[evilgenius]

I think it is readily apparent that the people are going to get what they want. Right now, they want to enjoy their fears. I can stand around asking them why they are so afraid, but that wouldn't do me any good. I think they are going to try out some other kind of money that doesn't have a connection to debt. They just got a president out of their fears. Why not a new money system? They will find out a few things when they do. First of all, it will strip them of any notion of privacy that they thought they had because it won't be a system that takes anyone at their word. Debt works because it believes people, even if, as is happening today, so many are lying. Second, there will be no way out, no bankruptcy to salvage them from taking on risk. It'll be a one shot wonder type of economy, where you can't learn from your own mistakes. If you are going to learn at all you will have to learn from someone else's mistakes. After the initial wave of throat cutting I wonder how many people will volunteer for that job? Get ready for the new cruel. The price of keeping the lights on when you can't make ends meet will be slavery.

[Outcast_Searcher]

$this->bbcode_second_pass_quote('careinke', '')$this->bbcode_second_pass_quote('radon1', 'N')obody is controlling the money. Who is?

[Outcast_Searcher]

I'll go with The Economist's take, since they're experts on economics. This is dated Nov. 1st.

$this->bbcode_second_pass_quote('', '
')Greater fool theory
The bitcoin bubble

There may be good reasons for buying bitcoin. But the dominant reason at the moment is that it is rising in price

[Outcast_Searcher]

The interesting thing to me will be (if the end doesn't arrive before the futures markets are well established and liquid), whether there will be a reasonable way to short this beast with some safety, such as buying put options.

Then it would take a brave soul to do so and take losses -- until they are proven right.

I don't know if I'll play (in small size), but it should be lots of fun to watch.

...

Oh, and for heaven's sake, if you do decide to "invest" (i.e. speculate), don't do it with the money you need to survive/pay the rent. Because if the experts in economics are right, when the end comes it could be VERY rapid.

[careinke]

Bitcoin has crashed at least six times that I am aware of. All the way from less than a penny up to over $7,000.00 today. Tulip's were easy to reproduce. There will only be 21 million bitcoin ever produced. There are over 6.5 billion people with access to bitcoin today. Not a good comparison.

[Tanada]

Every economic bubble is based on the Greater Fool operating principal. If you buy a foolish investment your best course of action is to find a bigger fool and sell the investment at a profit. Eventually the bad investment passes up the chain of fools until the last one holding it can't find a profitable way of unloading the instrument, whatever it is, and then the bubble goes POP as the value resets to intrinsic or perceived value.

[evilgenius]

There is another problem with debt, other than that it risks blowing up the economy when debtors renege on their promise to repay. Debt can, at least in theory, hold down wages. The specific example of it working that way I would like to cite is retail in the US. Many of the largest publicly traded retailers have been the object of takeovers that were funded with debt. Even with very low interest rates the people who make up the workforce at those retailers have not been able to enjoy wage increases of any real merit. I don't mean the executives of those retailers, but their floor people.

For me, this is a shaky argument, as I perceive wages as the result of market forces. They might go up along with the economy in general. They might also respond to laws, such as minimum wage laws. That being said, I think there is something to the tightening a company suffers when it becomes saddled with huge debt repayment costs due to a takeover, hostile or otherwise, recently enough that those costs are up front to it. Depending upon the structure of the debt, that can mean a decade or more of difficulty responding to challenges like workers demanding higher wages, or internet competition. I don't think the figures actually support the internet as the culprit in the demise of retail as much as people think. I think this kind of low margin for profit built into the equation debt is more to blame.

Often the debt these companies incur amounts to a death sentence. Right now, for instance, many retailers are having problems handling their debt, and interest rates are low. What it amounts to is the proliferation of profligate debt on a corporate scale. Granted, these companies didn't seek this debt. They were taken over by another who used this debt in order to purchase them, and then moved the obligation to pay the debt to the company they purchased. Not unlike the greater fool theory already discussed concerning bitcoin, the shareholders at these companies sought to go along for the ride. They didn't see the takeovers as eventual threats to a going concern because that threat was not imminent. They didn't see the effect a debt rattled company would have upon their dividend returns as detrimental either. I guess whatever they thought they might have gotten above the dividend return they did get, but wouldn't because that money would go to service debt - as well as fund the extravagant salaries of those who took over, was nothing in comparison to the stock price increase a much larger company might see. The shareholders essentially fell down in their duty as owners who represented what ownership looks like when it comes from all sectors of society. They became an easy bribe.

Yeah, so I can also criticize debt, even this popular form of debt which hasn't been pointed out much as profligate. I have criticized debt in this thread, but only profligate debt on the part of individuals, mostly as consumers. I spoke of debt used to purchase an asset that brought in a greater return than the cost of that debt as good debt. I think of this kind of corporate debt which doesn't have enough margin, however, as profligate as well. It works against the idea of the corporation as a collection of stakeholders and centers the purpose solely with those who take over. Then it only takes the normal perturbations of a working economy to distort the positions of those who belong, but don't have any say.

[kanon]

$this->bbcode_second_pass_quote('evilgenius', 'T')here is another problem with debt, other than that it risks blowing up the economy when debtors renege on their promise to repay. Debt can, at least in theory, hold down wages. The specific example of it working that way I would like to cite is retail in the US.

For me, this is a shaky argument, as I perceive wages as the result of market forces. . . . . I think this kind of low margin for profit built into the equation debt is more to blame.

Often the debt these companies incur amounts to a death sentence. . . . They were taken over by another who used this debt in order to purchase them, and then moved the obligation to pay the debt to the company they purchased. . . . The shareholders essentially fell down in their duty as owners who represented what ownership looks like when it comes from all sectors of society. They became an easy bribe.

Yeah, so I can also criticize debt, even this popular form of debt which hasn't been pointed out much as profligate. I have criticized debt in this thread, but only profligate debt on the part of individuals, mostly as consumers. I spoke of debt used to purchase an asset that brought in a greater return than the cost of that debt as good debt. I think of this kind of corporate debt which doesn't have enough margin, however, as profligate as well. It works against the idea of the corporation as a collection of stakeholders and centers the purpose solely with those who take over. Then it only takes the normal perturbations of a working economy to distort the positions of those who belong, but don't have any say.

[evilgenius]

I don't think the main problem really is the Fed. I believe what you are talking about is what happens when people go to an event where the seating is first come, first serve, and the richest are always afforded a place up front. Let's say that proximity to the front matters in terms of experience. Even if the poor get there first, they are either asked to move to the back, or shamed into it. Sometimes they find new seats created ahead of them. Sometimes things are, oddly, reserved. Further, the culprit is exactly the concentration of power. Money is really a way to count power. But the way that power concentrates in our system isn't due to the money system. It's due to incorporation. Whatever changes made there would also change the way that banks, of almost any size, operate.

The biggest problem with concentration of power within corporations is that it creates a tier of influence that lies just short of the tier the government operates on. But the government, in almost any form, is an extension of the people. As such, it can, and should, operate on a tier of such influence. Corporations are not extensions of the people. Under extreme concentration of power, they may not even be extensions of their shareholders, let alone the full body of stakeholders. In fact, they are often extensions of a particular way of thinking about owning stock in a corporation. This way of thinking can sometimes be easily manipulated by those who make the decisions at a corporation. That way of thinking in no way has to be a majority of shareholders. It only has to rule the marginal conditions driving the stock price. When both the decision makers and the influential shareholders agree, that spells bad news for all other stakeholders of the corporation. It may even spell bad news for the corporation as a going concern. Whether we are talking about banks colluding with tax evaders, Eddie Lampert running Sears into the ground, or Hobby Lobby denying birth control to its employees the problem is the same.

This is a good place to mention something I've talked about before on this site, the introduction of a new class of stock to counter the concentration of power by management of corporations. My idea is that a new class of stock ought to be introduced by which, I think preferably, executive bonus pay is regulated. This class of stock should, reaching for a historic ideal, be comprised of about as much of the share of the total number of shares as the bottom 90% has ever really owned of everything, something like 10% of the total number of shares. The sole means for this class of stock to enjoy wealth would be from the total pool of money available for the bonuses to executives. They would vote as to how much the executives would get, by voting for a percentage of that total money available to them they would retain. That figure could be the average of all votes in whatever manner was figured reasonable. The actual bonuses would then come out of whatever was left over. If such a grip upon bonus pay doesn't prove sufficient, actual pay could be made to be the measure. Of course, there would be exceptions for brand new industries, like at various times in tech where dynamic persons were necessary to the incremental existence of a fledgling industry, but as the mix of competitive corporations and/or ideas became more obvious those intrinsic situations disappeared. And the protection a certain company might have from the oversight wrought by this new class of stock should go away as well. Neither would such a thing be necessary within the makeup of very small corporations, sole proprietorships or shops with very few employees (either real or virtual).

There are all kinds of philosophical arguments surrounding this idea, such as who would own this class of stock. There are also other changes that would help such a scheme function more properly, like eliminating tax on dividends because they are essentially double taxation which acts to dis-incentivize people from investing in payouts of that nature. Should holders of this class of stock be prohibited from otherwise engaging in the owning of other types of assets as long as they own it, or for a period surrounding their ownership? It's enough that I've thrown this wrench into this thread as it is. I mostly wanted to counter the more inchoate conspiracy theory based arguments determined to destroy debt based money as a means for man to achieve his purposes, not to go on about my ideas.

[onlooker]

I think Kanon did a great job with his last post of describing the inherent problem of Money as in relates to its inevitable trajectory leading to accumulation of wealth and issuance of Debt. And Evil has been explaining in a excellent manner how and why classes of society form and how they form both parasitic and symbiotic relations. To further pursue Kanon's points it would be useful to have a basic background of how and why Money came to be.

It is well established that the advent of the era of Agriculture led to the establishment of a Currency or money. Agriculture introduced the concept of ownership as groups settled down and accumulated food and other items. Cumulative acquisition of food products led to a situation of inequality among peers in societies. This accumulation then introduced the concept of wealth. In turn this led to a system of financial hierarchy. As money and power became synonymous. Concurrently, agriculture allowed for the establishment of cities and then Empires all of which needed some form of accounting of value and wealth and also ease of trade and financial transactions. All of which made the advent of money necessary and logical.

At this point basic human psychology is apparent. Power and wealth leads to an obsession or addiction to this same power and wealth. As the benefits (perceived and otherwise) of each to any particular individual or group cannot be overemphasized. And so, in keeping with the basic thesis that money bestows power and in turn power is corrupted by money a cycle is created and repeated by beings such as ourselves who are swayed and affected by the influence of money and power. The problem as Kanon referred to at the end of his post, is that this cycle of money and power came to influence everyone directly or indirectly. And even worse was institutionalized via our Economic Debt based Capitalistic system. Those under the sway of the influence of money/power would naturally design a system that would allow them to increase their wealth/power.

[kanon]

The point I want to make on the FED debt-money money system, the system of banks issuing money to fund loans, is that this is the heart of the corporate oligarchy that now controls at least the U.S. and Europe. There are lots of other things going on, of course, but the key factor is that the corporate (banking cartel) agenda is always funded. Imagine if you had a magic checkbook that never ran out of checks and the checks never bounced. Over time, you too could achieve total dominance simply by making sure your allies and cronies always had the money they needed. Your rivals, on the other hand, would be severely limited by the need to constantly get money from the economy. The only practical constraint you would experience is the need to make sure your checks were accepted. So far, the banking cartel has not had a problem with this, but the huge increase in debt in relation to the real economy suggests that there may be problems in the future.

There were requirements that the banks had to maintain their ledgers by having performing assets that matched their liabilities. However, QE and ZIRP have negated these requirements. The FED money system has copied China, which has periodically re-funded their banks when the amount of non-performing loans became too high.

[evilgenius]

I've always said that bailing out the banks was something that could have been done differently. The threat to the economy was real. If the ATM's had all been turned off for the same number of days as the airplanes stopped flying after 9/11, the system may not have been able to get back up. People might have had to make do with whatever cash they had in their pockets. The run might have been unstoppable.

That being said, what was lacking was the assurance that the government was going to step in and maintain the solvency of the banks. The fact they did it with a total, rather than a partial, bailout was not necessarily baked into the response. I thought that they should have gone after the causes, the bad loans, especially those that had gone bad after they reset. I would have preferred that the government had engaged those to whom the money was lent, and helped them to keep paying. They could have done it by addressing the entire mortgage market and imposing an arbitrary rate upon all agreements, something low enough that a large enough proportion of those who had borrowed could still make their loan payments. They could even have gone negative and made it as if those people were paying back for having borrowed less principle to begin with. That's what those who owed would have paid. The banks would have gotten the same payments as the agreements had expected because the government would have paid the difference.

Then they could have eventually bailed out the banks for the rest of the money as things shook out. There were bound to be a lot of loans that wouldn't have made it anyway, more than what the bank's allowances were able to take care of. But that process would have been more transparent. Those who, perhaps, never intended to keep their promises may have been more properly sorted out from those where some other scheme caused them to fail. It would have cost the government about the same, but maintained the players as was. They could have allowed rates to reset gradually (easing off of the imposed low rate for everyone), after examining whether the new rates the loans reset to were appropriate, or if a lower rate might be better seeing as how many were borrowing as part of schemes. Making the banks eat the difference between the original reset rates and the new rates would have amounted to the punishment that so many have been looking for the banks to receive.

Now there is a lot of QE debt that has no connection to the real debt markets. It doesn't have the immediate promises of the people involved in those markets to base activity upon. The only people who can engage with the QE debt are too removed from the daily life of the individual to have the desired impact. At the level of the daily life of the individual there is not the same expansion of the money supply. It is as if money is still too valuable for people to part with, and, for quite some time, fewer people could borrow to make up the difference.

[dolph]

Debt = currency = industry. All currency everywhere on this planet originates as debt issued by banks.

Global industry, or the production and consumption of all of the earth's materials, until they are all gone, is the way these debts are supposed to be paid back. But they never actually are. Instead, all debts are rolled over into more debt. Debt rises to infinity.

The entire world economy is a ponzi scheme. Welcome to the matrix. But, you know, life is good. I just had a satisfying meal. It's like Cypher said: I choose the matrix.

[ralfy]

"David Graeber obituary"

$this->bbcode_second_pass_quote('', 'T')he anthropologist David Graeber, who has died suddenly aged 59, was remarkably successful in marrying research with direct action. He was influential in the Occupy Wall Street movement and is reputed to have coined the statement: “We are the 99%.”

In 2011, for instance, he wrote a classic work of anthropology, Debt: The First 5,000 Years, in between organising with Occupy Wall Street in New York. In the book Graeber called for a biblical-style “jubilee”– meaning a wiping out of sovereign and consumer debts. “Debt,” he wrote, “is the most efficient means ever created to take relations that are fundamentally based on violence and violent inequality and make them seem right and proper.”

[asg70]

People too often discount the advantages that debt affords. It is like fire. It is a dangerous tool and it can burn you but it is powerful. A world without debt would most likely mean a world without the american dream as we know it. Very little small businesses would be able to start. Business would grow and innovation would proceed at a snail's pace. Home ownership would be rare. Most people would life serf-like existences from which they would never escape, generation after generation. It's just that internet discourse ultimately leads to absolutist and scapegoating mindsets. We seek simplistic black and white answers to what is a world of gray.

Culturally it's telling that the hero of It's a Wonderful Life was a dreaded "money lender" (intentional biblical terminology). Lending money isn't necessarily evil. It's how they go about it, either like George Bailey or Potter.



The other thing to realize is that with interest rates so low, borrowing money has never been easier. That is, of course, with the exception of credit cards. Credit card interest rates haven't gone down and that is indeed unfair. But for things like mortgages and car loans, the easy money has been a benefit to joe public (it certainly has benefited me). Back during the roaring 50s, while housing was cheaper, interest rates (and income taxes) were much higher.

So the important thing to do is pay off your credit cards.