Currency expansion

RDB

PrivatisetheNHSnow wrote: »

If the currency uses a monetary system based on interest bearing debt, like ours, yes.

http://www.financialsense.com/fsu/editorials/2005/1212b.html

http://www.chrismartenson.com/martensonreport/end-money


When interest charges exceed debt growth, debtors at the margin are unable to service their debt. They must begin liquidating.

Interest payments exceeding GDP.

That was the problem in Greece but its not only the PIGS nations UK and USA are in the same boat.

PrivatisetheNHSnow

RDB wrote: »

Interest payments exceeding GDP.

That was the problem in Greece but its not only the PIGS nations UK and USA are in the same boat.

well, precisely it is the the growth of interest payments exceeding the growth of new debt (money) to pay that interest. it doesn't have to exceed gdp, just growth in new money.

everyone is in the same boat eventually. the system was unsustainable from day one, it's based on a mathematical impossibility that eventually catches up with you.

if you started afresh with the same system, this is what it would look like from day one when the first loan was made

existing money supply=principal of outstanding loan
amount owed=principal of outstanding loan+interest

unless every single interest payment is recycled into the economy and none of it is hoarded and none is used a secondary loan (which never happens), then as a whole the system is only sustained by getting more and more debt.

RDB

So what time scale would you give it? Sometime this decade?

lvader

It make you wonder how Japan and Germany survied with huge debts, not only have the done well they are now seen as 2 of the strongest economies. The UK is still below Germanies debt levels, although that should change this year, but still a long way below Japans 200% of GDP.

PrivatisetheNHSnow

RDB wrote: »

So what time scale would you give it? Sometime this decade?

well it seems likely. we've reduced interest rates to basically zero, there's nothing left to do except print money to attempt to keep the system going and stop another recession caused by debt deflation.

everyone always says our problems are caused by "too much debt". well that's nonsense because debt is the only way to create money (except the small amount of money in the form of physical currency). if the economy is growing and the public sector is not getting into more debt, then the private sector must be getting into more debt. if neither the public sector and private sector are getting into more debt, it's called a recession.

the solution would be a monetary system that doesn't use interest, or particularly not compound interest. this used to be the case in practically the whole world, now it's only in the islamic banking system, because islam still prohibits usury (interest from loaning money). but as you can imagine, there are pretty big entrenched interests that don't want that a such a system in the western world.

lvader wrote: »

It make you wonder how Japan and Germany survied with huge debts, not only have the done well they are now seen as 2 of the strongest economies. The UK is still below Germanies debt levels, although that should change this year, but still a long way below Japans 200% of GDP.

because japan has a current account surplus - money coming in from abroad, a large pool of domestic savings, and because the government borrows and very interest rates - 1.3% interest for a ten year bond.

it is not sustainable eventually either eventually - interest payments will become too large for the government to bear at some point

any monetary system that allows compound interest is by definition mathematically unsustainable.

RDB

PrivatiseNHS how long would you give it, if you had to guess?

Are you familar with Mike Maloney? He used to say between 2015-2020, but now says it feels sooner we will have the first currency crisis.

Have a look at https://www.goldsilver.com

dopester

PrivatisetheNHSnow wrote: »

the solution would be a monetary system that doesn't use interest, or particularly not compound interest. this used to be the case in practically the whole world, now it's only in the islamic banking system, because islam still prohibits usury (interest from loaning money). but as you can imagine, there are pretty big entrenched interests that don't want that a such a system in the western world.

The reason they have prohibitions against usury in the first place is because they experienced destabilisation, and allowed richer people to get richer still at others expense.

The Islamic cultures especially were prone to attack/invasion from outsiders, so they needed willing citizens who had a reason to fight/defend - not a nation of many unhappy debt junkies who had been totally squeezed out.

It was common in antiquity for states to be weakened by dispossessed freeholders and insolvent debtors.

Given the high interest rates that are common even today in backward economies, running into debt was rarely a way for a small holder to rescue his livelihood. Generally, when smallholders went into debt they lost their property and their freedom. Sometimes they legally pledged their persons as collateral for a loan. At other times, their bondage was debt bondage. In either case the result was social unrest that destabilised the system.

This happened in almost every Greek city-state. It was the reason for Solon's reforms in ancient Athens. He found a city simmering no less than Mecca. Solon stabilised the situation by prohibiting lending on the security of a person's body and decreed a general cancellation of debt similar to the Biblical Jubilee.

Muhammad had seen in the Mecca of his own time how a disproportionately large population of the poor, fraught with discontent, could militarily weaken a system. This was not because the poor themselves were able to overthrow the local elite. It was rather that they had no reason to defend the system when it did come under attack. Muhammad exploited such a weakness in taking Mecca.

The injunction against usury was an artificial means of ensuring a wider distribution of property. It was also a roundabout, religious limitation on taxes. By narrowing the availability of credit to finance tax payments, usury discouraged high taxes. They made it relatively easier for small owners to avoid being squeezed off their lands by the oligarchies.

Money chasing a return does have its place though. Without this system, many things we have, and a lot of progress, would not have been possible. Its just that genuine investment-to-return... requiring significant investment.. maybe we reached a peak a while back on genuinely worthy projects... and the slack for serious sums of money was stupidly directed into lending in property and land.

What was Fred Goodwin thinking? Did he not know any of this? Too many at the top, with property, were caught up in boomer-glory. Mervyn King has to go in my opinion. He either knew and didn't scream and kick up a fuss about it, or thought it was a price worth paying rather than stopping the bubble. I don't know how he can remain aloof in his position as he oversaw the most damaging period of the bubble playing out - even if he was tied with limited powers to what he could actually do about it - he could have spoken.

I worked for a short while in banking when I was younger but wasn't happy because I didn't understand much of it. Turns out, most of the others definitely didn't either.

During the whole modern period of large-scale, smokestack industries, Islamic manufacturers have never competed on a world level. It was simply impossible for countries operating under Islamic law, hampered by inflexible restrictions on usury, to invest large sums of capital as well as nations with efficient banking systems and bond markets.

By a stroke of luck, or perhaps Allah's blessing, much of the wealth of the Western industrial countries has been transferred back into Islamic hands in payment for oil. The more thinly populated and traditional societies on the Arabian peninsula where the Prophet Muhammad lived are awash in oil. The governments that control this oil are among the few creditor countries in an indebted world. It is a wealth that makes them attractive to aggressors.

PrivatisetheNHSnow

dopester wrote: »

Money chasing a return does have its place though. Without this system, many things we have, and a lot of progress, would not have been possible. Its just that genuine investment-to-return... requiring significant investment.. maybe we reached a peak a while back on genuinely worthy projects... and the slack for serious sums of money was stupidly directed into lending in property and land.

you've hit the nail on the head. the current system is very good at expanding production very quickly in a maturing economy, because it forces people to expand production in order to repay principle+compounding interest.

however, once you have a mature economy, and start using new debt to finance projects that do not produce enough of a return to pay principal + interest, then you start running into insoluble problems, like we are now.

RDB wrote: »

PrivatiseNHS how long would you give it, if you had to guess?

Are you familar with Mike Maloney? He used to say between 2015-2020, but now says it feels sooner we will have the first currency crisis.

Have a look at https://www.goldsilver.com

interesting site thanks.

sounds like a reasonable timeframe to me, could be earlier. basically, if when the government starts reducing the amount of debt it is taking on, the private sector does not compensate by taking on more debt itself, then we will experience deflation and another recession is inevitable. the government is reaching the limits of its ability to finance its debt now, let alone if we had another recession.

eventually the solution will be a new currency, because it is not viable to continue with currencies like the dollar and pound that have huge amounts of debt attached to them and are already becoming unstable as a result.

for example, the imf could issue SDRs as a fully fledged currency instead of just a basket of currencies as it is at the moment, to supplement the dollar as the world's reserve currency.

dopester

DaddyBear wrote: »

The current fiat money system is not the same as the original. When paper money was first circulated it was essentially an IOU for a real asset and you could go to your bank and exchange it for such an item.
Fiat money is no longer backed by anything tangible and is essentially worthless. The only reason that the system works is because all of the inhabitants think that it's worth something and thus exchange it for goods and services. You have to ask yourself about the integrity of a system when you can simply produce £200b from thin air.
Eventually people will realise that they work for worthless pieces of paper.

That might be true but that belief is a powerful paradigm. There is also little wrong behind the trust people have in it. The problem is the system has been abused during the bubble - putting it at risk. People will only genuinely realise it if the system collapses / hyperinflation / deflationary savings defaults. An existing paradigm is seldom dispelled by evidence alone. As Keith Thomas has written, "Such systems of belief possess a resilience which makes them virtually immune to external argument."

Even silver and gold, whilst you might not be able to print it - relies on a belief its of value. Perhaps in the future, have nanobot devices recreate it perfectly at the level of molecules and atoms, like a Star Trek food dispenser. The belief in money is a good thing. It's about trust, and if we can't have trust and belief in promises, then society itself is in danger.

Progress would be hindered and the world put in a very dark place, if the money system belief collapsed and suddenly it was only silver and gold that counted. I doubt you'd be able to go out enjoying yourself, to the cinema or to M&S, if we saw trust in money collapse - even if you held silver and gold. The only good thing about holding is that you'd have an asset which could retain real value during a period of transition.

RDB

PrivatisetheNHSnow wrote: »

interesting site thanks.

sounds like a reasonable timeframe to me, could be earlier. basically, if when the government starts reducing the amount of debt it is taking on, the private sector does not compensate by taking on more debt itself, then we will experience deflation and another recession is inevitable. the government is reaching the limits of its ability to finance its debt now, let alone if we had another recession.

eventually the solution will be a new currency, because it is not viable to continue with currencies like the dollar and pound that have huge amounts of debt attached to them and are already becoming unstable as a result.

for example, the imf could issue SDRs as a fully fledged currency instead of just a basket of currencies as it is at the moment, to supplement the dollar as the world's reserve currency.

Mike Maloneys book is very good about the history of money.

Why dont they teach this stuff in schools, its just as important as regular history.

This is interesting-

"The eurozone's bail-out package hasn't convinced anyone that the debt crisis is over.

it will just create more debt. There is the real threat too that other major economies, such as Britain and America, will end up debasing their currencies by inflating their huge debt piles away. So gold's role as the only currency that can't be printed at will (thus making it a store of value) is being rediscovered. "Sooner or later, everybody stops trusting paper."

Throw in tight supplies, a steady rise in Chinese gold consumption and central banks buying to diversify their reserves, and gold's bull run is set to endure.

http://www.moneyweek.com/investments/precious-metals-and-gems/gold-hits-a-new-record-high-48607.aspx