Banking, The Bailout, and Money

[RND]

FYI - Jorg Hullsman book review is here http://mises.org/story/3340.

RND,

I will forego commenting on minor technical corrections to your post, as well as where your comments reveal that you did not carefully read what I wrote. Please be more courteous by taking the time and effort to read more carefully what has been written before responding - nevertheless, regarding major points:

I read everything you posted several times before commenting. Could it be that some of the murkiness you see in the water may be from what you put in the water?

You said: "Note holder is [obligated to pay his] "share" of the national debt". This is patently false. As proof by counter example, realize that no foreigner possessing US dollars has any obligation to pay our national debt. The same is true of domestic holders of notes - in so far as note holders are not obliged to pay simply because they hold notes. Rather, the national public debt is an obligation of the USA government which can only be payed down by taxation of its citizens.

A foreigner in possession of FRN's is evidence of that foreigner "holding the debt." The Asian countries are the largest holder of American debt at slightly more than 2 trillion dollars. FRN's simply represent debt and who owns that part of the debt. China, tomorrow, could put the final nail in the coffin that is the American economy by "dumping" (selling at a much reduced cost) the American debt it currently "owns."

Brother, your idea and notion that the national debt can only be paid down through taxation is also off base. Currently, funded and unfunded mandates and obligations are nearly $70,000,000,000,000.00 (70 Trillion). At current interests rate and taxation rates do you know exactly how long it would take the government to pay off this debt if they simply stopped doing the business of the government?

You said: "The government has -zero- obligation to protect anyone". This is false. Magistrates have a duty to punish wrong doing, as directly stated by Paul in the new testament, and exemplified in the old testament civil law. The duty includes the punishment of theft, which is equivalent to establishing protection of private property rights.

What someone is obligated to do is a far cry different than what they actually do Brother. While judges may have a duty to punish wrong doing that's essentially closing the barn door after the horse has escaped! The "punishment" of crime is different that an obligation to protect one from a crime.

Through it's own courts the government, federal, state and local have repeatedly stated they have -zero- duty to protect.

You said "In a uptopian[sic] world that would make great sense, and may even work". Perhaps you are unaware the that commonly used medium of exchange (aka money) is subject to the laws of supply and demand like all other products on the market.

Right. This explains why I can buy a Six Dollar burger at Carl's Jr., or a .99 hamburger at Wendy's. But money, tied into Gold or Silver, sea shells or salt, is only worth what the commodity it is tied to is worth.

When given liberty, individuals can and will chose the medium that they value most.

Sure. Gold, silver and other precious metals have been proven time and again to be the favored medium of exchange. Brother, it ain't the paper! It's what the paper represents.

The aggregate actions of individuals can and will eliminate poorly performing currencies and promote well performing currencies.

At what cost? This is at least why the framers decided to make the US government in charge of the value of it's coin and currency. It is only when government failed at it's duty that confusion reigned.

The civil war era paper money example misses the point, as by definition money is the commonly used medium of exchange - the majority of 14k options could by no means be considered common. Section II of the book "What has the government done to our Money" contains a fully developed argument which refutes the notion that a Utopian world is a required. http://www.mises.org/books/whathasgovernmentdone.pdf

No the Civil War example doesn't miss the point. It illustrates what exactly happens when government fails at it's job and allows the private sector to take over unrestrained. When that happens you get a nation inundated with 14,000 different types of paper money with extremely little trust in any of it. We have simply gone from one extreme to the other in slightly more than 130 years! Whew!

[livingink]

Pete,

Finally have a minute to reply as promised. RND makes the general point that can't be lost in the discussion. No matter whether we speak of paper money, gold, silver, tobacco, seashells or whiskey, we have to keep in mind that these items have an agreed value between participants to a transaction. It appears that Solomon and Hiram performed transactions with gold and timber. If the Chinese sell the US debt obligations at a price cheaper than the original agreement then I assume they believe today's value is more than the value later. But, that assumes that someone else is willing to buy those debts at a price agreeable to the Chinese. In effect, debt is money!

You've obviously done a lot of reading in the past couple months and are ahead of me. I may not catch up. As I am watching events unfold, I see the possibility of nation USA disintegrating into smaller units with diverse economies. In each, some system of trade will be established whether it be by barter or currency. If so, and if your particular new domicile is agreeable to Christ's teaching, then it would be wise to study that teaching along with Old Testament practice to ascertain how Jesus might have recommended for us to transact business. Since he lived in a time of fairly oppressive government but yet taught such parables as the one rewarding wise stewardship of talents then there must be a way to perform transactions even under oppressive regimes. While some see only a spiritual meaning to such parables I do not. I think he also taught with a concrete element to the parables.

Last week a customer made an interesting point about the current recommendation to own some gold. He said gold would do you no good and be of no value if you crawl up out of your bunker only to find destruction and nothing to buy.

livingink

[RND]

RND makes the general point that can't be lost in the discussion.

Thanks for that livingink!

[thrombomodulin]

Livingink,

I'm glad to get your reply.

Let's consider two ideas about voluntary exchange and judgements of value. Two prominent ideas about this are:
1) Exchanges are made between people who consider the traded items to be of equal value.
2) Exchanges are made between people who consider the traded items to be of unequal value - namely, each participant in the transaction judges the value of what he obtains to be higher than what he parts with.

I would like to content that the second position is correct, for if the participants viewed the items exchanged of equal value they would have no reason to proceed with making the trade, and if they did then they would be just as willing to trade the same items once again so as to return to the original state. In the example you cite, solomon valued a particular amount of timber more than a particular amount of gold, and Hiram has made the opposite value judgement.

A debt obligation is, of course, a promise made by someone to pay another at an agreed upon time. The creditor always faces some risk of being defrauded if the debtor fails to fulfill his promise to pay. China, of course, has a promise for payment in the form of federal reserve notes from the USA government. China's political leaders will make a value judgements about this IOU (an asset from their perspective), and so will others. Present or future trading will occur when, and in so far as, China's leaders value the debt obligations less than other assets and when other asset holders have made an opposite value judgement.

I am not ready to agree "debt is money", unless we define our terms in a certain way and this is really just a semantic issue. Maybe I'm not following your line of thought here - would it be a parallel example to conclude that my automobile is money, because there is someone willing to buy it? The definition of the word money is the commonly used medium of exchange, and as debt instruments are not normally traded for goods and services I would not be included to term them money.

I think you are right that these parables of Jesus have a concrete element. I wonder if it is right to think that our regime may very well be more monetarily oppresive than the Romans, perhaps what was possible in Jesus time is not in ours.

Peter

[livingink]

Hello Peter,

Yes, in my previous examples I've used a broad definition or concept of money to include everything that at least two parties would be willing to exchange for some good or service. Your car example hits pretty close to home. About 5 years ago I traded a 1988 Toyota Camry that was in poor shape to a guy who wanted it and gave me 10 bushels of potatoes in return. No cash changed hands. Now, who got beat on the deal is hard to say. I ate some of the potatoes, kept some for the next years seed in my own garden, gave some to my mother and actually cut my costs because I no longer bought license, paid insurance or bought pipe foam to squirt in the holes so I could spray paint over them. Saved on duct tape, too. He had the option of fixing the brakes and several other things to drive the car back and forth to work or to hold onto the vehicle to sell parts. If he held it to last year, I'm sure he made some money just by taking it to a car crusher and selling it while metal prices were high. If he kept it, he can stand around with the other old men in the neighborhood 30 years from now and talk about the days before gasoline powered vehicles were outlawed by an oppressive regime.

I would like to study the workings of markets and money in the Roman Empire at the time of Jesus. Since Jesus used many references to money he probably tailored his examples to reflect the backdrop against which his parables were painted. I don't know that he necessarily would not have altered the examples if common economic practice were different.

I can also think of a possible #3 to add to your examples. I own a small piece of land along the river. I had a neighbor who I considered a poor steward of the land next door because he junked it up, didn' t respect property lines and let a nice building on the property partially deteriorate due to neglect. His trailer burnt one day--he got out the window. Paul talked about escaping the flames but I believe I'd be taking something out of context to apply that here. One thing led to another and he was not allowed to replace the home. As such, he needed to move. After much discussion we agreed on a price for the land and I bought it. I didn't really want it and thought I paid more than the true value. I did so because he and his wife needed help, he was at least attending a local Christian congregation where I hoped something would rub off and because I took to heart the teaching that Christians may sometimes have to subordinate their own desires to help a brother marginal though he may be. He looked at several options before selling. Since the riverfront location is so nice I believe he may not believe that the price was adequate but he had run out of options other than to have put it on the market which he chose not to do. So, it is conceivable that in your #2 example the word lower could be substituted for the word higher. That's an unusual transaction and in reality, if we include non dollar and cents benefits, it is likely equal with example number 2. If we only speak of dollars, then it may be possible that we are both poor horse traders.

Way back in this discussion you asked an inflation vs. deflation question. I believe it would have been accurate at that time to say I saw short-term deflation with the possibility of long-term inflation. If we are to believe that the FED has used monetary policy aggressively to slow or prevent deflation and if we are to believe that the economy will rebound in the customary 18-24 months which I also stated earlier, then it would seem prudent to assume that the FED will be skilled enough to catch the rebound and reverse policy such that inflation will be prevented. As events are unfolding, I will be honest enough to tell you that there has been so much static introduced into the picture that I would be a complete idiot to attempt to dogmatically state the upcoming effects. In short, I am not convinced, as are an increasingly large number of analysts that I listen to or read, that this administration is not intentionally making policy that destroys wealth due to their bent toward socialism/communism. Period. No other way to say it.

livingink

[thrombomodulin]

Livingink,

If you do look into the markets and money in the Roman Empire, please write a post back and share what you've learned. I agree this may shed some light on the examples Jesus used. At this point, I know nothing about the Roman monetary system.

I think your third possibility is valid. Your thought "... it is likely equal with example number 2" is in agreement with the thinking I've in from Ludwig Von Mises's book. He strongly emphasized that the value judgments made by humans are not strictly monetary, but that they includes "non dollar and cents benefits". However, the idea that one could seek another's benefit (i.e. God's) while experiencing a loss does not quite fit under #2.

I can only speculate with my level of knowledge, but I do wonder if the FED may now have lost the power to prevent hyperinflation. I'm having trouble remembering all the big items latey - I do recall: 300b Farm Bill, 150b + 30b AIG Bailout, 825b stimulus, 700b bank bailout, 40b auto, 51b JPMorgan-Lehman. I'm probably forgetting some. The money that has already been spent by law or distributed cannot be destroyed by the Fed. The Fed might be able to reduce bank reserves or increase the reserve requirement, which will help, but the I can't imagine the effect of adding a couple trillion dollars into circulation will be anything but disastrous. Yes, Obama is certainly socialist.

Peter

[livingink]

Peter and whoever else may be interested,

Would it be agreeable to start simply from here and look at the coinage mentioned by Christ such as the four-drachma coin in Matthew 17:27? There also seems to be a principle of taxation in Verses 25-26. I think I have some books that may talk about the coinage. I'm also looking to focus narrowly for awhile so I don't leave this conversation hanging for 3 months again.

livingink

[thrombomodulin]

One of my main goals from opening post was to work out applying the Christian ethics we know from scripture to the banking/monetary system. After discussion here, and through additional reading as cited above, I have become quite comfortable with the conclusion that our system is evil and directly violates God's law. Like certain other types of businesses, I think it naturally follows that the business of banking (as it commonly practiced) is not a career which Christians should be involved in at all.

Your idea of looking into how the system at the time of Christ worked, and hence how Jesus's parables about money are best understood does fit with purpose of the thread, so I agree to start from here rather than begin a new thread.