Comments

• Aman Gupta 24 Mar 14:34

  Also worth reading is this comment on Rick Falkvinge’s recent post “Why the US is collapsing”: http://falkvinge.com/2008/03/why-us-is-collapsing.html#c4723928990984921208

• Soleone 24 Mar 20:53

  Thanks for spreading this!

  I also recommened Aaron Russo’s movie America: Freedom To Fascism>

  http://video.google.de/videoplay?docid=-1656880303867390173

  Unfortunately he died lately, but he seemed very honest and I’ll never forget his shocking interview with Alex Jones regarding a Rockefeller friend of him.

• Mark 24 Mar 22:28

  Like all good lies, this video has some elements of truth, woven with some falsehoods to yield a significant falsehood. This video is quite subtly flawed, but the flaws are hugely significant.

  The banks don’t create money. The central bank (i.e., the Federal Reserve Bank in the US) creates the money. They do that through issuing treasury bills and they make that money available to banks to lend. Treasure bills are nothing more than the government borrowing money and agreeing to pay it later at a specific interest rate.

  One flaw in the presentation is that the bank doesn’t create the money for the car loan. Assume that the banking system is, indeed, closed the car dealer can go to the bank and withdraw cash. In the case, a $10,000 loan is converted to $10,000 in cash at the time the dealer withdraws the money.

  In fact, the bank borrows the money from the Federal Reserve, and they do it at a very low interest rate. Banks make money on the spread of the interest. The money that is created is in fact backed by people who own central bank treasury notes—that is you, me, institutional investors, and other governments.

  Another flaw is that the central banks remove cash from the economy—they don’t just add it. The Federal Reserve Bank buys back treasury bills as well as selling them. Calculation of when and how many t-bills to buy or sell is complex, but occurs constantly.

  The first of his four question that he says we should ask, is in fact, what is actually done. The Government is responsible for backing the debt, and they do that by balancing the amount of money created against the gross output of the country, known as the Gross National Product or Gross Domestic Product (GNP or GDP). Back the currency on the GDP is exactly what he proposes at the end of the video as the “better option”—that is the balancing of money against goods and services that a nation produces.

  The second of four questions that he asks is actually answered in the video itself. The reason that money circulates and “increases in volume” is due to the fact that when you get paid, and buy something, that money goes to pay someone else-just like in the loan scenario. Central Banks watch this process of circulation very carefully, and use it to calculate how much money needs to be added or removed from the economy through the sale or purchase of government bonds. In fact, the reason that banks get to loan at 9:1 ratios is because currency flows through the economy at roughly a 9:1 ratio, as well-the two have to be quite closely balanced.

  The “subtle form of dictatorship” doesn’t really exists. Banks are not the only source of funds, and, in fact, banks will usually lend money to people who are credit worthy. And because there are multiple banks competing for your business, if one bank doesn’t lend you money, another probably will—as long as you are credit worthy.

  Money can come from other places, too, such as private investors or government grants, tax rebates, returns on stocks, bonds, or other investments, etc. Governments exert more control over the “direction of society” than bankers do. Hopefully, they are more responsible to societal needs than an individual banker would be.

  The concept that interest or usary is somehow immoral isn’t reasonable either. If I have car, and you want to borrow it, you would be willing to pay me something to compensate me for the loss of my car for a period of time. Money is no different. If you have my money, I can’t spend it. Therefore, you should be willing to pay me for the opportunities that I would lose because you have my money.

  Before you take the video at face value, go read and understand a basic economics textbook.

• tobias Lütke 25 Mar 14:07

  Mark, thank you for your excellent analysis.

• Jiri Kubicek 25 Mar 14:08

  Beware. They are actually recommending communism in this video.

• tobias Lütke 25 Mar 14:17

  I find the value of the video is more in the historical timeline than in the actual agenda. As mike pointed out there are real problems in this part as well though.

• Soleone 25 Mar 19:22

  I can’t remember, does the video mention, that current money isn’t backed by anything “real” since 1971?

  http://en.wikipedia.org/wiki/Fiat_money

  Even if the video has it’s flaws, I think it shows the basic concept, and that it is indeed possible to fool the people. The origin of the the Federal-Reserve-System (I think around 1913) is also something very important which should be looked at.

  Anyways I’m no expert in this, but I do think that there is something people like Adam Greenspan don’t want us to know. You can see all over the world that people are doubting the value of the dollor (e.g. China). And the talk about a North American Union with it’s own new currency (Amero) doesn’t really help to put the trust back in…

  my 2 (euro-)cents from germany

• Mark 25 Mar 21:01

  Solone, money is backed by the goods and services that a country produces. Most all countries use this, rather than backing to “hard currency equivalents” because the value of those equivalents fluctuate too much.

  Formation of central banks to regulate the flow of money has been done in every country or currency market, including the EU, and China. The purpose of a Central Bank is to ensure that the currency is managed centrally, responsibly, and consistently.

  I don’t think that China is doubting the legitimacy of the dollar. Despite ups and downs, the US Dollar is still the baseline international currency. The value of the dollar will go up and down, as will other currency. For example, look at how the Yen and Yuan plunged several years ago during the Asian stock market crisis.

  China currently holds about $500 Billion in US T-Bills. I don’t think that shows a lack of confidence. Why do they hold so much? Because they want to continue to allow the US economy, as the worlds largest importer, to grow so that it will continue to import goods from China. If the US economy flags, the first thing that will happen is a shift in the balance of payments—meaning that China will have a much smaller market for it’s good.

  Despite all the whining about “overspending Americans,” until the EU, China, or India can start importing goods at a rate similar to the US, other countries will continue to need the US to spend. If the US stopped spending today, many other countries would have significant problems because they wouldn’t have a market for their goods. The net result would be world-wide deflation as countries tried to get rid of goods stockpiled in their countries.

  I would be careful about tying perception of America to the value of the dollar—they are different. While I hope that new leadership and more public outreach can help improve with the former, I don’t think that it well affect the later much in the near term.

  Given the number of talks, books, presentations, and other public engagements that Alan Greenspan has given, I would argue that there is lots that we don’t know that he would like to explain to us—he just hasn’t found a way to express the ideas in ways that mere mortals can understand, yet. :)

  I don’t think that Amero is going to go anywhere. I don’t think that US is looking to stabilize yet another economy. The example of France and Germany in the EU has shown that it’s not that much fun to be the most stable economy in a economic conglomerate: you basically are holding up everyone else and watching your economy go to hell in a hand basket.

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