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I would like to suggest what is to me an obvious insight: those with the ability to create money are able to make claims by means of that function on the wealth of the rest of us; they do nothing productive to make these claims, providing no product or service that is actually needed; this process closely mirrors Marx's tortured abstractions regarding invisible wealth being stolen, but does so in MEASURABLE, demonstrable processes of price inflation.

Our currency has decreased in value some 95% since the Federal Reserve was created.  Logically, that value went somewhere.  People miss this.

How many of you were aware Goldman Sachs controls some $1 TRILLION in assets, and routinely earns profits of $20 billion a year or more?

From the Ascent of Money, by Niall Ferguson (who regrettably otherwise acts as an apologist for the banking monopoly on money creation):

Today, banking assets (that is, loans) in the world's major economies are equivalent to around 150 percent of those countries combined GDP.  According to the Bank for International Settlements, total international banking assets in December 2006 were equivalent to around $29 trillion, roughly 63% of the world's GDP.
Not only can it be easily shown that "inflation" is wealth transfer, we can show who got it: the banks.

Capitalism is about providing products and services people need at prices they can pay.  Capitalists, themselves, serve the critical function not of funding new enterprises--that is done by banks--but of coming up with new products and services, and assembling the means of delivering them.  That is what Steve Jobs did.  It is what Thomas Edison did.  

The large banks that control America donate equally to both parties in every election.  Until ordinary people wake up--and this site devotes a lot of rhetorical attention to "democracy"--unelected elites will continue to amass wealth.  Obama has not done, and will not do anything to stop it.

No true populist would resist auditing the Fed.  But we have not elected a populist in some time.  We elect people in thrall to elites.  Romney will be no better.  

Education is the only hope.

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Comment Preferences

  •  When the Federal Reserve was created (1+ / 0-)
    Recommended by:

    you couldn't buy an iPad, a laptop computer, or a cellphone. And if you did, you wouldn't have been able to do much with them.

    When the Federal Reserve was created, automobiles were crude, rough beasts driven over crude, rough roadways.

    When the Federal Reserve was created, there were no broadcast networks. Air conditioning was virtually non-existent. And health care was still in a very primitive state.

    All of these innovations have added vast amounts of wealth to the economy, to the benefit of all of us. In the absence of inflation -- if the average consumer still made, say, $50 per week -- how would anyone have been able to afford these things?

    If the money supply is fixed at a certain size, then the only way to pay for innovation would be by deflating the price of everything else. Let the price of bread, milk, housing, etc. go down so that people can then afford to buy cars, air conditioning, iPods, etc. Yeah, that might work, except for one thing: Who wants to own a business when the expected return on capital is bound to turn negative?

    I'm not claiming that innovation is the only reason for currency inflation. But I'd argue that it is a necessary and sufficient reason for a Federal Reserve Bank to exist with the power to increase the money supply.

    Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

    by Nowhere Man on Sun Jul 22, 2012 at 02:41:38 PM PDT

    •  Ideally, money is fluid barter (1+ / 0-)
      Recommended by:
      Nowhere Man

      It is a means of allowing you to exchange one good or service for another.  The amount of money available should equal the goods and services available.  If they stay in sync, there will be neither inflation or deflation, however as you point out with innovation new things become available and the money supply must expand to keep in sync.

      The problem with gold and other hard currency is that there is no way to assure that the supply matches the supply of goods and services and in general you have deflation.  Spain suffered some inflation with the influx of gold from the new world, so it can go the other way.

      The problem with printed money is that the temptation to create excess money is irresistable.  This essentally allows you to gather a share of all assets without having to go out and take them from anyone.

      •  I'm going out on a limb here (0+ / 0-)

        because economics is not my specialty, but:

        I believe that price inflation is inevitable when the money supply increases, even if that increase perfectly matches the increase in wealth attributed to innovation. This is because the resulting increase in spending is not focused solely on the new products. Where some of the increased spending is aimed at pre-existing goods, the price of those goods will rise. That's not all bad, either, provided that wages rise as well.

        Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

        by Nowhere Man on Sun Jul 22, 2012 at 03:46:35 PM PDT

        [ Parent ]

        •  I would say the reverse is usually true (0+ / 0-)

          The newer goods tend to have a novelty premium, but certainly prices can fluctuate due to availability.  If the newer goods aren't purchased their prices will drop.

          The idea of keeping the money in sync with the value of all goods and services depends on actually having a value that you can determine for all the goods and services, which is a shifting target.

    •  The money supply can increase (0+ / 0-)

      without a Federal Reserve.  In Economics 101, they teach you that every time you create debt -- for instance, I write you an IOU in exchange for something -- cash, a chicken, a bag of gold -- that IOU increases the money supply.  You and I can sit here and increase the money supply without a thin dime between us.

      •  Debt increases the money supply temporarily (0+ / 0-)

        Once the debt is paid off, the money supply is back to its previous level.

        Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

        by Nowhere Man on Sun Jul 22, 2012 at 08:17:37 PM PDT

        [ Parent ]

        •  But still, that's what the money supply is. (0+ / 0-)

          Debt.  In an economic system with more people than a football team, the debt never completely gets paid off.  And if enough people float enough IOUs to each other, using them to buy stuff from each other, they can inflate the system just through issuing debt.  So you don't REALLY have to have a federal reserve to do that.  

          And a hard currency based system offers no guarantee of avoiding it.  As the money supply inflates from other people's issuing debt (based on gold -- a debt of gold they don't yet have), the value of gold relative to other purchasable products declines.  Why?  Because as the (gold-based) money increases, it SEEMS like there's A LOT OF GOLD out there, although few people really carry it around with them.  

          Now, deflate that gold-based money supply by having everybody cash in their debts... and you burst the gold bubble.  The evaporation of the money supply makes the remaining gold and the few IOUs remaining based on gold more precious based on their scarcity.  The value of gold relative to other products goes way up -- although there may have been absolutely no increase or decrease in actual gold in the system.

    •  You have not understood the system (0+ / 0-)

      In my view, houses should cost one twentieth what they do today.  You should be able to buy a nice house for $10,000.  You should be able to buy a car for $500.  The amount of capital in the global banking system, likewise, should be something like one one hundredth what it is today, if we factor in interest.

      What you are missing is that, logically, if I can produce twice as much in a given unit of time, the buying power of my labor should be doubling also.  The blessings of mechanization SHOULD have led to increased leisure, the eradication of unemployment, and generalized well being.  They did not, for the simple reason that buying power was sucked out of the dollar and other currencies.

      Innovation and the use of banks of the fractional reserve system to create money ex nihilo are logically distinct.  They have nothing to do with one another.

  •  Marx was a better historian than economist (3+ / 0-)
    Recommended by:
    Nowhere Man, badger, FG

    You're looking at the wrong metrics.  The value of a unit of currency is always relative to the economy it operates in.  Currency is a tool, it need not serve any other purpose.  There is no merit in an absolute unit of value.

    By and large, moderate inflation (2-3% p.a.) is desirable.  Inflation favours the debtor over the creditor, but inflation is controllable whereas deflation is not.

    The "gold standard" or other arbitrary ties are just that:  arbitrary.  Why should the value of the currency crash if a new gold mine is opened, or rise when a mine is depleted?

    γνωθι σεαυτόν

    by halef on Sun Jul 22, 2012 at 03:57:03 PM PDT

    •  You have not understood the system (0+ / 0-)

      Obviously units of currency are relative.  But they also change, and they always change to the detriment of everyone but the bankers.  Even if as a debtor what you pay back is less than what you would have paid back, what you are missing is that the money loaned to you was created out of thin air, and that ANY return on money created ex nihilo is always going to mean that the bankers win, and you just lose less.

      When you are saying 2 to 3% inflation is desirable, you are invoking Milton Friedman's monetarism.  What you are not understanding is why prices go up, why we have ANY inflation.  In the second half of the 19th century buying power per unit of labor rose steadily.  The value of most currencies (there were many) ROSE.  We had deflation, which is to say steadily increasing buying power.

      You are defending people who create money, and who in doing so stick their hands in your pocket and seize some portion of your labor without doing a thing to earn it.

      •  Sorry, you're wrong on both counts (1+ / 0-)
        Recommended by:
        Nowhere Man

        Loans are not created "out of thin air", it is actually true that money loaned has to have been earned and accumulated by someone.  I'm happy to give you that the "created and earned" may simply have resulted from inheritance and ultimately rapine and pillage, but in a fair capitalist system, it's shirtsleeves to shirtsleeves in three generations.

        You're totally wrong in saying that a 2-3% inflation rate has anything to do with Friedman - on the contrary, that is the anathemised Galbraith.  Friedman speculated on the origins of inflation, but he had no "target" rate of inflation.  He thought a measured increase in the money supply was wise, but that is because he saw a totally mechanical link between money supply and inflation.  That that is wrong can easily be shown with Friedman's prescription against deflation:  Shower down money.  If it were so easy to beat deflation, Japan should be booming.  It isn't.

        γνωθι σεαυτόν

        by halef on Tue Jul 24, 2012 at 11:52:57 AM PDT

        [ Parent ]

  •  inflation is theft (0+ / 0-)

    I don't think you all understand how "inflation" works.  The reality--and this is common sense, if you think about it--is that if everyone in an economy can get twice as much work done per unit of time, then the costs of everything should be cut in half, at least that component related to labor.

    Alternatively, we should see profits of corporations double.  But neither happens.  After 100 years of continuous innovation, most of us have to work at least 40 hours a week to make ends meet.  And corporations are not recording doubled profits.

    What has happened is that surplus value has been aggregated to the global banking system, which has $29 TRILLION in assets.  Ponder that.  Our banking system possesses twice as much in assets as our national debt.

    People who do not understand this matter think of "inflation" as something that has to happen.  Why?  Why do prices go up?  They go up because those with the power to create money make claims on our collected wealth without adding anything in turn.

    Put another way, if we did not have fractional reserve banking, and if we did not have a Federal Reserve, the amount you could buy per unit of labor would have been increasing steadily throughout the twentieth century.  You would be able work 20 hours a week--which is a key socialist objective in many places, and which is an objective I share--and live as well or BETTER than you do today.  Ponder that.

    The Federal Reserve consists exclusively in large banks.  Ponder that.  The sole entity allowed to create money in unlimited quantities has NO governmental oversight, is owned by banks, and only gives money to banks.

    Do you all realize that Bernanke could write a check for $1 trillion to JP Morgan Chase tomorrow if he wanted to?  Do you grasp that whenever that money gets involved in an economic recovery, that it would be massively inflationary?

    Anyone who understands our financial system who is not mad as hell has not actually understood it, or makes a seven figure salary off it.

    •  Dude, some words to the wise (0+ / 0-)

      First of all, if you want to be taken seriously here, do not ever suggest that all of your diary's readers are less well informed than yourself. You are bound to be mistaken.

      Second, google is your friend.

      Please have a look at the "earnings" column in this chart (sorry, no fancy graph for you). Look especially at the years 1996 to 2010; you'll notice that earnings almost exactly doubled in that period. (If you look carefully, I think you'll see that I didn't cherry-pick that time period; for almost any 14-year span, earnings at least doubled. I chose that period simply because it's the most recent span that doesn't include estimated data, as the line for 2011 does. That period also correlates to the data in the chart below.)

      Now have a look at this:

      Productivity, Nonfinancial Corporations, 1996-2010

      That is a chart showing growth of worker productivity for non-financial corporations in then-current dollars (i.e., not indexed for inflation) between 1996 and 2010. (Source: BLS). Unfortunately, this doesn't tell the whole story, because the data can't easily be aggregated across sectors, but I think you'll find other sectors follow a similar path: Worker productivity increased at a slower pace than corporate profits.

      How is that possible? In a word: globalization. I'm not here to defend globalization; I'm just sayin'. (There are more things on heaven and earth, Horatio, than are dream't of in your philosophy...)

      Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

      by Nowhere Man on Tue Jul 24, 2012 at 04:46:14 PM PDT

      [ Parent ]

      •  Not sure where the S&P Earnings chart link went (0+ / 0-)

        Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

        by Nowhere Man on Tue Jul 24, 2012 at 04:47:27 PM PDT

        [ Parent ]

      •  I don't think you understood me (0+ / 0-)

        First off, I don't dispute large transnational corporations may well have kept more of the profits from increased productivity than they shared, at least with production workers.  This ebbs and flows, and as the developing world develops, wages will rise, and profits will again drop.

        The bigger issue is that virtually all the machinery that enabled those increases in productivity was likely financed with invented fiat money by large global banks.  That means that those banks are siphoning off a portion of the wealth that was created, meaning that the pool shared between management and the workers is smaller than it otherwise would have been.  Everyone but the banks loses in fractional reserve banking.

        Again: there are $29 TRILLION in banking assets out there.  That represents ownership in virtually every corporation and government on the planet, all without producing ANYTHING of tangible value.

  •  Labor theory of value is a joke. Marx was a good (0+ / 0-)

    analyst but his policy prescriptions...

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