The Ideal Money

This entry is part 26 of 31 in the series 2011B

So what would be the basis of the ideal money system? Before we can answer that we should list the ingredients of such a system. If we do not know what we are looking for there is not much chance of finding it.

(1) Stability
This is perhaps the most desired feature of a currency, but as we study history we discover that no currency has been completely safe from extreme fluctuations, inflation, deflation, stagnation, manipulation, fraud, degradation, theft, etc.

We have illustrated that even gold and silver money has its own set of problems and gives no guarantee of stability. Yes, it is true that actual gold and silver coins will always have some commodity value, but that value is affected by an increase or decrease in the substance as well as speculation. Remember that one action by President Grant reduced the price of gold from $165.50 to $135 in one day. Then another action by FDR increased the price from $20.67 an ounce to $35 in another day of time.

Yes, yes, I know – that if we had some type of purist system in play and men of Jesus type integrity in office this may not happen but that has never been and not likely to be in the future.

Fiat money also has its own set of problems, Unlike gold and silver it has no intrinsic value but represents value. Its value can be manipulated by the amount of money added to or taken away from the currency system. Usually the problem is inflation caused by too much currency being added and if the presses go too wild there can be a collapse of the money bringing its value close to zero. This insecurity causes many to look to metallic currency in the hope of establishing a stable system.

(2) Flexibility
One often hears about the importance of a stable currency, but not so much about the advantages of a flexible one. It is interesting to consider the importance of flexibility in currency, for without this quality stability eventually goes out the window no matter what currency base is used.

Lack of flexibility is one of the major drawbacks of a gold or silver standard. Ironically, advocates tout this lack of flexibility as its major selling point even though this flaw inevitably leads to the undoing of the standard. Let me explain.

Advocates state that a gold system is desirable because it has little flexibility in that the State just cannot magically create additional gold supplies by fiat or out of thin air. New gold has to be mined or acquired from other nations. Since this is a slow process it normally insures against huge bursts of inflation which troubles many fiat systems.

That’s a good thing, right? On the surface it seems so. Advocates simply state that all we have to do is stay on the gold system causing the growth of money supply to be slow and stable thus preventing any major inflation.

That sounds good in theory but the historical results have been far from that reality. And why is this?

Because of the lack of flexibility.

And what are the two situations that demand the greatest flexibility?

The first is war or a situation that threatens the very survival of a nation. If a nation has a choice between survival or a period of inflation – which will they choose? The answer is really a no-brainer that seems to go over the heads of gold standard people in their thinking and calculations. The only response I have seen from them on this point is: “IF all nations stayed on the gold standard then they would not be able to raise large sums of money and would be discouraged from going to war.”

If? If??? When has this “if” ever taken place except in some fictionalized idealistic future?

The hard-core fact is this. If a nation’s survival is at stake, the leaders will seek to raise money by any means necessary, even if the end result is the destruction of the money system. Any people would rather have their currency destroyed than lose their country to a tyranny.

This was the situation in the Revolutionary War. The Colonists had the choice of throwing the gold standard out the window and creating a shaky fiat system that would probably fail or lose their country. There was only one choice for them. If the money system failed they could create another, but if they lost their country all was lost.

The Colonists thus created a flexible money system and won a country at the cost of a currency. BUT the currency problem was temporary and a new start was made. As a result the United States soon became the greatest economic vehicle in the history of the world.

Both the North and the South felt they had to have more flexible money during the Civil War and moved away from gold to fiat money.

In 1914 at the beginning of World War I the international gold standard ceased to function because of its lack of flexibility. During the war the wholesale prices in the U.S., France and the UK more than doubled causing much difficulty in going back on the standard after the war. Attempting to adjust for the deflation caused by returning to a gold standard caused so much economic grief that a full return became impossible and redemption of currency was abandoned a short time later.

These problems caused by the inflexibility of the metallic standard are not peculiar to our age but similar problems have occurred hundreds of times throughout history. During the Roman Empire alone the government faced dozens of economic crises due to a lack of flexibility and this lead to either debasing the currency, plundering other nations or enslaving people to work in government mines.

It is interesting that gold standard fundamentalists place absolutely no blame for currency debasement or economic problems on the inflexibility of the metallic standard but maintain that it is all due to human corruption. If the leaders of nations could have just been pure in their metallic ideology then all would have been well.

While it is true that human frailties do create monetary problems this is far from providing the full explanation. The fact is that every generation or two a nation is presented with a life and death struggle for survival that demands flexibility in currency. If the money is not raised then their way of life will be gone.

It is not human greed or corruption that causes the people of a nation to seek to survive at all costs. It is common sense if their way of life is worth preserving.

The second situation that demands flexibility is a strong economic downturn.

For instance just as the various nations were struggling in an attempt to return to the gold standard we suffered the Great Depression and this pretty much ended the idea of paper money being redeemed for gold.

Powerful economic downturns demand a similar flexibility with currency as does war and if flexibility is not available then war can result. After World War I the winning nations demanded that Germany pay war reparations with gold standard money. This inflexible demand crushed their economy and led to the rise of Hitler.

Spain’s economic problems during the time of Columbus led to the plundering of millions of American Indians for the gold and silver.

This leads us to the irrefutable fact that during war or hard times the nations of the world will demand flexibility in their currency. If it is not there they will devise every possible scheme to create it. If they cannot create it then they will plunder their people or other nations and steal it.

Conclusion: A flexible currency is necessary for a nation to see itself through a major crises.

(3) A Debt Free Currency
A third quality a currency must possess is that its creation should not add to the public debt. If our Founding Fathers could see our national debt and the astronomical interest we pay every year they would roll over in their graves indeed. Had they seen our perilous state I’m sure they would have added a couple new paragraphs into the Constitution in an attempt to steer us on a better course.

We’ve already covered the fact that it is an insane idea for our government to pay private enterprise to create our money and loan it to us at interest when we the people can create debt free money for ourselves through our elected representatives and then owe nothing on it.

Wouldn’t it be great if our nation had a currency that fit in the guidelines of these three criteria: (1) stability, (2) flexibility and (3) debt free?

Is such a currency possible? I think it is.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

Creating Wealth

This entry is part 31 of 31 in the series 2011B

They say rocket science is complicated but I don’t think it holds a candle to understanding the economy, currency, the markets and what makes them work. If you study rocket science you basically learn A, B and C and find it equals D. There is very little if any disagreement among rocket scientists as to what makes a rocket work.

By contrast economic students can study A, B and C and cannot come to any unified conclusion. Some think the answer is D; others E or F and still others think no definite answer can be found. Average people listen to economic debate and their head starts to spin. Most just go with some authority that is in harmony with their mindset and accept what they say.

In this treatise I have only covered a small amount of economic thought, but it is an important part that is obscure to the people and widely misunderstood. I believe that the majority who read this can see the truth in what I present.

At present the majority do not know enough about the principles of money to know what is the best money system to support. Most people do not think about it that much. They believe our money system is in danger but not sure of the cause. They vaguely think that overspending and bad management has a lot to do with it but not sure of the details so they defer to their political leaders.

There are a number of economic points that the majority understand and these must be the starting point for positive change which is to come.

(1) It is precarious for the State, business or individual to borrow more money than he has income to pay back.

(2) Much of our money we borrow and spend is wasted.

(3) It’s not a good idea to place our finances in the hands of a third party as we do with the Federal Reserve for instance. Unfortunately many think the Fed is a government entity.

(4) If we really could create our own money interest free then yes, the majority would support this over borrowing from private sources at interest. The public merely needs convincing that this could be done.

(5) Most understand that too much money in circulation causes inflation.

(6) The majority feel there are a number of things wrong with our economy and money system but not sure of all the causes or the best solution.

That said let us sum up a plan for a money system that is likely to have majority support once the information in this treatise is understood.

As stated earlier there are two types of fiat money. The first is that which we have today. It is created not by the government but by a private banking system and then loaned to our government, business and individuals. All new money under the current system is linked to debt and interest.

The other fiat money is what is proposed here instead. We shall call this the New Greenback. This is money which creates no debt and adds no interest due by the government.

To create this money our government must do today what it did in the days of Lincoln and merely assume its constitutional authority to create its own debt free money. The new money could be more potent than the old Greenback, which had limited use. This new money could be used for all debts and payments foreign and domestic.

Under the current system the people are reluctant to support borrowing money to stimulate the economy or build new infrastructure. The downside is we have to go into debt and pay interest to do this.

This downside does not exist with the New Greenback. Let us say that we want to build a new bridge using the New Greenbacks. All the government has to do is issue the money to accomplish the job. The money, even though created by government, is far from worthless because after it is spent the bridge remains and will continue to add value to the economy for 50-100 years. Before the issuance of the New Greenbacks we had nothing. Afterwards we have a valuable bridge and new money added to circulation. The new money added to the system is not inflationary because its value is sustained by the value added by the bridge.

This is a much different situation than much of the money added to circulation in the past as much new money has been spent on things that add no value to society. During wartime we built many armaments that are destroyed in battle. These dollars were inflationary because they added no lasting value to our country.

In the past, much of the money that has been added to the system has been borrowed at interest to create armaments that add little wealth to the economy. They may be necessary for our security but their end is to be destroyed. Thus the dollars to create them are added to circulation but no added value to sustain the value of those dollars. A battleship built and then destroyed is as if it was never built (value wise) but the effect of the money added to circulation to build it remains.

If we create dollars to produce roads, bridges, and new infrastructure then we are adding value to our economy. When value is added in the form of usable products and services then dollars can also be added to the economy without producing inflation. If we issue New Greenbacks to sustain the creation of wealth building products and services then we can solve the unemployment problem. All we have to do is create wealth-building jobs with the New Greenback that can put people back to work. There are usually plenty of these to offer jobs to all who wish to work if we just had the money. The good news is that under the New Greenback system the money available for goods and services that add value would be unlimited.

One important use of the New Greenback would be in managing the national debt.

The first benefit is we would not be adding to the debt through borrowing from the Federal Reserve. Instead of borrowing at interest the government would merely create New Greenbacks debt and interest free with the stroke of a few computer keys. The only debt that would be added would be money borrowed from other nations such as China, Japan and the UK. At present foreign nations hold about 32% of our debt.

We would probably still borrow money from the nations with whom we have a trade deficit because these trading nations want to loan us money so we can use it to purchase more products from them. The New Greenback system would help with interest and repayment. Presently, we pay only interest on loans and we have to borrow to do this. Under the New Greenback system this would no longer be the case. Instead of borrowing, we could issue New Greenbacks to pay the interest (and principle when needed). This would have the benefit of creating no new debt.

Under the New Greenback system the trade deficit would shrink because of the stimulation it would provide for American production and the economy as a whole.

Unfortunately, much of the money borrowed by the government today not only places us in debt and accrues interest, but is spent on things that add no wealth. In addition to war materials a tremendous amount is spent on the various bureaucracies. Some government agencies, such as NASA, add some wealth to our system but many government workers just move wealth around without creating anything of sustained value. This is one important reason that a small government is good for the economy. The fewer the bureaucrats that need to be paid the better the sustained value of the dollar will be.

The Obama administration was mystified that their economic programs did so little for the economy. One thing that did not help, according to the U.S. Office of Personnel Management, between Sept 2008 to Sept 2010 (latest figure available) the number of federal jobs increased in number by over 174,000. These were not replacement jobs, but new ones.

Overall, according to a report by Obama’s own economists, the jobs added by his stimulus program cost $278,000 per job. If Milton Freidman were still alive he would be telling us we could have done better by just using helicopters and dumping the money at random for the people to spend.

It is now obvious that most of the stimulus did not go to wealth creating “shovel ready jobs,” and even Obama admitted this. Maybe the money didn’t go to shovel ready endeavors that create wealth but we do know it went somewhere. Obviously it went to low wealth producing high paying low value jobs that add little to the wealth of the nation. This is evidenced by the fact that the stimulus did not even create the expected short-term improvement except for a few fat cats benefiting. Instead, the unemployment just went up, the debt owed by our grandkids went up and the interest we have to pay in the present went up.

The Obama stimulus was $775 Billion. If we add in the interest yet to be paid it will add up to over a $1 trillion.

Let us say we could reverse time and instead of stimulating the economy with borrowed money at interest that was mostly spent on things that did not produce wealth we take a different approach, which is this.

The Republic takes back its power to create money and issues $1 trillion in New Greenbacks. This is plenty of money to tackle quite a few things. But let us say we just put $500 billion, or half of it, toward repairing and improving our infrastructure as well as building new schools. That would have reduced the unemployment rate right there and we could have had a half trillion dollars left over for something grand.

Forget about spending millions to help Chinese prostitutes to drink responsibly on the job or to restore old Indian trails. Here are a number of wealth producing projects we could have tackled.

(1) Going back to the moon with a dual purpose.

First, to add new life into the space program, which also has proven to add many wealth producing innovations as well as helping national security.

Secondly we would mine Helium 3 which is a non polluting environmentally safe nuclear fuel. This potent source of energy could supply all our energy needs for thousands of years and eliminate our dependence of foreign fuel. This project would pay of big time for centuries.

(2) As an alternative we could perfect breeder nuclear reactors that use nuclear waste as fuel and create non-poluting, carbon free nuclear energy while eliminating nuclear waste.

(3) Make zero interest loans to small businesses if they commit to hire one person for each $50,000 they receive. This would create jobs at less than 18% the cost of Obama’s program and we would get most of the money back to spend another time.

(4) If we just used the remainder and sent each man woman and child in the country a check for $1,600 each the economy would be more stimulated by this than anything done by the official stimulus.

And the best part would be that nothing would be added to the national debt, there would be no interest to pay and little or no inflation would result.

When one considers the possibilities it is amazing how simple the solution is to economic instability. Only four things need to be accomplished.

(1) Our government needs to take back its power to create interest and debt free money and issue New Greenbacks.

(2) The New Greenbacks must be issued, as much as possible, to support endeavors that create wealth.

(3) A reasonable balance must be attained so there is not a lack of money or too much money in circulation.

(4) Make legal the creation and distribution of alternative currencies such as gold & silver coin, local currencies, virtual currencies etc., though taxes and public services must be paid with the New Greenbacks. This leaves the door open for the best ideas in currency to demonstrate their value.

Even though items two and three are simple in theory they are difficult in execution because selfish interests want to overspend. Not only do powerful players seek to overspend but they care not where the money is spent as long as their pressure groups are happy. Thus we have the danger of the money being spent on projects that are frivolous and do not create wealth.

Fortunately, there is a solution to this problem and that rests with the final arbiter of power in this country as well as the world – the people.

The people are willing to do this if they have some organization or vehicle to provide a platform for their power. Two such organizations are outlined in this book. The first is Molecular Politics, a concept that allows the voters to be co-legislators with their representatives. Since this may take some time to create and perfect, a preparatory group called The Majority Speaks is proposed.

These organizations previously detailed in this book which is dedicated to the end that the people are well served and their goodwill becomes manifest as abundance for all.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

People Taking Charge

This entry is part 30 of 31 in the series 2011B

In this book we have covered numerous ideas for change that could benefit the country. There are others out there presenting many other ideas good and bad, practical and impractical. Every so often we hear some thinker giving out an idea that sounds great. When we hear such a thought we often exclaim to the TV, radio or book, “Yes!!! Lets do this!”

Unfortunately, ninety-nine times out of a hundred, all that was presented was an idea. There was no plan of action and no next step. There was nothing you as an individual could do except say, “Right on!” Then, as you soon discovered, giving moral support was not enough. Months, years and decades pass and not much seemed to change. The idea is still good and still out there but just an idea floating out there in thin air it is not doing much good.

It is ironic that there are millions of people who can recognize a good idea and would be willing to put some effort towards implementing it if they knew with some degree of certainty that their individual effort would actually help make some progress. Instead, all we hear is “We should do this” and “We should do that,” and no feasible direction as to how to get the job done.

There is one important thing that needs to happen to create the force necessary to implement positive change which is this.

A national organization needs to be set up dedicated to changing direction of policies in a positive way that a majority of citizens will support and from which they will benefit.

Now there may be hundreds of organizations that claim to be national that think they fit this criteria so let us clarify some attributes this organization must possess.

(1) It should seek to work with majority will. If the people are going to go up against a wrong thinking Congress, bureaucrats, and pressure groups then they should do so with issues that have majority support. Without the majority on their side there is little hope of challenging the Powers-That-Be.

(2) All their objectives should be of benefit to the majority.

(3) Each objective that requires participation should have a step by step plan to reach the goal.

(4) The organization should be as inclusive as possible and provide people of differing views to advance their agenda as long as majority will is recognized and pursued.

(5) The organization as a whole will not endorse or support any political party or view except to encourage majority will. It will be seen as a place where good ideas originate and are acted upon. It will be more of a place from which action springs rather than one that endorses viewpoints.

(6) Divisions within the organization will not seek to implement many different views or policies as do political parties but will work on one major goal at a time. Limiting the scope of goals will allow us to cast out a net gathering the largest possible number of supporters on each project. For instance, John may be working on Project A, but has nothing to do with Project B which does not enthuse him.

(7) When this organization is effectively established then it should have one or more meetings per week and over 90% of the people in the country should be within driving distance to a meeting place. Some things that will take place in the meetings are:
(A) Updates on news and projects of interest.
(B) Lectures on topics of interest
(C) Classes on pertinent subjects
(D) Brainstorming on how to take the next step on various projects
(E) Working on projects or assigning volunteers work to be done.

Creating such a far-reaching organization may seem blue sky in itself but I think the time is right for something like this to surface. When the people see that such an organization can be more powerful than any individual legislator or bureaucrat then many will get excited and motivated.

Such an organization cannot just materialize all ready to go in the blink of an eye but must be created over a period of time. We must first begin with a successful group in one or more cities and when the details of operation are successfully implemented then a quick expansion can be accomplished.

A call to action over the Internet, television, book or occasional get-together is not enough. People must have some physical place to go to rub shoulders with like-minded thinkers and develop the chemistry necessary to move to action.

Here is a synopsis of the suggested group that I plan on promoting after the publication of this book.

Name: The Majority Speaks

Purpose: To provide a medium for people to work to promote causes that benefit the country as a whole that are supported by the majority of the people.

Goals:

(1) To establish a working group in every major population area.

(2) To have weekly meetings

(3) To educate the members who will educate their friends.

(4) Have brainstorming sessions

(5) To provide a workplace where members can contribute their labor on projects they endorse.

(6) Place pressure on legislators to introduce and support beneficial legislation.

(7) Raise funds

(8) Link with and support other groups headed the right direction as well as other chapters of the main group.

(9) Work with the media to achieve positive publicity.

(10) Sponsor local debates to help center attention on positive change.

(11) Work cooperatively to establish a strong internet presence.

(12) Create videos, audios and press releases for distribution.

(13) As funds become available run ads in various media to promote the group and its causes.

(14) Raise the political and economic consciousness of the people. Make them aware of their power to create change.

The Founding Fathers did everything in their power to create a country where the final power rested in the hands of the people. Since then the people have lost sight of that power and abnegated it to their leaders. This was a mistake on our part.

The Founding Fathers told us that the price of freedom is “eternal vigilance.” The full truth is that the price of anything that improves our quality of life requires that same vigilance. We cannot just sit back and let George do it. We the people must always be prepared to take the reins the moment that those who are employed by us fall behind on their duty.

That moment is now.

If the emphasis in The Majority Speaks organization is on projects that have majority support, does this not rule out many good projects that are beyond the realization of the majority which would still be beneficial for the country? After all, the majority was against Galileo when he tried to convince the world of what he saw through his telescope.

This is a good point so let me clarify a few things. The first and all important point to understand is that majority will is not emphasized because it is always correct or the best path to follow. There are two reasons to respect it.

(1) It is very difficult for any ideas from the grassroots, or people, to gain any traction without working with majority support – and even then the path is far from easy. This difficulty does not apply to those in positions of great power. They can pass a law or make a decree and people must follow, even if the majority is unhappy with the direction.

(2) Majority will takes us in the direction of common sense unless the majority are deceived. In this case a mere exposure to the truth where understanding is gained turns the majority around almost instantly.

Let us return to the Galileo example for a moment. In his day the scientists as well as the common people almost universally believed that the moon had a flat smooth surface. As soon as Galileo looked through his telescope and saw the craters of the moon he knew instantly that this assumption was wrong. Seeing is believing, right?

Not for the Powers-That-Be. Some Vatican scientists refused to look through his telescope to see the craters of the moon or the fact that the moons of Jupiter circle around the planet just as the earth would circle around the sun. Instead of just looking through the telescope to discover the truth they preferred to remain in their ignorance and condemn Galileo to torture or prison if he did not renounce what he saw with his own eyes.

Yes, for a small moment in time Galileo was a minority of one, but not for long. The telescope was now in existence and there was no calling it back. There were others with curiosity who were willing to look through telescopes and discover truth that could not be denied. Then it was not long before not only the majority, but most of the world believed the moon had craters and the earth circled around the sun.

What does this story tell us about the majority? It tells us that they can have wrong beliefs and direction if they are in ignorance or deceived but when the truth is revealed they will accept in the end. The majority will follow the common sense path so long as they are not deceived and have the basic facts.

The group to be created will not only seek to work with obvious majority will but seek to dispel illusion so majority desire can be manifest.

Here are some desires that are supported by the majority. These are selected because government can have some influence on their fulfillment or lack thereof.

• The desire for freedom
• The desire for financial security and abundance.
• The desire to be protected from violence and crime.
• The desire to have good health and healthy environment.
• The desire for a good education, especially for our children.

More could probably be listed but these are the basic ones on which a government may have a positive or negative effect.

Any plan that enhances any of these five categories works with majority desire. The problem arises when a solid objective is put forward but not understood correctly by the people. Because of bad press they may think the idea may bring less freedom when it will bring more. In this case there is not much of a chance of getting the idea accepted until the illusion is dispelled.

On the reverse, there may be an objective that is popular because the people are deceived into thinking it will enhance freedom when it will really enslave. Again the solution to this illusion is education.

The truth always sets us free and this is why The Majority Speaks (or whatever the final organization will be called) will educate people to eliminate ignorance and illusion and work with the will of the majority when that will supports the good, the beautiful and the true.

To have faith in the eventual right direction of the majority is to have faith in good that is in us all. Overall, most people are good and want what’s best for the country, their families and themselves and they will choose correctly when they see correctly.

A few hundred years ago the majority thought the sun moved around the earth and that the earth was the center of the universe. A little instrument of truth (the telescope) changed all that. But before that change could happen the people had to be approached at where they were in understanding – not where they were not. Let us therefore respect where the majority is and educate and enlighten them so the path of true liberty and abundance becomes clear.

The majority will always follow truth when it is clearly revealed and understood.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

Narrowing the Focus

This entry is part 29 of 31 in the series 2011B

Before we look at what will work in keeping our government responsible as far as creating and spending money is concerned let us first look at what will not work.

(1) Elect good fiscally responsible people to represent us.

The people have been attempting to do this ever since the beginning of the Republic but to little avail. Many a time we have sent someone to Congress, who promised to be responsible, sounded responsible, seemed to be responsible in his own life but as soon as he got a taste of the power of the unlimited spending resources of government he changed from Doctor Jekyll to Mr. Hyde, from Mr. Nice Guy to a werewolf howling at the moon, from a person of good works to a vampire sucking the life blood out of our economic system.

Many people look on our elected officials as a whole with utter disgust and contempt. For years now Congressional approval rating has often dipped below 20% sometimes reaching as low as 13% – by comparison making any president in history seem like Mr. Popularity.

Unfortunately, it is usually the “Other Guy” who is despised and wanted out of office whereas their own representative is viewed more sympathetically.

As evidence, take the situation in November of 1998. 401 of the 435 sitting members of the U.S. House of Representatives sought reelection. Of those 401, all but six were reelected. Those who rated Congress as a whole lot lower than pond scum sent their own guy back to office at a rate of 98%.

I guess we could say the local guy gets an approval rating of 98% whereas the whole body of Congress rates lower than a snake oil salesman.

If these statistics were not proven history then one would think they were fiction created by a lunatic but since they are factual we need to question why there is the great contrast.

I think that many will agree with this assessment. The local representative is re-elected not because he is Mr. Clean, but he spends a good deal time and money in convincing his constituents that he is on their side. He’s able to convince his voters that it’s the other guys who are the ones messing things up and their only chance of cleaning up the mess is to send him back to continue the fight.

The people thus send their guy back to Washington thinking he is one of the few that is not part of the problem. Unfortunately, they generally do not see correctly that their representative is just as big a problem as the other guys and the problem is all but a few get addicted to borrowing and spending. The few who do maintain some common sense in this area are demonized and rejected by their fellow representatives and this is followed by the media portraying them as Scrooges and hating all the wonderful things they refuse to spend money on.

On this point we conclude that, yes, we must send the best people we can find to Congress, but that is not enough for even many of the ones with good intentions become addicted to unlimited spending.

The adults in the room, the common people with common sense must step forward and discipline these addicts so they do not ruin us. More on this later.

(2) Pass legislation that will limit borrowing and overspending.

The idea that this can be done is as big of an illusion as the dream that all we need to do is vote for the best people and all will be well.

We have had many legal constraints in the past and our trusted representatives have overridden them all. A metallic standard was supposed to restrain Congress but that has been overridden by the stroke of a pen. Today we have a legal debt ceiling which has proven entirely useless. Congress just raises it routinely and its effect is as if it did not even exist.

(3) Pass a balanced budget amendment.

People think that this will surely work because an amendment to the Constitution has a lot more teeth than mere legislation passed by Congress such as the debt ceiling.

Wrong again. An amendment may produce some results for a time but they would be temporary and then our spendoholic representatives would find a way to subvert it – and sometimes with good reason. We may find ourselves in a war for survival and in that situation a balanced budget may be suicide.

Believe me, we would not have to be in a war of survival to tempt our spend-loving friends into bolting from a restrictive amendment. All it would take is a short period of time with no spending fix to assuage their addiction and a way would be found around such a nasty amendment.

If you don’t believe me just read the Constitution where it currently says in Article I, Section 10, that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.”

When’s the last time you heard of a state giving or receiving payments in gold or silver? Indeed this became a very inconvenient restraint so a way was found to go around it by reading an implied meaning into the document. The same would happen with a balanced budget amendment. Our fearless leaders are creative enough to find a way around any law or amendment that is passed.

So… if all the commonly proposed solutions will not work what are we to do? Is there anything that can be done to move us toward sounder money management?

Yes, there is. Our problem is that we keep looking toward the governing body that created the problem to solve the problem. If your business partner borrows and spends the company into near bankruptcy do you continue to give him your full trust hoping he has the common sense to solve the problem?

No. Of course not. His lack of sense has taken you to the edge of a cliff. You cannot trust that he will now take you to safety.

Yes, it helps a little to get the best possible people in office and to make laws that attempt to restrain insanity but such steps are very insufficient to cure the disease. Outside help must be called in.

And where do we find such people? They are all over. They are called voters and most of these people do have the needed common sense.

•The average voter knows better than to borrow more money than he can pay back.

•The average voter knows better than to spend more money than he has available.

•The average voter knows that his family wants many things he cannot afford so he has to set priorities in spending – unlike Congress that thinks it has to borrow whatever it takes to give us all the things we want.

•The average voter is not a member of an elite club like Congress where he is under pressure to spend lots of money to be one of the group.

•The average voter does not have to raise large sums of money to be elected and is not beholden to pressure groups.

•Best of all, the average voter balances his budget and lives within his means.

We cannot trust those who created the problem to solve the problem. The employer of all branches of government, the voter, must step in and assume the ultimate responsibility.

The big question then is how is this to be accomplished?

The best long-term solution is described earlier in my chapter on Molecular Politics. This is a plan for the voters themselves to take charge and set the elected representatives in line with the will of the people. Even if this catches on it may take a significant period of time to be fully implemented. We may not have that much time to save our country from economic destruction. The question is – what can we do in the immediate future to turn our economy around and place it on a sound basis?

The rise of the Tea Party gives us evidence that the voice of the people can have a strong influence on our elected representatives and the legislation they support. Unfortunately, they have been portrayed as the extreme right wing of the Republican Party, but according to a Gallup poll taken April 5, 2010 only 49% of them identify themselves as Republicans of any stripe. 51% say they are either Independent or Democrat. Of that 51% 8% are Democrats and 43% are independents.
http://www.gallup.com/poll/127181/tea-partiers-fairly-mainstream-demographics.aspx

While it is true the Tea Party is more conservative than liberal its reach extends far beyond the conservative wing of the Republican Party, or the party itself. Because it is a threat to the status quo it is portrayed as fringe when its goal of cutting spending is very mainstream.

The idea of cutting spending is so mainstream that even the very liberal Daily Kos published this world wide problem on their site:

“Asked (in a Financial Times/Harris Poll) if public spending cuts were necessary to help long-term economic recovery, 84 per cent of French people, 71 per cent of Spaniards, 69 per cent of Britons, 67 per cent of Germans and 61 per cent of Italians answered Yes. In the US, 73 per cent of Americans agreed. …
http://www.dailykos.com/story/2010/07/14/884103/-Poll:-People-want-government-spending-cut,-but-

A Fox News poll asked participants if government spending was out of control and 78% answered yes.
http://www.foxnews.com/politics/2010/02/26/fox-news-poll-percent-say-government-spending-control/

It is not surprising then that since the Tea Party started out emphasizing the non partisan idea of controlling spending that they drew a lot of people from outside the Republican party.

Since its launch a number of Tea Partiers have placed emphasis on social issues, religion and various non economic issues and have drew fierce criticism from the Left and have lost some support.

This illustrates the truth that narrowing down the field to one major non-conflicting popular subject at a time creates the possibility of constructive political change. If an advocate tries to get support for cutting spending then he has a base of up to 78% to work with. BUT if he throws in something unrelated such as abortion then that support may be cut in half making his possibility of success with the masses almost nil.

The Tea Party’s influence has been significant but it has been limited by several factors:

(1) They are now identified with much more than economic issues and are seen as a conservative movement that also embraces social issues. This turns off many in the Middle and, of course, the Left.

(2) They do not have a well-defined mission that is spelled out with simplicity that all can understand.

(3) They do not have a step-by-step plan to accomplish specific goals.

(4) They are not unified. A Tea Party group in one area of the country may have different goals and priorities than in another part, even though many of their beliefs are similar.

On the positive side they have sprung from the grassroots of people concerned about the very real problem of overspending and this foot in reality and popular support gives them power, even though it may be somewhat scattered.

A problem in winning over independents to a political cause is any choice seems to involve a number of issues. The citizen may agree with eight points but be repulsed by two of them and thus his support is very tepid. Many do not want to identify with Republicans, Democrats, The Green Party or the Tea Party because there is something in each movement that rubs them the wrong way.

Those who are not highly polarized need selections available that are honed down to one non-conflicting category per choice. This is what we must do. Citizens must pick various categories and gather supporters around them.

The economy is the most pressing issue as I write this and thus the need follows for the creation of a major non partisan group that will push for common sense economic reform.

Eventually there could be dozens of such groups pushing for various changes that have majority support that, in the past, had been sabotaged by elected representatives who had sold out to pressure groups.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

The New Greenback

This entry is part 28 of 31 in the series 2011B

There are a lot of different economic theories and ideas for an improved currency but one thing most thinkers have in common is this. The current system has a lot of flaws, is unstable and needs an overhaul.

So, what is wrong with the current system? Let us list a few items.

(1) Money creation is delegated to private banks instead of “We the people” through our elected representatives.

(2) The government borrows money adding to the public debt when it could create its own with no debt.

(3) The government borrows money at interest from private enterprise and other nations when it could create it’s own money with no interest.

(4) The interest rate on borrowed money, public and private, is determined by private interests.

(5) There are no effective restraints to prevent the Powers-That-Be from adding too much currency to the system causing inflation. They also have power to withdraw money from the system to create deflation which could lead to a depression.

The only current restraint is a debt ceiling that is supposed to limit government borrowing, but it may as well not be there. Congress routinely overrides it whenever it decides to borrow extra money placing citizens in greater debt.

A gold or silver standard is also ineffective for government has always found ways around their restraints and when a big crises comes along the whole metallic standard is trashed and becomes as if it never was.

So, are we doomed to a flawed money system no matter what we do?

I do not think so and here is why. We as a human race are always moving forward, making progress and perfecting that which was once flawed.

I remember when I bought my first Mac, a Mac Plus. I also bought with it the most sophisticated word processing program at the time – it was Microsoft Word, version 1.0. My new fangled computer with Word was a lot better than the typewriter I had before but it was far from perfect.

Then later they came out with version two, three, four etc. Each had improvements until we now have a program that does everything but polish your shoes. I still may not call the latest version perfect but I have to admit it does a lot more than version 1.0, and if I read the manual or Google information I can figure out how to get it to do any task within its parameters.

We have to look at the evolution of currency with the same perspective as a computer program. It may have had kind of a rough start and some versions are not as good as others, but overall we are progressing toward something that is stable and will serve us well.

Ancient Greece and Babylon had money version 1.0. Rome had version 2.0. After the fall of Rome we had version 2.5. The Tally stick was version 3.0. Creating fractional banking based on gold was Version 4.0. We experimented with several fiat systems and paper money in version 5.0 and then moved back to a gold standard in version 6.0. Finally with the creation of the Federal Reserve under gold we have version 7.0. Then when Nixon dropped the gold standard completely we moved to version 8.0 – and that is where we remain to this day.

Now some people may look at this progression and say that they think that some of these steps were not progress but this is also the case with various versions of computer programs. My favorite version of Microsoft Word is version 5 from 1992. Even so, I keep updating to newer versions to keep up and do find some things in them which are useful while others are annoying and distracting.

Unfortunately, we have not yet arrived at the equivalent of Word 5 as far as money goes, but improvements have been made that the public likes and I am sure will be retained and refined. Most of these are centered around the idea of convenience.

The impetus for the beginning of money itself was for convenience sake. Instead of trading cows for wheat it became much more convenient to trade coins. Later, paper became accepted because it was much more convenient to exchange a piece of paper than 20 pounds of silver.

The next stage in convenience is electronic money. It is much easier to buy something from a shop 1000 miles away with some type of electronic transfer than to send cash, check or money order.

Now some are experimenting with various forms of virtual money. Time will tell if this adds to convenience.

The point is this. If an innovation adds to convenience, whether it is an improvement in a car, a washing machine, a computer or money, then that improvement is here to stay.

Yes it is true there are always exceptions. Maybe the Amish would rather have a horse than a car and a pencil rather than a computer, but as a whole civilization will embrace that which adds convenience and will refuse to go backwards.

There are those who want to go back to coined money and gold backed currency but the inconvenience of doing this will make the crucial support for going backwards well nigh impossible. We might as well try and talk people into going back to the horse and buggy to save gas.

People will resist inconvenience like the plague and though this quality in the human race is an irritant to some it is overall a benevolent force that impels progress.

The results of new conveniences are rarely 100% positive. Perhaps the greatest convenience of our age is the automobile but this comes with the drawback of causing over 40,000 deaths per year in the United States alone. Does this make us want to return to the horse and buggy? Never.

How about air travel? The time savings is very convenient. But do stories of hijacks, terrorism and plane crashes discourage us? No. Convenience still prevails. Convenience always prevails.

Civilization has been shown that the transfer of money can be much more convenient than the exchanging of hard money of the old days and will demand that convenience continue or be expanded in any new version of the money system.

Has any new version of Microsoft Word dropped the spell checker? No. That will never go and neither will the ease of transferring money at the click of a button as long as there are buttons to click.

Now we arrive at the prime criteria for any new and successful money system on the horizon. It must not drop, but continue (and improve if possible) the convenience achieved with current money. One can argue the benefits of revisions of other aspects of the system but history tells us that the people do not want to drop any convenience even if there is significant risk. Any developer of a new money system needs to accept the conveniences established and work with them, not against them – include them, not exclude.

To create a new and improved money system we need to keep the conveniences attained and add two improvements.

Improvement One
Instead of giving the Federal Reserve power to create money and loan it to us at interest the government needs to take back the power to create its own debt free money given to it by the Constitution.

This money would have several advantages over the Greenback money created by Abraham Lincoln. The Greenbacks did not have universal legal acceptance. The banks were exempted from receiving them as payment for their huge government loans. They also could not be used for customs duties and imports. All these had to be paid in gold.

An advantage we have now over Honest Abe is the dollar is the reserve currency of the world and we now have the opportunity to create a universal Greenback that could have worldwide acceptance giving it power to revitalize not only the economy of the United States but be a benefit to the world.

The second advantage is our nation is not involved in a life and death struggle like the Civil War when the Greenback was created. During any such great crises the stability of currency always suffers and is sometimes destroyed. For the first time we have an opportunity to create a modern Greenback when we are not in a war of survival. Because of worldwide economic chaos the times are far from optimal but the situation just pushes the need for a solution to the forefront more than ever.

Improvement Two
The solution to a stable Greenback money system is a simple one. The State must not add more money to the system than will be supported by the value or increase in value of the goods and services in circulation. The simple rule is this. If there is too much money of any kind (including gold and silver) is added to circulation then we will have inflation. If there is too little money then we will have deflation, which is a much greater problem.

For instance, the housing crisis, which started in 2006 deflated the value of homes creating a domino effect leading to all kinds of economic woes. Imagine how bad things would have been if deflation was more universal.

So, to create stable Greenback money all we have to do each year is calculate the amount of money that needs to be released and added to the system. The next year we assess a new amount and repeat the process.

That’s a pretty simple process isn’t it? It is so simple a formula for proceeding could be programmed into the cheapest computer. The problem with making a new Greenback work then deals not with the problem of how much money to issue, but as always with the people who have the power to create it in the first place.

The solution to stable money is ever so simple a child can understand it. The State should not create or borrow too much money. The hard part is keeping these guys in line. Once a person gets a taste of spending money that seems to have an unlimited source, an addiction seems to take hold and nothing, even impending doom, seems to hold some of them back. These guys would continue to run up a tab on the Titanic even as it begins its descent into the great deep.

Are we doomed forever to have money systems that are held hostage to such human weakness?

I do not think so. For every problem there is a solution. Let us look at some.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

A Time for All Things

This entry is part 27 of 31 in the series 2011B

Objection 3
You want to create a fiat money system under government control with central planning. Money should be created by private enterprise for the private sector is always better and more efficient than government bungling.

Answer:
Not many fiat systems have been managed strictly by government. The Federal Reserve is a private system loosely overseen by Congress. The Reichsbank that was responsible for the hyperinflation in Germany was privately managed similar to our Federal Reserve. During the last year where hyperinflation went to Biblical proportions money was completely privatized and private issuers were competing to see who could print the most money.

Private goldsmiths ripped people off and deceived them for centuries by creating fiat money backed by gold that didn’t exist.

As far as being stewards over our money, private enterprise has not proven itself to be reliable whereas the best examples of good currency in history has been that which is managed by the State.

I share the view of our Founding Fathers that as a whole the fewer powers the government has, the better, and the power of the individual should be honored when possible.

But even though these men were rebels against Big Brother they did acquiesce and give the government power over two important categories. These are (1) defense and (2) the creation of money.

So why did they select these two departments to be under government control?

Defense should be obvious. Suppose we left defense to private hands and then had to fight World War II. There’s no way we could have mobilized a few ragtime private militias into a unified Army, Navy and Air Force to defeat Hitler without government involvement. Even though government is much less efficient than private enterprise it has the advantage of being able to create a unified force when needed.

The same goes for creating the nuclear bomb or going to the moon. These could never been accomplished in such a short time frame by leaving it up to private enterprise. A government has the power of mobilization and unification of purpose that the diverse private sector cannot achieve.

As far as money goes, again its unifying power is needed to create a usable currency. The central government in the United States has always regulated the value of money as specified in the Constitution but there have been times that private banks have issued notes and when many such banks have done this numerous problems resulted. In 1860 there were over 1600 private banks issuing 7000 different types of notes. If you were in a different area or state than where the note was issued you had to exchange it at a discount. The discount was at least 10% and sometimes as high as 40% if the reputation of the issuer was not solid.

Many economic fundamentalists want us to have a completely private money system but few have stopped to think of what would happen if such a thing were in place. Perhaps it would be useful to paint a picture.

Apple decides to issue its own money backed by its products. The value is determined by the iPad, which equals 100 units or Apple dollars. Even though Apple has a great reputation less than half the retailers accept Apple dollars. Apple retail stores accept them at face value but others do not. Walmart, which also has its own currency, accepts them at a 10% discount and Apple in return discounts Walmart currency 10%

A number of retailers and manufacturers follow Apple’s lead and create their own private money. All of them only have a full redemption on their own products and are discounted everywhere else – some up to 40%.

Hundreds of private banks create their own money of many different variations. Some create 100% fiat currency and others have a currency backed by a 10% supply of gold or silver and others are 100% backed by gold or silver. Others still are backed by Apple dollars or a combination of dollars. A couple banks have their money backed by an average value of 20 different types of dollars in circulation. Still others have their money backed by oil, wheat, pork bellies or other commodities.

At first, a lot of customers gravitated to the 100% gold backed dollars. This seemed to be the best bet until one day China dumped 3000 metric tons of gold on the market to pay for oil leases. Within three days the price of gold dropped 35%. This caused a selling frenzy and many traded their gold dollars for Apple and Walmart dollars. This added to the panic and the value of gold dollars dropped to 50% of their previous value.

China then saw an opportunity and bought up 4000 metric tons of gold at a 50% discount and within another three days the price of gold tripled. This had several negative effects. No one felt safe putting their money anywhere and China decided to place their gold profits in building up their military.

In addition to large companies and banks creating money smaller companies and even private individuals started doing it.

There was one guy in particular that seemed very successful and was trusted but within a couple years his whole system fell apart. He was compared to Bernie Madoff because he sold all the gold that backed his money and when it was discovered that customers could not redeem their money for gold all his currency value fell to nothing.

This scam rocked all private money systems and the value of many of them fell 10% overnight.

After existing ten years on an all private money system there were literally thousands of entities attempting to circulate thousands of different bills all having different values.

Machines looking like ATM’s started springing up all over the country. If you punched in your PIN number you could exchange one currency for another but the exchange rate was high because the fraud rate was high. The exchange rate was between 10-20%. A lot of people who were paid in one form of dollar really grumbled when they had to lose 10% in an exchange.

Small businesses were linked to these devices. If you went to a flower shop to buy a dozen roses they may list three currencies they would accept. All others would have to be converted through the ATM machine.

On the internet, PayPal did not issue their own money but had a system where all other currencies were converted into PayPal dollars. Apple and Walmart dollars were the most stable so ten of their dollars were converted into nine from Paypal. Many were surprised that gold-backed dollars did not have the highest exchange rate, but since the price of gold was not set by the government it could go up or down in value 20% within a year and the Chinese made it fluctuate 100% in a couple days. To protect themselves from fluctuations PayPal only gave eight PayPal dollars for ten gold ones. Out of the thousands of different currencies PayPal only accepted the best twenty. All other currencies had to be converted to one of these twenty if they wanted to use PayPal dollars at all.

A research company did a study on the average loss that a worker suffered from having to deal with the exchanges necessary to spend his paycheck on the necessities of life. It turned out that the average family lost about 14% of their income through their various exchanges.

Now when one thinks of this situation in the light of reason this does sound like it would be a fairly probable outcome of an all-private system.

I am a big supporter of private enterprise and believe that in the vast majority of circumstances the private sector can trump the public bureaucracy any time. But major problems occur when a person becomes black and white in his view and needs to consider the wisdom of Solomon who said:

“To every thing there is a season, and a time to every purpose under the heaven.” Eccl3:1

While it is true that private enterprise is very innovative and can be very efficient, there is a time to use the central authority of the government and the Founding Fathers wisely saw that defense and money were two categories that the power of government could be used beneficially.

Isn’t it so much more convenient to have one universal currency that we can all use instead of the cacophony that was described in the above example?

Does this mean we have the best possible money system now?

No. It does not. We can create a much better one as we shall see.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

A Flawed Money System

This entry is part 25 of 31 in the series 2011B

Objection 2
Just look at the fiat money system we have now. It just doesn’t work. Every year the dollar is worth less than it was the year before and there are recessions and boom and bust cycles.

Answer: The money system that we now have is far from perfect and is not the one I advocate. There are three major problems with it.

First, all money placed into circulation is through loans at interest. If one borrows $100 and pays back $100 plus $10 in interest then $110 is taken out of circulation. To maintain the status quo the banks have to then loan out not $100 but $110. This system of creating money through interest bearing loans and then destroying it when the loans are paid forces the banking system to always be seeking new ways to create more money making for an unstable system that is difficult to control and predict.

Secondly, there are no controls placed on the amount of money that will be placed into circulation. If the money supply contracts, as it did with the Great Depression, then there is deflation. Money is not available for expansion and the people suffer greatly. If there is too much money added to the system there is inflation and the savings of the people lose value. Then there is always the possibility of hyperinflation that could destroy the value of money completely.

Thirdly, the money supply is controlled by the privately owned Federal Reserve, which loans money to our government at interest. Currently, interest from all sources amounts to around a half trillion dollars. It would make a lot more sense to merely create our own money with no interest. Then, if desired, we could use that half trillion to send every man, woman and child a rebate check of over $1500 a year. I say this as something that could be done not something I would recommend.

The current money system does bear a lot of responsibility for the inflation we have had but it is far from being the only factor in our various financial problems. Even with the best possible money system the economy can be challenged by speculators and outright crooks. There is a lot more to creating a stable economy than having a good money base.

Let me give just one example.
In September 1869 Jay Gould and Jim Fisk had a plan to make a killing on the gold market. Here’s how it went. They figured out that the amount of actual gold that was available in the whole country for investors to purchase was only about $5 million even though much more than that was traded on paper and also stored at Fort Knox. If they could buy a good portion of that circulating gold and hold on to it, creating a demand for more gold than would be available, they could drive its price up to $1000 or more an ounce. They moved ahead with their plan by buying large amounts of gold and holding on to it. Within weeks they drove the price of gold from $120 an ounce to $165.50.

There was just one potential problem and that was President Grant. As the price rose he could dip into the $100 billion worth of gold at Fort Knox and put it in circulation. They had people on the inside influencing Grant to not do this so they thought they had their bases covered. Grant, however, caught on to their scheme and decided to put $4 million worth of gold into immediate circulation. This move by Grant created what is called “Black Friday” (Sept 24th, 1869) when the price of gold dropped from $165.50 to $135 in one day. Since many people were buying on a margin they lost everything they had and many brokers went out of business.

Ironically, one guy who came out on top was Jay Gould who caught wind of Grant’s move and sold at around $165. This wasn’t the $1000 per ounce or more he had hoped for if Grant cooperated but he was happy to come out ahead in the end. His partner Fisk, and most gold investors, were not so lucky and lost everything.

If gold, the most stable of all metals, can be so easily manipulated by just two guys – with a great disaster only being prevented through the creation of a lesser disaster – then where is the hope of a stable economy with any currency?

Our current economic system is far from perfect. Almost everyone is not happy with it and has criticized it. Gold standard advocates are its harshest critics but they are far from being alone.

Where few have looked objectively is in comparing the current system to the systems of the past. Let’s take a brief look with an attempt to be objective.

The largest change in the money system occurred in 1913 with the creation of the Federal Reserve. For many this is seen as the year of infamy where the economic devil became incarnate.

Now the Federal Reserve System is not something I would create or endorse but neither am I that excited about returning to any system we had before 1913.
As I write this it has been 98 years after the creation of the Fed. 98 years before the Fed takes us back to 1815.

It is true that we made a lot of progress and innovation between 1815-1913 – more than at any time in the history of the world.

On the other hand, the progress since 1913 has been much more dynamic still, again more than anytime in the history of the world. Just compare life in 1869 with 98 years later to 1967 or 1913 to 2011. They are two different worlds indeed and the latter, despite the imperfections, would be picked by the vast majority as most desirable.

True we’ve had inflation, but there have been adjustments to inflation. There’s also been deflation as well as inflation.

In 1913 a dollar was worth $22.82 of 2011 dollars. This value stayed fairly stable until World War I. Then it went down in value to $11.30 by 1920. In other words, the dollar lost half of its value. This effect on currency is pretty normal during war.

After 1920 instead of inflation we had deflation and the dollar increased in value. It was 1947, or 27 years later, before inflation could sink the value of the dollar below the 1920 value. That’s a stretch of time rarely equaled by the gold standard of history. Since then we have had a fairly steady rate of inflation until the dollar is now worth about 4.4% of what it was in 1913, or 8.8% of the 1920 dollar.

The average wage in 1914 was $627.00. That equals $14,167 in 2011. But the 2011 the median household income is around $50,000, which means we have achieved over three and a half times the income we had in 1914 through this imperfect Federal Reserve fiat system. If we go back to 1861 the contrast is even more pronounced. The income at that time was only $140 per year. That would buy about seven ounces of gold. In 2011 where gold is at an all time high of over $1500 per ounce seven ounces only equals $10,500. In 2001 you could buy seven ounces of gold for a mere $1897.

It is interesting to note other quality of life improvements. The average lifespan in 1913 was only 52.5 years. Now it is 77 years. Maybe they worked themselves to death – the average workweek was over 55 hours for much less money than is made today.

Over 60 times the number of babies died at birth and the hospitals were so bad that people were afraid to go there.

The three leading causes of death were: pneumonia and influenza, tuberculosis and diarrhea. These are now way down the list and have been replaced by heart disease, cancer and strokes.

Yes, our journey of progress has not been perfect but few would want to go back to the good old days.

If we have made such progress as improved standard of living, sending men to the moon, developing sophisticated computers, the internet and many time saving advances with a very flawed financial system just imagine what we could have done with a really good one.

Perhaps the major flaw blamed on the current money system is inflation, but most of our inflation has not been caused by the fiat system, but by government borrowing. If our Congress had the common sense of the average family they would stay within a budget and there would be little or no inflation.

“But,” says the fundamentalist, “if we were on the gold standard Congress would not be able to borrow like they do with fiat money.”

Bad argument. As soon as there was any major problem when on the gold standard they threw it out the window and borrowed bundles of money. This happened during the Civil war and World War I. The are also so many ways to create simulated money today that no possible gold standard could keep us out of debt. The only way to control our debt is to control Congress. If we have a perfect money system mixed with a drunken spending Congress there will be deficits.

Conclusion: Yes, the Federal Reserve fiat banking system is far from perfect, but neither has it been as bad as believed by many. It has served us as well as money systems in the past which also were far from perfect.

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

Examining Fiat Money

This entry is part 24 of 31 in the series 2011B

Some may wonder why I have spent so much time dealing with the gold standard and fiat money. The reason is quite simple.

There are two kinds of people in the world as far as economic theory goes. Those who think about how it works and what is the best approach and those who do not, but just blindly accept the crumbs that fall from the table wherever they land.

Unfortunately, the majority of Americans are in the second category. Any economic influence on their voting is very superficial. A meaningless sound bite can influence them if it tugs at their emotional nature. If they lose their job, suffer a pay cut, lose a benefit, hear of a fat cat getting exorbitant pay, see a homeless person or are merely told a certain politician is out to take what belongs to them they will vote accordingly without doing any research into the cause of their grievance.

The first category (the thinkers) is concerned about the economy and at least do a little reading and thinking about how it works and how it could be improved.

A large portion of the students and thinkers of economic theory and how money works are believers in the gold standard and are strongly against most fiat money. Many of these are adherents to the Austrian School of economics which ironically has its strongest supporters here in the United States. They cannot stand even the mentioning of Keynes name and love the words of Mises, Hayek, Rothbard, Ron Paul and others.

Most of these are good people of above average intelligence that have not considered the idea that there are several types of fiat money and it is possible to create a fiat system that brings as much stability as gold and even more prosperity.

Any workable money system has diminished chances of implementation when many thinking people are in opposition to it and it gains added power when a high percentage support it.

I have thus spent considerable time explaining the disadvantages of gold as well as presenting fiat systems of the past which have worked which tells us that we can put together one for the future that can serve us well. Actually this is an understatement. I believe we can put together a system that will bring prosperity that the world has never seen before.

In contemplating this I reflect back to a statement that Bobby Kennedy used when running for President.

“Many people see things as they are and ask why. I dream of things that never were and ask, why not?”

Our world has never had a perfect or near perfect money system, but that does not mean that we have to repeat the mistakes of the past, or even repeat the best of the past. We have the intelligence and the will to create anew a system that is better than anything that has existed before. There is no area of life where a breakthrough advantage is needed more than in our currency system. It hasn’t improved much in over 3000 years so it is about time for progress to be made.

Creating a better way was the attitude of the Founding Fathers when they founded this Republic and its Constitution. They didn’t just take the best of the past and recreate it. Instead they took the best working elements of past government and added new elements to create a government that was “a dream of things that never were.”

I don’t expect a lot of gold standard people to accept my writings right away but a few will at first and more will follow. If these ideas circulate among them they will be forced to discuss them logically without first just dismissing them as Keynesian or doomsday economics. In addition I hoped to reach many who do not have set opinions who can see the reasoning in that which I present.

First let us examine some of the problems many have with considering the use of fiat money.

Objection 1: Fiat money is not backed up by anything. It is created out of thin air. Real money is composed of metallic coins or is paper backed up by a commodity, preferably gold or silver.

Answer: This conclusion is not exactly true. If one only looks on the surface it may seem that fiat money is created out of thin air with no backing but such is not the case. If the dollar were really backed by nothing then it would be worth exactly nothing. This is obviously not the case because we purchase groceries, clothing, pay mortgages, buy cars and many other things with fiat money.

Our money obviously has value. Where does this value come from?

The most common answer is faith – pure faith. If one thinks about this answer he can soon conclude that this is far from the correct answer. Let me illustrate. If we find a person with no faith in the dollar and send him to the store to buy some bread does his zero faith take away value from the money so he cannot buy the bread? No. Even though he has no faith in the money the value is not diminished. His money will purchase just as much as the guy with lots of faith in the dollar.

If faith does not create the value then what does? Aristotle brings us closer to the answer. He stated:
“…Money exists not by nature but by law….There must then be a unit, and that fixed by agreement.”
Aristotle (Ethics, 1133)

This gets us closer to the truth. Money is created by law through a fixed agreement. This seems more reasonable than faith alone but it doesn’t give the full story. It doesn’t explain why fiat or any other kind of money has value.

If we could just create money by passing laws and making agreements then let us all agree that everyone will receive a million dollars in money each year and there will be no inflation.

We all know that would not work, don’t we?

Faith, law and agreements are all ingredients that help create the power of money, but what is the core principle? What gives a fiat dollar its purchasing power?

The answer lies in this question? What gives a gold backed dollar its purchasing power?

It’s gold you say? But what produced the gold?

It was human labor.

Money has also been backed by many other commodities such as houses, wheat, tobacco and Indian Wampum. What produced these products?

Adam Smith explains:
“Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Labour … is the only universal, as well as the only accurate, measure of value, or the only standard by which we can compare the values of different commodities, at all times, and at all places … By the quantities of labour, we can, with the greatest accuracy, estimate it, both from century to century, and from year to year.”

Labour was the first price, the original purchase – money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.
Adam Smith The Wealth of Nations, Book I, Chapter5

Benjamin Franklin agrees with this: “The riches of a country are to be valued by the quantity of labor its inhabitants are able to purchase, and not by the quantity of gold and silver they possess.

“All wealth is the product of labor.”
John Locke

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
Abraham Lincoln

Thou, O God, dost sell us all good things at the price of labor.
Leonardo da Vinci

The bottom line is that money has value not because of any commodity, faith or law alone but because it is backed by labor and that which labor produces.

If I give my neighbor my word that I will mow his lawn tomorrow then that is as good as giving him the $20 (or more) he would have to pay a mowing service. It is also as good as $20 in gold, silver or wheat. I created this value seemingly out of thin air by the fiat of my word alone; but was the value created from nothing?

Not exactly. My word in this matter only has value because my labor has value. Labor does not come out of thin air but is energy guided by constructive intelligence.

Conclusion: Fiat money and commodity money both trace back their value to one source: human labor.

Copyright 2011 by J J Dewey

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Copyright by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE

 

Romney & Hot Air

This entry is part 23 of 31 in the series 2011B

LWK links to this Romney quote asking if he is full of hot air.

“I don’t speak for the scientific community, of course,’’ Romney said. “But I believe the world’s getting warmer. I can’t prove that, but I believe based on what I read that the world is getting warmer. And number two, I believe that humans contribute to that . . . so I think it’s important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change and the global warming that you’re seeing.’’ Boston Globe, Jun 4, 2011
http://free2beinamerica.wordpress.com/2011/06/14/is-romney-full-of-hot-air/

Before I comment let me remind readers that I have attacked the greens, the U.N. IPCC and numerous politicians for their distortion of facts and their desire to tax global warming out of existence as well as using it as a device to destroy capitalism.

I do not see any of that coming from Romney. Let’s take a look at what he actually said.
“I believe the world’s getting warmer.”

So do I if you look at the overall picture of the past 100 years. It has leveled off since 1998 so we cannot say where it will go next for sure.

How I differ from the global warming alarmists is that I do not see enough evidence that we have any major problem coming that we can do anything about. We may get hit by a comet in five years but should we throw all of our resources into preventing this?

No. Because the risk is not high enough to warrant this. Neither is the proven risk of global warming.

Romney continues: “I believe that humans contribute to that (global warming).”

Again I agree with him. CO2, methane and other gasses released by humans do have some warming effect. Some scientists believe half of the warming comes from human produced greenhouse gasses and others think it to be less but all acknowledge that greenhouse gasses do have some warming effect. We just cannot prove how much that is.

Romney: “I think it’s important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change.”

JJ
Again I agree with him. In addition to some warming effect the addition of excessive CO2 could have other unforeseen negative effects. For instance, studies show that the amount of oxygen in the atmosphere is decreasing and in some large population areas have gone down an alarming rate. Oxygen levels in the seas are also decreasing. When CO2 is formed oxygen is taken from the air. Some say that this and other human effects are producing oxygen sinks that take this vital element from the atmosphere. This should be of more concern than global warming.

I agree with Romney that we just can’t sit around and do nothing. My main point of disagreement with the environmentalists is their economy destroying approach that would do much more harm than good.

If we read on in this same Boston Globe article we see that Romney qualifies his approach with some common sense. It says:
“Romney has made clear that he opposes cap-and-trade, a system that would combat climate change by limiting total emissions and forcing polluters to pay for the greenhouse gases they produce.”

This is a huge item for me and is my main reason to take alarm at the standard environmentalist approach. Some say that the core of the environmental movement is not about the environment but about destroying capitalism and nothing gives evidence to this more than the insane cap and trade movement.

The fact that Romney is not deceived by this, as was candidates John McCain, Jon Huntsman,  Pawlenty, Gingrich and Gary Johnson, score points in my book.

Someone can read about global warming and absorb some wrong information and this does me no harm. But if he wants to destroy our way of life (and eventually the environment) by destroying our economy then I am ready for battle.

Again Romney is quoted:
“Americans should do more to conserve.”

When Obama says something like this I get nervous but when someone with business sense says it I can be supportive for I also support common sense conservation. I am a big believer in the Law of Economy.

The article continues:
Instead, he said yesterday, he wants to wean the country from its dependence on foreign oil by seeking alternative sources of energy… If elected, he said he would pursue more oil drilling, as well as natural gas and nuclear energy.

Well, this is a man with some sense. I would do the same if I were president.

He wants to:
(1) Wean the country from its dependence on foreign oil

I am all for that. It is crazy to depend on those who hate us for oil.

(2) Seek alternative sources of energy.

Again to do this with a common sense approach may yield high results.

(3) “He would pursue more oil drilling, as well as natural gas and nuclear energy.”

My type of guy. That is 180 degrees the opposite of the Obama approach.

Romney adds a final caveat:
“We can’t just say it’s going to be all solar and wind,’’ he said. “I love solar and wind, but they don’t drive cars. And we’re not going to all drive Chevy Volts.’’

Amen.

 

Copyright 2011 by J J Dewey

Easy Access to all the Writings

Log on to Freeread Here

Fiat Money of the Past, Part 6

This entry is part 22 of 31 in the series 2011B

German Money

Of all the incidents of failed money in history the poster child of bad money is that of the Weimar Republic of Germany in 1923. Unfortunately, this is often used as an example of why fiat money must be avoided like the plague.

Those who put the blame on fiat money make the mistake of lumping all fiat money into one category but as was pointed out earlier there are two categories of fiat money.  Here they are again:

(1) Money created by private banks or institutions and loaned out at interest. Most of our national debt is created this way. The Federal Reserve creates the money by fiat and loans it to the government at interest. There are many variations of this  category, some fairly workable and others doomed to failure.

(2) Interest and debt free money created or approved by the government.

The Greenbacks that we just covered was in the second category.  This has been proven historically to be much more stable than the private fiats that create debt and interest.

The fiat attackers make the mistake of lumping all forms of fiat money together as being equally bad and dangerous. Nowhere is this more apparent than their portraying the Weimar republic’s money as being no different than the Greenback.

Most writers talk about the German inflation problem as beginning in 1919 or 1921 but the problem really began at the beginning of World War I in 1914. By the time 1921 rolled around those who were on fixed incomes and depended on savings or government bonds for retirement or security were largely wiped out by the high inflation leading up to that date. From the beginning of the war in 1914 to its end in 1918 prices of consumer goods increased over 200%. By February 1920 shortly after the Treaty of Versailles internal prices jumped over 500% and prices of imported products skyrocketed to 1898% over the 1914 level.

Unfortunately, Germany could not pay off their draconian war reparations with inflated Marks but had to pay them with foreign currency values. This meant that when the Mark lost half of its value it took 200 of them to pay for what only took 100 earlier.

This situation accompanied by unlimited printing from private banks created an inflation slide of historical proportions.

By July 1922 it took 300 Marks to equal one U.S. dollar. By November it took 9000 and by January of 1923 it was a whopping 49,000.  That was just the beginning of the sinkhole.  By July 1923 the figure was 1,100,000 and by Mid November it reached the legendary 2.5 trillion marks to equal one U.S. dollar. Billion mark notes were traded as almost worthless paper.

It is a blatantly false and disingenuous comparison to compare the Weimar money as being equivalent to the Greenbacks.  Let us examine the differences so the reader can judge correctly.

(1) The Greenback was issued by the government
The Weimar money was issued by private banks – led by the Reichsbank.  This was similar to the Federal Reserve, which, contrary to the sound of its name, was privately owned and publicly controlled.  May 26 1922 private business was given complete control over the Reichsbank and the issuing of currency.

Most hyperinflation commentators blame the government as having sole responsibility for issuing so much money but it was done through the privately owned Reichsbank and other private issuers of the Mark. The Greenback was not issued by a private or semi private bank but by the U.S. government.

(2) The Weimar Mark was created by loans at interest whereas the Greenback was created without interest involved.

(3) The Weimar Mark had no limitations on its issue.  The Greenback’s issue was limited to $450 million.

A heroic German, named Hjalmar Schacht, who became the Commissioner of Currency, finally brought the inflation under control. He prohibited the private banks from creating Marks and established a new Mark – the Rentenmark. The new Mark had a value equal to an astounding $4.2 trillion of the old Marks. He then established guidelines for limited issue and created regulations that dramatically slowed the currency speculation that had been adding to inflation.

Within a year the currency reached an amazing degree of stabilization despite the fact they still had reparations to deal with.

After 1929 a great depression was forced upon most of the world. By 1932 Germany had suffered economic effects similar to that of the United States including a 30% unemployment rate and a 41% dip in industrial production. One could say they were lucky it was not worse considering they had war reparations to pay off.

This was the situation when Adolf Hitler came to power.

Now before I write more about Hitler let me make something crystal clear because many others who have written about Hitler’s economic recovery have been maliciously accused of being a Hitler lover or sympathizer.  This is not the case with me nor is it the vast majority of writers on this subject.

BUT… there is one thing that is agreed on by those who despise Hitler’s philosophy and that is – he was an evil genius.

It’s fine with people if you talk about the evil part but as soon as you talk about the genius part there is danger of being lumped with Neo Nazis or worse.

This is unfortunate as we need examine Hitler without blinders on if we wish to neutralize such tyrants in the future.

When Hitler took over Germany on January 30, 1933 Germany was in the middle of a great depression and the little gold they had was storming out of the country. By 1934 they only had 83 million Marks worth of gold, a loss of about 97% of their supplies since 1929.

Basing an economic recovery on gold would have been pure fantasy.

Instead of descending the country further into economic chaos, as many expected, Hitler surprised the world by creating a teeming economic system in a few short years.  Between 1933-1938 the Nazi economy grew by 9.5% per year. They built many public works projects such as dams and about 1900 miles of the current autobahn. Housing construction doubled. By 1936 unemployment was over 80% gone and by 1938 it was virtually non-existent for they had more jobs available than there were laborers to fill them.

By contrast FDR and his New Deal was not working so well. In 1938 the United States was in a depression within the depression with unemployment at 19% and many were committing suicide rather than endure a continued struggle.

Some say that Hitler achieved full employment because he borrowed money and put people to work on government projects.  That explanation does not cut it because FDR did the same thing yet his economy was in shambles.

What was the difference then?

There were several.  Even though Hitler only had a elementary understanding of economics he recognized talent when he saw it. Hjalmar Schacht, who once restored Germany’s economy but quit in frustration in 1930, was appointed by Hitler to be the Reichsbank President in 1933. He enthusiastically supported Hitler until the war and later supported Stauffenberg and the resistance to Hitler. He assisted Hitler in creating Bills of Exchange, similar to what the early American colonists did when they had no gold.

This was powerful fiat money, but still had a disadvantage over the Greenback in that they paid around 4% interest and added to the national debt whereas the greenback was interest free.

Even with this disadvantage they were able to put enough money into circulation to revive the economy whereas money was nowhere to be found or borrowed by the common people in the United States at that time.

By contrast it was said that the German “certificates (were) paid out to employers who undertook projects of replacement or maintenance projects. Anyone who equipped a factory with new machines or who had his house repainted could finance his operations with these work drafts…”
Konrad Heiden, The Fuerher, (Boston: Houghton Mifllin, 1944, page 662.

Hitler’s economy not only did a much better job in making consumers happy and employed but in addition to doing this he built up a military from virtually nothing that challenged everything the banking systems of the whole world could throw at him.  This is even more amazing when you consider that France, England and the United States put very little investment in defense until the War because they had just fought the war to end all wars – World War I.

Hitler often bragged about his economic accomplishments in his speeches.  Here’s just one example:

When I took over the government, I had only one hope on which to build, namely, the efficiency and ability of the German nation and the German workingman; the intelligence of our inventors, engineers, technicians, chemists, and so forth. I built on the strength which animates our economic system. One simple question faced me: Are we to perish because we have no gold; am I to believe in a phantom which spells our destruction? I championed the opposite opinion: Even though we have no gold, we have capacity for work.

The German capacity for work is our gold and our capital, and with this gold I can compete successfully with any power in the world.
DECEMBER 10, 1940 in Berlin

He not only bragged about besting his enemies when he had no gold but he also drew comparisons between Germany and the Allies. Germany only had 85 million people, and a land with limited resources occupying only 232,000 square miles. He compared that to the British Empire that controlled 16 million square miles of land. In addition, there was the Continental United States possessing over 3 million square miles containing vast resources.

We are extremely fortunate that two things were in our favor.

First, we can thank our lucky stars that Hitler did not wait an additional five years to start the war.  Five more years of economic growth and perfecting her military would have made Germany unbeatable.

Secondly, we are lucky that the bankers supported the Allies during the war and that we did have superior resources for we did not have a superior economic system or currency.

It is interesting to note that two of the most significant men in history – Abraham Lincoln (one of the best), and  Adolf Hitler (one of the worst) – both used creative forms of fiat money to advance their cause.  This merely illustrates that money, like electricity is a neutral power. Those bent on destruction can use it to do harm whereas those with good intent can use it constructively or for good.

Today, most of the common people use what power they have for good. They feed their families, heat their homes, travel to see friends and family etc.  The misuse of power usually comes from those who amass great quantities of it for the sake of control over others.  It thus behooves us to do all in our power to make all useful power or energy available to the masses who, on the whole, use it well. This principle certainly applies to money.  If there is abundance of it available to all then the chances are that it will be used constructively for the good of all.

Let it so be.

Sources:
Web of Debt by Ellen H. Brown, 2008

The Lost Science of Money By Stephen Zarlenga, 2002

Konrad Heiden, The Fuerher, (Boston: Houghton Mifllin, 1944

John Weitz, Hitler’s Banker (Great
Britain: Warner Books, 1999).

Henry C. K. Liu, “Nazism and the
German Economic Miracle,” Asia
Times (May 24, 2005).

HITLER’S MONEY
The Bills of Exchange of Schacht and Rearmament in the Third Reich
Guido Giacomo Preparata University of Washington, Tacoma

Hjalmar Schacht, Stabilization of the Mark, (London: George Allen & Unwin, 1927)

Hjalmar Schacht, The Magic of Money, (London: Oldboume, Trans. P. Erskine, 1967)

Norbert Muhlen, Schacht – Hitler’s Magician, (New York: Alliance, Longmans Green, trans. Dickes

C. C. Veith, Citadels of Chaos (Meador, 1949

Read This entire series. Here are the links.

Copyright 2011 by J J Dewey

Copyright by J J Dewey

Index for Older Archives in the Process of Updating

Index for Recent Posts

Easy Access to All the Writings

Register at Freeread Here

Log on to Freeread Here

For Free Book go HERE and other books HERE

JJ’s Amazon page HERE

Gather with JJ on Facebook HERE