This was the weirdest little booth at NASDAQ. The seat was at an off angle to the camera, and I couldn’t sit up straight without bumping my head against the glass behind me, which is curved. So I look a bit whopperjawed and uncomfortable at the top but I think it came out fine in the end.
You can view the segment here. Enjoy!
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Yves: there is no here here. Link?
Eeek! There now, apologies for the inconvenience.
Thank you very much. Unfortunately I have to leave early morning! Will have to wait. But you do look better and better on the pictures. Maybe NYC is good for something?
Haircuts :-)
Mz Smith;
As I was innocently making my way to the Versus site I happened to see a lady who promised economic enlightenment, if I’d only invest a little time with her. So far, so good. Imagine my consternation when the promised interview never came off! I guess it all has to do with living here in the Deep South. Like railroad tracks, (you got to gauge them carefully now,) we Sothrons just don’t got the same bandwidths as you all Damnyanks and furriners, I reckon. Yet another unintended consequence of Copperhead Democrat governance. Next year I’m voting Whig.
I hope you do more of these televised interviews because I always find them informative. I am in the process of being retired and wanting to get a single floor house.
We seem to be getting some sales going in our area, Troy Mi which is a northern suburb of Detroit. Automotive seems to be bottomed and is starting to pick up. Chrysler has paid the government back and it is rumored they are going to bring in production of Fiat.
Never will be what it was but is comming back.
Nice one.
Yves Smith — angelus mortis.
Don’t attack the messenger.
We know the real cause of continuing home price collapses and non-lending by banks is that banks continue to hide $Trillions in losses on their balance sheet, and those numbers grow as homes fall in value.
Flush the bad debt, write it off, collapse the insolvent banks, and you get your economic recovery, period.
I didn’t mean it as an insult.
Housing has and still is an asset bubble and like other asset bubbles it is driven by liquidity and leverage. Recent tighten credit standards reduce liquidity and prices drop and this would be true if the government reduces favorable tax incentives for homeowners and investors. The financial media is obsessed with housing foreclosure inventory levels, wages and other so called bench marks but in reality our housing market has been nothing more then a manufactured asset bubble that has gone wildly out of control. The issue will be if the government and financial elites continue to push homeownership by lowering credit standards and adopting more tax incentives thereby pushing along the asset bubble or begin the long process of deflating this long running asset bubble.
As someone who has been a kitchen and bath designer, I would say that you underestimate the importance of the housing market for the overall economy. The number of industries and products that depend on homeownership is huge: appliances, lighting, cabinetry, paint, soft goods, faucetry, plumbing products–not to mention general contractors, plumbers, electricians, and all the businesses that support those industries, from office supplies to computer technicians. Housing is more than a significant personal savings tool. It is the basis of thousands of products and jobs.
“I would say that you underestimate the importance of the housing market for the overall economy.”
Within the context that much of our manufacturing has been exported and technology continues to displace labor via software applications and advanced computer technology putting significant pressure on employment, yes, construction related work becomes one of the few jobs left that provide a living wage. The issue though is that few folks need a designer bathroom or kitchen and while it was easy to sell people on the idea that it added value to there homes and thereby would increase the homes sale price those days seem to be over. If the toilet doesn’t work then a simple replacement is all that is needed not necessary to borrow 15 grand from the bank or credit line for a designer bathroom, at least for a middle class family.
Rather then trying to turn housing into an asset bubble maybe economist need to figure out how the economy can provide jobs and living wages as the computer age continues to redefine our economic world.
It’s unfortunate that you don’t understand the role of a kitchen and bath designer. The KBD is the interior “architect” for the two most expensive rooms in the home–regardless of how expensive or inexpensive those rooms may be. Just as an architect pulls together specialized information for someone wishing to build a home, or build on an addition, a KBD performs the same function for someone who needs a truly functional room.
It’s true that much of the manufacturing of household items has been offshored, but the people who sell those items and install those items are still located in this country.
“It’s unfortunate that you don’t understand the role of a kitchen and bath designer. The KBD is the interior “architect” for the two most expensive rooms in the home–regardless of how expensive or inexpensive those rooms may be.”
Where did most of your work originate- new construction or existing properties? My experience with others in your industry is that a majority of the work comes from redoing already existing properties. So I think what Yves was trying to convey in the interview (she can correct me if I’m wrong) wasn’t that the RE market is not important, but rather that the RE rehab market was overinflated. The previously loose credit markets inflated demand for RE, which inflated people’s perception of their own personal wealth, which then greased the wheels for more reinvestment in their own homes.
Hopefully I’m not putting the wrong words in Yves’ mouth but I believe her implication during the interview was that the RE rehab market ballooned up beyond was sustainable for a number of years, and when it eventually comes back, it will not be able to produce the same impact on the economy as it did during the bubble years. I’m not happy about that but I think that was where she was coming from.
BTW- as usual terrific interview.
My work was exclusively rehab–mostly kitchens and baths that were 50-80 years old in otherwise attractive, well-maintained homes, so there were frequently safety issues, as well as functionality issues. Only about 30% of the work I encountered was what I would call “ego-rehabs”. I always advised my clients not to exceed 10% of the market value of their homes on a remodel; the ego-rehabs generally exceeded that figure. Clearly, many homeowners simply used their houses as ATMs and were not simply re-investing in the value of their homes.
“Only about 30%”
As is obvious, business is about what happens at the margins. 30% in revenue is more often than not the difference between success and starving. A 30% decline in revenue should kill most mature businesses.
Again, we have a fundamental misunderstanding of how the world works. Rehab jobs don’t have to go to zero to put many businesses under and many people out of jobs. They just have to decline to the where margins run negative.
This is why a bubble is so painful to unwind. There’s a multiplier effect on all associated industries. At the same, there is opportunity…
“Only about 30% of the work I encountered was what I would call “ego-rehabs”. I always advised my clients not to exceed 10% of the market value of their homes on a remodel; the ego-rehabs generally exceeded that figure.”
I know of interior desiners who did the opposite during the glory years.
Hopefully, your common sense approach fostered goodwill for you with your clients and helps sustain you through these difficult times.
yves,
agree with your 2012 secenario. if repubs nominate a lunatic, BO romps to an easy win. president palin? president gingrich? president bachmann?
but romney’s chances are looking better and better as the comic-releif candidates start to drop out. he’s someone who could run a serious campaign. and he’s got the gravitas for americans to imagine him as president.
2012 is still BO’s to lose. but with every passing month, the weak economy works more and more to romney’s favor.
Nice interview.
As for Republican lunatics, don’t discount Ron Paul’s chances. Yes, he is a gold-bug but he is dead-on correct on other issues such as bringing the troops home, restoring civil liberties, ending the Fed, etc. Obama would NOT waltz pass RP especially since the economy will still be bad come election time.
As for Romney, the South will never vote for a Mormon.
Here’s some fun for a Saturday afternoon. Look up YouTube clips of Ron Paul heckling Ben Bernanke. I’m no Bernanke fan, but my God, Paul has no idea what he’s talking about. Here’s one:
http://www.youtube.com/watch?v=xV6MElf8xpo
When did Alex Jones get elected to a position of power?
Personally I’d be terrified if Paul got near the levers of power. The man seems less pragmatic than a Lenin.
Bernanke is remarkably polite. If I were him I’d be tempted to ask Paul whether he actually knows anything at all about central banking. I’d also point out that Paul inquiring about such things is not unlike if Bernanke started grilling Paul on his knowledge of anatomy…
If I were him I’d be tempted to ask Paul whether he actually knows anything at all about central banking. Philip Pilkington
The correct reply is “Does anyone? Else why are we still having problems with it after 317 years?”
The gold-bugs are pretty good critics of central banking even though their own solution is flawed.
Yes, I believe most people working in central banks have a pretty good grasp of what’s going on. As do the MMT theorists. Mainstream economists have very little insight into this, mind you.
Gold bugs — I’d call a spade a spade: Austrian School ideologues — have VERY little insight into how central banking works. They seem to essentially understand it in the same way mainstream economists do — except they view it negatively.
So, they seem to assume a money multiplier, for example — which is ridiculous.
Austrian theorists are absurd — and it’s highly unfortunate that they gain any traction at all. Most of their theories are either ideological to the point of denying reality or set in the 19th century. Ron Paul takes the worst of this and throws it at Bernanke — asking facile questions such as: ‘What is a dollar’? And generally coming across as completely incoherent.
If you want a more in depth critique of the Austrian viewpoint — if you can call it a viewpoint; I’d be more inclined to refer to it as a nostalgic religion — I’d suggest the following blog post by Bill Mitchell:
http://bilbo.economicoutlook.net/blog/?p=8796
Bill masterfully shows how much of the Austrian School ‘theorising’ is in fact rhetoric. I’d go one further and point out that emotionally driven rhetoric that tries to scare people. Then, when they’re scared, it offers them a ‘way forward’. In this it’s not dissimilar to a cult.
Austrian theorists are absurd — and it’s highly unfortunate that they gain any traction at all. Philip Pilkington
Whose fault is that? If central bankers truly understood money then why are we having Great Depression II? Why has the dollar lost 97% of its value since 1913?
And just because the Austrians may be idiots does not mean central bankers aren’t. And then there is the “Maestro”, Greenspan who is a gold bug AND a central banker.
Thanks for the link; I’ll read it now.
“If central bankers truly understood money then why are we having Great Depression II?”
Ideological shift away from using fiscal policy in the late-70s and early-80s. I think this was more so political than anything else. Economists soon began to realise what you can and cannot say in order to maintain your position.
“Why has the dollar lost 97% of its value since 1913?”
Look, a dollar still buys a fair amount of stuff. That’s all that really matters. Dreaming of some sort of ‘fixed value’ currency is just silly. It’s a fantasy — nothing more.
“And just because the Austrians may be idiots does not mean central bankers aren’t.”
That’s an argument that could go reducto ad absurdum pretty damn quick:
“Just because scientologists are idiots it doesn’t mean that central bankers aren’t…” ETC.
The question is: who is the bigger idiot? The answer: 110% the Austrians. Their theories are about as substantial as scientology. In short, they just make stuff up — and then justify it to themselves from a moral point of view.
They don’t even operate in the SPIRIT of science — they’re a cult. At least Bernanke and Greenspan operate in the SPIRIT of science, even if I disagree with their conclusions…
Ugh, I wrote a response to that, but it didn’t post. So, I’m not going to bother doing so again. I’ll just respond to these:
“If central bankers truly understood money then why are we having Great Depression II?”
Because there’s been an ideological shift away from using fiscal policy and regulatory frameworks. Central bankers still know how their institutions operate, it’s just that they are ideologically constrained regarding what they can do — or what they think they can do.
“Why has the dollar lost 97% of its value since 1913?”
And following that line you could also argue that commodities have lost significant amounts of their value too. Dollars still buy shit — when they don’t, then I’ll worry.
Michel Kalceki once called theorising about stores and sources of value ‘metaphysical’. I could not put it better if I tried.
Dreaming of some sort of ‘fixed value’ currency is just silly. It’s a fantasy — nothing more. Philip Pilkington
I agree but 97% is such an enormous amount that clearly the system is flawed.
They don’t even operate in the SPIRIT of science — they’re a cult. At least Bernanke and Greenspan operate in the SPIRIT of science, even if I disagree with their conclusions… Philip Pilkington
If economics were a science then it would have long ago been perfected. And since economics is not a science then another approach is called for. I suggest ethics and liberty is the proper approach. At least that way other approaches to money creation could be tried in the real world.
“I agree but 97% is such an enormous amount that clearly the system is flawed.”
People in the US — average working people — can buy a lot more than they could in 1913. This is a FAR more meaningful measure than what the dollar might be ‘worth’.
“If economics were a science then it would have long ago been perfected.”
While I don’t suggest that economics is actually a science, I don’t think that argument is even remotely valid. Nobody has discovered a cure for cancer, that doesn’t mean that cancer research is non-scientific.
People in the US — average working people — can buy a lot more than they could in 1913. This is a FAR more meaningful measure than what the dollar might be ‘worth’. Philip Pilkington
More of what? Cheaper consumer goods because of productivity increases? But what about capital goods such as land and factories? What about wealth concentration into fewer and fewer hands?
And then there is the moral issue. Money should not lose (or gain) significant purchasing power simply because of the passage of time.
“If economics were a science then it would have long ago been perfected.” FB
While I don’t suggest that economics is actually a science, I don’t think that argument is even remotely valid. Nobody has discovered a cure for cancer, that doesn’t mean that cancer research is non-scientific. Philip Pilkington
The purpose of medicine is to cure. What is the purpose of economics? To enslave? To control? For whose benefit?
“More of what?”
Most people lived very poorly in 1913 USA. They had little access to healthcare. They died young. They ate badly. They had perhaps two or three outfits — all of them tacky.
To be honest, I’m not even having this argument. If you don’t think average working people had it bad in 1913, I suggest you read up on their living standards and then emulate them. Seriously, if you think they had it good, find out how they lived, what they, what medical care they had access to — and restrict access to this for yourself.
“And then there is the moral issue. Money should not lose (or gain) significant purchasing power simply because of the passage of time.”
Says who? God? You? Money is as money does. If you don’t like it — burn it and try to set up your own monetary regime. But there have never been static prices — NEVER. Not in Ancient Greece; nor Ancient Rome; nor in France under monarchism; nor contemporary China; nor the contemporary USA. There’s no such thing. Simple as.
Money is as money does. Philip Pilkington
Of course. But a 97% percent loss of purchasing power strongly suggests the money supply is crooked. And lo and behold, an examination of the money creation process confirms it is.
If you don’t like it — burn it and try to set up your own monetary regime. Philip Pilkington
Now you’re getting it! Except I would not burn money so long as it had some value.
But for a variety of reasons including legal tender laws and the capital gains tax (measured in Federal Reserve Notes) the bankers have achieved a monopoly in money for private debts thus making serious alternatives impractical.
But hey, keep trying to make an unethical money system work. It’s not as if time was getting short. What’s another couple of Great Depressions and World Wars while you work out the bugs?
“But a 97% percent loss of purchasing power strongly suggests the money supply is crooked.”
Are you sure it doesn’t have to do with a greater volume of goods and consumers? More goods and more consumers necessitates more money. It also requires speedier transactions — i.e. greater velocity.
The smaller the pool of resources and purchasers, the easier it is to maintain stasis of the money value (although absolute stasis is impossible).
So, the best thing for you to do would be to leave society and set up a commune. In this commune you can issue your own money — and it can be used only to purchase the goods and services domestically produced inside this commune.
In lieu of doing this, I’m afraid that you have little room to complain. If you don’t like the implications of a mass-society with a segmented division of labour, high-productivity and high living standards, your only real option is to set up your own micro-society with a weak division of labour, low-productivity and low living standards. It’s not hard to do. I just think it might prove unpleasant — money might maintain more of its value though.
Are you sure it doesn’t have to do with a greater volume of goods and consumers? More goods and more consumers necessitates more money. It also requires speedier transactions — i.e. greater velocity. Philip Pilkington
I am NOT opposed to expansion of the money supply. The money supply SHOULD expand as the population grows and as goods and services increase.
The question is: How can money be created in an ethical manner?
Currently the banks are a government enforced counterfeiting cartel which cheats savers of honest interest rates and drives borrowers into non-servicable debt.
I argue that that cartel should be abolished. Is that unreasonable to you?
“Currently the banks are a government enforced counterfeiting cartel which cheats savers of honest interest rates and drives borrowers into non-servicable debt.
I argue that that cartel should be abolished. Is that unreasonable to you?”
In a word: yes. It is entirely unreasonable to suggest that central banks should be abolished. That would almost certainly lead to price instability. Small banks would issue their own currencies (and their own debts). These would circulate at a rapid pace in boom times. Then, as confidence was lost, there would be massive wipeouts of value, with people who hold these notes losing everything they own to creditors.
This is what happened in the US when the ‘frontier banks’ used to operate.
Philip Pilkington wrote: “Most people lived very poorly in 1913 USA. They had little access to healthcare.”
One tends to forget that medicine couldn’t cure very much in 1913.
“One tends to forget that medicine couldn’t cure very much in 1913.”
That’s neither true nor relevant.
Re: Medicine prior to 1913. Although there’s a million and one examples I could give, malaria prophylaxis is fresh in my mind (don’t ask me why…):
http://en.wikipedia.org/wiki/Quinine#History
“The form of quinine most effective in treating malaria was found by Charles Marie de La Condamine in 1737. Quinine was isolated and named in 1820 by French researchers Pierre Joseph Pelletier and Joseph Bienaimé Caventou. The name was derived from the original Quechua (Inca) word for the cinchona tree bark, “quina” or “quina-quina”, which roughly means “bark of bark” or “holy bark”. Prior to 1820, the bark was first dried, ground to a fine powder and then mixed into a liquid (commonly wine) which was then drunk. Large scale use of quinine as a prophylaxis started around 1850.
Quinine also played a significant role in the colonization of Africa by Europeans. It has been said that quinine was the prime reason that Africa ceased to be known as the “white man’s grave”. A historian has stated that “it was quinine’s efficacy that gave colonists fresh opportunities to swarm into the Gold Coast, Nigeria and other parts of west Africa”.”
Small banks would issue their own currencies (and their own debts). Philip Pilkington
Why would people accept those currencies in the first place?
These would circulate at a rapid pace in boom times. Philip Pilkington
First, people would have to accept those monies. Why should they? They would be completely unacceptable for taxes and fees so what use would they be to people?
Then, as confidence was lost, Philip Pilkington
Why should there be any initial confidence?
there would be massive wipeouts of value, with people who hold these notes losing everything they own to creditors. Philip Pilkington
Why would people borrow someone else’s money when they might create their own assuming they have capital or goods and services to back it with?
This is what happened in the US when the ‘frontier banks’ used to operate. Philip Pilkington
Fractional reserves is obsolete. Without a central bank as lender/asset buyer of last resort who would dare risk much leverage? Instead, banks would almost certainly have to issue and spend their common stock as money. No longer would banks be in the money lending business; they would be in the asset management business. The value of their “money” would be the value of their assets and that would depend to a large extent on the bank’s asset management skill.
Hehehe… banking anarchism, of a sort. I’ll humour you — for a while. The idea is deranged, though.
So, without banks extending loans where would new money come from?
So, without banks extending loans where would new money come from? Philip Pilkington
Governments would issue money that was only legal tender for that respective government’s taxes and fees. (The private sector would be free to use them for private debts too if desired.) The governments would only create, spend and tax their fiat. There would be no lender of last resort or asset buyer of last resort. Nor would a government recognise any money form but its own fiats.
So that takes care of government monies. The private sector could, if it wished, just use government monies but it would also have the option of creating its own monies that were only acceptable for private debts, not government taxes and fees.
(1) How would the government issue money? Through what mechanism. Remember, the banking system is NOT extending loans. So, is the government?
(2) If the private sector are allowed to issue their own debt — and given the money shortages your system would produce I think they would — what would stop them from setting up ‘frontier banks’ that relied purely on lender confidence?
(1) How would the government issue money? Through what mechanism. Philip Pilkington
Through spending. A government would simple create and spend “tax tokens”. It would later collect those tokens back as taxes thereby closing the loop.
Remember, the banking system is NOT extending loans. So, is the government? Philip Pilkington
Heavens no! That could lead to all sorts of cronyism.
(2) If the private sector are allowed to issue their own debt Philip Pilkington
Yes, but that money should be completely unacceptable for taxes and fees.
— and given the money shortages your system would produce Philip Pilkington
Reform could be combined with a massive bailout of the entire population with debt-free full legal tender fiat to compensate for the shrinkage of the money supply as existing debt is repaid.
I think they would — what would stop them from setting up ‘frontier banks’ that relied purely on lender confidence? Philip Pilkington
Let em try. But they would be completely on their own and subject to ruthless enforcement of fraud and insolvency laws with no lender of last resort to borrow from.
Okay, let’s take this step by step.
How would the private sector get access to funds if the only funds being extended were those that the government were spending?
“I think they would — what would stop them from setting up ‘frontier banks’ that relied purely on lender confidence? Philip Pilkington
Let em try. But they would be completely on their own and subject to ruthless enforcement of fraud and insolvency laws with no lender of last resort to borrow from.”
This would lead to huge amounts of bank failures and this in turn would cause massive economic devastation. We’ve seen this film before — its not nice.
How would the private sector get access to funds if the only funds being extended were those that the government were spending? Philip Pilkington
Well, if those were the only funds, then the private sector would have to earn all its money from the public sector; the private sector would be a slave to the government sector. However, the private sector would be free to create its own money for non-tax purposes. Then it would only require government money for tax purposes.
Private monies could include store coupons, common stock, futures contracts, PMs and who knows what else.
Yeah, I got that idea a few comments ago — that’s what I meant when I said there would be a ‘money shortage’ and this would lead to privately issued debt.
Do you not think that — as has happened all throughout history — private banks would then grow that had no backing except their own consumers’ confidence?
This would lead to a 19th century style banking sector springing up — issuing bank-notes to desperate business people and consumers who didn’t have access to real currency. As panics began to happen, the banking sector would cause massive market and price volatility.
As I thought from the beginning, your ideas — which I assume you’ve concocted yourself — are the economic equivalent to Pol Pot and Khmer Rouge’s political ideology: rewind to Year Zero; who cares about the chaos it would cause.
This would lead to huge amounts of bank failures and this in turn would cause massive economic devastation. We’ve seen this film before — its not nice. Philip Pilkington
As a libertarian, I can not recommend outlawing usury but neither do I see that it is necessary either.
However, I strongly suspect that even wildcat banks depended on some form of government privilege such as government acceptance of their money for taxes and the suspension of species redemption when “necessary/”
As I thought from the beginning, your ideas — which I assume you’ve concocted yourself — Philip Pilkington
They are grounded in logic, sound libertarian principles and Scripture, Matthew 22:16-22 for instance.
are the economic equivalent to Pol Pot and Khmer Rouge’s political ideology: Philip Pilkington
Perhaps so but you have not refuted them or even properly addressed them.
Instead, you appear to be a conservative though you might think yourself a liberal or progressive.
But I concede I have some homework to do on wildcat banking. I strongly suspect that it was either not truly “free banking” and/or that you have exaggerated its problems. But in any case, borrowing is not even required for capital consolidation so neither are banks.
Sometimes private bank notes were acceptable to extinguish tax liabilities — sometimes they were not.
They were almost always issued without the promise to extinguish tax liabilities and they were accepted as tax only after they got popular.
The reason they were accepted by the plebs was because people like you were in charge and lots of people couldn’t get access to money to invest and spend.
When people cannot get access to loans to invest and spend, they tend to create their own loans — or accept them from any remotely reputable institution.
It’s ironic that you say you’re a libertarian. Because I think your ideas would have the real effect of crushing the private sector to dust while massively expanding the public sector. I was going to say at the beginning that I thought it would be a rather ingenious — albeit rather brutal — way of instituting State Communism…
Sometimes private bank notes were acceptable to extinguish tax liabilities — sometimes they were not. Philip Pilkington
They never should be. That is private counterfeiting of government money. Only government money should be good for debts to government.
They were almost always issued without the promise to extinguish tax liabilities and they were accepted as tax only after they got popular. Philip Pilkington
That is the argument the gold-bugs use for advocating that their favourite shiny metal be legal tender for government debts – gold’s traditional popularity as money in certain quarters. But you concede my point that “free banking” was not truly free. Some banks had government privilege.
The reason they were accepted by the plebs was because people like you were in charge and lots of people couldn’t get access to money to invest and spend. Philip Pilkington
Perhaps because government was on a gold standard and did not issue adequate money? But I don’t advocate a PM standard. Government money should be pure fiat and created and spent at will. The problem then would not be lack of money but possible over-abundance of government money. But since government money would only be legal tender for government debts then the private sector would not suffer price inflation in that case; only the government and its payees would.
When people cannot get access to loans to invest and spend, they tend to create their own loans — or accept them from any remotely reputable institution. Philip Pilkington
Knowing human nature, government money would be abundant enough. And if it was too abundant, then private alternatives would be available too.
It’s ironic that you say you’re a libertarian. Because I think your ideas would have the real effect of crushing the private sector to dust while massively expanding the public sector. Philip Pilkington
It’s ironic that you think liberty can do without liberty. I think what you may call “liberty” is actually fascism, government privilege for bankers and businesses. But what about the workers and others?
I was going to say at the beginning that I thought it would be a rather ingenious — albeit rather brutal — way of instituting State Communism… Philip Pilkington
We best institute genuine reform because some kind of “reform” is on the way.
“They never should be. That is private counterfeiting of government money. Only government money should be good for debts to government.”
PRIVATE BANK NOTES are not government money. They’re like IOUs written by banks. They were widespread in the 19th century — and caused havoc. So, no, they were NOT counterfeited government money. They were bank-issued IOUs.
I think you need to do some research on the history of the banking system. I suggest getting your hands on JK Galbraith’s ‘Money: Whence it Came and Where it Went’. It’s well-balanced and quite humorous. Its out of print though, but you’ll pick up a cheap copy at a second-hand online bookseller.
“But you concede my point that “free banking” was not truly free. Some banks had government privilege.”
…and some didn’t. If your ‘model’ was followed, none would have government backing and they’d all crash — and crash hard.
“Perhaps because government was on a gold standard and did not issue adequate money?”
No, that’s not why. When private sector agents cannot get loans in fiat they will take out loans in other forms of currency. In prison, for example, many accept loans and the like in cigarettes.
“Knowing human nature, government money would be abundant enough.”
It would, by your definition, only be as ‘abundant’ as public sector spending and employment. If it was abundant enough (i.e. if full employment were to be maintained), you’d essentially have to have full public sector employment. Hence, state communism.
The only ‘hold outs’ to state employment would be private sector agents that were borrowing the privately issued banknotes. However, the volatility of this new ‘wildcat’ banking sector would soon crush this private sector. They would then be available to take on public sector jobs.
As I said, your plan is a pretty ingenious way of instituting state communism. I don’t even mean that as an insult — that’s just what would happen. You would squeeze the private sector to death while allowing the public sector to expand unimpeded. If the public sector aimed at full employment, the results would be pretty obvious.
“But you concede my point that “free banking” was not truly free. Some banks had government privilege.”
Apologies, I should be more specific. Back in the ‘wild banking’ era, banks required a government charter. However, they were not backed by the government. They could issue their own notes — as I’ve said above — and these notes were rarely ‘backed’ by the same amounts of gold/silver.
The result, as I’ve said, was bank runs and general economic devastation.
A banking system that was neither gold/silver standard nor backed by government would have to issue banknotes on the basis of confidence alone. OR they could issue it against whatever assets they could get their hands on.
Either way, people would be forced to flock to them — or take up government employment — and their lack of backing would cause mass anxiety and, hence, bank panics.
Eventually the private sector would contract because people would realise it would simply be easier to get employed by the government sector — who, in your model are spending and hence hiring. In turn the private sector would be euthanised.
Incidentally, since this discussion began with monetary stabalisation and — in my opinion — essentially ended with a plane for the implementation of some sort of state communism, I think I should point out that even the Soviet Union couldn’t beat inflation:
http://www.time.com/time/magazine/article/0,9171,946412,00.html
That’s right… even an economy whose state-sector controls the money-supply can run into major inflationary problems.
These pressures may have come from a different place — shortages and wage increases, I would say — but the effects are the same.
The fact is that economies with a significant division of labour, high-productivity and high living standards (yes, the Soviets had high living standards, so shut up Cold Warriors) always face inflationary pressures.
“They never should be. That is private counterfeiting of government money. Only government money should be good for debts to government.” FB
PRIVATE BANK NOTES are not government money They’re like IOUs written by banks. They were widespread in the 19th century — and caused havoc. So, no, they were NOT counterfeited government money. They were bank-issued IOUs. Philip Pilkington
If PRIVATE BANK NOTES were accepted for government debts (taxes and fees) then they were de facto government money. Hence they were counterfeit government money since only the government should issue the government’s money. Who else should issue it, pray tell?
I think you need to do some research on the history of the banking system. I suggest getting your hands on JK Galbraith’s ‘Money: Whence it Came and Where it Went’. It’s well-balanced and quite humorous. Its out of print though, but you’ll pick up a cheap copy at a second-hand online bookseller. Philip Pilkington
Thanks, but I doubt I am as ignorant as you suppose. I’ll try to order it though.
“But you concede my point that “free banking” was not truly free. Some banks had government privilege.” FB
…and some didn’t. If your ‘model’ was followed, none would have government backing and they’d all crash — and crash hard. Philip Pilkington
1) Banks are not necessary in the first place.
2) Without government privilege of some sort it is doubtful that FR banks could even exist.
3) If banks could exist without government backing then their ability to leverage would be greatly limited.
4) With limited leverage then limited damage could be done to the economy.
5) Without government backing then it is doubtful that economic damage would be nationwide as it currently is. Instead, it would be limited to individual banks.
“Perhaps because government was on a gold standard and did not issue adequate money?” FB
No, that’s not why. When private sector agents cannot get loans in fiat they will take out loans in other forms of currency. In prison, for example, many accept loans and the like in cigarettes. Philip Pilkington
Fiat could still be lent but any leverage would be risky without government backing.
“Knowing human nature, government money would be abundant enough.” FB
It would, by your definition, only be as ‘abundant’ as public sector spending and employment. Philip Pilkington
True but that is usually generous if not wasteful. I would expect continual but small price inflation in the government’s fiat since spending is popular but taxation is not.
If it was abundant enough (i.e. if full employment were to be maintained), you’d essentially have to have full public sector employment. Hence, state communism. Philip Pilkington
You neglect the velocity of money in the private sector. While money flow from the government to its payees would be top down, once the money hit the private sector it would circulate several times (horizontal) before being (partially) returned as taxes. Plus, private monies would be available too for non-tax purposes.
The only ‘hold outs’ to state employment would be private sector agents that were borrowing the privately issued banknotes. Philip Pilkington
Always with the debt? There are debt-free monies, you know. Common stock is one. It shares wealth rather than loots it.
However, the volatility of this new ‘wildcat’ banking sector would soon crush this private sector. They would then be available to take on public sector jobs. Philip Pilkington
So basically you are saying the private sector is incapable of fulfilling its money needs unless the government privileges the banks. I disagree:
1) Common stock is a private money form that does not even require borrowing, much less fractional reserves or usury.
2) Store coupons, movie tickets, etc. would be a fairly stable money form.
3) Without a government enforced counterfeiting cartel, the banks, to borrow from then there would be little need to borrow in the first place since prices would adjust to the amount of money in circulation.
As I said, your plan is a pretty ingenious way of instituting state communism. Philip Pilkington
No. That’s impossible. More liberty cannot mean less liberty. Perhaps you mistake the removal of fascism as loss of liberty?
You would squeeze the private sector to death while allowing the public sector to expand unimpeded. Philip Pilkington
What private sector? I see wall-to-wall banker fascism.
If the public sector aimed at full employment, the results would be pretty obvious.
That’s right… even an economy whose state-sector controls the money-supply can run into major inflationary problems. Philip Pilkington
A government should only have control of its own money supply. That was the mistake the Commies made, they did not allow private currencies. If they had, then their citizens could have escaped price inflation by using private currencies much as they did with “hard” foreign currencies.
“If PRIVATE BANK NOTES were accepted for government debts (taxes and fees) then they were de facto government money. Hence they were counterfeit government money since only the government should issue the government’s money.”
That’s like saying that if a government auditor accepts my house as collateral for tax-dodging then the house is ‘counterfeit money’. Nonsense.
“1) Banks are not necessary in the first place.”
Okay, I’m done arguing on that point… I’m sorry, I simply cannot take that statement seriously and don’t know how to even begin to discuss it.
That goes for the rest of it too. I tried to take your arguments seriously for a while. But what you’re advocating is quite incredible.
First of all, it would involve a revolution ala Lenin-Stalin. That’s the amount of institutional change it would require.
Secondly, it wouldn’t work the way you think. Gresham’s Law: good money drives out bad. The government would be left with the only ‘good’ money. They would be spending — but the private sector would have no direct access to funds. The consequence would be massive and permanent expansion of the public sector.
I guess a small private sector might remain. It would be those companies that had no wish to expand at all — they couldn’t, as there would be very limited funds to loan available (apart from volatile funds that exploded every few years and wiped out those that had taken them).
More importantly, no firm and no individual would be allowed to take on debt — except for debt that was issued by highly volatile lenders. Eventually these individuals would become wholly dependent on the state. And I don’t mean that in a Republican “They’re sucking welfare” kind of way. I mean by that that individuals and firms would only be able to spend (a) their incomes or (b) government handouts.
If the government didn’t expand enough money, aggregate demand would collapse and growth would stagnate. If the government did expend enough money — well, we’d get communism and the inefficiencies that accrue therefrom.
This is already getting too complicated. To be frank, I don’t think you’ve taken… well… anything into consideration. Aggregate demand. Investment. The survival of institutions.
I don’t think your banking model works, even in a ‘pure’ sense — as it bars the private sector from borrowing (safely), which is dangerous. But even ignoring that, I think its just a sort of model that you’ve concocted in your head. It doesn’t have much to do with how things work at the moment and, since you couldn’t ‘plug’ it into contemporary institutions, it would require destruction on a scale unimaginable.
We can all come up with our own models of society. But to implement these — oh, the amount of violence that would result.
“That was the mistake the Commies made, they did not allow private currencies. If they had, then their citizens could have escaped price inflation by using private currencies much as they did with “hard” foreign currencies.”
No offense, but you often don’t seem to have a clue what you’re talking about. It seems to me that you have a model worked out in your head — which I think is internally inconsistent — and that you impose this on any data you get.
Example: look at your statement above. The problems in the communist system had nothing to do with money — public or private. It had to do with production shortages. That was my point: there’s more to the economy than simply banking. But you tried to ‘absorb’ this point in your model. The result? Disaster and nonsense.
Expand your intellectual horizons, brother.
Secondly, it wouldn’t work the way you think. Gresham’s Law: good money drives out bad. The government would be left with the only ‘good’ money. Philip Pilkington
Wrong as the Soviet Union demonstrated. The population chose hard foreign currencies whenever they could get them. Private currencies would serve the same purpose.
They would be spending — but the private sector would have no direct access to funds. Philip Pilkington
Correction: No direct access to government money.
The consequence would be massive and permanent expansion of the public sector. Philip Pilkington
Oh you fascists play a rough game! If you can’t steal purchasing power from the public then the alternative is communism?!
Too bad for you but that game is over. The Commies are history so now the only villains on the stage are the banker fascists. Nice try with the rag-tag Muslims though. :)
That was my point: there’s more to the economy than simply banking. Philip Pilkington
Actually, as I said, banking is not necessary. What is necessary is true free enterprise which requires true private money supplies. Then we would discover, imo, that fractional reserves and even usury are obsolete.
But you tried to ‘absorb’ this point in your model. The result? Disaster and nonsense. Philip Pilkington
Speaking of disasters, how many more Great Depressions and World Wars is the fascist banking system to be allowed?
Expand your intellectual horizons, brother.. Philip Pilkington
Every day. :)
Alright, I’ll admit it… I’m a card-carrying fascist. I hate… erm… I’m not even sure how to be sarcastic here, your whole ideology is so lopsided. On the one hand, you want massive government expansion — on the other, you seem to be a libertarian. I dunno… I give up.
FYI: I’ve written a piece on the necessity of debt that I’m going to try and publish in the next few days. Just to be very clear in case there’s a confusion: I finished writing it yesterday, so it has nothing to do with this argument. Although many of the same points are raised — albeit, because of the format, more precisely.
FYI: I’ve written a piece on the necessity of debt that I’m going to try and publish in the next few days. Philip Pilkington
That’s sad because there are at least two forms of money that require no debt:
1) Government fiat. It is simply spent into circulation and taxed out of it. There is no debt unless you define taxes as a form of debt. Do you?
2) Common stock. Assets including labour can simply be bought with new common stock issue. When that occurs there is no debt just a sharing of assets.
So there you have it. Debt is not required for either government or private monies.
Simple accounting law — and basic lesson in macroeconomics:
THE MONEY-SUPPLY CANNOT EXPAND WITHOUT DEBT BEING INCURRED BY SOME PARTY IN THE ECONOMY. EVEN IF RESERVES ARE ISSUED BY GOVERNMENT, THIS GOES ON THE GOVERNMENT BALANCE SHEET AND HAS TO BE COUNTERACTED BY ISSUING GOVERNMENT DEBT (EVEN IF THIS DEBT IS REFINANCED BY THE GOVERNMENT).
Seriously, that holds as well a Newton’s gravitational laws. I’ll leave the rest to the piece I’m writing, though. But read that — think about it — sketch it out. It’s very important and you’re getting it totally wrong.
On the one hand, you want massive government expansion — on the other, you seem to be a libertarian. I dunno… I give up. Philip Pilkington
It’s pretty simple actually. The government is force. Therefore its money should only be legal tender for government debts, taxes and fees, not private ones. The private sector is voluntary cooperation; therefore its money supplies should not be privileged by government else they are not truly private.
And it’s not my idea; it comes from Matthew 22:16-22, “Render to Caesar …”.
Thanks for the debate. You have plainly laid out your side. I appreciate it.
Simple accounting law — and basic lesson in macroeconomics:
THE MONEY-SUPPLY CANNOT EXPAND WITHOUT DEBT BEING INCURRED BY SOME PARTY IN THE ECONOMY. EVEN IF RESERVES ARE ISSUED BY GOVERNMENT, THIS GOES ON THE GOVERNMENT BALANCE SHEET AND HAS TO BE COUNTERACTED BY ISSUING GOVERNMENT DEBT (EVEN IF THIS DEBT IS REFINANCED BY THE GOVERNMENT). Philip Pilkington
Thank you for spelling out that absurd accounting requirement – no doubt created by the usury class.
But here’s a debt-free method of creating government money:
On the Assets side put “Taxes due”. On the Liability side put “Spending”. Unless you consider taxes as debt, there is no debt.
“On the Assets side put “Taxes due”. On the Liability side put “Spending”. Unless you consider taxes as debt, there is no debt.”
That doesn’t expand the money supply.
If I — as the government — take in $5m in tax and issue $5m in spending, the money supply stays the same.
In order to expand the money supply, someone has to take on debt — at least temporarily. I don’t think you’ve come to terms with this…
If I — as the government — take in $5m in tax and issue $5m in spending, the money supply stays the same. Philip Pilkington
True. But I assume a base amount of money in circulation from a previous bailout of the entire population with debt-free fiat plus I expect government spending to slightly exceed taxation.
Furthermore, all government debt should be retired as it comes due with debt-free fiat.
Eventually, the money supply would consist of only government fiat, private monies and the small amount of credit that the banks would be able to get away without government privilege. So there would be plenty of money but little debt.
Still doesn’t expand the money supply, I’m afraid.
If the total money supply is $6trn and your measures are brought in, there is no means to increase this money supply. People can only trade this money between themselves — and this seriously constricts economic growth.
The only way for someone to add to this money supply is by taking on debt.
That’s how it works, dude. Get over it. For Godssake!
The only way for someone to add to this money supply is by taking on debt. Philip Pilkington
Nope. The US Treasury can simply spend to increase the money supply. No borrowing is necessary. It’s only constraint is price inflation as the MMT folks say. But there’s the rub. Who is to measure the price inflation? The government? But government has an incentive to under measure price inflation so as to be able to issue more money.
So the proper solution is to allow the government to print at will, subject only to its own price inflation criteria, but to allow the private sector to use private monies if it is dissatisfied with the inflation rate in the government’s money.
And now Mr Edison:
“If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays
nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.” from http://quotes.liberty-tree.ca/quote_blog/Thomas.Edison.Quote.6991
by:
The only way for someone to add to this money supply is by taking on debt. Philip Pilkington
I forgot to mention that debt-free private money such as common stock can be issued by corporations as needed to finance expansion.
So neither the government or private sector needs debt to expand the money supply.
Alas, poor bankers! Thou art obsolete but surely you knew your day must come? Or is God mocked?
“Nope. The US Treasury can simply spend to increase the money supply. No borrowing is necessary. It’s only constraint is price inflation as the MMT folks say.”
Wrong. Wrong. Big fat wrong.
And after this, I’m going to bed — and I suggest you study.
Governments can issue masses of reserves by spending. Pure MMT. I thoroughly agree.
But this will push interest rates down to 0%. And that causes problems of its own — with speculation, with currency devaluation etc.
It’s not so easy as you think. Just because MMT has given us a new paradigm does NOT mean it has given us a panacea.
Governments can issue masses of reserves by spending. Pure MMT. I thoroughly agree.
But this will push interest rates down to 0%. And that causes problems of its own — with speculation, with currency devaluation etc. Philip Pilkington
Ah, but that’s where one hand washes the other. Without the Fed and other government privileges for banks, leverage would be very limited. The net effect would be deflationary as old loans were repaid but new loans could not keep pace. If the new spending just balanced the net loan repayment then the money supply would remain the same and interest rates should not change.
It’s not so easy as you think. Just because MMT has given us a new paradigm does NOT mean it has given us a panacea. Philip Pilkington
MMT is 1/2 the solution; private money supplies is the other 1/2.
Sorry to kill your fantasy, buddy, but the bankers would completely destroy Ron Paul and his candidacy with a flood of money. Never going to happen.
[Frankly, I really like much of what Ron Paul says, as long as he’s not talking about the economy. Of course, this is even more reason he will never get a nomination or a victory. No one with any part of my belief system is even close to electable.]
Sorry to kill your fantasy, buddy, but the bankers would completely destroy Ron Paul and his candidacy with a flood of money. AJ
Maybe so. I don’t want a gold-bug elected anyhow. But his other messages are sound and might get “main-streamed.”
U.S. Rep. John Campbell, R-Irvine, has co-authored a bill to replace mortgage giants Fannie Mae and Freddie Mac with at least five private associations. Here is part of his interview with Orange County Register:
http://lansner.ocregister.com/2011/05/28/mortgages-doomed-without-u-s-backing/111647/
“Us: Why shouldn’t we just let the private sector handle home loans?
Campbell: Throughout my lifetime, we have always had some government support for home mortgages. Without some support, the 30-year mortgage will go away. Investors will simply not make loans of that duration, with a fixed rate, and additionally take the 30-year risk that you might not ever pay them back.
If we were to wind down the GSEs without some viable replacement system, home loans would likely require 25% down or more and mortgage durations would fall to 15 years or less. This would easily trigger a 30% decline in housing prices as the payments for any home loan would rise dramatically. This decline would plunge the economy into a major recession/depression and greatly reduce the number of people able to own homes in the future. This is a disaster scenario which is completely avoidable.
The government is making over 95% of all home loans right now through the GSEs and FHA. That alone is proof that there is no viable private market for such loans or it would be developing now.”
Notice the underlying impression by Campbell that without government control over the housing credit market then the
“disaster scenario” hits our economy. The financial service industry needs this debt market to survive that really is the bottom line and they want the tax payers to both create and back stop there position.
“This decline would plunge the economy into a major recession/depression and greatly reduce the number of people able to own homes in the future.”
Really? All that gloom and doom from housing that would become, oh I dunno, more affordable perhaps? Perhaps sonme people should look for better jobs in Irvine, less financial hustling and/or defense contractor sucking, and do something a tad more valuable for the human race, mmmm?
Robert Sheer:
“As the chief lobbyist for Fannie Mae from 1999 to 2005, [Tom Donilon] was far more intimately involved than Paulson in the manufacturing of this crisis. He successfully pressured Congress to give Fannie Mae the green light to speed past any sound regulation. Indeed, had Congress endorsed the barest semblance of regulation of the Fannie Mae-led housing scam, it would have been stillborn instead of being a very much alive Frankenstein creation.”
Fannie Mae paid Donilon, a longtime Democratic Party operative, $15 million to lobby Congress to gut the power of government regulators to check the scandalous behavior in what would have been judged a crime until a majority of pro-Wall Street Republicans and Democrats in Congress rewrote the laws.”
I thought it was a very interesting segment/interview.
Would you have any data on the number of foreclosure auctions per month, by metropolitan area, state or
otherwise?
thanks,
Quite the debate over central (public and synthetic) vs. decentralized (private and organic) banking/accounting/valuation.
Overlooked in the mash up is not simply what “money” is, and/or how it’s created, but WHO controls it’s creation, and at what cost.
“Money” as a concept was created to advance the goals of society. To provide manageable stability to the political system. To counter the idea that the biggest and strongest take what they want solely by virtue of those attributes. Money and its creation, to be effective as a tool for social stability, must be governed.
That central banking is not strictly governmental — by charter or in fact — places the size and power over society directly back into the hands of unregulated, unmanageable, and predatory private interests. The result is TBTF and debt slavery. To add insult to injury, the central banking scheme is dishonest (in that units of value are neither units, in the strictest sense of the word, nor are the reflective of value, but of debt).
Is this the only possible scenario in any monetary system?
I doubt it.
Central banking, as we have foolishly allowed it to become, is antithetical to the reason for money in the first place. This paradigm shift was brought about by fractional reserve lending and the issuance of fiat currency — and worse, debt — by unregulated PRIVATE interests.
If we are going to continue down this path, we should be ready for true serfdom. To rule by the iron fist of powerful men, without the constraints of law. The money supply will be both private AND monopolized.
Why should we allow the formation of extra-governmental, illegitimate dynasties? By what virtue should the specious concept of Central Banking, as we currently know it, be allowed to continue?
Better we should grant chairmanship of our central banks for four year terms and by random lottery than to let the current status quo charade continue.
Nominal house price should be around 11% increase from the yr. 2003 price. Instead the bubble caused the price to go up about 100% in 3 yr time span and crashed 60% from the top.
Home prices rise with the inflation but mostly due to shortages. Most areas have the morotorium ( spell ) on new building permits main reason being the water shortage. Areas where homes are built without constraints, the price won’t stablize but may fall further due to over supply. In these areas the unoccupied homes should be seriously consider for demolition.