The Future of Money

Off the keyboard of RE

Published April-May, 2010 on Reverse Engineering

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Discuss this article at the Economics Table inside the Diner

Note from RE: File this article under “the more things change, the more they remain the same”.  What follows is an exchange I had with Toby Russell, a quite brilliant Brit 3 years ago on Reverse Engineering, pondering on the Economic Issues of the day and the Future of Money.  We rehearse these questions now on the pages of the Doomstead Diner for a somewhat larger audience, but in all honesty in 3 FUCKING YEARS, not a whole lot has changed here as of yet and the same questions remain to ponder on until they do.

Toby and I had many a great chat on the subject of money, and inside the Diner I will paste a few more of them.  With luck, Toby will find his way to the Diner as well, and we can renew, refresh and update the $64,000 Question on the Future of Money in the post-Industrial Economy.

RE

To begin, from my keyboard:

Who ARE the Bond Vigilantes?

Exactly how the monetary system will come apart remains an open question, but more and more each day you see a structure developing for the collapse.  It comes in the form of the internal battle between Nation States and those who have “invested” in Nation States in the Bond Market, which in Europe is currently in a Death Spiral that can only be slowed if the Sovereigns “guarantee” the bonds currently being repudiated by whoever it is who buys those bonds. The so-called “Bond Vigilantes”

So who really ARE the Bond Vigilantes, and WHO is the “market”?  Its not J6P for the most part, I mean who buys Greek Bonds with their spare change?  In aggregate J6P who actually HAS  401K might be buying some of this trash as part of his portfolio, but inr reality most of this trash is bought by the Big Banks as proxies for the Iluminati.  Once it starts to go BAD, they want to offload it all onto the balance sheet of J6P the taxpayer, that is what Bailouts amount to.

There is a BIG confusion in using the term “market” when it comes to the dealings of Big Capital.  Most people think of the market as the aggregate of what all the people in society are buying and selling, but that is not true at all with respect to sovereign debt.  The massive TRILLIONS in debt that are being issued these days by Sovereigns all over the globe cannot be absorbed by the savings of J6P, because the money didn’t exist before to buy it.  It really can only be bought by the Big Banks who can Borrow money from the Central Banks at close to Zero Interest.  The CB then writes the money into existence and loans it to them.

It’s all a big Circle Jerk, and the end result is it loads up all the bad debts on the balance sheet of the Taxpayer, which the taxpayer cannot actually pay because he is Unemployed and no longer pays taxes, so the Bond Vigilantes/Big Banks drive the interest rate up still higher for borrowing.

The problem is coming to a head now, and it pits varying Pigmen and various arms of Da Goobermint against each other.  Neil Barofsky has a plethora of litigation ready to undertake here that will make the little SEC lawsuit against the Squid look like child’s play.  T will be undertaken also, because the Political Survival of most of the apparatchiks depend on finding Scapegoats.  Besides that, you have lawsuits that will be filed on behalf of States that got fucked by the Banksters along the road as well.  Pigman vs.Pigman, the battle begins.

Greece is and remains Small Potatoes in this battle, but what is done here to Bail them out only sets up bigger bailouts for the other Hostages to the Banksters, the rest of the PIIGS.  Because their debt is “risky” now, the “Bond Vigilantes” are driving up the debt costs for the other nations also.  Which means they also must seek a Bailout. Some pundits think when this hits Spain the market will choke on it, maybe so maybe not.  However, its also going to eventually hit the FSofA market after all the weaker chickens have been slaughtered here.  Nobody is out there to Bailout the FSofA sovereign, not even the Chinese, because they hold the debt already, into the Trillions.  That is their “savings”. No reason to buy MORE worthless toilet paper for the Chinese.

So, the only “out” here is for the FSofA to buy its own debt in perpetuity, issuing more and more paper.  Hyperinflation of the money supply, but not necessarily hyperinflation of prices until and unless those newly created dollars start filtering out of the system into the hands of J6P, which is nowhere on the horizon.

The reality here?  Goldman Sachs, JP Morgan Chase et al are now engaged in a circle jerk trading with themselves, they ARE the “market”. They can keep propping it up so long as the CBs keep issuing them Interest Free Money to speculate with.  Problem is of course, that is just driving the sovereigns into ever deeper bankruptcy.

Eventually one of these sovereigns will crash, and nobody will bail them out.  The CDS will trip, and then the House of Cards will crash here.  Still has a coupel of layers to go though.  They will print the money to Bailout Greece, and probably Portugal and Spain also.  When the Debt Tsunami hits the ISSUER of the Debt, the Federal Reserve Bank, then it will come to an end.  How long will that take?  Based on progress since Bear Stearns of upward Cascade Failure, my guess is 2 years.  In the meantime, Volatility is going to be WILD. Very hard to pinpoint what asset class or what Sovereign will be the next target of the Bond Vigilates. However, target them they will, because they have to make a PROFIT here.  The only way to do that is to turn the world into their Debt Slaves.

RE

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From Toby:

I’m getting very interested in MMT, as I have posted at my blog. What we are really saying when we argue there is too much debt (there is) and this sucker is going down, is that money is the most important thing there is, that nothing can be done about it, someone’s got to pay, and so on. But in reality of course money’s just so much numbers. Ecological issues aside, real wealth is not diminishing, only debt obligations are growing. What do we do about this? Drown in our idea of what money is, or redesign it?

MMT would embrace the printing of money, by spending it into the economy interest free, into education, infrastructure etc. Tax is seen as nothing more than a drain when things start to inflate, and the issuing of and buying back of gov debt is used to control money supply and interest rates. The chief difference in printing money for the economy at J6P level rather than for the bigbanks, is that the money actually gets to do something, instead of digging deeper debt holes as the pigmen sociopathically destroy the horse they rode in on, battling it for the “honour” of delivering the final blow.
MMT welcomes fiat, seeing it as the chance to free money creation from the private credit institutions, whose activities, in the absence of a gov spending money into existence, represent an institutional ponzi scheme, one that is dragging us all down as we speak. To separate gov from credit institutions would be also to remove them from lobby power and make taxing far more effective, which would stop the vast imbalances of wealth we currently see. Gov would not rely on the pigmen. Pigman loses his leverage, gov can start to function as it should. So the theory as I have been understanding it.
I’d be interested to hear what others see in this new take on how to do money in a modern economy. Bill Mitchell’s blog has masses of work to lay out the basics: http://bilbo.economicoutlook.net/blog/ And there are two posts on MMT at my blog: http://thdrussell.blogpost.com
Cheers
Toby
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From RE:
I read through some of Billy Mitchell’s Blog and through a couple of your posts
on MMT as well. Many of the concepts we have covered in the past seem to be a
part of this. You seem to favor these days offering up the whole panopoly of
currency forms here, from Demurrage money on the international level to a
variety of state and local currencies all operating at the same time.Clearly, if this was actually operating on the local level commerce would be
quite the bear for your local Convenience Store clerk. You show up at the store
with some of RE’s Moosechips, and the clerk has to check to see first if MCs are
on the list of currencies he is authorized to take. Then he has to check the
daily (hourly?) exchange rate for Moosechips to price out the merchandise
against whatever currency it usually is priced out in. Granted, the Computer he
uses probably could be programmed to do this all automatically and even monitor
exchange rates in nanosecond intervals, but its still going to mean a drawer
full of lots of different notes, and how do you make change?Next problem is exactly how do you save your money? Do you save it in
Moosechips? This is kind of like the problem people who worked for companies
that paid in their own Scrip faced. Its only good for buying stuff at the
Company Store, and when the Company goes outta biz, its worthless Toilet Paper.
Sort of like what will happen when the FsoA goes outta biz on the grand scale.
LOL.

Beyond this, I don’t see how having many forms of currency operating resolves
the Interest problem. People who Loan out money will still expect Interest on
it, elsewise there is no point in loaning it out. With many currencies
operating, the problems you have now of unscrupulous Banskters creating more
notes than they actually have assets to back them up would be even more
intractable than it is now.

Clearly on the International level the Top Level Demmurage Money has to be used
as a settlement form, and a 5% Demurrage is liking saying you have 5% Inflation
all the time. If you aren’t growing faster than that you are gonna be losing
money. Is there room for 5% Growth in our real economy? Considering the Energy
problems we have even BEFORE the Big Spill, I think we would be lucky to keep
the Shrinkage at 5%, which is a total 10% differential between the Demurrage and
the Negative Growth rate.

As bad as our Money problem is, the real problem here for the Industrial society
remains the Energy problem. For the Transportation portion of this economy, its
more than that, its Portable Energy as well. The society needs to be
restructured along lines which require less movement of goods and people around
and a slower pace of life all around. Unfortunately, all the infrastructure we
have built here is built around precisely the opposite concept, and REBUILDING
it now with substantially less Available Energy per capita will be quite
difficult, if not impossible. Of course, a 90% Die Off of the Human Population
would solve the per capita problem by lowering the denominator, but this is not
a concept most people consider a good solution.

My guess here remains that the current monetary system we are using is going to
continue onward here in Epic Fail mode for a while yet to come, exactly how long
I am not sure. Whether it reaches a Critical Point that results in a Sudden
Stop Event or whether it just continues to deteriorate and we all slowly Boil
like Frogs also is open for debate. If/When the Dollar fails completely,
likelihood would be states and local communities will substitute their own
currencies, but even if well managed and temporarily successful all will also
collapse due to the interest problem in a negative growth environment. It
doesn’t matter if you put a Demurrage on the Money of 5% or Inflate the currency
at 5%, it’s the same result in either case. In fact 5% is even more onerous
than the 2% or so Inflation the Fed sets as a Target Rate, so I expect you would
see a monetary collapse even faster than the typical 60 –80 year cycle we see
now.

So, is it all HOPELESS and we are just spinning our wheels here to no purpose?
Well, if the hole they poked in the crust of the Earth down in the GOM keeps
spilling out PUSS here, yes its quite hopeless and worrying about what kind of
money we are going to use in the future is a massive waste of the short time we
have left breathing the last Oxygen the phytoplankton produce for us. However,
on the slim chance that the Bozo Engineers who popped this pimple can plug it up
and we are not currently experiencing the beginning of a new Permian Extinction,
the exercise is worthwhile. Not so much for us in this generation, but for
those a few generations down the line AFTER the great Die Off is finished.
Perhaps we can leave a legacy for them of how they can build a Better Tommorow
and NOT make the same mistakes half a millennia of Capitalism led us into here.
Talk about EPIC FAILURE of an economic system, Capitalism is going out with a
mighty Big Bang here. Yeesh.

RE

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From Toby:
Local currencies are already in operation and work in the various ways
they work. It is not about some guys saying accept my MCs because I say
so, or the two of us agree so, but is more well thought out than that.
I’m not going to go into all the details, but there are variants out
there in operation and have been for a while. Time will kill off the
weak ones, and favour the strong, as it always does.As for the demurrage currency, that is global and for investment and
international trade purposes only, not for saving. The demurrage
inspires investment in projects which have long term value. See the
Bernard Lietaer talk: http://vimeo.com/6491175for more details.Interest/usury still acts as it does now on the natinoal currency, as a
kind of vacuum cleaner on fiat national currencies and spur to savings,
so people will get into debt and so on, as the prudent will be able to
save, though the kind of future the changes I hope for would initiate
would change plenty, perhaps even how saving and retirement works. But
when big problems through over indebtedness arise there won’t have to be
any bail outs. Those banks that got too greedy have no leverage on the
sovereign to save themselves with, because the sovereign controls money
supply with the tools laid out in MMT (existing tools actually like
taxation and bond issuance and purchase). Life would still have its
financial ups and downs, but they would not represent systemic threats.
The ride would be a bit smoother.All of this is moot in an energy crisis, as you say, but the viable and
working alternatives to oil are out there (unless that GOM spill undoes
everything — time will tell). Also an absolute necessity is the death
of our lust for eternal GDP-growth and a corresponding transition away
from consumerism. MMT offers an attitude to money which allows us,
culturally, to be more open minded about where value lies. To my mind
real value lies in healthy relationships: ecological, socioeconomic and
societal. Technological unemployment could be embraced too by a more MMT
way of thinking about the economy, which would help us review what we
are alive on this planet for, and the kinds of activities and behaviours
which really make life sustainable and enjoyable.So in the end this is going to be about striking the right balance
(isn’t it always?). It’s not just Joe’s currency versus Jack’s, versus
fiat versus the Terra (Lietaer’s suggestion for the global demurrage
currency), but other things too, outlined above. To me MMT is but one
important plank in all this, though perhaps the first that needs to be
laid down, because the way most people think of money and value, they
seem prepared to let the world go down for money’s sake. That’s plain
stupid, and I don’t want any part of it.Toby

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