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Re: DAS/Risk

John Merryman — Wed, 22 Oct 2008 21:37:04 -0000

The reason it is a bubble is because to save money, it must be invested, i.e., lent to someone. This means the total savings is determined by prudent lending, rather than the needs of a privatized economy, where everyone is dependent on private savings. To overcome this obstacle, lending standards have to be lowered. Even that isn't enough, so there is this form of pari-mutual wagering, called derivatives. So if I bet my dollar against your dollar, that's two dollars invested. Since one of us might lose, we hedge this initial bet with counter bets. That means six dollars invested and the web spreads. Lots of money invested, so we are all rich. Think soap bubble and the pin just hit it.
How do we solve this problem? Get the government to print lots of money to replace the credit? Hmmm.... Doesn't that just make the underlaying value of the currency part of the bubble, which we will continue blowing up until it pops too?
The fact is that the entire system of government supported private central banks servicing a private banking industry has reached its viable limits.
Money is a form of public utility, based on faith in the institution insuring it, which means us, the taxpayers. It's sort of like a road system. You own your car, house, business, etc., but not the roads connecting them. Same for the money in your pocket. The fact it's completely interchangeable with what's in everyone else's pocket is what makes it a medium of exchange. We like to think of it as private property, but the government owns the rights, which it leases out to a private banking system and they make the profits, while we are responsible for the risks.
Now much of this private banking system is being nationalized because they got way too greedy.
Should we spend billions more to make them whole and set them free again, or is there another way?
Obviously a huge nationalized banking system is as scary as the current system, but we have developed a system of government that consists of many layers, from the smallest town and county councils, up through state and city governments, to national and even international organizations. Why not a banking system modeled on that, with community banking as an integral function of all the various levels of government, channeling their profits back into the communities from which they came, in order to provide the public services necessary. These communities can then compete to provide the best environment for their people and businesses and grow as an organic function of that. They would continue using a national currency, with various levels of local, state and federal regulation that would evolve as situations require it.
It's not that far fetched, given the extent to which banking is being rescued and otherwise propped up.
It also goes back to the very nature of money; Where would all the money the government borrows and re-cycles back through the public sector be invested otherwise? Private markets are not big enough. Social Security is a good example, as this money is spent as it is collected and doesn't need complex savings mechanisms to be stored. Throughout history, people have invested in their old age by taking care of their elders in the assumption the next generation will do the same.
Government debt only transfers value from taxpayers to bondholders. Isn't it interesting the same people who say we shouldn't have to pay taxes, go and borrow as much as possible? Whether it's your house, or your government, if you borrow to pay for it and don't pay it back, sooner or later it isn't yours anymore. Think of that when you are paying tolls to some foreign sovereign fund to use your local highway in a few years time.
We need to develop far more complex and flexible methods of exchange, because the current model is more broken than anyone wants to admit. Storing abstract wealth has its limits, as well as its uses. We need to invest more in our environment and communities, rather than sucking value out of both to put in a bank. That will restrain the ability of both public and private organizations to use this wealth in ways that are destructive and unpopular.

Re: Dollar’s Dominance Wanes

John Merryman — Wed, 24 Sep 2008 06:43:06 -0000

Money is a medium of exchange and store of value. These work at cross purposes because as a medium of exchange, money functions as a public utility, while as a store of value, it is a form of private property. It is as private property that most people think of it, due to its historical origin as an accounting of assets, yet the reality is that modern monetary systems are fundamentally a medium of exchange and only as a function of that are they a store of value, as they have no real backing other than faith in the issuing institution and must be invested for the system to function and maintain value.

The monetary system, with its broad connectivity, is similar to a road system. You own your car, house, business, etc., but not the roads connecting them. That the money in your pocket is interchangeable with what is in others pockets is what makes it a function of exchange. Money is not private property, since you cannot print what you want, as the government retains copyrights, but effectively leases it out to the private banking system. Its value is based entirely on public faith in the institution issuing it, so the taxpayer is ultimately responsible for guaranteeing its value. The result being private gains and public responsibility.

The problem with capitalism is that it has created a large surplus of capital. This encouraged ever more lax lending standards as a way to absorb savings and sustain further growth of the money supply. The effort to privatize Social Security is a good example of the disconnect between rhetoric and reality, since there is no place to invest this amount of additional personal savings and would only be a boon to the brokers given the responsibility for handling it. We invest in our old age by investing in our parents old age, so that our children might continue the practice. It is a clear example of investing in the larger community as a viable form of savings. Wealth is a convective cycle of rising assets and precipitating benefits. Stopping this process only creates large storm clouds of marginally productive wealth hanging over a parched economy, much like we have now.

Currency did originate as a store of wealth, because it started as a accounting of specific assets, but political power also started as a projection of individual influence and evolved into monarchism before the inherent instability and corruption drove society to devise methods for making political power a public trust. It has come time to make economic power a public trust as well. Money lubricates the economy, rather than fuels it. Ideas, labor and resources are the real economic fuel.

If money were thought of as a public utility, it would have definite psychological effects. People might be less inclined to define their security in terms of the size of their bank account and start leaving natural wealth undisturbed and investing more effort in their communities and environment, rather than draining value out to put in a bank.

An effective financial system should have a currency loaned directly by the government, with the additional currency to pay these loans put into circulation by government payment for infrastructure. This would incorporate the banking system as a function of government at all levels. Small banking systems to serve at the county and town level, medium sized ones at the state and local level and larger national institutions. These would feed their profits directly back into the levels of the community which produced them and the various communities would be in competition to provide the best environment for people and business with these funds.

There are many aspects of the public sector which function quite well, from legislatures, courts, police, education, military, roads, etc. if they are managed effectively. It is not coincidence that private enterprise only insists on privatizing those aspects of community services which they can derive a direct and substantial profit from. Nobody thinks lots of regulatory detail will improve the situation, since the details are massaged best by those with an interest in them, so rather then trying to re-regulate the entire economy and society, just start with nationalizing a banking system that will have to be bailed out anyway. Government might be slower than the private sector, but that might be more healthy, since its perspective is longer term.

As it is now, government debt is the basis of our economy, which serves to transfer wealth from taxpayers to bondholders. Do we really want our government foreclosed on?

Re: The Wrecking Crew

johnmerryman — Tue, 08 Jul 2008 21:11:09 -0000

This is my theory on where to go from here;

http://www.dissidentvoice.org/2008/07/reverse-s...