The Federal Reserve Under Fire

Alan Grayson: It’s surprising to me that it has gotten essentially no mainstream media coverage at all because we’re talking about so much money.

William Greider: The Federal Reserve is the black hole in American democracy.

Ron Paul: All we have to say is, what do they have to hide?

Dennis Kucinich: The Federal Reserve had a responsibility to provide oversight for the conduct of banks. They didn’t do that.

Narrator: It’s known as the most powerful and secretive institutions in Washington and now, President Obama wants to hand the Federal Reserve even more power.

Barack Obama: I am proposing that the Federal Reserve be granted new authority and accountability for regulating bank holding companies and other large firms that pose a risk to the entire economy in the event of failure.

Narrator: The President’s plan to make the Fed the systemic risk regulator has raised eyebrows on Capitol Hill.

Darrell Issa: The President’s financial reform proposal has included broad and sweeping increases in Chairman Bernanke or his successor’s powers and if that power is used, what would be the oversight?

Paul Kanjorski: I believe that we have to adequately audit the Federal Reserve before any consideration is given to making the Federal Reserve the systemic risk regulator.

Narrator: A growing number in Congress are calling for the Federal Reserve to be fully audited for the first time in its history. It’s a movement that started with one Washington outsider whose ideas have largely been ignored by the mainstream of both political parties: Texas Congressman Ron Paul. He’s been trying to audit the Federal Reserve for years without success, but in the last few months, his bill to open up the Fed’s books has spawned a rare bipartisan coalition of more than 250 co-sponsors, a majority of the House of Representatives.

Ron Paul: The best answer I have about defending my bill is asking a question, why not?

Ben Bernanke: My concern about the legislation is that if the GAO is auditing not only the operational aspects of our programs and the details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar, and our national economic situation.

Narrator: Despite these dire warnings against having an audit, Fed challengers in Congress aren’t flinching.

Alan Grayson: This is a situation where the Federal Reserve is out of control. Since September, it has been doing things that it never did before in its history.

Narrator: With the help of a rule from the days of Woodrow Wilson that gave the Federal Reserve vast authority to lend money during “unusual and exigent circumstances,” the Fed has doled out more than a trillion dollars to financial institutions without consulting Congress. When freshman Congressman Alan Grayson asked the Fed’s Inspector General how much of that money the Federal Reserve had lost since the crisis began, he was surprised to find out she didn’t know.

Alan Grayson: So are you telling me that nobody at the Federal Reserve is keeping track on a regular basis of the losses that it incurs on what is now a $2 trillion portfolio?

Elizabeth Coleman: Until we actually look at the program and have the information, we are not in a position to say whether there are losses or to respond in any other way…

Alan Grayson: And I think it was shocking to me and to other people to see that the Inspector General could not account for a trillion dollars of cash that had been handed out by the Federal Reserve in the course of just the past few months.

Narrator: So Grayson began rallying his fellow Democrats to support Ron Paul’s bill and call for more oversight of the Federal Reserve.

Nancy Pelosi: The fact is, is that the American people want to know more of the “secrets of the temple” as the book was before you were born. The Secrets of the Temple was required reading in my day.

William Greider: Nancy Pelosi said the public wants to know more about the secrets of the temple and my response to that is if the public does learn more, they will be outraged more.

Narrator: Journalist and author William Greider says the Fed’s darkest secrets are conflicts of interests stemming from its deep ties to the financial elite.

William Greider: The Federal Reserve, from its origins, is very, very close to the biggest banks and financial houses in the country. It always has been and always has governed with that in mind.

Narrator: The Fed has refused to release the names of all the banks that it has given money to, but some of the names that have leaked out have caused concern and stories emerged of how the banks got their money. Some are questioning the Fed’s close relationship with Wall Street.

William Greider: One example that I think is particularly dubious: Jamie Dimon, CEO of the JP Morgan Chase, is involved in the bailout of Bear Stearns. If that firm failed, one of the people who loses first is JP Morgan Chase, so he is also saved by the bailout of Bear Stearns. So he graciously agrees to take over Bear Stearns if the Federal Reserve will put up $30 billion to cover his losses.

What I find troubling is that Jamie Dimon sits at the Board of Directors of the New York Federal Reserve Bank. Tim Geithner who was then president of the New York Federal Reserve Bank and is now Treasury Secretary, was bargaining with his own board member on the terms of this deal, so I think what has happened in this crisis is that people all over the country have been able to see that there’s something illegitimate about this. They may not be able to put their finger on it, but this doesn’t feel right and some people are getting downright angry and that includes a lot of members of Congress.

Man in Congress: Do you solemnly swear to tell the truth, the whole…

Narrator: And now, one House committee is holding its own investigation into the controversial deal that the Fed brokered between Bank of America and the failing financial giant Merrill Lynch. According to documents acquired during the investigation, Fed Chairman Bernanke threatened to fire Bank of America’s CEO Ken Lewis when Lewis considered backing out of the deal.

Dennis Kucinich: The Fed’s decision-making process in the Bank of America and Merrill Lynch merger makes the case for a significant increase in accountability at the Fed.

Narrator: The next hurdle for the plan to audit the Fed is the House Financial Services Committee chaired by Barney Frank. Although Frank has praised the Fed’s work to keep credit flowing during the economic crisis, he has pledged to include a Fed audit in the major financial regulation bill he plans to finish this summer.

Barney Frank: There will be substantially increased auditing. We don’t want anything that would endanger the integrity of monetary policy, but in general, the operations of the Fed, the money they take in, all that would be very much subject to audit.

Narrator: Despite the momentum, the Fed is not quitting the fight. They just created a new position for Enron’s former head lobbyist Linda Robertson to push back against congressional critics.

Alan Grayson: I think it’s unfortunate that they’re struggling so hard to keep the secret. We need to know exactly who got the money, what the terms are, all the details of this, because this is democracy. We can’t hand out a trillion dollars of the people’s money and keep everyone in the dark about it. That’s ridiculous. Nobody has that kind of power in a democracy in a constitutional country.

  • http://noncredit-money.org stojan nenadovic

    Nate Y, the sours of non-credit money is the growth of economic rationality. The growth of rationality in production diminishes the costs and augments production and supply. The growth of rationality in consumption augments the utiity, what retards the money circulation velocity and diminishes demand. Utility – cost = surplus utility. Surplus utility demonstrates as non-credit money.
    The growth rate of mankind progress is equal to the growth rate of non-credit money. Non-credit money get producers as profit and consumers as consumer’s surplus.

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    • Nate Y

      Oh boy. Best of luck attempting to quantify “the growth rate of mankind progress”. Why not simply let the market function and let the people decide what they want to use as money?

      How are we to grow economic rationality?

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  • http://noncredit-money.org stojan nenadovic

    Banks cannot emitting new money as credit. New money is only non-credit money. Banks can loan only from collected saving. Consumers spending and increasing demand prevent deflation. Inflation cannot exist. Giving money to pensioners is the way for emitting non-credit money. There is in USA American Monetary Institute and American Monetary Act which propose Dennis Kucinich, as a kind of non-credit money, and which anticipate consumption of non-credit money. Pensions are only example.

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  • http://noncredit-money.org stojan nenadovic

    Mr. Sean, We give money to consumers. Consumers buy by producers. Producers get money without debt. All get!

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    • sean

      Consumer spending is the profit, not the base capital used to produce. Businesses generally don’t have the money to produce and purchase goods without borrowing it. The majority of businesses cannot increase enough profit to replace base capital.. If anything, your idea would benefit major corporations while neglecting small businesses.

      Giving money to pensioners is not going to increase overall spending. It will only increase selective spending which is a huge distortion to the market.

      You can’t create and counterfeit money and give it to a selective group of people, or special interests. I’m not for debt, but i’m also not for picking and choosing. You would have Karl Marx rolling in his grave.

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      • sean

        increasing consumer spending or increasing demand will cause inflation. It will cause more inflation than any other system of money.

        What about people who want to start a business? If banks can’t loan how can they start a business? they wont be able to build on profit.

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        • sean

          It would be better to instead of using a pension fund, the government creates non-credit money and builds infostructure with it, and pays for social security, and removes taxes. This way the money goes directly into banks instead of the stock market, so the borrowers and people without pensions can benefit as well.

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  • VR

    Try the website
    http://noncredit-money.org/

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  • http://noncredit-money.org stojan nenadovic

    Thanks, longshotlouie.

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  • http://noncredit-money.org stojan nenadovic

    One source is debt another sourse is gift. I don’t know. Debt is credit, gift is money. Kucinich, Zarlenga and Cook thought so. I thought the same, but i call credit as credit money and money as non-credit money. Non-credit money is the only real money.

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    • longshotlouie

      Yes sir, understood.

      Have been through the first four papers on your website and it has been enjoyable. Maybe we can enjoy a discussion on gold after I read the rest of your papers.

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    • sean

      I’m just trying to understand a bit more. The majority of businesses from small to large, manufactoring to service, all run off of credit. Most businesses borrow money to use as capital to function.. Are you trying to say that we just give them money?

      Money is not and should not be gift for any reason. “Gift” is another word for counterfeit. Only special groups will benefit and not the country as a whole.

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  • http://noncredit-money.org stojan nenadovic

    Market (not government) determines supply and demand. Suuply must be greater to demand, if non-credit money can be created.

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  • http://noncredit-money.org stojan nenadovic

    Only new non-credit money is necessary for buying new (geater) production as well as the rest of unsold products due to diminishing demand (by reason of the retarding of money circulation velocity).

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    • Sean

      Doesn’t the supply side use commercial banking loans regularly?
      What is the difference from the supply side getting capital from one source or another.

      It seems like you will be replacing car and home buying with more corporatism and lower wage jobs.

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    • Nate Y

      What is the source of this non-credit money? Who issues it?

      Your ideas seem similar to those presented by Ellen Brown in “Web of Debt”.

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  • http://noncredit-money.org stojan nenadovic

    Criterion is both the growth of economic rationality and equity.
    Money supply is connected both to actual growth and to actual retarding in money circulation velocity.

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  • http://noncredit-money.org stojan nenadovic

    Sean, if an economy grows, ther will be not inflation in the system of non-credit money.
    Lindsey, percentage 5% is the growth of quantity of money in circulation, which must be emitted as non-credit money. Milton Friedman proposed such as this percentage but with credit money it is not possible. It is possible only with non-credit money. Without credit and interest.

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    • Sean

      I disagree because of the natural rate of unemployment theory.

      Anyways, I think the main argument against non-credit money is that it benefits the rich while neglecting the poor. How many poor people have pensions? It isn’t fair to create money and pick and choose who receives it.

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    • Lindsey Brutus

      Stojan: I’m glad we finally got this clear. That was the answer I was looking for.

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      • VR

        I finally understood your question completely when Stojan answered. Turned out to be a good question. Thanks

        5% may be used as an average growth figure.
        If the money supply is connected to actual growth then it is leaps and bounds above the current system.

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  • http://noncredit-money.org stojan nenadovic

    Lindsey, percentage is of the quantity of money in circulation.
    Sean, inflation cannot exist in the system of non-credit money.

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    • Sean

      If an economy grows, there will be inflation. That is true with any system of money.

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    • Lindsey Brutus

      Stojan: I know what you’re saying! Is the percentage 5%, 8% etc. or can you give your best guess as to what the percentage should be!

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  • Matt

    Very good post, however Fannie Mae and Freddie Mac as the Primary cause of the housing bubble and resultant financial crash? No way.

    Good article from Barry Ritholtz that more accurately describes the machinations that occurred.

    http://bigpicture.typepad.com/comments/2008/10/fannie-mae-and.html

    “Then there is the international issue: If Fannie and Freddie and the 1977 CRA (and amendments) are to blame for the US boom and bust, how did the rest of the world end up with a housing boom too? Why did prices and sales go skyward in the UK, France, Spain, Ireland, Australia, etc.? They had no CRA, or a Fannie Mae, or a Freddie Mac, — so then what caused their housing boom?

    The short answer: Ultra low rates, securitization, and perhaps some of our homegrown, innovative lending standards.

    For the non-partisan, non hacks amongst you, for the policy makers and academics and economists who are truly interested in how this came to pass, and what we can do to fix it, the bottom line remains: The CRA was irrelevant to the current crisis, and Fannie Mae and Freddie Mac were mere cogs in a very complex financial machine, with many moving parts.

    But the primary cause of the mess? Not even close . . . “

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    • VR

      WOW, I finally figured out that you don’t have trouble with the language. IT’S THE F###ING COMPREHENSION!! that you lack.
      In the context of this article, and in the real world, Fannie, Freddie, and a myriad of others ARE THE SYMPTOMS !!

      The origin of the illness is revealed EARLY in the article.
      Turn off your filter and read it again.

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      • Nate Y

        Yep. It’s right there in the 3rd paragraph. “A nonfesant Fed, that ignored lending standards, and ultra-low rates”

        Bingo!

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      • Matt

        Yeah, apparently that happened in a lot of other countries too that don’t have FRE/FNM or GSE’s (which was your original point, right? or did I misinterpret your minimal blame of deregulation and free market’s), and last I saw the Fed was not implicitly in charge of Mortgage lending standards.

        It is not one item in particular, and thank you for bringing me to my final point, which is where I believe Austrian Economics breaks down with respect to it’s asymmetric and irrational expectations of the intelligence and efficiency of free markets :)

        Austrians are assuming that entrepreneurs have strange irrational expectations. Rothbard states this fairly explicitly: “Entrepreneurs are trained to estimate changes and avoid error. They can handle irregular fluctuations, and certainly they should be able to cope with the results of an inflow of gold, results which are roughly predictable. They could not forecast the results of a credit expansion, because the credit expansion tampered with all their moorings, distorted interest rates and calculations of capital.” Elsewhere, he informs us that: “Successful entrepreneurs on the market will be precisely those, over the years, who are best equipped to make correct forecasts and use good judgment in analyzing market conditions. Under these conditions, it is absurd to suppose that the entire mass of entrepreneurs will make such errors, unless objective facts of the market are distorted over a considerable period of time.”

        Why does Rothbard think businessmen are so incompetent at forecasting government policy? Why does Rothbard believe that low interest rates cause a rational market to behave irrationally when they can adjust for EVERY OTHER component. Even if a simple businessmen just uses current market interest rates in a completely robotic way, why doesn’t arbitrage by the credit-market insiders make long-term interest rates a reasonable prediction of actual policies? The problem is supposed to be that businessmen just look at current interest rates, figure out the PDV of possible investments, and due to artificially low interest rates (which can’t persist forever) they wind up making malinvestments. But why couldn’t they just use the credit market’s long-term interest rates for forecasting profitability instead of stupidly looking at current short-term rates? Particularly in interventionist economies, it would seem that natural selection would weed out businesspeople with such a gigantic blind spot. Moreover, even if most businesspeople don’t understand that low interest rates are only temporary, the long-term interest rate will still be a good forecast so long as the professional interest rate speculators don’t make the same mistake.

        Greed, that is why. Free markets can become distorted REGARDLESS OF INTEREST RATE LEVEL if there are short-term profits that can be taken – in this case in the breakdown of free markets resulting from deregulation. Gold standard or no gold standard, bubbles are going to occur.

        If markets are as smart as Rothbard gives them credit for, we wouldn’t have this level of malinvestment – regardless of interest rate level.

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        • VR

          You are still assuming a free market where there is not a free market.

          “Austrians are assuming that entrepreneurs have strange irrational expectations.” ??? huh? The paragraphs that follow do nothing to support this premise.

          “Why does Rothbard think businessmen are so incompetent at forecasting government policy?” ??? huh? How competent are you or anyone else in forecasting government policy in more than the short term?

          Why does Rothbard believe that low interest rates cause a rational market to behave irrationally … ?
          The evidence is clear. Read the news.

          Greed needs government intervention. Without government intervention, the market can dispense of the greedy.

          Again, You are still assuming a free market where there is not a free market.

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          • Matt

            “How competent are you or anyone else in forecasting government policy in more than the short term?”

            Thank you for backing up my statement, that was spoken like a true Austrian. That is the basis of my quandry regarding asymmetric application of intelligence to free markets.

            I dunno? How good are you at predicting floods, hurricanes, and wildfires over more than the short term – that is a helluva lot tougher and far more random than government policy. Oh, wait, the market DOES try to do that when setting commodities prices – which you find acceptable. (I will use commodities as one example, there are many other examples where Austrians ascribe intelligence to markets that are far more complex than the machinations of government)

            Oh wait, within commodities prices are also built in FOREIGN COUTRIES POLICY ACTIONS. You don’t think the crude market doesn’t try to determine what OPEC might do? You don’t think the possibility of civil unrest in Columbia changes coffee prices? The markets don’t try to gauge the implications of a new regime in Mexico on Sugar production? Really? Markets can figure it out abroad, but not at home? Really? I didn’t know markets had such a blind spot… I mean, foreign policy but not domestic? Interesting.

            What is the difference? Why does trying to anticipate our own government activity scare you, but trying to anticipate foreign governmental activity, mother nature, or technological advancement (all far more difficult) something the market can TOTALLY do?

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          • VR

            It’s amusing when you believe that your reply supports your argument, or even assails my own.

            Which moves faster, government or markets?

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          • Matt

            “It’s amusing when you believe that your reply supports your argument, or even assails my own.”

            Let me try again… Why, if the Austrian free-market system is so infalliable and all-knowing, does malinvestment occur during a low interest rate period?

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          • longshotlouie

            Matt replies:
            July 21st, 2009 at 9:46 am
            Let me try again… Why, if the Austrian free-market system is so infalliable and all-knowing, does malinvestment occur during a low interest rate period?

            ?
            Are you pointing to an Austrian-style market for comparison? Which one?
            Why not keep it simple and ask, “Why does malinvestment occur?”
            An artificially low rate is an answer.

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        • Nate Y

          We don’t live in a free-market system. Even if we did, it wouldn’t be infallible and all-knowing. But it would be much much better than the Fascist/Corporatist/Interventionist/Centrally Planned system we have at present.

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          • Matt

            “longshotlouie replies:
            July 21st, 2009 at 2:29 pm

            Why not keep it simple and ask, “Why does malinvestment occur?”
            An artificially low rate is an answer.”

            Really? That is exactly the breakdown. So interest rates are even lower right now than they were then – what capital malinvestment is occurring now? Into what investment do you see being made even 1/10th of the scale of what free market participants were doing 5-6 years ago?

            You are implying that a market participant would currently be evaluating long-term investments based on current rates (just silly). This is either a failure of rational expectations (meaning free markets do a terrible job of allocating capital) or a capital market failure in that individuals rationally choose to make a ‘bad’ investment (also indicating free markets cannot allocate capital efficiently). Either way, it demonstrates a lack of understanding about how markets function.

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          • longshotlouie

            OK, again, don’t answer the question.

            Was there a different market 5-6 years ago?
            I’m talking about the same folks. You give yourself away as an Obamaho.

            Long term investments are based on long term projections.

            If the seed of your argument is dead, none of your logic will have life.

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          • Matt

            *sigh*

            Here is a fairly succinct paper that explains what I am trying to explain to you.

            http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1024311

            I wouldn’t skip to the end, Louie.

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          • longshotlouie

            “I wouldn’t skip to the end, Louie.”
            Are you sure?

            Is this the paper published in February ’08 or October ’07? Or was it published in October ’07 and revised February ’08 and revised again in September ’08.
            Either way it’s a fairly new paper, so I’ll wait till he has not revised it for a year.

            My guess is that it is more about capital reswitching and capital reversing.

            http://mises.org/story/1148

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  • http://noncredit-money.org stojan nenadovic

    Sean, non-credit money is gift for pensionary, and other.
    Lindsey, k is not value than percentage of value of GDP.
    k = (supply – demand)/demand ;

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    • Lindsey Brutus

      Stojan: What is the percentage?

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    • Sean

      So you think we could just give away money as a gift? To whom would we just give away money to and how would that prevent distortions and inflation in the marketplace?

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      • VR

        Gift as in benefit, not freebie.

        I think.

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        • Sean

          Same thing.

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          • VR

            So if the pensioner gets a net positive result then someone else ‘gave as a gift’ this result?
            Critical thinking is not a strong point of yours, huh.

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          • Sean

            If the government gives money to pensioners, then yes, it is a gift, a subside, a freebie, a benefit, whatever you wanna call it. Rational thinking is by far out of the question for you.

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          • VR

            BAM !!

            There lies the problem. Why did you assume that a positive net result for the pensioner, from having a non-credit monetary system, came from government?

            It came from THE MARKET !!!

            You read the words money, credit, benefit, gift, ……
            and your immediate response is GOVERNMENT!!

            Could you be anymore of a statist tool?

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          • VR

            Wiki ain’t gonna help ya.

            I wipe my ass with wiki after eating statists and anti-theists.

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          • Sean

            that is the concept of non-credit money..

            For the government to create money and put it into pension funds. How would the market create money ? It wouldn’t, you should go wipe your ass some more. I smell a bullshitter.

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          • VR

            Again you expose the flaw in your thinking. You have been socialist trained to believe that government creates wealth.

            What you smell is your top lip.

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          • Nate Y

            Money emerges naturally on the market.

            http://mises.org/story/1333

            “Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.”

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          • VR

            We do not need the government to protect anything except our borders and our rights. Both duties of which they have been totally inadequate.

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          • VR

            I love it when you quote Menger.

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          • Sean

            If you want to understand the origin of money, you have to understand the origin of banking.

            Before there was money yes commodities were used as a means for exchange. People bartered with all items. Today we live in a world where business owners don’t want to trade goods, they want money.

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          • VR

            If you want to understand banking you must understand the origin of money.

            Ah, speaking of Menger,
            http://mises.org/story/1711

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          • Sean

            i’m talking about the origin of paper money. That is true though.

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          • VR

            Yeah, me too.

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          • Sean

            Money as Debt

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          • VR

            Why do you post a link to a set of videos that trash your argument?

            Is this another Sean?

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          • Sean

            i’m not arguing for it so how would you know. i’m just telling nate how it is, how money is created. And it does support my argument on the power of banks That whole movie is about banks, not central banks.

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          • VR

            Hope you can get one of those ‘green jobs’, because you sure as hell are not any good at this one.

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          • Nate Y

            You’re playing a very disingenuous game of hide the ball. In fact, you abuse words so badly and switch the goal posts so often you even confuse yourself. First you ask: “how would the market create money?” as if there is not a ready answer. In turn, I respond with the answer. You casually acknowledge the answer but then you switch to talking about money as debt (which is not how the market would “create” or how money has freely emerged in the past).

            Now you’re posting the well done “Money as Debt” vids you’ve already posted and I’ve already seen. As VR has already stated, those videos shread your arguments. They expose unbacked paper money and fractional reserve banking for exactly what they are. That is, a vicious combination of force and fraud. Best to let the market function unfettered. Over time, it’ll lead us back to where we need to be.

            For some odd reason, you can’t seem to grasp that Central Banks are a result of fractional reserve banking. The so called “Lender of Last Resort”.

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          • Sean

            “Money emerges naturally on the market.”

            This is the most stupid thing i have ever heard. I wasn’t going to dog you on it but you wanna keep on arguing. It is stupid and I’m showing you that money doesn’t emerge naturally on the market.

            I never contradicted myself. You don’t even understand the word.

            You contradicted yourself when you didn’t know what you were talking about. You said that credit comes from savings but money doesn’t come from savings. When all money came from credit.

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          • longshotlouie

            yepper, fiat money does not emerge naturally

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          • Nate Y

            I’m not arguing. I am merely pointing out facts and correcting the errors you make in your analysis.

            Let’s review…

            Money does not come from credit.

            Money emerges natrually on the market. As it has thousands of times for thousands of civilizations throughout history. Precious metals like gold and silver tend to be selected by the market as money whenever/wherever they are available for very good reasons.

            Credit comes from savings.

            Inflation is an expansion in the supply of money/credit.

            Fiat money is a fraud. It eventually seeks out its intrinsic value, zero.

            Economies are better understood as organic, not mechanical.

            Economics is a study of human action and must me scrutinized as such.

            Freedom works. Force does not.

            You don’t have a strong command of the English language and consistently write unintelligible sentences.

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        • sean

          “Money does not come from credit.” That is totally wrong. You don’t understand anything about economics because you don’t understand where money comes from.

          “Fractional-reserve banking CREATES MONEY whenever a new LOAN is created. In short, there are two types of money in a fractional-reserve banking system, the two types being legally equivalent [2][3]:

          central bank money (all money created by the central bank regardless of its form (banknotes, coins, electronic money through LOANS to private banks))

          commercial bank money (money created in the banking system through BORROWING and LENDING) – sometimes referred to as checkbook money[4]” – WIKI

          why do you think me and this other guy have been talking back and forth about credit money and the possibility of non-credit money. I’m sorry but we are just way out of your league.

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          • sean

            That is the fact., it seems like all you read is free market principles, so you don’t have any kind of universal knowledge on the subject of money.

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          • longshotlouie

            Is that a wiki boot on your neck?
            It must be why you cannot recognize the contradictions in your own posts.

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          • sean

            Name one contradiction I have ever made.

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          • longshotlouie

            Again?

            Let’s try another simple question.

            If we have a problem with debt, why is a quadrupling of debt the solution?

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          • sean

            I never said quadrupling the debt is the solution. You should try again.. You can read all you want, but I am very very consistent and you will not see me contradict myself.

            I have said MANY of times that we should raise tariffs to live within our means so we can stop borrowing money.

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          • longshotlouie

            While at the same time defending a system that perpetuates the debt solution.

            C O N T R A D I C T O R Y

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          • sean

            haha no. I’m not defending the system. I’m simply pointing out what we are doing and what we can do which I have said many of times. Every suggestion I have given does not support more debt so you are putting me under false assumptions. I am not contradicting my beliefs or my words. I am in no way C O N T R A D I C T I N G myself. I think you are a push over and like to whine too much about things you don’t understand.. It’s pretty pathetic.

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          • longshotlouie

            Ring Around The Rosie

            you know the rest

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          • Nate Y

            I understand that Fractional Reserve Banking is inherently inflationary because it pyramids debt. That’s the problem. Money as Debt is the problem. Which is exactly why we must let the market function and let it guide us back to sound money. I have little interest in any further attempts at educating you. I’m not gifted enough to unscramble your confused mind.

            But I’ll continue to point out your nonsense whenever you spout it.

            As has already been pointed out, tariffs do not work. They do not protect the people. They serve to enrich the government and the protected industries at the expense of everyone else.

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          • Sean

            Tariffs did prove not to work in a DEPRESSION/RECESSION. It doesn’t take a genius to understand why it wouldn’t work when unemployment is at an all time high.

            With tariffs, prices will be natural and fair. Foreign industry would receive the same treatment as domestic with a balanced tax policy. There will be no absolute advantage through dishonest trade and nation building.
            We would not need the income tax if we had tariffs..

            “[They say] if you had not had the Protective Tariff things would be a little cheaper. Well, whether a thing is cheap or dear depends upon what we can earn by our daily labor. Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer. Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man.
            [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest’…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.’ And that spot of earth is where labor wins its highest rewards.”

            -Abraham Lincoln

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          • Sean

            I dunno why you are for free trade. It came about with the Federal Reserve. It was all a part of Woodrow Wilson’s “new freedom” policy. His goal was to eliminate tariffs and reform banking in the interest of expanding our empire overseas.

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      • longshotlouie

        How much more ass kicking can you take?

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        • sean

          Please, you have never outsmarted me. I laugh at your insults because they are stupid and inaccurate.. I can’t even debate with you because all you do is insult. Are you afraid you are too stupid?

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          • longshotlouie

            Ew, I guess you ‘told’ me.

            lmao

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          • sean

            I told you the truth. I didn’t “kick your ass” and i’m not going to strut around saying I did. I’m not an ignorant prick.

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          • longshotlouie

            You get your ass kicked daily.
            No need to strut around about that.

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          • sean

            haha please. Just because I’m outnumbered doesn’t mean that I speak anything other than the truth. Maybe you can’t except the truth only because it’s coming from someone other than ron paul. Actually, I say a lot of things that ron paul says except I go into much much further detail. You should just go argue with him.

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  • http://noncredit-money.org stojan nenadovic

    Sean, Credit money is debt, non-credit money is gift.
    Lindsey, dM = kM ; k = (SUPPLY – DEMAND)/DEMAND ;

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    • Sean

      How will non-credit money be allocated? as debt..
      You can’t just throw a billion dollars into the economy and expect it to reach our hands without issuing it through debt.

      There are only two ways..
      1.The government spends money on war and infostructure to put money into the economy..

      2.Banks issue debt to put money into the economy.

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      • longshotlouie

        Why would you put trillions (made by a simple data entry) into the economy? Did the economy actually become (physically) larger? No, it only became larger on paper.

        Result: Same actual economy with more dollars, meaning every dollar is worth less.

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        • Sean

          yes an economy grows physically larger.

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          • VR

            There you go again.
            Did I ask whether economies can grow physically larger?

            Come on, Sean. Focus.
            Did the economy become physically larger because of a data entry?

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        • VR

          Sorry, didn’t notice I was jumping on others responses.

          My Bad

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    • Lindsey Brutus

      Stojan: What is the present value of K? Do you have an idea?

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  • VR

    To call the housing and credit crisis a failure of the free market or the product of unregulated greed is to overlook the myriad government regulations, policies, and political pronouncements that have both reduced the freedom of this market and led self-interested actors to produce disastrous consequences, often unintentionally.

    The two biggest players in the mortgage market are Fannie Mae and Freddie Mac. Until they were nationalized recently, they were “government sponsored enterprises” (GSEs). That meant they enjoyed all the profit potential of a private business, but carried none of the risk. How would you run your business differently if you knew the government would bail you out or if Congress bullied you into adopting certain business strategies? Would you be acting greedily – or just rationally?

    Throughout the 1990s, Washington encouraged these GSEs to expand home-ownership among lower-income, and thus more risky, borrowers. In 2004 and 2005, following the accounting scandals at Freddie, both GSEs paid penance to Congress by agreeing to expand their direct lending to low-income, higher-risk customers. Both acquired more subprime and Alt-A loans, making it profitable for banks to originate them, confident that the US taxpayers ultimately stood behind Freddie and Fannie. From 2003 to 2006, the percentage of loans the GSEs made in those riskier categories grew from8 percent to about 20 percent in 2006. This meddling helped drive up housing prices, leading other players to pile fancy new instruments on top of those mortgages, leading to a speculative bubble that was, at root, caused by the actions of two government-sponsored entities unleashed from the normal profit-and-loss checks of the free market.

    Fueling this speculative fire was the Federal Reserve, also a government-sponsored organization. The Fed moved interest rates to extraordinarily low levels beginning in 2001. The additional credit it provided artificially lowered the cost of mortgages and dramatically accelerated the housing boom begun in the 1990s.

    Did people suddenly get greedy in their pursuit of McMansions, second homes, and flipping homes for easy profit? Yes, but only because abnormally low interest rates made it foolish not to be. This was hardly a failure of free markets or greed. It was the predictable consequence of government distorting the interest rate.

    The only relevant piece of deregulation of the past 15 years is the 1999 Gramm-Leach-Bliley Act, which repealed the Depression-era separation of investment and commercial banking. However, this has been a blessing rather than a curse, as it has enabled commercial banks to buy up failing investment banks and permitted other failing investment banks to save themselves by becoming commercial banks. Without that deregulation, today’s crisis would have been even more devastating.

    Good intentions are not enough in designing public policy. Regulations designed with the best of intentions are likely to lead to more crises if they distort incentives and thereby cause individual “greed” to undermine economic growth and harm millions. History is full of examples of politicians adopting short-run solutions without seeing the harmful long-run consequences.

    Today, the calls to “do something” are loud. Yet amid the cacophony, there are a few voices urging not more, but less; not faster, but slower; not short term, but long term; not intent, but outcomes. Those are the voices we should heed, because if we had listened to them 15 or 20 years ago, we might not be where we are today.

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    • Nate Y

      Very well said.

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    • Matt

      Very good post, however Fannie Mae and Freddie Mac as the Primary cause of the housing bubble and resultant financial crash? No way.

      Good article from Barry Ritholtz that more accurately describes the machinations that occurred.

      http://bigpicture.typepad.com/comments/2008/10/fannie-mae-and.html

      “Then there is the international issue: If Fannie and Freddie and the 1977 CRA (and amendments) are to blame for the US boom and bust, how did the rest of the world end up with a housing boom too? Why did prices and sales go skyward in the UK, France, Spain, Ireland, Australia, etc.? They had no CRA, or a Fannie Mae, or a Freddie Mac, — so then what caused their housing boom?

      The short answer: Ultra low rates, securitization, and perhaps some of our homegrown, innovative lending standards.

      For the non-partisan, non hacks amongst you, for the policy makers and academics and economists who are truly interested in how this came to pass, and what we can do to fix it, the bottom line remains: The CRA was irrelevant to the current crisis, and Fannie Mae and Freddie Mac were mere cogs in a very complex financial machine, with many moving parts.

      But the primary cause of the mess? Not even close . . . “

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      • VR

        wow, I finally figured out that you don’t have trouble with the language. IT’S THE F###ING COMPREHENSION!! that you lack.
        In the context of this article, and in the real world, Fannie, Freddie, and a myriad of others ARE THE SYMPTOMS !!

        The origin of the illness is revealed EARLY in the article.
        Turn off your filter and read it again.

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    • Sean

      Deregulation that caused the crisis.

      “In 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had a conservative culture) and investment banks (which had a more risk-taking culture).[53][54]

      In 2004, the Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.[55][56]

      Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.[57] This was the case despite the Long-Term Capital Management debacle in 1998, where a highly-leveraged shadow institution failed with systemic implications.

      Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.[58] This increased uncertainty during the crisis regarding the financial position of the major banks.[59] Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001.[60]

      As early as 1997, Fed Chairman Alan Greenspan fought to keep the derivatives market unregulated.[citation needed] With the advice of the President’s Working Group on Financial Markets,[61] the U.S. Congress and President allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.[62] Warren Buffett famously referred to derivatives as “financial weapons of mass destruction” in early 2003″ – wiki

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  • http://noncredit-money.org stojan nenadovic

    Non-credit money is the only real money. Non-credit money is inherent in value. This value is the growth of economic rationality.
    Non-credit money is created from the growth of economic rationality.
    Non-credit money is not debt than gift from the growth of economic rationality. Non-credit money is the necessary additional quantity of money in circulation (dM) as percentage (k) of existing quantity of money in circulation (M). dM = kM ; k = (supply – demand)/demandd
    If non-credit money is emitted according to the cited formula, inflation cannot exist. Also, taxes are annulled for the amount of non-credit money. The consumers pay less and producers get more than today, in the order of credit money. This is non-credit money.

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    • Sean

      So you don’t think banks should create more money than they have in savings, but then again you think we should have a pension fund because you realize that all banks need extra capital to grow for the benefit of the economy.
      Wouldn’t a pension fund be the same thing as a treasury bond? Banks will still need to borrow capital, but instead of borrowing from the government they should borrow money from a pool that the government created. It’s basically the same thing. The money will still have to be allocated through credit so you really couldn’t call it “non-credit” money. It is just a different way to look at the system.

      There is no way to prevent inflation in a growing economy..

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      • Lindsey Brutus

        Stojan: I have a question. What is the dm percentage now? Is it based on our population increase and the physical wearing out of old notes and coin? Just curious about the percentage and if there are any other factors that are included in determining this percentage. Thanks!

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      • Nate Y

        “There is no way to prevent inflation in a growing economy..”

        Is exactly wrong. In fact, a productive economy causes prices to fall over time.

        I assume you (erronously) mean inflation to mean “rising prices”. Fix that asap. It’s really messing up your analysis.

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        • Sean

          hahahaha! A productive economy grows which means extra costs which cause prices to rise. I think you need to learn the term because you are backward thinking on everything. Haha!

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          • VR

            hahahaha!

            You seem to be afflicted with a sort of Stockholm Syndrome.

            Haha!

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          • Nate Y

            Well this makes sense. You follow the likes of Krugman and Keynes while I keep company with Hazlitt and Mises. I want sound money while you want fiat paper. You focus solely on the short term consequences for a specific group while I also consider the long term effects on others. I view government regulation as cumbersome and disruptive while you view it as orderly and efficient. You favor force while I favor freedom.

            Focus on the computer/technology sector to see how productivity leads to falling prices.

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          • Sean

            So you think deregulating the markets and letting them take on as much debt as possible is healthy? haha! just like you would rather have domestic taxes than tariffs.

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          • Nate Y

            Congrats. Two strawmen in as many sentences.

            If people want to take on a pile of debt, they are free to do so. They are also free to suffer the consequences of their actions.

            I never said I favor domestic taxes over tariffs. I merely pointed out the bad consequences of tariffs.

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          • Sean

            Tariffs made up 90% of government revenue before the income tax replaced it. The consequence of tariffs were no income tax.

            I for one do not think debt is good, and allowing financial firms to take on too much debt is a bad idea and is what led us to where we are.

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      • VR

        The troll home office really needs to strengthen it’s hiring technique. We need trolls that can actually formulate an argument, stay on a single thread of thought for more than two posts, and do so without sounding childish.

        But then they would have to pay more. Never mind.

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  • http://noncredit-money.org stojan nenadovic

    The Federal Reserve is not necessary in the system of non-credit money.

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    • Sean

      There is no value to non-credit money..
      Credit money is as good as ones soul once they sign the paper.
      Creating money with no inherent value is a step in the wrong direction.

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      • longshotlouie

        If you are signing your soul over to the devil.

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      • Nate Y

        “Creating money with no inherent value is a step in the wrong direction.”

        We already have that type of money. They’re commonly called “dollars” and have “Federal Reserve Note” written on the top.

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        • Sean

          I thought you said money comes from savings? Are you contradicting yourself?

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          • Nate Y

            No. I said credit comes from savings. No contradiction here. You’ve got the contradiction market pretty well cornered anyway.

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          • Sean

            Money is credit, all of our money came from credit in one way or another which does come from savings… haha, so you really didn’t understand what you were talking about.

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          • longshotlouie

            You keep repeating yourself, like a program.
            You may need to freshen your talking points.

            Oh wait, you could try the novel approach of actually explaining how what you say could be true.

            For instance, you said:
            “You can’t have real money with outstanding trade deficits. We don’t want to trade goods for gold. We would end up broke.”
            Prove this (without wiki)

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        • longshotlouie

          Real money is commodity, not credit/debt.

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          • Sean

            You can’t have real money with outstanding trade deficits. We don’t want to trade goods for gold. We would end up broke.

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          • Sean

            If you can’t understand this than you really need some additional help..

            We have almost a trillion dollar trade deficit. If we gave away a trillion dollars in gold more than we take in every year, than eventually we would run out. That is so simple to understand.

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          • Sean

            What if we returned to the gold standard. Hypothetically speaking..

            IN GOLD:
            USA______________> CHINA+OPEC
            2009
            12 TRILLION__________ > 12 TRILLION
            2010
            11 TRILLION__________> 13 TRILLION
            2011
            10 TRILLION__________ > 14 TRILLION
            2012
            9 TRILLION__________ 15 TRILLION….

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          • Nate Y

            Indeed. Sound money is the way to go. Of course, people (Sean) will argue that we can’t have sound money. But that’s like saying we can’t have honesty or integrity. It is complete nonsense. We need sound money now more than ever.

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          • Sean

            You can’t have honesty or integrity without living within our means so you can’t have a gold standard without living within our means.

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          • VR

            Did someone say that sound money, backed by gold, was The Ark? the end all to save all?

            But without sound money we will continue on the road to more and more deficits.

            Sean, is your chart law. Do we need to continue to add more deficits to ‘build’ our economy?

            If you had any self-awareness you would see how you continue to chase your own tail, and each time you are called on it you start hurling names, condescending remarks, and laughter. All signs that are recognized as defensive (out of ammunition).

            Someone here used the term ‘Daisychain of Debt’.
            IMO, you represent the daisychain of doubt.

            Your seeds will not take root here. Send in the clowns.

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          • Sean

            haha that was a lot of nonsense. I was merely pointing out that we could not return to a gold standard before we start living within our means. We need tariffs so we will stop borrowing and spending so much money. Then we can consider moving back to a hard currency.

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  • longshotlouie

    Now can you hear that giant sucking sound?

    http://thehonesttrader.blogspot.com/2009/06/this-is-from-gains-and-pains-capital.html

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  • Erika

    Unbelievable! So sad to know that this economy will never again stand on it’s two feet with trillion and billions of dollars in debt. And it’s a shame that we, the people, unknowingly continue to bail out these thieves with their secret agendas at hand!

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  • VR

    A reminder to Congressman Grayson:

    We are a constitutional republic.

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    • Lindsey Brutus

      VR: Don’t detract fom Mr. Grayson’s message. I’m sure he knows that.

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      • VR

        Don’t see how I could have detracted from the message at all.

        We find ourselves here because the meaning of things are distorted by abuse of terms and language, and as a result we get the dumbing down effect (which explains Sean).

        If we are not vigilant on this point all of the victories will be for naught. We will arrive again at this destination.

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