Banking, The Bailout, and Money

[livingink]

Hey, Peter.

I have only a minute before the weekend duties. We generally accept the green and white pieces of paper because they are backed by faith in the US government. Whether that faith is deserved is a completely different matter. The Treasury can sell bonds and essentially works back and forth with the Fed to pay debts incurred by the USA plus a number of other activities. The gov't can tax the populace in a variety of ways to pay debts. You have no power to tax. Does someone in Utah who does not know you have confidence in the Thrombo$$ or in you to reasonably expect Suzana in Australia to accept a Thrombo$$ in payment for an item purchased? Now ask, does someone in Utah have reason to expect Suzana to accept a green and white piece of paper issued by the US Federal Reserve? The answer to question 1 is probably "no" while question 2 is more likely "yes" based upon historical precedent. That doesn't mean you're a bad guy, it simply means that the US dollar has a record of having some agreed upon value on any particular day and it can be readily exchanged for items of interest to all parties. The green and white piece of paper in Suzana's hand is essentially a claim on the US gov't. At one time, as you know, it was a claim to a particular amount of gold. In reality, gold was not loaded on a ship and sent to her. Rather, paper money and or debits and credits on an accounting page were exchanged.

While hyperinflation is a possibility as I think it was in post WWII Germany, I believe it more likely that you are currently witnessing a deflationary environment with which the current Treasury Secretary is incapable or unwilling to deal. Based upon the amount of static that has been introduced into the system by recent gov't action I do not think that anyone can predict the outcome or duration of the current situation. I do believe one thing but remember that this is only my opinion--the current situation has the potential to drag on for years and is fertile ground for a major push toward a collectivist society much as was seen in pre-WWII Germany. I would also like to say that I agree with one of your original points in that this entire discussion DOES impact our varied roles as stewards of God's gifts to us. You have also mentioned the rule of law which is very pertinent since we, as Christians, believe God is lawgiver and any attempt by any government to usurp God's place as lawgiver will necessarily place us in a precarious position.

Gotta go!


livingink

[Suzana]

Hey, Peter.

... Does someone in Utah who does not know you have confidence in the Thrombo$$ or in you to reasonably expect Suzana in Australia to accept a Thrombo$$ in payment for an item purchased? Now ask, does someone in Utah have reason to expect Suzana to accept a green and white piece of paper issued by the US Federal Reserve?...

Well, actually….. I might be willing to consider those Thrombo$$ ….
I do need to dispose of a brand new book and DVD set (leftover from my dispensational phase) --
“EPICENTER – WHY THE CURRENT RUMBLINGS IN THE MIDDLE EAST WILL CHANGE YOUR FUTURE” by Joel C. Rosenberg.
The DVD includes exclusive interviews (Benjamin Netanyahu, former Israeli prime minister; Chuck Smith, senior pastor, Calvary Chapel of Costa Mesa, &leading Iranian dissidents, among others). “Are We Living In The Last Days?”



Any takers???? Any reasonable offer accepted…. even in Thrombo$$...you don't even have to be in Utah....just one thing though … if you could pay for the postage in $US please, I don’t think Australia Post is quite as trusting as I am…..

Ok, sorry, couldn't resist, "just having a bit of fun" too - please continue your discussion...(a bit over my head) : )

[thrombomodulin]

We generally accept the green and white pieces of paper because they are backed by faith in the US government ... The green and white piece of paper in Suzana's hand is essentially a claim on the US gov't.

I don't understand this point yet. Namely, I would agree that there were valid claims the government was obligated to honor when we were on a gold standard before 1970. Namely, someone could ask the government to redeem the paper notes for gold. However, since leaving the gold standard, the government appears to have abandoned this promise to note holders. I see no remaining government promises to note holders for anything.

You have no power to tax.

True, but it is also true the Federal reserve bank has no power to tax. Why does the power of the government to tax enhance confidence in Federal reserve notes? The only reason I can think of is that the government demands the payment of taxes in these notes. This again is a special privilege granted only to one private company (the fed), but not to any other private company. Equity under law should require that in the example of Thrombo$$, that this currency must be accepted by the gov't for payment of taxes.

Does someone in Utah...

Your example correctly points out one of the free market limitations imposed upon banks. Rothbard points in his Mystery of Banking book that these limits are really quite severe, and are sufficent to keep the banking industry under control without government regulation. However, the private Federal reserve bank has defeated these free market restraints on its power, by means of the special privileges granted to them alone by government backing.

At one time, as you know, it was a claim to a particular amount of gold. In reality, gold was not loaded on a ship and sent to her. Rather, paper money and or debits and credits on an accounting page were exchanged.

I'm am not sure exactly when exchanges of gold made between nations ceased. Of course, it wouldn't have been Suzanna who sent and recieved it directly, but rather than bank that serviced her for depositing the notes, or the government which serviced her bank.

While hyperinflation is a possibility as I think it was in post WWII Germany, I believe it more likely that you are currently witnessing a deflationary environment with which the current Treasury Secretary is incapable or unwilling to deal.

Why do you think deflation is occuring? Correct me if I am wrong, but I believe Bernacki's view is that the error of the Fed in the great depression was failing to create enough money. I expect he will try to avoid the percieved mistake and instead do the opposite - we will see a vast increase in the quantity of money which will cause hyperinflation.

Peter

[thrombomodulin]

Suzana,

Thanks for the fun post - about 4 years ago we would certainly have had a deal, but Steve's lectures brought me out of dispensalism too!

Pete

[darinhouston]

OK -- things really must be getting bad -- http://www.theos.org/forum/viewtopic.php?f=77&t=2410

[livingink]

I am a really rotten person to get in a discussion with because, every time I think I might have a reasonably paced day or two and be able to continue a conversation, business picks up and I get too exhausted to answer. Suzana made one of my general points. Her monetary authority won't accept Thrombo$$. They will accept US$. Why? For one, the US Treasury, under the rule of law, has the authority to coin money used for transactions with the US Gov't. Essentially every transaction using some type of currency involves the government at least as a clearinghouse. There is no need for a second agency to issue currency since one has been established already. As you look at a 1$ bill you will see that it is signed by the Treasurer of the US as well as the Secretary of the Treasury. Why them? Why not the Chairman of the Federal Reserve and the President of the NY Federal Reserve Bank? I assume one reason is because the US Gov't must guarantee that something of value priced at 1$ can be exchanged with confidence by both parties. Suzana gives you a set of tapes and you give her a dollar. You can listen to the tapes, pull the tape out and tie up tree limbs, resell them as a package deal with your Left Behind series. She can fold the dollar and use it for a funnel, she can use it for a straw or she can spend or save it with the intention of exchanging it for something of value. Forget the value of a dollar 100 years ago. Irrelevant. Depends upon how you measure it. What is it worth to you right now when you stop at the grocery store--that's its value. Probably get some argument there.

Secondly, dollars are accepted because both parties agree that they will have a representation of or be a symbol of value. There really is no inherent value to gold and silver beyond what we have agreed it will be. I did a little checking in my Bible dictionary and it appears that gold has been a medium of exchange and a store of value between kings since antiquity. In the US we have at times used tobacco as money. Imagine loading bags of gold dust onto animals to take to a neighboring king for payment of tribute. We can just as easily "value" entries on an accounting ledger as money if both of us agree that they will have value and if we agree not to steal from each other. That is a very simplified example.

A Biblical example of some of these principles may be the function of the money changers in the temple. Since a specific coin was required to be used in the temple the money changers provided a service to out of town visitors by exchanging their coins for the correct coin for a fee. It appears that Jesus may have been more interested in correcting their emphasis on the fee charged in favor of emphasizing the service to a brother. Again, why the drachma and not a fig leaf? Because drachmas were recognized as a symbol of value while fig leaves were not. Thus, the dollar and not the Thrombo$$. I can already hear the catcalls for my taking something out of context.......

As you read Dr. Friedman's work I think you will find him a representative monetarist and generally in agreement that the Federal Reserve System was largely at fault for the Great Depression lasting so long. They allowed the money supply to contract when they arguably should have increased it. I believe Mr. Bernanke has been using some of the tools available for increasing the money supply. He does not seem to have been as vocal about the current financial mess as his counterpart at Treasury, Mr. Paulson, or maybe that's just my perception. But, Pete, I hope you will keep all of this in perspective. Changes in monetary or tax policy often take 18 months to 2 years to work through the economy. I notice in a published story today that the president-elect has proposed a plan to create 2.5 million new jobs by January 2011. But, further down in the story it says his Website states "save or create" and then one of his spokesmen states "save and create". Now, how's that for Newspeak. Is he going to create 2.5 million new jobs, save them, save and create them combined, or save 2.5 million and create 2.5 million? As you read countless articles on monetary theory make sure you think of what value it has to you and the body of Christ.

I'm sure that someone is reading this thread and wondering why these guys are discussing this on this forum. I asked myself some questions. If some of the folks in danger of losing their homes claim to follow Christ, should I offer to make a house payment for them? Say they made a poor decision regarding the type of loan they signed---should the elders of the body who have financial training be taking a more active role in educating those with poor financial skills? Those are just a couple.

livingink

[thrombomodulin]

I am a really rotten person to get in a discussion with because, every time I think I might have a reasonably paced day or two and be able to continue a conversation, business picks up and I get too exhausted to answer.

I'm glad you've replied, and my schedule for finding time to write on the forum is not much different. I somehow didn't get the usual email notification of your last reply, so I only noticed it about 4 days ago. I started to write back, but hadn't been able to return to it until now.

Suzana made one of my general points. Her monetary authority won't accept Thrombo$$. They will accept US$.

I'm not sure this follows - In order for Suzana and I to trade between my currency and her DVD, I think she only has to anticipate that what I give to her will be valuable to her in a future exchange. What I have not followed is how the government is necessarily involved as a clearing house. For example, in a cash transaction, no clearinghouse is involved. Granted, Suzana might have to pay tax on a transaction, but I expect she would be required to pay in australian dollars in any case.

Why? For one, the US Treasury, under the rule of law, has the authority to coin money used for transactions with the US Gov't. ... There is no need for a second agency to issue currency since one has been established already. As you look at a 1$ bill you will see that it is signed by the Treasurer of the US as well as the Secretary of the Treasury. Why them? Why not the Chairman of the Federal Reserve and the President of the NY Federal Reserve Bank? I assume one reason is because the US Gov't must guarantee that something of value priced at 1$ can be exchanged with confidence by both parties.

I've mentioned in prior posts, using the analogy of Thromb$, without really distinguishing between - (A) the legal right to create money and (B) the actual printing of currency. I'm not sure who controls 'B' in the USA, but the main concern is 'A'. My understanding is that the Federal Reserve has been granted sole authority to 'A', and the US Treasury does not possess this authority. The Federal reserve is a private bank, whereas the US Treasury is a non-private government entity.

I agree one currency is sufficent to allow business and trading to be carried out. The point I am using the analogy for is not to say that multiple currencies in itself is benefical. Instead, granting the authority to create money to some citizens or companies but not to others is granting unequal rights under law. This inequality unjustly benefits those who have the right at the expense of those who do not.

Suzana gives you a set of tapes and you give her a dollar. You can listen to the tapes, pull the tape out and tie up tree limbs, resell them as a package deal with your Left Behind series. She can fold the dollar and use it for a funnel, she can use it for a straw or she can spend or save it with the intention of exchanging it for something of value. Forget the value of a dollar 100 years ago. Irrelevant. Depends upon how you measure it. What is it worth to you right now when you stop at the grocery store--that's its value. Probably get some argument there.

I think you are saying that participants in a trade alone are a subjective judgement of the value of the transaction. If both find the trade mutually benificial, it will proceed.

Secondly, dollars are accepted because both parties agree that they will have a representation of or be a symbol of value...

I think a little differently about this point. I would rather say that money is accepted only because the seller expects that the money can be used as payment in a future exchange. The reason is that value of every product is never instrinsic, but always judged subjectively by each individual with respect to their particular circumstances.

Because drachmas were recognized as a symbol of value while fig leaves were not. Thus, the dollar and not the Thrombo$$. I can already hear the catcalls for my taking something out of context.......

Your not taking anything out of context. You are correct to point out that establishing a new currency is difficult, because (in my terms) no one necessarily anticipates it to be valueable in future exchanges. Hence the government signatures you mentioned earlier.

As you read Dr. Friedman's work...

Yes, this was Dr. Friedman's view. I don't know as much of Mr. Bernackies view, but it seems he agree with Friedman on this point.

Last week I finished reading Murray Rothbard's book "The Mystery of Banking". In the first few chapters Rothbard has a very good analysis of money, the supply and demand for money, and the consequences of money supply. It follows that increasing the money supply does not increase wealth, but instead transfers wealth between people.

I'm sure that someone is reading this thread and wondering why these guys are discussing this on this forum. I asked myself some questions.

This discussion is relevant to the forum, because our actions in the area of money and banking should be based upon what we know is right and wrong from the bible. For example, banks are creating money out of thin air when they are making loans. Creating money in this way transfers wealth to the creator of the money at the involuntary expense of someone else. The biblical command "do not steal" is quite relevant here. I am at a loss as to see why banking, as ordinarily practiced, is not tantamount to theft. If I am not in error, it follows that Christians should not be involved in the business of loan banking. I am undecided about whether or not it would further follow that Christians should not borrow money from banks. If the last is does indeed follow, then this affects every believer.

[thrombomodulin]

I read the book "The Ethics of Money Production" by Jorg Guido Hulsmann over the last few days. I would like to share a little of what I learned from this book, for it has sharpened my thinking on this subject and it has revealed an error I made and expressed in prior posts on this thread. The following is written with the USA in mind, but the ideas are applicable to most all extant monetary systems.

In prior posts, I was reasoning as follows:
1. There is exactly one entity - the Federal Reserve bank - which is authorized to produce money. Since the money is simply created out of thin air, it is morally equivalent to the crime of counterfieting.
2. This power has caused very large scale transfers of real wealth from citizens to the banking system, government, and in particular to the federal reserve bank (which is privately owned).
3. This transfer of wealth is being carried out in a subtle manner, without the consent of those it is taken from. The subtle nature has prevented most citizens from correctly ascertaining the reason for "lost wealth".
4. Such a transfer of wealth is theft, thus violating the law of Christ and the ten commandments.
5. A potential remedy is to have laws which treat all citizens and businesses equally under law - so either:
5a) No one should be permitted produce money.
5b) Everyone should be permitted produce money.

The following corrections are necessary:

A) The legal authority to produce money is not restricted the federal reserve bank. All USA banks have limited legal authority to produce money. Murray Rothbard explains this in "The Mystery of Banking".

B) It is not appropriate to make a parallel between the counterfiting and the endless creation of money by the Fed - for the federal reserve notes created by the fed are authentic. At the present time, these notes do not represent any other commitment by the issuer than claims to additional pieces of paper totaling the same value (i.e. a $20 bill could be exchanged for two pieces of paper bearing the numbers $10). Hence, the only claim made by the issue of the notes is authentic and blameless, despite the fact that the average person will of course value such an obligation on behalf of the issuer as something of zero value.

C) Once upon a time federal reserve notes were a claim of ownership of a fixed weight of gold held in reserve by the issuer of the note*. In various stages, but most notably 1933 and 1971, the government permitted the federal reserve to defraud note holders by unilatery changing the terms of the agreement between note issuer and note holder. The ownership of gold was legally transferred from the note holder to the note issuer, an eventually the legal ability of the note holder to lay hold of his property was forever lost. Jorg Hulsmann cleverly names this process "reverse-transubstantion".

D) The appropriate reasoning leads to the same conclusion - that the ordinary and common practices of banking institutions and the government are a form of theft:
d1) It is righteous conduct for any citizen to create any type of money (i.e. there is no wrong doing in being a miner of precious metals or a private minter of coins).
d2) It is unrighteous to create a mark of certification which bears false witness (i.e. to counterfit - it would be wrong for a citizen to fabricate a "federal reserve" note**).
d3) It is unrighteous to threaten or use force against an individual to coerce them to use a particular medium of exchange (money).
d4) It is unrighteous for a judge to overrule the terms and conditions of a contract (i.e. to settle a monetary dispute in the favored medium of exchange of the judge).

Realize that theft on a massive scale occurs by the banking system and our government occurs because:
e1) Federal reserve notes, more precisely their electronic form, are continuously produced on a massive quanities.***
e2) Citizens are forced by the government to use federal reserve notes as the medium of exchange or forego the benefits of the divison of labor all together (i.e. via. legal tender laws, etc,.). Notice the violation of the consitution which had more wisely had stipulated the use gold and silver.

Finally, it follows that the individuals right to make indirect exchanges with any medium should be protected by the government. In short, the problem is not that there is a bad currency, it is rather a problem that citizens are forced to use it. Given the high costs associated with the use of federal reserve notes, one or more competing mediums of exchange would quickly replace them in a free market****.

* There are nuances to this point which I've omitted as it would divert attention off the main points.
** livingink well pointed this out in a former post when discussing "5b".
*** The fact that notes are often issued as "loans", does not dimish the argument that
**** Free market is shorthand for "society where individuals voluntarily trade conditioned by the respect of private property".

[RND]

The following corrections are necessary:

A) The legal authority to produce money is not restricted the federal reserve bank. All USA banks have limited legal authority to produce money. Murray Rothbard explains this in "The Mystery of Banking".

Correct! A local bank that borrows $1,000.00 from the FRS can now make loans and credit available to the tune of 90% of the amount it received. Borrow $1,000.00 make $9,000.00. I smell a racket!

B) It is not appropriate to make a parallel between the counterfiting and the endless creation of money by the Fed - for the federal reserve notes created by the fed are authentic. At the present time, these notes do not represent any other commitment by the issuer than claims to additional pieces of paper totaling the same value (i.e. a $20 bill could be exchanged for two pieces of paper bearing the numbers $10). Hence, the only claim made by the issue of the notes is authentic and blameless, despite the fact that the average person will of course value such an obligation on behalf of the issuer as something of zero value.

Somewhat correct. What the issuer never lets on is that he is off the hook for the obligation. The holder is! Read: Your "share" of the national debt! Worse yet, to enjoy the necessities and benefits of commerce one can (by law, i.e. degree, fiat) only use their notes of debt. No competition allowed. The government doesn't do the one thing regarding money it's obligated to do which is "To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;" I smell a racket!

C) Once upon a time federal reserve notes were a claim of ownership of a fixed weight of gold held in reserve by the issuer of the note*. In various stages, but most notably 1933 and 1971, the government permitted the federal reserve to defraud note holders by unilatery changing the terms of the agreement between note issuer and note holder. The ownership of gold was legally transferred from the note holder to the note issuer, an eventually the legal ability of the note holder to lay hold of his property was forever lost. Jorg Hulsmann cleverly names this process "reverse-transubstantion".

Mostly correct. Only in that I wouldn't call the transfer of gold under the threat of fine, imprisonment or both "lawful." However, under the terms of Roman civil law it certainly was "legal." It was done through force, fear intimidation and obvious manipulation.

D) The appropriate reasoning leads to the same conclusion - that the ordinary and common practices of banking institutions and the government are a form of theft:
d1) It is righteous conduct for any citizen to create any type of money (i.e. there is no wrong doing in being a miner of precious metals or a private minter of coins).
d2) It is unrighteous to create a mark of certification which bears false witness (i.e. to counterfit - it would be wrong for a citizen to fabricate a "federal reserve" note**).
d3) It is unrighteous to threaten or use force against an individual to coerce them to use a particular medium of exchange (money).
d4) It is unrighteous for a judge to overrule the terms and conditions of a contract (i.e. to settle a monetary dispute in the favored medium of exchange of the judge).

All correct under the rules established for the game.

Realize that theft on a massive scale occurs by the banking system and our government occurs because:
e1) Federal reserve notes, more precisely their electronic form, are continuously produced on a massive quanities.***
e2) Citizens are forced by the government to use federal reserve notes as the medium of exchange or forego the benefits of the divison of labor all together (i.e. via. legal tender laws, etc,.). Notice the violation of the consitution which had more wisely had stipulated the use gold and silver.

Well there still is the barter system! But even that is taxable as income to the unsuspecting!

Finally, it follows that the individuals right to make indirect exchanges with any medium should be protected by the government.

The operative words are "should be." The government has -zero- obligation to protect anyone.

Courts Have Held that Police Have No Obligation to Protect

Add to that that the government decision makers, i.e. the ones at the top of the pyramid, are in on the scam and it is easy to see that government has little desire to change the rules in the common man's favor.

In short, the problem is not that there is a bad currency, it is rather a problem that citizens are forced to use it.

I wouldn't necessarily agree. The currency is only currency by degree, not because there is something better out there. However, the Liberty Dollar is scant competition and in fact some user of it have been arrested.

Liberty Dollar use shows up in Walworth---Couple charged with retail theft for making purchases

People arrested for using money backed by gold and not an empty promise? "Even so, come, Lord Jesus."

Given the high costs associated with the use of federal reserve notes, one or more competing mediums of exchange would quickly replace them in a free market****.

In a uptopian world that would make great sense, and may even work. Of course, during the Civil War it's been estimated that there were over 14,000 different types of paper money afloat! Whew! Some denominations were issued for 13 1/2 dollars! We need to face facts that this is simply the way it is and that this ride we're on will come to an abrupt halt one day soon! Were in good shape because we've been given a heads-up first!

Jhn 16:33 These things I have spoken unto you, that in me ye might have peace. In the world ye shall have tribulation: but be of good cheer; I have overcome the world.

[thrombomodulin]

FYI - Jorg Hullsman book review is here http://mises.org/story/3340.

RND,

I will forego commenting on minor technical corrections to your post, as well as where your comments reveal that you did not carefully read what I wrote. Please be more courteous by taking the time and effort to read more carefully what has been written before responding - nevertheless, regarding major points:

You said: "Note holder is [obligated to pay his] "share" of the national debt". This is patently false. As proof by counter example, realize that no foreigner possessing US dollars has any obligation to pay our national debt. The same is true of domestic holders of notes - in so far as note holders are not obliged to pay simply because they hold notes. Rather, the national public debt is an obligation of the USA government which can only be payed down by taxation of its citizens.

You said: "The government has -zero- obligation to protect anyone". This is false. Magistrates have a duty to punish wrong doing, as directly stated by Paul in the new testament, and exemplified in the old testament civil law. The duty includes the punishment of theft, which is equivalent to establishing protection of private property rights.

You said "In a uptopian[sic] world that would make great sense, and may even work". Perhaps you are unaware the that commonly used medium of exchange (aka money) is subject to the laws of supply and demand like all other products on the market. When given liberty, individuals can and will chose the medium that they value most. The aggregate actions of individuals can and will eliminate poorly performing currencies and promote well performing currencies. The civil war era paper money example misses the point, as by definition money is the commonly used medium of exchange - the majority of 14k options could by no means be considered common. Section II of the book "What has the government done to our Money" contains a fully developed argument which refutes the notion that a Utopian world is a required. http://www.mises.org/books/whathasgovernmentdone.pdf