Its an absolutely mandatory undertaking to phase out
ONE(1) Fractional reserve
TWO(2) Fiat currency
THREE(3) IN THAT ORDER.
Many very reasonable people, who are authentic students of economic-science, object that moving to 100%-commodity-money …….. would be frightfully expensive. The economics-adepts, sometimes say that the maintenance of an 100%-backed money-system ……. would be an ongoing expense and a waste of resources. Those who say this, and want to stick with the current situation, are just ignorant. But I cannot write-off all my many critics so blithely. For it might be argued:
“Why not get to 100% fiat backing and then just stick it out? Why go to the expense of 100% backing? When it might be argued, that fiat could perform largely the same function? Or if it wasn’t QUITE the ‘real deal,’ (the argument goes,) then at least it would be cheaper?……. Surely!!!!!!?”
In summary the argument for 100% fiat would claim that it would be a better monetary system …… or failing that almost as good …. but that this system would be vastly cheaper than the 100% commodity-backing…..
So the argument would be ….. “Look you would get 90% of what you wanted, AND ON THE CHEAP!!!!! Why not settle for 100% fiat-backing?”
Now superficially this does seem plausible. But the costs of 100% commodity money are virtually entirely dependent on 1.what sort of transition strategy you want to entertain and 2. what sort of commodity money setup you aspire to. If we were to have 4-6 monies, representing a cross-section of extraction industry activity, then the maintenance of this system would essentially be costless. Matter of fact it would save money.
Well how about the transition? The way to make the transition essentially costless, or at least very cheap, is to set up policy, wherein the private monies crowd out your fiat currency a little bit at a time. You have the tax incentives in place to go from one to the other. You have the incentives strong enough for the transition to be MADE BUT NOT RUSHED. So the fiat currency sticks around for some time but loses a tiny bit of market share every day.
Now how to do this is to tell treasury that you want the mint not merely to recover costs. But rather you want to have these various charges wherein the mint has to recover super-profits on its costs. Remember this is being achieved without recourse to central bank scams, or private fractional reserve racketeering. Rather than merely recover costs, you instruct Treasury to match various taxes on the use of fiat currency, such that the mint is recovering its costs, and making a profit for the Feds to the tune of (lets say) five times the costs of the minting of the money. This is important: They are not trying to maximise profits. They are merely trying to multiply some multiple of the costs of printing and maintaining the fiat money. If its profit maximisation they were after their behavior would be perverse.
Back when the leader of the opposition was John Hewson, and more generally back before the introduction of the GST, the State governments would have these nasty little charges on pretty much any transaction you made with a bank. When I was working for a bank in Victoria, we had to extract taxes from our customers, on behalf of the government, for pretty much any transaction the customer would make.
“Abolition Of FID And BAD Taxes
In August 1998, as part of its tax reform package, the Government announced its desire for the FID and BAD taxes to be abolished.(1) The plan was for these taxes to be repealed as a condition for the States and Territories to receive all of the revenue from the Goods and Services Tax (GST).
The Inter-governmental Agreement on the Reform of Commonwealth-State Financial Relations of 13 November 1998 provided for the FID and BAD taxes to cease to apply from 1 January 2001……..”
The FID stands for “Financial Institutions Duty”
“Prior to its abolition on 1 July 2001, financial institutions duty (FID) was levied on the value of receipts on financial institutions, and on the average daily liabilities of short-term money market dealers.”
BAD stands for Bank Account Debits tax “Bank account debits (BAD) tax is levied on the value of debits to accounts with cheque drawing facilities.”
In retrospect we see how the banking elites program us in certain ways. They ought to have gotten rid of payroll. Instead they got rid of these two taxes. Essentially these two taxes were taxes on fractional reserve usage. But I seem to remember we would charge for people depositing their own money into their own account. Which I found a bit hard to take. Particularly as I was the evil sod, who had to fill out the voucher, making the immoral extraction, for the benefit of blood-sucker-central.
Anyway the idea would be to
1. bring these two taxes, or taxes similar to these two, back.
2. As well you would charge income taxes on interest earnings at the top income tax rate. But you want to do these nasty things only for fiat currency. And only enough so that there is a slow buildup in the usage of 100% backed private commodity monies, rather than a mad stampede in the transition.
3. Also once you hit 100% backing for your fiat currency, policy should be arranged in advance, that this fiat currency will phase itself out, whilst monetary policy is conducted in such a way that this currency stays in the “growth deflation pocket.” That is to say that Gross Domestic Revenue, denominated in fiat currency, ought always be growing, but so slowly, such that consumer prices are falling all the time.
Now of course the new commodity monies would face no such charges as the fiat currency. Interest earnings for the 100% commodity money, would be exempt from any income tax, for both individuals and companies. What is more; coining, and coin maintenance revenues, would be considered tax exempt activities. The only tax on extracting, refining and monetizing commodities would be royalties alone. Other than royalties, the tax department would be blind to any revenues a company gained from these sorts of activities.
Now its pretty clear that these other monies could easily start crowding out the fiat currency. But what we don’t want is the fiat currency losing its value or gaining too much in value either. We want its value to grow slowly, even as these other monies, are crowding the fiat currency out.
MAGICAL SUITE OF POLICIES:
I would propose a three-speed monetary policy in this case. Always all governments and government entities would run surplus budgets. We might wish to accumulate debt and consumer price information in real-time.
When the massed debts of every legal entity in Australia were decreasing, and we were below the growth deflation pocket, then the outstanding fiat-currency could be growing at 1% per fortnight.
When we were in-or-above the growth-deflation pocket, and debts were still decreasing, we would keep the same level of outstanding fiat currency. But if the situation was that…
1. The fiat currency was losing value, so that you had gross domestic revenue (denominated in fiat currency) growing so fast that consumer prices were rising, and……
2. worse still, the total nominal massed debt (of all legal entities) was growing in nominal terms. (as measured in fiat currency……)
When the conditions 1 and 2 prevailed, thats when you could be sidelining the fiat currency at the rate of 1% per fortnight.
BOTH THE PRINCIPAL AND INTEREST OF OLD FIAT DEBTS TAX DEDUCTIBLE.
I would introduce this fiat-currency monetary-policy, along with a situation where debts held before the program started ……… Where the old debts could be registered, and paying them off would be a tax deduction. Paying off the old fractional reserve debts would be a tax deduction for both interest AND PRINCIPLE. Hence you would have fast money growth, but only in conjunction with obsessive retiring of debt. Obsessive retiring of debt would tend to leave consumer prices falling even in the face of quite high monetary growth.
Part of my program is also to make limited liability company’s 100% equity financed. So pty-ltd’s, would pretty-much be required to get out of debt. They could either get out of debt by
1. paying off their debts through retained earnings. Or…..
2. by paying off their debts via raising money through the stock market. Either way; the paying off of both principal and interest, would be a tax deduction, for the purpose of this program.
THREE LAYERS OF GOVERNMENT, INCENTIVIZED TO PAY DOWN DEBT.
If the policies of all three layers of government favored paying off the old debts, under this scheme, then you might ask “How would you ever phase out the fiat currency? Since the debt reduction would be so radical that high rates of currency growth would come with falling prices? So you want to phase out the fiat currency? But in practice you would be getting more and more of it? 1% more of it most fortnights? Surely you haven’t thought this scheme through Graeme?”
DEBT CONTRACTS WITH THE NEW MONIES.
No you see, as soon as
1. the commodity currencies started increasing the money supply
2. The real value of these commodities plateaued ….. THEN
3. Finally people-generally, would be confident enough, to enter into debt contracts with the new monies. …. SO:
4. Then-and-only-then, would the fiat-currency-reduction at 1% per fortnight consistently kick in, under the suite of policies I’ve been describing.
When that time came, you would need to have that outstanding-currency-reduction …… simply to maintain the value of the fiat currency. This is because fiat-currency is really just paper. Once the commodity-monies started gaining serious headway, under normal circumstances, the value of the fiat paper abruptly crashes. Particularly as the fiat paper would (under this suite of policies) face so many tax-DISadvantages.
So the 1%-reduction per-week policy, is necessary to have an orderly and non-disrupting phase-out of the fiat currency.
The phase-out would start in earnest once, despite all policy heading in the other direction, debts for the country entire, started increasing in nominal terms again. This would be a sign of growing commodity-money-usage, generally and for the purpose of debt-contracts. Therefore the 1% reduction in outstanding fiat-currency RULE …. would kick-in ……and would be in force much of the time …….. THEREAFTER.
WHAT DOES THIS SUITE OF POLICIES ACHIEVE?
Don’t worry if you cannot follow all the implications of this combined suite of policies for the moment. Its likely too much all at once. It probably appears to you to be a gimmicky set of policies. Perhaps you would wonder what was the point of going to all this trouble? Actually this set of policies achieves what might have been thought to be impossible. It makes the transition to hard money palatable, and something that no-one in the electorate ought fear.
THE CONUNDRUM OF HIGH DEBTS/ VERSUS THE NEED TO IMMEDIATELY GET TO GROWTH-DEFLATION.
It is just so hard to get out of this conundrum. For sound allocation-of-investment-resources, we need to be in the growth deflation pocket. If we aren’t in that pocket then investment resources will be being misused. Misdirected. Abused. Wasted.
Plus if we are not in growth deflation we will be tending to accumulate debts. As a society we will tend to become further and further under bondage to the bankers. We will tend to become the chattel of the bankers. We will tend to lose freedom, in the deeper sense, even if on paper our surface-level political freedoms are respected. But then you cannot hide the true nature of things forever. So presently in time, the de-facto loss of liberty, will transmute into an open tyranny, sooner or later. Forces will be at work to make our society less egalitarian, less fair, more corrupt, more violent and just generally more crappy. Currency debasement debases all the human values, and not just those of a monetary caste.
CURRENCY DEBASEMENT UNDERMINES ALL HUMAN VALUES.
Every day we stay outside of the growth deflation pocket is a day of missed opportunities for our society. Every day that we inflate, such that we are above this range of growth (in NOMINAL gross-domestic-revenue) is a day wasted, a better-world postponed.
TRUNCATED ODE TO GROWTH DEFLATION.
((((((Oh Growth Deflation….. “Life is precious and its slipping away and I’ve been waiting for you most of my life….”))))
If growth-deflation is so desirable and so ardently to be sought after, from a wider societal point of view then why can we not leap at it? Why wait another day before going after the better way to live?
Well you see most of us; almost all of us, have assumed debts on the basis of…..
1. continuing fast monetary growth
2. The expectation that many of the assets we have bought with debt, will appreciate in nominal terms.
Fast monetary growth makes old debts easier to pay off. But especially under fractional reserve, fast monetary growth arm-twists us into more and more debts, and brings the rest of society further and further unto bondage to the financial sector, and the big end of town.
Now let us consider the average poor bugger married to a nesting wife who wanted him to buy a home under these conditions of monetary insanity? This couple WILL HAVE DEPRIVED THEMSELVES, in enslavement to the banking racketeers,for the last twenty years:
(A)They may have neglected their kids
(E)some old passions they had meant to pursue …….
(F)All for the purpose of getting in on the land appreciation bandwagon.
The social contract that has been foisted on us, at the very least since (lets say) 1971, was that if you don’t work your ring off to gain real estate, chances are, you and your kids will move to the bottom of the sociological scale. But if you choose to work your ring off in bondage to the banks, and devote yourself to thinking about the inherently tedious and mind-numbing topic of real estate your entire life ….. then you may get lucky, receive some massive windfall profits …. and you may well get to retire famously rich, creating next to fuck-all wealth in the process.
TYPICAL COUPLE, ABUSED ….. AND DEPRIVED OF A FULL AND HAPPY LIFE …. BY FRACTIONAL RESERVE MADNESS.
Lets get back to our couple, arm-twisted into this different strategy, by the hateful world, that fractional reserve created.
THE AUSTRIAN-LIBERTARIAN OFFERS ONLY DESPAIR AND THE REALISATION OF A WASTED LIFE.
What does the hard money-man have to offer such a couple now? Only despair. What we are saying is that the asset that they based their life around, will implode in value by two-thirds. Meanwhile their debts will get harder and harder to pay off. The woman is still good-looking. But after 20 years of hard work, not so drop-dead gorgeous, as to easily get another reasonable and kind man, to devote himself to her. They had two kids which they did not spend as much time with as they had wanted. And the two of them would rather have had 5 kids. Or perhaps in the case of another couple, the chance to have kids, slipped through their hands. All because of the bondage that fractional reserve fiat has foisted upon us.
BACK TO THE SUITE OF POLICIES.
Believe it or not, the suite of policies I describe above, will make our debts easier and easier to pay off, even as the value of our savings increases…….
……Now thats a miracle. Some of you people may not understand what an important miracle this is. But the unwavering fact of history, is that paper money never lasts. Its value always returns to the approximate value, of the paper its printed on.
This time will be no different. The collapse of the paper money means mass-death, starvation, violence, war, pestilence and death. You think this subject isn’t all that important. But its absolutely vital. Niall Fergusons’ research into the causal factors behind mass-murder identifies monetary instability as a vital cause. Some of you guys that have been hoarding gold and silver for the last ten years ought to remember this also. Though you might think you are covered and heading for the ultimate, and deserved WINDFALL ………. do not wish for the catastrophic collapse of fiat-currency values: Such a collapse will bring commie-fascists in its wake, as it always does.
Our fiat currencies are on the downhill slide. So matters will get worse and worse, until the paper monies collapse. Then everything will go downhill from there. The verbal habits of Marvin-The-Robot, from the hitch-hikers guide to the galaxy become inevitable.
You won’t believe the people you will be dealing with are even human. The nastiness that they will exhibit will make you think you are living amongst monsters.
AN IMPOSSIBLE GLIDE-PATH TO ESCAPE FROM?
So we need to get out of this predicament. And we need to make it electorally palatable that we get to a sane set of circumstances as soon as possible.
MAGICAL ELECTORAL PALATABILITY.
The suite of policies, as described above, will introduce hard money, in such a way as to make old debts vastly easier to pay off. The expected capital gains will be less, yes its true, and that must be admitted up-front. Because the days of stooging older people must finally come to a close. Tangentially-speaking; Making rental income tax-free might help from an electoral point of view, and to maintain the capital value of the typical couple I am talking about in the above example.
LIBERTARIANS MUST FAVOUR AND RESPECT THE ELECTORATE IN ACCORDANCE WITH AGE. IF YOU CANNOT RESPECT YOUR ELDERS AT LEAST BE RESPECTING YOUR BETTERS.
Generally speaking, hard-money libertarian reformers, must skew policy in accordance with age. We have to learn to care passionately about the old diggers. When I say “we” I mean the rest of you. Start growing a heart and getting to read off the correct sheet-music.
If now older Australians, have belatedly started making decisions on the basis of them catching up with post-1971 realities, and then we turn the tables on them again, then they will die in despair.
Our older mates dying in despair is unacceptable. Bad in-and-of-itself …………………… But on top of such manifest ethical considerations ……….. this sort of callousness ……. will make the move to sanity and reason ……….. electorally impossible ………. and hence the four horsemen will await.
The above combination of policies does not rip off the thrifty fellow with stacks of $50 notes in his safe at home. The policies mean that his thriftiness will be rewarded, even as those less thrifty will find their debts easier and easier to pay off.
LIBERTARIANS MUST LOOK AFTER THE OLD BOYS AND GIRLS.
Supplementing the above transitional monetary-policies …. will be a whole lot of other policies rewarding older people for working part-time to add to their pensions. Discriminating in their favor more generally. And going out of our way to shield our older diggers and lasses, from being the victims of this most righteous change in our affairs.
Here is a post I made to do with the technical issue of the difference between SAVING MORE and INCREASING CASH BALANCES. These two different strivings, may seem to be a part of the very same activities. The reality is that SAVING and BUILDING CASH BALANCES are actually two different pursuits. Differing pursuits with substantially different consequences and ramifications. Fractional reserve bondage has obscured the difference between these two undertakings.
MY POST AT MISES.ORG IS WHAT INSPIRED THIS LENGTHY SCREED!
Whilst it is true, that I was explaining a technical point in economics, you will see that I managed to smuggle in something close-to, in-principle ………….. my preferred approach to making the great monetary-transition ……… and also to monetary-policy …… more generally.
“Holding money is an act of saving and it does not cause a divergence between the natural and market rate of interest. Holding money shows that people are more future oriented because they prefer holding the money instead of using it for consumption purposes.”
Thats a fair way to look at matters. But we want to, for theoretical reasons, differentiate between savings, and the demand for cash balances. If we assume that savings are lent AT-TERM, and cash balances are ON-CALL, then we can separate the two behaviors in our minds. We can see that for individuals, the building of cash balances does not always mean saving more. And one could imagine saving more without building cash balances, if one lived in a world wherein people tended to have high cash balances in the first place.
Having high cash balances can serve both a speculative and an insurance function. The demand for insurance would probably be a lot lower in a hard money/high cash-balance world.
Supposing we have a medium-sized country, (not the United States) split into State, Federal and local governments?
Supposing that this country has four private monies, and one government-sponsored money. The government-sponsored-money is meant to serve the interests of defense.
In this scenario, as a matter of national policy, the Federal government asks for its taxes and charges to be paid in Gold and Fiat.
Supposing also that the State government must be paid in silver, the local governments in silver. Suppose that export-import business is conducted mainly in Platinum. But on top of that, for defense reasons, the Feds offer tax discounts to be paid in what is a quasi-government money. To Whit:
“Synthetic-diesel stored in a robustly-hardened situation.”
So over time many service stations develop hardened underground storage for this digitized diesel money.
Supposing the coins that represent this diesel money are laminated silver coins, with an embedded micro-chip. The silver covering transaction-costs?
Now back to savings versus cash balances:
War is looming. Everyone fears that they may have to be able to take their family and run from wherever the fighting may be. They want more compact and readily acceptable money since they anticipate that they may be on the lam. They could be building their cash balances in synthetic diesel and gold. Yet they may be saving less. They may be selling a lot of gear, and buying Kevlar hardened SUV’s, all kinds of weaponry, lethal and less lethal. Camping gear, small houses in foreign countries, special communication equipment. And they may be trying to offload any accumulations of silver, copper and platinum than they would need for petty change. They could be working harder than ever and spending more than ever. Yet their demand for cash balances in gold and synthetic diesel, could be growing, even as their term loan savings are being liquidated.