Unemployment figures for many countries

[Leftofcentresalterego]

“The government cannot create or destroy currency willy nilly as it sees fit.”

The federal government can and does do both of these things on a daily basis TomB. It is a normal part of the functioning of a modern monetary economy.

“Taxation is not creation of currency”

Correct – but I did not say it was. Taxation by the federal government is the extinguishment of currency.

“It is the way in which our society pays for itself”

A perfectly logical assumption and correct at the state government level, but not at the federal government level.

Taxes levied by the federal government do not pay for anything. That sum is extinguished from existence by the act of taxing it. There is no federal government account holding a stock of taxed dollars. There is a system that may superficially resemble one but it is an accounting structure, that’s all. When the fed debits an account, that sum of money is “un –existed”.

When the fed spends, the reverse occurs. It does not dip into a great big stock of taxed dollars, for none exists. It simply credits an account. Just as the taxed money did not go anywhere in particular, when the fed credits an account, the money did not come from anywhere in particular. It simply compels that sum to come into existence. It did not and does not have to earn (tax) or borrow to obtain the funds to do this. It is empowered by it’s sovereignty to create (Australian) currency as it sees fit.

Once again, if you alone are empowered to create your own currency of issue – as the federal government is – why would you need to tax or borrow the money first in order to spend it? The answer is, you don’t. There is no need for any intergenerational tax burden to pay for the fed’s own domestic spending today. The currency sovereign can ALWAYS pay for it’s own spending in it’s own currency (and once again, this is not an advocacy for unlimited budget deficits – that would be silly).

We need to get past the mistaken notion that money is a real, physical thing, bound by the laws of physics. It is not. It is an abstract concept and notes, coins and the like serve only as a representation of money – something which, unlike notes and coins, we cannot hold in our hands because it exists in abstract space.

To argue that the sovereign cannot create currency would be to imply that there is a fixed, unchanging and unchangeable amount in the world. That the sum in existence today is essentially the same sum that has existed at any point in history. If this were the case, economic growth as we know it would be impossible. It is clear that someone has always been creating a steadily (and the keyword is “steadily”) increasing amount. Or did the dollar bills sneak off while we weren’t watching and do something, and now have multiplied?

Only the spending of the fed can add to the net sum in existence. For this reason, running up surpluses merely for the sake of it is ultimately detrimental to the economy. It does not represent any kind of savings, it merely represents liquidity being withheld from an economy trying to grow, forcing an increasing reliance on private debt. Carefull deficit spending is certainly no bad thing in itself.

[Hebe]

Leftofcentresalterego on Tue Apr 14, 2009 10:39 pm
“The government cannot create or destroy currency willy nilly as it sees fit.”

The federal government can and does do both of these things on a daily basis TomB. It is a normal part of the functioning of a modern monetary economy.

“Taxation is not creation of currency”

Correct – but I did not say it was. Taxation by the federal government is the extinguishment of currency.

“It is the way in which our society pays for itself”

A perfectly logical assumption and correct at the state government level, but not at the federal government level.

Taxes levied by the federal government do not pay for anything. That sum is extinguished from existence by the act of taxing it. There is no federal government account holding a stock of taxed dollars. There is a system that may superficially resemble one but it is an accounting structure, that’s all. When the fed debits an account, that sum of money is “un –existed”.

When the fed spends, the reverse occurs. It does not dip into a great big stock of taxed dollars, for none exists. It simply credits an account. Just as the taxed money did not go anywhere in particular, when the fed credits an account, the money did not come from anywhere in particular. It simply compels that sum to come into existence. It did not and does not have to earn (tax) or borrow to obtain the funds to do this. It is empowered by it’s sovereignty to create (Australian) currency as it sees fit.

Once again, if you alone are empowered to create your own currency of issue – as the federal government is – why would you need to tax or borrow the money first in order to spend it? The answer is, you don’t. There is no need for any intergenerational tax burden to pay for the fed’s own domestic spending today. The currency sovereign can ALWAYS pay for it’s own spending in it’s own currency (and once again, this is not an advocacy for unlimited budget deficits – that would be silly).

We need to get past the mistaken notion that money is a real, physical thing, bound by the laws of physics. It is not. It is an abstract concept and notes, coins and the like serve only as a representation of money – something which, unlike notes and coins, we cannot hold in our hands because it exists in abstract space.

To argue that the sovereign cannot create currency would be to imply that there is a fixed, unchanging and unchangeable amount in the world. That the sum in existence today is essentially the same sum that has existed at any point in history. If this were the case, economic growth as we know it would be impossible. It is clear that someone has always been creating a steadily (and the keyword is “steadily”) increasing amount. Or did the dollar bills sneak off while we weren’t watching and do something, and now have multiplied?

Only the spending of the fed can add to the net sum in existence. For this reason, running up surpluses merely for the sake of it is ultimately detrimental to the economy. It does not represent any kind of savings, it merely represents liquidity being withheld from an economy trying to grow, forcing an increasing reliance on private debt. Carefull deficit spending is certainly no bad thing in itself.

Leftofcentresalterego

[Leftofcentresalterego]

Thanks for posting to the main forum Hebe (and JM I think).

OK, the deficit. When the current shitstorm ends and growth resumes, the deficit will automatically begin to shrink through a reversal of the same automatic processes that brought us into it. Regardless of what the fed has spent in the meantime. As private enterprise expands and unemployment falls, the tax takings of the fed automatically rise again with rising incomes and profits. Thus, the fed begins to “pay off” some of the deficit. It is unnecessary for anyone to pay a higher base rate of tax for this to be achieved. The process – like money itself - is imaginary of course. The fed was never compelled to borrow to obtain money for any additional stimulus spending.

It may seem questionable as to whether a big “cash splash” is helpful but our domestic economy is heavily consumption driven. Retail is the biggest sector, employing close to 15% of the labour force, more than one-and-a-half million jobs. When wallets close up, a huge number of jobs are at risk. While some of the stimulus will be saved, some will be spent also, helping to shore up employment in retail, wholesale and transportation. It won’t save all of them but it is far better than simply “letting it take it’s course”.

While I would like to see money spent in other ways, I think our government is generally on the right course.

[mantra.]

The fed has no need whatsoever to earn or borrow Australian dollars before it can spend them. Why would you need to earn or borrow something that you can simply create and issue in any quantity at any time you see fit?

The govt cannot create or destroy currency willy nilly as it sees fit. Look at Zimbabwe as an example of what happens to a currency under those circumstances.

Taxation is not 'creation of currency' in any way, shape or form it is the way in which our society pays for itself.

I agree. This is what brought this whole crisis to a head - cyber dollars. We've got to learn the value of "cash" again. One good thing that has happened due to this recession - which of course only the Greenies will be pleased about, is that our landfill has been drastically reduced over the last few months. People are buying less, which means less cheap Chinese plastic packaging being disposed of and instead of updating our technology constantly, we are holding onto it for longer - the same goes for appliances. The garbos are reporting half full bins - so good news all round. We are starting to drown in our own rubbish and this might slow it down.

[Leftofcentresalterego]

TomB is right to raise such a question Mantra, but we are in no danger of Zibabwean or Wiemar Germany – style hyperinflation. These two represent the most extreme examples possible. To compare this with what the fed is doing is not remotely comparing apples with apples. In any case, the Wiemar republic was not, and Zimbabwe is not, a modern monetary economy. The deficit would need to be rapidly and heavily expanding at the same time as economic growth was booming.

All dollars are really “cyber-dollars”. As I said, money itself has no physical form. Cash is merely something used to represent money. We don’t need cash to learn the value of money, we just need to be able to do basic arithmetic, understand the concept of saving and resist the temptation to spend, spend, spend at every turn. One positive aspect of cash though, is that you can see the supply in your wallet diminishing at a glance – you can’t do that with plastic.

When you say “cyber dollars brought this crisis to a head” , I think what you mean is that ridiculous levels of private sector debt coupled with lax regulatory oversight, huge trade in dodgy financial instruments and simple corruption and greed are what caused the shit to hit the fan. Money itself did not per se cause the crisis.

I’m sure that the majority of people are a little bit green around the edges at least these days Mantra. Most of us are happy to see landfill volumes reducing. The only problem is that our economy is structured around a high level of personal consumption so that falling amounts of packaging and other waste materials being produced equals falling consumer spending equals jobs being lost. I think there would be large numbers of community service jobs, including ‘green jobs’ that could possibly fill the void, that would deliver important social and environmental services and would produce few or no wasteful by-products. However, it would likely take government to create and maintain them as most of them would probably not be a lucrative enough industry for private enterprise to be interested. And in order to do this, the government would need to make spending commitments.

[Jovial Monk]

Much as it irks me to say this - Australia was left with an excellent reputation for having a good economy as a result of the coalition's management. Although it was obvious we would eventually come tumbling down because of our massive debt - we were still in better shape than any other developed country. But Rudd has played on this and is splashing money around as though it grows on trees. He is not being careful and cautious, but far too impulsive. More thought should be going into his policies. The govt. needs to think about where we'll be in another decade - not just where we are at this moment. Rudd & Swan look as though they're panicking but trying to show a tough & confident fascade by pretending they know what they're doing.

Higher unemployment is going to happen - it will just take us a little longer to get there.

The coalition thought it was a good economic manager! Those that know, like Access Economics knew they did bugger all!

Everyone of Tip's budgets were structurally in deficit--it was first the asset sales and then the mining boom gave him cash budgets. Those in the know also worried about our growing trade deficit--a trade deficit growing in a mining boom! That is not the act of a 'good economic manager!' tip was a lazy Treasurer and really did very little work to improve the budget bottom line.

The latest Essential Research shows only 16% still believe in the coalition's 'good economic manager' lie.

[mantra.]

All dollars are really “cyber-dollars”. As I said, money itself has no physical form. Cash is merely something used to represent money. We don’t need cash to learn the value of money, we just need to be able to do basic arithmetic, understand the concept of saving and resist the temptation to spend, spend, spend at every turn. One positive aspect of cash though, is that you can see the supply in your wallet diminishing at a glance – you can’t do that with plastic.

Lefty that isn't exactly what I mean. It's hard to explain - but the banks create money they don't have. We are in this mess because of a credit crunch, yet we are creating more of the same by borrowing from sources where there is no cash - yet have to be paid back eventually in cash or goods.

This is where we've got ourselves into trouble. The IMF is advocating for further printing of cash or credit and again some countries are falling right into their hands. Rudd is not going to get us out of this recession - in fact I believe in a year or so - maybe longer we will hit another great depression. We can't keep borrowing more to pay off current debts - there are too many losers at the bottom who are struggling to pay it back.

And it's all very well to talk about continuing with our great rate of consumption to keep people in jobs - this is another furphy that we have been taught to believe. The western world is currently consuming more than we can produce to feed the planet. Some get fat, while others starve to death.

People lose jobs as the multinationals strive for greater and greater profits. Half their workforce has been replaced with computers and automated voices to ensure sales continue but with less commitment towards employment and little or no responsibility towards the customer. These corporations insist on maintaining and increasing their profits when consumerism is down, so smaller companies go bust because they can't compete and more people lose their jobs to robots.

This is an article from Oct. 2008 - but the G20 have co-operated with the IMF. This is all about protecting the interests of the elite at any expense.

The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money.

The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing `AAA' bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world's central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

"The IMF can in theory create liquidity like a central bank," said an informed source. "There are a lot of ideas kicking around."

http://www.telegraph.co.uk/finance/comm ... reads.html

[mantra.]

The latest Essential Research shows only 16% still believe in the coalition's 'good economic manager' lie.

Yes Monk - I'm sure it's accurate. I don't believe that any government can manage an economy that well, but it seems the coalition managed ours better than many others - as Lefty pointed out - through luck and good timing. Some people go on about the coalition paying off Keating's debt - but most of it was transferred to the private sector. This is an old article, but it predicts what was going to happen in regard to the credit crunch. The World Order and Central Banks were aware of this, but allowed it to flourish and it seems it's going to be allowed to continue.

1996

A cursory search of the World Wide Web reveals at least a dozen cyber- banks, sporting names such as DigiCash, NetChex and the First Virtual Holding Company. The European Union has its own electronic money trial, the Cafe project. Some of these are conducting transactions in an existing currency, mainly dollars. Others, linked to local exchange trading schemes, use their own, new monies.

One reason the cyber-banks ought to worry the central banks is the difficulty of monitoring what is happening on the Internet. It would be easy for this banking activity to go almost completely unmonitored.

As things stand, there is no possibility of collecting statistics, never mind regulation or supervision, on the Internet. There is no reason to expect Internet banks to voluntarily set themselves the same prudential standards as conventional banks. The German Bundesbank is concerned they would not hold adequate reserves, for example, unlike the normal banks which are required to meet a minimum reserve ratio.

So the electronically-generated money supply could grow at a supersonic pace with no central bank being any the wiser. Internet banks could make unwise loans, resulting in a credit crunch that the authorities would only discover when it was too late, and perhaps even a systemic collapse.

More likely, perhaps, would be the exploitation of Internet banking for tax evasion, money laundering and fraud. Mr Lewis says: "You might imagine that all the risky business would graduate onto the Internet quite naturally." There is no technical reason why this should not already be taking place. The main barrier, to fraud at least, is most people's healthy distrust of on-line security. After all, there are people who still distrust cash machines and credit cards. And it is only in the latter half of this century that banks managed to persuade a majority that their money was safer on deposit than in a sock under the mattress.

http://www.independent.co.uk/news/busin ... 30387.html

[Jovial Monk]

The coalition didn't manage our economy at all!

There is no world order!

The crunch had nothing to do with internet banking.

[Leftofcentresalterego]

The possibility of vast sums electronically created money created by cyber-counterfitters flooding the world with debt without any central bank, national government, national tax office or intelligence agengy being any the wiser seems unlikely in the extreme to me. National governments posess the most incredible accounting security systems in order to prevent this sort of thing happening. If it were that easy, everbody would be doing it. Nonetheless, I will ask the professor his opinion.

As to your previous post Mantra (obviously related to this issue), are you saying that the rise of electronic transaction of money has allowed a much greater ease (and consequently, a much greater encouragement) of debt as an everyday tool, as opposed to the days when physical money would have made this process much slower and more cumbersome, therefore discouraging it? If that is what you are saying, then I find that much more plausable and an excellent point. However, this does not mean that the fed should curtail it's spending during a downturn becuase that can only make things worse.