Hi All:
***First my thanks to Pete, Ray, Ed W and Keith for responding.
Money, being so close to our hearts, never seems ceases to elicit responses.
***With so many appologies, including my own, for not being economists,
perhaps there are none on the list.
***I have on occasion said, what we believe is often the result of our
nurturing, our environment, the paths we have trod and the propagandas to
which we have been exposed.
It is in being aware of our experiences, our sharing of them that adds to
the general knowldge.
Response to Pete:
***I believe that Pete's perception is the closest to my own and answers Ed
W correctly.
Pete concluded "The bottom line though, is that bank interest requires an
economy
which is continually growing in order to cover that interest."
That growth, as I mentioned, is provided by the increase in population and
standard of living.
Additionally, the rate of interest drives the rate at which an economy must
grow to remain solvent.
Since so much of our asset base is mortgaged at ever decreasing length of
contract, an increase in the interest rate places a higher burden on ALL
the debt in the economy, it does not only inhibit new investment. Demand
loans are the first to be impacted.
The increase in interest rates to inhibit inflation has the exact opposite
effect, since it increases the cost of operations that must be paid for out
of higher prices.
Ed W also said :
"I'm not so sure there is a difference, but then I'm no expert. If the
government authorizes something to be money, it's money. A dollar of bank
credit and a paper dollar have identical value."
***I figured I had mad the difference clear. I'll try again. ALL money is
an "abstract" value. The difference is in who creates it, its nature and
what it is abstracted from. That in turn identifies the essential economic
culture of the community.
***Abstract value.
With Fiat money the real value, that the money is an abstacrt of, is the
trust people have in their rulers (laws?) administration, government, and
consequently therefore, in their fellow citizens, (community).
With credit money, the real value is abstracted from the marketable value
of the material or non tangible value that has been monetised. Credit money
(issued on the basis of collateral value) was allowed to be introduced by
govenments that saw the need for a short term increase in money to
facillitate the transfer of goods in a circumstance where the supply of
fiat (government) money (gold backed) was inadequate. When the tansaction
was completed, the loan was repaid and the credit money cancelled, except
for ther interest poetion that remained with the private bank.
***Difference in nature of fiat vs credit money.
Fiat money is issued (on the truts of the people and remains as a means of
facillitating trade. Since holding it is none productive, it is soon
exchanged for something that is productive, enjoyable etc. In short, it
circulates as currency.
Regarding value.
The value of money is determined by the parties to the contract. It is also
influenced by its relative availability. If there a shortage or a surplus.
Is it better for the volume of money in circulation better to be determined
by the government? who have a vested interest in the smooth functioning of
an economy? or by the private bankers who have a vested interest in keeping
it scarce and therefore able to command a higher interest (profit) rate?
Ed W also said, "I don't think the Bank of Canada is very different from
the Fed."
***They are different in that the Fed is privately owned, the Bof C is
owned by Canadians through the Gov of Canada.
Some time ago, (the 60's Coyne affair) a power struggle was resolved
between the Bof C and the Minister of Finance by the Minister being
ultimately responsible.
In practice, the "profits" of both central banks revert to government.
Ray said
"It was the fact that it stimulated many times its amount in goods bought
in the economy as it
recirculated through the economy. "
***That is refered to as the "velocity of money" As the velocity increases,
less of it is required to facillitate the trade. It's quicker to transport
paper currency than gold, quicker to transport cheques than paper currency,
quicker to send a digital, signal than mail a cheque.
Keith said, very interestingly, I replied, interleaved.
"But, ever since central banks reneged on their obligation to repay paper
money with real value (such as gold) on demand, money has become
increasingly artificial and its perceived value depends upon arbitrary
decisions by politicians and/or central bankers -- and a credulous public
-- and on nothing else.
***Reverting to gold is not an answer. Since the volume of gold is finite,
the growth of an economy would be artificially constricted.
***The percieved artificiality of money is due to the private banks
increasingly monetizing less marketable collateral. The recent monetyising
the value of dot coms isa a case in point. The banks monetised the
anticipated future value of the shares of those companies based upon a
percieved increase in their value based upon past increases in value!!!
Sort of a self fulfilling prophecy.
An interesting aside is that the private banks can keep the value of the
shares on their books at the $value at which they bought them, not at their
current market value!!! A surprising number of banks are really bankrupt if
their assst wer to be valued at market value. That's why the pressure to
amalgamate. (They need to become "too big to fail")
Kieth also said:
Central banks were started in order to supply the rapacious demands of
governments wishing to fight wars....
***Actually the Bank of Canada was started because the private banks were
not "facillitatijng trade" in the Canadian economy. That failure led to the
great depression. No money to facillitate trade meant surplus of grain and
cattle in the west and starving people in the east. In short, a shortage
(deficit) of purchasing power.
Finnaly Kieth said:
"but nowadays are little more than immense scams residing in marble portals
which always
benefit the rich and the middle class at the expense of the poor. "To those
that hath shall be given.""
***Private Chartered banks are neccessary and (always will) fill a very
essential purpose in our economy.
The problem is that not enough of our politicians know how money works.
Consequently they have invaded and preempted the part in the economy that
fiat money should be filling. That and the fact that they are now to all
intents and purposes unregulated.
I thought someone would pick me up on "Fractional Reserves" I am pleased at
the amount iof knowledge my fellow "{non economists" have.
I conclusion, there is no reason why the Central Bank cannot issue credit
money (collateral based) and the private banks issue fiat money. (trust based)
***The real problem in all of this is that, since creidit monety is an
abstract value predicated (substantiated by ) on real value. The real value
can be appropriated by a very few people (or mega internatioanl
corporations) unbeknownst to the population generally. Consequently, we
morph into a rental society from a property owning one.
Regards
Ed G
