Monetary reform, anyone?

D.H. · #1 08-12-2007, 06:43 AM

After watching this little movie (linked in a thread in the financial forum) I can't stop thinking of how money works. I will discuss part of it below so if you wanna watch it first, don't continue reading.

Money as debt

The most interesting part of it, I think, is the conlusion that our current monetary system is not possible to combine with a sustainable society. Now, I'm not an economy expert so I feel that I can't really judge whether or not it is correct, but the arguments in the movie seemed to make a lot of sense.

Now, even if it wasn't for the sustainability issue, the more I read about our monetary system, the stranger it seems. Wouldn't it make more sense if governments created money themselves, instead of letting the banks have this power, and put governments in debt? It would be great if someone a bit more educated in economics could explain why our current monetary system is a good idea.

Here are a couple of wikipedia articles on the subject:

* Monetary reform
* Debt-based monetary system

4drugmoney · #2 08-12-2007, 07:01 AM

I'm about to watch this now. I do know that a lot of "conspiracy theroies" are based on this. Also, someone on this forum (I forget who) is good friends with Steven Levitt, he would be the man to ask.

CrushinFelt · #3 08-12-2007, 02:27 PM

I just watched the first 5 minutes, and I can say that I will absolutely not be watching the rest.

It starts by walking you through how money is made. It talks about how banks "create" money by making loans with money they do not have.

It walks through an example of a mortgage. John Doe walks in to get a mortgage and puts up his collateral. Then the video says that the bank then takes "conjured" money and puts it into the person's account. It then has this cartoon monopoly-looking [censored] look at you and it says "SURELY THIS CANT BE TRUE, BUT IT IS."

I then hit the [x] button on my browser because the fact that making a loan in that matter is "Conjuring" money is [censored] idiotic. There may be issues with how our economic system works, but this is the best they could come up with? I mean , what, the, [censored]?

Look, John Doe walks into a bank looking for $200k because he wants to buy a house. The bank analyzes John's history of payments, future income, currents assets, and gives John the money if he is worthy.

Now, let's make this simple. Let's say John makes $80k/year and is supposed to pay back $22,000 per year for ten years so that the bank earns some profit for taking on the risk of John.

Ten years pass and now, John has a house, the bank made 10% profit, AND NO [censored] MONEY WAS CREATED.

All that happened was instead of John saving for ten [censored] years to buy the house, he was able to buy it today by BORROWING MONEY FROM HIS FUTURE INCOME.

The money wasn't "conjured"; it was moved through time from 10 years into the future to now. And although banks got a little frisky recently by giving money to some people who weren't worthy of this credit, the basic principal of loans does not create money.

And it's not like "omg there's a bunch of money out there now because john doe wasn't able to pay it back". There are ripple effects that cause things to deteriorate when loans don't get paid back.

Over the past few weeks in the stock market it was estimated that $1.6 TRILLION of value left the stock market because of loans going bad.

I normally don't care about stupid internet videos, but this type of [censored] should not be fed into the brains of the average Joe. Confidence in our monetary systems is important and videos like this do not help.

[insert tinfoil-hat picture here]

D.H. · #4 08-12-2007, 03:17 PM

[ QUOTE ]
Ten years pass and now, John has a house, the bank made 10% profit, AND NO [censored] MONEY WAS CREATED.

[/ QUOTE ]

Well, this is just a matter of how you define the word, right? Even the economics book that I have in front of me (that is used in University classes) claims that banks "create" money.

[ QUOTE ]
All that happened was instead of John saving for ten [censored] years to buy the house, he was able to buy it today by BORROWING MONEY FROM HIS FUTURE INCOME.

[/ QUOTE ]

Again, it's just a matter of how you use the word. For John to get his money now it had to be "created". You could say that the money is "un-created" when you pay back the loan. Nevertheless, almost all of the money that is in circulation right now has been created in this way, by loans.

You could of course say that all the money that is in circulation now has not at all been created, it is simply borrowed from the future. It doesn't really matter. The fact is that the money we use is created by loans, while there are other possible ways of doing this. And that is what I would like to discuss. Is this system the best way of doing it, and if so, why?

[ QUOTE ]
I normally don't care about stupid internet videos, but this type of [censored] should not be fed into the brains of the average Joe. Confidence in our monetary systems is important and videos like this do not help.

[/ QUOTE ]

Confidence is perhaps important, but it should be based on understanding the system. Most people don't have a clue how our monetary system works and a movie like this will at least have people thinking about it.

CrushinFelt · #5 08-12-2007, 04:54 PM

Jesus, you really didn't understand my post. It isn't semantics whether or not it is created. And this video doesn't give a "clue", it gives a biased, incorrect perspective that may have people worrying about something they have no business worrying about.

And if your book says the money is "created", it quite simply is wrong. Created is a very, very poor word choice. I think if someone actually pointed out this to the author he would word it differently. If he wouldn't then he's a schmuck.

Yes, money is now HERE (in the present), but it isn't truly created because now $22k of John's future income really isn't there.

Let me ask you this. You win the lottery for $1 million. Your only option from the goverment is to receive $100k per year (ignore taxes for simplicity).

Then I, working for a bank, walk up to you and say "I'll give you $1 million right now if you pay me $105k per year for the next 10 years." You take this deal. Was money "created"? No. And if you answer yes, you're stupid.

The only difference between John's mortgage and your lottery winnings is that your future cash flow is risk-free (coming from the government) whereas John's is more risky.

CrushinFelt · #6 08-12-2007, 05:01 PM

[ QUOTE ]
The fact is that the money we use is created by loans, while there are other possible ways of doing this. And that is what I would like to discuss. Is this system the best way of doing it, and if so, why?

[/ QUOTE ]

Name another way?

DannyOcean_ · #7 08-12-2007, 05:10 PM

I think our system works pretty damn well. Our monetary system is one of the silent 'wonders of the world'. One of those things that moved civilization along so much that people never think of.

Money is really a cool concept.

The DaveR · #8 08-12-2007, 05:49 PM

[ QUOTE ]
I'm about to watch this now. I do know that a lot of "conspiracy theroies" are based on this. Also, someone on this forum (I forget who) is good friends with Steven Levitt, he would be the man to ask.

[/ QUOTE ]

Neither Levitt nor Dean are experts about the monetary system.

D.H. · #9 08-13-2007, 12:50 AM

[ QUOTE ]
And if your book says the money is "created", it quite simply is wrong. Created is a very, very poor word choice. I think if someone actually pointed out this to the author he would word it differently. If he wouldn't then he's a schmuck.

[/ QUOTE ]

Let me ask you this. If someone asked you "How was all the money that we are using today created?", what would you answer?

[ QUOTE ]
Yes, money is now HERE (in the present), but it isn't truly created because now $22k of John's future income really isn't there.

[/ QUOTE ]

You make it sound like that future income is the "real money". But that future income will also consist mostly of money that is "borrowed from the future".

D.H. · #10 08-13-2007, 12:54 AM

[ QUOTE ]
[ QUOTE ]
The fact is that the money we use is created by loans, while there are other possible ways of doing this. And that is what I would like to discuss. Is this system the best way of doing it, and if so, why?

[/ QUOTE ]

Name another way?

[/ QUOTE ]

Another way would be a fully backed system. A system where all the money in circulation is government-created money.

Example: A plan for monetary reform