Wednesday, May 22, 2013

"Have National Fiat, Exploring New Ways to Use It" - Can We Just Make That Our Calling Card Once Again?

Commentary by Roger Erickson

How many citizens know where currency comes from, and can trace the flow of "fiat" currency - before, during and after the cocktail party, to both penthouses and gutters? Most people get completely confused about the differences between commodity or static value, organizational or dynamic value, and the liquidity units that connect all types of interchangeable capital - not to mention the relation between fiat currency creation and fiat taxes, and fiat interest rates to boot. (I wish we would!)

Bill Mitchell recently wrote that: "If people really understood that governments just borrow back their own spending, then the financial markets would be seen for what they are in relation to bond market activity – mendicants in receipt of privileged corporate welfare."

Well stated!

Surely Beardsley Ruml would have approved, since Taxes for Revenue Are Obsolete in any fiat currency regime (see p.35).

However, corporate welfare itself is neither good or bad. "How much" is the only question that matters.  Distributed banks - starting with the Primary Dealers (PDs) who are required to buy T-Bonds - are legitimate, publicly licensed, supposedly regulated, private contractors, just like every other member of the citizenry. The TERMS of their public contracts - and their public regulation - matter absolutely. Most banking lobbies eventually return to the issue of who gets to set interest rates and control much if not all access to accounting fees for regulating inter-personal credit. The main point is that the PD and other banks DON'T DESERVE SPECIAL TERMS! Only the same terms available to all other citizens.

Are there ANY bankers who are inventive entrepreneurs, other than in the sense that crooks and charlatans are? They just keep their little accounting records and get on the golf course by 3PM. It should NOT be allowed to get more complicated than that. As most experienced Senators will admit "We just decide what needs to be done, then we appropriate the currency to do it." Everything after that is just accounting details about draining obsolete banking-reserves from obscure Fed accounts, but that trivial job, however arcane, could be done by any accountant with a high-school education. THERE IS NO DERIVATIVE NEED for further expense in the accounting process. No need whatsoever for expensive suits, international meetings, limousines, or marble buildings. None whatsoever. If I were a union, I'd lobby to have the Federal Reserve replaced in it's entirety by Google Money or something equivalent, so we could reduce it to a simple Treasury Department accounting app. With all this confusion, all we're doing is dividing and conquering ourselves!

C'est la Vie! For now, back to the banks we're living with.

If the offered TERMS that banks get for their accounting and credit-rating services remain within SOCIALLY ADAPTABLE TOLERANCE LIMITS, then banks simplify public commerce by providing a self-adjusting monitor and regulator of inter-personal credit lines. What I call "ADAPTIVE" Warren Mosler calls "serving Public Purpose." Whatever you choose to call it, in that guise the profit from trafficking in T-bonds (still arbitrary) are at least seen as one way of adequately funding the Primary Dealer banks for legitimate services - so long as their personal salary profits get spent into the rest of the country, circulating along with everyone else's "money." As you likely know, since you've at least found the MNE blog, excessive and mal-distributed rates of hoarding vs investing "fiat liquidity" is where things go south, very quickly.

Mistaking liquidity for a static value, and hoarding it, requires foregoing dynamic options. Long term, that is ALWAYS a fatal mistake in an evolving world, where dynamic value is king, and can be chased only through adaptation. Accelerating adaptive rate always wins. Hoarding static assets rarely does, and never for long.

What does this mean for us? If the TERMS of various banking licenses are allowed to become mal-adaptive, and turn into obscene amounts of corporate welfare, then it's only because a public is failing to do it's own, adequately organized regulation, and the credit examiners are then accumulating and hoarding the very credit they're hired to simply analyze and report on! More importantly for our own national security, what matters even more is HOW QUICKLY we regain control of corporate welfare rates. Tempo is usually the biggest factor in maintaining the quality of distributed decision-making.

Doesn't this boil down to an OpenGovernance issue?

If bankers are grossly overpaid, whose fault is it? We can no longer re-regulate our own bankers, on a moments notice? Bullshit! Why CAN'T we? Diverting ourselves to endlessly arguing the details of the issue is admitting defeat - by expressing it! The public's beef has to be on principle and tempo, not on micromanaging the details. "We want outcomes appropriate for fulfilling our full aggregate demand!" And we want that with our morning coffee. Or else.

Who the hell is in charge of this country? It's citizens, or any arbitrary sub-class - acting like buffoon aristocrats? Isn't that the only issue that matters?

Why not invite a national labor conference - with every union and civic organization available - and make setting of banking terms the one and only theme? Recall any politician who fails to LEAD rather than sell-out. And for HEAVEN'S sake, quit electing buffoon politicians who DO sell-out.

Can some union make the setting of banking terms the plainly stated "#1 PLANK IN THE NEXT ELECTION" (and immediate recalls)? Cut the corporate welfare rates back down to a living wage, and voila - our biggest problem is half way to being solved. We can go back to exploring actual emerging national options, instead of unproductively staring at fat-cat banker navels. Until then, our national calling card remains "Have Fiat, Won't Use It."

Our calling card should be "Have National Fiat, Exploring New Ways to Use It."



20 comments:

F. Beard said...

However, corporate welfare itself is neither good or bad. Rodger Erickson

Welfare should be reserved for the poor ONLY.

Tom Hickey said...

The oppositional forces are now aligned in the battle between the market state, which in today's institutional environment is the corporate state, and the welfare state, as in the preamble to the US Constitution: "We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America." In short, private accumulation v. public purpose.

Roger Erickson said...

to F. Beard;
Rules-based systems are not adaptive. Get over it.

Adaptation means that each and every "rule" is a probability function. Just pay attention to regulating the tolerance limits. That's what ALLOWS adaptation, including expanding policy space and increasing policy agility.

Try reading some thermodynamics? Or systems theory? Or even politics or horse-trading?

Or just try being flexible instead of dogmatic?

F. Beard said...

I have a minor in feedback control systems. And, of course, thermo is a required course in engineering.

But I don't consider "Thou shall not steal" to be especially dogmatic. Do you?

Money creation is a problem in ethics as much as it is a problem in anything else.

y said...

"Thou shall not steal" is a perfect example of 'dogmatic'.

F. Beard said...

Ha Ha! I thought "Thou shall not steal" was the least objectionable Commandment this society might tolerate and one that the economically savvy might appreciate.

But if not, I guess I expected too much.

Well, one has to have at least something to build on, doesn't one? If this society has nothing then what awaits it but the scrap heap?

WillORNG said...

It strikes me things would be so much simpler if everyone had a citizens bank account with the government bank, the mail or financial agents could provide local services, cutting out the middle man intermediary "payment services" that allow big business to take days to pay their debts to smaller players.

If the gamblers want to take our money, they need to have more compelling reasons to induce us, rather than having a captive market.

y said...

"I thought "Thou shall not steal" was the least objectionable Commandment this society might tolerate and one that the economically savvy might appreciate".

It's still dogmatic. Look it up.

Greg said...

Well one of the problems with thou shalt not steal, in my view, is with the definition of property.

Maybe if less things were privately owned there couldnt be as much stealing. Its only stealing when you take what belongs to someone else.

What out there is truly mine to be stolen from me?

Ownership is a law thing, we can change that.

The Rombach Report said...

"Thou shall not steal" is a perfect example of 'dogmatic'.

It's a standard, like with weights and measures.

y said...

I'd say it's more of a commandment, i.e. an order, like "Thou shall not covet thy neighbour's manservant nor his ass".

Hence the name "The Ten Commandments".

http://www.bartleby.com/108/02/20.html

Roger Erickson said...

@WillORNG
re: citizen accounts at a public bank account;

exactly; the old reasons for even having private banks have mostly changed;

we need exactly none of their actually currency-handling "services" anymore, and certainly NOT the margins they still command.

Is there any reason a banking system cannot be as public as our highway system or our Postal Service? NO!

What might the remaining utility of distributed, private banking be? (note: not TBTF'ers) The local credit reporting service?

Tom Hickey said...

Well one of the problems with thou shalt not steal, in my view, is with the definition of property.

All property can be traced back to the commons. There is no natural law about distributing the commons into private property. Sub-human species fight to gain and defend territory.

Property is a creature of custom and then law. There are no customs or laws that are written in stone.

The "right to private property" is a social construct that survives from the past and in the past it has been interpreted differently. There is no distributed right to private property until after the Enlightenment, when the classical liberalism inspired by John Locke came to dominate politically at the close of the feudal era dominated by agriculture and the beginning of the capitalist era dominated by industry.

Classical liberalism eventually split into social liberalism, now represented by Keynesianism and social democratic parties, and neoliberalism, which is further divided into political conservatives, who generally follow neoclassical economics, and Libertarians that follow Austrian economics.

This has evolved into the proponents of the market state based on the right to acquire unlimited private property and the welfare state which is based on distributed prosperity and social justice and where the right to private property is limited by public purpose.

F. Beard said...

This has evolved into the proponents of the market state based on the right to acquire unlimited private property Tom Hickey

This is not allowed in the Bible since agricultural land had to be returned to the original owners after 49 years AT THE MOST.

and the welfare state which is based on distributed prosperity and social justice and where the right to private property is limited by public purpose. Tom Hickey

Much of the welfare state is to ameliorate the damage (e.g. unemployment, family farm foreclosure, etc.) caused by the government-backed credit cartel. It's therefore a kludge.

F. Beard said...

If the gamblers want to take our money, they need to have more compelling reasons to induce us, rather than having a captive market. WillORNG

Indeed! It is inexcusable that the monetary sovereign ITSELF does not provide a risk-free storage and transaction service for its fiat available to all citizens and free for most of them. And that service should make no loans and pay no interest.

y said...

"This is not allowed in the Bible since agricultural land had to be returned to the original owners after 49 years AT THE MOST".

That sounds like a leasehold system. Who owned the freehold? kings, landlords, etc?

The Ten Commandments makes it sound like the only people who mattered back then were property-owning patriarchs with land, houses, animals, servants, etc.

For example:

"Six days shalt thou labor, and do all thy work: but the seventh day is the sabbath of the LORD thy God: in it thou shalt not do any work, thou, nor thy son, nor thy daughter, thy manservant, nor thy maidservant, nor thy cattle, nor thy stranger that is within thy gates"

Here the person being addressed is a man with property, family, land, cattle, and servants.

"Thou shalt not covet thy neighbor's house, thou shalt not covet thy neighbor's wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbor's".

The person being addressed here is either a property-owing patriarch as above, or else it is someone being told not to covet the property-owning patriarch's stuff.

F. Beard said...

The agricultural land of Canaan was distributed by lot to every Hebrew (exception the tribe of Levi) so virtually every Hebrew was a landowner. The servants would therefore be non-Hebrews or Hebrews who had fallen into debt but only for 6 years as an indentured servant.

y said...

"The agricultural land of Canaan was distributed by lot to every Hebrew"

Where can I read more about that?

F. Beard said...

Numbers, Joshua, and 1st Chronicles have many references to "lot."

F. Beard said...

For instance:

These are those who were numbered of the sons of Israel, 601,730.

Then the Lord spoke to Moses, saying, “Among these the land shall be divided for an inheritance according to the number of names. To the larger group you shall increase their inheritance, and to the smaller group you shall diminish their inheritance; each shall be given their inheritance according to those who were numbered of them. But the land shall be divided by lot. They shall receive their inheritance according to the names of the tribes of their fathers. According to the selection by lot, their inheritance shall be divided between the larger and the smaller groups.”
Numbers 26:51-56