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Author Topic: It all boils down to money.
Marc Bombois
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posted 12 April 2002 03:45 PM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
This commentary was broadcast on Vancouver's co-op radio.

It all boils down to money, doesn't it? Whenever politicians talk about
policy or what they can or can't do, somewhere in their speech they always
use the word "costs" or "expense" or something similar. Political
decision-making is always restricted by what politicians like to call
"economic realities". They often, if not always, justify their decisions
with statements like "We can't afford it" or "We've been living beyond our
means". These are the reasons given for the funding cuts to health care,
education, and many other government programs and services. But is it true?
Is it true that our governments can't "afford" to do what Canadians say they
want them to do?

No, it's not true. To understand this, we have to understand what money is
and where it comes from. Because it all boils down to money, and since we
spend much of our lives chasing money, and politicians are telling us there
isn't enough money around, it's essential that we stop for a minute and look
at money itself.

The official figures from the Bank of Canada show that Canada's money supply
now totals about $775 billion. Of this amount, less than 5% is cash and
coin. Most of us think that all money is cash, but in fact only this very
small percentage of the money supply is. The vast majority is electronic
money, electronic money that is registered in the computers of the private
banks. Now, we all know that cash is printed by the Bank of Canada, that's
obvious. But what's not obvious is where the electronic money comes from,
the money that makes up more than 95% of our money supply, and here is where
things get interesting.

When a bank lends money, we think they are lending their depositors' money.
Isn't that what the banks tell us? They take in money for deposit and then
lend out those very deposits at a higher rate of interest than they pay to
the owner of the deposit. Well, it's not true. Banks do not lend their
depositors' money and it's impossible to prove that they do. When a bank
makes a loan no deposit anywhere is affected except the deposit that
receives the loan, and this deposit increases by the amount of the loan. In
other words, the bank prints the money for the loan, not on paper but on a
computer screen. This is the great secret of the banks and they don't want
you to understand or realise that they are printing money by tapping a
keyboard. Last year in 2001 Canada's private banks printed about $65
billion.

If you or I printed money it would be called counterfeiting. When the banks
print money it's called "issuing credit". Whatever you call it, this is
where 95% of our money comes from. It is loaned into existence by the
private banks. What an astounding privilege they have been given, and how
profitable!

It's amazing how easy it is to produce money. The federal government does it
via it's agent the Bank of Canada, but the problem is that it refuses to
take a leading role in the production of money, restricting its
participation to cash only and leaving the rest to the private banks. Our
constitution empowers Parliament to do banking and print money, but the
government refuses to properly excercise this prerogative. And don't be
fooled by the old nonsense that it would be "inflationary". If the federal
government had printed last year's increase in the money supply instead of
the private banks there would be no difference in the amount of money
produced and it would be no more or less inflationary. The point here is
that the production of money should be strictly and carefully regulated by
Parliament and the private banks should be restricted from counterfeiting
our money and putting us all in endless debt.

So the government's excuse of not being able to afford to provide the
programs and services that Canadians want and deserve is a lie. And what a
horrendous lie it is. Those of us who see through it can only be appalled at
the tyranny of our politicians and of the financial elite who control them.
Just look at what has happened to our society with its homelessness,
foodbanks, crumbling infrastructure, deteriorating services, its anger and
frustration, and all because the government refuses to be responsible for
money. It's a crime and it's an outrage.

The solution is very simple. At no time should the government ever go to the
private banks to tap a keyboard and print money when it is fully empowered
and perfectly capable of doing so itself. Let only public money be produced
for public expenditure.

Marc Bombois


From: Squamish | Registered: Aug 2001  |  IP: Logged
jrootham
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posted 12 April 2002 06:37 PM      Profile for jrootham     Send New Private Message      Edit/Delete Post
Money is a fiction. It is a very useful and interesting fiction. It is indeed true that the official fiction on the subject is a little confused, but the monetarist's fiction also has some holes in it.

My fiction is not complete, so it obeys the law of explanation that says "it's more complicated than that".

Bank's don't have a monopoly on creating money and what they do is not counterfeiting. This is not to say they are on the side of sweetness and light and that they should not be constrained from doing many of the things that they do, nor that using the Bank of Canada more would not improve things. It's just not the be all and end all of economic control.

With respect to the creation of money, anyone can do it. All they have to do is create a loan. If I make something and I give it to you for a promise to pay later I have created money. You can sell the thing and have money (at least for a while)

The key thing with banks is that they take deposits. This requires a spectacular degree of trust. The early (and not so early) history of banks led us to bank regulation. Just about any place where bank regulation is weak banks fail. Russia being the most recent large scale example but Switzerland has been a world leader in this for a long time. (Memory reference, I think Tom Naylor has that one nailed down, "Hot Money" or some such title). Deposits let you lend a lot of money without much work (you don't have to make things). The resulting piles of cash produce power. The power is used by the banks to relax regualation. Eventually the greed of bankers causes more problems than they solve. Then comes the backlash. And so it goes.

[ April 12, 2002: Message edited by: jrootham ]


From: Toronto | Registered: Jun 2001  |  IP: Logged
Markbo
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posted 12 April 2002 09:07 PM      Profile for Markbo     Send New Private Message      Edit/Delete Post
quote:
In
other words, the bank prints the money for the loan, not on paper but on a
computer screen. This is the great secret of the banks and they don't want
you to understand or realise that they are printing money by tapping a
keyboard.

So now we can simply print money.

Ever try to consider the effect that will have on the valuation of our currency.

YOur theoretical rantings would be humorous if they didn't mean the destruction of our economy.

Oh yeah, Argentina printed more money (we call it debt) than they should have. They must of listened to your "theories"


From: Windsor | Registered: Apr 2001  |  IP: Logged
DrConway
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posted 12 April 2002 09:17 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
Any economics student knows banks create money out of thin air by loaning out reserves. The banking system thus multiples the money supply by the amount of excess reserves divided by the reserve ratio.

It is also no mystery that banks can amplify booms and busts - and no mystery that banks act in their own interests, not necessarily coincident with those of the general population.

However all this says is that banks should be under government ownership, or strong regulation. *shrug*


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Markbo
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posted 12 April 2002 09:33 PM      Profile for Markbo     Send New Private Message      Edit/Delete Post
Ever try to consider the effect that will have on the valuation of our currency

What part of that post was not clear DrC?


From: Windsor | Registered: Apr 2001  |  IP: Logged
DrConway
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posted 12 April 2002 09:49 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
I didn't say "print tons of money". That was somebody else. I just said that the public interest is better served if we have a banking system which loans out monies at a more or less constant rate through expansions and recessions, and which does not act diametrically to the public interest.
From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Marc Bombois
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posted 12 April 2002 10:58 PM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
These replies to my post show how confused we are about the subject of money, much to the bankers' delight. I doubt there is anything more important for society to understand than where money comes from.

See http://www.bankofcanada.ca/pdf/wfs.pdf , page 3 column B51, and see the fluctuating amount of BoC notes, now about $36 billion. Then see page 12 column B1633 and see the significant increase in M2+ from Jan 2001 to Jan 2002, about $65 billion for a total of $775 billion. Subtract the BoC notes from this and we get the electronic money total of about $739 billion, all of it created by the stroke of a keyboard (how else?) and all of it accompanied by the arbitrary requirement of repayment, i.e. it's all debt/loans from people who did not earn the money they are lending.


From: Squamish | Registered: Aug 2001  |  IP: Logged
DrConway
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posted 12 April 2002 11:07 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
Some definitions for you, Marc:

----

The currency (bank notes and coins) in circulation plus personal chequing accounts and current accounts at banks, are referred to as M1.

A broader measure, M2, also includes personal savings accounts and other chequing accounts, term deposits, and non-personal deposits requiring notice before withdrawal.

But banks are not the only providers of deposit facilities, so an even broader measure of money is provided. M2+ includes all deposits at non-bank deposit-taking institutions, money-market mutual funds, and individual annuities at life insurance companies.

An even broader measure still, M2++, also includes all types of mutual funds and CSBs

----

The point I'm making is that various types of bank deposits are interspersed through the monetary aggregates and therefore cannot truly be considered "debt-virus" money since they may come directly from other peoples' deposits (electronic finds transfers) and/or direct cash deposits.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Arch Stanton
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posted 13 April 2002 01:37 AM      Profile for Arch Stanton     Send New Private Message      Edit/Delete Post
My psychic tells me that money is illusory.
So I cross her palm with hog futures.

From: Borrioboola-Gha | Registered: Mar 2002  |  IP: Logged
meades
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posted 13 April 2002 03:46 AM      Profile for meades     Send New Private Message      Edit/Delete Post
First off, I don't think monetary reform is the be-all, and end-all of fantabulous cures for all our nations ills. I think it's really only a very small part.

Also, as Markbo mentioned, if we just started inventing money for the government, we would suffer quite a bit. History teaches us that we'd pay for it with inflation, and in the end, wouldn't really solve anything.

But anyway, while if the government had tonnes and tonnes of money, and lets pretend for the sake of argument that it was all safe, and the inflation rate was secure, and all that. It wouldn't solve all our problems, because the government needs to know what to do with the money! Plus, there are conflicting interests in all sorts of situations relating to the governing of the country that just won't go away, even if the government had a lot more money.

Plus, this "not enough money" stuff is just a pretext for privitization, and lack of government aid. Even if we had more than enough money, I'm sure the right-wing, free market idealogues would think up other ways to steal away public posessions so that they could grow richer.

Anyway, monetary reform I think should be seen as an equally important part of a much bigger strategy for progress.


From: Sault Ste. Marie | Registered: May 2001  |  IP: Logged
Croesus_Krept
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posted 13 April 2002 12:16 PM      Profile for Croesus_Krept   Author's Homepage     Send New Private Message      Edit/Delete Post
Money we need, but money is painfully boring --
the same old tedious repetition of buying and
selling, up and down...

I won't miss worrying about money when I am
dead, ha...

feeling happy? don't read this, then if you
want to go out there and enthusiastically
pay your wife to perform better in that
new mortgage, car, whatever:

this world IS too much money-f---i-g bulls--t...

i want just enough money to believe that I have
enough to do what I want... then goodbye and
enough left over to pay for the $%&**@! when
the #%^# decide you're too crazy and demented
and thirsty...

really I just want enough money to make a woman
wet enough to taste good when i suck her honey-
pie...

(I feel sorry for that...)

bye...


From: Taiwan | Registered: Jul 2001  |  IP: Logged
Marc Bombois
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posted 13 April 2002 01:25 PM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
Thanks, Dr Conway, I'm well aware of the various aggregates. You've missed the point, however, which is that the government has supplied less than 5% of our money, all the rest has been supplied by the private banks who printed the money on a computer screen by tapping a keyboard (how else?), and they supply it with the arbitrary requirement of repayment.

Bankers have succeeded in greatly confusing the subject of money and banking. The central issue for society, indeed for this planet, is that there is simply no good reason for the money supply to be created and controlled by a privileged group. Banking enforces the class system, guarantees poverty, ensures elite power. It renders impossible social justice and democracy. Progressives want excellent health care, education, environmental protection, affordable housing, food security, pristine water, peace on earth, all of it impossible under the present banking system. We must stop believing politicians who say "we can't afford it".


From: Squamish | Registered: Aug 2001  |  IP: Logged
jrootham
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posted 13 April 2002 05:24 PM      Profile for jrootham     Send New Private Message      Edit/Delete Post
Frankly, as far as class is concerned the banks are the least of our problems (well, maybe not, but well down the list ). The main driver in class determination is income levels, particularly income levels over generations. Banks do their part by how they pay tellers (and presidents) but it is the total employer class that produces the class distinctions.

The other issues are nickles and dimes compared to this (not to say they are not large nickles and dimes )


From: Toronto | Registered: Jun 2001  |  IP: Logged
audra trower williams
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posted 13 April 2002 06:18 PM      Profile for audra trower williams   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
really I just want enough money to make a woman wet enough to taste good when i suck her honey-pie..

uh, C-K? that's what we call an overshare.


From: And I'm a look you in the eye for every bar of the chorus | Registered: Apr 2001  |  IP: Logged
Markbo
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posted 14 April 2002 10:25 AM      Profile for Markbo     Send New Private Message      Edit/Delete Post
quote:
I didn't say "print tons of money". That was somebody else. I just said that the public interest is better served if we have a banking system which loans out monies at a more or less constant rate through expansions and recessions, and which does not act diametrically to the public interest.

Sorry DrC. Thank you for your clarification of which I can agree with. This part anyway.

quote:
Even if we had more than enough money, I'm sure the right-wing, free market idealogues would think up other ways to steal away public posessions so that they could grow richer.

Or left wing idealogues would spend it on salaries and other special interests, leaving nothing for improving or expanding services one bit.


From: Windsor | Registered: Apr 2001  |  IP: Logged
rasmus
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posted 14 April 2002 10:31 AM      Profile for rasmus   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:

It all boils down to money, doesn't it?


No. Not even in politics. Or especially not in politics.


From: Fortune favours the bold | Registered: May 2001  |  IP: Logged
DrConway
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posted 11 September 2002 12:53 AM      Profile for DrConway     Send New Private Message      Edit/Delete Post
On a related note, it looks like, once again, rich people get to not pay their taxes due to special exemptions.

quote:
When most Americans sell stock, they must pay taxes on their profits by the next April 15.

But a few Americans are delaying taxes on their stock profits for years or decades - or, in some cases, never paying at all.

It's all perfectly legal - but only if you have $5 million of stocks and bonds. And only if you promise to keep it secret. It's one example of how the tax laws currently grant certain favors only to the very wealthiest.

The deals work this way: Executives and investors with $5 million of stocks and bonds contribute at least $1 million of their stock in a single company to a pool into which others in the same situation contribute their own shares. In return, they receive shares of a partnership that owns the pool.

When they're ready to withdraw from the pool, the partnership gives them not their original shares or cash but instead shares of a variety of stocks held by the pool.

As a result, someone with too much money in one stock can quickly diversify into a more balanced portfolio. But unlike other investors, who have to pay taxes on profits when they sell a stock, no taxes are owed on the profits of the shares contributed to the pool.

If investors stay in the pool for seven years, the stocks they get when they withdraw their investment do not trigger the tax on investment profits that other investors must pay. Only if the investors then sell the various stocks they received from the pool are they supposed to pay taxes.

Those taxes are by law owed on their investment profits all the way back to the time they bought the stock that they put into the pool. But cheating is easy because the investors can merely report only the profit made since they took back the stocks from the pool.


Ah yes, how wonderful. Abuse of the capital gains and dividend provisions by rich people who then turn around and whine that they pay too much in taxes and who manipulate "buildings depreciated to nothing" as a Trojan Horse to get more capital gains tax breaks.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
nonsuch
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posted 11 September 2002 02:21 AM      Profile for nonsuch     Send New Private Message      Edit/Delete Post
Oy!
Still, i suppose it needs repeating once a week or so.

From: coming and going | Registered: Sep 2001  |  IP: Logged
Jacob Two-Two
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posted 11 September 2002 04:39 AM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
Whoa, whoa. I don't understand all this opposition and I feel like I'm missing something. I'm totally with Marc on this.

Why can't the government print more of the country's money? The same amount of money will be released into the economy, Markbo, just more will be printed by the government and less created by the banks. I don't see how this would be inflationary, when the actual money pool has increased by the same amount both ways.

The good side is that the government wouldn't have to borrow anything. Nada. Not a penny. And this would mean NO PUBLIC DEBT. You know, that deficit that you conservatives are always wailing about. Instantly solved. Under these circumstances we could actually increase our govt. services to unprecedented levels and incur no debt doing it.

So where's the downside? I'm not getting it. Have I missed something in all the econo-speak?


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
Pogo
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posted 11 September 2002 09:48 AM      Profile for Pogo   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
Why can't the government print more of the country's money? The same amount of money will be released into the economy, Markbo, just more will be printed by the government and less created by the banks.

Commercial banks don't print money they borrow it from the central bank (they are limited to a multiple of deposits). The central bank prints money, but follows some strict rules. There was actually a case (must be true I heard it on Basic Black) in Portugal of a head banker going in on weekends and printing money. The economy boomed, especially around his home town until he was found out. Then the neighboring countries devalued the Portuguese currency to reflect the extra dollars that were being circulated.


From: Richmond BC | Registered: Aug 2002  |  IP: Logged
Apemantus
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posted 11 September 2002 10:03 AM      Profile for Apemantus        Edit/Delete Post
quote:
Any economics student knows banks create money out of thin air by loaning out reserves. The banking system thus multiples the money supply by the amount of excess reserves divided by the reserve ratio.

Doc, maybe you will know - I remember in my Econ History class back at school how in the 19th century, I think, this first happened, and our teacher said something about only 10% of money ever being taken out in cash (and the run on the banks showed the fallacy of thinking that would ever hold!), so basically, bank has 10 million but can pretend it has 100 million because only 10% will ever be needed in reality!

As for Markbo's comment that:

quote:
Or left wing idealogues would spend it on salaries and other special interests, leaving nothing for improving or expanding services one bit.

Does it not occur to you that one of the reasons public services need improving is because they pay peanuts, have shit working conditions and thus attract crap staff who are lazy and couldn't care because neither does their employer!?!?

Raising salaries can be just as beneficial to improving a service as buying a new heartscanner, a better IT infrastructure, more books for schools, better roofs etc...

But then a blinkered person can't always see properly, can they, Markbo?


From: Brighton, UK | Registered: Nov 2001  |  IP: Logged
paxamillion
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posted 11 September 2002 10:12 AM      Profile for paxamillion   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
Thanks, Dr Conway, I'm well aware of the various aggregates. You've missed the point, however, which is that the government has supplied less than 5% of our money, all the rest has been supplied by the private banks who printed the money on a computer screen by tapping a keyboard (how else?), and they supply it with the arbitrary requirement of repayment.

What software program do they use? I'm a little short this month and ......

Yes, banks can multiply the supply of money by loaning and re-loaning. However, we consumers borrow: mortages, credit cards, personal loans, lines of credit. The banks' house of cards would shake and shimmy a whole bunch if fewer consumers made use of their lending services.


From: the process of recovery | Registered: Jul 2002  |  IP: Logged
Pogo
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posted 11 September 2002 10:18 AM      Profile for Pogo   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
I think, this first happened, and our teacher said something about only 10% of money ever being taken out in cash (and the run on the banks showed the fallacy of thinking that would ever hold!), so basically, bank has 10 million but can pretend it has 100 million because only 10% will ever be needed in reality!

The banks are required to keep a cash reserve equal to 8% (??). A run on the banks happens when more people want their money back than the back has in liquid assets. They then need to sell off assets (loans) at discounts.


From: Richmond BC | Registered: Aug 2002  |  IP: Logged
paxamillion
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posted 11 September 2002 10:22 AM      Profile for paxamillion   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
A run on the banks happens when more people want their money back than the back has in liquid assets. They then need to sell off assets (loans) at discounts.

Yup. It used to be that inside bank passbooks in Canada there were printed provisions that withdrawing money could be limited at the bank's discretion. Haven't looked to see if those are still there lately.

Weren't their bank runs in pre-Nazi Germany and Argentina associated with hyper-inflation and currency revaluation?


From: the process of recovery | Registered: Jul 2002  |  IP: Logged
Jacob Two-Two
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posted 11 September 2002 06:52 PM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
quote:
Commercial banks don't print money they borrow it from the central bank (they are limited to a multiple of deposits). The central bank prints money, but follows some strict rules. There was actually a case (must be true I heard it on Basic Black) in Portugal of a head banker going in on weekends and printing money. The economy boomed, especially around his home town until he was found out. Then the neighboring countries devalued the Portuguese currency to reflect the extra dollars that were being circulated.

But I'm not talking about trying to sneak extra dollars into the economy. I'm just saying why does the government have to borrow money from the banks? It has the mandate of money creation, but it borrows from private banks instead, sticking us all with huge interest payments. If it wasn't for this practice we would have no debt.

The reasons are purely political as far as I can see, and while the shareholders smoke their stogies, the taxpayer gets screwed in a big way, only the least of which is the billions that we owe (anyone know how much interest Canda pays each year on its debt?). Far worse is the political motivation it gives to dismantle our social contract. It's an integral step to bringing all services and resources under private control. I think this is a really big issue. I'm surprised that I'm not seeing more agreement on this.

Like I said, am I missing something?


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
patrokles
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posted 11 September 2002 08:44 PM      Profile for patrokles     Send New Private Message      Edit/Delete Post

[ September 11, 2002: Message edited by: patrokles ]


From: schmlocation! | Registered: Sep 2002  |  IP: Logged
Markbo
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posted 11 September 2002 08:48 PM      Profile for Markbo     Send New Private Message      Edit/Delete Post
quote:
The reasons are purely political as far as I can see, and while the shareholders smoke their stogies,

Does that include the largest shareholders which are the teachers and other government employee pension funds. My school teachers never smoked stogies in class. What a picture you portray of many seniors who are also shareholders in their RRSP's.

quote:

the taxpayer gets screwed in a big way, only the least of which is the billions that we owe (anyone know how much interest Canda pays each year on its debt?).

SO stop borrowing and you won't pay any interest.

quote:

Far worse is the political motivation it gives to dismantle our social contract.

Which services have been dismantled? Spending on all of our social services increase every year.

quote:

I think this is a really big issue. I'm surprised that I'm not seeing more agreement on this.

Like I said, am I missing something?


Yes the fact that we went on a spending binge and you simply don't want to pay for it. YOu want to print money which would devalue our dollar. You don't want to live within your means and when you can't you look to anyone with money and blame it on them.

Its not that you want to bring up the standard of living of our poorest, I believe you want to bring down the standard of living of our richest.

any other fictitious stereotypes you want to use to describe shareholders or people with any wealth.

Of course cost is an essential requirement in determining if a service could be rendered. My old man said it best, you can have anything you want but you can't have everything you want. You have to learn to pick and choose.

Put it this way if you could increase our health care to a point of saving another 100 lives a year, but that same money could save a 1,000,000 lives in Africa you'll have to choose.

[ September 11, 2002: Message edited by: Markbo ]


From: Windsor | Registered: Apr 2001  |  IP: Logged
DrConway
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posted 11 September 2002 10:28 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
I think we went over all this in another thread, so I'll just sketch out what I remember arguing over there, while recalling that we should also be discussing how rich people manage to abuse the tax system for their own benefit.

A. World War II was paid for with the printing press.

B. In order to do this, it was recognized that the inflationary impact be halted by extensive government intervention in the economy.

C. Excess profits taxes, wage/price controls, and a host of other measures (including, for example, controls on investments other than those directly required for war production, or demanding higher worker productivity in order to force costs down for the government) were utilized to blunt the inflation.

D. Even so, an inflationary spasm hit the US in 1942 when the rate bounced up to 10 or 11%. Further extensions of the price controls were made in order to slow the inflation rate.

E. After World War II it was recognized that the immense success of paying for a war out of, well, nothing meant that this could be duplicated in peacetime on a more modest scale.

F. Ergo, the government could "borrow from itself" and keep taxes and bank currency reserves in line with any currency printing. (Note that today Canadian banks are not required to keep any reserves other than those considered absolutely necessary for daily transactions and check clearing)

The example of the guy in Portugal printing money on weekends is a classic illustration of the way banks can affect booms and busts.

By lending in excess of what is considered prudent (in effect, printing money), a bank can fuel a boom in its area of lending. Conversely, a bank can cause a bust if it calls too many loans.

Back to the government. The interest rate set by the Bank of Canada all through the 1950s was between 1 and 2 percent. This meant that the cost of borrowing from outside the government was minimal in any case. Further, the government was actively working to expand the nation's wealth and security in many ways - building schools, paving roads, sponsoring research and development (military and non-), and many other things besides.

When governments do this, the creation of currency adds, in the end, to the nation's productive output. It is thus not inflationary to issue currency for this purpose.

However, the printing of money to simply finance all government expenditures would be well in excess of the addition to the nation's productive output and would simply cause inflation.

I wish I could put a number on what could safely be printed on a yearly basis to resurrect the country's failing infrastructure, but a conservative guess would be to note the size of the national debt in the 1960s and 1970s and how much of it was held by the Bank of Canada. Turns out the fraction is about 25%.

Therefore, a budget deficit of, say, $10 billion, should be financed $2.5 billion from the printing press and the remainder from borrowing at low interest rates.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Jake
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posted 11 September 2002 11:13 PM      Profile for Jake     Send New Private Message      Edit/Delete Post
Markbo
quote:
Which services have been dismantled? Spending on all of our social services increase every year.

Markbo, where have you been? Haven't seen you for quite a while. It was so nice!
How about going back to wherever you have been for a while more.

Regards

Jake


From: the recycling bin | Registered: Apr 2001  |  IP: Logged
Pogo
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posted 12 September 2002 12:35 AM      Profile for Pogo   Author's Homepage     Send New Private Message      Edit/Delete Post
quote:
while recalling that we should also be discussing how rich people manage to abuse the tax system for their own benefit

All monetary systems will have a tendency to give advantage to people with capital, and the tax system is no exception. I take advantage of RRSP's, and RESP, and labour sponsored funds, as well as looking for any little thing to reduce my tax burden. I am able to do quite well. However, I know that if you gave me $10,000 more tomorrow, I would be able to hide it from the taxman. So many of the investment incentives that we have in our system are only available to people with high incomes. What bothers me is that we are behind the US (yes the US)in so many ways. We don't tax the sale of private homes (okay lets give you the first $200,000 as an exemption). We don't have any kind of serious inheritance taxes (the US isn't close to Europe on these measures, but they sure are ahead of us). Our capital gains and dividend tax breaks are such that credible arguments can be made that investing in these vehicles outpaces the returns from RRSP's. We allow family trusts to maintain the myth of being a charity.

I think we could advocate these measures on a revenue neutral level. Imagine the tax break for the average working Canadian? Consider the increased compliance if we made fairness the first measure of the tax system.

Lets also have a full discussion on our tax rates. Right now the Fraser Institute is portraying the last dollar earned to reach an income of $70K being equivalent to the dollar earned to reach an income of $20K (for tax purposes). Lets bring out Maslo's hierarchy of needs and show that dollars used for food and clothing should be left with the taxpayer, while dollars used for savings should be available for taxation. Equal contribution means equal sacrifice. A dollar given by a poor person is a bigger sacrifice then a dollar given by a rich person -- its common sense.


From: Richmond BC | Registered: Aug 2002  |  IP: Logged
DrConway
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posted 12 September 2002 01:14 AM      Profile for DrConway     Send New Private Message      Edit/Delete Post
Quite so, quite so!

I never cease to be angered by those who manpulate the description of marginal tax rates in order to make the tax burden appear to be more onerous than it actually is - a common misuse of this is the claim that "everybody in BC" paid at the 54% marginal tax rate when the NDP was around, ignoring the fact that it's actually the top marginal tax rate and that it was in line with other provinces, with Alberta and Ontario being outliers.

It is also preaching to the converted to tell me that hitting the rich more heavily in Canada would mean a huge tax cut for the bottom end.

We could probably bring the entire tax system back to its generosity to low-income people as it was in the 1950s if we made the changes you suggest - inheritance taxes, no preferential treatment of capital gains, property transfer taxes with partial exemptions for low-value properties, and so on, as well as increasing marginal tax rates on incomes above $200,000 a year.

The new income tax system would probably end up looking like this:

$0 - $20000: 0% marginal tax rate.
$20001 - $35000: 5% marginal tax rate.
$35001 - $45000: 10% marginal tax rate.
$45001 - $55000: 15% marginal tax rate.

If you kept like this, with an increase every $10000, then the cutoff at the 70% marginal tax rate is at $165000 per year. It wouldn't make much of a difference to move the threshold to $200000 per year.

70%, I remind you all, is still lower than the 1950s top rate of 80%.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Jacob Two-Two
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posted 12 September 2002 03:09 AM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
quote:
Markbo, where have you been? Haven't seen you for quite a while. It was so nice!
How about going back to wherever you have been for a while more.

Now, now Jake. Markbo's a good babbler and I appreciate his presence here.

But really Markbo, you're sounding like a total loon. You act as if pulling a hundred bucks off a printing press makes the dollar plummet but creating 20 million on a computer does nothing at all. It's pure bias and pure bullshit.

I see what The Doctor is saying about not printing in excess of the productive boost that is given by what you spend the money on, but I don't see how this changes depending on how the money is created.

If too much money is released into the economy, whether by government or by private banks, it will devalue the currency. That's NOT what I'm talking about. I'm talking about prudently releasing the SAME amount into the economy, just more from government creation, which is interest free, and less from private banks.

quote:
SO stop borrowing and you won't pay any interest.

Exactly what I'm saying. Why borrow money from the banks, who just create it out of thin air, and then owe them 10% more in a couple of years. Just create it yourself out of thin air. Same money, same inflationary effect. Less taxpayer burden. In both cases, prudence and care would be called for.

Our whole debt is actually nothing but interest. If you look at the principle of what's been borrowed over the years, and the amount that's been paid in return, we're all square. But because of the interest that's been accumulating, we end up billions in the hole for money we never used. Money that will come off your and my paycheck and will go straight to the banks. The easiest way to turn a profit in the modern economy is to use political pull to rob the taxpayer.

quote:
Yes the fact that we went on a spending binge and you simply don't want to pay for it.

There was no spending binge. That's just the National Post channelling through you. Call the exorcist. The majority of our debt was not the result of an inordinate amount of borrowing, but the result of unusually high interest rates on a perfectly ordinary amount of borrowing. Remember the war on inflation where interest rates kept being pushed up by the bank of Canada? It stuck us all with huge amounts of collective debt.

By the way, Markbo, I live within my means just fine and I don't carelessly toss around blame either. In this case, I think it's warranted.

And I don't mean to tar anyone who owns some shares. It may be that government employee pensions are tremendously large shareholders (but I've learned not to believe things just because you say so ). Even if that is the case, these pensions are shared between hundreds of thousands of people. It is a whole different animal from the multi-billionaires who actively use their wealth and influence to lobby for policies that are exclusively to their benefit and to the detriment of 90% of the Candian public. Denying the existence of these people and their effect on policy is just living in a dream world.

The politics of money creation is a big part of this power imbalance, with dire consequences for the wealth of the nation, and the essential services that give us our standard of living.

Believe me, I'm right there with you when it comes to fiscal responsibility. If you knew me better, you would know that I am one cheap bastard who prizes frugality very highly (it must be the scot in me).

This is why I find this policy of government borrowing so unacceptable. It's like buying something on a credit card that you could easily pay for with cash, and finding yourself paying high rates of interest for no reason. Just as stupid.


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
Marc Bombois
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posted 12 September 2002 03:42 AM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
From 1989 to 1999 we averaged $42 billion annually in debt charges on the federal debt (StatCan). An astounding sum, but not nearly as surprising as the sum these charges are based on.

In the Auditor General's 1993 Report, it says that the portion of the national debt that was borrowed and actually spent on programs and services for Canadians is... $37 billion. Since 1867. Tada! Yes, ladies and gentlemen, boys and girls, in those ten years alone we paid the principal amount over 11 times.

See Ch. 5.41 here http://www.oag-bvg.gc.ca/domino/reports.nsf/html/ch9305e.html

Breathtaking, isn't it?

There's nothing quite like a politician who says, with his mouth full of steak, "we can't afford it".


From: Squamish | Registered: Aug 2001  |  IP: Logged
bellows
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posted 12 September 2002 03:22 PM      Profile for bellows     Send New Private Message      Edit/Delete Post
OK! I have to get into this. Lets say a world war started today and we had to bring our armed forces up to what they were in WW2. Produce new boats, planes and all other equipment that goes with it. Where would we get the money? and how would we pay it back when the war was over?
From: Corner Brook | Registered: Jun 2001  |  IP: Logged
paxamillion
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posted 12 September 2002 03:36 PM      Profile for paxamillion   Author's Homepage     Send New Private Message      Edit/Delete Post
One option would be "war bonds" (a vehicle that governments have used before). In essence, they borrow the money from us, and pay us interest for the loan of our money.

Another option would be deficit financing through international and local money markets, which is what the government has done more recently to deal with its funding deficits. Basically, the government issues shorter-term treasury bills, and longer-term government bonds. Institutional and other accredited investors buy them. The government would redeem them on their maturity dates, as with the war bonds.

[ September 12, 2002: Message edited by: paxamillion ]


From: the process of recovery | Registered: Jul 2002  |  IP: Logged
Flowers By Irene
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posted 12 September 2002 04:54 PM      Profile for Flowers By Irene     Send New Private Message      Edit/Delete Post
Or we could change our name to 'Switzerland' and get rich hiding looted gold.
From: "To ignore the facts, does not change the facts." -- Andy Rooney | Registered: Aug 2002  |  IP: Logged
DrConway
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posted 12 September 2002 06:36 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
quote:
One option would be "war bonds" (a vehicle that governments have used before). In essence, they borrow the money from us, and pay us interest for the loan of our money.

It should be noted that war bonds during WW2 were partially intended as a way to block the inflationary spiral that would ensue if demand (government and household) together outstripped supply.

This is the clearest indication of where the funding for the war really came from - the printing press.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Terry Johnson
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posted 12 September 2002 07:58 PM      Profile for Terry Johnson     Send New Private Message      Edit/Delete Post
For a good, clear explanation of how banks create money--and how governments regulate this process--try this site.
From: Vancouver | Registered: Jul 2001  |  IP: Logged
Jake
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posted 12 September 2002 11:20 PM      Profile for Jake     Send New Private Message      Edit/Delete Post
Hi Bellows

quote:
OK! I have to get into this. Lets say a world war started today and we had to bring our armed forces up to what they were in WW2. Produce new boats, planes and all other equipment that goes with it. Where would we get the money? and how would we pay it back when the war was over

I suspect you know the answer. In the "dirty thirties" there was not a nickle to be found to put toward the real sufferings of the times. Then WHAMMO! 1939, hey, we've got a war. Money, whats that? What's needed is ships, guns, planes etc and of course a lot of farm boys and other wanderers to occupy the uniforms that we now able to "afford" to manufacture.

After the war till about 1978 life seemed to be going pretty good. Then the boys with the MBA's began moving in and taking over the world. And again it's slash & burn "Are you crazy? The ECONOMY cant afford (insert here) this. Yes It was promised in one of our (red/blue) books, but get real this isnt 1940 anymore.

Jake


From: the recycling bin | Registered: Apr 2001  |  IP: Logged
Pogo
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posted 12 September 2002 11:42 PM      Profile for Pogo   Author's Homepage     Send New Private Message      Edit/Delete Post
I visited the site and it was pretty good. Kinda monetary policy for dummies. Didn't have the why DrConway was wrong about printing money in 25 words or less that I was looking for. I am left wondering maybe we already maximizing money production. What is the rate of growth recently? My intuition is that it is just a shell game. Whenever the government creates money they are doing something on both sides of the ledger. The governments is liable for all the promisary notes (money or 'loan documents') in circulation, creating more loans doesn't make the government any more solvent. I have never, ever, seen a government revenue forcast listing "Bank of Canada printing money". Yes, Germany did it, but they just printed promisary notes and took them from the central bank to the Government treasury.

Also:

quote:
One option would be "war bonds" (a vehicle that governments have used before). In essence, they borrow the money from us, and pay us interest for the loan of our money.

The difference between War Bonds ("Victory Loans") and Canada Savings Bonds is very little. War Bonds did have a discount interest rate as people bought them out of patriotic duty. Canada Savings Bonds have shrunk in usage, only because they are a cumbersome instrument and therefore there are cheaper ways to get money.


quote:
I suspect you know the answer. In the "dirty thirties" there was not a nickle to be found to put toward the real sufferings of the times. Then WHAMMO! 1939, hey, we've got a war. Money, whats that? What's needed is ships, guns, planes etc and of course a lot of farm boys and other wanderers to occupy the uniforms that we now able to "afford" to manufacture.

Actually, the depression and the government deficits that occurred were already turning the corner before the war. The war is actually given more credit than it really deserves.


From: Richmond BC | Registered: Aug 2002  |  IP: Logged
DrConway
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posted 13 September 2002 12:43 AM      Profile for DrConway     Send New Private Message      Edit/Delete Post
There was the recession of 1937 when the federal government of the US decided that it had to balance its budget.

It may seem kind of funny to talk about a recession in the midst of the Depression, but what was happening was that GDP was expanding modestly and unemployment was beginning to fall from its horrendously high levels of 1933-34, and in 1937 unemployment climbed back up and GDP contracted.

Pogo, may I point out that printing money is effectively equivalent to issuing government bonds to the central bank and being paid, instantly, for them, with newly created money?

That is where the line-item will be found, which is in the rate of change of these holdings of the national debt by the central bank over and above that level needed for open market operations.

I also note that due to the fact that the Bank of Canada is required to remit all its profit back to the Canadian government, there is no net transfer of interest and thus the bonds held by the Bank of Canada are effectively zero-interest.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Marc Bombois
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posted 13 September 2002 02:00 AM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
quote:
OK! I have to get into this. Lets say a world war started today and we had to bring our armed forces up to what they were in WW2. Produce new boats, planes and all other equipment that goes with it. Where would we get the money? and how would we pay it back when the war was over?

Or let's say we'd like to have properly funded health care, education, an end to homelessness? Where would we get the money?

We would get it from the only place it ever comes from: printing. But who does the printing is the point. Would it be the government on behalf of the people, or by the private banks on behalf of themselves? Should it be spent into circulation to the benefit of everyone, or loaned into circulation as part of a usurious pyramid scheme? Should it be simply our medium of exchange, or the source of elite power?


From: Squamish | Registered: Aug 2001  |  IP: Logged
Flowers By Irene
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posted 13 September 2002 02:09 AM      Profile for Flowers By Irene     Send New Private Message      Edit/Delete Post
Screw it. I say we go back to the barter system. Anyone got change for a goat?
From: "To ignore the facts, does not change the facts." -- Andy Rooney | Registered: Aug 2002  |  IP: Logged
Michelle
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posted 13 September 2002 08:08 AM      Profile for Michelle   Author's Homepage     Send New Private Message      Edit/Delete Post
Here's a chicken.
From: I've got a fever, and the only prescription is more cowbell. | Registered: May 2001  |  IP: Logged
CocaCola58204
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posted 13 September 2002 09:05 AM      Profile for CocaCola58204     Send New Private Message      Edit/Delete Post
Ah, I believe Max Pointy advocated bartering once on 22 Minutes....

Vancouver has a co-op radio station?


From: Grand Forks AFB, ND | Registered: Jul 2002  |  IP: Logged
Marc Bombois
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posted 13 September 2002 11:14 AM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
Vancouver's Co-op Radio is CFRO 102.7 fm. It's available on cable, not on net.
From: Squamish | Registered: Aug 2001  |  IP: Logged
Terry Johnson
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posted 13 September 2002 04:32 PM      Profile for Terry Johnson     Send New Private Message      Edit/Delete Post
I've got a related question.

Anyone know how much money Canada now earns each year from seignorage? I've never seen it raised as an issue in the Canada-should-use-US-dollars debate, but I had the impression it was worth several billion dollars a year to the central government.


From: Vancouver | Registered: Jul 2001  |  IP: Logged
Marc Bombois
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posted 13 September 2002 05:08 PM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
Terry, if you look here http://www.bankofcanada.ca/pdf/wfs.pdf on page 3, in the first column (B51) we see the fluctuating amount of BoC notes in circulation. Compared to previous years (which you can look up as well) the government is producing very small increases in cash money and therefore receives very little seignorage. Compare this to the $65 billion printed by the private banks in 2001 (page 12, column B1633.)
From: Squamish | Registered: Aug 2001  |  IP: Logged
Jacob Two-Two
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posted 13 September 2002 07:23 PM      Profile for Jacob Two-Two     Send New Private Message      Edit/Delete Post
quote:
From 1989 to 1999 we averaged $42 billion annually in debt charges on the federal debt (StatCan).

Well, how about that. Over forty billion dollars every year taken from the public purse by pure theivery and facilitated by our corrupt political class.

Any ideas on what could be done with $40 billion over 2003? What could that get us in expanded services?


From: There is but one Gord and Moolah is his profit | Registered: Jan 2002  |  IP: Logged
Terry Johnson
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posted 13 September 2002 07:32 PM      Profile for Terry Johnson     Send New Private Message      Edit/Delete Post
Trouble is, a large part of those annual interest payments on debt are going to Canadians with moderate incomes who happen to hold CSBs or other federally-issued savings.

If the Bank of Canada weren't so sensitive about moderate inflation, and reduced interest rates to encourage economic growth, the debt problem would simply go away.


From: Vancouver | Registered: Jul 2001  |  IP: Logged
DrConway
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posted 13 September 2002 11:19 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post
It is also to be noted that by accident, the Canadian and US national debts have faded in importance due to the BoC's need to (most of the time) stay in lockstep with the USA in terms of interest rate changes; due to Greenspan's relatively unorthodox prescriptions (letting interest rates fall to roughly 1960s levels by the late 1990s), the ability of the US and Canadian governments to roll over high-interest debt into low-interest debt means a dramatic drop in the interest payments burden, and an equal easing of the pressure on the rest of government spending.

Seigniorage has never been satisfactorily defined for me, and I've looked up the definition any number of times. It's kind of important that I understand it because (to cause thread drift for a second) one of the key factors that needs to be taken into account when reinstating fixed exchange rates is to capture the seigniorage across all currencies and distribute it exactly equally, which prevents any one country from exporting inflation, since they only capture a portion of the seigniorage rather than all of it.

I now return this thread to the original discussion.

[ September 13, 2002: Message edited by: DrConway ]


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Terry Johnson
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posted 13 September 2002 11:53 PM      Profile for Terry Johnson     Send New Private Message      Edit/Delete Post
quote:
Seigniorage has never been satisfactorily defined for me, and I've looked up the definition any number of times.

It confuses me, too. I thought it just referred to the immediate profit government made by issuing currency, which would be the difference between the cost of printing money, and the goods and services the government buys with the newly-issued money. But I've also seen it referred to the fact that currency in circulation is like an interest-free loan to government by those who hold currency. I was hoping you could clarify it for me.


From: Vancouver | Registered: Jul 2001  |  IP: Logged
Marc Bombois
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posted 14 September 2002 01:42 AM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
In finance, seigniorage is simply the benefit that accrues to the issuer of the currency. The most egregious example is that of the U.S. Fed. The U.S. dollar (Federal Reserve Note, properly) is the world's favorite reserve currency at the moment, and the privately-owned Fed system receives virtually 100% seigniorage because of the almost zero cost of producing astounding sums (mere numbers) generated out of thin air. In the last eighteen months or so, the Fed facilitated the printing of over a trillion dollars. [URL=http://www.federalreserve.gov/releases/H6/Current/ [/URL] These ephemeral numbers are accepted all over the world for goods and services produced by blood, sweat, and tears.

In monarchial times, the seigniorage belonged to the king. Today, banking is our king. We are ruled by the financial elite, they who do the bookkeeping.

I've often thought that "numb" is the root of the word "number".

[ September 14, 2002: Message edited by: Marc Bombois ]

[ September 14, 2002: Message edited by: Marc Bombois ]


From: Squamish | Registered: Aug 2001  |  IP: Logged
Marc Bombois
rabble-rouser
Babbler # 1273

posted 14 September 2002 02:19 AM      Profile for Marc Bombois   Author's Homepage        Edit/Delete Post
quote:
Trouble is, a large part of those annual interest payments on debt are going to Canadians with moderate incomes who happen to hold CSBs or other federally-issued savings.

What are "federally-issued savings"?

quote:
If the Bank of Canada weren't so sensitive about moderate inflation, and reduced interest rates to encourage economic growth, the debt problem would simply go away.

Yougottabekidding. Over 95% of money is loaned into existence as debt plus interest. Face it, under this system the debt problem will never go away.


From: Squamish | Registered: Aug 2001  |  IP: Logged

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