0xdecafbad.com

The other day I shined a light on the marxist ideals that the world wide preppers network is putting out there, and I wanted to elaborate a bit on their misconceptions.

These ideals are the same ones SEIU, ACORN and even the Obama administration is pushing now.  While they are entitled to their opinions, I wanted to discuss why they are factually incorrect and based upon false premises.  Doing away with the banks is step one to marxism, and what will replace the banks?  The government of course.

An example of how banks (and thus bankers) are inherently evil was provided to me like this:

There are 5 people on an island, a banker, a farmer and 3 others whose job is irrelevant.  The farmer borrows $100 to buy some chickens, feed, fencing and related items.  The farmer now owes $110, principle and interest.  The farmer will not be able to pay this back to the bank because the only money that exists is $100.This seems like it would be logical, however it does not include the way economies work.  If I have $20 and owe my friend $20, I can pay him.  If he owes his friend $20 he can pay him, and if that friend owes me $20 he can pay me.  There is $20 in ‘circulation’ but $60 in debt was paid.

Economies work by moving money from one person to another.  If I work, I get a salary, I use that money to buy goods and services from someone else, who in turn uses at least a portion of that money to buy goods and services from someone else and so on.  The money goes in a circle.  The total amount in circulation is almost always less than the GDP (value of all goods and services sold domestically in one year).

Banks facilitate this movement of money by extending lines of credit.  Most people cannot afford to purchase a home without getting a loan.  This does not mean that the bank is setting them up for failure, the people themselves need to exercise the responsibility to ensure they do not bite off more than they can chew.  If you get a loan that is in excess of your ability to pay, that is your fault, not the banks fault for allowing you to do this.

To a point it is also the governments fault, at least in the US.  Many years ago one political party pushed hard to force the banks to give loans to people who were unqualified financially.  Since that time they have also pushed to increase the amount of lending to unqualified buyers.  This was a government move to force the banks to do something they did not want to do.

This is what ultimately led to big problems with the economy recently.  It was by no means the only reason, but it was a big chunk of it.  I also did not name the party above because I believe both of the major ones are complicant in this problem.

Banks operate on a fractional reserve system, this means they can loan out more  money than they have on deposit.  The amount is controlled by the government, and about 20 years ago the government lowered this level, again reaffirming that the banks do not control the government the government controlls the banks.

The fractional reserve system is what enables the small shop keeper to buy goods on credit and pay for them when they sell, as opposed to only being able to get the goods they can afford now.  This is the same system that enables people to get loans for houses and not have to be able to pay for them up front, which would mean very few would have a house.  It is also  the cause of some problems, however those problems are not inherent to the fractional reserve system and are instead due to government interference in the system.

Money or Barter?

The preppers that I spoke about in my other post also commented on how we should all go to a barter system so that you get the value of your labor.  I say that if you are not getting the value of your labor in money, then you are not a good negotuiator, and probably need to find a job that does not require you to ask “do you want fries with that?”.

Money is a common conversion of goods and services.  This means that if I want to get some eggs for breakfast I do not have to work a bunch of deals to finally get those eggs.  Lets say the egg farmer needs feed, I can trade feed for the eggs, but I do not have any.  I then have to find someone with feed that I can trade with.  The person that has feed wants a goat, but I do not have a goat, so I have to find someone with a goat, and trade with them.  Finally I will find something I have that someone else wants, do that deal and then continue doing deals until I finally get my eggs.  By this time it is no longer breakfast time but dinner time, and I did not do anything productive that day.

A far simplier way would be for me to have some universal exchange device, some would call it money.  Instead of the chicken farmer wanting feed, I can pay him with money, and he knows that he can easily buy feed with that money.  This greatly simplifies commerce, and enables more commerce to occur.

If you are getting a wage that you think is fair for your labor, then there is no difference if you pay with money or with something else.  If you invest that money into something worthwhile, things like inflation may not affect you as much.  Inflation is always a problem with a fiat money system, and there are ways to protect yourself against it. You have to take responsibility for that though, and that is where most people fail, they expect the government to protect them from it.

Banks run the government?

Given that the government has demonstrated that it can control the banks, by forcing them to take TARP funds when they did not want or need the money, which then puts salary caps on them as well as other rules, pay interest to the government on this money.  The government can lower the percentage in the fractional reserve system, thus making the banks less profitable.  The government can force banks to give loans to otherwise undeserving indivuduals (read high risk of non-payment).  The government can even charge these banks taxes, fees and similar payments, replace their board of directors, fire management, install their own people, etc.

This all leads to the conclusion that the government runs the banks and not the other way around.  It makes sense if you are the government to create a scape goat that the sheeple will latch onto if there is a problem.  They put the banks out there as evil and rile the people up against them (which is what Karl Marx did).  This prevents the sheeple from seeing that it is the government that is being evil.

Governments have a historic paradigm.  They first solidfy the power they have,  then they seek to expand that power.  They then repeat solidfying the power they now have, and expanding from  there.  One easy way to control the people is to control the money, which means the government has to control the banks.  The fastest easiest way for the government to gain power is to control commerce.  Who can buy, who can sell, what is available on the market, what is forbidden, and to levy fees on the transfer of goods and services, which many are familiar with by way of payroll tax, income tax, sales tax, excise taxes, and similar.

Of taxes and men

Another claim the marxist preppers network is that the government requires people to pay their taxes to be able to pay their debts.  That is not entirely accurate when you are talking about the federal government.  They print the money, as a result they can create money out of thin air, remember we like most if not all of the world are on a fiat money system.  Now this generally harms the economy when they do this, so they try to not do it that frequently, or at least in a way that gets noticed.

When the federal government spends money it is creating money.  When it collects money through  fees and taxes it is pulling money out of circulation.  Creating money causes inflation, while pulling it out of circulation reduces inflation.

The federal government has several options when it spends money.  The best is to only spend what it collects, no deficiet.  This keeps inflation stationary from a monetary supply aspect (there are other things that influence inflation/deflation).  This is not possible when you have a bunch of people who spend like there is no tomorrow and really do not care what they are doing and are just looking for more power, more favors, more whatever.  That is mostly what exists in Washington right now.

The next line of defense is to issue a security, commonly a bond.  A bond is just a  loan with some fixed terms built into it.  You get money today and promise to pay back more in the future.  People, countries, and institutions buy these bonds either because they believe in what the bond will go towards or because they are profit motivated.  Since you get interest paid on the bond, by buying one you can increase your wealth, assuming its repaid and the value does not decrease dramatically.

When they cannot sell the bonds the government will increase the interest paid, its obviously better to pay the lowest interest rate possible so that you have less debt in the future.  If after raising the interest rate they still cannot sell the bonds, then the government goes to its last ditch effort.  It will monetize the debt, basically it will print money devaluing the dollar.  They do not like to do this because it can dramatically harm the economy.

The reality is that if the US wanted to, it could pull a trick out of I believe Rosevelt’s playbook.  It can lower the value of each dollar and repay its debt.  Rosevelt did this by cutting the value each dollar was worth in gold about in half.  The current fiat money system means that they do not need to openly do this, they can just print money and pay it off.  The biggest problem is that this would harm not only the US but the world.  Many countries have US securities and there is the aspect of seniorage that would have to be dealt with.

Seniorage is the difference in the cost of printing a bill and the value printed on that bill.  With a $100 it costs $0.10 to print,  so the seniorage is $99.90 when it goes outside the US.  2/3 of all bills that leave the US never come back, while this is not a massive amount it is substantial enough that the flood of these bills back would further devalue the currency.

So lets say the government just repays all its debts.  Oil is currently traded in dollars, this means that they may switch to some other currency.  This of course would mean that they would be looking to switch quickly to anything else.  This creates less demand for the dollar, and more people would be looking to get out of the dollar further devaluing it.

The value of the dollar would be 1% or less if all of this happened.  That means that if you normally spend $100 at the grocery store, it would quickly cost you $10,000 for the same goods.  Unless your pay was increased you would have massive problems buying anything, further shop keepers would have massive problems selling goods since they would not get enough to buy replacement items and stay in business.

We would end up in a hyperinflation state where the value of the dollar changes minute by minute.  People would have to be paid multiple times per day and immediately rush out and spend their money to buy food and other required items since the price will go up later in the day.  This was the case in Brazil about 20 years ago and is not that different from some other nations today.

Now if you held foreign currency, metals or other things that are not hinged ot the value of the dollar, they would suddenly be worth a lot more.  In the above example $1000 of gold would suddenly be worth $100,000.  Your mortgage value however would not change, so you could pay off your mortgage quickly if you had something like that stashed.

The only reason the government does not do this is because it would cripple re-electability of any official who did this.  It is about power, not just for that person, but for their party.  The point is that they do not need tax revenue to repay debts.  This is not because the banks tell them they cant do this, it is because the people, now suddenly impoverished and unable to buy food or pay their rent, would revolt.

The marxist preppers network insisted that if the government did this then foreign governments would be ordered by the bankers to invade them and start killing people.  Those invasions did not occur in many other countries that had this type of a financial problem and during WWII it was this financial problem that caused the government and thus the people to invade other nations that were doing better financially.