?

Log in

No account? Create an account

Money as Debt

« previous entry | next entry »
Nov. 12th, 2007 | 01:36 pm
mood: complacentcomplacent

This seems to bring together a lot of things I knew individually to be true about money, but hadn't really considered all together:
http://video.google.com/videoplay?docid=-9050474362583451279

I'd be interested in hearing any comments. The simplest things seem to inspire controversy -- people get labeled as crackpots even when they're just referring people to primary sources, definitions, and written laws. There's too much la la la I can't hear you in the world.

Link | Leave a comment |

Comments {26}

(Deleted comment)

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 12th, 2007 09:04 pm (UTC)
Link

but isn't the actual supply of printed money a tiny percentage of the "money supply"? I just made a quick Google search, and it does look like Mr. Paul is using that phrasing as a sort of shorthand for "deliberately increasing the money supply".

But from what this video says, it would be somewhat better if the government really *did* print more money and directly pay its debts with it than the current method of causing there to be more money by giving itself permission to borrow it? And it also points out that a gold or silver standard isn't much more "real" either?

I like how local currencies can embody human effort -- by being backed by hours of labor rather than a promise to borrow the money from someplace else.

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 12th, 2007 08:52 pm (UTC)
Link

There's nothing wrong with money as debt. See the Ripple system: https://ripplepay.com/

I didn't see anything that you can't learn in Economics 101. It's just phrased like it's some big conspiracy.

Reply | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 12th, 2007 10:38 pm (UTC)
Link

So, there are Economics 101s that *don't*? I mean yes, they are more polite and formal about it, but the economists I've met take perverse delight in pointing out how nothing is what people think it is.

Well, it's definitely big, and definitely produced by collaborations between parties who have a (both literally and in choice of costuming) vested interest in most people not understanding how it works. The only thing that makes it not a conspiracy is that it's not illegal. Except oh wait, it might be. Technically. But perhaps not in practice.

As the first major update to Ripplepay, I've added the ability to charge interest on outstanding balances. Interest rates can only be changed with the approval of both account partners. Interest is charged per annum and compounded continuously. All existing accounts have their interest rate set to 0%. Let me know if you have any issues.
This is an interesting paragraph in light of the video's criticism of "usury". Without the interest, this is just a side system that circulates money-debt without creating more than is present in the effort people put in. If a lot of people charge interest, won't that eventually create more obligation than people are willing to cancel out with their effort?

Hmm, reading the essay, it sounds like the author of this video and ripplepay are mostly saying the same things.

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 12th, 2007 11:02 pm (UTC)
Link

Interest has to be agreed ahead of time to be charged in the ripplepay system. Since credit is an optional thing, you have the option to refuse and thus have a zero credit limit with that person.

Interest reflects the value of time. Work done today is worth more/costs more than work done tomorrow.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 13th, 2007 06:46 pm (UTC)
Link

That's fine, but what about the interest that is being charged on newly created money? No work was done.

yes, the *existence* of this new money as it is being created has some value to the system, but it seems to be slightly less than the amount of value that its existence removes from the rest of the system. Even if it's equal, it still implies an arbitrary (and well-hidden) transfer of wealth. (If it's truly greater, we should find a way to do as much of it as possible and give it to everyone, and we'll all be infinitely rich!*)

The argument that banks receive this grant as compensation for risk only works if there's collateral that the *bank* is risking, which is not the case!

I am struggling to find a shred of difference between this system and Enron's. So far, I got nothin'. (Which is also mostly what Enron had. Well, actually, maybe what Enron had was the unconscious belief that the government had granted it the some of its power to print money...)

Apparently, Enron's mistake was not having a standing military.


If someone can explain the current (international) monetary system adequately, we may be able to use that explanation to construct perpetual motion machines. Either way, it's worth figuring.

- Trip

* or is that the same as us all being infinitely broke?

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 13th, 2007 09:26 pm (UTC)
Link

I'm not sure what you mean by "newly created money". Interest in Ripple reflects this type of agreement:

"Do 1 hour of work for me today and I'll do 2 hours of work for you next week."

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 14th, 2007 01:12 am (UTC)
Link

by "newly created money", I mean the money that happens when you (person A) borrow money from a bank, deposit that money in another bank, and it is then (in part) loaned out by that second bank to someone else (person B). The money that person B now has doesn't come from anywhere. Or the original money you deposited is now in more than one place at a time, which amounts to exactly the same thing.

This property *not* being present in Ripple, and I assume that's a good thing, but I don't know enough to say for certain.

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 14th, 2007 01:36 am (UTC)
Link

Ah, that kind of created money. I don't see what's wrong with it. Banks are like any other business, but they increase the money supply instead of the velocity. Same macroeconomic effect.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 29th, 2007 10:24 am (UTC)
Link

Alternatively, this suggests that whatever it is that's wrong with banks is also a problem with any other business, or that they have a different problem with a similar effect to it.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 14th, 2007 01:25 am (UTC)
Link

Maybe the fractional reserve system + FDIC translates to "I promise to have someone do 2 hours of work for you next week if you promise to do 3 hours of work for me the week after that, but I'll only actually do 1 hour of work and replace the other with a promise to have someone else do it, and you'll never get around to demanding that it actually gets done. But if you insist, and I can't deliver that promise, 100 people you don't know will have to give you a penny."

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 14th, 2007 01:38 am (UTC)
Link

I don't think your analogy here works quite right.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 14th, 2007 02:09 am (UTC)
Link

Be nice to it; it's been tortured and never quite recovered from the experience.

I went ahead and posted it hoping someone might be inspired to make a better one.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 14th, 2007 01:31 am (UTC)
Link

I'm sorry; I wasn't being clear that I was responding to your information about Ripple with speculation about the monetary system at large, not Ripple.

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 12th, 2007 11:02 pm (UTC)
Link

Oh, and, for the record, my economics class did not present anything as a conspiracy. :D

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 12th, 2007 11:09 pm (UTC)
Link

I guess they didn't include any history, then :P

Reply | Parent | Thread

JP Sugarbroad

(no subject)

from: taral
date: Nov. 13th, 2007 01:03 am (UTC)
Link

If there was history, I paid it no attention. :D

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 29th, 2007 10:28 am (UTC)
Link

and so you missed out on some of the implicit accumulated time value of money.

all this has happened before....

Reply | Parent | Thread

!Bob

(no subject)

from: achild
date: Nov. 13th, 2007 01:23 am (UTC)
Link

Whoa, I just had a minor epiphany fueled by that video.

Inflation is tied closely to our continuous cycle of increasing debt ratios, right? Well, the current system also traps people in that it perpetuates the myth of upward mobility in a crappy job. Take this example:

If you were making 30,000 a year in 1980, and 20 years later, your job had increased to 60,000 a year, you'd feel like you'd been getting raises, moving up in the world, etc.

But the truth is, thanks to inflation, you've actually moved down. According to this Inflation Calculator: http://www.westegg.com/inflation/infl.cgi

What cost $30000 in 1980 would cost $68606.17 in 2000.
Also, if you were to buy exactly the same products in 2000 and 1980,
they would cost you $30000 and $13118.35 respectively.

This is all food for more thought, definitely.

Reply | Thread

Chef Monkey

(no subject)

from: chefmonkey
date: Nov. 13th, 2007 05:16 am (UTC)
Link

La, la, la, la, la! I can't hear you!

I went to a previous employer with a graph showing how their three-year salary freeze represented a decrease in purchasing power because of CPI, and asked why I was getting the equivalent of a 3% pay cut each year while average real income across the US was increasing (even after adjusting for CPI). They didn't have a good answer. I was rather blunt with my evaluation about what this would do to employee retention, including my own. I left four months later. (It was actually quite satisfying -- they really wanted me to stay, to the point that the CEO and the VP of Engineering flew down the morning after I turned in my resignation to try to talk me out of it. They wouldn't take the step of taking real steps to fix the salary-versus-inflation situation, so I had to leave).

Anyone who has held on to a job through 20 years of less-than-inflation raises just wasn't paying attention. If (and that's an important "if") they wanted to use purchasing power as their meterstick for success, then they weren't moving up in the world because they couldn't be assed to pay attention (or failed to take meaningful action, which would be even worse). All of this assumes that the money involved is important to said individual, of course -- there are always other potential factors that are far more important than what a job pays.

Anyway, calling the effects of inflation a "myth" puts the air of conspiracy around it. There's no myth to it -- it's just solid, basic macroeconomics. Slight inflation stimulates an economy because of the effect it has on credit. Deflation stifles an economy because debt becomes increasingly onerous. The few deflationary periods we've had have borne this out. As long as consumers don't go batshit crazy with credit, it all actually works pretty well.

Oops.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 13th, 2007 06:55 pm (UTC)
Link

I'm getting some hints from here and there that entities which have the power or responsibility for making sure 'consumers don't go batshit crazy with credit' are entities which also profit from not doing so in the short term.

re your anecdote: so did they spend significantly more money on efforts to convince you to stay than it would have cost them to just pay you more? Seems like the smart money would have been to give you a double+ raise iff you signed an agreement to stop talking about it to anyone.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 29th, 2007 10:43 am (UTC)
Link

...and I read a piece in last Sunday's NYT going into some depth on this. A consumer using too much of the credit they have access to is one thing. Intentionally selling someone a loan that they can't afford by any reasonable standard is another. Designing the terms of the loan so that it is viable for a short while, but then rapidly exceeds what they can afford is, at the very least, cynical. Tailoring the loan agreement and its presentation to conceal this situation is clearly wrong. Aggregating and reshuffling these "designed to fail" loans and selling them to a third party as if they were actually sensible financial instruments is large-scale fraud.

I'm pretty sure there are simple ways to regulate the blatant foolishness without impeding the overall markets.

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 14th, 2007 02:05 am (UTC)
Link

Anyone who has held on to a job through 20 years of less-than-inflation raises just wasn't paying attention. If (and that's an important "if") they wanted to use purchasing power as their meterstick for success, then they weren't moving up in the world because they couldn't be assed to pay attention (or failed to take meaningful action, which would be even worse). All of this assumes that the money involved is important to said individual, of course -- there are always other potential factors that are far more important than what a job pays.

I'll take the generous approach and postulate that the money involved per se is not important to them. A "job" is more of a social position -- a class issue fraught with social contracts. Or it's whatever you have to do to meet expenses, and most people stop there. There's limited room within that frame to better one's financial position, but it doesn't lead to the kind of "paying attention" you're referring to.

Who would be these mythical people who are paying attention, and what are they doing, then?

I quit working for a year or two, reduced my expenses to near zero, and made up the difference with my meagre savings. My quality of life felt about the same.

Now I'm back to doing consulting gigs, at least part-time, and still not doing much spending at all until very recently. (A possible side effect of having a steady girlfriend.)

Reply | Parent | Thread

Triple Entendre

(no subject)

from: triple_entendre
date: Nov. 29th, 2007 10:52 am (UTC)
Link

I've had it happen on at least two, maybe more, occasions that an employer declined to hire me at a salary that was above "market rate" for the class of position the job responsibilities represented, despite my value to the company being demonstrably worth many multiples of that salary.

I guess that's why people start their own businesses, eh?

and to be fair, maybe the overall problem there is complexity, not economics.

Reply | Parent | Thread

Chef Monkey

You don't know me, but...

from: chefmonkey
date: Nov. 13th, 2007 05:18 am (UTC)
Link

Oh, look! You're Bob! Like as in Bean's Bob. Hi, Bob!

Reply | Parent | Thread

!Bob

Re: You don't know me, but...

from: achild
date: Nov. 13th, 2007 03:39 pm (UTC)
Link

That's me. :)

Reply | Parent | Thread

=

(no subject)

from: marconiplein
date: Nov. 13th, 2007 07:57 pm (UTC)
Link

I enjoyed the cartoon. I did take several economics classes while in college, but my relationship with money is so awful that I think I repressed those memories. So it's nice to get a refresher from someone that is NOT a creepy economics prof who thinks money is the prettiest, specialist man-made invention of all time. Skepticism is a beautiful thing.

Reply | Thread