Hmm, I've been reading this morning about the proposals of Zarlenga and the 100% reserve system. Intriguing, anyway. I'll have to read more.

Indeed...from what I've read of him, he's spot on.

http://www.monetary.org/toddaltmanreview.htm

What caught my eye were his criticisms of the Austrian school and the 'goldbugs', haha. I need to find his Lost Art of Money. If for nothing else than for its critique of Adam Smith and its value as a historical tome.

Lost Science of Money, rather..

"As long as that central bank issues money interest free, I think the problems would resolve themselves. "

- Agree

@Darwyn, why do you need a debt free system?

you constantly pay of the 10% interest with future loans (which also have 10% interest, say) and thus you continue to have a constant supply of money (And debt) which is always 10% of the money supply.

so there is always a motivation produce, and thus the economy backed by this debt, and need to repay is ALWAYS productive. (cause you have to pay your personal debt off to sit down and stop working)

but it's the statics vs dynamics which you're missing.

"@Darwyn, why do you need a debt free system? "

I'm not talking about a debt free system, I'm talking about the issuing of money at zero interest.

If you lived on an island with 100 other people and wanted to begin an economy, obviously you need money to do it. You would all agree upon a standard (gold, silver, work units, etc.) and create a vehicle (paper money) based on your standards worth to handle all the transactions needed.

creating that vehicle does not require interest.

"you constantly pay of the 10% interest with future loans (which also have 10% interest, say) and thus you continue to have a constant supply of money (And debt) which is always 10% of the money supply. "

If by this statement, "you" means the American people, you have just described the basics of a Ponzi scheme.

@orathaic

In a debt free system the government can have enough money for all social programs and infrastruce programs. In a debt free system people dont have to think how to pay the rent for the houses next month. In a debt-based system humans are treated like slaves. And because of the intereset-dynamic the debt grows exponentiall. More social pressure, more ruthless companies trying to operate profitable.

The debt-based money system is the reason that there this so called 3th World. Where people starve and some nations make Fuel for Cars out of food.

Wait Im wrong, the debt-based money system is indeed not the reason for the 3th World. The debt-based system only supports our sick world. While a debt-free system could improve the live of people.

"In a debt free system the government can have enough money for all social programs and infrastruce programs"

>All social programs? Do you mean current social programs or do you also mean expanded social programs.

In a debt free system people dont have to think how to pay the rent for the houses next month.

Why? Will housing be free?
This all sounds great but where does all this extra wealth come from?

I put my arrows in the wrong places. Here is that post again.

>"In a debt free system the government can have enough money for all social programs and infrastruce programs"

All social programs? Do you mean current social programs or do you also mean expanded social programs.

>"In a debt free system people dont have to think how to pay the rent for the houses next month."

Why? Will housing be free?
This all sounds great but where does all this extra wealth come from?

There is no irreversible long-term issuing of money at interest. If there's not enough money in the economy, the central bank will engage in reverse repos, where it will destroy liquidity at first (via selling of US treasury bonds for instance) and then create it again by rebuying the previously sold bonds (which is done at a premium, which means that the central bank pays more to the commercial banks). Regular repos act in an opposite manner. Whether it will be the public (who own the commercial bank obviously) or the central bank who profits (as in from the interest paid, not from the effect on the whole economy) more from this fine-tuning of monetary base depends on the repo rates. It is evident that depending on the circumstances, the central bank might in the long-run be issuing money on either positive or negative interest. This is not a black or white matter. I originally thought that Darwyn's comparing of the overall debt with overall money in circulation was merely a mental anchor aimed at framing the discussion but I now see that he thinks that it is a sign of impending implosion of the financial system. That is not written in the stone, it might happen, it might not, but there's nothing fundamentally strange about that (at least if you accept the inner working of the system).

It should be "there's nothing fundamentally strange about overall debt being higher than total money in circulation".

"It should be "there's nothing fundamentally strange about overall debt being higher than total money in circulation"."

It is a good sound bite though. It sounds scary. And if you believe Darwyn and Elmuro this is the source of all our problems.
I must admit it confuses me. It sounds like it means the reserve bank actually owns everything. Just like the bank really owns your house when you take out a mortgage. But clearly I am missing something. Let's say the Reserve bank recalled all the money, what would happen to the interest that is still owed to the reserve bank (since the money in circulation is less than the money owed).

And for the record, interest free issuance is how this matter is taught in the basic macroeconomics textbooks or courses. Not only because of more clear and simple explanation, but because in an ideal world, it would allow to conduct monetary policy with no lags and costs. However, we live in an imperfect world, where the central banks needs to create incentives to lure commercial banks into behaviour central bank needs from them. It has to provide them with liquidity at such a low rate that commercial banks may lend or invest the borrowed money further at a profit and if it wants to suck the money from the system, it has to pay them high enough interest to outweigh the opportunities opened for the money invested elsewhere.

"Let's say the Reserve bank recalled all the money, what would happen to the interest that is still owed to the reserve bank (since the money in circulation is less than the money owed)."

Money in circulation is a liability of the central bank, as long as it follows the rules it created (which is a reason why the central bank should be independent from political pressures), it can only recall the whole amount of money by selling its bonds to population (which means it would be a debtor to public). And it can't force you to buy if you don't want (again, as long as it upholds its rules).

All social programs? Do you mean current social programs or do you also mean expanded social programs.

> When the state can get money from the national bank without paying interest, its has nearly a unlimited resource of money. Without worrying how to finance anything.

Why? Will housing be free?
This all sounds great but where does all this extra wealth come from?

> This is funny because, there is no extrea wealth coming. When money is debt, then your 100$ in your pocket acutally belong to the national bank. Of course +5-10% interest. So when you have 100$ in your pocket, somebody is in debt for 105-110$. Now my conclusion is when your 100$ are not debt-money, somebody else doenst have to have 105-110$ debt. So people wont have the pressure they have today: How to pay my bill at the end of the month?

But what most important is. The only way how new money can get into the system is by the government spending money.

can you pay the fed off with gold/oil? cause $$$ can usually be exchanged for goods/services.

"When the state can get money from the national bank without paying interest, its has nearly a unlimited resource of money. Without worrying how to finance anything."

That is a recipe for hyperinflation. If the government just increases the money supply without corresponding economic growth the value of the money declines. As the value declines and prices rise the government has to print more and more money to finance its ever increasing expenditures. Printing money is a form a taxation, but it is a more choice of revenue because of it's negative consequences.

typo... it is a *poor choice of revenue

"Printing money is a form a taxation, but it is a more choice of revenue because of it's negative consequences."

this is indeed a stupid form of taxation, though the 'rich' have to pay more (all savings lose their value) the rich can usually afford to save in things like company stocks and commodities like gold or aluminium.

Thus the negative effects, (like encouraging people to spend their savings) are more signifigant. Similarily you encourage en-debted-ness, because if the value of your monetrary debt decreases (higher inflation as compared with the interest) then you effectively are being paid to borrow money....

"That is a recipe for hyperinflation."

> Acutally not quite correct. Sure there has to be a common sense of how much money is going to be spent. But our debt-based money system is more prone to inflations and deflation. Its a popular error in reasing that when the state has full controll of its money suppy that there is going to be a hyperinflation. Or Infaltion rises.
Look at the hyperinfaltion in germany before the 2nd World War. 1-3 Months before the hyperinflation began the national bank was being "privatizied". Means they changed from a debt-free to a debt-based money system.

Think about your conclusion. Its wrong. Make some examples. Inflation would only occour if the state spends more money on social programs than the economy grows. There would no infaltion at all when the state spends the money at infrastruce projects. Because with these investions the supply would raise. With raising demand and rasing supply would no infaltion occour.

And even if you spend money on social programs this helps the economy. Social programs raise people standart and quality of living. Happier people are more usful to a vital economy than broken and depressed people are.

"Thus the negative effects, (like encouraging people to spend their savings) are more signifigant."

> Negative effect? This is a positive effect!!! When people spend their saving demand raises. This means there is more need for supply. And this would mean the government has to spend more Social programms.
For example: Every US citizen buys a TV for 100$ because he thinks the money will lose its value. When the government at the end of the month gives 100$ every US citizen because of a Social program, there would no infaltion or deflation occour and everbody would have a tv. Woudlnt that be nice?

"For example: Every US citizen buys a TV for 100$ because he thinks the money will lose its value. When the government at the end of the month gives 100$ every US citizen because of a Social program, there would no infaltion or deflation occour and everbody would have a tv. Woudlnt that be nice?"

That's not how the economy works. There would be inflation as not only a re consumers spending money, the government is as well.

"Negative effect? This is a positive effect!!! When people spend their saving demand raises. This means there is more need for supply"

true, also this encourages over supply, and excess supply where it is not needed.

It is the opposite of frugality and does infact encourage economic growth, which is NOT always a good thing. If people are over-extending themselves or frittering away their savings then they will be worse off in the long run, or if - hmm, lets say - a hurricane hits.

Savings protect you from these possible negative things, they provide security, or options to invest when a good opportunity comes around. If you never have savings the 'smartness' of the decisions to buy (and increase demand) is short-sigthed and in the long run the economy will be bigger but less effecient or dumber.

So, you see, i disagree.

That's not how the economy works. There would be inflation as not only a re consumers spending money, the government is as well.

> Dude, draw a Demand/Supply chart. There would no inflation occour.

@orathaic
I think you dont get what I mean.

@orathaic
Summarize my statement into your words and post them. So we can see where the failure in our communications lies.

elmurro wrote: "Think about your conclusion. Its wrong. Make some examples. Inflation would only occour if the state spends more money on social programs than the economy grows. There would no infaltion at all when the state spends the money at infrastruce projects. Because with these investions the supply would raise. With raising demand and rasing supply would no infaltion occur"

Elmurro, the supply of "infrastructure projects" would increase but not the other goods and services in society. The prices of these other goods and services would rise. Inflation. Furthermore these "infrastructure projects" would increase the demand for labor and the materials needed to make these projects. Inflation.