Good day folks!

[iankotze]

Insanity Expressed

[serbanvcenache]

May 13, 2015 2:03:22 GMT -8 iankotze said:

Insanity Expressed

I read your ebook. Your analytical framework is based on zombie economic myths (orthodox economic thinking), which dictate that money is a constraint upon society. That the government debt is bad. That the fiscal deficit is bad. That higher levels of government debt burden future generations with inflation and higher taxes. These things are just not true - in fact, orthodox economic thinking gets it totally backwards. The government debt is a stock. The fiscal deficit is a flow. The fiscal deficit is a net flow of funds to the private sector; it represents the net financial surplus of the private sector. The government debt represents the stock of private sector savings. The money for roads, bridges, hospitals, schools, pensions funds does not come from taxes, it comes from the government debt (from net fiscal deficits accrued in the past). Before the government can tax and or borrow (pay interest on) its own currency, it needs to spend it first into existence. All the funds that go to paying taxes and buying government debt come from government spending.
The purpose of money taxation is to create a permanent demand for the government's currency. You can only pay your taxes and fines in the sovereign's currency, else you incur the penalties which the law prescribes. That's why everyone wants to obtain profits, wages, and pensions in government IOUs. All other demand for government IOUs stem from government taxation. Taxation drains aggregate demand (income) from the economy. Government spending adds income to the economy.
This is not someone's opinion or ideology, it is accounting identity, it is fact.
(G-T)= -(S-I) -(X-M)
(S-I)+(G-T)+(X-M)=0
Here's what the St Louis FED tells us:


Look up Modern Monetary Theory and you'll understand the difference between monetary and fiscal operations, and you'll understand all about endogenous money (the banking system). You can begin with this seminar on Modern Money and Public Purpose.


Your proposals are for the micro-realm. Micro-economic problems can't be solved by macro-economic solutions, and vice-versa. Permanent and Involuntary unemployment is a macroeconomic problem (a monetary phenomenon caused by government taxation), a crime against humanity, and is always the evidence fiscal deficit spending is not enough to cover the private sector's desire to net save. The greatest waste of skills and output, the greatest creator of crime, depression, domestic violence, poverty, and suicide rates is permanent and involuntary unemployment. It's an orthodox establishment policy (called the NAIRU (non-acceleration inflation rate of unemployment) - which deliberately keeps a % of the population in a state of permanent and involuntary unemployment. The academic excuse for it is based on data fudge. What every country needs is an employed buffer stock of labor policy. A voluntary Job Guarantee for everyone willing and able to work (which does not replace welfare) is what's needed to do away with bad jobs in the private sector, to prevent skill erosion, to make the long-term unemployed hireable by the private sector, to act as price-anchor and automatic fiscal stabilizer.


As for banking. Since WW2, Government spending as a % of GDP has shrunk dramatically time and time again. 97% of money is created endogenously by the private sector - and only 3% of that is exogenously created by fiscal deficit spending (fiscal deficit funds are liability-free money for the private sector). That means the private sector needs to incur uber levels of bank debt in order to finance economic activity. Loans create deposits is an operation in endogenous money which leads to the creation of NO NEW NET assets. It balances out to zero. For anyone spending less than his income, someone else has to spend more than his income (go into debt), else output remains unsold and the result is always unemployment. The money supply grows (but not in net terms) when the private sector contracts bank debt. The money supply shrinks (but not in net terms) when those private debts are paid off or defaulted upon. Aggregate demand is income + the change in private debt. During the expansion and in the downturn, the automatic fiscal stabilizers work counter cyclically. More economic activity leads to higher tax revenue and less welfare spending - thus the fiscal deficit goes down. During private debt deflation, savings desire rise and households spend less than normal. Since spending = income, private spending shortfall leads to fewer sales, fewer sales leads to lower production, lower production leads to layoffs. As such, tax-revenue decreases, and welfare spending increases - the fiscal deficit grows. It's the system trying to correct itself. But since we have criminally ignorant politicians in power, they take pro-cyclical fiscal policy measures in the downturn, instead of increasing spending and or cutting taxes.
Bank reform is required - asset side discipline serbanvcenache.blogspot.ro/2014/11/banking-proposals-for-ez-la-warren.html

As for world hunger and malnutrition, you can check the stats for yourself. www.worldometers.info/#.VUZ0fEl-CD4.twitter
It's not about lack of production. It's about gross inequality, impure and simple. It's a deliberate policy, entertained by neocolonial interests - which fund through a myriad of direct and indirect ways sectarian and segregationist conflicts. On patents, I do agree with you. They sabotage progress and development. There should be no patents for seminal human needs: such as energy harnessing and storage, agriculture, health care technology and medical treatments, and new tech pertaining to better distribution and efficient management of public utilities.

[iankotze]

Wow, thank you very much for your very complex detailed reply. I will think on these issues. The aim of this short story however is not really about money issues or helping government play their monetary games.

I am more concerned with the quality of life of my fellow human beings, I only wish to help get some ideas out there as first steps to a greater quality of life for all people. Ideas practical enough that can actually be implement by the people of the world themselves with or without the support of their respective governments.

Thank you for your insight on American monetary policies and system,
Ian

[serbanvcenache]

May 13, 2015 8:06:12 GMT -8 iankotze said:

Wow, thank you very much for your very complex detailed reply. I will think on these issues. The aim of this short story however is not really about money issues or helping government play their monetary games.

I am more concerned with the quality of life of my fellow human beings, I only wish to help get some ideas out there as first steps to a greater quality of life for all people. Ideas practical enough that can actually be implement by the people of the world themselves with or without the support of their respective governments.

Thank you for your insight on American monetary policies and system,
Ian

To describe the difference between macro and micro economic problems, let me use this metaphor. You have 100 dogs, and you fill up a room with only 95 bones (bones = income). Then you set loose the dogs in the room. What's going to happen? 5 dogs will return without a bone. Ergo, they're the unemployed. Now, you can take these 5 dogs and put them to training school to make them better at fetching (microeconomic solution). Then you repeat the experiment. 100 dogs set loose in a room with only 95 bones. What's going to happen? Some other 5 dogs will return without a bone.
Until you fill the room with enough bones, you're not going to end unemployment. (And because all dogs (people) desire to save, you're going to have to put more bones in the room than you tax out of the economy)
Similarly, if you have dogs who aren't able to fetch (lack the training for it or the limbs), then you can fill the room with as money bones you want, those dogs won't be able to get them. This is an example of macroeconomic solution trying to solve a micro-economic problem. It won't work. A micro-economic problem is fixed with a micro-economic solution. For instance, you get those dogs trained to fetch, or you give wheels to those dogs who lack limbs.
It's all basic double entry bookkeeping. All money is credit/debt. The next time you hear a politician or so-called economist arguing that 'we' should cut the fiscal deficit, remember that what he is saying is 'let's cut the private sector's net financial surplus'.
See here the USA's lost output clock since the start of the financial crisis.
lostoutputclock.com/

[iankotze]

Very interesting, I wonder however how much of this new economic model you guys in the USA use now only works because you have the reserve currency. I mean here in africa when a government goes about printing what they feel like you have hyperinflation and total economic collapse as a result. eg Zimbabwe.

[Ria Stone]

Hi Ian:

I downloaded your essay. I appreciate your perspective.

From my perspective, while  your essay asks important questions, it does not address the fundamental reason for our global poverty and that is the greed of the 1%.

If we had a 24-hour society (which we almost have now), the 1% would make it work to their advantage. People are already working 2 and 3 jobs to make a living because wages have stagnated. If wages had kept up with the value of production, we would still have a middle class that paid taxes.

But, I had another thought. I am getting the sense that more and more writers are writing about the economic and political crisis that face us globally. By this I mean, I think more fiction writers and others are writing for the lay person about these issues.

My book, Gina's Dream, falls into this category.

It's nice that I am not alone in the attempt to get people to think about how to change our society for the better.

Keep writing.

[iankotze]

Thank you for your kind post.

Yes I fear that what you say is true, the 24 hour work day could do only so much with the cost of food and energy ever creeping higher. I am not sure what your real inflation on goods are in the first world countries, but in the third world countries where I have been traveling about the inflation on the basic necessities has been astronomical in the last 6 years. People are just getting poorer and poorer as the cost of food and energy outpaces the rise in wages. A sad state of affairs which will lead to major social unrest.

I was going for a very diplomatic approach in the essay but think I should have followed a more direct path. My follow up work will not be so kind to government and big business. I will shift focus more to where it should be, where the real power for change lies, the people.

Thanks for your imput,
Ian

[iankotze]

serbanvcenache and canarypress,

I would like to thank you both for your contribution. I have made the necessary changes to the book.

I greatly appreciate the feedback,
Ian

[serbanvcenache]

May 13, 2015 8:40:55 GMT -8 iankotze said:

Very interesting, I wonder however how much of this new economic model you guys in the USA use now only works because you have the reserve currency. I mean here in africa when a government goes about printing what they feel like you have hyperinflation and total economic collapse as a result. eg Zimbabwe.

It's actually, not a new 'economic model'. All monetary societies require the expansion of debt in order for economic activity to occur. China around the year 1000 AD (I might be a little off with the actual year number) issued fiat notes. The problem is that the metalism epoch brainwashed people about how money stocks and flows actually work. However, credit money in the classical gold standard epoch dramatically overshadows actual metals as part of the money supply. See here:


Since the fall of the Bretton Woods system, the great majority of the world works under a free-floating nonconvertible fiat regime. USA's reserve currency status has nothing do with the government's ability to deficit spend. Since OPEC has the monopoly (is the price maker) - it sets the price for crude in dollars, and it allows the rest of the world to buy what it wants at that price. Since you can only pay for crude in dollars, pretty much everyone wants to send net wealth to the USA in exchange for dollars. The USA uses a surplus recycling system via the Military Industrial Complex. Its partner countries recycle those dollars back in the US (though those dollars never actually leave the US in the first place) & they buy american goods, services, and financial assets. But they're dependent on buying weapons and other military tech from the US. The russians for instance are so dumb, that faced with Western sanctions, instead of demanding their exports be paid in russian rubbles, (in order to create demand for their currency) they're still demanding their exports be paid in foreign currency (aka in dollars). Of course you're going to have a massive depreciation between the rubble and the dollar. And they're not rationing scarce foreign currency vis-a-vis imports either; they should ban imports on luxury items from abroad & instead focus on importing seminal stuff that they don't produce domestically. But hey, it's the russians, they same dumb sods who decide to implode the USSR & invite the IMF and neoliberal theft policies to erode their savings & prop up oligarchs.
Now, let's tackle developing countries and third world countries. Let's speak about Zimbabwe. Zimbabwe's government initiated a land reform which failed spectacularly, crippling output. This caused social unrest, political tensions, huge shortages & the trade deficit increasaed dramatically. Everyone who obtained Zimbabwian currency immediately tried to exchange it for foreign currency in order to buy food from abroad. The government's enlarging fiscal deficit comes as a consequence of these events, not as the cause of them. Hyperinflation ended when the government decided to cancel the acceptance of its own currency in payment of taxes & fines - instead decided to give several foreign currencies the status of legal tender: (legal tender - the legally accepted means by which a person can extinguish public & private obligations/debts within that country).
A careful study of all hyperinflation cases in history list the following causes: fall in output (destruction of production capacity, be it man-made or nature made), loss of a war, brazen corruption, political instability, finally fall of a fixed exchange rate with a strong currency (i.e. Argentina).
PS: I'm from Romania ^_^

[iankotze]

Nice, interesting indeed. The economic systems of the world is indeed a very complex and fascinating subject!

I will most certainly be looking more into its complexities.

Have a nice day,
Ian