Results 1 to 8 of 8

Thread: non-partisan blueprint for how to get our economy back on track

  1. #1

    non-partisan blueprint for how to get our economy back on track

    This is not some pro-gold standard argument, this is a truthful exposition of the SCIENCE of a good monetary system. Until we reform the money system, all talk of making society more prosperous is mathematically futile.

    http://market-ticker.org/akcs-www?post=209282

    "One Dollar of Capital" is simply the principle that nobody be permitted to "create credit out of thin air", thus artificially expanding the spendable supply of "money" in the system. This, and only this, is the reason for all of the bubbles and financial collapses throughout history. This sleight-of-hand is why Tulip Mania happened, it's why we had a crash in 1873, it's why we had a crash in 1929, it is why the tech market blew up in 2000 and it's why we had a crash in 2008 in housing. It is why we're threatened with collapse in Europe now. It is a scam as old as the money changers during the time of Hammurabi, and until we stop it there will never be stability in the banking and financial system. This sleight-of-hand is in fact exactly identical mathematically to counterfeiting of the nation's currency, a crime which we all should recognize, condemn, and when it occurs the punishment should include both imprisonment and forfeiture of every dollar of ill-gotten gain.

    Putting a stop to unbridled credit creation also removes the threat of "inflation" because it makes inflation by sleight-of-hand flatly impossible. It returns the ability to cause inflation to the one place where it should rest -- the entity that is supposed to be in control of the money supply, the federal government (specifically, Congress.) We have in fact had monstrous inflation over the last 30 years; one need only look at the increase in the price of stocks, of college educations and medical services to see it. The bankers and their cronies have tried to hide its impact on the common man through offshoring of labor so as to hold down "prices" in the CPI, but that's a lie too as a man who loses his high-paying job to some slave in China has his spendable income destroyed at the same time as he gets "lower prices" at WalMart.

    Simply put, for every dollar of alleged GDP there must be one of dollar of credit or currency with which to buy the goods and services produced. If you increase the denominator, that is, the number of units of either credit or currency in the system then each unit must inevitably be worth less than it was before. Only when those units are exactly in balance with economic output is there zero inflation and protection of the currency's purchasing power.

    That is the definition of Sound Money.

    So mechanically, how do we get to One Dollar of Capital?

    We impose the following standards on all institutions:

    -Banks are limited to depository institutions. They are forbidden to speculate or trade in asset markets. In short, they are effectively what they were back during Glass-Steagall; they take deposits and make loans. Deposit insurance is limited to these firms on their deposits -- and only deposits, not money market accounts and not debt issued them -- and exists only as an assurance against government malfeasance.

    - Investment banks can trade, be involved in in the capital markets or whatever else they wish. However, they are forbidden deposits, government-backed insurance of any form or any sort of public assistance. Again, this is similar to what everyone had to deal with before Glass-Steagall was repealed.

    -All institutions must mark-to-market every night. We have computers, which are very good at counting things. We must use them.

    -No loan may be made beyond either the marked-to-market value of the collateral pledged or the firm's own capital. This forces all lending to be self-liquidating -- either through repayment over time, through seizure and sale of the collateral posted or through the posted capital by the lending institution. For banks if they wish to lend unsecured (e.g. for a credit card) they must have either sold stock to investors in the amount of the loan (and have the cash proceeds set aside), have sold bonds to investors (and have the cash proceeds set aside) or have retained earnings that they set aside. A secured loan (e.g. a letter of credit, a home mortgage for less than the home is worth, a car loan for less than the depreciated value of the vehicle, etc) may be made without capital being posted as the security is the capital. However, since any asset may depreciate in value (e.g. a car) the assets must be continually marked to the market and if the liquidation value falls below the outstanding balance of the loan the bank must post actual capital for the difference on a nightly basis.

    -We maintain a statutory "zero barrier" on excess actual capital in all institutions that have the privilege of lending against assets, at a level high enough to prevent a negative equity event from occurring. Only actual cash counts as capital with the exception of Treasury Bills issued at a maturity of 13 weeks or less. The Treasury is authorized to issue and redeem repos on its own for this purpose. The zero barrier should be set somewhere around 6%, the former reserve ratio before Greenspan and Bernanke began tampering with it, and any violation of that excess capital requirement must lead to immediate seizure and liquidation of the firm. Banks and Investment Banks are free to dance as close to this line as they wish, but if they cross it the consequence is immediate business failure.

    -All institutions that lend against assets must publicly disclose all transactions, marks and capital every night. The price of being able to lend against assets, temporarily increasing the supply of credit in the system, is that you must prove each and every day that you are not counterfeiting. Any institution can choose to avoid this disclosure requirement by lending only against its own capital and not claiming asset values "secure" its lending. Since most financial institutions will not want to disclose this information other than depository firms will likely choose to be investment banks and lend or finance only with the capital they actually raise.

    Imposition of this model inherently requires resolving The Federal Reserve's manipulation of the currency and interest-rate markets. We have seen that The Fed has intentionally refused to put a stop to manipulation by banks, including the recent LIBOR scandal; indeed The Fed argued that LIBOR was "the best" standard for money rates even while fully aware it was being gamed. The Federal Reserve Act allegedly requires that it both lend only against collateral at real values, but we do a terrible job of actually enforcing full transparency in this regard and an even worse job of stopping The Fed from circumventing the law (e.g. Maiden Lane.)

    Note that a move to One Dollar of Capital immediately resolves all derivative concerns, since every underwater position must be netted every night against actual capital. If you cannot post actual capital on an underwater position you must liquidate the position. This instantly de-fangs the derivative monster.

    Since no institution can "create credit" there is never systemic risk. Deposit insurance would be unnecessary except that we have a 30 year history of the government refusing to do its job and even participating in book-cooking schemes; during the crisis IndyMac allegedly back-dated deposits with the OTS, its government regulator, aware of the practice and in fact the same individual allegedly responsible this time did the same thing during the S&L crisis. Because we cannot trust the government nor can we seem to prosecute government agencies and individuals successfully when their malfeasance results in the loss of customer funds, FDIC insurance must be maintained.

    With One Dollar of Capital Lehman could have gone broke and it would not have mattered, beyond Lehman. The bondholders and stockholders would have lost some or all of their investment, but since Lehman would have been prohibited from lending or guaranteeing the loan of any money that exceeded shareholder and bondholder equity the damage would have stopped there. Companies go bankrupt all the time; systemic risk only arises when you permit firms to commit acts that on any rational analysis amount to fraudulent emission of "money" such that they can imperil everyone else if their deception is forcibly recognized by the market.
    Last edited by JetsCrazey; 07-28-2012 at 02:25 PM.

  2. #2
    Hall Of Fame
    Join Date
    Aug 2003
    Location
    Vermont
    Posts
    24,104
    yeah our economy will be back on track real soon. it will be fueled by a populace of video game/vampire/(fill in the city) housewife reality show loving, big house and big car worshiping overweight slobs who live on sodium and corn syrup and rarely venture out of chairs.

    throw in the rich not paying taxes and the bottom thirty percent living off taxes paid by the struggling middle class

    we just need the right leadership and economic strategy

  3. #3
    Jets Insider VIP
    Join Date
    Sep 2005
    Location
    NC
    Posts
    18,596
    Quote Originally Posted by Timmy® View Post
    yeah our economy will be back on track real soon. it will be fueled by a populace of video game/vampire/(fill in the city) housewife reality show loving, big house and big car worshiping overweight slobs who live on sodium and corn syrup and rarely venture out of chairs.

    throw in the rich not paying taxes and the bottom thirty percent living off taxes paid by the struggling middle class

    we just need the right leadership and economic strategy
    http://www.ntu.org/tax-basics/who-pa...ome-taxes.html

    Check the facts..... income earners at 112K AGI and above pay 70 percent of all income tax. Thus the middle class..defined as those with income below 100K by most definitions, pay very little on average. A family of 4, 100K income, with a mortgage etc, pays on average 5K NET federal income tax after credits etc.
    Last edited by southparkcpa; 07-29-2012 at 09:49 AM.

  4. #4
    Hall Of Fame
    Join Date
    Aug 2003
    Location
    Vermont
    Posts
    24,104
    Quote Originally Posted by southparkcpa View Post
    http://www.ntu.org/tax-basics/who-pa...ome-taxes.html

    Check the facts..... income earners at 112K AGI and above pay 70 percent of all income tax. Thus the middle class..defined as those with income below 100K by most definitions, pay very little on average. A family of 4, 100K income, with a mortgage etc, pays on average 5K NET federal income tax after credits etc.
    so willard and his cronies are putting money into the cayman islands and shell businesses just for the hell of it?

  5. #5
    Jets Insider VIP
    Join Date
    Sep 2005
    Location
    NC
    Posts
    18,596
    Quote Originally Posted by Timmy® View Post
    so willard and his cronies are putting money into the cayman islands and shell businesses just for the hell of it?
    Different argument. I am in fact for increased taxes BUT I believe, as supported by facts and my experience, that those earning a middle class living are not only not paying a fair share, they pay very little historically. The BUYING of votes by lowering tax rates has got to stop.

    We all should pay more...... the country should spend less.

  6. #6
    Hall Of Fame
    Join Date
    Aug 2003
    Location
    Vermont
    Posts
    24,104
    Quote Originally Posted by southparkcpa View Post
    Different argument.
    I don't see how. Big problem is investment income that should be taxable income = not paying taxes.

    But we do agree on the bottom line.

  7. #7
    Quote Originally Posted by Timmy® View Post
    I don't see how. Big problem is investment income that should be taxable income = not paying taxes.

    But we do agree on the bottom line.
    Gov't hits you up every time you turn around.

    You made some money? We're taking some in taxes.

    You invested some of what you kept and made a profit? We're taking some in taxes.

    You still had something left after we taxed you twice? Don't worry, you're gonna die some day and we'll tax whatever you leave behind.

    It's not even worth complaining about, because as a democratic republic we've done it to ourselves. But it's a little disingenuous to complain about rich people wanting to keep more of their money when everyone else wants to do the same exact thing . . .

  8. #8
    Jets Insider VIP
    Join Date
    Sep 2005
    Location
    NC
    Posts
    18,596
    Quote Originally Posted by Timmy® View Post
    I don't see how. Big problem is investment income that should be taxable income = not paying taxes.

    But we do agree on the bottom line.
    I have a masters degree in taxation. I can tell you, without a doubt, you can't legally evade taxes by parking it overseas if you are an individual. corporations can. That said...I have no idea why Romney has money overseas except to suspect they are in investments that shelter the income in legal manners. Fidelity, Oppenheimer etc... All have these investments availablemifmyou have a minimum net worth.

    that is such a small issue in the big scheme of things. We have millions of people who pay nothing, in fact get thousands in refunds when they paid in zero.

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •  

Follow Us