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Thomas M. Miovas Jr.
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Can I stop you right there? Do you care to give us an estimate of exactly what portion of our population does use FRNs as a store of wealth?

I wasn't implying any number, just that what I said holds true. 

Do any of these people have a portfolio of over about nine hundred bucks? Hiding cash in mattresses might have been common in 1900, but today we make use of "banks" and "mutual funds" and "diversified portfolios". I keep trying to find potential victims of US inflation and I still can't find any that I particularly care about...

I can't find any I care about either, because all I see are people getting what they deserve. And another cycle like 2008 will return in its own time.

And just to pile on here, Ayn Rand did not write about economics in Atlas Shrugged nor did she ever write about economics ever save a few disparaging remarks about LVM's psycho-epistemology...

There's more than one way to look at Ayn Rand's writings. Read with the eyes of a businessman she offers literally a wealth of practical advice. What others see in what she wrote depends on how they live.

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Really? How do those that disagree with certain policies, but lose politically to the majority, deserve to have their rights violated?

Because simply being a minority disagreeing with public policy demanded by the majority has absolutely no power to change it, the personal responsibility falls upon each individual American to learn how to protect themselves from the consequences that the majority sets into motion. Anyone who fails to rise to the occasion gets what they deserve for abdicating their responsibility to protect themselves.

 

It's not really all that difficult. All that is necessary is to live by a different set of values from the majority, and that sets into motion beneficial consequences all of its own within each person's own sphere of personal influence. Those who do, will always find their own kind with whom to do business and all parties involved will consistently prosper regardless of public policy, economic, or political cycles.  

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Because simply being a minority disagreeing with public policy demanded by the majority has absolutely no power to change it, the personal responsibility falls upon each individual American to learn how to protect themselves from the consequences that the majority sets into motion. Anyone who fails to rise to the occasion gets what they deserve for abdicating their responsibility to protect themselves.

 

Why? Because you say so? 

 

There is a difference between saying "you should try to protect yourself" and what you are saying: "if you fail to protect yourself, you deserved your rights to be violated".

 

Consider the consequences of the latter. You validate the actions of the right violators by essentially saying it is your fault because you didn't protect yourself well enough. 

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I'm going to take this example, because I think it is important to distinguish between things that are stupid and ignorant, and -- on the other hand -- things that should be illegal.

Let's assume we have a pyramid scheme that was absolutely transparent. Suppose someone gave you a letter saying the following:As a fully functioning adult, if you accept these terms, why should the law stop you?

Take money. Suppose I go to a store with monopoly money and ask "Can I pay in monopoly money?" Should the law say that the person is not allowed to accept? Should his stupidity be illegal?

Actually, FRB done properly is *not* a pyramid scheme. Under proper FRB notes have value. However, before going into the argument of "how much value do they have", I think its important to find out where the law must draw the line between stupidity and actual illegality. I'm willing to concede that many FRB systems were ambiguous in what notes actually represented. So, for now, I'm not defending some particular concrete system. Right now, my point is simply this: if a person wants to accept something that has a value of "X" to any sensible person, and is willing to give value (say) 2 times X, in return... why should this be illegal?

Sold, it shouldn't be illegal for that reason. What about a situation where the originator of a scam is dumb and misidentifies the terms, and therefore, doesn't lie, but doesn't tell the truth? He commits an error; is that something that should be left alone by the gov? If so, why?
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There's no point in debating something, if you're not gonna bother using precise language that accurately describes it.The word "equal" would never be printed on a piece of paper, to suggest that that note is equal to an ounce of gold. It's not. It's a piece of paper. A piece of paper doesn't "equal" anything, except a piece of paper. It may be redeemable, under certain conditions, for gold, but it doesn't "equal" anything.Please, look up FRB, learn what the various terms mean, use them correctly, and then we can debate whether the practice is fraud or not.

You misunderstand me. I meant equal in essentials; it can be used like gold and reduces the value of gold when they are used. Like the OP said, notes are a claim against gold. And what is gold but a claim against a produced value (in the OP scenario)? One holds gold (in the OP scenario) trusting they can exchange it for another's labor; one hold the note trusting they can exchange it for gold, and by extension, for another's labor.

"Let’s say they had 100 ounces of gold in reserve (in the vaults) and they print out Bank Notes (BN) as claims against 150 ounces of gold and loan them out or use them as transactions for cash exchanges." -- OP

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Why? Because you say so? 

 

There is a difference between saying "you should try to protect yourself" and what you are saying: "if you fail to protect yourself, you deserved your rights to be violated".

 

Consider the consequences of the latter. You validate the actions of the right violators by essentially saying it is your fault because you didn't protect yourself well enough. 

Failing to protect yourself is what validates the actions of the rights violators, because it grants them the sanction for you to become their victim.

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moralist said #93

 

In 1971 gold cost $40 an ounce.


 

 


 

In 2013 gold costs $1,570 an ounce.


 

 


 

Exactly the same one ounce of gold... only the amount of dollars needed to buy it has changed. And that is why the dollar is such a poor quality store of wealth.

 

 

 

 

 

Again as an economic layman, while I do not doubt that these numbers are correct it doesn't necessarily follow that monetary policy is the sole reason for the change in values. Of course irrational and or immoral principles will lead to less desirious economic effects. But the 'price' of a thing is what the price of thing is , as measured by the unit.

 

In terms of gold , what is the price of gold? An ounce of gold was equal to an ounce of gold in 71 and still is today. Fiat currency and legal tender laws work to erode the concept of store of wealth. But they are not the sole cause of the change of value expressed in prices (dollars). In capitalistic societies it should be expected that things will become 'cheaper' due to the amount of productiveness the political system allows to occur, or to put it another way: to the extent the political system does not hamper the virtue of productiveness. Operating a strict gold standard( or any commodity, gold just happens to be probably the best 'thing') would, I think, be the optimal monetary policy to adopt, along with what that would necessarily entail eg seperation of government and economics.

 

I doubt most rational people would choose the current state of monetary policy as the optimal policy, and yet here it is. There are myriad reasons why the current state of affairs is what it is, but it isn't the fault of the current politic minority. Spartacus (as the tv version of the story goes) rebelled against the gladitorail system in heroic manner because the system was immoral. I get the idea from your posts that he should rather have focused his energies on just working toward being the best gladiator, meaning disregarding the fact his opponents were also nonwilling participants.

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Sold, it shouldn't be illegal for that reason. What about a situation where the originator of a scam is dumb and misidentifies the terms, and therefore, doesn't lie, but doesn't tell the truth? He commits an error; is that something that should be left alone by the gov? If so, why?

The government might legitimately become involved in some such situations: it would depend on the details. For starters, the way you've described it, the government would not ban it, nor would the government bring criminal charges. This sounds like a civil suit.

For instance, one old scam is "perpetual motion machines". Any respectable scientist will tell you that such a machine is impossible. What if someone offers to make one: "give me an advance of $100,000 and I will produce 10 of these machines, and give you a 50% share in the patent". Should the government stop this if the inventor is really and truly convinced that he has found a method that would prove that today's understanding of physics is wrong? No, it should not -- it is not the government's job to mediate on what is and is not true science, unless someone's rights are being violated in the process.

If the inventor is doing this as a scam, knowing full well that he will never deliver, then that is fraud. Even so, I think this is a hard one actually to prosecute. The other party can try to bring a civil suit, but if they both believed the theory and were acting accordingly, I don't see any basis upon which they can be stopped. If we stop them, would we not have to stop people from visiting tarot-card readers? What about Church... what if the priest is starting to have doubts about the existence of God... can his congregation sue him when they find out?

In a previous post, I stated -- without evidence -- that FRB was not a dumb scheme, if it was implemented correctly. So, in my view, neither the "it's a scam" argument, nor the "it's a silly ponzi-like scheme" argument really apply. Still, those two have to be got out of the way first.

If those two are somewhat put to bed, then my next question would be this: do you think it should be okay for people to use any real asset as a basis for money, and that the government should let people decided for themselves? Assuming a 100% (non fractional) standard, would silver, copper, etc. be equally acceptable if people want to use those, even if gold was a more intelligent choice? Are notes okay, as long as they are backed 100% by assets? If so, what if someone had an oil field with 10 million barrels of proven reserves, and he were to issue notes that were rights to those barrels. If it is all above board, people would be willing exchange something of value to get those notes. What if the 10 million notes began to circulate as a form of alternate money in the area around the well. Ten pounds of filet mignon for $100 or for 1 "barrel-note". Would you see anything illegal about that?

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moralist said #93

 

In 1971 gold cost $40 an ounce.

 

 

 

In 2013 gold costs $1,570 an ounce.

 

 

 

Exactly the same one ounce of gold... only the amount of dollars needed to buy it has changed. And that is why the dollar is such a poor quality store of wealth.

 

 

 

 

 

Again as an economic layman, while I do not doubt that these numbers are correct

They are. I just did a simple search that took a minute. Look at any historical gold price chart. They all log exactly the same spot gold prices because they are public trading record.

it doesn't necessarily follow that monetary policy is the sole reason for the change in values.

Ok. Then I'll assume that you can answer this question. What other policies drove up the cost of gold to +39 times its original price over the last 40 years?

 

Do you realize that is almost a 100% increase for each year?

Of course irrational and or immoral principles will lead to less desirious economic effects. But the 'price' of a thing is what the price of thing is , as measured by the unit.

No. You're looking at the wrong side of the ledger.

 

The price of a thing is the measure of the (lack of) value of the dollars needed to buy it.

In terms of gold , what is the price of gold? An ounce of gold was equal to an ounce of gold in 71 and still is today. Fiat currency and legal tender laws work to erode the concept of store of wealth. But they are not the sole cause of the change of value expressed in prices (dollars).

Well, that's why you don't ever want to use Federal Reserve Notes as a store of wealth when almost any dollar denominated equity works so much better. I have some old dollars fromt he time they were printed as Silver Certificates. Do you know that you could go to the Federal Reserve Mint in San Francisco and trade those in Silver Certificates for packets of real silver bullion? This was a time when America was still a Capitalist nation. It has presently devolved into a Creditist nation.

In capitalistic societies it should be expected that things will become 'cheaper' due to the amount of productiveness the political system allows to occur, or to put it another way: to the extent the political system does not hamper the virtue of productiveness. Operating a strict gold standard( or any commodity, gold just happens to be probably the best 'thing') would, I think, be the optimal monetary policy to adopt, along with what that would necessarily entail eg seperation of government and economics.

The deadbeat debtor government can go straight to hell as far as I'm concerned. As an individual I choose to continue to operate as a 100% solvent Capitalist with my own gold standard just like they did in Galt's Gulch. 

I doubt most rational people would choose the current state of monetary policy as the optimal policy, and yet here it is.

The current state of monetary policy exactly matches the values of the fiscally irresponsible majority who created the government in their own insolvent image. The present government doesn't just magically spring in to existence for no reason at all. That's not rational. Every effect has a cause, and today's (rotten) government is the literal expression of the (rotten) values held by the majority in this country.

There are myriad reasons why the current state of affairs is what it is, but it isn't the fault of the current politic minority.

It sure isn't. I know because I belong to the rapidly dwindling political minority of American Capitalist producers.

Spartacus (as the tv version of the story goes) rebelled against the gladitorail system in heroic manner because the system was immoral. I get the idea from your posts that he should rather have focused his energies on just working toward being the best gladiator, meaning disregarding the fact his opponents were also nonwilling participants.

I'm not totally clear on your point of reference because I don't watch television. However, I'm more familiar with how the protagonists responded to the "system" in Atlas Shrugged by creating their own... so that's the ideal on which I model my own behavior.

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One cannot gold prices from 1933 (FDR confiscation) to 1971 (market opened up again) as an indicator for much. There was no true market for gold during this period. beofer FDR confiscate gold, in 1933, it was $20.67 per ounce. That was the gold-standard "price".

$20.67 in 1933 to $1600 today is a 5.5% annual compounded increase in the dollar-price of gold.

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One cannot gold prices from 1933 (FDR confiscation) to 1971 (market opened up again) as an indicator for much. There was no true market for gold during this period. beofer FDR confiscate gold, in 1933, it was $20.67 per ounce. That was the gold-standard "price".

$20.67 in 1933 to $1600 today is a 5.5% annual compounded increase in the dollar-price of gold.

...and after the government confiscated gold, the price then jumped 67% to $34.69 in 1934 by devaluing the dollar.

 

Gold, like other equities, presents a continuing problem to government promotion of faith in it's paper curriency... simply because it's real.

 

No thanks, Ben...

bernanke-trillion.jpg?__SQUARESPACE_CACH

 

I prefer reality to fantasy...

 

Goldeagle_101.jpg

 

For those who believe Ayn Rand had nothing to say about economics and business, which one do you think she would have chosen?

Edited by moralist
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...and after the government confiscated gold, the price then jumped 67% to $34.69 in 1934 by devaluing the dollar.

 

Gold, like other equities, presents a continuing problem to government promotion of faith in it's paper curriency... simply because it's real.

 

 

I prefer reality to fantasy...

For those who believe Ayn Rand had nothing to say about economics and business, which one do you think she would have chosen?

I think she would have preferred a society in which individuals voluntarily trade value for value. The fact that a medium of exchange makes such trade more efficient means , she probably would agree that a specific currency or a small group of objectively defined currencies would be necessary and expidient in an advanced division of labor society. I think she would also agree that the idea of credit was on the whole a 'good' thing, the current state of affairs notwithstanding.
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For those who believe Ayn Rand had nothing to say about economics and business, which one do you think she would have chosen?

You are talking about fiat currency. This topic is about Fractional Reserve Banking. It is *not* a discussion on fiat currency. Nobody here would support the notion of a fiat currency. So, as usual, you're simply arguing against a strawman: an argument that nobody has ever made here.
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moralist said in #110

Well, that's why you don't ever want to use Federal Reserve Notes as a store of wealth when almost any dollar denominated equity works so much better. I have some old dollars fromt he time they were printed as Silver Certificates. Do you know that you could go to the Federal Reserve Mint in San Francisco and trade those in Silver Certificates for packets of real silver bullion?

That's great, you do know that only FRN are legal tender for all debts private and public? So in essence even if a store owner wanted to trade his goods for your bullion , he can't legally. So as far as currency goes, bullion doesn't work.

Other than those who hold money market accounts(denominated in US $)as investment instruments, I don't think many rational people believe FRN are anything other legal currency not a store of wealth(as in safeguarding , not in the sense of medium of exchange)

Edited by tadmjones
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You are talking about fiat currency. This topic is about Fractional Reserve Banking. It is *not* a discussion on fiat currency. Nobody here would support the notion of a fiat currency. So, as usual, you're simply arguing against a strawman: an argument that nobody has ever made here.

 

 

Key words: As usual.

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You are talking about fiat currency. This topic is about Fractional Reserve Banking. It is *not* a discussion on fiat currency. Nobody here would support the notion of a fiat currency. So, as usual, you're simply arguing against a strawman: an argument that nobody has ever made here.

Fiat currency operates on exactly the same faked reality as fractional reserve banking. FRB is banks pretending to have more money than they really have, just like fiat currency is the government pretending to have more money than it really has. In fact, the credit/debt system is people pretending to have more money than they really have. So whenever pretense pervades society, it gets a dose of reality like 2008.

 

Banking FR practices and government fiscal policy are both merely an extension of the prevailing practice sanctioned by a society which lives by the same faked reality principle. And neither supporting FRB or fiat currency is an issue when everyone already has both and has no power to alter either except to change how they live. The only pertinent question to ask yourselves is: What do you do about what you already have?

Edited by moralist
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Fiat currency operates on exactly the same faked reality as fractional reserve banking. FRB is banks pretending to have more money than they really have, just like fiat currency is the government pretending to have more money than it really has. In fact, the credit/debt system is people pretending to have more money than they really have. So whenever pretense pervades society, it gets a dose of reality like 2008.

 

Banking FR practices and government fiscal policy are both merely an extension of the prevailing practice sanctioned by a society which lives by the same faked reality principle. And neither supporting FRB or fiat currency is an issue when everyone already has both and has no power to alter either except to change how they live. The only pertinent question to ask yourselves is: What do you do about what you already have?

 

FRB is banks pretending to have more money they really have? I'm pretty sure banks know that they have a liability to the depositors. All FRB is and would be in a free market is them figuring out what portion of the deposits they need to keep as reserves and then use the other money to lend out to make a profit.

 

You were off topic like usual, just admit it. According to you, I can bring up how my little brother carries around monopoly money and that relates to this topic because both FRB and my little brother carrying around monopoly money are examples of "pretending to have more money than they really have". Same nonsense in every topic.

Edited by thenelli01
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 E'gads people, I can't believe more of you don't recognize this individual for what he is and what his real motives for posting to these forums are.    Make no mistake, this individual is the enemy of all Objectivism holds dear.  

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FRB is banks pretending to have more money they really have? I'm pretty sure banks know that they have a liability to the depositors. All FRB is and would be in a free market is them figuring out what portion of the deposits they need to keep as reserves and then use the other money to lend out to make a profit.

You're correct in that banks know full well what they're doing. There are reasonable limits to FRB and then there are abuses. FRB, government monetary policy, and the credit/debt system all work just fine... until a critical mass of people faking reality brings about the inevitable returns to reality called Recessions and Depressions.

 

The banks' real ace in the hole is the government, which indemnifies their fiscal irresponsibility with it's own... the unlimited ability to create currency from nothing. The government even creates currency and then uses it to buy its own debt... the ultimate in mindbending faked reality. Many people actually believe that fiscal irresponsibility can evade consequences by defying the reality of causality. Reality will always prove them wrong.

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 E'gads people, I can't believe more of you don't recognize this individual for what he is and what his real motives for posting to these forums are.    Make no mistake, this individual is the enemy of all Objectivism holds dear.  

Of course there's always the risk of being labled a heretic for daring to advocate the blasphemy of solvency. Capitalism is a system based on capital. Creditism is a system based on the lack of capital. Whenever any economic system becomes based more on debt than it is based on capital... it fails.

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What amazes me about those who attack fractional reserve banking is how similar they sound to progressive liberals. All of their arguments boil down into two categories:

- The customer is too stupid / the banker is too slimy for the FRB to work

- It's bad for "society" even though it doesn't harm anyone's rights directly

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The government might legitimately become involved in some such situations: it would depend on the details. For starters, the way you've described it, the government would not ban it, nor would the government bring criminal charges. This sounds like a civil suit.

For instance, one old scam is "perpetual motion machines". Any respectable scientist will tell you that such a machine is impossible. What if someone offers to make one: "give me an advance of $100,000 and I will produce 10 of these machines, and give you a 50% share in the patent". Should the government stop this if the inventor is really and truly convinced that he has found a method that would prove that today's understanding of physics is wrong? No, it should not -- it is not the government's job to mediate on what is and is not true science, unless someone's rights are being violated in the process.

If the inventor is doing this as a scam, knowing full well that he will never deliver, then that is fraud. Even so, I think this is a hard one actually to prosecute. The other party can try to bring a civil suit, but if they both believed the theory and were acting accordingly, I don't see any basis upon which they can be stopped. If we stop them, would we not have to stop people from visiting tarot-card readers? What about Church... what if the priest is starting to have doubts about the existence of God... can his congregation sue him when they find out?

In a previous post, I stated -- without evidence -- that FRB was not a dumb scheme, if it was implemented correctly. So, in my view, neither the "it's a scam" argument, nor the "it's a silly ponzi-like scheme" argument really apply. Still, those two have to be got out of the way first.

If those two are somewhat put to bed, then my next question would be this: do you think it should be okay for people to use any real asset as a basis for money, and that the government should let people decided for themselves? Assuming a 100% (non fractional) standard, would silver, copper, etc. be equally acceptable if people want to use those, even if gold was a more intelligent choice? Are notes okay, as long as they are backed 100% by assets? If so, what if someone had an oil field with 10 million barrels of proven reserves, and he were to issue notes that were rights to those barrels. If it is all above board, people would be willing exchange something of value to get those notes. What if the 10 million notes began to circulate as a form of alternate money in the area around the well. Ten pounds of filet mignon for $100 or for 1 "barrel-note". Would you see anything illegal about that?

No, I don't see anything illegal about that.

The one problem I have left with FRB is that of inflation. If a gold note is essentially traded like gold, the value of gold reduces as the number of notes exceed the amount of gold (due to FRB). This value reduction is a problem.

I could use the reduced value of gold to collect gold at a reduced price, then if FRB collapses to full reserve, my gold gains value. I haven't produced anything of value nor have I performed a service to speak of, yet my net value increased.

The flip side is a man whose gold's value reduces as more notes are created and he trades for notes right as a run occurs and looses everything. I understand taking a risk in a venture and coming up short, but what really happened here? The value of the currency was manipulated.

I suppose we should let it happen as a legal transaction. And I simply need to hold things of value that are not represented by notes, then as close to the last minute as possible (right before a run), i need to trade for the hard items represented by notes. Then start the whole process again.

Does this inflation and manipulation of value warrant an investigation for legitimate gov interference?

Edited by m082844
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No, I don't see anything illegal about that.

The one problem I have left with FRB is that of inflation....

Before discussing inflation caused by FRB, I think it is worthwhile exploring an easier example: silver.

The close of the 1800's was a crucial period in U.S. history (the "Progressive Era"), which laid the groundwork for much of what FDR did. One of the populist cries was that the poor American farmer is being hurt by falling prices, caused by a rigid monetary standard. William Jennings Bryan gave a famous speech where he said that mankind was being crucified on a cross of gold. A key demand was to allow the coinage of silver.

One major problem with dual (gold/silver) coinage is that the government sets the ratio between those two prices. Having done so, the government then has to maintain that ratio even though the demand and supply of gold and silver is changing. One of the ways around this is to have the gold currency and the silver currency circulate side-by-side and to let the market determine the exchange rate.

Key question: would that be inflationary?

If yes, the follow-up question would be: if FRB should be controlled or restricted, should private citizens also be restricted from coining silver and platinum and using those as a form of money?

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