in trying to explain MMT is simply that people cannot wrap their heads around the reality of spreadsheet money. Money to them is “something.” If you counter with Warren’s points on the scoreboard, you get a perfectly blank stare which means “I don’t believe it.” That government is the “fiat lux” of currency is simply not believed. They money as springing from enterprise, from creating value; that is why they are outraged at government “spending” and so on.
The scenario of the family issuing coupons is good, but it looks very tyrannical; also it does not take into account private enterprise creation of wealth. In fact, the whole question wealth is not money is central. But the family scenario could be the basis of a very good and complete illustration that could be entertaining and clear, and also expandable to a village, a town, and so on. The usual arguments would have to be foreseen and properly dealt with, so that the whole picture becomes clear and irrefutable.
Then there is the political problem: somehow, in this picture you have to include the idea of the public purpose and how that is basically a function of deep values, a weltanschauung. But at least you can make clear that economics generally, and the money system in particular, are there to serve the public purpose, which ideally embraces or embodies some version of the golden rule.
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Neil Wilson Reply:
January 4th, 2011 at 5:56 pm
Jim,
Try explaining it in credit card terms. I find that works pretty well. People can relate to credit cards.
I’ve written it up here
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roger erickson Reply:
January 6th, 2011 at 12:39 am
Neil,
Thanks for the additional effort. However, please change the title of your essay to be:
“How a government’s super-platinum credit card works – IF a nation has sovereign control of it’s own currency.”
Otherwise, it starts off confusing novice readers with too many unanswered questions & too many optional perspectives. It’s already too late for some, before they even read the 1st sentence.
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January 4th, 2011 at 7:10 pm
lol
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Henry Reply:
January 4th, 2011 at 7:29 pm
Re: lol
????????? Where’s the funny part?
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January 4th, 2011 at 9:02 pm
Economics boils down to two fundamental issues:
1. Does a Monetarily Sovereign nation have the unlimited power to create money. Answer: Clearly it does.
2. Does money creation cause inflation? Answer: Despite massive deficits since 1971, there has been no relationship between deficits and inflation. (See: a href=”http://rodgermmitchell.wordpress.com/2009/09/07/introduction/”> Item 8.)
Then there is a sub-issue: If inflation were to occur, how could it be controlled. MMT and I are miles apart on this one. MMTers would control inflation via money supply, and I would control it via money demand.
And that’s it. The rest is just details. (The old saying about the Bible is: The Bible is the Golden Rule and all else is details.) Sadly, all the argument seems to be about the details and not the fundamentals.
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January 5th, 2011 at 5:09 am
Neil, Re your claim that banks “don’t create money out of thin air”, I’ll start with a definition. There are several definitions. But I’ll take the one from my Penguin dictionary of economics, which is “anything which is generally acceptable as a means of settling debt”.
You say that banks create deposits and loans. Agreed. But those deposits can then be passed on from hand to hand so as to settle debts. This happens whenever anyone writes a cheque. Thus those deposits are money.
On the question of banks “giving regulators the slip”, I agree there is a huge problem here. But there is a huge problem with bank regulation anyway. For example the shadow bank industry (which is now larger than the official bank industry) is little more than an attempt to remove money from regulated banks and into unregulated, back-street, smart arse organisations, run by spivs and criminals.
Thus I like the wholesale clamp down on bank activities (other their original and simple deposit taking and lending activities) advocated by Warren Mosler here:
http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
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Neil Wilson Reply:
January 5th, 2011 at 7:26 am
Will the cheque clear if the bank issuing the cheque doesn’t have enough state currency?
No. So it’s not equivalent to state currency.
Banks don’t trust each other’s deposits. We saw that in the financial crisis. That’s why it all locked up.
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Andrew Reply:
January 5th, 2011 at 11:19 am
This stuff gets more confusing all the time. Where does the “state currency” come from?
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Tom Hickey Reply:
January 5th, 2011 at 3:12 pm
The Treasury spends into the economy creating nongovernment net financial assets, and the central bank creates reserves for settlement. The government just “issues” the funds it spends. Then it taxes to create demand for the currency it issues. Since government only accepts its own currency in payment of taxes, fees and fines, there is a demand created for the currency to satisfy these obligations — ”or else.” Obligations to the state are enforced by the power of the state.
Tom Hickey Reply:
January 5th, 2011 at 2:37 pm
Neil, didn’t trust each other’s deposits or each other’s capital? I think that the lock up was lack of liquidity due to fears over insolvency, i.e., banks knew how much dreck they were holding and figured the others guys were in the same position or worse.
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Neil Wilson Reply:
January 5th, 2011 at 3:42 pm
That’s precisely my point. The deposits were backed by bank capital, not the power of the state. Hence they wanted hard cash.
WARREN MOSLER Reply:
January 5th, 2011 at 9:00 pm
if the fed understood its own banking system it would not even attempt to use the liability side of banking for market discipline, and simple trade fed funds in unlimited quantities at its target rate to member banks
Seen this?
http://www.moslereconomics.com/?p=8968
WARREN MOSLER Reply:
January 5th, 2011 at 8:56 pm
‘Will the cheque clear if the bank issuing the cheque doesn’t have enough state currency?’
In the US, yes. Member banks have pretty much unlimited daylight overdraft rights.
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strawberry picker Reply:
January 6th, 2011 at 12:51 am
Tom Hickey says: Obligations to the state are enforced by the power of the state.
LOL! Like the pentagon having to cut thier budget thomas! The power of the state aint what it used to be. As I told you before, the chinese are wiping the walls with pentagon arses, game over dude. I know too many people who have stopped paying fees, fines, taxes, and the state just doesn’t have the resources to imprison them or even bring them to a speedy trial. In some cities the mayors/councils are telling police forces to only concern themselves with life and death matters because they just don’t have the resources to enforce all the laws and codes and rules – so Mr spiritual ferryman who lately has been pontificating in postings that are too long for me to pay attention too anymore, what happens to a nation of laws when the laws can’t be bothered to be enforced?
Tom Hickey Reply:
January 6th, 2011 at 2:04 am
Try not paying your taxes though. I remember reading the headline in a Mendocino County newspaper some time back — Local Grower Busted. The first line of the article began with a quote from the sheriff, “We didn’t bust him for growin’. We busted him for not payin’ his taxes.” :)
January 6th, 2011 at 5:35 am
I made a mistake or omission in item 9 above. I said banks “would still be free to accept deposits (all of which would be base money) and lend that money on”. That as it stands does not get rid of fractional reserve, i.e. the well known process whereby one bank lends depositors’ money to customers who in turn deposit it at another bank, which in turn does the same, still operates.
To ban fractional reserve, it would be necessary to ban maturity transformation as well. That is, the lending on of money in instant access or checking accounts would be banned. But a bank WOULD be allowed to lend $X for Y months if the person depositing the money (say customer Z) had deposited $X in a deposit account where withdrawal was not allowed for Y months.
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January 6th, 2011 at 6:25 am
Tom Hickey Reply:
January 6th, 2011 at 2:04 am
Try not paying your taxes though.
Tom, brevity is the soul of wit, thank you dearly for shortening up your posts so my A-D-D can stay attentive.
Tax cheat Timmy showed me the way dude, he didn’t pay his taxes and got a raise and a promotion. Warren Mosler lives in the center of the universe of tax cheats Incorporated! (all those offshore entities domained in the caymans, the bahamas, panama, st. croix, etc etc and look at his big super yacht!) Tom – DUDE – only SUCKAS pay uncle sam. Suckas like you obviously, that is why you don’t have a super yacht and driving an Mr2 instead of an MT900 :( Sucks to be a honest tax payer like you dude.
PS yes great fanfare has been made over wesley snipes doing 3 years in jail, but that is a propoganda show because the STATE is trying to scare up the sheeple, that shows how DESPERATE they are to win the infowar that they are losing all ability to enforce thier tax and other laws. Think about it Tom, 40 million americans on food stamps, the few suckers left actually paying taxes into the system just can’t support all the bums like me who are sucking the tit.
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Tom Hickey Reply:
January 6th, 2011 at 1:20 pm
I’ll be even briefer. Double-standard.
To paraphrase Bill Black, the best way to rob a bank is to control one. After you’ve looted its coffers, the government will just fill them up again for you.
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Tom Hickey Reply:
January 6th, 2011 at 6:04 pm
Outgunned? I don’t sail in those waters.
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WARREN MOSLER Reply:
January 8th, 2011 at 9:16 am
I own a bank and I’ve lost a lot of money recently. Need to call Bill right away for advice!!!
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Tom Hickey Reply:
January 8th, 2011 at 5:26 pm
I think Bill’s advice to you would be to become TBTF. You need more leverage over the system to hold it hostage. :)
January 6th, 2011 at 4:40 pm
So much of the above debate involves the definition of money. Do you mean M1? M2? M3? L? Some other arbitrary definition? My definition is financial debt.
When any entity, bank or person, lends, money is created. The lender still has money in the form of the borrower’s note, and the borrower has the money he borrowed. Lending increases the money supply. Therefore, a 100% reserve or capital requirement would not prevent banks from creating money. Even a 200% or 1,000% requirement would not prevent money creation.
Compare this with giving. If you give someone money, the money supply does not change. Your money merely is transferred to the recipient. Giving does not change the money supply. That is how giving differs from lending.
Rodger Malcolm Mitchell
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January 6th, 2011 at 11:57 pm
Rodger, If fractional reserve and maturity transformation were banned, people depositing money in banks would have the choice, as they currently do, of instant access accounts or deposit accounts. Withdrawal is not permitted before some stipulated time with deposit accounts. Banks would have the right to lend on deposit money but not instant access money.
Where deposit money is lent on, that money is no longer available to the depositor. (In fact it becomes unavailable to the depositor as soon as it is deposited.)
In a sense, you are right to say that lending increases the money supply. However, the amount of USABLE money would not increase when a loan is made under the above regime. And it is usable money that is the root of the problem: the instability that results in booms and recessions.
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WARREN MOSLER Reply:
January 8th, 2011 at 9:49 am
seems you’re describing a 100% capital requirement.
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January 7th, 2011 at 9:25 am
Ralph,
There is no fractional reserve banking. A bank could have $0 reserves, and lend billions. The government (or other banks) lends banks all they need. One of my companies used to lend our bank millions each night, in what we called “overnights.”
Banks lend against their own capital. It’s “fractional capital” lending, and this increases the money supply.
Rodger Malcolm Mitchell
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