"So Darwyn, do you truly beleive that loans and interest are inherently evil? Or is it just interest you're against?"

Interest on PUBLIC money is inherently evil, yes and I am against it. As I've shown, it leads to economic slavery.

I'll respond to the rest later...

OK....I give up

Im filling in time as I eat my breakfast and thought I would list all of your dumb comments is the last round of posts...

IF Bonds represent what the government can't produce itself via taxes, from where does money come from? What is it backed by? Surely not taxes (the American people) because the lack of them is what caused this exchange in the first place. Who insures this money is good?" - sigh!

no interpretations of the above, that I've read, means anything close to creating money out of thin air like the Fed does - it doesnt ZZZZzzzzz........

What does "coin and regulate" mean to you? Funnily enough I think this means create money of thin air (but not too much)

To return the dollar to the gold standard and establish stability - a laugh out loud moment for me....how will this pay the hospital bills and allow the US to make more bullets?


Interest on PUBLIC money is inherently evil - I see your arguments are based more on religious grounds than theory and logic....

As I've shown, it leads to economic slavery - you have indeed irrefutably demonstrated this. Well done - I see a Nobel prize coming your way!

I've been nothing but polite to you...but it seems you never stepped off your high horse after all, eh? :)

I had prepared a response with a few zingers...but decided that your own post reveals what a dimwitted douchebag you are far better than I ever could. You should have stopped with "I give up". At least it had dignity.

Things are pretty busy right now at work, so I've only got a bit of time to devote to this discussion (hopefully later things'll slow down and I can keep researching/refining my understanding).

However I can pretty easily respond to one of your questions. The bonds that the Treasury Department (not the Fed) issues when the government spends more money than they take in, are sold to whoever buys them (some of the are bought by the Fed, most are bought by others, I'd also point out that nearly all of the interest that is earned on bonds the Fed holds goes back to the Treasury, so the Treasury actually prefers for the Fed to hold these bonds, since they get nearly all of the interest back, whereas if you or I, or anyone else is holding them, they simply have to pay the interest to us). They are borrowing the money they need, and offer a small interest rate on these bonds to whoever holds them when they come due. It is as simple as that. The money comes from whoever buys them. Why is that so mysterious? Under a gold standard, if the Government spent more than it took in, it would have to do the same thing, only it would be borrowing gold, and I can guarantee they'd still have to pay some interest on that borrowed gold, or no one would buy the bonds (ie loan them money)
If you want the government to stop being in debt, then your real problem is with congress not being able to keep it's spending in line with it's tax income.

I'd encourage you to read through this research article (feel free to skip around a bit to the parts that seem most relevant, it's pretty long, and even I haven't gotten through all of it yet). It is slightly old (about 12 years now I suppose), but we're arguing about general principles here anyway, and none of that has changed.
http://home.hiwaay.net/~becraft/FRS-myth.htm#hd11

From the conclusion:

"The existence of the Federal Reserve is separate from the choice of monetary standard. It is not an alternative to a gold standard. Similarly the existence of the Federal Reserve and the choice of a monetary standard is unrelated to the existence of fractional reserve banking, or to who regulates the operations of banks. The primary issue about the Federal Reserve is about who controls monetary policy."

This doesn't really resolve the issue of whether the gold standard would be better than not having it (though it does help to explain why the current system works), but I hope we can perhaps move away from conspiracy theories about the Federal Reserve being a shadowy organization that is out to get us all.

A much sorter article that again, points the finger of blame toward congress, not the Fed.

I think perhaps we've all been operating under a false impression of what the Federal Reserve does and how it works exactly.

PS I agree with you Darwyn, you've been quite polite, and while I agree with much of the actual content of what Withnail160 has said, I agree that he's been a bit overly rude in his method of response, and do not endorse his vitriol (even though I do endorse his position).

you are right....it had more dignity and someone with more maturity than me would have done just that

But I amused myself by exposing how dumb you are by copying and pasting the dumbest of your questions.....

My advice to you is listen and think a bit more (in equal proportion) and maybe you won't stay so ignorant

The Gold Standard....I am still laughing at that one....

And while I'm here - the vitriol is a function of bashing my head against Darwyn's brick wall for the last 130 posts.I started out polite and trying to be helpful but after Darwyn asked the same dumb question three times claiming that I hadn't answered it then I got a bit pissed off....

I think if you had the inclination to re-read the whole thing that you'd find that he has been pretty rude throughout. He doesn't listen to answers and claims you havent answered his question (like that is my function in life)

I happen to know about economics/finance/bond markets etc....I'm happy to try and be informative if its within my very narrow band of expertise - I certainly like reading about other areas where people here have some expertise that I dont...but if you're not interested in listening to the answers then don't ask the questions

Withnail160, I can understand why you're frustrated, but while perhaps he hasn't understood the answers given, or how they connect to what he's asking, I don't think he's been rude.

I've been reading/participating in this thread from the beginning, and I've certainly gotten frustrated at times, but I just don't think there is any reason to call someone an idiot in a discussion like this, if you don't think they're getting it, either try to explain it differently, ask them questions to figure out what they aren't getting, or just bow out, and say you don't think you can explain it any differently. No need for name calling.

Oops, just realized in one of my posts I mentioned an article, but... forgot to actually link to it! http://www.opednews.com/maxwrite/diarypage.php?did=5615

You're right - there is no need. But I don't care about that

Fair enough, I suppose it wouldn't be an internet discussion without some name-calling!

Withnail…you are a piece of work, that’s for sure.

From the start of this thread, I’ve only been trying to show, as I see it, how a fiat currency = perpetual debt and how this is a bad thing…one that does NOT benefit the average American but instead, the bankers who support it. I utilized the Fed’s relationship with the US Government as an example throughout.

It seems though, that you’ve been agreeing with me this whole time…

Withnail: “I have not opposed your portrait of perpetual debt, although I would describe it as a continuous cycle”.

Withnail: “Then the Treasury has to pay interest on these Bonds and then repay the principal amount at the end of their term (which they will probably borrow more money to do thus creating your idea of "perpetual debt")”

To that last comment, I asked a follow-up question: “Why bother communicating anything to the Fed? Instead of issuing Treasury Bonds to be auctioned, why not just issue...MONEY? What purpose does the Fed serve here?”

To which you answered: “If they dont ask the Fed to raise money then how are they going to pay for Public Spending?”

Seriously…and you want to call ME dumb? You know damn well the question wasn’t simply about ASKING for money…LOL, or did you? . I’m beginning to wonder. I even commented on this by addressing you and you only in a somewhat lengthy post. That post, however, was ignored.

My portrait of perpetual debt is directly linked to the interest the Fed charges the US government on the loans it takes to cover spending. But it seems you are adamantly opposed to this particular portrait of perpetual debt. If you agree that a fiat system = perpetual debt/continuous cycle, yet strongly disagree with MY portrait of it…then what is the perpetual debt that you “have not opposed” or wish to instead call “a continuous cycle”? What causes this, if NOT the interest?

“The interest is payable out of future tax revenues …output of future generations is paying for today's spending...”

If the interest is payable out of future taxes (which in reality, represents no intrinsic value in today’s dollars…unlike a set amount of gold or silver), we can agree here. A fiat money system = perpetual debt/continuous cycle because of the interest charged.

“By "issuing money" do you mean printing dollars? If so then the problem with doing this is that you will cause inflation and you will devalue the currency”

Speaking of devaluing currency…perhaps you could explain why the dollar has lost about 95% of its value since oh, I don't know...1913. But no: “It (the Fed) doesnt add interest to the creation of money!!!!!! It pays people with money interest to borrow it from them......” LOL…I’m still trying to make sense of that last sentence. What does the Fed add interest too then? Government loans, right? Is that not just another way of saying "creation of money" by definition of a fiat system?

“I think if you had the inclination to re-read the whole thing that you'd find that he has been pretty rude throughout.”

Oh? Care to show me the extent of my rudeness?

“He doesn't listen to answers and claims you havent answered his question (like that is my function in life)”

So lemme get this straight…yer gonna post on a thread in an attempt to answer someone (presumably since you are a self-proclaimed “expert”), then get indignant about it? Lol, makes sense, I guess. 

“The Gold Standard....I am still laughing at that one....”

What’s so funny about the gold standard? It’s worked before.

“if you're not interested in listening to the answers then don't ask the questions”

Perhaps you should understand the questions first. Please see my above example where you clearly had no clue what it was that I was asking.

And finally, this one is my favorite:

“Darwyn: What justifies the interest charged on government loans?”
“Withnail: There is no justification.”

Let that one take a minute to sink in…

@Darwyn, you are in some ways right there there is "perpetual debt" in our monetary system. However, there has always been debt in pretty much every monetary system, even barter systems involved debt and interest.

The issue however, is what this means. It doesn't actually mean that the whole system is unstable, or that everyone will eventually be in debt and enslaved by some cabal of evil central bankers. In fact the Federal Reserve doesn't really have all that much to do with the creation of debt.

Check out these explanations: (both of which I linked to above)

This first one is from the long article I linked to above but this section addresses your interest/debt concerns specifically: http://home.hiwaay.net/~becraft/FRS-myth.htm#hd25 (hopefully that link works properly)

Second, is the other article I forgot to link to above, and then linked to again. http://www.opednews.com/maxwrite/diarypage.php?did=5615

@Darwyn

Now let's be fair, you took that "there is no justification" out of context. He followed that up with "It is like saying what justifies putting petrol in a car? Nothing particularly but it won't work if you don't."

No need to let the level of discussion sink lower by taking things out of context and misrepresenting what others have said.

I think there is an interesting parallel here between Darwyn's claims on the monetary system and Sicarius's beliefs regarding agrarian society.

Both of you are argue that the old way (gold standard & hunter/gatherer) is "better". While I agree there are some truths to both; the big problem is that neither one can sustain anywhere near Earth's current population. There just aren't enough precious metals / square miles for everyone. To really return to either one we would need a worldwide population control that makes China's look lenient.

"Now let's be fair, you took that "there is no justification" out of context."

Did I? He says, "it won't work if you don't"...as to mean that the government cannot borrow unless some sort of interest is imposed.

I offer this...tell me why this would not work, I'm genuinely interested (a bit long so, sorry):

http://www.prorev.com/sovreign.htm

"As a sovereign government, Congress' power is unique. It can create money debt-free and interest-free. Congress needs to stop thinking of itself as the same as other organizations that must take money in before they can spend it. Money does not grow on trees. It must be created. The only choice is whether to have it created as loans at interest from private banks or to have it created by Congress debt-free and interest-free.

How can Congress create money without causing inflation? Congress must regulate its value. The power to create money includes this regulatory power."

...

"Guernsey is an island state located among the British Channel Islands about 75 miles south of Great Britain. In 1816 its sea walls were crumbling, its roads were muddy and only 4 1/2 feet wide. Guernsey's debt was 19,000 pounds. The island's annual income was 3,000 pounds of which 2,400 had to be used to pay interest on its debt. Not surprisingly, people were leaving Guernsey and there was little employment.

Then the government created and loaned new, interest-free state notes worth 6,000 pounds. Some 4,000 pounds were used to start the repairs of the sea walls. In 1820, another 4,500 pounds was issued, again interest-free. In 1821, another 10,000; 1824, 5,000; 1826, 20,000. By 1837, 50,000 pounds had been issued interest free for the primary use of projects like sea walls, roads, the marketplace, churches, and colleges. This sum more than doubled the island's money supply during this thirteen year period, but there was no inflation. In the year 1914, as the British restricted the expansion of their money supply due to World War I, the people of Guernsey commenced to issue another 142,000 pounds over the next four years and never looked back. By 1958, over 542,000 pounds had been issued, all without inflation.

In 1990 there was $13 million in interest-free state issued notes. A visitor to the island that year later wrote:

"I returned from Guernsey last weekend. It is a fascinating little island. There are about 60,000 permanent residents on the island. The average family owns 3.3 cars, their unemployment rate is zero and their standard of living is very high. There is no public debt. There is a surplus of public funds which earn interest. The Guernsey Treasury increased the Ml of the island by 40 percent in the last three-year period, and this increase did not do anything to inflation. The price for a gallon of gasoline in England translates to about $5US whereas, the price in Guernsey is about $2US. Contrary to the teachings of current economics in all higher institutions, inflation is not related to the volume of money but rather to the size of the commercial debt."

Sovereignty proposes that Congress create money and lend it interest-free on a per capita formula to tax-supported bodies for capital projects and to convert existing debt to non-interest-bearing debt. Since first proposed in January 1989, the Sovereignty loan plan has been endorsed by over 1,814 city, town, and county governments and school boards, as well as by the U.S. conference of Mayors, the Michigan state legislature and the Community Bankers Association of Illinois, which represents 515 banks."

...

"When that slows the economy, we will be told to spend more to stimulate the economy. We have heard it all before. Neither method works. We need debt-free interest-free money to fund the work that needs to be done. It's not sacrifice we need; it's productive employment. Let Congress use its unique power to coin money and regulate its value to fund that employment."

classic Darwyn...anyway, you are right that I was rude and there is no need for that. I have never either agreed or disagreed about your concept of perpetual debt. It is what it is...its a method for allocating resources and seems to work ok. What's wrong with perpetual debt? What is your alternative strategy? (Please don't say the gold standard!)
Would you prefer a natural barter economy? A totalitarian state? Fascism? How would you prefer to allocate resources in your society?

"anyway, you are right that I was rude and there is no need for that."

Good, now that we have that past us... :)

Did you want to comment on the above example? How or why wouldn't that work?

@Darwyn

Interesting article, I'm a little unclear though on a couple of points, not sure if they're important or not, but just trying to get a handle on what the article is proposing. It talks about making interest free loans to government agencies for capital projects. Sounds good, but... how to these agencies pay back those loans? I can understand how a local government might pay it back, through tax revenue, but how does a Federal Agency do this? Most Federal Agencies I know of don't really earn income from anything other that appropriations from Congress for their operations. Where do they get the money to pay back this loan?

How do we assure that this system isn't abused for political gain? The article also mentions increasing the deposit requirements for banks, which is fine, and certainly a choice one can make, but that will reduce the interest paid on bank accounts, effectively taking money out of the hands of consumers. Maybe this would be offset by the money coming into the economy from these capital projects, but it's something to consider.

The main thing I'd worry about is who would be in charge of determining all of this, so that we got the amounts right, and didn't cause huge amounts of inflation, becuase a few congressmen decided their pet projects needed X funding.

I'm getting the impression this system works so well (or did at the time of the writing of the article, I will have to see how they're doing now) on the island of Guernsey, probably precisely becuase they have a small population, and economy. It's probably quite a bit easier to manage, and keep people in check with such smaller economy.

But hell maybe this would work. I don't know. Of course, even within a system like this, there could still easily be a role for the Federal Reserve, since I'm assuming we wouldn't just be eliminating private lending and banks entirely, it could still make a lot of sense to have a central bank, keeping an eye on the banking system.

(Really just trying to hammer home the point that the Federal Reserve is not at the root of the problems you see with the current system, it is overspending by congress and the borrowing of money to cover that cost that is the root of what you see as a problem. The Federal Reserve can and has existed under a gold standard system, as well as other monetary systems).

I actually appreciate Darwyn's persistence, even if I have an intuitive feeling that he's not correct. However, intuition counts for very little in this issue, and I'd rather the facts.

Withnail, I can sympathize with your frustration, but I have the same feeling that you haven't adequately responded to Darwyn's arguments. You poke pinholes but fail to get to the root idea.

I think the one idea that sticks out of Darwyn's argument that I feel hasn't been addressed is the following: Why does the Federal Reserve feel the need to loan out the money it creates at interest? Why can't it just loan out the money at no interest?

It would still create debt, but I don't believe debt is fundamentally bad. It's just the interest I don't understand.

Why would you loan money at no interest? Sounds like Communism

who would lend them money for no interest? Other people pay them interest to borrow their money and therefore if the Government did not offer to pay a return to the lender then they would not be able to borrow any money

Darwyn's argument (I believe) is that perpetual debt is a bad thing. I dont necessarily disagree with this premiss but I don't agree with it either

Where I take issue is with Darwyn's justifications for his premiss most of which are factually inaccurate and others are based on a lack of understanding about how the financial system works....such as the above idea that the Government shouldn't pay interest on its debts. It does issue some debt at no interest (which is the issue of currency)...but it needs to compete in the investment markets to borrow money to balance the budget

The alternative would be to print more currency which would lead to inflation and a devaluing of the currency in the foreign exchange markets...

Anyway - my contribution to this was to try and point out the flaws in Darwyn's argument about perpetual debt, not to argue for or against it

I've been thinking about all of this a lot, and reading (the most helpful article I've found I've linked to a couple of times above). Through this all of this, and through the discussion which has helped to get me to read about this stuff, and to help formulate and crystallize my thinking, I'm basically coming to the conclusion that our current monetary policy, works just fine on the whole (though since people are involved, and not perfectly rational machines, they can certainly muck it up, but that's true under any other system), that "perpetual debt" does seem to be there, but is not necessarily a problem, especially as it works in our system (though again it might work better of people, namely congress, wouldn't keep mucking things up), and that there are other monetary systems out there that might also work, but not necessarily better than our current system, and they all have different advantages and trade offs.

Once again I'd encourage people to read through this article, especially some of the bits toward the end, where the author essentially lays out the facts that, the current system works, but that other systems could work too, and that something like the Federal Reserve, could operate, mostly as it already does, under a number of different monetary systems, but that it doesn't necessarily have to.

It's long, and covers a lot of ground, but it's pretty thorough, and I think pretty clear in it's analysis.

http://home.hiwaay.net/~becraft/FRS-myth.htm

@Chrispminis - I think part of the problem here is that we've been having this whole discussion with a basic misunderstanding about the whole monetary system.

The Federal Reserve doesn't work quite the way it's been presented in this discussion here. The main way that the Federal Reserve creates money is by buying securities (Treasury Bonds principally) WHICH IT BUYS ON THE OPEN MARKET, (it is not allowed to buy directly from the Treasury). When they buy these securities, they give money to whoever they bought these securities from, which ends up deposited in banks, which increases the banks deposits, and therefore allows them to make more loans, and therefore create more money. When they want to contract the money supply, they can do the opposite, sell securities, and take some money out of banks deposits which in turn reduces the amount they can lend. The interest that the Federal Reserve earns on those securities (remember these are Treasury Bonds), is the same interest that anyone who holds one when it comes due would get, and after paying for the operating costs of the Federal Reserve, is remitted back to the Treasury (which works out to nearly all of the value of the Bond). So the Treasury actually does better when the Fed holds Treasury Bonds than when others do. (I'd also point out that the Federal Reserve only holds a small amount of the total amount of Treasury Bonds at any given time, usually from what I've read, no more than 10%).

As for actual cash (Treasury Notes), these are not sold at interest to banks. When a bank requests cash, say, to put into ATM's or probably even more around the Holidays when people are more likely to want some cash, they order it through the Federal Reserve. The Fed orders cash to be printed by the Treasury Department, and pays them for the printing costs (3-4 cents per bill), and then sells these to the banks AT FACE VALUE. Yes the Federal Reserve does profit some from the transaction, but it doesn't put anyone into debt. The Bank still has as much money as it did, and doesn't owe anyone anything, some of it is just in cash now. The profits the Fed makes on this are course not simply held but are used in the Feds operations and such.

This is all of course somewhat of a simplification, but from everything I've been able to read, this is basically how things work as far as money creation goes.

Interesting note: I also learned that the Fed does not profit in issuing coins at all. Those it buys and sells at face value (even though it costs less to make a coin than it's face value). Evidently these profits on the Mint/Treasury's part are put into a coinage fund of some kind, I guess to be used for making more coins? I'm not totally sure where that one leads, but it's interesting none the less.

So in conclusion, the Federal Reserve does not control how much debt the US Government issues, but it buys and sells it to help control the money supply, and it uses the interest from it to cover it's operating costs (and then remits nearly all of the interest back to the treasury).

@DrOct - Regarding the Guernsey example...you ask some good questions. I don't think I'm able to answer them though. It would seem that it works, but you may be right in that it works because it is small.

@Chrisp - Yes, thank you for rephrasing the question. As I saw it in my own research, the power the Fed has, as given by Congress, is a power that Congress never had in the first place (to charge interest on the creation of money).

@Withnail - Well, you definitely challenged my premise and exposed some flaws. But I think that ultimately, my point has been made. For one, that perpetual debt exists. Although, I may have stretched some of my knowledge of it a bit to reach that conclusion.

But I still think that perpetual debt is bad. I just don't see how never being able to pay your debts to your creditor is good. Does that not leave your creditor in a position of power having to always be indebted to them? And if the Fed represents perpetual debt, is not the Fed (along with it's private banks) in a position of power? We can actually see the disparity between rich and poor getting larger and larger right here in America before our very eyes! The dollar has lost 95% of it's value since the FRA was passed.

I'm reminded somewhat of the late 19th century company towns. Where the company would provide its workers a home and pay them with in their own money...money that could only be spent at company town stores. But without getting into too much detail, since the company owned everything, workers were NEVER able to leave. It was in fact, a form slavery.

What worries me is whether perpetual debt (ie. the Fed) is just another incarnation of the old company town. Money was only ever meant to be a medium of exchange. Period.

I hear you DrOct...but

"the Federal Reserve does not control how much debt the US Government issues, but it buys and sells it to help control the money supply".

Isn't controlling the money supply control over inflation or deflation?

Does that explain why the dollar has lost 95% of it's value in almost 100 years? Why didn't the Fed stop this long ago?

"Yes the Federal Reserve does profit some from the transaction, but it doesn't put anyone into debt."

Ok, maybe I'm misunderstanding something here...but from where does the money come to cover the Fed's profit? As long as profit is involved (ie interest), then there is perpetual debt...isn't there?

And if perpetual debt means that you will NEVER be able to repay a loan or loans, who has the power here? The debtor or the creditor?