Saturday, April 27, 2013

Izabella Kaminska — Corporate currencies are equity


Climateer linked to a post by Phil Pearlman here which pondered the merits of Google launching its own currency.

The logic is basically that Google, being an experimental tech company is in a better position to launch a private currency than a bunch of anonymous coders.

But the piece misses a fundamental point. Google already has a currency in issuance. That currency is Google equity.

When you swap national currency for an investment in a particular corporate stock you are effectively swapping an investment in the general wealth of the country, which is taxable by the state, for concentrated exposure to a particular corporate (i.e one very small segment of that economy). You are doing that because you think that stock will outperform the general performance of the country.

That corporate then ends up holding your dollars like central banks of foreign countries hold foreign reserves. The corporate — just like foreign central banks — can choose to invest those reserves in dollar denominated securities and basically receive dollar interest (aka Paypal) in which case its currency is effectively pegged to the dollar, or it can spend (invest) those reserves on tools, infrastructure, know-how and resources that allow it to deliver ever more value/output/return to holders of its equity....

Dizzynomics

Corporate currencies are equity
Izabella Kaminska

53 comments:

Unknown said...

"Long story short equity really is currency." Izabella Kaminska

As I've been saying for a long time, common stock is an (the?) IDEAL private money form. We therefore DON'T need a government backed/enforced money cartel.

Thanks for the article link, Tom.

dilbertgeg said...

Uh, no.
We need a STANDARDIZED common currency.

A currency anyone can create with their Deskjet is not suitable for commerce.

Take out your checkbook. Write a few checks for $20 made out to "Cash". That's a kind of currency too. When someone takes it, it's THEIR asset and YOUR liability, until it's deposited, then it's their asset and bank's liability, or if they cash it, then the cash is govt's liability.

Try to find someone to cash your check these days.

Like trying to cash a private Bank Note at a distant bank during the "Free Banking Era" of bank-anarchism.

dilbertgeg said...

Anyone can create Securities too, and those become currency.

Can't buy a Pepsi or shoes with one.

paul meli said...

This is interesting....

http://www.nakedcapitalism.com/2013/04/rajiv-sethi-macon-money-the-anti-bitcoin.html

Similar to bond schemes Warren Mosler has proposed for the Eurozone it seems.

Unknown said...

We need a STANDARDIZED common currency. dilbertgeg

I was careful to specify private money form. Inexpensive fiat would and should remain the ONLY ethical money form for government debts (taxes and fees).

As for the banks, they can either exist without government privileges (as common stock money issuers would) or they should cease to exist to any large extent.

Unknown said...

"Free banking" was never truly free; governments provided explicit (e.g. specie redemption suspension decrees) and implicit (e.g. accepting certain shiny metals for taxes) privileges for the so-called "free" banks.

The Rombach Report said...

Like governments that issue fiat currency, publicly traded companies can issue new equity out of thin air, which dilutes the value of the stock to existing shareholders and is analogous to inflation at the state currency level. However, if the company has superior R&D, product development, management and marketing prowess the equity value can appreciate.

Dan Kervick said...
This comment has been removed by the author.
Dan Kervick said...

Corporate equity is not generally accepted in the ordinary marketplace for goods and services. You generally can't pay your plumber with it or buy a burger with it. It doesn't come in small denominations. You can't stuff it into a vending machine or a parking meter. You can't pay your taxes with it unless you can get somebody to give you some government currency. You can't pay your parking tickets with it. Courts don't assess fines in units of corporate equity. You can't swap it for euros if you go to the airport to take a flight overseas.

What is it about economic downturns that brings out every kind of monetary crankery in the universe? I've just about had it up to my eyeballs with all of the endless monetary nonsense I read on the blogs these days.

Everybody's got his own crazy theory of money and crackpot dreams of hippie alt-bucks, or fundamentalist god-bucks or techno-geek wizard-bucks or survivalist bunker-bunks. It's all a massive waste of time that is a lazy substitute for serious thinking about how to change the real economy.

Unknown said...

Can't buy a Pepsi or shoes with one. dilberteg

I recall when credit cards were not widely accepted too.

Unknown said...

Yep. Dan will stick with the good ole tried and true usury for stolen purchasing power model - despite the fact that it killed 50-86 million in WWII alone:

The main causes of World War II were nationalistic issues, unresolved issues, and resentments resulting from World War I and the interwar period in Europe, in addition to the effects of the Great Depression in the 1930s. from http://en.wikipedia.org/wiki/Causes_of_World_War_II

Be mad all you want Dan; you won't change the fact that your beloved money system has not and cannot be successfully regulated because it is INHERENTLY dishonest and therefore unstable.

Unknown said...

And L. Randal Wray has recently admitted that fiat need NOT be a monopoly currency for private debts since fiat is the ONLY means to extinguish tax liabilities.

Dan Kervick said...

F. Beard, you are a lunatic religious fanatic without a clue.

Unknown said...

What F. Beard's argument amounts to is that we should get rid of FDIC and the central bank.

That's it basically.

Matt Franko said...

F.

The WW2 combatants were under completely different monetary arrangements than we have today...

Back then, as you cite the "interwar period" the future combatants were all using metallic standards and convertibility...

So you cant say that "Dan's" monetary system was the cause of anything back then... I will assume Dan does not advocate a return to the metallic standards...

And as for banks being "cartels" au contraire, they are regulated fiscal agents of our government...

Thereis nothing wrong with our current system of FFNC state currency per se, it is able to be completely regulated by our government personnel...

This regulation can be done well or done badly...

How do you use common stock to buy a medium cup of coffee at Dunkin' Donuts for $1.69 ?

rsp,

Unknown said...

What F. Beard's argument amounts to is that we should get rid of FDIC and the central bank. y

Yes, but in a measured, controlled way to avoid deflation, inflation or massive bank failures. So we also need:

1) a temporary ban on new credit creation (during the bailout period below).
2) a massive bailout of the entire population,including non-debtors, with new fiat metered out over time to just replace existing credit as it is repaid. The bailout should continue till all deposits are 100% backed by reserves.
3) a new postal savings service to provide risk-free fiat storage and transaction services to all citizens that is free, up to normal house-hold limits.

And after 6 or so months after 3), then we abolish the Fed and FDIC and any other explicit privileges for the banks. The banks (and now completely voluntarily depositors) would then be totally on their own.

Unknown said...

make that "explicit or implicit privileges", please.

Unknown said...

How do you use common stock to buy a medium cup of coffee at Dunkin' Donuts for $1.69 ?

Good ole fiat would and should still exist if Dunkin' Donuts proved to be incapable of change.

Unknown said...

What is it about economic downturns that brings out every kind of monetary crankery in the universe? Danny K

Hey Danny, central banking was invented before 1694. How many more centuries and world wars is perfecting it going to take?

Ignacio said...

I don't fully buy into F.Beard rhetoric, but the banking is kinda a government-enforced cartel.

But is not something unique of banks, there are plenty of sectors which have this oligopolistic nature due to government back up and enforcement. Try to open your own bank to issue credit denominated is USD or euros and you can basically see it. This also is a function of the nature of these sectors and how they have been spawning over modern economies during last centuries. Personally, I don't find much of a problem with the structure of some of these sectors as much as the 'control' and personal interests in the structure of these sectors, and that's a function of the political and justice system, more than a function of the economy.

But the fundamental economic question is how 'purchasing power' is generated and distributed amongst the population. The problem in today's world (and pretty much since the creation of modern banking) is than rent seeking activities and certain classes of assets (like real estate) have arguably too much weight as collateral when it comes to generation of purchasing power, contrary to other factors of production or human qualities. More than 90% of the monetary mass is created by credit institutions, and most of that percentage is build up on top of mortgages and real estate (which, looking from an other point of view, is not that weird, considering 70% of the raw materials produced worldwide are destined directly or indirectly to housing construction). That these asset classes, and their consequent price fluctuations, are the drivers of purchasing power generation AND distribution, is more of a problem than the structure and institutional frame which is in place to generate that purchasing power.

Dan Kervick said...

The term "fiat currency" is a vague and inadequate one. The term suggests that government currencies possess their social position simply by virtue of the government declaring that the currency shall be money. But modern government-issued currencies have their status by virtue of enforceable laws that determine what kinds of obligations the currency can discharge. The government declaration is only a small part of that framework.

We all have debts we wish we didn't have. It is nice to dream of some sugar daddy coming along to pay all of our debts by giving us free money. I suppose that's fine as long as we are willing to give back any of the stuff we bought with the money we borrowed. I hate my mortgage. But I love my house. The mortgage goes with the territory.

F. Beard's idea - and the idea of so many monetary cranks these days - seems to be that the money issued by banks acting as agents of the centralized banking system somehow represents "stolen purchasing power" and that if the money were issued more directly by the government, we would all suddenly have much more purchasing power. I guess he thinks the government is just going to print money and give it to us, so that we all get free food, free cars, free houses and free everything.

We won't. Whatever kind of economic system exists, the only viable ones are those in which you get things of value in exchange for some contribution of work to the effort of producing things of value yourself. If you have debts, that is because you made a contract in which, in exchange for getting some stuff up front, you agreed to give somebody some money later. So cry me a river about "usury".

Is it possible to have a system in which one can borrow interest free? Sure, we could have a system in which all of the operational costs, all the administrative costs and all the risk of the credit system are born and absorbed by the public. But that will require a more powerful state, not a weaker one, with a central bank that interacts directly with the public rather than through private sector intermediaries.

Tom Hickey said...

I think that the banking system has gotten a bad rep owing to the large banks that get all the attention. There are plenty of small banks, although their number is shrinking due to consolidation, and also credit unions. These are "plain vanilla" institutions and they perform a useful service in the community. Just about anyone canuse a credit union, if a small bank is not available in their locale.

The really big banks are designed to serve really big firms that smaller institution cannot due to the risk exposure and capital limitations. So completely doing away with them is not practical either, although reform is clearly needed and also accountability.

dilbertgeg said...

[banks, they can either exist without government privileges]

Banks don't exist and lend BECAUSE of govt privileges. Banks create loans INDEPENDENT of the CB and Govt. The CB was created to stabilize banking and prevent devastating crashes.

It worked, because there was backing (moral hazard) combined with LIMITS and RULES. Bank lobbyists (Greenspan gang) deliberately abolished LIMITS and RULES that prevented "moral hazard" and protected banks from too-wild risk-taking to maximize profits.

(Capitalism = maximize profits, but for finance that also means maximize risk. Instability is therefore inherent, AND disruptive. Steve Keen ref Minsky, Ponzi Finance.)

[I was careful to specify private money form.]

We HAVE private money now. Checks. Securities. Derivatives. Bitcoin (insanely unstable - see Colbert Report). Problem is, it's NOT trustworthy.

Money system without adequate assurance and trust is a gross IMPEDIMENT to commerce. Commodity-trade is barter, not commerce at all.

People don't comprehend what "backing" with commodity value means -- it's a relationship btw commodity and currency which is FIXED by Government (fiat) Regulation, an arbitrary value.

People don't comprehend what "reserves" are. Nothing more than an arbitrary ratio set by the CB for overnight clearing ops. Canada has ZERO reserves. The USA has practically zero reserve req.

Reserves req in USA are determined 2-4 weeks in arrears, AFTER a period of credit-creation. Only Household accts are counted for Reserve req, and Greenspan "Sweeps" allows checking acct money to be utilized for a few hours overnight to satisfy reserve req needed for clearing.

Since Reserves are not a SOURCE of bank loans, the way banks operate, have always operated, MORE reserves or LESS reserves is immaterial.

What you REALLY mean is that banks need 100% Capital Base.
Banking has NEVER operated off 100% capital base. That's "loan-sharks" or if you borrow money from Dad, they are loaning you their Capital.

Banking means credit creation, PERIOD.

Is your intention to have "small govt" OUTLAW the practice of actual banking?

Replace that with a "loan shark" system?

Capitalism CANNOT OPERATE without Credit. Do you intend to abolish the Market economy to have a "fair" financial system? Jeez!!!

That's supposed to be what Communism supposedly wants, to Abolish the Market Economy. Now "free market patriots" want to abolish Market Economy, by abolishing Credit system.

I don't think even Socialism or Communism can operate without supply of advance Credit. Needed for the production cycle.

The idea of advance credit is tied to early agrarian society. You "loan" or "invest" seeds and effort into Mother Earth, wait a few months and Mother Earth pays back plus dividends. Same for animal husbandry.

Manufacturing cycle needs Credit too.

dilbertgeg said...

[Like governments that issue fiat currency, publicly traded companies can issue new equity out of thin air, which dilutes the value of the stock to existing shareholders

and is analogous to inflation at the state currency level.

However, if the company has superior R&D, product development, management and marketing prowess the equity value can appreciate.]

BINGO. This is what MMT actually says. (in details)

First,
“MV= PT” is a tautology pretending to be an equation. (Steve Keen)

That's the equation about expanding or "diluting" the money supply.

“MV= PT” is an 8th Grade Algebra story problem.

Irving Fisher wrote “MV= PT”. He also said that should NEVER be applied to a real economy ... but textbooks and economist DO apply it to our economy.

What's wrong with it? The actual writing says that we start from the presumption of a STATIC economy, in which V (velocity) and T (time) don't change. Then, an increase in M (money) is mathematically equal to an increase in P (price).

But we already know, Capitalist Markets are NOT a STATIC system, Schumpeter called Capitalism "Creative Destruction". Capitalist markets RESPOND to inputs. Ergo, more M (money) = more Demand = more investment in expanded production and sales.

If the economy was FIXED or RESTRICTED for some reason (energy crisis?) (war destruction?) and could not expand in response to Demand, then MV = PT would be true.

But it's NOT.

dilbertgeg said...

Can't buy a Pepsi or shoes with one. dilberteg

I recall when credit cards were not widely accepted too.
--------------------

People were not yet hooked up to the digital finance system, nor to credit card companies.

The issue with checks is the risk of Bounce aka Total Loss.

Anyone *can* accept a check today, but they usually won't, because it might BOUNCE.

Why would anyone accept "strange" private money when they have no idea whether it would "bounce" or not, since they have no idea on the solvency of the Issuer?

That's why there was a 30% +/- discount for a "foreign" out-of-region Bank Note, banks didn't trust other banks "private money".

Bad enough when a foreign ATM costs $3.50, even though they are all connected and can tell if the cash is there or not.

Imagine paying $30 to cash a $100 Bank Note. How does that affect 21st Century commerce?

I got a horse and buggy to sell ya, whip thrown in free.

There's solid REASONS why we have Standardized money connected to sovereign political system. It WORKS, and works better for commerce. than without it.

dilbertgeg said...

[will stick with the good ole tried and true usury for stolen purchasing power model]

USURY is a separate topic.

Another blogger wrote that bank loans are NOT "counterfeiting". That means ILLEGAL money-printing and spending. It's LEGAL to create deposits in conjunction with buying a loan-asset from some party.

However, it fits the defn of USURY (biblical) because the RISK and COST of loan creation is effectively zero.

dilbertgeg said...

[And L. Randal Wray has recently admitted that fiat need NOT be a monopoly currency for private debts since fiat is the ONLY means to extinguish tax liabilities.]

Wray states it well. MMT has always said this.

There are numerous currencies, but you can't pay taxes with a mortgage security, with gold, with chickens, or with Pesos.

You must pay US taxes with US dollars issued by the US govt.

Some tax liability is required. Then, *some* players MUST collect Dollars for taxes.

"Legal Tender for all debts" rules in Law are optional. UK doesn't have a "Legal Tender" rule.

That's what Wray was saying. It's not new.

Reading comprehension please, not cherry-picking.

dilbertgeg said...

What F. Beard's argument amounts to is that we should get rid of FDIC and the central bank.

Yes, but in a measured, controlled way to avoid deflation, inflation or massive bank failures.
------

The Fed neither causes inflation NOR deflation, by adjusting Reserve rates, as people BELIEVE.

That's not how it works, so the "measured controlled way" is idiotic.

Banks CREATE credit by purchasing a debt-obligation, in exchange for a Deposit created simultaneously.

The SOURCE of that loan is NOT the Fed. It's the private market.

The Fed DOES do some things to prevent bank failures, like regulate loan creation process to leverage limited by sound multiple of capital base.

Abolishing the Fed and FDIC would not make banks stable, because of (a) managing RISK levels up front works; (b) managing RISK levels after collapse by "punishing" the institution means destroying banks.

Bank CEOs didn't CARE if the banks went bust. They got their money out up front in the Bubble years.

Allowing all too-risky banks implode under their debt is not a dis-incentive to Ponzi Finance.

A "fixed quantity of money" economy (WHY in God's Name is that so important?!!)

would mean

a) Financial Growth in Net Worth is impossible. Growth of Net Worth requires a surplus .. not a Govt surplus, a private surplus created by a govt deficit.

b) Brittle and inflexible "hard money" regime, (hard to get any), unable to respond to purely-financial calamities.

c) We would be "like Greece" and "like the EU", which surrendered their Central Bank powers to a foreign government -- the European Union -- which is not obligated to fix their economy, and imposes arbitrary deficit limits, therefore Greece (and other EU) must rely on the Bond traders for operating cash.

dilbertgeg said...

END THE FED. Really? What would happen?

Greece. Spain. Italy. Countries in Collapse. The rest of the EU. They have (practically) abolished their own central bank and *are* hostages to Bond Trader loan sharks.

USA is *not* subject to the Bond Market re Deficit spending and Debt. WE merely provide "debt" to investors as a free service - Wealth-Fare for the Rich + monetary policy tool.

Greece has over 27% unemployment. Suicide on the rise in countries that quit running their OWN central bank. Ron Paul and others think USA should copy Greece by abolishing *our* monetary sovereignty?

(The Fed -- which *is* a govt agency ruled by Congress designed as a corporate bank -- is the operational source of all USA Dollars that Govt "borrows"; the Fed *gives* their profits back to the Govt.

When (macro) bank credit contracts - like in a recession - USA deficit spending *can* expand as a buffer to make up lost Demand, and vice-versa. "Gold Std" is merely an insanely strict Govt Regulation imposed on top of "fiat" money and on the economy -- a choke-chain, with global loan sharks holding the leash.)

(Germany controls the ECB - the EU's "Fed". By system design, for Germany to run a trade surplus in the EU, others *had* to run a trade deficit, mathematically. All can't have a net trade surplus at the same time, with the total EU money supply fixed. With no central bank, Greece and others can have a trade deficit ONLY by going to loan sharks in the bond market. Greece can print all the Drachma it needs - but it's foreign debt is in Euros, not Drachma. GET IT? USA debt is in Dollars, not Yuan.)

Ralph Musgrave said...

Isabella Kaminska is not saying anything original: it’s long been accepted that there is no sharp distinction between money and non-money.

Matt Franko said...

dilbert, Good stuff!

and it's interesting that Shupeter guy came up with "creative destruction" which is one of these oxyMORONs you see around the academe of macro-economics often... like Minsky "stability breeds instability" or whatever...

These oxymorons like this are probably a tip-off that what you are hearing is complete BS... right up there with the Vietnam era assertion that "we had to destroy the village in order to save it" type of thing...

rsp,

Tom Hickey said...

and it's interesting that Shupeter guy came up with "creative destruction" which is one of these oxyMORONs you see around the academe of macro-economics often... like Minsky "stability breeds instability" or whatever..

Schumpeter's notion of creative destruction applies to the non-financial economy and his student Hyman Minsky's financial instability hypothesis applies to the financial economy. They are correlative. Schumpeter's notion is based on disruptive innovation on one hand and malinvestment based on the credit cycle on the other. Minsky analyzed the credit cycle.

dilbertgeg said...

F. Beard said...

central banking was invented before 1694. How many more centuries and world wars is perfecting it going to take?

--------------------

Central banks do not "create wars". How? By what mechanism. Sounds like variation of Anti-Jew propaganda.

A Central Banks is an "tool" created by Legislature to "finance" Govt spending. Not unsurprising, if the Govt is engaging in war/empire, a CB will purchase the T-Bills issued by Treasury.

The Austrian anti-war argument is basically this:

If a country like the USA abolishes their Central Bank and is forced to turn to the private Bond Market

(to the same evil Jews bankers blamed for starting all wars)

for all Govt spending above taxation,

-- in other words, if America voluntarily becomes Greece, Spain, Italy, etc. a Eurozone state willing to strangle it's own population and economy to appease Bond traders -- because the "foreign" Euro CB is like not having one --

then that voluntary self-strangulation of the public sector and the whole economy WILL also slash the ability to launch wars.

If I cut my own arms off, I won't be able to hit anyone.

I won't be able to feed myself either, but so what.

Unknown said...

I've said nothing about the Jews. In fact, my ideas on money mostly come from the Torah. For example:

1) The Torah forbids charging interest to one's fellow countrymen (Deuteronomy 23:19-20). Common stock as private money DOES NOT require borrowing, much less at interest.

2) The Torah condemns profit taking (but not profit, go figure!). But common stock as private money does not require the payment of dividends. Instead, the profit should accumulate in the value of the shares (stock splits should keep the value per share relatively constant).

And from the New Testament we get the concept of coexisting government and private money supplies (Matthew 22:16-22 ("Render to Caesar ...")) and a condemnation of hoarding.

But the Great Depression made people desperate for jobs and/or income making them vulnerable to extremists such as the Nazis.

dilbertgeg said...

Matt and Tom,
I wasn't being critical or snarky re Schumpeter and Minsky.

Tom, thanks for the clear clarification that Schumpeter was referring to the classical economy while Minsky was focused on Finance.

I learned about Minsky via Steve Keen (no surprise!), and Keen is NOT being a "hater" of Capitalism when he describes it as a DYNAMIC system (which is why Fisher's MV = PT does not make sense unless the economy is so static that more Demand cannot lead to more Supply).

This is also why Minsky's "stability leads to instability" is not nonsense. Read Keen, but my short version is this:

OVER THE COURSE OF HISTORICAL TIME, i.e. passing through change, i.e. not just [T(now) + X(additional time)] abstraction, the Finance sector moves from LOW-risk overly-cautious investment bets immediately following a Crash (Great Depression), towards the direction of HIGHER-risks for greater profits. The slowly growing risk (i.e. growing volume of credit-money = economic growth) inevitably lures investors like lemmings towards more extreme risk, towards the kind of Ponzi Finance seen from 2000-2007.

But this also creates a DEBT overhang, which is "invisible" to Neoclassical economics ideology (see Keen's debate with Krugman on how banks actually operate).

The appearance of placidity and safety for investment is created by the fact that accelerating levels of risk and credit DO contribute to economic growth (trickle down effect) outside the Ponzi Finance Game -- although that turns towards more unsound Bubble growth with less corresponding growth in production as time passes -- and this is what lures investors to play on the edge until they run over the cliff.

I think Minsky's observation would encompass the point that early levels of slowly-increasing financial risk virtually COMPEL investors to seek higher levels of risk until the drive towards Ponzi Finance to the edge of financial collapse is inevitable, in the structure of the current system which does not recognize that this pattern exists, and has no clear means set up to mitigate it or control it, other than BAILOUTS after the "surprise" financial crash.

dilbertgeg said...

Beard,

I see two paradigms against Usury.

One is that "excess" rent on money is Usury. The other is that ANY rent on money is usury.

One is that rent on usury ought to be commensurate with risk, i.e. if one risks their own capital then much higher rent (interest) is justified (for "scarce" or "hard" money).

But if credit is created by banking process --- which inevitably goes to bubble & total collapse if NOT regulated and backed by sovereign govt -- then lender's risk is very small and high rent (interest) is not justified.

====================

One answer is the TOTAL elimination of actual banking and credit creation, which would strangle any market economy by limiting volume of money to re-circulating existing capital.

Normal capitalist growth would not be possible with a "fixed" money supply, or one strictly and artificially limited by gold mining. Austerity to the MAX!!!! Mass poverty.

This is what someone called "an experiment that would make Mao's Great Leap Forward seem like a walk in the park".

Capitalist growth -- IF THERE WOULD BE ANY -- would have to rely totally on Govt "fiat" money creation (spending) -- the exact opposite of Austrian viewpoint.

Steve Keen --- far from "hating" capitalism, though he refers to Minsky and the inherent instability generated by Finance over time --- proposes systemic changes that take into account HOW an actual economy and financial system works, including more complex mathematical models and chaos theory -- and not the primitive algebra and false "homily-truisms" that dominate modern Neo-classical economics.

Neo-classical economics "folklore" makes it conceptually impossible for economists and Govt to address this Minsky instability phenomenon of financial markets, can't see the storm clouds develop, can't take the actions that are necessary to (a) prevent financial collapse or (b) resolve financial collapse after the fact.

Neoclassical econ can't conceptually separate finance (and this balance sheet recession) from the rest of the functional economy.

Mosler stated, Congress and Bernanke should have NEVER allowed the balance-sheet recession (credit freeze, collapse, rescue, de-leveraging) to spill over into the real economy where the other 99% of us live and function.

Understanding this system means FISCAL stimulus is necessary in this kind of crisis because MONETARY stimulus can have little beneficial effect in a post-Bubble post-Crash economy where real estate (the biggest point of creation of credit and overall volume of money) is mostly sitting on severe negative equity.

The recognition that when "free market" money created by Banking hits that wall of Ponzi Finance, then Fiscal Stim by Govt is necessary to bridge the output gap, some are sufficiently ignorant or blind to think that Mosler is spouting outright Socialism.

The tenacity of this "free market" and "libertarian" ideological trap is astonishing, comparable to what critics used to say about brainwashing of Communists, with huge gaps between communist dogma vs reality.

A big part of that insanity seems due to the fact that MACRO economics is not so easy to for our brains to understand as is the FOLKLORE viewpoint about MACRO economics. This includes the false viewpoint that a simplistic MICRO economy of two actors is scalable to a MACRO economy, a point that Steve Keen also debunked mathematically and graphically.

dilbertgeg said...
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dilbertgeg said...

CONTINUED

I first noticed this FOLKLORE view of economics (complete with assumption of "apriori truths" about "human nature" that require no empirical analysis) when reading Austrian econ by Mises and Rothbard and noticed that they always referred to one individual BUSINESSMAN and one individual CONSUMER and occasionally one individual LABORER selling his services at market clearing price to one BUSINESSMAN in a loop to one CONSUMER, but never discussed Corporations en masse, Multi-National Corporations, Corporate Law, never discussed the inherent imbalance of political power in the marketplace, because none of that "Left Wing" stuff exists in the Mises-Rothbard paradigm.

Only these individual actors and the "evil government". Not even recognizing that their defense of unlimited private property rights implies a DE FACTO govt, even if those functions were completely privatized to Legislature, Inc. and Courts, Inc. and Police, Inc., etc.

Even the "Left Wing" insights of Adam Smith and Classical Liberalism are eradicated in this model of "Libertarianism" ... by design. The whole of old school Classical Political Economy -- which was concerned with society and health and families and justice -- was gutted and reduced to simplistic economic fictions, with complex mathematical nonsense grafted on to defend it.

Chomsky called this form of libertarianism a "nightmare scenario".

Others like Chris Hedges call it "inverted totalitarianism" of corporatism acting within ostensible "democratic" governance.

RECOMMENDED
Obey - Film Based on Chris Hedges Death of the Liberal Class.

That film is the graphical representation of Michael Hudson's description of neoliberal econ in the Roman Empire and the Neofeudalism and a new Dark Ages that is emerging if nothing is done to stop it - Surviving Progress transcript by Hudson.

Unknown said...

Capitalist growth -- IF THERE WOULD BE ANY -- would have to rely totally on Govt "fiat" money creation (spending dilbertgeg

1) Reform should include a massive and equal bailout of the entire population, including non-debtors, at least until all deposits are 100% covered by reserves. This is only just since credit creation cheats both debtors and non-debtors.

2) The new reserves from above should suffice for honest (100% reserve) lending during the bailout period but if not the amount of the bailout could be increased until it was.

3) After the bailout period, banks could reengage in credit creation but would take, along with their now voluntary depositors, 100% of the risks not just of insolvency but also of being caught short of liquidity.

4) Common stock is an ethical form of private money creation that could, in principle, fill any need for additional endogenous money creation.

There's just no need for a government-backed banking cartel. Somehow, we've come to believe that a money system historically rooted in fraud and based on theft by dilution and usury is the only practical way to create private money. It isn't.

Unknown said...

"Common stock is an ethical form of private money creation that could, in principle, fill any need for additional endogenous money creation".

Not really. It could be used a bit more than it is at present for making certain types of payments, or for one-off payments to staff for example, but not more than that really.

The idea that stock could circulate widely as money is just nonsense fantasy.

Unknown said...

The idea that stock could circulate widely as money is just nonsense fantasy. y

No it's not. If a company's options are to borrow fiat at honest (high?) real interest rates or use its own common stock as money, those who can may choose the latter.

Necessity is the mother of invention, doncha know?

But my main point is this: There is an ethical means of private money creation that requires neither usury, fractional reserves, a lender of last resort or any other government privileges.

So yall who support the current crooked, unstable, philosophically inconsistent (I'm talking to you Danny K!) system that has killed tens of millions should reconsider a system based on usury for stolen purchasing and which in our so-called "free-market" requires heavy government privilege and yet STILL screws up every few years!

Unknown said...

"If a company's options are to borrow fiat at honest (high?) real interest rates or use its own common stock as money, those who can may choose the latter".

So in this imaginary scenario of supposedly "naturally high" interest rates (high interest rates aren't natural) businesses will be forced to issue stock "as money" otherwise they won't be able to afford funding and will go bankrupt.

Great.

So every time a company needs to buy a new computer or pay its staff it will just print up some new stock certificates and dole them out, then people will take these down to the shops and exchange them for carrots, sofas, toasters, newspapers, telephones, cars, ice cream, whatever.

It's nonsense.

"But my main point is"

Your main point doesn't make sense.

Try to buy something in exchange for shares in a company. Just try it, to see whether your theory really works.

Try to start a company and finance yourself by issuing endless shares in your business. Just try it, to see whether your theory actually works.

Hint: it doesn't. But please try it to find out for yourself.

"system that has killed tens of millions"

Oh if only we lived in imaginary-land where "common stock" is money then there would be no wars! Yippee!!

Resolutely digging your head into an imaginary world is not a solution to anything.

Why do you keep repeating this stuff?

Unknown said...

So every time a company needs to buy a new computer or pay its staff it will just print up some new stock certificates and dole them out, then people will take these down to the shops and exchange them for carrots, sofas, toasters, newspapers, telephones, cars, ice cream, whatever. y

That would depend on the company, of course. I'm sure a share of Apple would be widely accepted, once the transaction infrastructure is in place.

But in any case, it beats the company stealing purchasing power to buy what it needs.

Once upon a time, it was thought to be OK to take someone's labor without adequate compensation. That was called "slavery." Today, we have a more sophisticated form of slavery where banks, business and other so-called "creditworthies" are allowed to take the population's purchasing power without adequate compensation and to use that stolen purchasing power to dis-employ them with automation.

Unknown said...

Why do you keep repeating this stuff? y

Because none of you can refute it!

If stupid gold can serve as money then surely common stock backed by performing assets can too.

But, of course, as long as the government backed counterfeiting cartel exists, then "bad money will drive out the good" (Greshams's law).

Tom Hickey said...

Because none of you can refute it!

Now you are sounding like the Mises-Rothbardians.

Unknown said...

The Austrians are decent critics of the present system but of course what they offer is worse (deflationary gold-buggery). Nor do they understand that credit creation cheats borrowers too (by driving them into debt). Nor do they realize that universal restitution with new fiat is called for. Nor do they understand that for a true free market in private money creation that government money can ONLY be inexpensive fiat.

You can't lump me in with deflation-loving fascist goldbugs because unlike Mises or Rothbard, I read and believe the Torah.

Unknown said...
This comment has been removed by the author.
Unknown said...

F. Beard,

I've already agreed with you that stock can on occasion serve as a sort of money, as a money-like thing, as a means of paying people. But not as a widely-circulating form of money that could "fill any need for additional endogenous money creation". That is pure fantasy.

Where did you get the idea from?


Unknown said...

Where did you get the idea from? y

From the Bible. The Bible is against usury and profit-taking (except from foreigners) but is for profit itself. Common stock requires neither usury nor profit taking (dividends are dumb). The Bible is also against theft by dilution and oppression of the poor which our current system embodies.

I also designed a bank simulator on a spreadsheet and found out that the only way to not cheat people and yet create (asset-backed) money was to use the bank's own common stock as money.

Unknown said...

Except the "bank" would not lend its common stock but spend it into circulation for new assets. Then I realized that banks were not necessary; that companies could use their own common stock as money.

Still I reckon that a "bank" could transform itself into a holding company and use its own common stock as a common currency for all the companies it owns.

Matt Franko said...

F,

I don't think it is correct per se to phrase it as: "The Bible is against usury..."

It's more like this: In the Hebrew Scriptures, the Law that God gave Moses to impose upon His chosen people of the House of Israel, forbid them from imposing usury on each other if they made loans to each other...

Today, we can read this and reflect on this and ask ourselves "why?" would God impose this behavioral limitation upon His people whom He favors? Also, can we learn anything from this? What economic results was God trying to prevent by this usury ban? Was He trying to prevent "rent seeking"? Is this usury ban the same as the assertion that "the natural rate of interest is zero"? And a permanent ZIRP would be a good policy?, etc..

But today, no one is under the Law anymore... the Law is gone from the scene... see Paul's letter to Galatians...

There are many other significant economic portions of the Law besides the usury prohibition, and many other economic revelations in both the Hebrew and Greek scriptures (which together make up what is today termed "The Bible")...

rsp,