[davep]

According to this document http://www.bankofengland.co.uk/research/Documents/ccbs/Workshop2013/Presentation_Kumhof.pdf there are two further benefits:

5. Large output gains, during the transition, approaching 10%.
6. No liquidity trap problems, zero long-run inflation attainable.

I think the 6th advantage is important in that it demonstrates the ability to maintain a capitalist system without a systemic need for growth, which is obviously a major concern in the approaching resource-constrained times.

[Pops]

You say that as if modern industrial capitalism could exist without fossil fuel energy driving the whole cycle.

Pretty sure I didn't say that, in fact after 16,000 post at PO I'm kinda surprised you'd think that no matter what I posted.

I said that on the downside of growth that a fixed money supply would be the last thing we want.

You also seem to be implying modern industrial capitalism is a good thing and the subsistence capitalism of the past was a bad thing.

Pretty sure I din't say that either, but I will say the endless whining around mouthfuls of capitalistic fruit is not only a bigger waste of time than the other wastes of time we indulge in here but one really full of self-delusion and false indignity... LoL.

[davep]

I said that on the downside of growth that a fixed money supply would be the last thing we want.

Growth is merely a requirement of a system that creates more debt than assets. It isn't necessarily desirable. From the document I just linked to:

Implications for steady state inflation ¯π:
- Under the current regime policy rate needs to stay above the ZIF.
- Higher ¯π needed to permit safe distance between policy rate and ZIF.
- This is no longer an issue under the Chicago Plan.
- Therefore ¯π = 0 is perfectly feasible.
In other words, Chicago Plan is less, not more, inflationary than the current system!

This is getting beyond my comprehension levels at this time of night though.

[ralfy]

Capitalism isn't inherently exponential. As I've stated elsewhere, the need for growth comes from the money creation system we currently have. That can be changed without altering the fundamental entrepreneurial elements of capitalism (that are currently largely suppressed due to corporate influence on Government).

I recall Al Bartlett, but he did not refer only to money.

Also, from what I know, the rise of corporations started with those elements. The use of money also originated from them.

[Tanada]

You say that as if modern industrial capitalism could exist without fossil fuel energy driving the whole cycle.

Pretty sure I didn't say that, in fact after 16,000 post at PO I'm kinda surprised you'd think that no matter what I posted.

I said that on the downside of growth that a fixed money supply would be the last thing we want.

You also seem to be implying modern industrial capitalism is a good thing and the subsistence capitalism of the past was a bad thing.

Pretty sure I din't say that either, but I will say the endless whining around mouthfuls of capitalistic fruit is not only a bigger waste of time than the other wastes of time we indulge in here but one really full of self-delusion and false indignity... LoL.

I really need a sarcasm/humor button, apparently my use of emojies wasn't sufficient to indicate I was ribbing you for sounding so firm and authoritative.

[Pops]

I really need a sarcasm/humor button, apparently my use of emojies wasn't sufficient to indicate I was ribbing you for sounding so firm and authoritative.

Sorry.

As they say, if you can't dazzle 'em with your brilliance,
baffle 'em with your bullshit

[Pops]

I said that on the downside of growth that a fixed money supply would be the last thing we want.

Growth is merely a requirement of a system that creates more debt than assets. It isn't necessarily desirable.

Again, what makes you think I think growth is desirable? I'm not worried about the boom bust cycle because the wheels will likely fall off that thing if we reach an energy peak.

My point is the opposite, contraction is inevitable if we lack sufficient cheap energy. Growth happens because of increasing population accessing increasing cheap energy. Tech innovation helps but in my opinion it is not a given. It simply isn't inevitable that new tech saves the day.

--
You all may know I love charts, Doug Short is a great chart guy, I go to his site for my daily fix.
The 1st chart is growth, 2nd is real dollars





I realize the tippy-top .1% is riding the financialization wave but in general I'm thinking growth has peaked for us mere mortals. Not surprisingly (IMHO) growth flatlined at the point oil prices began their rise in the oughts. After the current glut/blip oil plateau turns down and high prices return, I fully expect the income plateau to turn down at a steeper angle than at present.

So. At that point. A relatively fixed currency amount vs lowered demand for money would mean the value of money declines. The gov is gonna do anything it can to prop up the economy regardless of structural problems like PO. How they do that is pretty cut and dry, they make more money available for investment. If they are really in charge of how much money is available (rather than the limited methods they have currently) they will make LOTS more available.
The value of money goes down further.
Inflaton.

PO is naturally deflationary, it can't help it. Many of the things we think are valuable today will be less so post peak. In which case the only thing worse than deflation (increasing value of money) would be inflation (decreasing value of money) on top of asset deflation.

Which is why all that debt-based money disappearing is going to be a benefit not a glitch. Your home value will fall but at least your cash will try to appreciate.


P.S. I have read all your links and tho the greek is greek to me I kinda understand the point — but not one link mentions PO.

[davep]

Again, what makes you think I think growth is desirable? I'm not worried about the boom bust cycle because the wheels will likely fall off that thing if we reach an energy peak.

I'm not saying it's desirable. I'm saying it's required for the current debt-based system to work correctly. When a loan is paid back, the money is destroyed. However, there is the interest element that requires further debt-based money creation to pay back. Hence the need for growth (in the money supply, hence growth in real estate prices, hence growth generally) to pay back the increasing amounts of debt. It's this unsustainable nature that leads to the business cycles.

That's why I say that equity-based money systems are better because they don't have the inherent need for growth in order to function. They are therefore more adapted to a resource-constrained world.

[Pops]

When a loan is paid back, the money is destroyed.

To recap, (I guess I do get tired of this argument, LoL)

I think in an economy contracting post-peak, money must be destroyed to avoid inflation. A "market" based money supply is as you said above a leading indicator, the market knows what the market is doing way before .gov ever will and do what .gov never would, shrink the supply of money.

compare to

A centrally planned, non-market, gov controlled, politically and ideologically motivated money supply that would be manipulated in any way possible to avoid deflation.

[davep]

The thing that destroys money is debt payment and closure.

Then post-peak, without net (inexpensive) energy there will less primary work (resource extraction--the oil, copper, phosphorus is left in the ground) accomplished;
--so fewer new loans (with interest charged) will have been inked,
--this mean less additional income (from interest) for the bank to offer additional second-tier almost-free loans
--no money creation by Central Bank
--no new funds (the multiplier affect) sloshing around for ennui to waste his time on his Apple Nth-Gen computer in a so-called <> "job" <> coding exciting new apps.

the result is economic contraction.

But also absolute chaos unless money creation is changed. Currently it would just amplify any downturn. If equity money stayed in the system there would just be inflation for resources as they got scarcer rather than having an overblown destruction of money which would impact the poor disproportionately and inevitably create more parallel forms of transactions.

BTW, the multiplier effect is proven to be more or less moot as central banks applying bank reserves lags the actual creation of loans by the banks.

[Pops]

If equity money stayed in the system there would just be inflation

As I understand it, that is the whole idea. Turn all the existing debt into outside, government money. The gov would confiscate bank assets (loans) and replace them with newly created greenbacks— to cover all the depositors who think they have money in the bank.

Then it would be up to the politicians to decided when things are too good and pull in on the reins, LoL

[davep]

If equity money stayed in the system there would just be inflation

As I understand it, that is the whole idea. Turn all the existing debt into outside, government money. The gov would confiscate bank assets (loans) and replace them with newly created greenbacks— to cover all the depositors who think they have money in the bank.

Then it would be up to the politicians to decided when things are too good and pull in on the reins, LoL

No. The money will stay in circulation, so there won't be the same expansion and contraction of broad money as we see now. The amount of new money created by the Government will be minimal as the existing money stays in the economy.

[Pops]

LoL
But you said

If equity money stayed in the system there would just be inflation

What is the difference between that and

The amount of new money created by the Government will be minimal as the existing money stays in the economy.

Point being, a smaller economy needs less money, the current system reduces it "automatically" through repayment or default.

The system you are talking about would be great if we expect continual growth and the typical malinvestment. That isn't what I expect.

[davep]

LoL
But you said

If equity money stayed in the system there would just be inflation

What is the difference between that and

The amount of new money created by the Government will be minimal as the existing money stays in the economy.

Point being, a smaller economy needs less money, the current system reduces it "automatically" through repayment or default.

The system you are talking about would be great if we expect continual growth and the typical malinvestment. That isn't what I expect.

The problem with the current debt-based money creation system is that it always needs growth to pay back the interest element. It is totally unable do deal with a degrowth scenario. There will be bank runs and people will lose their money through no fault of their own.

The system I'm talking about doesn't have this systemic risk. If resources such as oil slowly get more expensive, then the equity available for other discretionary spending will just decrease. It will automatically adapt to inflation in resource prices by decreasing available equity for other parts of the economy.

[davep]

"BTW, the multiplier effect is proven to be more or less moot as central banks applying bank reserves lags the actual creation of loans by the banks."

I am not an economist, can't talk technical, but as I understand it you refer to the modern technie version of the multiplier. An older concept from the dawn of trade will explain how debt and iou's enrich a community. This is a classic example of the original multiplier, how the simple exchange of debt builds value and then the debt disappears.

It is the month of August; a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 dollar bill and runs to pay his debt to the butcher. The Butcher takes the 100 dollar bill and runs to pay his debt to the pig raiser. The pig raiser takes the 100 dollar bill and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 dollar bill and runs to pay his debt to the town’s prostitute that, in these hard times, gave her “services” on credit. The hooker runs to the hotel, and pays off her debt with the 100 dollar bill to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 dollar bill back on the counter so that the rich tourist will not suspect anything. At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 dollar bill, after saying he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

It is worth reading and understanding.

Nice story, but it's not really relevant.

[Pops]

The problem with the current debt-based money creation system is that it always needs growth to pay back the interest element.

Interest gets paid from the time worn method of adding work to resources and producing value. That's where value has always come from and where interest payments come from. That will continue - or we'll all starve.

The debt that is viable would get repaid, that which is inefficient will be written off, just like now, and that amount of "money" will disappear, as it should in a contracting economy.


The Fed just decided we need more debt.
Their mandate is to keep the status quo-ing.
Exactly like a sorta-governmental agency would be expected to do...

[davep]

The problem with the current debt-based money creation system is that it always needs growth to pay back the interest element.

Interest gets paid from the time worn method of adding work to resources and producing value. That's where value has always come from and where interest payments come from. That will continue - or we'll all starve.

The debt that is viable would get repaid, that which is inefficient will be written off, just like now, and that amount of "money" will disappear, as it should in a contracting economy.


The Fed just decided we need more debt.
Their mandate is to keep the status quo-ing.
Exactly like a sorta-governmental agency would be expected to do...

In purely monetary terms, the loan is paid off with the amount of money that was lent out. But the interest element has to be created by yet another loan. You then have even more interest debt to pay off from other loans. So it's an exponential system (some say Ponzi scheme).

It wasn't the Government that wanted the Fed, it was bankers http://www.jekyllislandhistory.com/federalreserve.shtml. I can see you're pretty anti-Government (which is a fair enough position) but don't let that blind you to the fact there are more powerful self-serving forces at work than them.