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Austrian School Explanation, Other Debtly Matters


Jimbo

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There is no a priori reason a fractional system has to be fiat.

But our system is fiat, and that's the reality we have to live in.

 

As Hypertiger has educated us, there is no "reserve" in a fractional system. Debt backed by debt is not a reserve system. Our current system is simply "fiat", and any allusion to "reserves" is ruse for the common man.

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There is no doubt that the economy can grow faster due to expansion of debt. Is it possible we can double the US debt to 64 trillion over the next 10 years? If so we are going to have a real party. I think Citigroup and all the other credit card companies should start hiring consumers. Their job would be to buy things with shiny new 0% interest credit cards. Why not? Maybe fractional reserve banking can work if they charge zero interest. Maybe the Fed can start hiring consumers directly to feed money into the economy. The Fed could become the employer of last resort. The only way to keep the productivity of the productive sector rising is for the Fed to hire more consumers. It just might work. I need to get out of the house more and get some exercise.

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But, at what point does the material standard of living reach maxout? When is 1G wireless good enough, and >1G just plain frivoulous by comparison? When is a 2000 sq. ft. home in the burbs just as good as a 6000 sq. ft.? When has the majority of feasible wealth already been created? When is the populace satiated, and too overburdened with "overhung fractional fiat debt" (better known as "negative sentiment" - if you will, a sort of a LaPlace transform from the monetary realm to the psychological realm) to keep up the prior pace of growth? When does the fractional fiat system create mostly debt and little "material advancement" that anyone finds valuable? What are the consequences of such a scenario?

New technologies are already emerging that will stimulate fresh demand and profits. The compounding of desire for material possessions does seem to have reached, somewhat, of a plateau.

 

The newer technologies are life-enchancing in orientation: cures for diseases and the prolongation of human life-span. These innovations will only reach a saturation point when all disease has been cured and death becomes a choice, not an inevitability.

 

Concurrent with the life-enhancers, there is a class of mind-enhancers. Mind technologies offer the promise of expanding 'awareness' and increasing intelligence. (We're probably gonna need raised consciousness in order to accomodate the life-enhancers :P).

 

Finally, there are the productivity-enhancers which may well reduce the cost of production of anything to zero. Hence, removing the need for any form of 'money' (or debt) at all.

 

Regards, Nano.

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Mjkst 27, That was a really fabulous post. But 'just being' has its own cyclic nature . Intense boredom, followed by fidgety neuroses, through group psychoses or mysticism, then monotheism and animism-- followed by religious arguments then war. There's no getting around the central problem/delight of being human. We can't sit still, and we have to work out philosophical concepts (like the law of environmentally imposed diminishing returns that you described in your post) in the real world through direct experience.

 

People just doing would fight over property. People just being would fight about God. Lovely that we have the opportunity to fight about both!!--and at the same time--and in a way that one can't be extricated from the other.

 

Deep blue, Regardless of usury law, most residents of the third world couldn't borrow money anyway, as nobody has legal title to their property. Without a home to use as collateral, borrowing significant amounts of money is impossible. Hernando deSoto wrote a book about this. Forget the name of it.

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There is no more "just be". It's not an option. Simply Being ended whenever humans became conscious of themselves, and became unique and different from other animals. No longer acting on solely instinct, consciousness led the way to thought, emotion, jealousy, competitiveness, lust, whatever whatever. From this grew the cycles of war, peace, optimism, pessimism, etc.

 

There's way too many humans on earth now to "just be" anyway. We came from the tropical jungles, and there aren't enough of those left to house us all anyway.

 

So strap on your seat belt, there ain't no gettin off this ride!

 

PS optimal human health is a product of living naturally. Eating our natural diet (which is now almost impossible to do) is a big step in that direction. Without this, all the nanobot technology ever dreamed of will not help humans achieve optimal health. Mother Nature has the patent on that, but sadly our lease on it expired some time ago.

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"Eating our natural diet"? What do you think our natural diet is? (That is not sarcasm, I am curious as to your take on it.)

 

I was astonished to attend a seminar by a distinguished anthropologist who casually mentioned the decrease in life expectancy when ancient tribes stopped being hunter-gatherers and developed agriculture.

 

There is still much debate about what the optimal diet is -- as evidenced by friends who have had major weight problems, solved by a modified high-protein low-carb diet, as opposed to other friends who really need to be on a low-protein high-carb diet. Acck. Hopefully, in our lifetimes, and not too late for us to benefit, there will be some sort of scientific confirmation for what the optimal human diet really is.

 

However, to bring this more or less back on topic, if Hypertiger is correct, just getting enough to eat, whatever it may be, could be the challenge in the future. :blink:

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So strap on your seat belt, there ain't no gettin off this ride!

 

PS optimal human health is a product of living naturally. Eating our natural diet (which is now almost impossible to do) is a big step in that direction. Without this, all the nanobot technology ever dreamed of will not help humans achieve optimal health. Mother Nature has the patent on that, but sadly our lease on it expired some time ago.

Agree on the seat belt. Less convinced about 'living naturally'.

 

[ENGAGE: History Mode]

A thousand centuries ago, the world was fully automated. Our ancestors were supported by a maintenance-free, self-operating machinery called Nature. Then mankind invented agriculture - which magnified the machinery's productivity, but trapped folks into a routine of heavy, unpleasant and mostly boring labour. Denizens of agri-cultures worked far-longer hours and much harder than their hunter-gatherer contempories.

 

It is only in the past few centuries, that labour-saving machinery, has managed to alleviate the self-imposed yoke of hard, physical labour caused by agricultural societal forms. With only a few setbacks, the mechanisation of labour has continued in an accelerating trend.

 

In nearly all of recorded history, until the 20th century, almost every 'civilised' person was a farmer or land-owner. We were consumed with growing our food ;). Eventually, insititutions like: slavery, feudalism, and capitalism raised a few out of utter drudgery on the backs of the majority. A few of the few used the gift of freedom from hard labour to seek alternative substitutes for hard work. They used the time that was made available to think beyond their everyday circumstance and began to 'dream' of better ways of living. It was a slow process that finally culminated in the Industrial Revolution. [History mode: DISENGAGE]

 

Let us now consider robotics + nanotechnology. I envision a trillion filament robot which could reach directly into a collection of molecules (which we call a human) and could directly work upon every unit / molecule / cell simultaneously. Such a robot could effect immediate repair to, or indefinitely sustain, any (or every) cell in the human body.

 

Far fetched? Try explaining a vaccine to one of the earliest physicians of *only* 200 years ago (a mere nano-second in the timespan of humans). With no concept of germs, viruses, or other micro-organisms, he would have no frame of reference to comprehend what you were going on about. However, and this the beauty of the human mind - once it was explained to him (and assimilated) - he would *immediately* be up-to-speed and able to make intelligent observations about his new paradigm.

 

Nowadays, we labour under the yoke of a fractional reserve banking system, I wonder what breakthrough is required to end this, particular, form of drudgery?

 

Regards, Nano.

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post-2-1045972392.gif

 

The above chart says nothing about either fractional reserve banking or compound interest.

 

It's a reflection of a culture beliefs and lifestyle choices in the US today.

It's unlikely that this chart will continue on this path indefinately.

People, corporations, and countries who choose to live beyond their means will eventually hit the brick wall of debt servicing.

 

Of the above, only countries have the option of inflating away their debt.

 

The problem is not compound interest, but gov't intervention on behalf of the largest lending banks. Protecting them from the disciplining hand of Adam Smith, ie., the market and the chance of failure.

 

They make massive loans, via fractional reserve, to ventures and countries that are less creditworthy than the proverbial ne'er-do-well brother-in-law. They take a massive loss and because of political influence are deemed "to big to fail" and are subsequently and undeservedly bailed out with taxpayer's money.

 

Petrodollars to South America, Mexico, the Asian Tigers, LTCM and Russia are some of the recent screw-ups that come to mind.

 

The other problem now is the growth of derivatives due to the mistaken belief that risk can be hedged away. This is false since derivatives are a zero-sum bet.

For every winner, there is a loser. But that's another topic for another time.

 

In retrospect, I should'a been a banker ;)

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The chart is just showing what the DEBT pile of the U.S. is estimated to be is all?

 

This is another in the broken record explanations by me that people just can't seem to comprehend...

 

Bankers are just accountants... The commercial banks have an ability to pyramid the money they receive? How does that work? Numerous ways?

 

The common belief?

 

You go to a bank (The First National Bank of Hocus Pocus) and deposit money in a time based account, lets say a $10,000 and the agreement with the banker is that they will take your money and lend it out at 2.5% for 5 years and then pay you $11,314.08

 

End of common peasant knowledge

 

How does the Bank lend out the money? They ?fractionally reserve? it 10-1(10%), Bankers turn from accountants into ?magicians? and create $100,000 ?out of thin air? and use it as the backing for used car loans to 18 year olds for 4 years at 10% by creating 10 $10,000 loans, $100,000 ?out of thin air? with 10% backing from the original deposit of $10,000

 

Lets say that is all the banker does, he is just helping Hypertiger out to prove a point?

 

So after 4 years this is how it looks?

 

Your profit from the original $10,000 agreement = $1038.13

The banks created ?out of thin air? profit = $46,410.00

 

 

But this is not where it ends lets say that the operating expenses of the bank eat up 60% of ?initial profits?? So the banks really only made $27,846 but this is based on a yearly scheme and the banks operate for the most part on a daily or monthly compounding? Overseas and other long distance wire transfers by the big commercial banks and central banks are synchronized with atomic clocks to figure out the compound interest due on fractions of a second?

 

P = C (1 + r/n) nt

 

where

P = future value

C = initial deposit

r = interest rate (expressed as a fraction: eg. 0.06)

n = # of times per year interest is compounded

t = number of years invested

 

Lets say that 50% of the compound interest from the created out of thin air is just re-lent out to the peasants? so every month when the bank gets the interest on it?s initial ?creation? of $100,000 over 4 years (you can already see that they will have no problem paying you your chump change and you have become for the most part insignificant)

 

On the first month the banks profit from compound interest attached to the money/debt/capital ($100,000 ?created out of thin air?) is, using the above equation with yearly based compounding for 4 years at 10%, $966.88/month and since 50% is held back for expenses the grand total profit is $483.44. Now what to do with that ?profit? from the initial $10,000 deposit by you? It is called fractional reserve banking, so lets fractionally reserve that now so every month the banks fractionally reserve $483.44 into

$4834.40 at lets say 5% and lends it out for 1 year to ?whomever? so now the compound interest is compounding and adding an additional profit/month of $20.14

 

So now after 5 years the bank owes you $11,314.08 and the profit from fractionally reserving your deposit by the bank is $30214.80 ? 11,314.08 = $18900.72 (I?m not going to fractionally reserve the $20.14, I?m going to stop the exponential insanity right now)

 

The $18900.72 has been fractional reserved 10 to 1 or $189007.20 at 5% which provides a compound interest stream of $787.53/month? basically an interest rate of 5% at a 10 to 1 ratio makes it 50%/ year? so after 10 more years the profit gained from your initial $10,000 investment will grow to (18900.72 at 50%/year) = $1,089,910.76 10 more years? = 62,849,746.55 lets say you invested your $10,000 for 25 years at lets say average of 5%... how much would you have, how much would The First National Bank of Hocus Pocus owe you?

 

You = $33,863.55

The First National Bank of Hocus Pocus $252,511,682.94 - $33,863.55 = $252,477,819.39 Profit.

 

This is just one example of the millions of transactions that take place every day in the 12,000 bank commercial banking system in the U.S. I didn?t even go into how banks fractionally reserve demand deposits or delve into the pits of hell in trying to explain the Federal Reserve, their special powers or their relationship with the Federal Government?

 

The Punchline?

 

But where did my original $10,000 that I deposited in The First National Bank of Hocus Pocus come from? Well, lets say you had a car and sold it for $10,000 to some 18 year old that borrowed the money from The First National Bank of Hocus Pocus and then bought the car from you? (Insert Twilight Zone music here?)

 

Q and A

 

Q.

Where did the $252,477,819.39 profit made by The First National Bank of Hocus Pocus which is compound interest charged on money/debt/capital created out of ?Thin air? come from if the compound interest attached to money/debt/capital created out of ?Thin air? is not created at the same time as the money/debt/capital that was created out of ?Thin air? ?

 

A.

It has to be ?borrowed? by creating money/debt/capital out of ?Thin air? with compound interest attach to it by someone somewhere in the interconnected worldwide debt backed central fractional reserve network?

 

Q.

Hyper, I?m confused? How do you ever pay off compound interest if you have to create the money/debt/capital out of ?Thin air? with compound interest attached needed to pay the compound interest?

 

A.

You don?t it can never be paid off?In a fractional reserve system you have 2 choices inflate debt or die?

 

Q.

Hyper how do you inflate debt?

 

A.

By borrowing?

 

Q.

What if everyone has borrowed all they can borrow?

 

A.

Then you have reached the maximum exponential potential for debt inflation and you will begin to die?

 

Q.

Come on Hyper! What are you talking about? you sound like a wacko?

 

A.

Once the maximum potential for debt backed fractional reserve banking is reached Phase 1 of Debt backed fractional reserve banking is over? And Phase 2 Debt deflation begins?

 

Q.

Debt deflation?

 

A.

Debt deflation is what happens when debt inflation can not be maintained or not enough new capital/debt/money is being created out of thin air with compound interest attached to pay the compound interest on the ?Old? or previously created out of thin air debt/money/capital? Since the money supply of the world is pegged to the U.S. Dollar which is backed up by debt which is around 33 Trillion dollars the cost to maintain a stable money supply is about 1.65 Trillion dollars per year which means that 1.65 Trillion has to be borrowed just to keep it from vaporizing or contracting?

 

Q.

Vaporizing?

 

A.

Yes, lets say at the end of the day you are 10 Billion short on the compound interest payment of 1.65 Trillion? the portion of the debt/capital/money that that 10 Billion was maintaining vaporizes or 200 Billion of debt/money/capital returns into thin air?

 

Q.

How do you stop it?

 

A.

Debt inflation is the only way to stop it?

 

Q.

But what if you are at the maximum potential?

 

A.

Then phase 1 of Debt backed fractional reserve banking is over and phase 2 begins which is deflation of debt and will run to its maximum potential?

 

Q.

When phase 2 of Debt backed fractional reserve banking which is Debt deflation reaches it?s maximum potential what?s next?

 

A.

Phase 3 is bankruptcy of the commercial banks and collapse of the economy because the money supply is debt backed by debt and compound interest will contract the money/debt/capital supply until it deflates to the point that there is not enough money/debt/capital to run the economy pay the banks or allow the population to be employed or feed themselves?

 

Q. Isn?t that what happen in 1929? So that is what will happen again?

 

A.

What happened in 1929 was the collapse of a ?gold? backed fractional reserve system when the FEDERAL RESERVE refused to lend or create enough money/debt/capital to continue debt inflation?

What happened this time is the collapse of a ?debt? backed fractional reserve system that has been allowed to reach it?s maximum potential?

 

Q. Well then what is a good example from the past when a debt backed fractional reserve system of this size or scale collapsed?

 

A.

ROME is a classic example of a debt backed by debt system which collapsed?

Q.

Oh my GOD when ROME collapsed it was 100?s of years before the plough was reinvented and Science rediscovered the ATOM?Is it going to be that bad?

 

A.

I hope not and doubt it right now but it will be far worse than the Great Depression?

 

Q.

Hyper you seem to know what you are talking about but I don?t see anything bad at all right now? How long until there is evidence?

 

A.

I figure the psychology can be maintained for another 14-19 months, at some point in that time span the evidence you seek will show up? But the evidence is all around you, you have just been conditioned not to see it your whole life? Just like all the other peasants?

 

Hey I take offence to the term peasant!!!!

 

The truth hurts!!!!

 

Tough titty said the kitty when the milk ran dry?

 

It doesn?t matter if you build factories with fractional reserve debt or do lines of Cocaine

 

Once everyone has borrowed the maximum they can borrow, like all PONZI/PYRAMID schemes they will collapse? The malinvestment or look we put a man on the Moon arguments are just excuses and or Justification to to coverup fraud and the worship of compound interest charged by banks on money created out of thin air?

 

Nobody wants to mention the downside to fractional reserve banking especially since the fractional reserve banking system has invested so much into the just think positive peasant religion?

 

Like I said if you remove the compound interest charged on debt/capital/money created out of nothing and make reserve requirements 100% you will be able to manage debt inflation and eliminate debt deflation and accomplish what no one has been able to do in 400 years provide a stable or growing money supply? Support of a debt backed fractional banking system is the ultimate misallocation of capital that you as a Human being can take part in?

 

I?m getting sick of telling fractionally reserve funded university educated peasants how the system works only to be told I?m flawed?

 

I?ve been studying fractional reserve banking systems on and off for 10+ years and know exactly what I?m talking about?

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Good thread. We actually have enough if we would just allocate properly but without a sound financial system we dont seem capable of doing it. Heres some thoughts from Buckminster Fuller.

 

"In organizing our grand strategy we must first discover where we are now; that is, what our present navigational position in the universal scheme of evolution is. To begin our position-fixing aboard our Spaceship Earth we must first acknowledge that the abundance of immediately consumable, obviously desirable or utterly essential resources have been sufficient until now to allow us to carry on despite our ignorance. Being eventually exhaustible and spoilable, they have been adequate only up to this critical moment. This cushion-for-error of humanity?s survival and growth up to now was apparently provided just as a bird inside of the egg is provided with liquid nutriment to develop it to a certain point. But then by design the nutriment is exhausted at just the time when the chick is large enough to be able to locomote on its own legs. And so as the chick pecks at the shell seeking more nutriment it inadvertently breaks open the shell. Stepping forth from its initial sanctuary, the young bird must now forage on its own legs and wings to discover the next phase of its regenerative sustenance."

 

 

Heres a potential decentralized open source money project I came up with.

Why not just make our own? Back your own cash

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From a biochemistry standpoint (and I'm no biochemist, just regurgitating what I've read in various places), humans are frugivores. We were meant to eat sweet juicy fruits and leafy vegetable material. That's it - no meat, no milk from other species, no grains, no refined sugars, no roots, no legumes, no twinkies, etc. Proof can be found in the fact that we have no fangs or claws, we're not very adept at catching and killing other animals, our teeth are best suited to soft chewy material, and our digestive systems are quite different than those of known natural carnivores. Oh, and our bodies today are physiologically not much different than say, 500,000 years ago, before there was fire, tools, cookbooks, woks, soy sauce, etc. So whatever we ate back then musta been pretty darn simple to prepare!

 

A small problem is that today's fruits are far juicier and sweeter than they would be if humans hadn't started screwing around with nature. Eating modern fruit probably still beats eating all the other junk we usually eat though.

 

OK, off to Taco Bell :P

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