Re: State Theory of Money

On Sat, 23 Jun 2007 22:36:50 -0500, Mark M. wrote:

*Anarcissie* wrote:
On Jun 23, 3:50 pm, "Mark M." <m...@xxxxxxxxx> wrote:

*Anarcissie* wrote:

On May 11, 5:01 pm, w_b_r...@xxxxxxxxx wrote:

"Money (dollars in bank accounts of the Treasury)
is CREATED when the government spends money
into existence."
------------------------------------------
-------------------------------------------

Money is created when any transactor deficit spends
with bank credit. The theorem is that loans create
deposits; the repayment of loans cancel deposits.
This theorem is very significant in an economy
where most transactions are conducted by the
transfer of bank deposits.

This is true whether the transactors are private or
governmental institutions or individuals.

If you'll look at the diagram archived athttp://www.geocities.com/new_economics/conrad-borrowing-2005.gif

from my good friend, Bud Conrad, you'll see that

the largest amount of bank credit is represented by
consumer debt, the second largest is federal
government debt, the third largest is business debt,
and the smallest is state and local government debt.

The theory that you outline is very close to the State
Theory of Money concept that has recently been
revived by the multi-millionaire Warren Mosler.
The term was originated by the German economist
Georg Friedrich Knapp, a favorite of the Nazi's,
who experimentally tested the theory at
Theresienstadt, in prototype of their plans to control
conquered peoples and races.

In point of fact, the Fed holds only a relatively
small percentage of federal government securities.
The large majority are held by domestic and foreign
commercial banking institutions.
-

On May 10, 1:14 pm, "The Trucker" <mik...@xxxxxxxxxxx> wrote:

For years I have been trying to explain this stuff in a
way that even the minimally aware can understand
it. Perhaps the best way to look at it is to (in you
mind) coalesce the Fed and the Treasury into a
single harmonious group. That is the reality
anyway. These two institutions work hand in hand
to do the job of government finance and monetary
control.

Money (dollars in bank accounts of the Treasury) is
CREATED when the government spends money
into existence. The Treasury accounts in the central
bank (spelled Fed) are NEVER overdrawn or
insufficient.

The problem then becomes the control of all this
money that has been created and thrown into the
helicopter blades of government to come to rest we
know not where. If the money is allowed to slosh
around in the economy for too long then the amount
of actual dollars will grow too large and the value of
the dollars will erode. That is why we have taxes
and the sales of various types of "interest" bearing
mattresses called government bonds. What else will
the rich people who already have all the money they
could ever use do with this extra money but to put it
into bonds?

That is what keeps dollars scarce and keeps them
worth something; this sale of bonds and this
taxation. If interest rates on the bonds are very low
and there is inadequate tax revenue then the amount
of real live spendable money increases and the
currency is devalued. That is what has been
happening since 2000. And if short term rates are
kept low and government borrows on the sort term
(lots of 6 month bonds) then both money and bonds
continue to lose value. Over time this _SHOULD_
attend to trade imbalances.

The time of reckoning is put off by the current bond
holders. If they refuse to buy more bonds at low
interest rates then the value of the bonds they
already own at low interest rates will deteriorate
even more than that value has currently
deteriorated. You must always remember that the
only thing you can get for a bond is money. And if
the value of the money has eroded then so too has
the value of the bond.

I keep using the word "value" and it is time to
address what it means. Value is measured in one's
control of labor and natural resources. Money buys
both land and resources. As these prices rise we are
actually witnessing the decline of the value of the
dollar. The apparent stock market rise is also a part
of that.

It seems obvious that there is a lot of inflation
taking place, while the government's institutions
and spokesmen pretend that there is not. However,
the inflation has not been evenly distributed --
most of it has occurred in the stock market, real
estate, and collectibles. We might call these the
upper realm of the economy. The money hasn't
yet flowed to the lower realm, where people
labor for cash and spend it on commodities.

In thinking about the denouement of this
obviously unstable situation, I am wondering
to what extent contemporary money is real. For
the moment I am considering commodities and
claims on commodities to be real. But what I
am wondering is whether a large part of the
current monetary gas keeping the inflation of
the stock and real estate markets going could
just disappear overnight.

Money in our present systems represents prior production, claims on future
production, and exchange price of land. Dollars can move between these three
categories. Dollars representing a stack of cut firewood can be spent to buy land.
Money from the sale of land can be used to buy cut firewood. Money that
represents not the sale of land but the asset value of land can be used to buy
asphalt shingles (home equity loan).

A general inflation of land prices (real estate bubble) need not affect prices of
goods and services. Conversely, the dollars in assets that don't represent prior
labor could in theory be deleted without affecting at all the value of existing
goods. For example, a high tax on land rent would have the indirect effect of
virtually destroying the selling price of land.

Bankers get rich on real estate bubbles. Unlike landlords, bankers don't need to
first buy land in order to collect the rent. Because they know that nearly all the
dollars they lend for buying land go back into purchasing land, Bankers can lend
money that does not represent prior production. They in essence create money by
lending for land. The mortgage payments are made by workers' production. This is
the "real" money that bankers and their shareholders spend.


After I posted my query, I came across http://wfhummel.cnchost.com/
(due to the mention of seigniorage; it's one of the sites you get if
you
Google that term). I have begun to read it, but as yet I would
hesitate
to attempt to summarize. I'd like your (and anyone elses's) opinion
as
to its validity, interest, etc.

Hummel has been here and we've debated his stuff. Although he understands very
well the way the present system works, he tends to use circular reasoning to
explain why it ought to be this way; i.e. the banking system must work efficiently
because that's the way it works.

I think that is a fair assessment of Hummel, but the guy knows his stuff
about how the system works. I argued with him for months on end and came
to the same conclusion about his ardent support of the cureent system.
But I learned a hellova lot while debating with him.


As to whether the upper realm of real estate and stocks, and the lower
one of labor and consumer goods, can be kept separate forever, there
are certain points of contact which make me doubt that they can.
For instance, there is the relation between housing rent, real estate
prices, interest and taxes that seems inescapable.

Right. Mortgage lenders are after rack-rent (the most the market will bear rent).
Prices for real estate are adjusted to accommodate rack-rent payments. As
interest rates fall, land price increase.

Homes sell on "How much will it cost per month to be buying the house?",
and "How much can I make on resale?". The banks do not lose so long as
people keep moving or refinancing. As the rates go down the amounts go
up.

Taxes on land are always deducted from rack-rent available for either landlord
payments or mortgage payments. This means that increases in land value taxes
reduce land price.

So the way to do it is to move the taxes off the structure and on to land.
That way the tax to the "owners" is NOT increased and the bubble does not
pop. The time to increase the tax (once it is on land) is AS THE LAND
PRICES ARE RISING. That PREVENTS the rise and stabalizes the prices. No
more bubbles. Unfortunately, if there was a move to tax land at the
federal level, land prices would plummet at this point. I recommended
doing the tax deal 15 years ago. That was the right time.

Should the real
estate, stock and collectibles market appear to be overpriced, I
would think that money would tend to run towards commodities
and hard goods, which are also bought by people living in the
lower realm and will therefore cause inflation there.

Overpriced is relative. What brings investors to the land market is rate of price
appreciation. As long as price are going up, they will continue to go up. As soon
as land price appreciation stalls, it must go down. Land prices cannot level off.
This is because of the speculative premium that is rolled in land prices.

The way to stabalize land prices is with a TAX (or look at it as gummint
rent collection). As the average price of an acre of land in the
sovereignty attempted to rise (or as it does rise slowly) the tax on land
will be slowly increased as a percantage (tax rate increase). As the price
falls, tax rate would be decreased. This is a MONETARY function and would
serve very well to limit all sorts of bubbles and depressions.

It seems
also likely that people in the upper realm may begin spending
money in the lower realm -- the trickle-down effect -- causing
inflation there for the services and goods available (e.g. illegal
drugs).

When land price decreases, land is not dumped for better investment. OTC, land is
held tight for the time in the future when the price will again rise. After all,
land requires no maintenance, and we all need it to live and work on.

The tax on land is the "maintenance". It is the only maintenance.


Of course, a lot depends on what money _is_ these days. If it
is something created privately by belief, then a lot of it could
disappear very quickly. That is something I am trying to
figure out.

A worthy subject of study. Let us know what you discover.


Money has 2 forms: One is simply credit issued by banks. The other is
fiat money issued by government. These monies trade on par but have
completely different controls.

--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org

.

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