Posted by: graemebird | October 28, 2010

Lying Moron Andrew Reynolds Of Ozrisk.

Andrew Reynolds is lying again. Claiming he won an argument with me on the subject of monetary-economics. What really happened here is that Mark Hill is fundamentally intellectually handicapped. And Sinclair Davidson, and Jason Soon failed to correct Andrew very early on when he made an embarrassing mistake. This is because these two are complete cunts (its actually a bit like professional understanding between opposing lawyers; their cunty behavior. It was just a matter of Sinclair correcting Andrew and he will not do it even unto this day.) And also because they are ignorant.

Andrew Reynolds did not even realise that ideas expressed by Murray Rothbard and Major Douglas were absolutely standard and undisputed in economics. Doesn’t matter if you were a monetarist, a Keynesian, an Austrian, A paleo-Classical. Doesn’t matter. The money creation process is very well known, and so a non-sophist, entirely logical and once understood indisputable.

He was disputing it and in his ignorance he had thought it was just a wild and crazy idea that Rothbard and Douglas came up with. To this day he stands all alone with this idea. But ask him a question about his new theory, and he has no paradigm to answer the old one with. So he never won the argument. He never even made a valid point. He just filibustered.

In a four month stretch he came on catallaxy every day, with the same piece of shit sophistry. Finally after four months he stopped. But he did not stop with a new paradigm he could explain to compete with the standard economics explanation for the new money creation process.

Here is this lying bastard making a cunt of himself at his own blog. For the permanent record, just in case the blockhead tries to hide his ignorance:

“Are Bank Deposits Money?
5 October, 2007 in Banking Theory, Banks, Business | Tags: Money, Murray Rothbard, Social Credit | by Andrew
Or – Why Murray Rothbard and the Social Credit Theorists are Wrong
One of the arguments that rumbles around some of the various blogs I read is an old one about the nature of what banks do. It pops up on a regular basis when economic theorists get involved in discussions about banking. This argument is founded in what I consider to be a misunderstanding of the nature of money itself.

To me, the argument boils down to a simple question – are deposits in banks “money”, properly so called? If it is, then banks can create money simply by accepting a deposit at call and then making a loan.

To those who are horrified at the idea that Rothbard (in this area at least) can be lumped together with the Social Credit of C. H. Douglas – sorry, but they are both wrong and for the same reason.

What follows is a short, but I believe still correct, discussion. If you want more, please raise points in the comments.

ROTHBARD’S ARGUMENT

Rothbard founds his argument against modern banking practice (see Chapter VII of the link – opens in new window) on what I believe to be a misconception: that when you deposit money in a bank what you have is still money, only in the form of a bank deposit, rather than a claim on the assets of the bank. To emphasise his point he calls bank deposits “warehouse receipts” as if the process of putting your money in the bank is the same as storing furniture in a warehouse.

SOCIAL CREDIT

The Rothbardians out there may be horrified at the thought, but he is making a very similar argument to Maj. C.H. Douglas in his Social Credit framework – that banks manufacture money. Here, in a speech to the King of Norway (opens in new window), is the clearest exposition of this I can find:

[banks] make … it in exactly the same sense that the brickmaker makes bricks, and not in the sense that Mr. Jones makes money; Mr. Jones only gets it from somebody else, but the banker makes it. The method by which the banker makes money is ingenious, and consists very largely of bookkeeping.

The social credit people then move from there is all sorts of directions, some into outright socialism and some to a position very close to (if not actually in full agreement with) the Rothbardians.

WHY THEY ARE WRONG

They are both wrong. Banks do not “manufacture” money and for a very simple reason. To use Rothbard’s analogy – when you deposit your furniture in a warehouse you pay the warehouse to store your furniture. When you “store” your money in a bank, the bank pays you. Why is this? Simple. When you loan your money to a bank you are (implicitly or explicitly) authorising them to lend that money back out to someone else and for the bank to make a return on it.

The interest I receive in lending my money to the bank is to compensate me for two main things (and several others, not important here):

the time value of money, where I get compensated for delaying my use of the money while the bank uses it; and
credit risk, the risk that the bank will not be able to pay me when I walk up to the bank (or now my web browser) and tell the bank I want to withdraw.
To use Rothbard’s analogy, if I was doing the equivalent thing with my furniture I would expect to get rent for it – the rent amount being to compensate me for not using the furniture for the time I do not have it and for the risk that my furniture will have been lost or stolen when I ask for it back.

To put it another way – when you deposit your money in a bank it is no longer your money. It is the bank’s money and you are compensated for this transformation through being paid interest – or at least not having to pay them a storage fee. In this I fully agree with Lord Cottenham in Foley v. Hill and Others (I am quoting here from Rothbard as the Google copy is not in text form)

Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it . . . . The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the mount, because he has contracted . . . .

Rothbard, looking at Foley which clearly stated this principle, saw it as a disastrous mistake. I would agree if I were paying the bank to store my money. I am not, though. The bank pays me while they have it. Where do they get this money? By lending it out – therefore, when I deposit my money in a bank it is no longer my money, but a claim on the assets of the bank.

If what you want is a place to store your money and be sure that the money is safe, great. They are called safety deposit boxes and are available in the vaults of most major banks. Just expect to pay for their use.”

Hardly a new monetary theory is it? There is no basis for creating an alternative monetary theory above is there? No there isn’t. Reynolds is just a moron. And thats the situation today. Stupid people everywhere getting in the way.

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Responses

  1. Reynolds always appeared to be a clumsy overweening insincere fop who badly needed a dose of natural Vitamin D. Is he still compos mentis?

  2. No, nothing against Jews or bastards, RPH, but then I left-wing and your a fascist.

  3. Graeme, note well, there is nothing more terrifying than a nihilist. And Tillman – the above ‘Ron Pauline Hanson’ – is that. He hates himself and he hates you. Such people are to be rightly feared. They are completely toxic to everyone they know, and to the body politic.

  4. Your projection Tillman. You’re the real deal. A self-hating Jew. What’s the problem, dummy.

  5. Each to their own limp-dick Ron/Tillman.

    But like most women I like and enjoy self confident men, not a self-loathing perpetually verbally and no doubt physically regurgitating hateful fop like you.

  6. Tillman projects yet again. His wife is not enough. But of course.

    We women desire just one entire whole man. So rare. But they are to be found.

  7. SO LETS HAVE YOUR VIEW OF ANDREWS ARGUMENT. SO YOU RECKON HE’S RE-WRITTEN MONETARY THEORY THEN?

    JOSEPH CAMBRIA. YOU ARE A LIAR. YOU ARE A MORON. YOU ARE JUST A FUCKWIT. WHAT IS MORE BEFORE THE BAILOUT YOU AGREED WITH THE MAINSTREAM VIEW OF MONEY CREATION.

  8. Excellent and witty comment by Jessie Irvine in today’s SMH.

    It’s so good I’m printing it in full.

    You and she and Professor Quiggin see eye to eye on many matters Mr B. But then all three of you are very very smart. As well as emotionally intelligent, of course. And ethical.

    Run, it’s the zombie economists

    Halloween this year brings with it an unusual infestation of zombies into public life. Last Sunday a horde of prosthetically endowed enthusiasts descended on Hyde Park as part of the annual Zombie Walk, one of many similar walks organised worldwide.

    On Monday in Canberra, Labor senator Doug Cameron confirmed what some had long suspected: the ranks of the federal Labor Party are populated by reanimated corpses. ”It seems to be like having a political lobotomy,” Cameron opined, while raising his concern about the lack of dissent and open debate among Labor MPs on issues such as gay marriage and climate change.

    ”You know, you’re actually – your brain is just ripped apart, you can’t think about things, you’re not allowed to talk about things, um, and, really, you know, we don’t want zombie politicians.”

    Advertisement: Story continues below As Cameron bemoaned the lack of ”brrraaaiiinnnsss” in Federal Parliament, Prime Minister Julia Gillard was more intent on exhuming the political corpse of Pauline Hanson to use it to whack the opposition on economic matters.

    That is what passes for political debate in this post-election apocalyptic policy dead zone.

    The political bloodsuckers also fell upon Joe Hockey’s nine-point plan to boost competition in the banking system, a rare feast of substantial policy proposals so far missing from this parliament. Because unlike the ”zombie banks” of America and Europe – so named because they feed off the taxpayer to survive – Aussie banks have survived the global financial crisis in fine form. Australians would be wise to arm themselves to guard against too much power consolidated in the big four banks.

    All of which serves as the most wonderful, and possibly longest-ever, segue into an excellent new book titled Zombie Economics: How Dead Ideas Still Walk Among Us, by the University of Queensland economics professor John Quiggin.

    According to Quiggin, the biggest threat to public life today comes not from lobotomised Labor pollies but the stubborn survival of a handful of defunct economic ideas about the beauty of unrestrained markets.

    Quiggin takes aim at the once-dominant ideas that financial markets always reflect the true price of assets (the efficient markets hypothesis), that privatisation is always preferable and that economic systems are not prone to bubbles that burst. The global financial crisis should have killed such ideas but they stubbornly refuse to die. Quiggin’s most excellent retelling of modern economic history also suggests it’s one-all for the Keynesians versus market liberals this past half century.

    The ”golden age” of Keynesian management, which began after World War II, produced an unparalleled period of prosperity and low unemployment. But it ultimately ended in tears and an ugly combination of inflation and a stagnating economic growth – ”stagflation” – in the 1970s. Chalk one up for the market liberals.

    But the supposed period of ”great moderation”, which began in the 1990s and was based on light-touch regulation and faith in free financial markets, has also ended in tears with the global financial crisis. The crisis proved once and for all the business cycle is not dead and free markets had simply shifted risks onto households and off the shoulders of footloose, fancy-free financial speculators.

    The economist’s beautiful models have crumbled in the face of estimated losses from global financial failures of four thousand billion, or 10 per cent of world annual income. Assumptions about risk management and infinite rationality fail to stack up against 2.3 million home foreclosures in the US in 2008 and 2.8 million last year. Score one for the Keynesians.

    But even now, some American economists are seeking to reframe the global financial crisis simply as the market’s rational response to the prospect of an Obama government. ”I underestimated the speed and power of zombie ideas,” Quiggin writes. ”The ideas that caused the crisis and were, at least briefly, laid to rest by it are already reviving and clawing their way up through the soft earth. If we do not kill these zombie ideas once and for all, they will do even more damage next time.”

    Quiggin attributes such resistance to the vested interests of academic economists. Such economists have often invested a life’s work into the idea of free market hegemony and so are not inclined to turn their back it so soon.

    Economics is fundamentally tribal, as Keynes wrote: ”The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

    But in the wash-up from the global financial crisis, which continues to wreak havoc on financial markets, it is now time for a new synthesis between the market and state. Markets have proven powerful tools on a small scale in delivering an efficient allocation of scarce resources. But they have proven unstable at a macro level.

    Ultimately, governments are called on to smooth out natural swings in demand by spending or saving money and to protect key institutions too big to fail.

    Which is not to say we should nationalise every bank, but simply acknowledge the ”moral hazard” created when banks know they are guaranteed not to fail. The market liberals’ disdain for such government intervention is akin to crawling back to mum for an emergency loan and then complaining she is smothering you with attention. You can’t have it both ways.

    As the world grapples to find a new economic order, a willingness to question received wisdom must be the new economic mantra. As Quiggin concludes: ”The prevailing emphasis on mathematical and logical rigour has given economics an internal consistence that is missing in other social sciences. But there is little value in being consistently wrong.”

    As you can see, it’s all about ”brraaaiiiinnssss”.

    • Yeah thats interesting. I’ve just been defending Joe Hockey over at unleashed. But I cannot get a good debate going. Chris Berg has been a nuanced and very good commentator over there. But he’s got lazy with his criticisms of Joe and hasn’t thought it through as far as I can see.

      But funnily enough these days I’m getting almost the opposite problem sometimes to that which prevails at Catallaxy. Now I cannot get people to argue with me? Maybe they are hearing me loud and clear for the first time?

      Chris hasn’t retaliated in any way. I mean I was respectful. Maybe he’s been pulled up and is thinking about it?

  9. This looks good. Documentary to be released next week in the US by Alex Gibney who made the superlative “Taxi to the Dark Side” and “Enron: The Smartest Guys in the Room”.

    Another job by the shadow US government this time against a powerful Jewish-American politician. But this kitty-cat ain’t going quietly. I dig it and him.

  10. Right. He takes on the fractional-reserve nexus and they set him up.

  11. Look at this blasphemy, from a trained economist Mr Bird!

    the gold standard is quackery. We would be more more sympathetic to a claim that you saw a UFO then for a call to return to the gold standard. Give it away.

    http://catallaxyfiles.com/2010/10/30/things-to-like-about-the-tea-party/comment-page-2/#comment-119218

    He’s ridiculing both the much-needed gold standard, and UFOs/pyramidal life forms. What do you make of it?

  12. Well the old fractional reserve gold standard is indeed quackery. No problem there. And a mono-metallic standard can be manipulated. So it would be inadvisable to have a single metal standard nationwide. Rather you would want all four monetary metals and one unbacked government currency in play. Fractional reserve is quackery no matter what gold gloss you put on it.

  13. Oh right. Its Sinclair Davidson talking. Sinclair is totally ignorant of monetary economics. Its just incredible that he had a job as dean of the RMIT, when he is ignorant as he is. And note that this quack is not running down the gold standard because of fractional reserve. He is so much of a crank he’s running it down anyway.

  14. Has anybody asked that dumb fuck Sinclair Davidson why he is too dim to realise that CENTRAL BANKING FRACTIONAL FIAT is quackery?

    This fellow is a fucking moron. Here we have a system he is championing, that has manifestly failed. Failed on every level.

    He’s such a fucking moron you know. He blames this worldwide banking failure on some regulations arm-twisting the banks to lend to black people.

    This is the level of ignorance and total non-comprehension we are talking about.

  15. Sinclair is so fucking dumb, he is pleading free enterprise, yet supporting a system where we have 360 degrees, full spectrum subsidies for the banks. Not for me and any five females of my choosing only. But for bankers.

    But the guy is such a dumb fuck. So ignorant of economics, he probably doesn’t even compute that there are subsidies involved.

    Like if you loan me money at a subsidised interest rate, thats a subsidy. But if the central bank loans the banks interest on this same basis …… well Sinclair is too dim to understand that this is a subsidy.

    Is this a Jewish thing? Is it because Sinclair is a Jew, that makes him such a moron?

    Well I don’t think so. Jason is a Chinaman and its pretty clear that he is equally as oblivious.

  16. “My first best position would be to implement Hayek’s proposal for the denationalisation of money.”

    When Jason Soon says he is lying. Its just incredible. He will lie about anything. In reality he likes the status quo because he’s an ignorant coolie.

    But its a really dumb proposal by Hayek. These guys get hold of legitimately good economists and start pushing their most stupid proposals. Soon is lying here simply to confound Terje. Its a mean-spirited cunty thing to do. Its just derailing the reasoning.

    Note that were it not for Cambria and Soon being cunts and derailing the debate, it would be clear that he is winning on points against Sinclair. Sinclair claims that all fixed currency systems end in tears. This is true if there is fractional reserve allowed. But the yawning gap in his thinking is the fact that all fiat currencies tend to end in tears as well. For the exact same reason. We are constantly oscillating between different monetary systems. None of them can stand the test of time since fractional reserve ruins them all. There is no exception to this rule. No exception can ever be found.

  17. Sinclair decides he wants a public private partnership for central bank functions. He says that he would want fees fixed in nominal terms so as not to encourage inflation ….. but then get this for ignorance. Terje then counters …. well what if they cause deflation …..

    … And Sinclair is so ignorant he doesn’t think this would happen, and he says so on the basis that we haven’t had deflation since the great depression. His ignorance is just incredible here.

    And notice his answer is crony capitalism. A public private partnership. If you locked these guys in and fixed their income, of course they would cause deflation. That would follow as certainly as night follows day. Of course if it was GROWTH-DEFLATION it would be a good thing. But since these people would be accepting stolen money, it would be completely unlikely that they would prove to be this patient.

  18. “Sinclair – if neutrality is about government interference then I’m not sure what you mean by neutrality. Can you please define what you mean by the notion of money being neutral.”

    Terje is not going to get an answer to this one. Sinclair would have to have a 3 year sabbatical to learn the material.

  19. Sinclair’s system must fail. Its really that simple. Because its to the interest of the sub-contractee to have very harsh deflation. Not just growth-deflation, but really harsh deflation the entire time.

    Plus even if they were to go with an excellent growth-deflation, its still a system that he has no idea about. For example it necessitates the failure of fractional reserve. Which is a good thing. But does Sinclair really think that the authority is going to survive in its role if every bank in the country fails? And everyone with a home loan is bankrupted? Obviously you have to think these things through.

    With this public private partnership people will be spitting chips, because if it were foisted on us, by people who had no understanding of what it would create, then they wouldn’t be ready for, or have prepared for everyone in debt being bankrupted by a profit maximising bunch of privateers.

    Ironically the system could actually have good outcomes. Wiping out fractional reserve, debt, and having endless deflation would eventually be quite a good thing, after twenty years of paralysis. But Sinclair doesn’t begin to understand the implications of the system he is advocating. I mean the dumb twat is in favor of fractional reserve after all. So he’s fundamentally ignorant.

  20. Sinclair’s system is failing. He caused the GFC, and JC got bailed out for it.

    • crafty bank cash pyramider.

  21. YES OF COURSE THEY ARE. THAT WOULD BE RATHER OLD NEWS.

    I FOUND OUT THAT YOU ARE SUPPOSED TO BE TAKING PHILOSOPHY PAPERS. YOU REALLY MUST NOT SLEEP IN. ITS A BAD HABIT TO GET INTO TO BE MISSING LECTURES. MUCH EASIER TO DO THAN ONE WOULD THINK.

    HOW COULD YOU MINDLESSLY BE PUTTING THE PHYSICISTS ABOVE THE PHILOSOPHERS? PHYSICISTS MAKE VERY BAD PHILOSOPHERS. AND MOST OF THEM MAKE PRETTY SHABBY THEORETICAL PHYSICISTS AS WELL.

    • LOOK TINOS. YOU OUGHT TO HAVE SOME ADVANTAGES. YOU ARE DOING PHILOSOPHY PAPERS. ALL I’VE EVER SEEN IS A DENIAL OF THE PHILOSOPHICAL CALLING IN EVERY DEBATE I’VE EVER SEEN YOU IN. YOU DON’T BRING THAT SORT OF LACKADAISICAL ATTITUDE TO THIS BLOG. HERE YOU HAVE TO DIG DEEP INTO WHAT YOU OUGHT TO HAVE LEARNED FROM YOUR LECTURES, HANDOUTS, LATE-NIGHT DISCUSSIONS, AND PRESCRIBED TEXTS, AND PUT A BIT OF EFFORT IN.

      SEE YOU RAN AWAY FROM THE PHILOSOPHERS DUTY ON “SICK OF POLITICS” AND YOU JUST WENT IN FOR THE LAME FASHION OF REVERSING THE HIERACHY OF THINGS AND BOWING DOWN TO THE CULT WORSHIP AND SELF-PROMOTION OF THE PHYSICISTS. THIS REALLY WILL NOT DO.

      MY CANONICAL TEXT IN THESE SUBJECTS IS ACTUALLY A BEGINNING TEXT. I HAD IT AROUND THE HOUSE SINCE I WAS 14. IT WAS CALLED “AN INTRODUCTION TO PHILOSOPHICAL ANALYSIS” BY JOHN HOSPERS. ITS AMAZING WHAT YOU CAN DO WHEN YOU HAVE SUCH SOLID GUIDANCE.

      WRITE SOMETHING OF SOME SUBSTANCE AND IT WILL ALWAYS MAKE IT THROUGH.

  22. Getting pretty good traction on this thread. Bob Ellis was being savaged by mutants. So I thought I’d come on in support of his ideas.

    http://www.abc.net.au/unleashed/40540.html#m514955

    • That’s a bonzer of a thread Birdie. You and Bob are getting on like a house on fire I see. I don’t agree with either of you on population, but the arguments are tops as are the responses. All in all one of the best discussions of the population quandary I’ve seen on line. And I do like Bob Ellis, always have.

      • Yeah I’ve always liked him too. I used to find myself quoting him a lot. Like one time he unfairly described the Americans as “Smiling …. airbrushed …. and armed to the teeth.” This was live TV. Really marvelous stuff.

      • Thanks for that. I think I have helped a bit. There was a few supportive comments from some people. But basically he was being swarmed. And yet he had put out what I thought was a number of good points, and good ideas as well. So I’m taking a bit of pride in this thread of his.

  23. The answer to your question is obvious JC.

    Unlike you I am a fascinating, hot, smart, kind, perfumed and emotionally intelligent woman.

    You and Jason Soon are boring, unattractive, dumb, cruel and smelly males.

    No contest for any red-blooded clever male. ROFL

  24. Mr Bird, speaking of smelly creatures, but ones that have a use and are also inspirational (and sorry if I’ve already posted this here) but this photo-essay is a treat.

    http://www.treehugger.com/files/2010/10/gutsy-goats-caught-scaling-super-steep-dam.php

  25. You’re overly interested in me, jc.

    Sorry, you’re unattractive in all ways and so is Jason Soon.

    Go look elsewhere. And good luck. You both obviously need it.

  26. Goodness me. That picture of all those goats. It looks like a setup so that Cambria and his business-mates can tell themselves they are the bestest hunters and marksmen. Just like Cambria and all his banker mates tell themselves that they are fine businessmen and wealth creators like Steve Jobs.
    >>>>>>>>>>>>>>>>>>>>>>>>>

    Sorry about the dumb wop infestation Philomena. I only just checked up on my blog right this minute.

  27. HHAHAHAHAHAHAHAHA CAMBRIA RECKONS HE’S GOING TO GIVE ME A CLIP OVER THE EAR. DUMB WOPPY WOULD BE ON THE GROUND SO FAST. AS IF YOU WOULD PLUCK UP THE COURAGE FOR THAT CAMBRIA. YOU’D RATHER BE GARGLING RAZOR BLADES.

  28. NOW YOU ARE JUST BEING SILLY.

  29. Cambria was always a congenital whining coward.

    He’s the sort of snivelling namby-pamby bully who’d call for military-level reinforcements against a petite teenage schoolgirl brave enough to give him the finger.

    One can only imagine the way he talks to family members who thwart or challenge his rapacious meglomaniacal desires/politics/economic nostrums.

  30. There is something deeply troubling about a dumb wop banker, who shows up online as a transvestite.

  31. Graeme, I think that sexual degeneracy is usually closely correlated with the parasitic class of men such as the likes of failed trader, Joe Cambria.

    Such men suffer from a pathology that speaks above all of sexual frustration and inadequacy. But, then, given Cambria’s joyless and truncated worldview, it’s no wonder he suffers from impotency. He is an object of pity, more than anything.

  32. Marieke Hardy is a honey. She’s not only soft and sexy and drop dead gorgeous, she’s a contrarian and has a vocabulary and sensibility that burns.

    And see her here (Nov 2) program

    http://www.abc.net.au/tv/firsttuesday/

    • Yeah she is a sweety alright. I like the way she always wears a flower in her hair. But she took an unbalanced approach to the book Atlas Shrugged. The situation prevailed upon me to pull her up and lay on her some home truthzzzz. Because in her own way Ayn Rand was a real sweatheart too.

      • (site deity) Stay in character. The good guys depicted were more like pre-Carnegie businessmen. Rather than fatcats who have a number of directorships, each of which gives them a years wage for a few hours faux-work. The bigshot executives hire a CEO with a track record of giving the top tier management massive pay increases, and everyone can rip your normal Joe off, because of subtle, yet persistent advantages, for big businesses as compared to small business.

        The current situation is disgraceful. But it is not capitalism properly considered.

  33. Fab account of the work done by the artists who designed Prof Quiggin’s new best-seller.

    It’s solved my Christmas gift conundrum. Everyone form the QC to the lawn-mower will be getting this gem gifted wrapped or not.

    http://press.princeton.edu/blog/2010/07/19/meet-the-half-eaten-brains-behind-the-cover-of-zombie-economics/

  34. I seen at least 50 blogs internationally that are reviewing this work.

    http://press.princeton.edu/titles/9270.html

    • Right. He’s really hit a nerve then. And its got to be just due to the same stupidity I’ve been criticizing Catallaxy for for the last five years. If they hadn’t so much let down their Chicago school heritage then the book would not stand the chance to sell like hotcakes.

      It will be a onesided book. It will be a sharp-eyed version of the sort of thing Ralston Saul was putting out ten years ago. It will be a frustrating thing in that his observations will be good but his solutions will be absent or wrong. I shall read it the first chance I get.

  35. sorry for the misspelling.

    I’m at the Sydney Opera House waiting to hear Dr Vandana Shiva the physicist, ecologist, feminist and author awarded the Sydney Peace Prize after defending for more than three decades the developing world against the free-market system.

    • You have a good time.

    • Right. I’m listening to her. She’s very good. But the word is out there that “intellectual property” can no longer be considered to be part of the free enterprise rubric. So like fractional reserve, from here on it must be considered a feature of cronyism.

      • Graeme, left libertarians have always opposed intellectual property for the simple reason that it is artificially created private property in certain classes of ideas that are part of our common heritage.

        Intellectual property laws are probably a hindrance on innovation and creativity.

        Walt Disney took tales like ‘Snow White’ collected by the brothers Grimm and turned them into feature length cartoons, the plot of Shakespeare’s Romeo and Juliet is found in Ovid’s Metamorphoses, written in Latin around the time of Christ and so on. Was Shakespeare a plagiarist? By today’s private property laws in the realm of ideas, probably yes.

        Thomas Jefferson said of ideas that they are like the light of a candle. They can pass their light to someone else’s candle without dimming their own.

        “The law hangs the man and flogs the woman
        Who steal the goose from off the common,
        But leaves the greater villain loose,
        Who steals the common from the goose.”

  36. I am a neophyte in economics, it’s true, and I haven’t yet fully grasped this business about the fractional reserves. However, I saw this comment on that vile blog, and I was perplexed:

    the deal he struck to support Goldman Sachs during the GFC was an insiders deal where he personally negotiated with the GS management the conditions of the sweet convertible note paying 9% with a strike in the stock price at $125.

    http://catallaxyfiles.com/2010/11/03/the-zombie-book/comment-page-1/#comment-121120

    Is this Italian financier really saying that traders benefited from the horrid GFC? That’s beyond comprehension.

  37. You, me, and anyone else is smart enough to benefit from stock market crashes. But who actually benefits?

    Its those who are placed to get hold of the cheap loans that are wrongly prescribed as the cure for the crisis. So the bankers who caused the crisis, if they survive, also benefit from it. As you would if you could be sure that the next time there was a crisis, you would be the one with all this access to cheap finance.

    The real way to deal with a crisis is to massively increase central bank interest rates, yet flood the place with cash. Since they are using harmful, rather than good policy, it just goes to show that all arrangements and norms are there to help the bankers make money. At many times and places going back the last 1000 years, the bankers have been the senior wing of the state. The senior partners of blood-sucker-central.

  38. Graeme did you see this article in today’s SMH?

    It says that Amazon has “operated at a loss for most of its life”. What does that mean? And how can that be?

    • Amazon is a survivor from the the technology bubble. There you had thousands of over-valued companies that never made any profits. This misallocation of resources was to do with fractional reserve. It was just another bubble. But at least it was a tech bubble rather than a bubble which makes the ground beneath our feet more expensive.

      In traditional marketing you usually had room for two big outfits. Hertz and Avis. Coles and Woolworths. But on the internet, because of the information clutter, from a branding standpoint, its almost a winner takes all situation.

      When you buy a book you really only think of Amazon. So there is a big premium to being the only bigshot in a field of ankle-biters. Hence lenders and shareholders have likely been willing to keep supporting Amazon all this time. So if what you say is true Amazon will be like one of our small mining companies who has to keep going back to the shareholder for more cash before they are bought out. Or they at least must have been getting more loan money the whole time.

  39. http://www.smh.com.au/digital-life/ipad/apple-opening-may-be-good-for-readers-but-not-for-bricksandmortar-bookshops-20101103-17e1g.html

  40. YEAH I’M GLAD YOU PICKED UP ON THIS IDIOT CAMBRIA. HE MAKES WELL POLISHED VIDEOS AND HE’S ALWAYS WRONG. HIS TRACK RECORD IS 100% CRAP. FOR STARTERS HE’S A YOUNG UNIVERSE CREATIONIST AND THE CO2-BEDWETTER. THERE ISN’T AN ISSUE HE DOESN’T GET WRONG. PLAUSIBLE SOUNDING VOICE BUT A TRACK RECORD OF 100% ERROR.

  41. Notice that the fellow “Joe” that this plausible sounding fool is deriding, has a physical demonstration that defies explanation but for growing earth theory. All the continents join as a circle on both sides. There is no getting around that.

    Also notice that he simply was too dim to make head nor tail of the Adams take on new matter creation.

    Its true that growing earth will overturn all this socialist science we have built up over the last century. Thats a good thing because it desperately needs overturning.

    • How does one reconcile Adam’s take on new matter creation with the 2nd law of thermodynamics?

      • You may not be able to. Adams himself sees the process as new matter CONVERSION rather than creation. The second law of thermodynamics does not tell us how matter got here in the first place. Rather the entirety of matter is explained by a young-universe creation fantasy.

    • Potholer54 should do a video on you Graeme,

      WHAT WOULD BE THE POINT? HE HAS A TOTAL RECORD OF FAILURE IN ANY ISSUE HE HAS TACKLED. HE HAS NEVER GOTTEN ANYTHING RIGHT. DESPITE THE POLISH OF HIS VIDEOS HE HAS NEVER ONCE BEEN ON THE RIGHT SIDE OF AN ISSUE.

      DID YOU TAKE NOTE OF HIS ANIMATION? IT BRINGS THE STUPIDITY OF THE TECTONIC PLATES BUSINESS INTO HIGH RELIEF. YOU HAVE A MINOR AMOUNT OF VOLCANIC ACTIVITY IN THE MIDDLE OF THE OCEAN, AND IN THIS VIEW THIS IS CREATING THE MOVEMENT OF BILLIONS OF CUBIC KILOMETRES OF MATERIAL. WHY? HOW? ITS ALL SUCH INCREDIBLE BULLSHIT. SO HE MAKES THIS EXCELLENT ANIMATION TO DEMONSTRATE IT, BUT HE’S TOO STUPID TO UNDERSTAND THE IMPOSSIBILITY OF WHAT HE IS CLAIMING.

    • OKAY. IT JUST SHOWS WHAT A DUMMY YOU ARE CHOOSING THE IRRATIONAL SIDE IN THAT ARGUMENT. YOU CANNOT GET ANYTHING RIGHT. YOU WOULD THINK YOU WOULD HAVE AN OUTSIDERS PERSPECTIVE. BUT YOU SIMPLY LACK THE BRAINPOWER.

  42. Graeme, re Amazon, the way some people have explained it is that in America, and elsewhere, companies like Amazon award to individual owners or stakeholders all $ benefits so as to show that the company itself has not made a profit for the express purpose of bypassing all forms of tax. And so the story goes, this is what Amazon has done.

    • Right. I cannot speak for Amazon. But what you have with large companies is often the ability to do two different things that small startups and small companies cannot do.

      1. Access tax havens.

      2. Access all sorts of tax deductions.

      Just concentrating on the latter. In order to be a company that has survivability and growth, you need retained profits. If you have retained profits in the context of growth deflation and competition, you have wealth creation. With less competition, and with more inflationary monetary policy this statement may still be true but it grows less and less certain.

      Survivability with retained profits is there because your equity is growing from your operations and not just from begging shareholders to buy more out of new share floats, that incidentally water down everyones holdings.

      Suppose you are a small business. Lets take a farmer. A farmer who retained his earnings in the business every year would increase the investment put into the farm and would pay off all his debts. He might invest in core capital goods, better fences and so forth. The sort of stuff that lasts more than one or two years. And he winds up with a load of cash on hand, the cash under growth-deflation is growing in value. He’s invested in alternatives that would make him ready to sit out the drought, and so forth.

      Now back to the big company. Accessing as they do a range of tax deductions that for practical purposes the small guys cannot get hold of, the idea then is to be able to have retained earnings every year. To make a profit every single year. But to make a loss for tax purposes every year also. The extra tax deductions allow you to do this. Because a tax deduction reduces taxable income. So you report less income then otherwise, but the same amount of costs. So you make a loss every year for tax purposes, but make a profit every year in reality. You as a bigshot are now survivable. But after this system has been in place some decades YOU ARE LIKELY TO BE RELATIVELY FREE OF COMPETITION IN SOME AREAS since while you can accumulate capital and grow your business, your small competitors are tied down with a ball and chain. Parasitism never sleeps and this is really where the outrageous salaries are coming from.

      Now back to the farm. The situation is considerably worse then how I describe things so far. Because not only is it impossible for most small outfits to make a profit and retain their earnings, without being hit by the taxman, THEY ARE ARMTWISTED INTO RUNNING THEIR SHIP IN SUCH A WAY THAT A SINGLE BAD RUN OF LUCK WILL TAKE THEM OUT.

      When I’ve talked to small businessmen about getting rid of the company tax for retained earnings they have two instincts about it.

      1. They think that you will be helping the bigshots in doing so.

      2. A big yawn. Since they do not run their business so as to make a profit every year. They tend to either make a tiny profit, or a tiny loss. But its worse then that still.

      Whereas the bigshots are taking advantage of the tax deductions to run a real profit and a tax loss. Or a large real profit and a small tax profit. Or some permutation in between, the small businessman is running things in such a way as to virtually guarantee that he will stay small or that he will be taken down by a run of bad luck or just a few bad decisions.

      You see he is responding to the company tax quite differently. He is using his deductions FOR PERSONAL CONSUMPTION. Since the bigshots have pre-existing advantages, your typical small business cannot have that great a life-style. And he responds to this by getting his accountant to make personal consumption goods a tax deduction. So the farmers family swimming pool becomes a water storage unit for farming purposes. The plasma tv becomes part of facilities for his seasonal workforce. This sort of gear. He makes all his consumer goods, or as many as he can, a tax deduction. He borrows way too much, because the interest rate is tax deductible and because of inflationary monetary policy.

      This behavior seems rational for him as an individual. But he gains nothing from borrowing too much if you consider his class of small businessman taken together. The loose money and the borrowing incentive merely pump up the price of his inputs, and particularly his farmland.

      So these businessmen and not retaining huge amounts of earnings every year. It is from retained earnings that more than normal wages are paid. This sounds counter-intuitive since people think of retained earnings as hoarding spending internally. But in reality its spending money on other businessmen, wages, and salaries, in order to improve the business.

      The net result of all this is that there is reduced competition for the bigshots, therefore excessive salaries. Then there is reduced capital accumulation and therefore feeble employment and wages at the low end.

      So there can never be a tax specifically on retained earnings not ever. But on the other hand we have to assume a history of bigshot advantage. So you might have a threshold, then a 1% total revenues tax. Then when you get really big that would go to 2%. Then you might have a threshold for all assets. And then a 1% total assets tax. Then that goes to 2% when you get real big. And cascaded onto that you might have another threshold and specifically land tax, since land is limited in supply, you can tax it without reducing its supply.

      But there ought never be a situation where a humble subcontractor is paying even 15% on his retained earnings. Only on his drawings and only after he has a high personal tax free threshold. Having even a 15% tax on retained earnings for a small businessman is absolutely offensive. Since it will stop him from creating wealth and stop people like him one day challenging the bigshots.

  43. Mr Bird
    It is disappointing to see Mr Ergas defend the banksters. Is he one of them?

    http://www.theaustralian.com.au/news/opinion/swan-and-hockeys-half-baked-solutions/story-e6frg6zo-1225948009446

  44. His knowledge of economics is incomplete. Ergas is known for his logic, and his commonsense. Not his understanding of the implications of monetary economics.

    Also while Hockeys reforms will do no harm and will actually do good GIVEN THE EXTREME DYSFUNCTION OF THE STATUS QUO, they don’t come close to anything approaching free market reform. They look to be a step back to the pre-1980’s where the banks were clumsily regulated, in theory for the public good, as opposed to the jui jitsu the banks pulled on us, surfing off free market ideology, where they did not deregulate, but rather re-regulated, specifically for their own good and against the interests of the market.

    We must never say things that aren’t true. No matter how logical you think you are, you will be bamboozled if you buy into bad wording. There simply was no bank deregulation. Not ever. This did not happen. This is a lie. The socialist tinged regulations were simply replaced with pro-Cartel regulations.

    Nor was there ever a free market. The currency markets have a superficial resemblance to Frank Knights daydream of perfect competition. But perfect competition is no free market. Anyone can get fooled if their terminology isn’t as honest as it can be. There are few things in this world more anti-free-market then the currency markets. They smack of artificialdom and government action.

    Government currency. Government regulations to favor the banks, to facilitate pyramiding. Ponzi money pyramided on cash. Hyper-ponzi-money pyramided for international trading purposes, on top of that initial ponzi-money.

    There is no valid supply and demand curve for currencies. Since you have hyperponzi artificial supply pyramided on ponzi-artificial supply, the whole thing is a nightmare of resource misallocation.

    Ergas isn’t going to realise a damn thing I’ve said above. But it remains the truth of the situation nonetheless.

    Everything above is factual. I know. I was there.

  45. Philomena is wrong regarding Amazon, While it didn’t make profit for a long period of time, it has been making profits since 2002 ie 8 years. Made over a billion dollars in 2009.

    • Thats not wrong. Its just out of date.

      • Graeme, it was not me who said Amazon operated at a loss for most of its existence but David Humphries in the SMH. I very much doubt the SMH would make a statement like that unless it was based on fact. Sub-editors and legal people don’t let something like that go to print unless it is factual.

        And since Amazon was launched in 1995 if what Steve Edney says is true then that still means that for around half of its existence it operated at a loss. That’s interesting. And your excellent spiel on tax matters probably sheds light on how it managed to stay in business for so long before it was able to record profits for taxable purposes.

        Now

  46. “Banks primarily provide intermediation services: they attract funds from those with funds to spare and “rent” funds to those who can put them to valuable use.”

    This is NOT what modern banks do primarily. Hence Ergas is making the mistake of viewing modern banking as if it fell into the free enterprise rubric. So he’s on auto-pilot, since he’s not reasoning all the way backwards from the reality that our banking systems profits come from bank-cash-pyramiding. A shakier form of straight counterfeiting.

    This is not exaggeration. Our banks, when they want cash PAY FOR IT WITH PONZI-MONEY THAT THEY HAVE TAKEN OUT OF THIN AIR.

    So the reserve bank, when you strip the obscurantism built into the system, is accepting thin air and payment for cash. But its worse then that since these guys have been making absolute fortunes on the thin air, years before they need to convert some of it into cash.

    Its would be a heresy for Ergas to point this out. The fact is he probably doesn’t understand it. Or he does sort of, but since he cannot say it, then he has been unable to integrate the reality of modern banking into his thinking. He’s merely transferred assumptions from general market behavior to the banks.

    Reading Sinclairs summary of Ergas’ essay on congestion charging made me wrongly think that this was the first bad Essay on the part of Ergas. But reading it in full myself there wasn’t too much to disagree with. A little bit. But not much.

    This is the very first essay from Ergas that is quite literally worthless. He’s missed entirely how it is that the banks make their ill-gotten gains.

    We are a nation with a savings rate not too far from zero. So then how is it, if this country has such a low savings rate, and if the banks are an intermediary, how could they possibly make much revenue at all? Let alone great profits? Well they couldn’t.

    If pyramiding isn’t allowed, and there is growth deflation, the banks business does not even start, until such time as someone saves money. Not just builds up their cash balances. But saves money.

    Ergas’ analysis, for the first time, is worthless. Because he isn’t talking about real banking. He’s talking about imaginary banking. Only in make-believe fairy-land are banks intermediaries.

    Its just amazing isn’t it. What a heresy will do. It has made for the first time the entire analysis of an entire Ergas essay entirely worthless.

  47. NO HENRY HAS IT WRONG FOR PRECISELY THE REASONS I’VE EXPLAINED. MODERN BANKING IS NOT AN INTERMEDIARY BUSINESS. ITS A PYRAMIDING BUSINESS. ANYONE WHO SAYS OTHERWISE, AFTER ITS BEEN POINTED OUT TO HIM IS A LIAR. AND ERGAS IS NOT GOING TO CHALLENGE ME ON THIS. HE’S APPLYING MARKET THEORY TO A SITUATION WHERE IT DOES NOT APPLY. ONE CANNOT APPLY MARKET THEORY AS IF THE BANKS WERE PRIMARILY INTERMEDIARIES WHEN THEY ARE PRIMARILY MONEY CREATORS.

    THEIR MONEY CREATION FUNCTION OUTRANKS THEIR INTERMEDIARY FUNCTION AT ABOUT 20 TO 1 FROM AN OPERATIONAL POINT OF VIEW AND AT LEAST 100 TO 1 FROM A PROFITABILITY POINT OF VIEW.

  48. What is your take Graeme on ABC Learning, the childcare provider? Is this a similar deal? It had a virtual monopoly but still went broke. The owners were crooks I guess, amassing immense personal fortunes, and I heard it had a labyrinthine corporate structure involving hundreds of regional management sub-companies designed to be small enough to fall under the payroll tax threshold.

  49. Under fractional reserve businesses go out of business by going broke. Under 100% backing/Growth deflation, businesses go out of business by growing smaller, or giving it away voluntarily. No-one goes broke.

    A business could start big and wind up small and every step of the way it could be creating wealth for its shareholders under 100%-backing/Growth deflation.

    Since to create wealth under functioning capital markets you need to increase the ratio:

    BOOK VALUE/SHARES OUTSTANDING.

    So a very large company can determine to make a profit and use half of its profits to buy back outstanding shares when ever it shares are undervalued. Thus keeping its shares at or just below fair value, yet reducing outstanding shareholding.

    The big company would be selling some of its assets off all the time, and plowing the released resources back into business excellence but at a slowly falling asset base. But if the outstanding shareholding is falling faster than the asset base, and the company never ceases to make a profit, the company is still creating wealth for its shareholders.

    Note that in this situation the company is also doing the right thing by society. Since its obviously not a successful operation in that it cannot both have a high return on total assets and be growing. By shedding its assets to be able to maintain a high return on its remaining assets, it is releasing resources to more successful businesses and at the same time maintaining a high rate of return for the assets still under its care. We see that this is all radically different from the current situation.

    As well capital markets theory tells me that for a listed company the right share pricing, and therefore the right resource allocation is incompatible with debt financing where we have public shares. All limited liability companies ought to be 100% equity financed. This is what is compatible with the management focusing on return on total assets as its major goal. Thus harmonizing the interests of society, management, and the shareholders.

    I therefore have to conclude that debt-financing and ltd liability, at least where public companies are concerned, is probably an illegitimate institution and incompatible with natural law. It won’t lead to the better type of capitalism.

    This may be a hard idea to take, since we are used to money falling in value and therefore we think of people needing debt-finance and having little cash. But if money is growing in value or if it is 100% backed by copper or gold or platinum or silver then we are willing to hold high cash balances and we don’t need the banks all that much.

  50. Graeme, what do you think of this house?

  51. Looks pretty nice. Looks a little like our old farmhouse where my Dad still hangs out.

    • Yeah, it’s my parents place in Brisbane, but a photo taken when they first bought it, before I was born. I’m guessing it was taken in November as you can see the jacaranda trees blossoming at the rear of the house. The large rear tree on the left is a mango. The grass is burnt off and the garden is otherwise pretty dried out but then the winds of September and the heat of October-November would do that.

  52. About ABC learning. It grew very fast on massive government subsidy. Because it had subsidies it was a good bet to borrow too much. So it got very leveraged. The owner was a centi-millionaire at one stage I think.

    The owner contends that he was subject to naked short selling. Which is also an imposition on the price system. He had margin calls on borrowing to buy his own shares or something. Something like that.

  53. Look at this. Out of ten billion people I could only nominate one. dead or alive, who might have bested Meat Loafs interpretation of the songs in Bat Out Of Hell.

    Look at this. Ethelred The Unready. Vocal chops not up to scratch. Holding a piece of paper so he doesn’t forget the words. Rehearsal concert. Of course, whilst the star is unready, his backing singers are not. Wall of fucking sound that convicted murderer Phil Spectre could be proud of.

    Lets not get too much into the metaphors of the vocalist as compared with a decadent capitalism. I have suffered much the same problems as the most powerful popular entertainer these last nine years, and particularly these last five.

    But in retrospect his problems may have come down to body pH. And if we could go back in time his fat, his need for the pills, and his unhealthiness, could probably have been fixed very easily. Just as cancer can be fixed very easily. If only the cartel was not in place to say otherwise.

    Truncated practice version of a song. Notable for the hunka hunka burning love finale.

  54. Big fat Nemisis,
    Our friend of Genesis.
    No-one Move A Muscle When The Dead Come Home.

  55. http://maggiesfarm.anotherdotcom.com/archives/15764-California-state-agencies.html

    Mass sackings. NOW!

  56. Very interesting link Mark.

    I don’t know what to make of it.


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