James Howard Kunstler: Racketeering Is Ruining Us

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41

JimH-

I did not say that bankers are not evil.. I think that they are for the most part.  Dave turned his, "agreement" with my post into a blame-the-victim (of banking) screed...
My post had some nuance in there that perhaps you missed.

Do you remember when I compared predatory lending (which is exactly what your mother-in-law experienced) to drug dealers and more generally, con men?  I'm not a big fan of con men.  What she experienced is not banking, its fraud, and it deserves prosecution and jail time.  While I think your relative might have avoided engaging with these people had she been paying attention to her inner voice (if it sounds too good to be true…it probably is), it was the con men who put her in that loan that was guaranteed to fail that were guilty in the eyes of the law.  They did this trick to a lot of people.  The con men should all be wearing orange jumpsuits, if the rule of law actually prevailed these days.

Again, what she experienced was not banking, it was criminal fraud.

Let me ask you directly.  Do you believe that making a loan on a property with 20% down, where the borrower is legitimately checked for ability to repay - is that evil?  Are the bankers who make such a loan evil?

How about a business loan - for buying equipment, say for a factory, a self-liquidating loan.  Is a banker making such a loan evil?  Is receiving such a loan an evil act?  Do you feel its unsustainable?  Is it bad for society?

There is all sorts of borrowing.  I believe some borrowing is useful to society - it lets society react rapidly to remedy scarcity in a particular area without having to wait for the savings to build up, by expanding the money supply.  Other borrowing is just to facilitate gambling or consumer purchases, which ends up being various levels of destructive to society.  That's how I see it anyway - and its taken a lot of discussions like this to wrap my brain around all of it and to get to this point.

I don't think much of the borrowing happening today is particularly constructive for society, and the sum total of the borrowing we've done has us in very deep water.  But that doesn't mean I'd get rid of all borrowing as a reaction.  Baby, bathwater, etc.

I do think the power of the bankers to expand (or contract) the money supply is an extraordinary privilege, and as such needs to be very closely regulated, and I do understand why people no longer wish to give the bankers this privilege because they have abused it so often.

To those people, I'm asking - in whom would you vest this power going forward?  A non-expandable money supply has consequences of its own.

42

Debt based money creates an untenable long term environment for humans.The earth and the demands of our metabolism are enough to keep us busy without adding the artificial atmosphere of debt money for the greedy to afflict on the rest of us. No matter how we approach this, coming off an addiction is a painful process taken one day at a time.

43

Dave said,

A non-expandable money supply has consequences of its own.
I disagree with the premise of this comment.  If the money is not (infinitely) expandable, like Gold, or Bitcoin, then it can expand it's reach via deflation.  It's just that deflation is not currently allowed in our conception of money.  There can easily be lending in a non-expandable money system..  Folks or entities with saved money can lend it to those who want to borrow it.  It's just that in the non-expandable system, speculation can be a very dangerous game, and lending standards would be much higher since the lenders are lending real capital (vs. thin air money).  See?   

Aggrivated… I do agree with you.  Debt-based money will be our undoing based on the extractive behavior that it promotes.  It obscures the true value of the fish in the sea, the ores we mine, and the oil that we burn.     

44

So its all fine to talk about "the evils of debt-based money", but the ability to expand the money supply to, for instance, put solar panels on the roof of your house - assuming you haven't amassed a pile of savings to pay for it directly - its a fairly nice feature.
It creates inflation, but as a trade off it also allows the economy to respond much more rapidly.   Solar panels are a perfect case of self-liquidating debt.  This seems like a total "proper use" for debt to me.  I'd say that's a societal benefit, both short and long term.

If we constrain what money can be created for, debt-based money ends up being just a tool, rather than automatically being some force of evil.

Is a gun evil?  The bullets?  Or does it depend on the use to which it is put?

I know, I'm swimming upstream here.  But this is the conclusion I've come to after looking at how the system works.  Losing debt based money - I'm really not sure you'd like the implications of the world that would create.  And really fast, too.

Someday I'll come up with a model and game you can all play.  Then we can experiment with these ideas and see how they'd play out.

45

Good money should be at its core based on a mutual agreement of value. Our current fiat currencies work only because the force of government is behind them. Many of the preemptive actions by these USA have been against those countries that have dared to challenge the dollar for international trade. If exchange is based on a commodity that requires work (printing excepted) then it has a much better chance as a stable medium of exchange in the long economic descent ahead of us.

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How long would fiat money last if other currencies were allowed to compete in trade. This is allowed in some countries. Hence the need for “money changers”. May the best one win!

48

Well you can play monopoly.  I had something different in mind.  Steve Keen has a mini-economic computer modeling system he uses called Minsky.  Something like that, only more fun to play.  I've had something in mind for a while now.  I've just been working on other projects.
 

49

aggrivated-

How long would fiat money last if other currencies were allowed to compete in trade. This is allowed in some countries. Hence the need for "money changers". May the best one win!
Many of the preemptive actions by these USA have been against those countries that have dared to challenge the dollar for international trade. If exchange is based on a commodity that requires work (printing excepted) then it has a much better chance as a stable medium of exchange in the long economic descent ahead of us.
There are hundreds of fiat currencies out there.  They are all accepted, at some rate of exchange.  Exchange rates provide the discipline that the gold standard once provided.  Fiat is worth whatever "real stuff" you can buy with it.

I'm not saying our current fiat-only money system is great - but pretending "fiat won't be accepted" is one of those arguments that simply fails because of the overwhelming current evidence to the contrary.

And I'd say having the reserve currency is much more useful than having the USD be used in trade.  The two aren't the same thing.  And a reserve currency has nothing to do with fiat or non-fiat - reserve currency has to do with power.  If the US loses that power, that doesn't mean people won't accept USD.  It just means it won't be the reserve currency anymore.  It will be like the Ruble, or the RMB - accepted at some rate of exchange, but not stored as a central bank reserve.

50

I am approaching my limit before my next ad hom fusilade ensues…you said,

Exchange rates provide the discipline that the gold standard once provided.  Fiat is worth whatever "real stuff" you can buy with it
This is utter BS.  We live in a world of self-referential fiat currencies, yes.  But the central banks play together in this cesspool of exchange, doing swaps, creating, "liquidity" amongst themselves, etc.  As well, they play together to keep the Gold price suppressed.  If exchange rates were based on fundamentals, the Yen would already be toast.. but it's not, because the central banks are acting as one organism in order to keep the fiat game alive. 

It's a hall of mirrors… to say that there is some kind of discipline involved is ludicrous.  It's a con game at it's end stage.  The only honest discipline is enforced when there is a free (non-paper) supply vs. demand Gold market price;

  https://www.amazon.com/Monetary-Elite-Golds-Honest-Discipline/dp/097684270X/ref=sr_1_1?ie=UTF8&qid=1471625706&sr=8-1&keywords=golds+honest+discipline
51

I think this is the key!  If there was no governmental threat of force being applied to make us all use Federal Reserve Notes, wouldn't it be an interesting world?  It might even be a world in which Jim and Dave could happily coexist.  
OK, let's just say a one page law was passed making this one simple change: returning to the Constitution, US money would only be gold and silver coins, and gold and silver certificates, and gold and silver bonds.  Within this system, the price of gold and silver would be allowed to rise and fall in a free market place: no need to set a price for gold/silver for a gold or silver standard.  (Just let the international market set the prices.)   However, the Federal Reserve system would still be allowed to function, but no longer mandated at the barrel of a gun.  Of course, so would any other currency be allowed: Euros, yen, RMB, gold dinars, etc.  Whatever buyers and sellers could agree on would be allowed.  No longer being an ignorant fool that I once was, I would always SAVE for the future in gold and silver.  I would almost always buy and sell in some form of fiat currency, unless there were clear advantages for doing so in gold and silver (such as a discount for silver over fiat).

I would be paid my salary in US gold and silver certificates (or the direct-deposited electronic equivalent).  If I wanted to install a solar hot water system and a solar PV array but hadn't saved up enough in gold and silver money, I could go down to my Federal Reserve-linked local bank and take out a loan in Federal Reserve notes to pay for it.  I would then start making payments from my gold/silver US salary.  That gives me the security of saving in gold/silver, but the flexibility of expanding the money supply by taking out a loan in fiat FRN's.  Voila!  The best of both worlds!!  (This is the best of both worlds for me and most people: it would be terribly destructive to those who make their fortunes running fiat currencies.  Fiat currencies would have to get much more conservative and fair to have even a chance of surviving, but some of them would survive in modified forms.)

The only reason we aren't doing something like this now is because our owners would find precious few opportunities to skim from this system and thereby transfer wealth from average Joe's like me to themselves (the 1%).  So, only a devastating economic/financial collapse would give us a brief opportunity to establish a system like this.  We can always hope…

52

JimH-

I disagree with the premise of this comment.  If the money is not (infinitely) expandable, like Gold, or Bitcoin, then it can expand it's reach via deflation.
If there is a physically limited supply of gold (or money, or bitcoin) out there, and individuals decide they don't want to lend, it may well be the case there is just no money to borrow at that duration.  The savings itself will be the rate limiting item.

See, if you have no fractional reserve system, you must have duration matching - you must have people willing to lend their savings for a specific duration - for a solar panel system, maybe 10-15 years.  Will normal people be willing to tie up their cash for that long?

The amount of "long term savings" available will probably be very small.  And once it has been deployed, it is gone.  You go to the bank, ask to borrow money for 10 years, and they say: "sorry, we have none to lend - not at any price.  There just isn't any 10-year money here."

And if other nations around the world didn't follow suit, I believe they would have a competitive advantage.  Perhaps their savers would be less happy, but the society overall would end up being able to react much more quickly.  What they could do as a society would not be limited by the willingness of savers to have their money tied up for that period of time.  They could have panels on every rooftop, not limited by the amount of savings lying around.

Short term borrowing would probably be mostly ok.  Long term - it would be a disaster.  Nobody would be able to plan long term.

In a deflationary/fixed money system, the available savings at a given duration will - probably - always be the gating item.  Money will become the master, rather than the servant.

I understand why you want to do this, I like saving too, but I think it would have a whole bunch of consequences on the society that you did not intend to have.

53

Tom-
Yes, that's always been a concept I am in favor of.  Tax-free gold savings, while transacting and borrowing in FRNs, with a debt-based money system that is properly regulated, to remove the ponzi lending.

As an aside - while I applaud the sentiment, I'm not sure the City you work for would pay you in gold.  They'd probably pay you in FRNs.  Or do you think they are looking out for your welfare in some surprising new way?  :slight_smile:

But we really also have to do something about the mind control too.  Longer term, I mean.

54

Equity-Based Society: Worked well for Apple when Jobs was in charge with NO DEBT on the balance sheet.   Apple under Cook(ed) has went to debt market big-time, innovation has stalled, and the lights are blinking red.

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And to think I used to think Dave was perfect, and then he had to vomit up that most dreaded of English language virus contaminants " going forward ".  The terrifying thing is there are no warning symptoms. Anyone may be struck down at any time, anywhere!  gOiNg fOrWaRd !!!

56

Does debt based money require an ever expanding economy? Yes or no?Does an ever growing economy require an ever growing use of energy and other eco system resources? Yes or no?
Do we agree that there will not be ever increasing energy and resource availability. Yes or no?
If you answer yes to all of the above then continued support of debt based money systems seems illogical.
If you disagree with this logic please explain?
I may have set up a straw man in my thinking.

57

aggrivated-
Does debt-based money require an ever-expanding economy?  No, I don't think so.  You can have a steady state debt-based money economy if all the debt is self-liquidating, and the rate at which money flows through the economy is rapid enough to pay the interest on the debt.  (The "not enough money to pay the interest" claim is false - stocks/flows issue - Keen proved this using his Minsky software model; the claim also forgets about base money, which continues to exist and flow through the economy even if all debt money is paid off).

Certainly a debt-based money system seems better-equipped to deal with a world of "more",  but I don't think "more" is required.

Resources: I could see places where new resources could be available - outside the atmosphere - so I'm not entirely convinced we'll be running up against a near-term resource limit.  (I hold out the possibility that the earth is not a closed economy).  If we don't have access outside the atmosphere, then yes, we're at peak for a lot of things.  And long term, nothing is infinite.

Regarding energy, it again depends on your view; is the earth a closed economy or not?  If its a closed economy, then we need to work on a transition plan, and that will require capital investment.  Even though the overall energy will be shrinking in that case, we'll need a way to enable the transition via some sort of funding mechanism.  If we adopt a hard money system just when we start to need to make massive power generation investments, funding the transition might end up being really problematic.  Hard money systems have hard limits on the availability of capital.  That's a feature.

Debt-based money is a way for a new project (which receives the new debt money) to "tax" the existing pool of savings out there via inflation.  In return, the benefit to society is you have no money-based limit on the ability to fund projects.  Bad news for savers, but good news for overall economic flexibility.  There are hard resource limits, of course, but no "artificial" money limits.

We can see this in China.  They have big inflation, but effectively that society can fund most anything they want to do.  Some of the projects are stupid because they were centrally planned.  Back in the old days, Japan had much the same structure; banks were ordered to fund particular sectors of the economy.  "Go lend a trillion dollars to the auto industry."  And they would.  Its why China and Japan both have fantastic train systems.  I've been to both places - the trains are awesome.  US is third world by comparison.

In a hard money system, by design, the structure of the money system limits what the society can do, and how rapidly it can do it.  The hard money system protects savers, but in turn, it reduces societal flexibility.  It has to.  You can't protect savers without exacting a cost.  No free lunch, as it were.

Thought experiment: if we adopted a hard money system, and China did not, we might find ourselves in a situation where savers in this country were happy, but did not have electric power, while savers in China were unhappy, but they had electricity.

58

JimH-

This is utter BS.  We live in a world of self-referential fiat currencies, yes.  But the central banks play together in this cesspool of exchange, doing swaps, creating, "liquidity" amongst themselves, etc.  As well, they play together to keep the Gold price suppressed.  If exchange rates were based on fundamentals, the Yen would already be toast.. but it's not, because the central banks are acting as one organism in order to keep the fiat game alive. 
I'm grateful that you have restrained your impulse to start attacking me personally.  I appreciate the civil dialog - I know this is a subject that tends to trigger your anger.

I believe we look at things differently.  I assume the way the world is working is always "correct."  Its the answer I'm trying to reach.  (That's not the same thing as "good" or "morally right" or "pure" or "how I'd like it to work").  So when my model of how the world works doesn't match what I observe, it is always my model that has the flaw.

My model tries to fold in manipulation, money printing, international capital flows, flights to safety, and so on.  All of those forces are "correct" in that they all act on the market and must be taken into account, and prices come out the other end.  Price is the sum total of all of the forces acting on the market.

I understand you worry a lot about whether a price is legitimate or fake.  To me, price is price.  It is always real, as long as all current demand is being satisfied at that price.  (A fake price example: exchange rates in Venezuela.  You cannot actually get 1 dollar for every 8 VEF; therefore, that's a fake price).  If you can buy actual gold for $1350/oz - then that's a real price.  If everyone wakes up tomorrow and decides to allocate their unallocated/paper gold, that force will act on price, and most likely it would change fairly dramatically.  That price will also be a real price.  You probably feel that the current price is not a real one, but the higher one - that's the real price.

But if nobody decides to allocate all that paper gold, ever, are you right or wrong?  You would be wrong.  Your "real price" is just a projection, based on a set of assumptions you are making that may or may not ever play out the way you think they will.  Its a future price projection.  Is that real?  No, it is not.  Its a guess about the future.

In my world, given the forces in play today, with how everyone feels, today, and that a fair number of people seem quite satisfied with paper gold as a substitute, $1350 is the real price for gold.

We can assess if we think gold is undervalued at that price, and talk about the odds that people's willingness to be satisfied by paper gold might diminish dramatically, under what conditions that might happen, and how that might affect price in the future, but at the moment?  Real price is $1350.  In my world.

Regarding rate discipline: one great example of exchange rate discipline is Zimbabwe.  That's a pretty clear example of exchange rates applying discipline, and that's what I mean when I say discipline.  Its not a gold standard, but it is discipline.

I do agree that the paper gold has effectively suppressed the price of gold, but we probably disagree about the degree of the suppression.  Just based on the numbers, mine supply since 1980 has had a far larger effect on suppressing the price of gold than the creation of paper gold.  Again, based on numbers.

~60k tons of mine supply >> 15k tons of paper gold creation at LBMA & COMEX, with LBMA being the largest by far.

 

59

Thanks for your debate. I'm learning a lot by following the discussion. How else can we learn than by entertaining other ideas and vetting them?

60

I think they are both plants by PP whose banter keeps us coming back for more? Insert smile emoticon.