Looking past the Myths

TwentyTricks

the Meticulous & the Meaningless

I'm fond of saying YeNom is the reverse of money. It is perhaps reasonable then to clarify some basics regarding the world's most popular money. Fortunately we have classic comments from Alan at our disposal to serve as authentic examples of popular legends. Reacting to my post “The thought provoking Eric Harris-Braum”, Alan argues, “... referring to [the] introduction of government money, you say, ‘… money is injected into the economic area via bank loans (so it is never free and always burdened with interest). Plus it trickles down from the money moguls to the producers.’ I believe you are looking at this with blinders on! Bank loans are in the middle of the cycle, not at the beginning. Banks can only lend money they possess. They do not create it. The government does that, lending initially created money to the banks to re-lend. Banks also re-lend money from deposits. These deposits come from both the moguls and the peons, meaning it both trickles down and up (i.e., it is again with blinders that you ignore an important part of the overall equation).

To best deal with these typical assertions, I naturally turned to our friendly fiend the Internet. And while the majority of the results coughed up by an initial search are expected to be crude, this particular monetary topic was considerably comical. Government sources are particularly prone to avoid substance and gravel in trivia. Although many ‘authorities’ may welcome Alan's viewpoints and want to encourage them, I still could not find any instance where the line was crossed with blatant falsehoods to justify anything like Alan purports. Not even the Bureau of Engraving and Printing with the incredibly intriguing domain name of moneyfactory.gov offered any support for Alan's claims.

Yet despite a world of fluff, there is still mountains of hard clear documentation aligned with my position. A lucid booklet called MODERN MONEY MECHANICS – A Workbook on Bank Reserves and Deposit Expansion was originally produced and distributed free by the Federal Reserve Bank of Chicago. It is out of print now, but you can still get your own pdf copy at http://landru.i-link-2.net/monques/MMM.pdf or right here. The most on point section has to be the following:

Who Creates Money?
Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.
– The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.
– In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

Then under:

What Limits the Amount of Money Banks Can Create?
The section concludes with, “Thus, the legal reserve ratio together with the dollar amount of bank reserves are the factors that set the upper limit to money creation.” Where “money creation” again equates to crediting bank loans to borrowers' accounts.

Yet more dismal news is to be had directly from the Federal Reserve Board in their current pdf publication titled The Federal Reserve System – PURPOSES & FUNCTIONS as found at: http://www.federalreserve.gov/pf/pdf/pf_complete.pdf
This document maintains: “Although the issuance of paper money in this country dates back to 1690, the U.S. government did not issue paper currency with the intent that it circulate as money until 1861, when Congress approved the issuance of demand Treasury notes.” Hence the U.S. government wasn't even active in the paper money scene for the first 171 years of its circulation. And the government is now essentially on the sidelines yet again.

We further read, “All currency issued by the U.S. government since then remains legal tender, including silver certificates, which have a blue seal for the Department of the Treasury; United States notes, which have a red seal; and national bank notes, which have a brown seal. Today, nearly all currency in circulation is in the form of Federal Reserve notes, which were first issued in 1914 and have a green Treasury seal.” By George, Federal Reserve notes come with a green Treasury seal, they are additionally imprinted with the signature of both the “Treasurer of the United States” and the “Secretary of the Treasury”. Plus we must not forget the compelling images of the likes of Washington & Jefferson. President Washington was so much against fiat that he even used his own silver savings for the initial coins minted. Moreover, Thomas Jefferson in 1791 bemoaned, “I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country.

The really “cute” thing here (“disgusting” works equally well depending on your temperament) is although the worse fears of both Washington and Jefferson have been realized, their very countenance are proudly (or shamelessly) used to add legitimacy to the exact thing they so fervently fought against. Talk about raw gaul! (or is “genius” more apt?) Either way, such knavery has to be of great service in testing the limits of what can be pulled over on the public — a common vicious practice.

To be more than fair, let's acknowledge that no members of the U.S. Treasury are on the Federal Reserve payroll, and furthermore the Fed has no authority to actual manufacture physical currency (neither notes nor coin). So both Alan and the Chicago Fed can say, “The U.S. Treasury, through its Bureau of the Mint and Bureau of Engraving and Printing, actually produces the nation's cash supply; the Fed Banks then distribute it to financial institutions.” (“cash” in lieu of “money” is key here)
    {http://www.chicagofed.org/consumer_information/the_fed_our_central_bank.cfm}

Curiously, the sentences prior to the one just quoted state, “… the Fed sells and redeems U.S. government securities such as savings bonds and Treasury bills, notes and bonds. It also issues the nation's coin and paper currency.” While these two excerpts are from the exact same source, this is not as inconsistent as it may at first seem. Letting the Bureau of Engraving and Printing (moneyfactory.gov) speak for itself, “In addition to U.S. currency, the BEP produces several other security documents such as portions of U.S. passports, materials for Homeland Security, military identification cards, and Immigration and Naturalization Certificates.
    {http://www.moneyfactory.gov/section.cfm/2}

So these dear folks are just the printers. They do NOT determine how much currency is printed anymore than they determine how many passports, IDs or I&M Certificates are created. It is solely the Fed (responding to bank demand) who determines how much physical currency is make and even exactly where the tokens are disposed. Like the portraits and signatures, the ‘participation’ of both the BEP and Treasury is mainly for show since the Fed is calling all the shots with zero Executive Branch intervention. Alas, to make Alan's position yet more dire it is well recognized that even given the BEP's contribution (however trite), “The amount of money printed has no relation to the growth of the monetary base (M0).
    {http://en.wikipedia.org/wiki/Federal_Reserve_System}

Moreover, even while the physical currency portion of the money supply has zero policy leverage (being 100% ‘tail’ in the wagging game) its relative quantity is small and yet more significantly it's shrinking with a vengeance. Heck, carrying very much of the stuff is almost a crime these days.





My point about money trickling down from the money moguls to the producers simply recognized that the bankers' system only grants the power of Federal Reserve money creation to themselves – by making (wise & prudent) loads to ‘deserving’ entities (the government with their flood of ‘securities’ represents the fountain head – i.e. the holly source of debt that drives the machine). Producers themselves are bared from direct participation and so depend on expanded economic activity from bank money to trickle down to them. Note: Selling stock –a money worthy asset– can admittedly be a powerful option for the producers who can accommodate the requirements.

Interest is a bigger deal than it initially appears due to 1) compounding, and 2) the “Multiple Expansion Process” which is much more immediate and potent (this is well covered in the materials cited). The interest game is broadly addictive and is the key means of holding money within the banking system. So even though keeping funds in the bank is a guaranteed looser, stashing cash in your mattress is notably worse.

Alan continues with more musings, “However, the government that originates the money is doing it for ‘free’ to the extent that they are expanding the money supply (as opposed to taxing, which is a far worse burden than is loan interest!). The banks both pay and receive interest, but rather than the interest just being a burden, it is a regulator to prevent rapid inflation while simultaneously rewarding the banks for their productive role (the interest burden resulting in the bank's profits). I am not suggesting that an independent monetary system, say, YeNoms, could not be made to work better free of interest sucking banks, but I am suggesting that the banks play a positive role in the government system currently in use by most the world (even in Islamic countries where ‘interest’ is earned in ways that avoid the direct imposition of interest).

The truly huge part played by the government in this scheme lies in its precious ‘securities’ (the preferred sexy euphemism for ‘debt’). Beyond this critical component, government has little involvement in this monopoly. Thus the first part of the above paragraph effectively finds increased U.S. government debt less burdensome than taxes. To argue that expanding the money supply is (by any measure) a ‘free’ solution is consequently quite curious. Admittedly the Fed can drastically expand (or contract) the money supply through manipulation of the reserve requirements and other means to a lesser extent (such as interest rates). However, none of these measures decisively enable the government to directly usurp producer's assets to fund its objectives. Whereas increases of government debt (deficit spending) unerringly achieves this wealth transfer (although more stealthily).

Tree big differences between overt taxes and deficit spending are:
1) The thief of taxation is blunt and obvious (often involving arduous self-incrimination and invasive reporting requirements). Compliance is always encouraged (some may say compelled) via coercive threats.
2) Deficit spending of $X billion not only directly advances government objectives at the expense of those using bank money, but additionally kicks in a handsome interest penalty to the advantage of the Fed. Whereas the damage from taxation is held at the $X billion figure. This obviously ignores the even more insidious harm that usually flows from the actual implementation of government sponsored programs; but that's pretty much the same regardless of how the funding was pulled off.
3) Taxes afford the government far more power for precise reward & punishment social manipulation. Whereas the damage from deficit spending lacks planed discrimination. Nevertheless it certainly hits the hardest on those who lack the education or means to protect themselves from its onerous effects.
— Alan's sentiment that taxes are a worse burden than the loan interest (on deficit spending), is (strictly speaking) easily true in the short run. However, this astonishingly & wholly ignores the significance of the principle/debt on which the interest is being paid! Nevertheless let's re-look at the above three considerations with costs in mind.
1) In terms of laborious overt taxes – there is no labor savings achieved by deficit spending; as the (paper) work is already expended anyway when paying the normal taxes. In other words, the deficit could have been avoided simply through a mere rate hike with no extra filing hassles. Higher rates of course cause the over taxed individual to suffer a stiffer psychological insult. Depending on your values, those favoring awareness of the people would find deficit spending costly in this regard. While those enamored with aiding & abetting the state would find upfront taxes too risky.
2) Make no mistake about it — deficit spending is a tax (albeit yet more dishonorable than most). And despite the higher overall dollar cost of deficit spending, persons committed to expanding the control and influence of the Fed will prefer deficit spending to higher on-record taxes.
3) Finally, when it comes to the targeted social manipulation enjoyed by precisely engineered tax legislation — the crux to cost assessment is determined by the faith one has in the wisdom of social planners to prescribe a course of action superior to what the subject would elect on their own.
— From my perspective, deficit spending is more costly in regard to considerations 1 & 2, while the 3rd notion of kind & good hearted socialist devising tax incentive based guidance is plain scary – something a would be sane society cannot afford. Those embracing interest on a growing debt over tax burdens are logically expected to always favor deficit spending.







Alan concludes with, “My last point is that the bank burden is a burden only to the extent that you ignore the concurrent benefits. (Note that this point is with reference to government fiat money, which is in context with your point.) One of the primary benefits is the minimization of the need for the ‘free’ money injection by the government. The loan cycle expands the money supply, reducing the overall control by the government (except they still hold most of the reins by controlling the wholesale interest rates). Take away the banks (i.e., loans), and you are left totally dependent on the government for money supply control. Take away the interest burden of loans, and you will have out of control inflation.

In needing to say that the government still holds most of the reins by controlling the wholesale interest rates, Alan is –we hope– referring to the Federal Reserve Board of Governors.

The Board of Governors is the federal government agency that regulates banks, contributes to the nation's monetary policy and oversees the activities of Reserve banks.
– The core of the Federal Reserve System is the Board of Governors, or Federal Reserve Board. The Board of Governors, located in Washington, D.C., is a federal government agency that is the Fed's centralized component. The Board consists of seven members –called governors– who are appointed by the president of the United States and confirmed by the Senate. These governors guide the Federal Reserve's policy actions.

Nevertheless, “Each of the Fed's three parts –the Board of Governors, the regional Reserve banks and the Federal Open Market Committee– operates independently of the federal government to carry out the Fed's core responsibilities.
{http://www.stlouisfed.org/publications/pleng/PDF/PlainEnglish.pdf}
Said independence extends right through to their all important funding which (unlike real federal agencies) is out of the hands of congress.

The essential difference between the Federal Reserve Act and the Aldrich-Vreeland Act lies in the flavor of the name and instilling that same flavor into the bill enough to adequately protect if from the Jeffersonian reactions that derailed their first attempt. World banking interest have proven to best prevail when -camouflaged as- or -confused with- or -linked to- government agencies. The Fed traditionally seeks to associate itself with the U.S. Treasury (which actually is a full fledged U.S. government agency). The Treasury is not a bank. Indeed, U.S. Treasurer, Alexander Hamilton (1757-1804) introduced plans for the First Bank of the United States. It was established in 1791 as the financial agent of the Treasury Department. The bank served as a depository for public funds and assisted the government in its financial transactions. Again from the St. Louis Fed's PlainEnglish.pdf we quote the following:

the Fed as Fiscal agent
In addition to serving as the bankers' bank, the Federal Reserve System acts as banker for the U.S. government. Federal Reserve banks maintain accounts for the U.S. Treasury; process government checks, postal money orders and U.S. savings bonds; and collect federal tax deposits. Certain Reserve banks also sell new Treasury securities, service outstanding issues and redeem maturing issues.

So what is left to the U.S. Treasury Department? Well among other joys and a fancy source of signatures, they still remain in firm undisputed command of all currency issued with the blue seal for the Department of the Treasury — yes, that's right, Silver Certificates — impressive no? Naturally both the Secretary of the Treasury and the Comptroller of the Currency were made part of the Federal Reserve Board of Governors. That lasted 6 terms (some 23 years) until February 1, 1936 when their participation was no longer deemed appropriate.

If Alan considers the Fed Board of Governors as part of the government he is subject to, then I wonder if he also looks to them to represent his best interest. In any event Alan has clearly aligned his monetary reasoning along Fed lines so well, that his positions could hardly befit their cause more. Although increasing interest rates can slow down the velocity of money; a fundamental fallout of the whole compound interest paradigm is the requirement for an ever increasing money supply (a rumored ingredient to inflation). Actually however, lowering interest rates will indeed increase the growth of total interest due whenever if it triggers a sufficiently large increase in new loan creation (damned either way – ya gotta love it!).

From Alan's lead-in, “… the bank burden is a burden only to the extent that you ignore the concurrent benefits.” !?!?! Sir, PLEASE! Regarding money per se, I'm patently passionate about insisting that money is mankind's second greatest invention. And that applies to the entire history of money right up to how things currently stand with Alan's “government fiat money.” Suggesting that I'm ignoring benefits (concurrent or otherwise) is rather whimsical. If there is anything distinguishing in my monetary perspective it lies 180° away from ignoring its utility. How would you succinctly characterize your base evaluation of money?.

The proprietary world monetary system is huge. Nevertheless, the full potential of money is hideously hamstrung and is not performing anywhere close to it's potential which needs a fully free (open) system such as SUYO to be realized.

In closing, I'd sincerely like to invite anyone to kindly forward me any materials that support Alan's version of how the Fed monetary system works. Of all the references supplied above, the one most endowed with quality links to other resources is:
http://en.wikipedia.org/wiki/Federal_Reserve_System

The following table is further offered:

Organization WEB address and Phone number Board of Governors....... www.federalreserve.gov ... 202-452-3000 FED Bank Atlanta ............ www.frbatlanta.org ... 404-498-8500 FED Bank Boston ................ www.bos.frb.org ... 617-973-3000 FED Bank Chicago............. www.chicagofed.org ... 312-322-5322 FED Bank Cleveland ........ www.clevelandfed.org ... 216-579-2000 FED Bank Dallas .............. www.dallasfed.org ... 214-922-6000 FED Bank Kansas City ..... www.kansascityfed.org ... 816-881-2000 FED Bank Minneapolis .... www.minneapolisfed.org ... 612-204-5000 FED Bank New York ........... www.newyorkfed.org ... 212-720-5000 FED Bank Philadelphia .. www.philadelphiafed.org ... 215-574-6000 FED Bank Richmond .......... www.richmondfed.org ... 804-697-8000 FED Bank San Francisco ........... www.frbsf.org ... 415-974-2000 FED Bank St. Louis .......... www.stlouisfed.org ... 314-444-8444

Can anyone guess the simple reason why only one of the above domain names end with .gov?

Comments

3 comments reformated into one entry.

Quoting from above post:  To best deal with these typical assertions, I naturally turned to our friendly fiend the Internet. And while the majority of the results coughed up by an initial search are expected to be crude, this particular monetary topic was considerably comical. Government sources are particularly prone to avoid substance and gravel in trivia. Although many ‘authorities’ may welcome Alan's viewpoints and want to encourage them, I still could not find any instance where the line was crossed with blatant falsehoods to justify anything like Alan purports. Not even the Bureau of Engraving and Printing with the incredibly intriguing domain name of moneyfactory.gov offered any relief.

{from Alan on Sun, 13/Apr/2008} It is very hard to argue with someone who would make the absurd assertion that after a serious information search that nothing could be found which supported my false claims, in spite of the preceding statement “many ‘authorities’ may welcome Alan's viewpoints and want to encourage them.” Just how could an authority welcome and encourage my claims while at the same time no such instance of support for my claims could be found? Either reduce your fanaticism and exaggeration and chest pounding to support your arguments, or you will be doing so without my replies. Plain English with clear argumentation and minimal excess is greatly appreciated.
{from zClark on Tue, 15/Apr/2008} I am impressed with the forceful expression of such an unforgiving perspective which is shared so generously here. Another possible way to construe my comments though is literally. Those who's interest are well served by the Federal Reserve System have carefully and arduously employed well considered strategies to induce the very impressions that Alan expounds. So naturally they would welcome such viewpoints and want to encourage more of the same. That, however, does NOT mean that they are in any position to explicitly do so. They are way too astute to overtly cross factual lines with statements that would put their proverbial tit in the wringer — as they well realize that the likes of the Ludwig von Mises Institute would be seizing that crank with a vengeance.
{from Alan on Fri, 18/Apr/2008} Referring to a rather ambiguous group of people who share interests with the FED, you say: “They are way too astute to overtly cross factual lines with statements that would put their proverbial tit in the wringer — as they well realize that the likes of the Ludwig von Mises Institute would be seizing that crank with a vengeance.” Nice opinion, for those that share it. Worthless assertion for anyone looking for reasoned argument backed by logic and supporting evidence. This is unsupported opinion, ambiguous as to what exactly these unnamed people would not say, and not even clear about what the “factual line” is.
{from zClark on Thur, 14/Jan/2010} Although I am the only one who has bothered to glean quotes from authoritative sources (such as the FED itself), I have not and will not resort to accusations like you just put forth above. The way to honestly hammer me on this (which is exactly what I'm asking for) is, for example, to find any quote from the FED where they agree with you and claim to be 100% government. You will not find it of course, but what is the best you can come up with? While you seem most critical of my “unnamed people” that merely broadens your choices in trying to find anyone who concurs with your opinion. In other-words anything you can find from say the BIS or others would be most interesting.


Quoting from above post:  To be more than fair, let's acknowledge that no members of the U.S. Treasury are on the Federal Reserve payroll, and furthermore the Fed has no authority to actual manufacture physical currency (neither notes nor coin). So both Alan and the Chicago Fed can say, “The U.S. Treasury, through its Bureau of the Mint and Bureau of Engraving and Printing, actually produces the nation's cash supply; the Fed Banks then distribute it to financial institutions.

{from Alan on Sun, 13/Apr/2008} Being part of government is not black and white. A Supreme Court justice or a US Senator is 100% government, but a private citizen/company making pet rocks is not government, and there is every shade of gray in between.
    How about a private company X fulfilling a government contract to make tracks for an army battle tank? Prior to receiving any government contracts or doing anything more than expected of all private citizens/companies, company X is not government. Once the tank tread contract is awarded, company X becomes a functionary of government to some extent, at least to the extent that it is obliged to complete the building of the tread and delivering it to the army.

{from zClark on Tue, 15/Apr/2008} Wow! Well we've certainly dispensed with any naive notions of “government of the people, by the people, for the people” not perishing from the earth. Moreover, the ‘/’ in “citizen/company” signifies to me that the two are basically equivalent in terms of being not government. Given that no company enjoys the ‘privilege’ to vote the way individuals do; it appears that said vote fully fails to distinguish individuals/voters from companies in terms of making the former any part of the government.
{from Alan on Fri, 18/Apr/2008} I am at a loss how you can introduce “government of the people, by the people, for the people” into this point about what it means to be part of the government. You also introduce the privilege of voting into this argument in a similarly irrelevant manner. The fact that companies cannot vote is not relevant, just as the fact that non-citizen government employees can’t vote is irrelevant to what constitutes being part of government as distinguished from not being part of government.

{from Alan on Sun, 13/Apr/2008} The FED is a creation of the government, but has some independence. None the less, it is 100% government. The independence is a political independence. Company X is 100% politically independent from the government, to the extent of that contract and to the extent that politicians cannot cancel that tread contract. The FED is a government functionary, and is responsible to other governmental organizations which are political.
    My point is not to argue what constitutes money (coins, notes, certificates, etc.), who creates them under what authority, and how the total supply is managed, at least not in the detail you are taking this argument. My point is that in the US, the Federal government is the primary regulator and creator of money, and I acknowledge that most money is not directly created by the government. It is the result of banks and brokers, etc., “multiplying” the reserves, while under the regulation of the government (via direct control of the reserve requirements and other regulations). To the extent that the FED regulates reserves and cash and so many other aspects of the banking industry, I claim the government is the regulator of the money supply. My previous claim that the government creates the money could easily be misinterpreted to mean more than this, but I did not mean to imply any more than this.

{from zClark on Tue, 15/Apr/2008} I need, of course, to accept your explanation. My understanding of your position is corrected to realize that any distinction between the FED and government is merely academic since “The FED is ... 100% government.” That is a welcomed clarification, yet it's discouraging on two counts. 1)  It indicates that this sad precept is likely more widely held in general than I'd like to think. 2)  This adjustment is a leap from the frying pan down into the fire morally speaking.  In reference to your acquiescing that the FED has “some independence”; I'll refer that to the late professor Murray N. Rothbard, economist and academic adviser of the Ludwig von Mises Institute who said, “The Federal Reserve System virtually controls the nation's monetary system, yet it is accountable to no one. It has no budget; it is subject to no audit; and no Congressional Committee knows of, or can truly supervise, its operations.
{from Alan on Fri, 18/Apr/2008} Your rebuttal on this point is excellent. However, demonstrating that the FED is not really government with Rothbard’s quote “[t]he Federal Reserve System virtually controls the nation’s monetary system, yet it is accountable to no one. It has no budget; it is subject to no audit; and no Congressional Committee knows of, or can truly supervise, its operations” is as useful as saying “the Supreme Court virtually controls the nation’s judiciary system, yet it is accountable to no one. It has no budget; it is subject to no audit; and no Congressional Committee can truly supervise, its operations.” Note that I left out “knows of” as it does not really apply to the SCOTUS or the FED! Only the private deliberations are unknown, for both! Your real argument then boils down to whether the monetary system is as intrinsic or essential to the government as is the judiciary. I would agree with you that it is not, and should not be, but our opinion of the lack of desirability of the monetary system being an element of government is not establishment of whether it is. In the US, as in virtually every other country, it is. I concur with you that it should not be. I disagree with you that it is not.
{from zClark on Thur, 14/Jan/2010} Interestingly, most persons (such as Rothbard) who bemoan the fact that the dollar is under the control of a global banking system are seeking to have it put under congressional domain. Yet you clearly seem to be saying that you'd prefer that it was NOT under governmental control. So then, who should have control over the dollar? … the BANKS? In any event I've yet to state any opinion on this, hence your above concurrence is premature.


Quoting from above post:  So these dear folks are just the printers. They do NOT determine how much currency is printed anymore than they determine how many passports, IDs or I&M Certificates are created. It is solely the Fed (responding to bank demand) who determines how much physical currency is make and even exactly where the tokens are disposed. Like the portraits and signatures, the ‘participation’ of both the BEP and Treasury is mainly for show since the Fed is calling all the shots with zero Executive Branch intervention. Alas, to make Alan's position yet more dire it is well recognized that even given the BEP's contribution (however trite), “The amount of money printed has no relation to the growth of the monetary base (M0).

{from Alan on Sun, 13/Apr/2008} Since it is the Executive Branch (the president) who appoints the FED members, it is nothing more than misdirection to try to equate what independence exists between the the executive branch and the FED with a disclaimer of FED not really being part of government. The FED is nearly as much a part of the government as is the Supreme Court, who is far more independent of the Executive Branch! And, as I already stated, to bring the specific categories of money, such as printed FRNs into my argument is nothing more than another misdirection. It has no bearing on the point I was trying to make when all I addressed was “the money supply” in the most general terms. Most of your rebuttals do more to reinforce my argument than to refute it.
{from zClark on Tue, 15/Apr/2008} It is disconcertingly clear now that the real focus has shifted to the FED being equivalent to the government. A problem however is that the FED is NOT only the Board of Governors, but includes two other parts – the regional Reserve banks and the Federal Open Market Committee. The significance of the regional Reserve banks filters down to the many member banks. While the open market operations are carried out by the Domestic Trading Desk of the Federal Reserve Bank of New York under direction from the FOMC. And while some pretty trite outfits have the right to a domain name ending in “.gov”, only the Board of Governors qualifies from the above. Dragging in such an immense amount of institutional banking power into the government in this way begs repercussions. For instance, those who insist they are governed by this huge elite banking eclectic lend support wittingly or not to the proposition that said banking interest have unseemly usurped large portions of government power – Aldrich would surely have been delighted.
    As for reinforcing Alan's arguments, I do try to further this. In fact, my noting the BEP's physical cash contribution was done precisely for this reason – so there would be some legitimacy (even if marginal) to contentions that it was the government and not the banks that create (at least one form of) money. After all, it's less tragic to believe that BEP cash is the government money on which the whole FED system is based rather than believing the FED is 100% government.

{from Alan on Fri, 18/Apr/2008} The lack of .gov domain is not proof of being non-governmental. The .edu domain is used for both government and private schools. Other governmental agencies avoid the .gov domain as they try to masquerade as non-governmental agencies. The CIA certainly is not the only part of government that regularly makes use of .com domain names. Conversely, as you point out, entities distinctly apart from the Federal government adorn the .gov domain, especially in the municipalities. More specifically, the assignment of domain names is managed by non-government agencies without the guidance of laws or legally enforceable regulations. It is an interesting subject, but hardly sound support for an argument that the FED, et. al., is non-governmental.
{from zClark on Thur, 14/Jan/2010} AGREED

{from Alan on Fri, 18/Apr/2008} I would prefer to take a big step back, and make sure we are clear on why the FED being part of, or separate from, government is material to the core argument. That is, why is this point more than a distraction from this thread. My original purpose for challenging your claim that the FED is not government was because I thought you should remove the claim from your central theme because it is factually incorrect, and therefore weakening your other claims by association (i.e., when you play fast and loose with the facts, you undermine your overall credibility). I did not intend to amplify argument on this point. If it is both factually correct (in your opinion) AND substantial in supporting your main contentions, then we should continue trying to resolve the factual correctness of the claim.

{from zClark on Thur, 14/Jan/2010} AGREED. While your reaction to all this is morbidly fascinating – it seems that your main lesson has been put forth sufficiently well and we are at a point of diminishing returns.

{from Alan on Sun, 13/Apr/2008} Most of my points are valid to all forms of the money supply, but were directed specifically at your original statements dealing with banks, and savings and loan interest, and the direction control and flow. You see it as mostly one way, and I see it as being more complex, flowing up and down. Your original argument appeared to be focused on blaming problems on banks which I claim are more broadly based problems of which the banks are only a major component, where you claimed the moguls pulled all the strings but where I claimed the mega deposits and loans of the moguls were significantly offset by the multitudes of peons doing the same in smaller pieces, where you claimed the government was not so much involved due to the independence of the FED, but where I claim the FED is just another part of the government.

{from zClark on Tue, 15/Apr/2008} All this contention arose from me saying, “…, money is injected into the economic area via bank loans (so it is never free and always burdened with interest). Plus it [money] trickles down from the money moguls to the producers.” Admittedly this fails to develop all the points that could have been made at that juncture, but it hardly precludes them either. In hind-site, my use of “money moguls” was not optimal. “Federal Reserve Note monopolist” better conveys my exact meaning here. “Producers” then include anyone from mom to ExxonMobil.
{from Alan on Fri, 18/Apr/2008} OK!


Quoting from above post:  Alan continues with more musings, “However, the government that originates the money is doing it for ‘free’ to the extent that they are expanding the money supply (as opposed to taxing, which is a far worse burden than is loan interest!). The banks both pay and receive interest, but rather than the interest just being a burden, it is a regulator to prevent rapid inflation while simultaneously rewarding the banks for their productive role (the interest burden resulting in the bank's profits). I am not suggesting that an independent monetary system, say, YeNoms, could not be made to work better free of interest sucking banks, but I am suggesting that the banks play a positive role in the government system currently in use by most the world (even in Islamic countries where ‘interest’ is earned in ways that avoid the direct imposition of interest).” - The truly huge part played by the government in this scheme lies in its precious ‘securities’ (the preferred sexy euphemism for ‘debt’. Beyond this critical component, government has little involvement in this monopoly. Thus the first part of the above paragraph effectively finds increased U.S. government debt less burdensome than taxes. To argue that expanding the money supply is (by any measure) a ‘free’ solution is consequently quite curious. Admittedly the Fed can drastically expand (or contract) the money supply through manipulation of the reserve requirements and other means to a lesser extent (such as interest rates). However, none of these measures decisively enable the government to directly usurp producer's assets to fund its objectives. Whereas increases of government debt (deficit spending) unerringly achieves this wealth transfer (although more stealthily).

{from Alan on Sun, 13/Apr/2008} First, my quoted ‘free’ was specifically to avoid the exact conclusion you drew from that word! I was using it as irony. I find the governmental expansion of the money supply extraordinarily burdensome to the overall economy, but less so than excessive taxes, and even less so to massive deficit spending. All have large stealthy attributes, and are great burdens. I agree with you that the most burdensome is excessive deficit spending. Your elaboration on these points is good, but not an argument against my claims or beliefs. That is, they belong in your main blog, and not in the rebuttal of my arguments against some of your minor points.
{from zClark on Tue, 15/Apr/2008} The clarification of your intentions concerning ‘free’ are appreciated, as I was admittedly mystified by that. You are right about this post belonging in the main blog and not a rebuttal to your January 12th comment. In fact that's exactly what this post is. If I was merely responding to your comment then this would have appeared under said comment in a much shortened form. Indeed, this new “main blog” post is titled “Looking past the Myths” and was inspired by the insight gained from your comments. There was never any intent to limit my new post to a mere rebuttal. Notably, the expansion/clarification of your position here (that the FED is 100% government) clearly demonstrates not only that a whole new post was warranted but also that my expansion of this topic actually did not go far enough.
{from Alan on Fri, 18/Apr/2008} OK!


Quoting from above post:  Nevertheless, “Each of the Fed's three parts –the Board of Governors, the regional Reserve banks and the Federal Open Market Committee– operates independently of the federal government to carry out the Fed's core responsibilities.

{from Alan on Sun, 13/Apr/2008} This is a NIT, not a “the sky is falling” rebuttal of your main point, but the FED and its parts are part of the Federal Government. It is less independent of the rest of the government (the non-FED parts) as the Supreme Court is independent of the rest of the government (the non-SCOTUS parts).
{from zClark on Tue, 15/Apr/2008} Milton Friedman believed that the power to issue money should ideally rest with the Government instead of private banks issuing money through fractional reserve lending. So every time Alan insists that the FED is already 100% government, I muse about how satisfying that argument would have been for Mr. Friedman! Also Alan's comparisons of the FED to the Supreme Court reminds one that the the U.S. Constitution emphatically and clearly establishes the Supreme Court, while it largely prohibits something like the FED (“No State shall, ... make any Thing but gold and silver Coin a Tender in payment of Debts; …”).
{from Alan on Fri, 18/Apr/2008} OK, so long as you don’t consider that the constitution has a) been amended, and b) been refined by legislation, and c) has been elaborated on by the courts, and d) is exactly what the Supreme Court says it is, even if you, I, or Dr. Friedman says otherwise. In other words, the FED is not prohibited from being part of government because your narrow interpretation of the constitution isolated from the various amendments and court rulings says so. In any case, your chosen quote from the constitution used to support your argument comes from Article I, Section 10, and refers exclusively to “Powers prohibited of States” (as it is titled), and says nothing about restrictions on the federal government, which is what I claim the FED is a part.
{from zClark on Thur, 14/Jan/2010} Some good points.


Quoting from above post:  If Alan considers the Fed Board of Governors as part of the government he is subject to, then I wonder if he also looks to them to represent his best interest.

{from Alan on Sun, 13/Apr/2008} That would be a NO to your non-sequitur. Why would any rational person presume all functionaries of government are tasked with representing the best interest of each citizen?
{from zClark on Tue, 15/Apr/2008} This question was posed to test just how far persons' faith in the FED as government might run. And while functionaries charged with filing records for instance may not need to be concerned with anything beyond their mundane chores; the guardians of a peoples money supply have absolutely no valid excuse to exist if it isn't (at least theoretically) to serve the public interest – particularly if they are 100% government anyway (as Alan insists).
{from Alan on Fri, 18/Apr/2008}We both agree that the purpose of government is to serve its citizenry, but you are taking this view far to narrowly. So long as the laws and the courts assume that the FED is serving the general welfare of the citizens, then the FED is assumed to meet its reason for existence. It falls upon those who believe otherwise (you and me) to either convince the elected representatives of our position, or elect other representatives who do agree with us. That is, having a very well grounded, eminently justified, completely rational, and highly supportable position that the FED is antithetical to serving the general welfare of the People of the United States in direct conflict with the preamble of the constitution, does not make the FED non-government (unless the Supreme Court agrees with this, in which case it would likely cause the redefinition of the FED’s allowable activities, including the possible complete dismemberment). On the other hand, to presume the FED is not government because you think it does not support the citizenry is analogous to saying gravity does not exist because it causes things to break and other bad things. The correct approach is to have proper recognition of the reality of the FED, and a plan on how to alter that reality to a more favorable reality.
{from zClark on Thur, 14/Jan/2010} The most pertinent thing I can say here is that with regard to YeNoms, there is zero need to be concerned with reforming anything at all – at least NOT in terms of prevailing monetary systems or powers/authorities to be.


Quoting from above post:  In any event Alan has clearly aligned his monetary reasoning along Fed lines so well, that his positions could hardly befit their cause more.

{from Alan on Sun, 13/Apr/2008} My statements were meant to point out the accepted economic understandings on minor issues of disputes with your prior claims. They were not so much support of the FED as they were trying to point out your co-opting of conventional economic understandings and definitions for your own views (which I share to a great extent). Your better course of action would be to provide your own working definitions of terms explicitly (or provide new terms with definitions) when making statements that presume generally accepted definitions and theories are wrong. It is true that on some of these points, I am in disagreement with you, but more importantly for your argument to be persuasive, I suggest you explicitly acknowledge that you are in disagreement with the mainstream and most academics, lest others think you are ignorant of that which you are trying to change. That is, it is fine for us to argue with each other over, e.g., the relative costs and benefits of the current banking system, but you choose to take on the entire banking system and economic academic institutions to put down my points. This is not a good way to promote your message to others.
{from zClark on Tue, 15/Apr/2008} Here's some well worded and effective commentary. Hopefully I'll readily employ Alan's points regarding definitions whenever applicable. In the case of this post, however, I'm mostly quoting from the Federal Reserve itself. So it's hard to see why the FED would not be considered conventional. Not to mention that I'm often not expressing any personal views anyway – at least not in the way one would commonly presume. {Thur, 14/Jan/2010 Update: For instance while (unlike Alan) I certainly do suggest that the Federal Reserve is NOT 100% constitutional government that should not be taken as an argument that this is necessarily a bad thing (especially once fiat currency toppled gold & silver). IF the FED is under the control of the international banking system then any power that they wield will certainly NOT go to further US national sovereignty (at least not in the way one would expect if congress was in control of the money). But again, one best not assume what my moral assessment on such matters might be.}

{from Alan on Sun, 13/Apr/2008} When I attack your specific arguments directly, you respond with a moving target and far broader issues. You seem to miss the fact that I mostly support your broad arguments and fundamentals, and choose to only argue minor points which I feel undermine the bigger picture of your message. When you broaden back out my points of disagreement, you undermine your own arguments, contrary to my purpose. When I pick on a nit of yours, I would prefer that you either change my mind, or retract (or modify) the nit from your argument. When you try to bring back the breadth and depth of your many arguments to attack my nit, you mostly just tire me out.

{from zClark on Tue, 15/Apr/2008} It can certainly be said that I identify with your frustrations.

You never posted my reply from last month

I've been waiting for your reply, but I just noticed you never posted my reply from last month which addressed most of your 9 points. What happened?

-- Alan

I accidentally lost Alan's interesting reply

Yes, Alan's interesting comments of April 18th were not timely posted as he notes above. This kind of thing would typically be attributed to tardiness on my part in tending to pending comments. In this case, however, I accidentally lost his entry by inadvertently marking it as spam while I was clearing out hundreds of spam comments (i.e. his golden needle was chucked out with a haystack of shit). In fact, I inadvertently lost all the comments for this post while investigating the problem. Anyway it is now all fixed and I'm much better equipped to handle future WordPress/MySQL issues.

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