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Starting this new thread to try to be more precice than my earlier thread of "Why an alternate currency"
[quote]Something else we should clarify: Even back when we had a gold-based currency, back before the Federal Reserve system, banks still "created" money by making loans, accepting that loaned money into a new account, then loaning money from the new account. All gold did was limit the original batch of money, not the total available. I can't quite tell if you want to end that practice as well. Can you clarify?[/quote]
Ideally, I think we'd be just fine if we used gold coinage as money. Banks as we know them today would cease to exist and would instead become more like "Venture Capitalists" Banks would be safe places to hold your wealth (real wealth not fiat money) and you would pay them going market rate for that protection. Say you want to start up a coffee shop, you go to the bank and sign a contract for a repayment schedule (think of it as a stock buy back) the bank will earn a portion of the proffits of the coffee shop until the stock is all sold back to the owner of the shop. This makes the "banker" much less inclined to shut down a venture that can be made proffitable just because of a missed payment. Instead of a disinterested banker expecting his payment you get more of a partner who has a vested interest in your sucess. Also with a fixed currency and increased productivity you'll have deflationary pressures (which in our current system would be devistating) that will mean that the stock buy back will actually earn the "Banker" a proffit, as the gold he gets back will have more purchasing power than when he loaned it out.
[quote]Regarding gold itself vs. gold-backed currency: You might be able to convince me that a gold-backed currency is a good idea. I doubt you'll be able to convince me that shipping gold coins around instead of tracking it in a computer is a good idea in today's world. The transaction costs of transferring money that way would enourmous. Any long distance commerce by regular people would die. Right now, I can order a book from a London publishing house and only pay to for them to ship the book to me. Using solid gold, not only would I have to pay for shipping both ways, but I'd have to pay an additional amount to have my gold guarded on the way to London. Can you imagine what would happen to mail, FedEx, and other drop-off boxes once criminals realized they were filled with untracable gold? The mail would have to be moved in armored cars. The Post Office would become the most heavily armed building in town, or it would have to be combined with the police station. Mailmen would have to be armed. In would, in fact, get quite silly very quickly.[/quote]
When you look at E-Gold.com you'll get a quick idea of exactly how that can all be accomplished with REAL GOLD, securely and efficently and for only a very small convienence fee that is far less burdeoning than having a VISA or American Express.
[quote]Actual gold isn't very practical, in my opinion, whatever the upside.[/quote]
Can be, look at the E-Gold and think of it not as a total solution but rather as a prototype used for a portion of your funds when needing to conduct business at a distance.
[quote]I agree that easy access to credit combined with cultural and media-based pushes to acquire cause people to take on absurd levels of consumer debt.[/quote]
If interest couldnt be charged and the loaner of the money became a partner in the future of the person to whom he had loaned the money he would be much more careful in what he loaned the money for. Few 18year old would be getting a real money loan for a CD player but with a credit card no one cares what you do with the money so long as you put yourself deep in debt to the system thus have to work as a wage slave to pay it all back. I am not necessiarly saying that banking/credit cards etc should be illegal only that if our money system were more legitimate they would be rare. If a bank wants to make a loan it should come from the bankers store of gold not from his depositors. Interest shouldn't be illegal but should become quickly un-necessary as the new system takes more and more hold.
[quote]Yes, that's true. Validating is more a "weights and measures" sort of thing, not a banking thing.[/quote]
Yes which is a task more suited to government. Banking as I've said quickly becomes un-necessairy when people get real money and find out that if they hold on to that money it increases in value with out needing to loan it out to bankers at interest. Debt plunges as people start to treat money with a different respect because few people are willing to risk their own money for unsecured debt like credit cards. Imagine if the President of Visa had to hand over his own money each time some one used one of their cards.... would he still be so quick to hand out cards like candy? Even at outrageous interest rates?
[quote]One thing I'd like to clarify: When you say "Fed," do you mean the Federal Reserve System as a whole, the twelve Federal Reserve banks, the Open Market Committee, or what? Or do you lump all banks that are FRS members as being one thing?[/quote]
I speak of the system as a whole. Private banks being granted the right to create money from nothing and determine by that power the stock market and job creation at our economy as a whole. That much power in those few of hands cannot help but corrupt.
[quote]I think this is a distinction between a gold-backed currency and gold. If prices are in dollars, then I have to figure out how many dollars an ounce of gold is worth at that moment, even if the currency is backed by gold. If, however, the stereo is priced at 1 ounce of 22 caret gold, then no calculation is necessary. Are you talking about using weight of a particular purity of gold as your units of money?[/quote]
Think of it like the old sliver certificates, a silver dollar and a paper dollar are both equal to the value of one ounce of silver. Personally I'd like to see it go right back to coinage but as that may prove to be too much for people to readapt to without a middle ground. Plus $1 is so small an amount of gold in reality that it could only be represented by paper redeemable for gold.
[quote]Do you still believe there should be an FDIC to protect your cash, or should that go away with the rest of the national banking apparatus?[/quote]
Private insurance companies could insure banks. By going private with them competeing against each other it would insure the best rate for the service provided.
[quote]I know that Muslims take the old prohibition against usery much more seriously than Christians. (At some point, Europeans weaseled the definition of "usery" from "interest" to "excessive interest.")[/quote]
Orthodox Jews take it very serriously too. The loop hole being I can't charge a fellow Jew interest but the goyiem.... well that is legal. I think that inside the US at least we should clean up our banking system and play nice with fellow citizens.
[quote]Something else we should clarify: Even back when we had a gold-based currency, back before the Federal Reserve system, banks still "created" money by making loans, accepting that loaned money into a new account, then loaning money from the new account. All gold did was limit the original batch of money, not the total available. I can't quite tell if you want to end that practice as well. Can you clarify?[/quote]
Ideally, I think we'd be just fine if we used gold coinage as money. Banks as we know them today would cease to exist and would instead become more like "Venture Capitalists" Banks would be safe places to hold your wealth (real wealth not fiat money) and you would pay them going market rate for that protection. Say you want to start up a coffee shop, you go to the bank and sign a contract for a repayment schedule (think of it as a stock buy back) the bank will earn a portion of the proffits of the coffee shop until the stock is all sold back to the owner of the shop. This makes the "banker" much less inclined to shut down a venture that can be made proffitable just because of a missed payment. Instead of a disinterested banker expecting his payment you get more of a partner who has a vested interest in your sucess. Also with a fixed currency and increased productivity you'll have deflationary pressures (which in our current system would be devistating) that will mean that the stock buy back will actually earn the "Banker" a proffit, as the gold he gets back will have more purchasing power than when he loaned it out.
[quote]Regarding gold itself vs. gold-backed currency: You might be able to convince me that a gold-backed currency is a good idea. I doubt you'll be able to convince me that shipping gold coins around instead of tracking it in a computer is a good idea in today's world. The transaction costs of transferring money that way would enourmous. Any long distance commerce by regular people would die. Right now, I can order a book from a London publishing house and only pay to for them to ship the book to me. Using solid gold, not only would I have to pay for shipping both ways, but I'd have to pay an additional amount to have my gold guarded on the way to London. Can you imagine what would happen to mail, FedEx, and other drop-off boxes once criminals realized they were filled with untracable gold? The mail would have to be moved in armored cars. The Post Office would become the most heavily armed building in town, or it would have to be combined with the police station. Mailmen would have to be armed. In would, in fact, get quite silly very quickly.[/quote]
When you look at E-Gold.com you'll get a quick idea of exactly how that can all be accomplished with REAL GOLD, securely and efficently and for only a very small convienence fee that is far less burdeoning than having a VISA or American Express.
[quote]Actual gold isn't very practical, in my opinion, whatever the upside.[/quote]
Can be, look at the E-Gold and think of it not as a total solution but rather as a prototype used for a portion of your funds when needing to conduct business at a distance.
[quote]I agree that easy access to credit combined with cultural and media-based pushes to acquire cause people to take on absurd levels of consumer debt.[/quote]
If interest couldnt be charged and the loaner of the money became a partner in the future of the person to whom he had loaned the money he would be much more careful in what he loaned the money for. Few 18year old would be getting a real money loan for a CD player but with a credit card no one cares what you do with the money so long as you put yourself deep in debt to the system thus have to work as a wage slave to pay it all back. I am not necessiarly saying that banking/credit cards etc should be illegal only that if our money system were more legitimate they would be rare. If a bank wants to make a loan it should come from the bankers store of gold not from his depositors. Interest shouldn't be illegal but should become quickly un-necessary as the new system takes more and more hold.
[quote]Yes, that's true. Validating is more a "weights and measures" sort of thing, not a banking thing.[/quote]
Yes which is a task more suited to government. Banking as I've said quickly becomes un-necessairy when people get real money and find out that if they hold on to that money it increases in value with out needing to loan it out to bankers at interest. Debt plunges as people start to treat money with a different respect because few people are willing to risk their own money for unsecured debt like credit cards. Imagine if the President of Visa had to hand over his own money each time some one used one of their cards.... would he still be so quick to hand out cards like candy? Even at outrageous interest rates?
[quote]One thing I'd like to clarify: When you say "Fed," do you mean the Federal Reserve System as a whole, the twelve Federal Reserve banks, the Open Market Committee, or what? Or do you lump all banks that are FRS members as being one thing?[/quote]
I speak of the system as a whole. Private banks being granted the right to create money from nothing and determine by that power the stock market and job creation at our economy as a whole. That much power in those few of hands cannot help but corrupt.
[quote]I think this is a distinction between a gold-backed currency and gold. If prices are in dollars, then I have to figure out how many dollars an ounce of gold is worth at that moment, even if the currency is backed by gold. If, however, the stereo is priced at 1 ounce of 22 caret gold, then no calculation is necessary. Are you talking about using weight of a particular purity of gold as your units of money?[/quote]
Think of it like the old sliver certificates, a silver dollar and a paper dollar are both equal to the value of one ounce of silver. Personally I'd like to see it go right back to coinage but as that may prove to be too much for people to readapt to without a middle ground. Plus $1 is so small an amount of gold in reality that it could only be represented by paper redeemable for gold.
[quote]Do you still believe there should be an FDIC to protect your cash, or should that go away with the rest of the national banking apparatus?[/quote]
Private insurance companies could insure banks. By going private with them competeing against each other it would insure the best rate for the service provided.
[quote]I know that Muslims take the old prohibition against usery much more seriously than Christians. (At some point, Europeans weaseled the definition of "usery" from "interest" to "excessive interest.")[/quote]
Orthodox Jews take it very serriously too. The loop hole being I can't charge a fellow Jew interest but the goyiem.... well that is legal. I think that inside the US at least we should clean up our banking system and play nice with fellow citizens.
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Re: Gold as Money in an Anti-Usury System
Thu, July 20, 2006 - 5:48 PMAs far as I can tell, we're talking about four different things. They are:
1) Using gold as the currency
2) Having a currency supply that is not controlled by bankers
3) Prevention of interest charging
4) Use of equity loans instead of interest loans
Now, using 1 would also accomplish 2. However, you don't need to use gold to do that. You could simply use Friedman's proscription that the money supply grow at exactly 3% (or whatever) per annum no matter what. It would still be fiat currency, but if you made it a Constitutional amendment or something, it would be largely out of the hands of bankers and politicians. For this discussion, we can combine them if you like.
The third item, completely unrelated to the first two, is whether or not people can charge interest. This is utterly unrelated to whether or not we use gold. You can use gold and charge interest, and you can use fiat currency and deny interest.
The fourth one is also unrelated to the first two. How it relates to the third one is interesting.
In your example:
"Say you want to start up a coffee shop, you go to the bank and sign a contract for a repayment schedule (think of it as a stock buy back) the bank will earn a portion of the proffits of the coffee shop until the stock is all sold back to the owner of the shop. This makes the "banker" much less inclined to shut down a venture that can be made proffitable just because of a missed payment. Instead of a disinterested banker expecting his payment you get more of a partner who has a vested interest in your sucess. Also with a fixed currency and increased productivity you'll have deflationary pressures (which in our current system would be devistating) that will mean that the stock buy back will actually earn the "Banker" a proffit, as the gold he gets back will have more purchasing power than when he loaned it out."
There is no practical difference between this and a traditional, interest-based loan. The borrower has to pay back on a schedule. The lender does not have a long-term interest in the property, because the lender knows he will not have an equity once the loan is repaid. This is merely a bookkeeping trick to get around a religious prohibition against charging interest. If the lender got permanent equity, like a venture capitalist does, then the lender might be willing to continue on a longshot. But, since the lender knows that no matter how well the business does, the lender will at maximum only recieve the originally agreed upon amount. The lender, faced with someone behind schedule, will look at exactly the same criteria a lender looks at today: will this person be able to pay me back on a schedule that's worth my while, or am I better off cutting my losses, selling my investment at a loss to someone who specializes in such things (a collection agency), and investing the money with someone who's got a better shot?
Venture capitalists take heavy interest in their companies because they have the potential to recoup 10-100 times their investment. If you want your system to work, you have to get rid of the payment schedule and make the equity permanent. Then you'll get the loaner attention and care you're looking for.
Another aspect of the fourth one: You've said that you want banks to not be able to create money. But, it seems like the same "make a loan money multiplier" would kick in here. I guess the difference is that the bank can only loan it's own money, not it's customers' money. The multiplier kicks in when the bank loans its customers' money. Is that what you mean?
An interesting side affect of that system: Right now, I essentially loan my money to my bank, who in turn loans it to other people. The profits from that loan accrue mostly to the bank, but partially to me. In your system, the bank would accrue all the profits. Or, would you allow banks to pool customers savings into loan funds, kind of like a mutual fund is today? So, savings and checking accounts would cost users money, but people who had enough money could pool theirs for investment purposes?
A thought about the private insurance of bank accounts: there seems to be a contradiction in the way people perceive such things. On one hand, people hate the fact that banks and insurance companies are big and that they cooperate. On the other hand, they hate it when they're small and fail, taking all their customers assets with them. Competition, true competetion, means a certain failure rate.
I'm feeling fuzzy. I think I missed some things I meant to say. Next time, I'll try to pull out pieces a little better. -
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Re: Gold as Money in an Anti-Usury System
Fri, July 21, 2006 - 9:02 AM[quote]There is no practical difference between this and a traditional, interest-based loan. The borrower has to pay back on a schedule. The lender does not have a long-term interest in the property, because the lender knows he will not have an equity once the loan is repaid. This is merely a bookkeeping trick to get around a religious prohibition against charging interest. If the lender got permanent equity, like a venture capitalist does, then the lender might be willing to continue on a longshot. But, since the lender knows that no matter how well the business does, the lender will at maximum only recieve the originally agreed upon amount. The lender, faced with someone behind schedule, will look at exactly the same criteria a lender looks at today: will this person be able to pay me back on a schedule that's worth my while, or am I better off cutting my losses, selling my investment at a loss to someone who specializes in such things (a collection agency), and investing the money with someone who's got a better shot? [/quote]
Not exactly, first of all he recieves a portion of the proffits so long as he has shares outstanding and secondly we all know that the first five years are the hardest, on a thirty year loan the amount to be gained over the long haul is far in excess of the repayment value if the venture is sucessful.
[quote]The third item, completely unrelated to the first two, is whether or not people can charge interest. This is utterly unrelated to whether or not we use gold. You can use gold and charge interest, and you can use fiat currency and deny interest.[/quote]
While it is true you can have 3&4 without 1&2 the combination of taking care of all four at once will be the biggest improvement in the system as a whole. While fixing any one part is a step in the right direction it is not enough to really reform our economic system.
[quote]Venture capitalists take heavy interest in their companies because they have the potential to recoup 10-100 times their investment. If you want your system to work, you have to get rid of the payment schedule and make the equity permanent. Then you'll get the loaner attention and care you're looking for. [/quote]
I think both will be possible, that is the choice of private companies or individuals. Interest shoudlnt be forbidden it just should be awfully unwise in a gold backed economy because with a fixed amount of metal in circulation there will be a build in deflation that will encourage individual savings. By simply doing NOTHING with your money it's purchasing power will increase.
[quote]Another aspect of the fourth one: You've said that you want banks to not be able to create money. But, it seems like the same "make a loan money multiplier" would kick in here. I guess the difference is that the bank can only loan it's own money, not it's customers' money. The multiplier kicks in when the bank loans its customers' money. Is that what you mean? [/quote]
If a bank/investor only has 10lbs of gold it can only loan out that 10lbs and can only reloan it once it is returned to him. With the way that accounts are done now, you need $10000 a bank loans it to you thus creating it out of thin air as a debt on his ballance sheet. You deposit that $10000 in the bank of the auto dealer you bought the car from who's bank then loans out up to $9000 of it out again creating more money in the form of debt entries this continues until the initial $10000 as grown to nearly $1million dollars. With Gold fractional reserve lending is not done thus if you have X amount then X amount is all you can loan out.
[quote]An interesting side affect of that system: Right now, I essentially loan my money to my bank, who in turn loans it to other people. The profits from that loan accrue mostly to the bank, but partially to me. In your system, the bank would accrue all the profits. Or, would you allow banks to pool customers savings into loan funds, kind of like a mutual fund is today? So, savings and checking accounts would cost users money, but people who had enough money could pool theirs for investment purposes? [/quote]
By private contract certainly as an investment pool. With the knowledge that gains or losses would also be shared by that pool. You're money would cease to be guranteed. Much as a mutual fund you'd be putting not only the hoped for gain but also the principal at risk.
[quote]
A thought about the private insurance of bank accounts: there seems to be a contradiction in the way people perceive such things. On one hand, people hate the fact that banks and insurance companies are big and that they cooperate. On the other hand, they hate it when they're small and fail, taking all their customers assets with them. Competition, true competetion, means a certain failure rate.[/quote]
Life is uncertain but that doesnt mean in a hopefully limited taxation environment you'd want the government using tax dollars to pay back private companies for their failure to provide proper security.
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Re: Gold as Money in an Anti-Usury System
Fri, July 21, 2006 - 12:42 PMI'm going to have to do some thinking before my next post, but I did want to make something explicit. I'm not saying you don't know this; I'm just saying it's not clear to other people who might be reading.
In the loan example, the local bank cannot create the initial loan out of thin air. If they don't have the money, they have to borrow it at some interest rate from another bank, or they have to sell some Treasury paper, or they can go to the Federal Reserve Discount window. If they pick option 3 and go to the Discount window to borrow, then *that* money is created out of thin air by the Fed. However, there are a couple of problems:
1) My bank (Wells Fargo) has to pay the Fed interest on that loan.
2) Those are overnight loans, intended to cover overnight bookkeeping shortfalls. If my bank does that very often, the Fed starts to begin thinking that perhaps my bank is not handling itself well and is due for an audit.
Now, my bank sells some Treasure paper back to the Fed, then that also creates money out of thin air. The Fed just creates the money necessary to buy back the paper. But, my bank now no longer has these secure, interest-bearing assets. Plus, they are required to maintain a certain reserve on their loans. By selling that Treasury paper, the number of loans they can make has just been decreased.
So, it's true that money at some point was created out of thin air, but MY bank can't create it directly. It has to trade something to get it. It has to trade a safe, low-interest income to make a loan to me (which is less safe, but pays higher interest.) Or, it has to borrow unused reserves from a bank that doesn't have good loan prospects, which means it has to pay that other bank back even if I default on my loan.
One other thought that we haven't talked about: If we went to a gold-based system, the value of gold mines would go up tremendously. The people who currently hold gold mines would become immensely powerful. Does your plan include nationalizing gold mines, or would you allow gold mine owners to form a monopoly, which would allow them to manipulate the gold market much the way the DeBeers company manipulates the diamond market? -
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Re: Gold as Money in an Anti-Usury System
Sat, July 22, 2006 - 1:05 AM[quote]Does your plan include nationalizing gold mines, or would you allow gold mine owners to form a monopoly, which would allow them to manipulate the gold market much the way the DeBeers company manipulates the diamond market?[/quote]
If they could manage to form a monopoly like DeBeers then I could see the need to step in and clean it up, but rather than trying to invent such a problem, I think we would be better off to realize that it is unlikely as there are many companies involved in gold mining now and only concentrate on anti trust measures when and if it became an issue.
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