[MonteQuest]

What you guys are going on about is how the game is played, what the rules are and how it works. I think it's a pretty narrow discussion that seems, to me, to be bound into the current fiscal reality which values monetary wealth.

Yes, because a lot of people don't understand how the game is played. This is a setup for a transition to an equity based system as opposed to a debt-based one. davep has the true handle on this.

[MonteQuest]

My assumption was you have some cash, what do you do with it?

Invest in a house, I did. Built it all myself and I own the land, so it's free and clear. $400 yr taxes. Invest in small liquor bottles, cigarettes and BIC lighters for barter.

[davep]

I've posted them dotted about elsewhere, but here's a list of resources that may be useful.

First of all, a frank description of the current money creation process by the Bank of England: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

And various ideas on equity/sovereign money models including the transition process.

First from two IMF researchers (which goes into some detail on how an equity-based system avoids the pitfalls of a debt-based one): https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

An easier one to get your head round from the Money Masters http://themoneymasters.com/monetary-reform-act/ which is currently down. Their amazing video on the history of money is worth watching https://www.youtube.com/watch?v=B4wU9ZnAKAw (the original seems to have disappeared too).

The Icelandic proposal for sovereign monetary reform https://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf and some positive noises from economists on the subject http://positivemoney.org/2015/04/economists-saying-icelands-sovereign-money-proposal/ including:

The Economist writes:

“Under the proposed sovereign money system, the Central Bank of Iceland would increase the money supply in proportion to growth and consistent with the mandated inflation target. Direct control of the money supply would remove the need for traditional policy instruments designed to manipulate commercial banks’ incentive to create money, such as policy interest rates and regulatory lending limits. The government would then put the money into circulation via sovereign bond purchases, and/or fiscal measures. To avoid conflicts of interests leading to the oversupply of money, decisions over allocation would be made by a committee independent of the government… If successful, Iceland’s experience could serve as an important case study for global monetary reform.”

Edward Hadas of Reuters wrote:

“Radical bank reform is mostly endorsed by academics, commentators and crackpots. So it is certainly worth taking note when a senior person in a real government calls for a top-to-bottom makeover of banks and the monetary system…Still, the Sigurjonsson plan is a plausible blueprint for better banking and Iceland is a good place to start. The population may be embittered enough to try something new and the established global powers of banking would probably tolerate an experiment in this miniature economy.”

[peripato]

My assumption was you have some cash, what do you do with it?

Invest in a house, I did. Built it all myself and I own the land, so it's free and clear. $400 yr taxes. Invest in small liquor bottles, cigarettes and BIC lighters for barter.

That's awesome mate. I was thinking about doing that for years but felt that the easiest policy would be to just "take over" someone else's homestead when BAU comes to an end. Plus I like city living, and don't want to give up on it unnecessarily, or too early.

Where I'm from 99.999999% of folks are complete wood ducks, so when the end comes they will a) not recognise or accept it for what it is, despite it being front and centre news worldwide 24/7 and b) will not know how to deal with the inevitable crashing of the electrical grid and cessation of supermarket deliveries 3 to 4 days after said discontinuity.

Walking in and taking control should be snap under those circumstances, especially since no one, and I mean no one will know what the f#ck is going on. Oh, and I have also already enlisted confederates in my righteous cause...

[careinke]

That's awesome mate. I was thinking about doing that for years but felt that the easiest policy would be to just "take over" someone else's homestead when BAU comes to an end. Plus I like city living, and don't want to give up on it unnecessarily, or too early.

I would suggest you not try that at my homestead.

Anyway, as a modern survivalist, I have another perspective. I try wherever practical to extract myself from the current soon to fail system. My surplus cash goes towards improving our resiliency (measured in time), and self sufficiency (measured in percentage).

For instance, we keep about a three month supply of food on hand, (stuff we actually eat). So our resiliency on our food supply is three months. We supply 100% of our own water, so we are self-sufficient on water. We are also self sufficient on organic waste disposal. Right now I am only producing about 50% of our egg needs (soon to be changed), so we are 50 % self sufficient on eggs.

We have managed over the years to earn 4 separate passive income streams so we no longer need a traditional job, eliminating the need to worry about losing one. The time saved from this, allows us to further enhance the homestead, learn other skills we are interested in, and help our children better prepare for the coming chaos.

This lifestyle also helps the community in the event of a local disaster (Like an earthquake), as we will not be a burden first responders and government relief work. Instead, by having our house in order, we can help our neighbors.

I heard someone say; true wealth is measured by how long you can go, if all your outside income, was suddenly cut off. Ask yourself that question. Then figure out how to improve it, and you will know the answer to this threads question "So what do we do".

That said:
Try not to hurt the Earth
Try not to hurt others, except in self defense
Control population and consumption

[peripato]

That's awesome mate. I was thinking about doing that for years but felt that the easiest policy would be to just "take over" someone else's homestead when BAU comes to an end. Plus I like city living, and don't want to give up on it unnecessarily, or too early.

I would suggest you not try that at my homestead.

Anyway, as a modern survivalist, I have another perspective. I try wherever practical to extract myself from the current soon to fail system. My surplus cash goes towards improving our resiliency (measured in time), and self sufficiency (measured in percentage).

For instance, we keep about a three month supply of food on hand, (stuff we actually eat). So our resiliency on our food supply is three months. We supply 100% of our own water, so we are self-sufficient on water. We are also self sufficient on organic waste disposal. Right now I am only producing about 50% of our egg needs (soon to be changed), so we are 50 % self sufficient on eggs.

We have managed over the years to earn 4 separate passive income streams so we no longer need a traditional job, eliminating the need to worry about losing one. The time saved from this, allows us to further enhance the homestead, learn other skills we are interested in, and help our children better prepare for the coming chaos.

This lifestyle also helps the community in the event of a local disaster (Like an earthquake), as we will not be a burden first responders and government relief work. Instead, by having our house in order, we can help our neighbors.

I heard someone say; true wealth is measured by how long you can go, if all your outside income, was suddenly cut off. Ask yourself that question. Then figure out how to improve it, and you will know the answer to this threads question "So what do we do".

That said:
Try not to hurt the Earth
Try not to hurt others, except in self defense
Control population and consumption

No fear mate, I doubt we're even in the right hemisphere, let alone country. Like I said, people around here are absolutely and totally f#cken clueless about what's happening. Which is a good thing. This means the sheep won't be startled when the nutcracker arrives, leaving plenty of time to get prepped up, hire a van and get the flock out of Dodge, so to speak. I reckon we'd have about 3 or 4 days grace before the panic starts to set in, once the grid starts to fail and supermarkets don't get restocked. I'll be 400 miles away by then waiting to pick up at least one of the pieces...I don't intend to hurt anyone, lessen they try and hurt me first. Persuasion should do the job better though, especially seeing they'll probably be scared of what's happening around them and will be happy for the extra help and protection.

I'm no monster, but no one said survival post-BAU would be pretty...

[Newfie]

Monte and Carinke,

Those are good plans and more of what I was thinking of when talking about true value.

I don't think there are any fool proof plans and we will all uptake hits on the down swing, just some will take bigger hits than others. We have our rental house in the city which is producing passive income. But that is vulnerable to civil strife. We could easily sell it for a nice sum, but the return on the invested money is about half on the current income. Our evaluation is that we should hold tight for now. Perhaps in the future sell.

As to cigs, small bottles of liqueurs, and BIC lighters, cigs and liqueurs have importation restrictions. BIC lighters aren't value dense enough yet, they will be good deep into the crash, not now. Perhaps buy a container load and put in storage.

[Pops]

We have a flexible, market based money supply.

The central bank uses various levers to influence the direction of the market but can only influence, not direct.

The Chicago plan replaces that 2-tier market/government flexibility with total government control of money supply and lending — and along the way wipes out all government debt and gives the government carte blanche to spend at will.

Imagine getting a car loan from those friendly folks at the DMV.
Imagine Trump/Clinton with not only complete spending discretion but complete control of the money supply. The whole idea was to keep politics out of it. That has always been the goal.

Granted, we've allowed bank regulation to be undermined to the point of complete impotence — and even total backing of losses and elimination of moral hazard— due to the influence the ownership has over government.

But, the solution to lax regulation is not to eliminate regulation altogether and hand over total control to bureaucrats and politicians.

[davep]

We have a flexible, market based money supply.

No we don't. It's in the hands of private banks who do provide money based on their own interests, not society at large.

The Chicago plan replaces that 2-tier market/government flexibility with total government control of money supply and lending — and along the way wipes out all government debt and gives the government carte blanche to spend at will.

You fundamentally misunderstand equity money. The whole point is that there is a reserve of equity, so money creation is a fraction of existing circulating money. Currently money creation is critical because money gets destroyed as loans are paid back, so more loans are continually required to maintain the money supply. This is not the case with an equity-based system, so it's not some "Big Government" money supply control thing which you appear to be imagining.

In an equity-based model, there is nothing stopping people speculating with their money, nor anything stopping institutions from lending out that money. This is neither at the whim of banks nor the Government, as it is existing equity.

So (a) Government does not control money supply (as money creation is tiny compared to ciculating money) and (b) the Government does not control lending, holders of equity money do.

[Pops]

We have a flexible, market based money supply.

No we don't. It's in the hands of private banks who do provide money based on their own interests, not society at large.

Dave! LOL That is the exact description of what Adam Smith called the invisible hand.

“By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
--Wealth of Nations

If you want to collectivise the whole thing then just say it.

[Pops]

Currently money creation is critical because money gets destroyed as loans are paid back, so more loans are continually required to maintain the money supply.

Considering our discussions around here, why would you think that a money supply that automatically accommodate de-growth to be a bad thing?

I think you need to reconsider the idea in light of peak oil. If the money supply is inflexible, its value and/or asset values must absorb all the change in demand. When aggregate demand falls and the economy cools, a money supply that shrinks rather than losing value or forcing physical assets to lose value in lock step is a feature rather than a bug.


No doubt there is a continual effort by the ownership to eliminate regulation, privatize profit and socialize risk. The solution is to force them to accept their losses. You can't eliminate the business cycle by making money ridgid. A flexible money supply that expands and contracts with demand is a good thing in my opinion, accommodating growth and especially de-growth.

So (a) Government does not control money supply (as money creation is tiny compared to ciculating money) and (b) the Government does not control lending, holders of equity money do.

Again, in the deflationary environment likely to happen post peak, this simply means a catastrophic deflationary spiral as money becomes increasingly scarce... unless the government pumped out money like crazy. At least when they do it now, eventually the money disappears as loans default.

From your link:
"By contrast, under the Chicago Plan the quantity of money and the quantity of credit would become completely independent of each other. This would enable policy to control these two aggregates independently and therefore more effectively."

[MonteQuest]

A flexible money supply that expands and contracts with demand is a good thing in my opinion, accommodating growth and especially de-growth...Again, in the deflationary environment likely to happen post peak, this simply means a catastrophic deflationary spiral as money becomes increasingly scarce... unless the government pumped out money like crazy.

As the money supply contracts, due to defaults and normal principle repayment post peak, how will new money get into circulation? Banks aren't going to be lending on "promissory notes". You are going to have put up collateral, and it is probably going to have to be very liquid. A run on the banks will take their reserves, so they won't have fractional reserves to lend. Monetize the debt? The debt is worthless.

What mechanism will allow the government to "pump out money like crazy."

Spend it into existence via the Weimar printing press?

Or am I missing your point, Pops?

[Pops]

As the money supply contracts, due to defaults and normal principle repayment post peak, how will new money get into circulation?

The economy post peak will be shrinking, so the money supply should shrink too. It will do that automatically as loans are either paid off or defaulted. Falling supply keeps the old Velocity up and the value decent and things muddle along.

Bankers need to eat too, so at some point the interest rate will rise to the point they will make a loan to mine the landfill or whatever. That is the key, the interest rate will rise to meet the need for money.

But, if the supply of money can't shrink because all the debt has been converted into real, government-backed money (coins and FRNs in a vault somewhere), the value of that money will shrink. Which is by definition inflation.

Monetize the debt? The debt is worthless.

You have to read the proposal. All bank debt would be confiscated and turned into FRN.gov money overnight. Not sure if it would all be FRNs but it would be all on deposit at the Fed, real money.
Likewise all government debt would be erased and or turned into money, not really sure.
That is the whole equity-money scheme.


With equity-money there is only real government backed money. You can't run a tab at the corner beer joint because that is just exactly what is outlawed. Basically what we shuffle around from bank to bank now are just letters of credit, IOUs, beer-tabs brokered within the business banking system — it isn't really money. Just IOUs. It is all a big confidence racket but it works fine as long as everyone has confidence.

But, with equity-money, all that credit is actual treasury department script, Legal tender backed by the full faith and blah blah.

If the economy changes gears, the only thing that can happen is the value of money fluctuates... because the money supply is essentially fixed.

In the case of a slowing economy with increasing defaults, people would decide to hold on to their bucks. Since savers have say over how their money is loaned or not loaned they would effectively freeze credit markets. That has the effect of increasing the value of money. No one is buying so the value of assets falls. Now you are in a deflationary cycle.

But there are no levers for government to pull, no leeway for banks — they can only loan what the savers want them to loan and savers are scared and don't want to loan anything.

So the economy spirals down to a standstill. Classic deflationary depression and no means to stop it...
except the government spending money into existence like crazy.

What mechanism will allow the government to "pump out money like crazy."

Actual money printing, as opposed to what they do now, which is mainly borrow and repay, jigger rates, reserve levels, buy and sell bonds, etc. I could see them printing and spending like all get out in order to stimulate the economy.

Except all that new money would become a permanent part of the money supply.

Now you have a shrinking economy with all this money, lol, the only outcome can be overnight inflation. And nothing to do about it.

A run on the banks will take their reserves, so they won't have fractional reserves to lend.

Again you have to read Dave's link. Reserves are 100% of deposits.

Not that there is much risk of bank runs (a major selling point of equity-money) because most passbook savings and checking are covered up to $250k anyway, might as well be as good as money.

Mutual funds and such are where most savings are now and they aren't affected, equity-money is still at 100% risk of loss, just not at the bank.

[Pops]

Paraphrasing the OP (American Dream) ....
So what do we do in the face of environmental change and resource limits, what can we expect.

I take the current discussion to be sort of about.....
"How do we preserve our wealth in the face of....."

What you guys are going on about is how the game is played, what the rules are and how it works. The rules were developed in a relatively resource rich environment. They may not work well in a resource poor era. And those rules are subject to manipulation and adjustment. What are the likely changes and how do you protect self against them?

I went back and looked at the OP too, lol.

My knee-jerk is that the "Capitalism is Evil!" chant is just as ideologically tunnel-visioned as the "Better Dead Than Red!" version. But we are a treehugging, enviro-apocalypto group tho so that is our bent.

Capitalism at base is rule of law and ownership of property. You can layer socialism on top to whatever extent but I'm pretty sure we're stuck with private property for the foreseeable future.

In a nutshell, I believe if things don't go all unicorny, higher energy costs will increase the relative price of stuff — and lower the relative price of labor as physical work replaces cerebral work.

The upshot is an economy where little local stuff matters much more than big macro stuff. We won't be as worried about the markets, or international trade or the Baltic Dry, because our IRA will have long since gone MIA.

The best prep is to own things outright that help you survive. What kind of things, or how basic the needs you see being required is a matter of personal opinion. Maybe it's FRNs or maybe it's a full bug out retreat or maybe it is bugging out right now. Whatever eases your mind is what I'd say do.

If you sleep fine where you are, I'm thinking you are in great shape, regardless of what anyone else says. If you don't sleep all that well maybe change?

[MonteQuest]

You have to read the proposal.

My bad, I think. I wasn't talking about the equity-based plan, I was talking about our current debt-based system.

[ralfy]

I went back and looked at the OP too, lol.

My knee-jerk is that the "Capitalism is Evil!" chant is just as ideologically tunnel-visioned as the "Better Dead Than Red!" version. But we are a treehugging, enviro-apocalypto group tho so that is our bent.

Capitalism at base is rule of law and ownership of property. You can layer socialism on top to whatever extent but I'm pretty sure we're stuck with private property for the foreseeable future.

In a nutshell, I believe if things don't go all unicorny, higher energy costs will increase the relative price of stuff — and lower the relative price of labor as physical work replaces cerebral work.

The upshot is an economy where little local stuff matters much more than big macro stuff. We won't be as worried about the markets, or international trade or the Baltic Dry, because our IRA will have long since gone MIA.

The best prep is to own things outright that help you survive. What kind of things, or how basic the needs you see being required is a matter of personal opinion. Maybe it's FRNs or maybe it's a full bug out retreat or maybe it is bugging out right now. Whatever eases your mind is what I'd say do.

If you sleep fine where you are, I'm thinking you are in great shape, regardless of what anyone else says. If you don't sleep all that well maybe change?

Private property involved force, and the rule of law is based on the same force:

http://monthlyreview.org/1998/07/01/the ... apitalism/

That's why modern capitalism would not have taken place without governments and armed groups enforcing laws.

Another feature of modern capitalism is profit and investing profit, and that generally takes place when money is involved. Such a feature can only take place given long-term surpluses of resources and energy, something that will be difficult given physical limits of the biosphere:

https://theconversation.com/if-everyone ... uble-43905

A third feature involves financial speculation, and that soon dominates the system as one can profit faster through such than through manufacturing and food production. That's why the global economy is dominated by finance institutions:

https://www.newscientist.com/article/mg ... the-world/

A fourth feature involves increasing concentration of the same money among fewer people. That's why only a fraction of the world's population have more money than a large portion of the same. That same money is part of a credit market that is many times larger than the global economy itself:

http://www.washingtonsblog.com/2012/05/ ... arket.html

Problems with only a fraction of that market was enough to bring the world economy to its knees in 2008.

A fifth feature involves the reality that the value of all of that funny money can ultimately be maintained only through increased production of goods and services. That's why the same system involves continuous growth:

http://www.bbc.co.uk/news/business-22956470

This is also taking place because most people have been living in a world where localization is the default, and they have no choice about that because they earn only around $3 a day and barely have access to one or more basic needs, from health care to electricity. Their goal is to meet all basic needs plus some conveniences, and in a world with a large population and greater complexities, that will mean globalization.

The catch is that the present global economy cannot be maintained in a world with physical limitations:

http://www.theguardian.com/commentisfre ... g-collapse

Hence, we see financial crashes, peak oil, and the effects of pollution and global warming. And as much as we want to argue that this is based merely on tunnel vision views, we have to acknowledge that at some point the main driver is physics.

And if that's so, then no amount of fiddling with money creation will help. At some point, localization will dominate, but probably not in the way that members of the middle class imagine.

[Pops]

My bad, I think. I wasn't talking about the equity-based plan, I was talking about our current debt-based system.

That's cool.
As Dave said, most of what we call money is not really money, it's just credit slips/blips beamed from one bank account to another. No one forces you to deposit money in a bank. It is private business credit, just like a bar tab that you pay in advance. You give the bank money, they now own that money and you own a receipt. They do stuff with the money and you hope it is there when you want it.

As far as "debt-based" money, what is the option? Money needs to get into the system somehow. There are 7 billion people in the world, wouldn't do to have the same size money supply as when there were a billion. You can borrow it in or spend it in, not sure how else it gets there.

Well, you could dig it out of the ground I guess, but that doesn't seem like a very well regulated monetary system, lol. The "problem" with debt-based money is ostensibly inflation but inflation is offset by simply putting your money in a savings account, bank, equity, bond, asset, etc, anything with a return.

Inflation is not a problem, who cares what a dollar was worth in 1900?
Deflation is the problem anytime but I think especially when/if the economy shrinks. With a fixed money supply, either gold peg or Dave's plan there is just nothing government can do to influence the value of the currency, the interest rate, the amount of lending, nothing.

At least with equity-money they could print a bunch more money and spend it in as stimulus, but I'm not sure how they then get it out when they realise the gig is up.

Zero economists endorse fixed currency.

[MonteQuest]

As Dave said, most of what we call money is not really money, it's just credit slips/blips beamed from one bank account to another.

Pops, this is where many people get lost when we talk about "money." I don't think you are lost, BTW.

Paper money is just a physical representation of digital computer entries. A physical transaction medium.

M0 and M1, includes coins and notes in circulation and other money equivalents that are easily convertible into cash or the physical IOU medium we use called dollars. FED banks have large amounts of physical cash on hand in vaults. Cash that has no value or debt attached to it, because it hasn't been introduced into circulation by either a physical need, due to a depositors cash withdrawal or by worn money replacement. There are semi's loaded with new bills and worn bills crisscrossing the country that are worthless in the FEDS hands, but not if they were to get into circulation.

This is why counterfeiting is so dangerous to the money supply. Inflation.

Physical cash has nothing to do with the "money supply."

There are different measures of money supply. Not all of them are widely used and the exact classifications depend on the country. M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash. M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country. M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.

So, these definitions represent the "money supply in circulation." Not actual cash in dollars.

As far as "debt-based" money, what is the option? Money needs to get into the system somehow. You can borrow it in or spend it in, not sure how else it gets there.

Now we get to the meat of the matter. We can loan it into existence or spend it into existence.

How can enough loans take place to offset defaults and debt principle repayments when there is no prospect of growth? They can't. Enter the Great Depression where deflation ruled and money was scarce due to a shrinking money supply. Enter the WPA where money was spent into existence via govt bonds.

Post peak, when energy availability is severe constricted, who is going to buy a bond or take out a loan to put a new demand on a shrinking energy supply, with little or no prospect of a ROI or ability to repay? And who is going to loan money in that environment? With all the debt in the world defaulting, you couldn't print the physical money fast enough to offset the deflation of the currency. Enter Weimar Germany running 1,400 printing presses 24/7. The mark went from two marks to the dollar to 1.4 trillion marks to the dollar in a short period of time.

So, how is new money going to get into circulation in a world with no growth and a shrinking money supply?

Convert land and tangible assets into cash? Your asset is someone else's debt. The exit doors get real small in a crowded room.

You can't borrow it and you can't spend it into existence. No other mechanism exists.

Enter a depression without end, and a total collapse of a debt-based money system.

[Quinny]

I'm confused as to what you're saying Pops - you seemed to be disagreeing with Dave's point and maintaining the commonly held belief that banks lend out other peoples money. You now seem to be agreeing with Dave that money is created by debt.

[MonteQuest]

The "problem" with debt-based money is ostensibly inflation but inflation is offset by simply putting your money in a savings account, bank, equity, bond, asset, etc, anything with a return.

You mean anything with a return greater than inflation, don't you? Savings accounts do not pay more than inflation. And who's inflation? Inflation isn't measured like it used to be. The core CPI excludes energy and food for good reasons, as food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. Note that. The FED has no ability to fight oil volatility.

Regular CPI does include energy and food, but the FED uses core CPI to determine monetary policy and set interest rates.

In all three scenarios in this graph, oil prices remained fixed until the end of 2015 at $52 per barrel. Now it is at $30, so adjust accordingly.



Using these oil production scenarios. The FED predicts the following graph depiction of the impact on CPI.



A "further drop" is in dreaded deflation territory.