An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Pages
▼
Pages
▼
Thursday, January 13, 2011
Fed official explains monetary operations and how the Fed creates money
Official states it as Bernanke stated it on 60 Minutes one time.
"Fed looks at a screen, presses a button and banks have more money."
Listen to the broadcast here. The conversation occurs around minute 35.
They really need to explain this to everyone. Then get into the part that this is what sustained the Asian meltdown 12 years ago and what is sustaining Europe with unlimited forex swap lines or whatever you call it.
Didn't we already know this? I know some of you will quibble that creating reserves isn't creating money, but those reserves become money in most instances. It's just semantics. I don't see how this is newsworthy.
Checked it out. Agreed with very little. He argues that a commodity (a good as he identified it) can't be a money, but he concedes that there was a transition from a commodity money to a debt-based paper money. Gold and silver have served as monies in more industrialized civilizations for thousands of years. It is paper that has been the exception. Governments normally resorted to fiat paper in times of war or extreme debt in centuries past--crisis in other words.
Money does not have to be debt. That it is debt-based is the problem. The main problem with a paper currency is that its purchasing power is dependent on the monopoly issuer not creating too much of it. This has been its undoing every time. The U.S. dollar will not be an exception.
Gold and silver (and to a lesser extent copper) simply aren't goods like toothepaste and coffee. They have monetary attributes that other goods or commodities lack. It for that reason that by the actions of individuals in the market place that market actors looked for a common medium of exchange to escape the barter system. He implies that a barter economy is no different from an economy where a commodity serves as the money. This is nonsense.
Here you can read they found about 1,000 coins in a jar in 2009. All silver denarii. A few were from 64 AD and most were from 200BC. Look at the coins some were significantly smaller than others, leading me to believe that it was not the silver that gave them their value. It was the Roman poll tax.
So the Romans roll into Brittannia, and they take along an inventory of 250 year old silver "tokens" (denarii). Immediatiely they implement a census and corresponding poll tax to insure that the indigenous people accept the denarii as payment in order to provision the Roman legions that remain present in Brittannia.
Do the Brittans accept the denarius but only because they are made of silver? Or is it the threat of punishment due to non payment of the poll tax?
from 300 AD, 250 years later, now 58,000 coins but made of lesser valued metals. You can see how as the Roman operations there expanded, they had to increase the circulation of 'tokens' so now we find huge amounts of coins and cheaper materials...
I do not believe the Roman currency credibilty here was due to the metallic comp of the tokens.
Small business. Macro for some reason has always been my "intellectual hobby" as an adult. I have a technical degree, although I took "101 & 102" as electives in college and probably have 12-15 credits (mostly micro) under and grad.
I got into it to be better informed about my political positions (informed voter) and also to understand about the economy for investment purposes.
Ive read alot of books, Barrons mag, WSJ on my own over the years and now we have the internet and it's even easier.
Much of what Ive read over the years (mostly Monetarist as that was what was mostly avialable) never really resonated ( it never really made sense to me) until I came across the "MMT" paradigm via Mike's radio show a few years ago (after seeing Mike in his appearances on Fox News). Once I went thru the math/accounting with MMT it just really clicked.
Fortunately, I didnt have a personal 'investment' in the mainstream orthodox view (it's just a hobby for me, and I just seek the truth/best information). But many others have careers invested in the mainstrean views and I can see how hard it would be for them to just turn their backs on that, and admit they were mistaken for so long. Also, many others are actually corrupt in my view.
I just cant understand how people, who are otherwise very intelligent, cant see how the current mainstraim paradigm is damaging our country, check that, it is damaging western civilization because it is the same in Euroland. If I can figure this stuff out why cant they? It's like they are literally blinded or corrupt to a depraved level.
Accordingly I'm trying to look back into western history to try to get a better handle on where this could have come from. What were we doing back then? What were the Romans doing here in Brittannia? It looks to me that they had a better understanding of how to operate a monetary system to achieve their public purposes (albeit depraved) than the moronic policymakers we put in place today. Sad.
The reason that Roman coinage, whether silver or gold (copper and brass were also used), had a smaller precious metal content over time is that the Roman authorities, especially late in the empire, resorted to currency debasement to pay for its bills. The state merely had to clip the coinage to profit by way of seignorage. The Roman authorities would than stamp the coin at the same nominal face value, but the debased coin would simply trade at a lower value in the market place. The people simply had purchasing power stolen from them which was transferred to the state. This hidden tax of inflation is more poltically palatable than direct taxation because it is poorly understood by most.
The Roman government imposed price controls to combat the rising prices. There were serious penalites for those who tried to sell a product above the cost set by the government. It was, of course, the government that was responsibe for the price inflation.
If one looks beack over the last 2500 years, the empires or countries that had the strongest commodity money were the centers of world commerce. Examples of this include the Byzantine Empire, ancient Greece, the Roman Empire, the British Empire, and even the U.S. until recently. When those countries began debasing their currencies they begin to decline.
Look at the picture of the coins in the first link. One looks like the size of a dime and another one a quarter. Yet they are both denarius. How did that work? Are you saying that the Roman monetary authorities did not notice that?
The 800 pound gorilla in the room, unregulated Over the counter derivitives and a corrupt do nothing CFTC voting members. check out the comments from an article by Chris Martenson.
Submitted by Chris Martenson
JP Morgan Wins: CFTC Position Limits Do Not Apply (To Them)
Speaking of changing the rules...
Gold and silver are now down hard over the past two days and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote.
While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM's (and HSBC, et al) current outlandish positions.
I would love to meet Brooksley Born and buy her a box of candy for Valentines day every year from now on. She alone is the only govt official who warned (see PBS "The Warning") and was offed by Greenspan, Summers, and Rubin,
We know thanks to Frontline's (PBS) Video timeline - Explore a timeline video chronicling the tide of regulation and derivitaves. Also the only hero in this disgusting mess, Brooksley Born. A woman I would love to meet and give candy to on valentine's day. All others in this video of "The Warning" are scum, for not making a stand and doing what was right and just. To hell with the CDO's and swap markets, if you want a low risk business investment, hire someone to do the legwork and filter out the bad investments, do not use the american people as a backstop. Myself I just started to pay attention to financial goings on just recently. I wish I had also done something to help stop the fraud.
Can anyone out there explain the core beliefs of the equivalents in power today of Greenspan, Summers, Rubin, . This documentary uncovers the core beliefs of these thugs, and the Presidents, all guilty.
Does Bernanke, Geithner, Gensler, etc all believe in the status quo of no govt regulation, pro business-defacto against the american people financial security, what are the core beliefs of the present bunch. We need some prosecutions and claw backs, and dismissals from office, soon. Someone enlighten me on the present status quo, what are their core beliefs, and what is the direction they a taking to achieve this?
" over time is that the Roman authorities, especially late in the empire, resorted to currency debasement "
Maybe the economies in the Provinces expanded and more tokens were needed. As silver was not as abundant, they started to use more abundant metals to fill the needs of the expanded economy.
There may have been enough silver in 200 BC with the small population, but i read that at its height, historians think there were 3 legions in Brittania. 4-5,000 per legion and they were paid a denarius per day. So that 50,000 coin find (if they were all equivalent to a denarius) would have been about 3-4 days payroll for the entire Roman contingent in Brittannia.
WWS, Im thinking the problems may have started when the native population started to desire to use the Roman currency in their own economy. Trying to run their economy in an external currency, when the Roman monetary authorites were only circulating enough to get their own legions provisioned. this could not work in the long run and the society would collapse.
Perhaps the 'Brittannians' should have used a competing currency (your idea) along with the Roman one, then they could have made sure their own people had enough tokens to run their domestic economy.
I can say that the Druids were decimated during the 1 century AC
and then the Jews had a temple destroyed.
I am sure the Romans were blaming all these immigrants and foreignors they exploited just like the Tea Party Republicans blame the immigrants today ...
when times are good exploit, then kick them out ... and play games with economics
How did Perry in Texas hide $30 billion in debt and suddenly go public with it 1 month after being elected on platform that he had Texas in Surplus?????
Goog, Yes it looks like the same type of monetarily deprived economy on the other side of the empire in Judea at the same time.
The civil govt of Herod was trying to run the Judean economy using the Roman currency (this is revealed all throughout the Biblical accounts) and there just was not enough being spent into circulation and that society eventually imploded on itself; culminating in the destruction of The Temple in 68 AD as the Judeans rebelled but the Roman military being just too strong at that point to overcome for that small province.
Goog, the policy of monetary authorities today (as far as outcomes) are not very far from what the depraved Romans delivered to the empire 2,000 years ago.
Despite all of our technical advances in the west, we have learned nothing about how to ensure the best economic outcomes in 2,000 years. The economics 'profession' and the economic policymakers in govt are a disgrace to western civilization/humanity.
If the Romans thought that silver on it's own was a very valuable commodity, why would they release/spend coins made of this substance into the general population of a remote Province? How could they be assured of getting it back if the material itself was so valuable? What would prevent the people who obtained the coin from melting it down into some sort of trinket or something? Were they taking a big risk in this regard? Were they at risk of losing some/all of their 'precious' metal when they gave up it's custody thru it's expenditure?
If you want to understand the reality, look over this...."A concept I’ve designated as the Democratic Bankruptcy Paradox: The paradox by which every democracy eventually goes bankrupt—regardless of the people’s will and intention of keeping it from going bankrupt." http://gonzalolira.blogspot.com/2011/01/why-democracies-will-always-go-bankrupt.html
What is "fiscal incoherence"? You know I read stuff like that and I sometimes think I know what dyslexia is like. I cannot understand it.
Look, when the Romans went into Brittannia in 64AD, they spent (apparently) 250 year old silver tokens (denarii from 200 BC) into circulation in order to get their forces provisioned. They didnt borrow the money, they brought the coins with them, implemented a poll tax to be sure it would be accepted.
At that point, the Romans were running a deficit, ie they were spending denarius and didnt receive any back until the poll tax was due. They didnt care.
Seeing that you read the article, the explanation was there.
Look where it got the Romans....
The point is that a system/ belief system may work for awhile but it doesn't mean that it's right and will keep working forever.
U.S. keeps adding debt, economic cycles boom and then bust and every time we raise more debt and our dollar buys less than it did before. For the first time, the newest generation may have a lower living standard than their parents.
Forces are always changing and acting upon their spheres of influence. Other systems are becoming dominant. Global markets seem to indicate that how debits and credits are created do matter.
I know Constantine wasn't a central banker, but if I were one, much like Constantine, I think I would find religion too. It will take something like divine intervention to save these fools.
can you expand on the "storehouse of value" issue?
I dont see how this could be without the Romans decreeing that the wage was set at "a denarius per day". That imo would be the price anchor, and would maintain "value" of the "money"
The value of the money was the commodity itself. The more precious metal content, the more purchasing power in the marketplace.
These commodities were monies before the state monopolized the issuance of money.
First there was barter. Barter is of course clumsy so over time individuals in the marketplace looked for commodities that they could trade which would be readily accepted by other individuals.
So: if I were a farmer who grew wheat and corn, I could trade that corn and wheat to someone else in the marketplace for something I wanted; or I could exchange it for a commonly traded commodity that could then be used to purchase other products or services that I desired.
Over time certain commodities were seen as media of exchange because they were valued by people who didn't necessarily want that commodity but knew other people would accept it in trade for labor or goods.
Gold and silver (to a lesser extent copper and bronze) were the commodities that were chosen by the free interaction of individuals in the marketplace. Money and the very concept of money were not the invention of academics or the state. The state likes to have the monopoly power to issue money because it is a way to control the population and to monetize state debts and expenditures.
Gold and silver are not magical or mystical as some like to imply when they refer to peoply like me as gold or silver fundamentalists or goldbugs. It isn't faith-based money as is the case with fiat paper. The reason that gold and silver became the preferred media of exchange in more industrialized countries is because those commodities had all the properties that one would want in a media of exchange, namely:
1) They were divisible. Meaning that they don't lose any of their value when broken into smaller pieces. This is why diamonds would make a poor money.
2) They are excellent storehouses of value because they almost never corrode. You wouldn't want to use anything perishable or easily corrodable as money for this reason.
3) They have a high unit value per measure of weight. As one example, pig iron wouldn't be a good medium of exchange for this reason.
4) They are durable metals but malleable so they can easily be fashioned as coins.
5) They have intrinsic value because they are valued for ornamental and industrial uses. Otherwise they would have never been chosen as monies. Their ornamental and industrial functions make possible their monetary functions.
Lastly, storehouse of value means that the money simply stores the product of your labor or wealth. When a person is payed in a money he expects that the money will hold its value. If the saver has his money debased then he has had a portion of his labor stolen. If the chosen money isn't a reliable storehouse of value (maybe a better way to say it is that it is a storehouse of the product of one's labor) then it isn't good money.
Oh, one last thing---When the Romans had good money for much of the empire they didn't have to force it on provinces. The world clamored for the denarii because it was a commodity money that wasn't debased for long stretches. It was only after the Roman authorities resorted to monetization of debt and expenses by debasement of the coin that the people began to resent the Roman money. The same thing happened in the Byzantine empire as people clamored for the benzant for nearly 800 years. This currency was barely debased at all for centuries. It is only when the money has been heavily debased (with more future debasement expected) that a money has to be forced on a people.
Inherent value = the 'storehouse of value' for commodity money, while price stability = 'storehouse of value' for fiat currency. I don't believe people are resentful of fiat currency so long as prices are stable. In fact, they usually appreciate the convenience and security of the electronic payments system.
This whole notion of price stability is mistaken. I don't want prices to be stable; I want them to be slowly falling over time to reflect productivity gains.
To address what you mean by price stability, the central bank has achieved nothing approaching price stability or full employment. They are, in fact, the cause of much of the unemployment and ever-rising prices. There is nothing stable about fiat money. You might be able to get away with saying that fiat money is predictable though. It is very predictable based on history's test that the central bank will continue debasing the paper currency until a terminal stage is reached whereupon the paper begins to deprecaite rapidly. This has been the cycle for all of paper money's history. These pretend monetary scientists who like to speak of "scientific management of the money supply" will not be ale to stop this outcome.
What I mean by price stability is the perception that you can hold on to your money (save it, invest it) and that it will have the same purchasing power when you are ready to spend it. This is not to suggest that prices have to be static or that imperceptible changes in purchasing power are influencing people's behavior.
Most people are not buying precious metals. Nor are they spending their discretionary incomes as soon as they receive them. This indicates confidence in the 'storehouse of value' of their fiat based savings.
In the wake of a crash, I suspect that local exchange currencies would be more effective in restoring economic activity.
Btw, are you in physical possession of your precious metals or is a certificate of ownership as good as gold?
"the central bank has achieved nothing approaching price stability or full employment."
This is surely a fact WWS, and this is where we really have to agree.
"They are, in fact, the cause of much of the unemployment and ever-rising prices."
Now here I dont know. I dont believe the CB is the true cause of these things (solely). Granted they may be contributing to our current problems because they are the govts fiscal agents and run monetary policy for the govt. But I dont think it is "money printing" by the CB, some form of "dilution" ...
Im thinking about govt fiscal indexing for fiscal transfer payments (SS/Medicare/ etc..) and I'm considering the impact of 'rents' on long term price stability. The COLAs and the allowing of ever increasing 'rents' as a policy would not be coming from the Fed itself, it comes via the govt sector though....
" When the Romans had good money for much of the empire they didn't have to force it on provinces. The world clamored for the denarii because it was a commodity money that wasn't debased for long stretches. "
Do you find it interesting that this recent find below claims to have unearthed a counterfeit denarius THAT WAS MADE OF SOLID SILVER:
Why would someone fabricate a fake denarius out of solid silver? Unless they dreaded the consequences (nailed to pole perhaps? enslavement?) of not being able to pay a tax in the actual Roman coin with Caesars image?
Excerpt: "Mr Moorhead said he was mystified by the motive of the forger, who could not even have made a profit because he struck it from solid silver.
He said: ‘Interpreting the coin is difficult. Were it a silver-plated piece, then it would have been explicable as an attempt to create a coin for profit by using a smaller amount of silver."
I am not mystified by the motive of the forger here. An understanding of MMT dictates that it is the coercive effect of credible tax enforcement that gives the denarius "value" for the residents of Brittannia. To the point of melding a coin out of other silver in their possession.
This is perhaps a very important find from only some weeks ago, imo it should change perceptions about the history of "money" in the west.
Most people aren't buying precious metals. Most people are sellers of these assets. This is why those who claim that silver and gold are bubbles are mistaken. How can an asset class be a bubble when the vast majority of individuals are sellers and not buyers? When everyone wants to buy gold and silver is the time to get out. We aren't anywhere near that day. This is a good time to buy both because there has been a correction in this bull market recently. Buy on the dip.
I own the physical metal. I live in Phoenix, Az. I buy my gold and silver through Republic Monetary Exchange. There's nothing wrong with a certificate of ownership, but I like to possess the physical metal. I think silver is the better way because it is still historically underpriced in terms of gold. I also don't think it's a bad idea to own mining stock right now. If you find the time, go to NIA (National Inflation Association) and get on their e-mail list. They have given me many good stock suggestions over the last year and a half. Don't worry--they don't hound you and aren't always tring to unload something on you.
It's true that most Americans still have faith in their faith-based currency. It's a case of mass delusion. I seem to recall that these people had faith in the dotcom and housing bubble prices as well. I am still amused that anyone would buy state, federal, or muni debt here in the United States, but they do. P.T. Barnum was right.
Who knows why the guy did it. You are going to need more than one coin to prove anything. A government that makes its citizens pay taxes in a certain currency will create a need to acquire the currency. This is a different thing than intrinsic 'value' though.
If you are really interested in the history of money then look for a book called "Gold" by Nathan Lewis (think that's the author's name.) He isn't an Austrian and had much criticism for Rothbard in the book, but it is still an informative and entertaining read.
Maybe there is not much in the archeological record since there was probably lets say a 'severe' penalty if you were caught counterfeiting.... probably via a very public form of punishment to discourage the practice..
I'll check that book out... but WWS am am most interested in looking into silver right now...any sources there?
What I wrote previously about taxation and money is entirely consistent with Austrian thought and every other school as far as I know. Again, though, that is a different thing from paper being a good money or having intrinsic value. When paper money collapses people can't get rid of it fast enough even though the govt. still taxes in the currency.
There is a reason why so many of the most prominent politicians from the early years of the United States were so passionately against a central bank. The following is a February 1834 quote by President Andrew Jackson about the evils of central banking....
I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out.
I am listening to the podcast on money creation. They say the Fed.'s success is due to the rest of the world trusting in thier action. I say that's bullshit. The rest of the world is afraid of our ballistic submarine fleet, and god knows what is orbiting the earth. When the average american youth says screw you I'm not going to fight and die to keep privileged whole, than the end of america is at hand.
Sorry to bring this reality check to the edmucated.
"You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out."
That is classic! We need someone like him today...
My current belief is it goes beyond just the Central Bank, it is what M Hudson calls the 'FIRE' (Finance/Insurance/Real Estate) sector, this sector needs a whole new regulatory regime that re-focuses them towards better public purpose/outcomes for all. I'm starting to think that the Fed just runs interference for this whole sector.
I would have to sell the gold and silver for some fiat currency of course. I think by the time gold and silver reach a bubble the dollar will be in crisis. Some fiat currencies are better than others. I will convert much of the gold and silver (I will always hold some of these metals) to cash and then promptly buy other assets. I think commodities, energy and mining stocks, and Asian companies are the place to be over the next decade.
It may just be that gold and silver will be currencies again somewhere in the next ten years. Maybe here.
They really need to explain this to everyone. Then get into the part that this is what sustained the Asian meltdown 12 years ago and what is sustaining Europe with unlimited forex swap lines or whatever you call it.
ReplyDeleteOK. At least this is official now. But then they continue to explain that bank lending is reserve constrained?
ReplyDeleteDidn't we already know this? I know some of you will quibble that creating reserves isn't creating money, but those reserves become money in most instances. It's just semantics. I don't see how this is newsworthy.
ReplyDeleteWWS,
ReplyDeleteYou might take a look at this recent (12/10) short (22 pgs) paper by Prof. Wray titled "Money".... I think you may agree with some stuff in there...
http://www.levyinstitute.org/pubs/wp_647.pdf
See what you think.
Resp,
Matt,
ReplyDeleteChecked it out. Agreed with very little. He argues that a commodity (a good as he identified it) can't be a money, but he concedes that there was a transition from a commodity money to a debt-based paper money. Gold and silver have served as monies in more industrialized civilizations for thousands of years. It is paper that has been the exception. Governments normally resorted to fiat paper in times of war or extreme debt in centuries past--crisis in other words.
Money does not have to be debt. That it is debt-based is the problem. The main problem with a paper currency is that its purchasing power is dependent on the monopoly issuer not creating too much of it. This has been its undoing every time. The U.S. dollar will not be an exception.
Gold and silver (and to a lesser extent copper) simply aren't goods like toothepaste and coffee. They have monetary attributes that other goods or commodities lack. It for that reason that by the actions of individuals in the market place that market actors looked for a common medium of exchange to escape the barter system. He implies that a barter economy is no different from an economy where a commodity serves as the money. This is nonsense.
WWS,
ReplyDeleteIll get back to you on this ....short on time this PM... pls stay tuned....
Matt
WWS,
ReplyDeleteHere is a link to a find of Roman coins in Brittannia from around 64 AD.
here
Here you can read they found about 1,000 coins in a jar in 2009. All silver denarii. A few were from 64 AD and most were from 200BC. Look at the coins some were significantly smaller than others, leading me to believe that it was not the silver that gave them their value. It was the Roman poll tax.
So the Romans roll into Brittannia, and they take along an inventory of 250 year old silver "tokens" (denarii). Immediatiely they implement a census and corresponding poll tax to insure that the indigenous people accept the denarii as payment in order to provision the Roman legions that remain present in Brittannia.
Do the Brittans accept the denarius but only because they are made of silver? Or is it the threat of punishment due to non payment of the poll tax?
then last year there was this find:
here
from 300 AD, 250 years later, now 58,000 coins but made of lesser valued metals. You can see how as the Roman operations there expanded, they had to increase the circulation of 'tokens' so now we find huge amounts of coins and cheaper materials...
I do not believe the Roman currency credibilty here was due to the metallic comp of the tokens.
Good stuff, Matt. If you don't mind me asking, what do you do for a living, do you work in the finance/econ field?
ReplyDeleteJoe,
ReplyDeleteSmall business. Macro for some reason has always been my "intellectual hobby" as an adult. I have a technical degree, although I took "101 & 102" as electives in college and probably have 12-15 credits (mostly micro) under and grad.
I got into it to be better informed about my political positions (informed voter) and also to understand about the economy for investment purposes.
Ive read alot of books, Barrons mag, WSJ on my own over the years and now we have the internet and it's even easier.
Much of what Ive read over the years (mostly Monetarist as that was what was mostly avialable) never really resonated ( it never really made sense to me) until I came across the "MMT" paradigm via Mike's radio show a few years ago (after seeing Mike in his appearances on Fox News). Once I went thru the math/accounting with MMT it just really clicked.
Fortunately, I didnt have a personal 'investment' in the mainstream orthodox view (it's just a hobby for me, and I just seek the truth/best information). But many others have careers invested in the mainstrean views and I can see how hard it would be for them to just turn their backs on that, and admit they were mistaken for so long. Also, many others are actually corrupt in my view.
I just cant understand how people, who are otherwise very intelligent, cant see how the current mainstraim paradigm is damaging our country, check that, it is damaging western civilization because it is the same in Euroland. If I can figure this stuff out why cant they? It's like they are literally blinded or corrupt to a depraved level.
Accordingly I'm trying to look back into western history to try to get a better handle on where this could have come from. What were we doing back then? What were the Romans doing here in Brittannia? It looks to me that they had a better understanding of how to operate a monetary system to achieve their public purposes (albeit depraved) than the moronic policymakers we put in place today. Sad.
Matt,
ReplyDeleteThe reason that Roman coinage, whether silver or gold (copper and brass were also used), had a smaller precious metal content over time is that the Roman authorities, especially late in the empire, resorted to currency debasement to pay for its bills. The state merely had to clip the coinage to profit by way of seignorage. The Roman authorities would than stamp the coin at the same nominal face value, but the debased coin would simply trade at a lower value in the market place. The people simply had purchasing power stolen from them which was transferred to the state. This hidden tax of inflation is more poltically palatable than direct taxation because it is poorly understood by most.
The Roman government imposed price controls to combat the rising prices. There were serious penalites for those who tried to sell a product above the cost set by the government. It was, of course, the government that was responsibe for the price inflation.
If one looks beack over the last 2500 years, the empires or countries that had the strongest commodity money were the centers of world commerce. Examples of this include the Byzantine Empire, ancient Greece, the Roman Empire, the British Empire, and even the U.S. until recently. When those countries began debasing their currencies they begin to decline.
WWS,
ReplyDeleteLook at the picture of the coins in the first link. One looks like the size of a dime and another one a quarter. Yet they are both denarius. How did that work? Are you saying that the Roman monetary authorities did not notice that?
The 800 pound gorilla in the room,
ReplyDeleteunregulated Over the counter derivitives and a corrupt do nothing CFTC voting members.
check out the comments from an article by Chris Martenson.
Submitted by Chris Martenson
JP Morgan Wins: CFTC Position Limits Do Not Apply (To Them)
Speaking of changing the rules...
Gold and silver are now down hard over the past two days and the reason may have something to do with the fact that the CFTC utterly caved to JPM in their long-awaited decision on position limits in a 4-1 vote.
While position limits will eventually be set, maybe, someday, the course of action taken by the CFTC grandfathers in JPM's (and HSBC, et al) current outlandish positions.
I would love to meet Brooksley Born and buy her a box of candy for Valentines day every year from now on. She alone is the only govt official who warned (see PBS "The Warning") and was offed by Greenspan, Summers, and Rubin,
We know thanks to Frontline's (PBS) Video timeline - Explore a timeline video chronicling the tide of regulation and derivitaves. Also the only hero in this disgusting mess, Brooksley Born. A woman I would love to meet and give candy to on valentine's day. All others in this video of "The Warning" are scum, for not making a stand and doing what was right and just. To hell with the CDO's and swap markets, if you want a low risk business investment, hire someone to do the legwork and filter out the bad investments, do not use the american people as a backstop. Myself I just started to pay attention to financial goings on just recently. I wish I had also done something to help stop the fraud.
Can anyone out there explain the core beliefs of the equivalents in power today of Greenspan, Summers, Rubin, . This documentary uncovers the core beliefs of these thugs, and the Presidents, all guilty.
Does Bernanke, Geithner, Gensler, etc all believe in the status quo of no govt regulation, pro business-defacto against the american people financial security, what are the core beliefs of the present bunch. We need some prosecutions and claw backs, and dismissals from office, soon. Someone enlighten me on the present status quo, what are their core beliefs, and what is the direction they a taking to achieve this?
Matt,
ReplyDeleteThanks for the response. You are tremendously well-informed on the subject and I'm amazed that you're not a professional economist.
wws,
ReplyDelete" over time is that the Roman authorities, especially late in the empire, resorted to currency debasement "
Maybe the economies in the Provinces expanded and more tokens were needed. As silver was not as abundant, they started to use more abundant metals to fill the needs of the expanded economy.
There may have been enough silver in 200 BC with the small population, but i read that at its height, historians think there were 3 legions in Brittania. 4-5,000 per legion and they were paid a denarius per day. So that 50,000 coin find (if they were all equivalent to a denarius) would have been about 3-4 days payroll for the entire Roman contingent in Brittannia.
WWS, Im thinking the problems may have started when the native population started to desire to use the Roman currency in their own economy. Trying to run their economy in an external currency, when the Roman monetary authorites were only circulating enough to get their own legions provisioned. this could not work in the long run and the society would collapse.
Perhaps the 'Brittannians' should have used a competing currency (your idea) along with the Roman one, then they could have made sure their own people had enough tokens to run their domestic economy.
WWS,
ReplyDeleteDo you think there was any unemployment among the Romans in Brittannia?
Resp,
I can say that the Druids were decimated during the 1 century AC
ReplyDeleteand then the Jews had a temple destroyed.
I am sure the Romans were blaming all these immigrants and foreignors they exploited just like the Tea Party Republicans blame the immigrants today ...
when times are good exploit, then kick them out ... and play games with economics
How did Perry in Texas hide $30 billion in debt and suddenly go public with it 1 month after being elected on platform that he had Texas in Surplus?????
Goog,
ReplyDeleteYes it looks like the same type of monetarily deprived economy on the other side of the empire in Judea at the same time.
The civil govt of Herod was trying to run the Judean economy using the Roman currency (this is revealed all throughout the Biblical accounts) and there just was not enough being spent into circulation and that society eventually imploded on itself; culminating in the destruction of The Temple in 68 AD as the Judeans rebelled but the Roman military being just too strong at that point to overcome for that small province.
Goog, the policy of monetary authorities today (as far as outcomes) are not very far from what the depraved Romans delivered to the empire 2,000 years ago.
Despite all of our technical advances in the west, we have learned nothing about how to ensure the best economic outcomes in 2,000 years. The economics 'profession' and the economic policymakers in govt are a disgrace to western civilization/humanity.
How can Texas go from surplus to $30 billion shortfall over two years in the matter of 3 months ?
ReplyDeleteRick Perry was hiding something and his surplus was as Ponzi Scheme !
WWS,
ReplyDeleteIf the Romans thought that silver on it's own was a very valuable commodity, why would they release/spend coins made of this substance into the general population of a remote Province? How could they be assured of getting it back if the material itself was so valuable? What would prevent the people who obtained the coin from melting it down into some sort of trinket or something? Were they taking a big risk in this regard? Were they at risk of losing some/all of their 'precious' metal when they gave up it's custody thru it's expenditure?
If you want to understand the reality, look over this...."A concept I’ve designated as the Democratic Bankruptcy Paradox: The paradox by which every democracy eventually goes bankrupt—regardless of the people’s will and intention of keeping it from going bankrupt."
ReplyDeletehttp://gonzalolira.blogspot.com/2011/01/why-democracies-will-always-go-bankrupt.html
Brantley,
ReplyDeleteWhat is "fiscal incoherence"? You know I read stuff like that and I sometimes think I know what dyslexia is like. I cannot understand it.
Look, when the Romans went into Brittannia in 64AD, they spent (apparently) 250 year old silver tokens (denarii from 200 BC) into circulation in order to get their forces provisioned. They didnt borrow the money, they brought the coins with them, implemented a poll tax to be sure it would be accepted.
At that point, the Romans were running a deficit, ie they were spending denarius and didnt receive any back until the poll tax was due. They didnt care.
Now Perry says his surplus was due to the Stimulus Funds ..... and those were due to Obama and Bernanke.
ReplyDeleteWhat a hypocritical liar.
Matt.....
ReplyDeleteSeeing that you read the article, the explanation was there.
Look where it got the Romans....
The point is that a system/ belief system may work for awhile but it doesn't mean that it's right and will keep working forever.
U.S. keeps adding debt, economic cycles boom and then bust and every time we raise more debt and our dollar buys less than it did before. For the first time, the newest generation may have a lower living standard than their parents.
Forces are always changing and acting upon their spheres of influence. Other systems are becoming dominant. Global markets seem to indicate that how debits and credits are created do matter.
Rome: Canstantine did not convert to Christianity due to currency 'debasing'.
ReplyDeleteMatt,
ReplyDeleteI know Constantine wasn't a central banker, but if I were one, much like Constantine, I think I would find religion too. It will take something like divine intervention to save these fools.
Money has no utility or economic value other than to function as a unit of exchange.
ReplyDeletemacrosam,
ReplyDeleteMoney also serves as a unit of account and storehouse of value. Those are utilities too.
wws,
ReplyDeletecan you expand on the "storehouse of value" issue?
I dont see how this could be without the Romans decreeing that the wage was set at "a denarius per day". That imo would be the price anchor, and would maintain "value" of the "money"
Resp,
Matt,
ReplyDeleteThe value of the money was the commodity itself. The more precious metal content, the more purchasing power in the marketplace.
These commodities were monies before the state monopolized the issuance of money.
First there was barter. Barter is of course clumsy so over time individuals in the marketplace looked for commodities that they could trade which would be readily accepted by other individuals.
So: if I were a farmer who grew wheat and corn, I could trade that corn and wheat to someone else in the marketplace for something I wanted; or I could exchange it for a commonly traded commodity that could then be used to purchase other products or services that I desired.
Over time certain commodities were seen as media of exchange because they were valued by people who didn't necessarily want that commodity but knew other people would accept it in trade for labor or goods.
Gold and silver (to a lesser extent copper and bronze) were the commodities that were chosen by the free interaction of individuals in the marketplace. Money and the very concept of money were not the invention of academics or the state. The state likes to have the monopoly power to issue money because it is a way to control the population and to monetize state debts and expenditures.
Gold and silver are not magical or mystical as some like to imply when they refer to peoply like me as gold or silver fundamentalists or goldbugs. It isn't faith-based money as is the case with fiat paper. The reason that gold and silver became the preferred media of exchange in more industrialized countries is because those commodities had all the properties that one would want in a media of exchange, namely:
1) They were divisible. Meaning that they don't lose any of their value when broken into smaller pieces. This is why diamonds would make a poor money.
2) They are excellent storehouses of value because they almost never corrode. You wouldn't want to use anything perishable or easily corrodable as money for this reason.
3) They have a high unit value per measure of weight. As one example, pig iron wouldn't be a good medium of exchange for this reason.
4) They are durable metals but malleable so they can easily be fashioned as coins.
5) They have intrinsic value because they are valued for ornamental and industrial uses. Otherwise they would have never been chosen as monies. Their ornamental and industrial functions make possible their monetary functions.
Lastly, storehouse of value means that the money simply stores the product of your labor or wealth. When a person is payed in a money he expects that the money will hold its value. If the saver has his money debased then he has had a portion of his labor stolen. If the chosen money isn't a reliable storehouse of value (maybe a better way to say it is that it is a storehouse of the product of one's labor) then it isn't good money.
Oh, one last thing---When the Romans had good money for much of the empire they didn't have to force it on provinces. The world clamored for the denarii because it was a commodity money that wasn't debased for long stretches. It was only after the Roman authorities resorted to monetization of debt and expenses by debasement of the coin that the people began to resent the Roman money. The same thing happened in the Byzantine empire as people clamored for the benzant for nearly 800 years. This currency was barely debased at all for centuries. It is only when the money has been heavily debased (with more future debasement expected) that a money has to be forced on a people.
Inherent value = the 'storehouse of value' for commodity money, while price stability = 'storehouse of value' for fiat currency. I don't believe people are resentful of fiat currency so long as prices are stable. In fact, they usually appreciate the convenience and security of the electronic payments system.
ReplyDeleteLaura,
ReplyDeleteThis whole notion of price stability is mistaken. I don't want prices to be stable; I want them to be slowly falling over time to reflect productivity gains.
To address what you mean by price stability, the central bank has achieved nothing approaching price stability or full employment. They are, in fact, the cause of much of the unemployment and ever-rising prices. There is nothing stable about fiat money. You might be able to get away with saying that fiat money is predictable though. It is very predictable based on history's test that the central bank will continue debasing the paper currency until a terminal stage is reached whereupon the paper begins to deprecaite rapidly. This has been the cycle for all of paper money's history. These pretend monetary scientists who like to speak of "scientific management of the money supply" will not be ale to stop this outcome.
WWS,
ReplyDeleteWhat I mean by price stability is the perception that you can hold on to your money (save it, invest it) and that it will have the same purchasing power when you are ready to spend it. This is not to suggest that prices have to be static or that imperceptible changes in purchasing power are influencing people's behavior.
Most people are not buying precious metals. Nor are they spending their discretionary incomes as soon as they receive them. This indicates confidence in the 'storehouse of value' of their fiat based savings.
In the wake of a crash, I suspect that local exchange currencies would be more effective in restoring economic activity.
Btw, are you in physical possession of your precious metals or is a certificate of ownership as good as gold?
WWS,
ReplyDelete"the central bank has achieved nothing approaching price stability or full employment."
This is surely a fact WWS, and this is where we really have to agree.
"They are, in fact, the cause of much of the unemployment and ever-rising prices."
Now here I dont know. I dont believe the CB is the true cause of these things (solely). Granted they may be contributing to our current problems because they are the govts fiscal agents and run monetary policy for the govt. But I dont think it is "money printing" by the CB, some form of "dilution" ...
Im thinking about govt fiscal indexing for fiscal transfer payments (SS/Medicare/ etc..) and I'm considering the impact of 'rents' on long term price stability. The COLAs and the allowing of ever increasing 'rents' as a policy would not be coming from the Fed itself, it comes via the govt sector though....
WWS,
ReplyDelete" When the Romans had good money for much of the empire they didn't have to force it on provinces. The world clamored for the denarii because it was a commodity money that wasn't debased for long stretches. "
Do you find it interesting that this recent find below claims to have unearthed a counterfeit denarius THAT WAS MADE OF SOLID SILVER:
This new find.
Why would someone fabricate a fake denarius out of solid silver? Unless they dreaded the consequences (nailed to pole perhaps? enslavement?) of not being able to pay a tax in the actual Roman coin with Caesars image?
Excerpt:
"Mr Moorhead said he was mystified by the motive of the forger, who could not even have made a profit because he struck it from solid silver.
He said: ‘Interpreting the coin is difficult. Were it a silver-plated piece, then it would have been explicable as an attempt to create a coin for profit by using a smaller amount of silver."
I am not mystified by the motive of the forger here. An understanding of MMT dictates that it is the coercive effect of credible tax enforcement that gives the denarius "value" for the residents of Brittannia. To the point of melding a coin out of other silver in their possession.
This is perhaps a very important find from only some weeks ago, imo it should change perceptions about the history of "money" in the west.
Laura,
ReplyDeleteMost people aren't buying precious metals. Most people are sellers of these assets. This is why those who claim that silver and gold are bubbles are mistaken. How can an asset class be a bubble when the vast majority of individuals are sellers and not buyers? When everyone wants to buy gold and silver is the time to get out. We aren't anywhere near that day. This is a good time to buy both because there has been a correction in this bull market recently. Buy on the dip.
I own the physical metal. I live in Phoenix, Az. I buy my gold and silver through Republic Monetary Exchange. There's nothing wrong with a certificate of ownership, but I like to possess the physical metal. I think silver is the better way because it is still historically underpriced in terms of gold. I also don't think it's a bad idea to own mining stock right now. If you find the time, go to NIA (National Inflation Association) and get on their e-mail list. They have given me many good stock suggestions over the last year and a half. Don't worry--they don't hound you and aren't always tring to unload something on you.
It's true that most Americans still have faith in their faith-based currency. It's a case of mass delusion. I seem to recall that these people had faith in the dotcom and housing bubble prices as well. I am still amused that anyone would buy state, federal, or muni debt here in the United States, but they do. P.T. Barnum was right.
Matt,
ReplyDeleteWho knows why the guy did it. You are going to need more than one coin to prove anything. A government that makes its citizens pay taxes in a certain currency will create a need to acquire the currency. This is a different thing than intrinsic 'value' though.
If you are really interested in the history of money then look for a book called "Gold" by Nathan Lewis (think that's the author's name.) He isn't an Austrian and had much criticism for Rothbard in the book, but it is still an informative and entertaining read.
Maybe there is not much in the archeological record since there was probably lets say a 'severe' penalty if you were caught counterfeiting.... probably via a very public form of punishment to discourage the practice..
ReplyDeleteI'll check that book out... but WWS am am most interested in looking into silver right now...any sources there?
"A government that makes its citizens pay taxes in a certain currency will create a need to acquire the currency."
ReplyDeleteWelcome aboard! ;)
That is the definition of 'money' WWS. Using anything else in trade is trading commodities/barter (gold/silver/etc..).
Resp,.
Matt,
ReplyDeleteWhat I wrote previously about taxation and money is entirely consistent with Austrian thought and every other school as far as I know. Again, though, that is a different thing from paper being a good money or having intrinsic value. When paper money collapses people can't get rid of it fast enough even though the govt. still taxes in the currency.
There is a reason why so many of the most prominent politicians from the early years of the United States were so passionately against a central bank. The following is a February 1834 quote by President Andrew Jackson about the evils of central banking....
ReplyDeleteI too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out.
I am listening to the podcast on money creation. They say the Fed.'s success is due to the rest of the world trusting in thier action. I say that's bullshit.
ReplyDeleteThe rest of the world is afraid of our ballistic submarine fleet, and god knows what is orbiting the earth. When the average american youth says screw you I'm not going to fight and die to keep privileged whole, than the end of america is at hand.
Sorry to bring this reality check to the edmucated.
Bob,
ReplyDelete"You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, (bringing his fist down on the table) I will rout you out."
That is classic! We need someone like him today...
My current belief is it goes beyond just the Central Bank, it is what M Hudson calls the 'FIRE' (Finance/Insurance/Real Estate) sector, this sector needs a whole new regulatory regime that re-focuses them towards better public purpose/outcomes for all. I'm starting to think that the Fed just runs interference for this whole sector.
Thanks for the quote!
WWS,
ReplyDeleteWhen it comes time to sell gold and silver, for what would you sell it?
Laura,
ReplyDeleteI would have to sell the gold and silver for some fiat currency of course. I think by the time gold and silver reach a bubble the dollar will be in crisis. Some fiat currencies are better than others. I will convert much of the gold and silver (I will always hold some of these metals) to cash and then promptly buy other assets. I think commodities, energy and mining stocks, and Asian companies are the place to be over the next decade.
It may just be that gold and silver will be currencies again somewhere in the next ten years. Maybe here.