Banks and the Stock Market, II: Currency Principle v. Banking Principle

Here’s a little game for you to play the next time you’re in a situation in which someone is ranting about “the banksters.”  First ask him or her, “Say, what is a bankster, anyway?”  If the ranter manages to answer that one to your satisfaction (instead of dodging the question with some variation of “If you don’t know, I’m certainly not going to tell you”), ask, “And just what the heck is a bank?”  If the first question didn’t stump the ranter, the second definitely will.

News from the Network, Vol. 8, No. 36

A number of interesting developments have happened this week.  Of course, interesting things happen every week, but don’t make for very interesting reading.  The results of networking and politicking are newsworthy, but not the networking and politicking itself. . . .

Banks and the Stock Market, I: The Stock Market

If you’ve been reading this blog over the past couple of weeks, you might start wondering if the financial system has any relevance to the real world at all — and we couldn’t blame you.  After all, as Adam Smith pointed out in The Wealth of Nations over two hundred years ago, the basic postulate of economics is “Consumption is the sole end and purpose of all production.”  Wall Street seems geared toward making money as an end in itself, not as a tool to facilitate production or consumption.

Hedging Your Bets

When we were taking principles of investment finance in college (centuries ago), we learned various ways of valuing shares on the stock market.  Mostly this was because (as we were taught) the easiest way to buy a company is to purchase its shares on the secondary market.  (It’s not.  The 100% S-Corp ESOP is, under current law, the best way, but it doesn’t apply to anyone who doesn’t work in that particular company. . . .)

How Not to Cause a Great Depression

We probably should have said something about this yesterday, but we were looking at what we think is the single most important factor that caused the Great Depression of 1930-1940: a sudden decline in the value of business loan collateral, and the lack of a replacement collateral when traditional collateral went down the tubes.  Today we’re looking at one of the “causes behind the causes”: lack of internal control in the financial services industry.

How to Cause (and Cure) a Great Depression

The recent frenzy in the world’s stock markets had a number of people panicking about the possibility of (yet) another crash of the magnitude of October 1929, and the possibility of another Great Depression on the heels of the Great Depressions of 1873-1878, 1893-1898, 1930-1940, etc., etc., etc. . . . although we don’t call them “depressions” now, but “recessions” ‘cause “depression” is too scary and makes the government look bad.

News from the Network, Vol. 8, No. 35

This has been a relatively quiet week for those of us not involved in stock market speculation on the Wall Street high stakes gambling casino.  By the way, if you ever want to make an enemy for life, tell someone a truth he or she doesn’t want to hear . . . and then be proven right (especially about the stock market).

Past and Future Savings, II: Emancipation from the Slavery of Savings

Yesterday we asked the eternal question, “What if nobody has $95 and nobody has a shovel if we want a ditch dug for $95?”  This is actually a very simple question to answer once we understand that when we’re discussing saving, past or future, we’re not discussing what exists in the entire universe.  No, we’re only talking about what is happening within the provisions of a specific contract.

Past and Future Savings, I: Outside the Parameters of the Question

We got into a discussion last week with someone who insisted that the whole concept of future savings and thus of Capital Homesteading is a scam: you can’t promise to deliver what doesn’t exist.  To that, of course, we answer, “Why not?  People do it all the time.”

Flexible Standards, VIII: An Elastic, Asset-Backed Currency

Here’s the secret to keeping calm amidst all the panic on Wall Street yesterday.  All you have to do is keep on thing in mind: like the preacher’s watch on the pulpit during the sermon, “It don’t mean a damn’ thing.”

Flexible Standards, VII: Appreciating Currency

Last Thursday we looked at what “uniform and stable” means in terms of a currency standard, and what happens when the currency standard isn't what you could call standard.  Today we’re looking at what happens when the price of the standard rises or falls relative to other prices.

News from the Network, Vol. 8, No. 34

As of this writing, the Dow is dropping like a stone.  If you believe that the secondary market is in any way related to reality, don’t worry.  “They” (meaning the people who control money and credit) will take steps to “reflate” (as Irving Fisher put it) the money supply to continue shifting purchasing power away from producers and toward speculators, gamblers, and the non-productive . . . after they’ve taken their profits from short-selling, of course. . . .

Flexible Standards, VI: A Uniform and Stable Currency

The number one rule for a reserve currency — the currency into which other currencies can be converted and in terms of which they are valued — is that it must (and that means must) be asset-backed.  This does not mean that the asset you use to value the reserve currency must back the currency — “gold standard,” for example, does not necessarily mean that the currency is backed by gold, only that the currency is valued in terms of gold.

Flexible Standards, V: How it Should Work

Replacing a debt-backed currency with an asset-backed currency and restoring an actual standard to the currency can be devastating, relatively painless, or positively beneficial.  It all depends on how bad the situation is, and how it is done.

Flexible Standards, IV: Selecting a Standard

Yesterday we looked at the fundamental insanity of having a flexible standard for anything.  Today we look at what might make a good standard of value, especially when the idea of having a standard in the first place has become an alien concept.

Flexible Standards, III: Re-Editing the Dictionary

In the musical play Guys and Dolls, Big Jule, a well-heeled (in both senses*), out-of-town shooter (in both senses) who gets into Nathan Detroit’s Oldest Established Permanent Floating Crap Game in New York, has a sure-fire means of winning every time he rolls the bones.  Big Jule, who has gone straight since he was a kid as is proven by the fact that he has never once been convicted following his many arrests, has dice without pips.

News from the Network, Vol. 8, No. 33

Here are this week’s news notes:

Flexible Standards, II: Making Money

Yesterday we looked at the whole concept of “flexible standard.”  We decided that having a flexible standard is another way of saying we have no standard at all.  After all, what is a yard if yesterday it was 36 inches, today is 18 inches, and tomorrow it is 83 inches?  And what do you mean by “inch”?

Flexible Standards, I: The Living Constitution

A Southern Lady of our acquaintance (please note the capitalization), has been known to turn her nose up at certain things on the grounds that they do not meet her “standuhds.”  Being mostly “standuhds” (or, if you prefer — which we do — “standards”) relating to certain social mores, these are sometimes a trifle flexible, possibly even a little vague at times.

Democracy in America

Last week we came across the following quote from Abraham Lincoln.  At least, that’s who it was attributed to, so we’ll take the internet’s word for it.  (The internet knows everything.)  Anyway, the (alleged) quote was, “America will never be destroyed from the outside.  If we falter and lose our freedoms, it will be because we destroyed ourselves.”

Surviving the Crash

Once in a while we get a question that is a little out of our “core competency,” i.e., economic and social justice.  It’s not that we don’t know something (or even everything) about the subject of the question, it’s just that it’s not something with which we usually deal — like going to the grocery store to buy laundry soap.  Sure, they carry a full line of it . . . but what, exactly, does laundry soap have to do with groceries (besides cleaning your clothes when you spill soup all over them, that is)?

News from the Network, Vol. 8, No. 32

Okay, Commander Rob W., this one’s for you.  Cindy will really appreciate it . . . or really get angry, this time.  This week people have been commemorating the dropping of the atomic bomb on Hiroshima seventy years ago.  (We note in passing that we don’t recall anyone saying anything a few years back when the seventieth anniversary of the bombing of Coventry in November of 1940 came around.)

The Population Bomb

According to conventional wisdom, there are too many people on earth, and the problem is only going to get worse.  We won’t ask “too many people for what?”, as the answers often get contradictory and evasive, e.g., “For the earth to support,” a popular answer, is demonstrably false, and requires innumerable qualifications to make it plausible.

Local or Express?

Louis Kelso once commented that socialism is a commuter train, a “local,” while communism is an express.  Both socialism and communism end up the same place — the abolition of private property and State control of virtually every aspect of life — but communism destroys the basis of State, Church, and Family faster and more efficiently than socialism.

Minimum Wage or Profit Sharing?

People these days talk a lot about the “sharing economy,” although no one seems to know exactly what that means.  Some of the articles we’ve seen take the approach that the rich should share what they have with the poor, while others that the poor should share what they have with other poor.  Either way, somebody seems to have to give up something in order for somebody else to have it; some people gain while others lose.

Let’s Talk About . . . Retirement, IV: Capital Homesteading

Stop me if you’ve heard this.  On second thought, don’t stop me.  Just read it, and Do Something to get the ball rolling.  We’ve found that far too many people are extraordinarily shy about letting others in on a good thing — even if it really is a case of “the more, the merrier.”  Capital Homesteading is one of those things.  It works better the more owners of capital you have, just as in a labor-centric economy, things work better if more people can and do work.

News from the Network, Vol. 8, No. 31

This past week the stock market has soared like an eagle and dived like a turkey.  As a result, even more “experts” are sticking out their necks and predicting a crash in the near future.  What remains puzzling is the fact that so few of the experts realize that there is an alternative to the wild swings that characterize the modern business cycle: Capital Homesteading and the Just Third Way.  Maybe some real people are starting to catch on, however, which would explain the popularity of some of our recent articles, a few of which are getting worldwide attention:

Let’s Talk About . . . Retirement, III: The Jobs Market

Go to college, get good grades, graduate, get a good job.  That’s been the “Middle Class Mantra” for more than half a century.  The rising cost of education, grade inflation, low graduation rates, and lack of employment opportunities are, consequently, blamed for the decline of the “Middle Class.”  As a result, there are increasing demands that “the government do something.”

Let’s Talk About . . . Retirement, II: Social Security

“It’s my money!  I paid it in!  I own it!”  That is the response almost any time you bring up the subject of Social Security and the projected deficit — now amounting to around $41 trillion and change (down from a few years ago when they changed accounting assumptions — don’t you wish you could reduce debt the same way?), according to the “real time” National Debt Clock at http://usdebtclock.org/.  When you add in the total projections for unfunded federal government liabilities, you’re starting to push up against $100 trillion.

Let’s Talk About . . . Retirement, I: The Problem of Saving

What with low interest rates, the volatility of the stock market, the shrinking “jobs market,” the projected Social Security deficit, and a few other things, significant numbers of people are concerned about their retirement portfolios . . . if they even have one.  Typically, wage earners are told to save X% of each paycheck in order to fund retirement.

Who Will Own?

A while back, say, a century or so, Judge Peter S. Grosscup of the U.S. Seventh Circuit Court of Appeals published an article with the title, “Who Shall Own America?” (American Illustrated Magazine, December 1905).  A few weeks ago the “Mensa Weekly Brainwave” sent around a link to an article in the MIT Technology Review, “Who Will Own the Robots?”. 

News from the Network, Vol. 8, No. 30

As of this writing the Dow is down another 125 points or so.  Don’t worry, though.  Primarily, of course, despite what “the experts” would have you believe, the stock market is not the sector where primary activity takes place.  That’s why it’s called “the secondary market.”  In a rational world, the primary market affects the stock market, not the other way around.

Some (More) Thoughts on Money

We got some comments a week or so ago when we started the just-finished series on the Greek debt crisis.  While no doubt well-intentioned, however, the comments were based on misconceptions about money, credit, banking, and finance, as well as the facts of history, that made it impossible to respond.  Still, we tried.

Solving the Greek Debt Crisis, XII: The Key to Economic Recovery

Yesterday we noted that there is one key factor that cannot be omitted from the proposed program to put Greece on an even keel economically.  Regular readers of this blog already know what this is: an aggressive program of expanded capital ownership.  Why?

Solving the Greek Debt Crisis, XI: Working With Debt

Yesterday we saw how the United States implemented a plan to replace its various debt-backed currencies (United States Notes, National Bank Notes, and the Treasury Notes of 1890) with debt-backed Federal Reserve Bank Notes, and replace the debt-backed Federal Reserve Bank Notes with asset-backed Federal Reserve Notes.

Solving the Greek Debt Crisis, X: From Debt to Asset Backing

Last Thursday, as a build up to explaining how to straighten out the Greek debt crisis, we looked at the problem the United States had in the 19^th century with its basket of debt-, semi-debt-, and asset-backed currencies.  This confused financial system was in part responsible for the Panics of 1873 and 1893, and the resulting Great Depressions of 1873-1878 and 1893-1898, respectively, and wholly responsible for the Panic of 1907, “The Bankers’ Panic.”

News from the Network, Vol. 8, No. 29

Germany is being painted as the villain in the (alleged) solution to the Greek debt crisis. Germany (and Germans) are, as we might expect, being portrayed as Nazi stormtroopers and concentration camp guards (how original) for wanting Greece to pay its debts (gasp!), or at least promise to do so (how rude!) — and, yes, the swastika has put in an appearance.  Most people, however, seem to be missing a few salient facts.  That is, besides the fact that people or countries shouldn't make promises (i.e., go into debt) that they have no intention of keeping.

Solving the Greek Debt Crisis, IX: Return to “Sound Money”

Yesterday we looked at how Hjalmar Schacht, the “Old Wizard” with the unlikely middle name of “Horace Greeley” (no, really — he was born in New York City while his parents briefly lived there), stabilized the German currency in the 1920s, putting an end to the hyperinflation that followed World War I.  Of course, on the downside, this laid the foundation of the German resurgence that in less than a decade took the country from absolute zero to nearly conquering the world, but that’s a different issue.  The point to keep in mind is that it is possible to turn even a complete economic basket case completely around in less than a decade.

Solving the Greek Debt Crisis, VIII: Specific Monetary Reforms

If we believe the reaction on the U.S. stock market, the financial powers-that-be are jubilant about the alleged solution to the Greek debt crisis.  Of course, once people realize that there hasn’t actually been a solution implemented, only talk about one (and it might not even work . . . make that, we know it won’t work), we can expect yet another wild plunge in the market.

Solving the Greek Debt Crisis, VII: Property and Money

Making every child, woman, and man productive is key to solving the Greek — or any other — debt crisis.  Figuring out how to make everybody productive, or at least providing the opportunity and means whereby they can become productive is quite another.  (We say “opportunity,” for everyone should be free to decide not to be productive, assuming that no one else is compelled to support anyone who freely chooses not to be productive.)

Solving the Greek Debt Crisis, VI: Some Taxation Specifics

We’ve now established (at least to our satisfaction) that the way for Greece to get out from under its burden of debt is to become productive — and to do that in a way that enables every single child, woman, and man to become a producer of marketable goods and services in amounts sufficient to repay old debt, meet current consumption needs, and build up a moderate store against a rainy day.

News from the Network, Vol. 8, No. 28

Remember the (alleged) “Chinese curse” — “May you live in interesting times”?  We’re not going to try and do the research to find out if anyone from China ever cursed somebody else in that manner, but it certainly seems to be true in essence . . . as you can see from this week’s news items:

Solving the Greek Debt Crisis, V: Presenting the Solution

So now we have the solution to the Greek (or any other) debt crisis: if you want to pay down debt, have enough to meet your current consumption needs, and set aside enough for a rainy day, you have to produce enough to cover what you have consumed on tick (i.e., on credit), are consuming on a daily basis, and a store on which to draw if you suddenly become unable to produce.

Solving the Greek Debt Crisis, IV: Consuming What Isn’t Produced

What is the sound of one hand clapping?  How can you consume when you don’t produce?  Well, as we noted yesterday, you can’t.  Not unless you seize control of the language so that you can make words mean what you want them to mean.

Solving the Greek Debt Crisis, III: The Sound of One Hand Clapping

Absent a rich uncle conveniently dying or a fairy godmother waving a magic wand to grant three wishes (neither of which, for various reasons, is something we should count on), there is only way to get out of debt: produce enough to cover your current consumption needs, make up for what you consumed in the past that you didn’t produce, and put something aside for a rainy day . . . which means a year’s worth of income to cover yourself because rain spoiled the annual harvest.

Solving the Greek Debt Crisis, II: The Solution in Brief

Last Thursday we said there is a viable solution to the Greek debt crisis, and it isn’t austerity.  What we didn’t say was that the solution is either simple or easy.  It is, in fact, pretty harsh if you’re a politician, government worker, or anyone receiving government benefits, especially in the beginning, and probably for three to five years until the program kicks into high gear and starts generating significant income in and of itself.

News from the Network, Vol. 8, No. 27

What on earth are you supposed to report on when the world ends, i.e., the stock market is closed, and won’t reopen until Monday?  And that is after the vote in Greece.  Still, there are a few items that appear to be noteworthy:

Solving the Greek Debt Crisis, I: The Scope of the Problem

It’s déjà vu all over again.  We may have mentioned once or a dozen times the last time the problem was “solved” that it wasn’t actually solved, just swept under the rug until it grew big enough to crawl out again and this time eat the entire house.  For starters.  Then move on to the rest of the European Union for the main course.  We’re not even going to speculate what’s for dessert, at least openly, but if a tasty little morsel like Switzerland thinks it can stay out of it when the rest of Europe is crashing and burning, it might have another think coming.

Religion and Science, II: What Really Happened

Yesterday we saw that, despite his sincere faith that his theory of tidal motion proved heliocentricism, Galileo’s proof was seriously flawed.  Heliocentric theory was not, in fact, actually proved until the nineteenth century — regardless of the fact that many people accepted it for centuries before that . . . on faith, not because it was proved.