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The Difference between Debt-Free Money and Interest-Free Credit

by on October 11, 2013
debt-free or interest-free?

The endless barrage of debt, debt, debt, makes debt-free money sound very attractive. But the problem is not debt, it’s interest and interest-free credit based money is superior to debt-free currency. On the other hand, debt-free money could easily be repaired to again be a competitive proposition.

Debt-free money is simply unbacked ‘paper’ (nowadays it’d be mostly electronic, of course) money, printed (usually) by the State. It can then either spend it into circulation itself or have the populace do it. The former is commonly referred to as the Greenback, the latter is known as Social Credit.

Interest-free credit is credit by bookkeeping. Not unlike our current fractional reserve banking system, although Mutual Credit is a simpler and superior way of creating credit, as there is no need for deposits (‘capitalization’). Hence Mutual Credit is intrinsically stable, while fractional reserve banking based lending facilities go bust routinely.

Debt-free money is spent into circulation and continues to circulate until it is retired through taxation. Interest-free credit is lent into circulation and is retired when the debt is repaid. Often the two meet. For instance: John Turmel recently gave the example of a Continental (George Washington’s debt-free money) being spent on infrastructure and retired through taxation covering the investment. In this way debt-free money is basically used as interest-free credit by the Government and the circulating Continental could be seen as the National Debt.

A noteworthy difference between interest-free credit and debt-free money  is that interest-free credit can be spent as often as it is repaid, while debt-free money can only be spent once. This means interest-free credit is more flexible.

Isn’t debt a problem?
Debt as a problem is overrated. It’s not so much the debt, but the interest that is killing us. A mortgage is good example: we go into debt to buy the house, say $100k and after 30 years we have paid $250k, $150k interest. For the repaid debt we obtained a house, for the usury we got nothing.

Crucial to understand is that it is not the bank’s credit. It’s just bookkeeping and the banks keep the books for the community, who really owns the credit. It is in reality our brethren who are allowing us to buy now and pay later. Credit is automatic, when it is mutual.

In the news we hear about debt, debt, debt, but nobody is ever complaining about debt-service, while all the debt could be repaid within twenty years should we stop paying interest and use that money to pay back the principal. Why is this so?

Bankers know loans can go sour. They hate to write them off, but will gnashingly do so,  if they cannot avoid it. Business is business and they are realists. But whereas a write off is a one time loss, ending interest payments would just kill their business case.

This is one of the reasons why I prefer an interest strike over debt repudiation too, except for odious debt, which should be repudiated always.

For the debt real stuff was acquired and while the bank loses when the debt is not repaid, it does not gain anything when it is: the money is just retired. It’s not the bank’s, it did not exist before the loan was taken out and disappears when the loan is repaid.

An interest strike, on the other hand, is to a bank what garlic is to a vampire.

The reason the people don’t talk about suspending interest payments to alleviate the debt quagmire is equally clear. They still don’t understand how they are being colonized through Usury. They assume interest on the debt is natural, as they were programmed to.

Having said that, debt is a bond. The lender is the master of the debtor. Less is more. Even when the lender is the community represented by an interest-free credit facility and even when the debt is for a worthy cause, like an interest-free mortgage.

So isn’t debt-free money perhaps better after all? The issue is, that classical debt-free money proposals are accompanied with Full Reserve Banking. The money would not be debt-free for long, once it is spent into circulation. Once it enters the banking system, it will not leave other than as a loan. A usurious loan. Because of the usury, a quick return of money scarcity after spending the money into circulation can also be expected.

So debt-free money in itself does not end interest-slavery. Because the money will be handled by banks, there will also be money scarcity. Not only because of the usury, but also because the bankers will keep money from circulating in the real economy, most notably to feed their gambling addiction in the international financial economy.

Furthermore, a modern economy without credit is unthinkable. People will need mortgages and even more importantly, modern business is impossible without credit. Investments can be very capital intensive and these investments would be impossible to save beforehand. People will perhaps not be too bothered with businesses paying interest, but the reality is the businesses will have to pass on these costs to their customers, being us.

Repairing Debt-Free Money
These days we can provide Full Reserve Banking without interest, through JAK banking. That’s one way of solving the usury problem with debt-free money. Savers don’t get interest on their savings, but they acquire future rights to interest-free loans if they save now and allow that money to be used for interest-free loans to others.

Probably even better is demurrage, where those with a positive balance pay ‘interest’, basically a penalty for holding money. Demurrage is based on the ways of the ancients, who used to store produce at central warehouses and got receipts in return. These receipts were used to pay others and they declined in value, because the produce in the warehouse did too.

Demurrage is designed to discourage hoarding of money. As a result, velocity of money (how quickly it changes hands) is vastly increased. Not only that, the penalty gives a clear incentive to lend interest-free, as it saves the cost of holding on to it. It is also promotes paying in advance, which also amounts to an interest-free loan. Paying up front instead of at the time of the purchase is very beneficial for the supplier, who can use the money to finance investments interest-free. So demurrage lessens the need for credit and provides interest-free credit.

The great disadvantage of demurrage is that there is little experience with it. The upside is, the experience there is, is very positive. The classic case is Wörgl, Austria, where demurrage money solved the Great Depression in 1934.

Conclusion
Interest-free credit is superior to debt-free money. It is more flexible and gets to the heart of the matter, which is usury. We will never be able to do without credit, but we can rule out interest on the debt.

Current debt-free proposals do not comprehensively solve usury, and thus also not money scarcity.

However, debt-free money can be decisively improved, both by interest-free JAK banking and demurrage.

There is no tutor like practice and ultimately we will have to experiment with different systems to know which is best.

The best part of the story is, that we have several ways of solving our monetary problems overnight. Only the knowledge and the will are lacking as yet and this is changing too.

Related:
Debt Free Money alone does not solve Compound Interest
Debt Repudiation or an Interest Strike?
Cause and Effects of Money Scarcity

85 Comments
  1. bobos permalink

    The money must be given freely by the government, without banks, without debt, without loans, without interest, and if the velocity of money is very high (inflation) then money can be removed from the economy with tax following the Cambridge equation: https://en.wikipedia.org/wiki/Cambridge_equation

  2. Slavery is the Debt-Money Problem

    Since the Switch, our American medium of exchange is now created as loans or debt-money. If Government, Business or Individuals do not borrow there is no money to spend, earn or save.

    99.9% talk about the interest charged on debt-money as if interest was the main problem, wrong or injustice. To these people, debt-money is a Math problem centering on the inability to pay the interest. Only the principal is created with each loan. The principal is extinguished when repaid. So, where does the money come from to pay interest on the principal? Interest is a Debt-money problem. But, it’s not the main problem.

    The Main Problem with debt-money is Slavery. Slavery is always when one is forced to perform for another. Few, if any, think about the servitude created when one is forced into debt and obligation to obtain a medium of exchange.

    Even if interest is not charged, the borrower is still obligated to perform according to the terms of the money creator to obtain the medium of exchange. The money creator decides who gets money, if they get the money, how much money they get and the terms. When the slave repays the loan principal he is again without money and must resubmit to the money creator and his terms.

    If a borrower ‘gets ahead’, repays his loan with money left over or ‘savings,’ someone else is short the money they need to repay their loan.

    Were all money is created and ‘spent’ not ‘lent’ into circulation there would be no servitude or interest-related problems.

    This and other ‘Money’ perspectives may be discussed Saturday Mornings at 10 CST by calling the Wealth Money Radio Show. 347-884-9899

    • No, this is completely mistaken.

      The problem is not credit based money creation, but the Usury on it.

      The economy needs credit, there is simply no getting around this.

      And if we need credit, we might as well create the money as credit, without interest.

      I’m not persé averse to a debt-free money suppy, but only if additional measures are in place to solve the Credit issue.

      This is the great blind spot with I daresay most monetary reformers: they try to solve money, without solving credit, while Usury, which is the core issue, is obviously a function of credit.

  3. Reblogged this on Elemental Collapse.

  4. 100% interestfree credit destroys the money and the economy/

  5. Hallo permalink

    for some reason when i wrote charged or credited this words disapeared,maybe because i puted this words between > < anyway thing of it like a balance sheet the account is charged and then in order to reach zero it is credited

  6. Hallo permalink

    First of all im very happy that im not alone(or crazy).i see many people that are looking for alternatives(not enough but somethings happening).especially in the internet people are discusing such an interest topick.(Even in my country greece….)

    Saying that I have a proposition,what if a central authority does not create money or credit and what if the currency is not interest bearing and what if noone is forced to borrow money(credit) from someone else to do trade.

    And im explaining:
    What if every producing(mark producing) unit of the economy was issuing its own credit,for example,i am a doctor,so i issue 25 days of work 8 hours per day,or im a farmer and im issuing 5 tons of tomatoes,or im an industry and i issue 5000 cars,or im an electric company and im issuing credit for electricity.

    Now someone might wonder how can this work if everyone is issuing whatever they want and how can this system work and most of all why do it like that??

    The sollutions are in front of us,whenever i issue something i sell it to a public exchange(like the stock market or forex market)so i sell my debt obligations(future service or future production of something)and in return my account is “charged” with some amount of money that is instantly created(this “money is a mere scorekeeping board).To understand it better picture it in you mind as a card game,whenever someone wins the score keeper is charging the winner with some points(out of nowhere).All services and products are gonna compete with each other just like the eur/usd or the eur/yen etc…all of them connected with a single type of money(for convinience).F.E. i issue 2 hours of accounting keeping and someone else is issuing 10 kilos of tomatoes,the accounting service/tomatoes exchange rate is 1.30,simmilarly tomatoes and accounting services have an exchange rate for everything.so my book or electronic card or account is with some credits that i can in turn spend to buy products.Then in order for the system to balance my account(book or card) must be to reach zero(or equilibrium) like a balance sheet (that means that someone else is actually buying what i have sold).

    The money that is going to be the common denominator is gonna work both for convienience and for international trade,the more we export the more “denominators” we are gonna have and the more we import the less we are gonna have(this will function us our foreign reserves).But they will not affect the domestic economy and the domestic credit creation cause prices are gonna take proper form,it will only restrict or empower our ability to import or export in regard to foreign markets.(depreceation or apreceation of our currency to foreign currencys)

    When it come to what this should be it can be anything from gold to foreign floating currencys,in our economy it will reflect or common denominator(exacly the way domestic non floating currencys work)and if others begin to trust us they may accept our “promises”(free floating)(fiat common denominator)

    In order to keep credit or people from issuing whatever they want then some regulations can be put in place like weekly or monthly credit or at cases of long term production or huge ammounts of capital the issuer can put as collateral there own assets.as the economy functions,accounts will be charged and credited constantly.

    In order to prevent quality from being completely forggoten,(for example a lawyer or a teacher maybe better than others)anyone would be able to sell there debt obligations to anyone outside the good and services exchange(if someone else accepts them)

    For the case of social welfare,pensions,army,justice and policing,the state can simply tax these obligations as it would have otherwise,and continue its functions

    For the case of saving the citizens/producers/consumers can save anything they want from gold and silver to houses stocks or wine😀

    For the fear of gold maybe replacing this credit system(maybe someone would want to create credit with gold for collateral to extract interest).This simply cannot happen cause bad money drive out good money(Gresham’s law).Furthermore the system is not in danger to remain without credit(money)as long as people are willing to work and issue debt obligations

    The reason that this is a preferable system its because
    1.money (or more accuratly credit)is created(charge) whenever real wealth is created and then it is destroyed when it is consumed(credited)(book keeping) (accountants i think can understand)
    2.there is no interest on money
    3.there is no debt that must be repayed
    4.no one is holding these valuable credits and charge interest in order for the economy to function
    5.no central authority or privilaged private authoritys control the money supply
    6.if you are willing to work you simply trade your work(you dont wait for europe to unify and run deficits or the federal govement of the usa to do so in order to satisfy the needs of the economy for money.the money supply is constand
    7.its free,economicly and ethicly

    p.s.bare in mind that only wealth producing economic units or entitys can create credit(debt obligations)(farms,doctors,building companys,industries,minds,teachers,hospitals)retail distributors and workers cant(they simply wait for the credits to kick in as revenues and workers to receive wages)if a worker wants to issue debt obligations then he may be able to sell his work and issue credit,in return his account is and then by working his account is in order to balance.

    p.s.2 IMPORTANT FACTS
    credit issuing=debt obligations
    and =double book keeping (accounting)
    public market=goods and services market(like stock exchane or forex)
    money supply=the credit that is created through debt obligations
    common denominator=a fixed ammount of either fiat or non fiat money that appreciates or depreciates based on the balance of trade!
    i suppose that my currency is not a free floating one,thats why i keep reserves,if my economy reeches the potential then those debt obligations(repacaged to money for foreigneres) can function as reserves for others.

    p.s.3This system has functioned in the city of volos(greece) ARTICLE:http://www.bbc.com/news/world-europe-17680904.Its not so well constructed and ellaborated but simple every day people created “a bartering system” to trade with each other cutting OFF the euro.In reallity what they do is that they issue credit by charging a book and then they balance this book by crediting the book(yes an actual book).if someone doesnt balance the book then he is cut of from the system until he does.see how vibrant the market is.they have even listed there products and services online VIDEO : https://www.youtube.com/watch?v=nZDjq_NVLG4.

    p.s.4 Im not from volos

    Finally readding the ideas of the creator of this site,i too agree that money is for trade and not for hoarding…so woalaaa!!

    • Luigi permalink

      Your proposal is really interesting, I have three questions tough: what if due to some accident/illness someone is not able to work? He/her should rely on the fact that someone in their family is filling the gap? What is someone cannot work and has no family members providing for him/her?

  7. The Fallacy of “Money as Debt”

    http://iakal.wordpress.com/2014/01/20/the-fallacy-of-money-as-debt/

    • Paul Grignon does not believe that debt + interest is not payable.

      I do though.
      https://realcurrencies.wordpress.com/2013/04/01/is-there-enough-money-to-pay-off-debt-plus-interest-a-closer-look/

  8. The paper-money system and its natural associations –monopoly and exclusive privileges– have already struck their roots too deep in the soil, and it will require all your efforts to check its further growth and to eradicate the evil. The men who profit by the abuses and desire to perpetuate them will continue to besiege the halls of legislation in the General Government as well as in the States, and will seek by every artifice to mislead and deceive the public servants. It is to yourselves that you must look for safety and the means of guarding and perpetuating your free institutions. In your hands is rightfully placed the sovereignty of the country, and to you everyone placed in authority is ultimately responsible. It is always in your power to see that the wishes of the people are carried into faithful execution, and their will, when once made known, must sooner or later be obeyed; and while the people remain, as I trust they ever will, uncorrupted and incorruptible, and continue watchful and jealous of their rights, the Government is safe, and the cause of freedom will continue to triumph over all its enemies.

    “But it will require steady and persevering exertions on your part to rid yourselves of the iniquities and mischiefs of the paper system and to check the spirit of monopoly and other abuses which have sprung up with it, and of which it is the main support. So many interests are united to resist all reform on this subject that you must not hope the conflict will be a short one nor success easy. My humble efforts have not been spared during my administration of the Government to restore the constitutional currency of gold and silver, and something, I trust, has been done toward the accomplishment of this most desirable object; but enough yet remains to require all your energy and perseverance. The power, however, is in your hands, and the remedy must and will be applied if you determine upon it.”

    • As usual, the nameless Troll #789 copies and pastes money power dupes and shills from over 100 years ago that have nothing to do with the topic at hand.

      Troll #789 please read what I have listed below two or three times, what ever it takes to sink in:

      WE DON’T HAVE ANY GOLD OR SILVER

      Yes, you would have countries rent gold and silver from the money power in order to have a medium for exchange. You would trust that they actually rent gold and silver that they have even though we know that the gold/silver scam has been run for thousands of years.

      Wake up! Get your head outta you ass… you’re an unwitting dupe.

      • great comment! back money by the productivity of the worker, like Germany did! first we would have to put non productive people who parasite off of the working class into labor camps and force them to become productive, that and the nationalization of the banking system into the hands of the new master of state – the worker and the farmer, that was hitler’s great sin against Judaism…

    • Chris permalink

      But how would a government issue its own credit ? I like your idea so far i’m just testing this idea ?

      • Do the same as bank: double entry bookkeeping. Just do it without the Usury.

  9. btw
    The LaRouche crew is way ahead of you–

    [quote]
    United States Federal Credit System
    To Restore the Original Bank of the United States
    Returning the United States Economy to the Principles of the U.S. Credit System

    Introduction to Draft Legislation

    Only in brief periods of United states history has the government used its powers to create an economy operating according to the time constraints of growth, unifying the physical economy with the financial system, and thus allowing nation-building to be guided by the intent of future productivity. only for brief periods –in 1789-­1801, 1823-­1830, 1861-­1869, and 1933-1944– when the economy was operating under the guidance of a credit system policy, has the U.S. economy been properly conducted in accordance with the design of the Constitution.

    In all other periods, nation-building was internally or externally attacked, and U.S. policy was subverted by monetarism. in each mentioned period, the credit system of the United states has been the means to break from that control, and to expand and develop the United states and other nations. it has been precisely the brilliant success and effectiveness of the U.s. credit system which has made it the object of attack and obfuscation.

    Monetarism constantly looks backward to the past, with the aim of monetizing the results of past production, rather than the creation new wealth. the credit system operates on the confidence in the future. rather than depending on past production, or stores of wealth, it creates wealth by tying the future completion of projects, and production of goods and manufactures, to the original promise. the currency of monetarism is formed by the liquidation of present goods into money. in the credit system, rather than the products of growth, growth itself is the currency.

    Monetarism views debts as a burden to be immediately dissolved, and demands their payment in the present, at whatever expense to the future, and waste of the past. Within the credit system, debts are not self-evident objects; the action which generates value through the process of their extinguishment is included in their creation.

    Monetarism measures all value by capital and labor, and gives to money a self evident value. in the credit system, the measure of value is not capital or money, but the mental powers which increase the productive powers of labor, which, in turn, increase productive output, thereby increasing the value of goods, labor, and capital. Productivity is therefore the measure of the value of capital. With increases of productivity, the cost of production decreases, and the value of currency increases.

    Money can be converted into capital and goods, but credit, though itself not capital, increases the efficiency of capital. Credit makes the same quantity of capital or labor more efficient and productive, and is an accelerating cause of wealth, a potential which surrounds existing capital at all times and that which puts it into action. the value of national economies is thus defined by the organization of the relations of existing capital and the potential drawn forth by credit.

    The credit system thus views the total economy as a productive system, and its essential aim is to promote increases in total efficiency and the productive powers of labor through investment in technological progress. it is expressed as a concordance between the laws of the representatives of the people, and the development of resources and industry of those people, defining a paradigm outside the imposed axioms and rules of monetarism.

    In the following pages, the key principles of the U.S. credit system will be demonstrated historically, and the necessary understanding to correctly administer its revival, through the included draft legislation, obtained.
    [/quote]

    should consider what you are parotting

    • the bank of the united states was gotten rid of after only 4 years for bankrupting the country…

      • or was that the bank of north America? either way all jewish central banks must be destroyed along with the chosenites stranglehold on anything, new legislation must make it illegal for jews to possess so much as a steak knife!

  10. this guy is also under the impression that silver coins are interest-free and debt-free money:–
    “the 1792 Coinage Act was passed. It set forth in law, the concept of free coinage. Anyone who brought bullion to the mint could have it weighed, assayed and stamped into coins FREE of CHARGE. The metals were returned to the producer still as a wealth but as a debt-free money in coin form.”

    never let facts rain on your parade:

    For instance: John Turmel recently gave the example of a Continental (George Washington’s debt-free money) being spent on infrastructure and retired through taxation covering the investment.

    Yes, just as the Liincoln’s 7.3% treasury notes were interest-free
    The continentals were evidences of debt, they promised to pay silver, eventually they did pay silver (with much interest); the revolutionary debt was not fully extinguished until 1835 –when the impossibility equation was not yet invented.

  11. Larry permalink

    Byron Dale and Gregory K. Soderberg raise an interesting objection to 100% debt money systems (both interest interest bearing & interest free):

    …‘forcing people to incurr debt to obtain a medium of exchange creates economic servitude-slavery.’ It doesn’t matter if we are charged interest or not or if the interest is payable or not. There can be no Freedom without Economic Freedom.” — http://www.wealthmoney.org/articles/critical-math-flaw/

    They suggest that some amount of debt free money (they refer to as “wealth money”) must be spent into the economy. They outline a plan whereby states would charter banks to create money for productive needs. Byron and Gregory have not only devised a plan, they have taken it to the political arena by pushing state bills (they’ve had hearings) and Gregory ran for Governor of Minnesota on a monetary reform platform.

    “The SOLUTION to our growing debt, tax and cost-of-living problems (the American Transportation Act) proposes a return to ‘monetizing’ of production as wealth to the people rather than as debts to the people as is currently practiced. ‘Monetizing’ would be done through the government coining and printing the money to pay for the building and maintenance of public roads, bridges and public transit systems. This is the best form of production to be ‘monetized’ because building roads and bridges is an excellent way to move newly coined or printed money into commerce.

    “In studying the Supreme Law of our Land, the Constitution of the United States of America, Byron Dale, author of the American Transportation Act, observed that Article 1, Section 8, clause 5 states that Congress was “to coin money.” and clause 7 states that Congress was “to provide …post roads.” Byron reasoned that there would be major advantages to combining the two processes.” — http://www.wealthmoney.org/articles/solution/

    There is much to be said for an aggregate money system whereby new money is created with both interest free (0%) loans and some amount of debt free money spent into the economy.

    An adequate circulation may be easily maintained to support the full productive capacity of the people – which means full employment and competition for workers.

    If they choose to; people may save – without contracting the amount of money in circulation. There is no need to punish savers with a demurrage tax.

    • I’m certainly not against hypbrids. In fact, I’m pretty much convinced they’re the way forward. A diverse monetary system will probably prove both more stable and more effective.

      I looked at the article, but Dale & Soderberg only work out why debt + interest cannot be repaid, not why interest-free debt is slavery. A case can be made, of course, although I believe it is flimsy one, considering the simple fact that I cannot see how we can run an economy without credit. And if we are going to need loans anyway, we might as well use credit to create a money supply with.

      I think a fairly simple formula is available to see how much debt-free vs. interest-free credit based money should circulate, something along the lines like:

      If we need more credit than we need money, than we can create all the money as credit and do some additional JAK banking.

      If we need more money than credit, we can create some credit and print the rest of the money supply debt-free.

      In an abundant money situation (where resources and labor are scarce, not money), we would probably need a lot less credit. But my hunch would still be that we need more credit than money.

      But the bottom line is that if we accept that we need credit (and thus debt), than I can see no real reason why we should not create money as debt.

      • Anthony… thanks for the discussion.

        Anthony wrote: “I’m certainly not against hypbrids. In fact, I’m pretty much convinced they’re the way forward. A diverse monetary system will probably prove both more stable and more effective.”

        We find common ground and recognize the need to explore what you referred to as “hybrid” monetary systems (in the creation of new money). I call it an aggregate monetary system that includes both:

        (1) 0% interest loans (eliminate the mathematical killer that is usury / interest). 0% Loans would be available to the private sector and local government.

        (2) Debt free money (does not need to be repaid); created by a sovereign. I think that except for unusual circumstances; all debt free money should be spent into the economy by states / provinces. The body that creates the money (congress / parliament) should be separate from the more local body that spends that money. This helps provide checks and balances while keeping the spending decisions much closer to the people. After all, it is their money (sovereign credit) and the people should accrue the benefits first.

        Anthony wrote: “I looked at the article, but Dale & Soderberg only work out why debt + interest cannot be repaid, not why interest-free debt is slavery.”

        Yes, I pulled what I thought was an important quote from an article that could do more to express the difference between the interest free and the “flawed” interest bearing (usury) loan systems. Like you, I would have preferred that they explain that interest free loans are very much needed for the people, private businesses and local government / jurisdictions. Issue Number 1; people must be set free from the financial slavery that is non-sustainable interest.

        Moving on, my quote from FLAWED MONEY SYSTEM FAILED:

        Dale / Soderberg wrote “Before explaining the ‘mathematical flaw’, let me explain the most important flaw that most freedom loving people miss. That flaw is that, ‘forcing people to incurr debt to obtain a medium of exchange creates economic servitude-slavery.’ It doesn’t matter if we are charged interest or not or if the interest is payable or not. There can be no Freedom without Economic Freedom.”

        They state that philosophically; it is unfair to make the people borrow money in order to have a medium for exchange to keep the productive economy rolling. Instead, why not have enough money in the economy for good wages and high employment.

        What if… REAL monetary reform (end of usury – ALL 0% loans) actually happened and the people prospered…

        People would borrow less as personal wealth grew which would effectively reduce the supply of new money into circulation. Some amount of debt free (permanent) money is needed to conduct an economy. Even 0% loans are zero sum games as the money is created and then destroyed as debt moves to equity (liability to asset).

        Can we agree that some amount of permanent money (debt free) is needed?

        • Hello Larry. Enjoyed your comment. How about a negitive tax minimum? This would grant that every member of society has a share in the benefits of those still able and/or involved in a productive capacity. This would replace social security and all such top heavy administrative systems. It is criminal to have the scale of economic disparity that exists all over the world. We need administrative accountants that do provable math for a living. We sure as hell don’t need corporations and bankers. It’s the corporate structure that fouls the whole deal. I like some of the ideas you kick around, yet find that no one wants to address the underside of just being able to supply a sustainable life for each member of society. It’s not an economic question, it’s a question of humanity. > A very unpopular topic…

          • paulvonharnish wrote: “How about a negative tax minimum? This would grant that every member of society has a share in the benefits of those still able and/or involved in a productive capacity. This would replace social security and all such top heavy administrative systems.How about a negative tax minimum? This would grant that every member of society has a share in the benefits of those still able and/or involved in a productive capacity. This would replace social security and all such top heavy administrative systems…

            “…It’s not an economic question, it’s a question of humanity.”

            A “negative tax minimum” is an interesting suggestion for reasons that you explain well. I guess it could be called a form of “social credit.”

            I agree with the intent but wonder how it would be implemented. I’m definitely in favor of creating debt free money to eliminate the national debt and to help states (separation of power) rebuild the sagging national infrastructure.

            Modernizing the national infrastructure is a productive endeavor as the new money is spent on new assets. It is self limiting as we can’t create/spend more money than we can produce in building a better civilization. This also endows the new money with value as the national wealth grows proportionately.

            That said, I’m a big believer in social programs such as medicaid/medicare, welfare and education supplements (though I would certainly change how they are structured and administered) and I don’t mind paying through taxes. If we eliminate income tax (national debt) we would have much more money to fund the needs of the society.

            Maybe you can explain how it would work, how much it would cost and how it would be policed?

        • In an interest-free credit environment there is never money scarcity: even if there is zero in circulation, people would have all the credit (and thus potential money) they would ever need. Having said that: if people are just going into debt to provide a money supply, it’s better to print it debt free. So in such cases we would surely agree.

          I don’t see that happening though, not only because we will always need credit for business (and we might as well use that need to use it to create the money supply with), but also because the money supply would be much smaller, both under debt-free but especially with interest-free credit: without interest on the money supply velocity would markedly improve, even without a demurrage.

          So at this point I think for the time being the need for credit will be greater than that for money.

          • Anthony Migchels wrote: “In an interest-free credit environment there is never money scarcity: even if there is zero in circulation, people would have all the credit (and thus potential money) they would ever need.”

            I take it that you mean an exlusive “interest-free credit environment” that does not include any debt free money? If so, then I don’t understand how you run a producing economy without a monetary base. The monetary base is like a pipe-line that should be filled to keep the economy flowing. In the U.S.; circulation liquidity is around $10 trillion of what is essentilly debt free money (effectively the national debt is debt free – permanent money – as we never repay the principal).

            To be fair, if we did have a 100% interest free monetary system, then the national debt could be repaid with 0% nationally held bonds and, we could make them “bearer bonds” which never need to be repaid. But why should we ever incurr debt to ourselves?

            Anthony Migchels wrote: “…but also because the money supply would be much smaller, both under debt-free but especially with interest-free credit: without interest on the money supply velocity would markedly improve, even without a demurrage.”

            I think you’re right, velocity would not need to be as high. But there will be a volume decay with any all-debt money system (both usury and interest free) as money will extinguish through principal debt repayment and from siphonage to private savings and investment accounts.

  12. All money should be debt free, interest free and free of of all fee’s and charges!

    And no Jews involved in politics, banking and the law.

    • Chris: I like your comment as it boils the currency issue down to the basic. “Money” should remain established withn a verifiable legal framework of value, and not some extension of the mystical. Otherwise we are constantly faced with situations that resemble this ugly creature: >

      REAKING NEWS Saturday, October 19, 2013 3:22 PM EDT

      JPMorgan Chase and Justice Dept. Said to Be Discussing a Record $13 Billion Settlement JPMorgan Chase and the Justice Department are moving closer to a $13 billion settlement over the bank’s mortgage practices, people briefed on the talks said Saturday, a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes.
      To resolve an array of federal and state investigations into the bank’s sale of troubled mortgage securities to investors in the lead up to the financial crisis, the bank would be expected to pay about $9 billion in fines, according to a person briefed on the negotiations. JPMorgan, the nation’s largest bank, will also likely provide about $4 billion in relief for struggling homeowners, another person briefed on the talks said.
      The penalties eclipse what the bank previously offered to pay. Until now, JPMorgan was offering about $11 billion. And it had been refusing to increase its offer until the Justice Department dropped a parallel criminal investigation into the bank’s sale of troubled mortgage securities to investors.
      READ MORE »
      http://dealbook.nytimes.com/2013/10/19/jpmorgan-said-to-be-discussing-13-billion-settlement-over-mortgage-loans/?emc=edit_na_20131019

  13. “Debt Free” and “Interest Free” money work very well together and I suggest that both are needed in a vibrant economy. Debt Free money is a power and prerogative of a sovereign nation while Interest Free money may be made available for the private sector and local government.

    One potential problem with Interest Free money is that it is temporary as it is created by debt and destroyed as the principal on the debt is repaid. It exists only as long as there remains some unpaid principal from the loans that create it. The loan duration determines how long the money will exist.

    Interest Free money, like all debt money, is inherently deflationary. It relies on new loans being created at pace with the principal repayment of the existing loans. If the rate of new money is less than the principal repayments, then the money supply will contract.

    Interest Free money, like all debt money, does not work well if people save money since it will effectively be removed from the economy. To prevent the money supply from contracting, it is often suggested that savers (“hoarders”) be punished through demurrage (aka Silvio Gesell). All debt money systems require much more management than economies that utilize an adequate amount of Debt Free money.

    Debt Free money should be considered as permanent money as it does not extinguish itself. I think it is safe to say that some amount of permanent money is needed to keep an adequate amount in circulation for a national economy.

    We have some quasi permanent money today, basically from two sources. First, the nation state maintains a national debt that is never repaid. In the U.S. for example, if we attempted to repay the national debt of some $17 trillion, we’d collapse the economy. Second, loan defaults leave a certain amount (unpaid principal) of money in the economy.

    Both of these forms of quasi permanent money are less than satisfactory solutions for a national economy. Instead, Debt Free money should be used.

    • REN permalink

      In my opinion you need knobs, and an important one is the drain. MV=PQ. M, or money types can go off and hide, for example into savings, or like specie go overseas. Also, we do accounting lies, which make claims on money (bonds) be calculated as money in the supply. So, M is not a stable factor, and it relates to V. Savings can come out of hiding if the economy is ramping up.

      Prices can be pushed by the money supply, particularly if the money is credit created by the FIRE industry. Finance Insurance and Real Estate all work together to create the bulk of our double entry credit. The nature of FIRE credit creation, insures real estate bubbles, high real estate prices, and finance gamesmanship. The money supply is all goods and services, but credit money is created by one sector – the FIRE sector. So prices can be manipulated (as Wall Street knows) by M volume. Pricing in markets is really information feedback by volume of money (supply and demand), or perceived volume via liars in the prognostication business. Quantity is in turn a lagging indicator for information via pricing.

      In other words the equation is not solvable because all the variables have cross dependencies with each other. This is why economists are full of s#it, for the most part because they won’t admit to these realities.

      IMHO it takes a managed system, where there is both drain and add knobs. Credit that returns to the ledger and disappears can be useful. It is important. Also, credit can front load the supply chain, as money is demand. Credit, done right, can also compete with money (using my defintion), and hence drive usury toward zero.

      • Hello REN: I just read your comment, and think it’s brilliant. Very good way of putting the currency and finance linkage into perspective. Bravo!

  14. REN permalink

    More on the nature of debt money, specifically that created by hypothecation on a double entry ledger.

    The hypothecation mechanism takes the borrowers credit and assigns it to the banker using twisted logic. The banker then becomes creditor through his legal power to create bank money, even though the debtor provided his asset or future labor. Banker’s risk is also low, as the debtor’s assets can be foreclosed.

    This banker money splits into two parts at birth. A debt instrument is created i.e. loan documents, mortgage or some sort of debt claim. Simultaneously, the banker creates his new money as an output of the loan. This money is called banker money, debt money, credit money, and “current accounts.” They are all the same thing. This BM (bank money) must reflux to the ledger in order to cancel the debt instrument.

    However, the instrument may travel a path different than the BM. The two entities may be disallowed from returning to each other, and hence they cannot cancel out. This is a clear danger in BM/Credit Money/Debt Money/Current Accounts. These two paths, and disallowing the BM to reflux is not comprehended well by economists.

    In the case of Germany circa Versailles treaty, a three way triangular flow was created. The allies had to pay back dollar denominated debts to America for war material borrowed. Germany in turn was put on the debt hook to pay dollars, gold, pounds or Francs to the Allies. The U.S. didn’t allow much in the way of German goods importation, so Germany could not acquire dollars in trade to pay allies, who wanted dollars to pay their debts. Ultimately, Germany borrowed (more debt) from wall street to pay into the triangular flow. This triangular flow led to the hyperinflation, and ultimately a populist (Hitler) being elected.

    Germany issued bonds to create credit money in Wall Street. Credit dollars found their way from Germany and ultimately to the U.S. treasury, as if they were going from one U.S. pocket to the other. However, Germany, England and France all had dollar debts that were outside of their legal system. They had difficulty acquiring the dollars to satisfy the debt instrument outside their country. This ultimately led to WW2.

    It should be a cardinal rule in economics; never let your debts point outside of your legal system. How many need to die before this rule is learned? Debt money, even without usury is dangerous if not kept under control.

    Lately, the U.S. has used debt instruments to create empire. A foreign country. lets say Bolivia, is hooked on dollar loans. The dollar denominated debt instruments are attached to the whole country and population. The BM soon leaves the economy as much of it becomes bribe money for leaders, and the rest goes overseas to buy the power plant, or road construction machinery, etc. The rosy economic picture of the World Bank projections never materializes, hence no dollars are available in local economy to cancel the debt instruments. Bolivia does not have enough dollars and the Bolivian currency comes under pressure. At that time bear raiders borrow BM money into existence and attack, causing the local money to collapse. Predators can then enter with dollars and buy up the country, leading to Oligarchy. Or, dollar zone countries (usually the U.S.) may go in an demand their pound of flesh, i.e. resources such as oil extraction, in exchange for the debt relief.

    So, usury turbocharges the debt problem, as there is not enough money to pay off the instruments. But, also there is a big problem of path, where the BM is not available… it has disappeared.

    • Hello REN: In your comments you pointed out the tragic results of unlawful or inappropriate distributions of capitol:

      “Germany issued bonds to create credit money in Wall Street. Credit dollars found their way from Germany and ultimately to the U.S. treasury, as if they were going from one U.S. pocket to the other. However, Germany, England and France all had dollar debts that were outside of their legal system. They had difficulty acquiring the dollars to satisfy the debt instrument outside their country. This ultimately led to WW2.

      It should be a cardinal rule in economics; never let your debts point outside of your legal system. How many need to die before this rule is learned? Debt money, even without usury is dangerous if not kept under control.”

      Once again, spot on. Great clarity in your comments

  15. One aspect of debt free (credit) money; created by a sovereign, is that it becomes a robust elixir for the real (productive) economy (individuals, private concerns and local government / agencies).

    Henry C.K. Liu does an excellent job explaining what is often referred to as sovereign “debt free money” – he cuts it short and calls it “sovereign credit” (simpler and more precise):

    “If fiat money is not sovereign debt, then the entire conceptual structure of finance capitalism is subject to reordering, just as physics was subject to reordering when man’s worldview changed with the realization that the earth is not stationary nor is it the center of the universe.

    “The need for capital formation to finance socially-useful development will be exposed as a cruel hoax, as sovereign credit can finance all socially-useful development without problem. Private savings are not necessary to finance public socio-economic development, since private savings are not required for the supply of sovereign credit.

    “Sovereign credit can finance an economy in which unemployment is unknown, with wages constantly rising to provide consumer buying power to prevent production overcapacity. A vibrant economy is one in which there is persistent labor shortages that push up wages to reduce overcapacity.

    “The sovereign state, representing the people, owns all assets of a nation not assigned to the private sector. This is true regardless whether the state operates on socialist or capitalist principles. Thus the state’s assets is the national wealth less that portion of private sector wealth after tax liabilities, plus all other claims on the private sector by sovereign right…

    “As long as a sovereign state exists, its credit is limited only by the national wealth. If sovereign credit is used to increase national wealth, then sovereign credit is limitless as long as the growth of national wealth keeps pace with the growth of sovereign credit.”

    As it stands now, in order to add to the national wealth; a sovereign nation must submit to a larger amount of sovereign debt. This is crazy. The common wealth becomes the national debt in a bizarre twisting of logic and equity.

    • Hello Larry: You said: “As it stands now, in order to add to the national wealth; a sovereign nation must submit to a larger amount of sovereign debt. This is crazy. The common wealth becomes the national debt in a bizarre twisting of logic and equity.”

      Therein is the proverbial rub. There is no such thing as “sovereign” anything anymore. No sovereign nations, no sovereign states, no independent local or municipal authority, and no more sovereign individuals. Add the zero quality of individual property rights; combine with no possible debt free ownership of anything, and it all pretty much results in a prison camp hamster environment.

      All these conditions can be traced directly back to international trade piracy supported by the United Nations and NWO agenda. Seems world “citizens” like to employ worldwide trade mafias, which arbitrarily confiscate private property, manipulate the European Union, own the entire United States and Canada, and choke on their own vomit for fun.

      In my opinion, any legal sanction or support of “corporate” status needs to be flatly rejected and all corporate entities banned. Collective “indebtedness” to these thugs and extortionists, needs to be blown up their asses. We need to permanently dismantle the international trade mafia, and establish new Nation/States based on social, ethnic, and environmental realities.

      We need to scrap the insanity of the debt/credit ledger system, and create a wealth based social system. The delusional mantra of “debt” service in the middle of an infinity of human and environmental resources is plainly retarded. I can’t believe people continue to suck on this idiot’s game. It’s pathetic.

      • paulvonharnish,
        I quote you :-

        “There is no such thing as “sovereign” anything anymore. No sovereign nations, no sovereign states, no independent local or municipal authority, and no more sovereign individuals. Add the zero quality of individual property rights; combine with no possible debt free ownership of anything, and it all pretty much results in a prison camp hamster environment.”

        I agree with your thoughts, but I would suggest that the state of “sovereignty” can never be a legal fictional identity as you suggest. Queen Elizabeth II if one is to believe, holds “Sovereign status” a claim made and backed up by the so called law of the land, the rest are only subjects of the Queen.

        Sovereign status is not about legal fiction. It is a state of being that no one can take away or endow another, you either know or you just remain a subject and believe in their legal fictional BS that this Queen would have every one believe

  16. REN permalink

    Anthony, I’m going to quibble a little bit, hope you don’t mind:

    “Debt-free money is simply unbacked ‘paper’ (nowadays it’d be mostly electronic, of course) money, printed (usually) by the State. It can then either spend it into circulation itself or have the populace do it.”

    Quibble 1: It is backed by the productive labor energy of the people. It is backed by the legal nature of the Sovereign, who taxes and enforces law. Therefore it’s backing is force and law. At another level, it would be social agreement. The flux of goods and services being produced in proportion to the money is backing. Paper is probably not really correct either, since the money would exist as numbers, and when it morphs into paper it is simply exchanging form as it goes into and out of current accounts. In fairness, you mention taxation (force and law).

    “Debt as a problem is overrated. It’s not so much the debt, but the interest that is killing us.”

    Quibble 2: If debt money is a large component of the money supply, then the usury is also a large component. Double entry debt money disappears from money supply at a high rate when it re-fluxes back to the ledger. That means new interest bearing debt money must be created at a high rate just so we can have a transaction medium. Yes, a small number (interest) x a large supply may still be a small number. However, increasing interest just a few percentage points applied to the large debt money supply means that the bankers are taking in lots of usury on the large volume of loans. In other words, the disappearing nature of credit means people must take out loans due to scarcity, which in turn means usury will be applied.

    Then there is the question of debt instruments that are traded in markets. This monetizes people and trades their future output in the marketplace. Debt money has a future tense, and yokes people, which makes it unsuited to be a large component in the supply. The temporal dimension of debt money (must be paid out of future productivity) vs money (comes from the past and stands on its own power) must be considered IMHO.

    If the money supply is mostly money (debt free), then it doesn’t reflux and disappear. This means that the usury take must go down in proportion. Granted, there are still creditors and debtors who will want to take usury on their real money i.e. savers trying to loan out to debtors – which is why I’m a money + demurrage guy as you know.

    Credit has its place, especially as it front loads the supply chain. If credit money is loaned out for future productivity (not for consumption or transactions) then that is good, as it can be paid back. If credit money/debts stay within the sovereign legal system, then debts can be jubileed. If debts point outside of the legal system (like Greece) then that would be a bad thing, making the people debt slaves to foreigners.

    So, I agree, usury is the problem, but the nature of the money also has to be considered.

    • REN permalink

      Debt as a problem is overrated: Here’s another example of debt overhead below by Hudson. Remember, the bubble economy happened in a low interest rate environment. It actually was prices being pushed by market forces. The markets were pushed by the volume of double entry credit being made. (A land tax is necessary on things like housing, because land is relatively sticky due to their being inelastic markets.)

      We are now drowning in the Bubble Economy’s legacy. We can think of this as Phase 2: repayment time, along with foreclosure time.”.

      “Carrying this debt overhead has caused a fiscal crisis. The financial and real estate bubble helped keep state and local finances solvent by providing capital gains taxes. These are now gone – and properties in default or foreclosure are not paying taxes.”

      So, how did all of the debt occur, even though interest rates were low? When banks off loaded the housing loans to special purpose vehicles, the shadow banking sector “created” new money from nothing through re-hypothecation. The feedback of prices in the market drove up housing, making more loans, etc., further driving up prices. This false economy was credit going to non productivity.

      When prices collapse later, the debt overhead is still in place. Debt service then becomes a large percentage of the total output of labor. Housing loans, Student Loans, Car Loans, FICA, etc. can eat up a large percentage, thus little is left over for labor to trade their output in the real economy. Jobs go wanting because the money supply is vectoring into debt service and disappearing. No money is left over as demand to create jobs. Meanwhile, the upper loop usury financial sector is doing fine, as MBS debts and “bonds” were made whole with QE.

      http://michael-hudson.com/2013/07/the-bubble-economy-as-a-2-part-play-for-privatisation/

      We can have low interest usury free money systems, but there will need to be circuit breakers and firewalls to prevent rent seeking. But, creating credit also creates debt simultaneously, and there are ways to siphon off the credit money while leaving innocent debtors holding the bag, despite low or no interest.

      The book, “Confessions of an economic hit man” describe how the process is done also. The new credit money soon vectors away from the intended economy, but the people are left with debts to pay and no way to pay them – well they soon pay by giving away their commons and future to their creditors.

    • REN wrote:

      “Quibble 1: It is backed by the productive labor energy of the people. It is backed by the legal nature of the Sovereign, who taxes and enforces law. Therefore it’s backing is force and law. At another level, it would be social agreement.”

      Good point. I suggest that the backing of the people in their productive capacity, natural resources and the common wealth (assets) of the sovereign nation is the best backing that money can have.

  17. “Obama distracts with shiny trillion-dollar-coin reference” — http://blogs.marketwatch.com/capitolreport/2013/10/08/obama-distracts-with-shiny-trillion-dollar-coin-reference/

    “So a lot of the strategies that people have talked about — well, the president can roll out a big coin, or he can resort to some other constitutional measure. What people ignore is that ultimately what matters is, ‘What are the people who are buying Treasury bills think?“

    Barry Soetoro, aka the puppet Obama, flagrantly insults the people. It is so obvious, right out in front of the people but they can’t see it – they are mesmerized and brainwashed into thinking that our financial system is the product of logic and accounting. If only they would wake up and realize that yes, at anytime they want, congress can issue $1 trillion coins to eliminate the national debt.

    The financial Armageddon coming our way is entirely by choice – not by necessity. Humanity is literally drowning in debt because they can’t see that they can simply grab the wall on the side of the pool.

    The indoctrinated economists and misguided pundits will call debt free money bizarre and worse instead of taking a look at the reality – yes we can! Ellen Brown explained this in an article: The Trillion Dollar Coin: A Debt Solution for the People — http://www.yesmagazine.org/new-economy/trillion-dollar-coin

    “In fact, the trillion dollar coin represents one of the most important principles of popular prosperity ever conceived: nations should be free to create their own money without incurring debt. Money creation is an all-important power that has been fought over for centuries, in a largely secret battle between governments and private banks. For the last two and a half centuries, the banks have had the upper hand, making us forget that any other option exists. But we are learning the great secret of money: that how it gets created determines who has the power in society—we the people, or they the bankers.

    “The coin could put within the government’s grasp the power to solve its debt problems once and for all.”

    • VICTORY FOR THE WORLD

      • REN permalink

        This “victory” site got me to thinking about the Bank of Canada and the system the Victory people promote. I guess it could be summed up as such: 1) Private banks continue to hypothecate double entry credit at around 2/3 of the supply. 2) The bank of Canada trades out a government bond and creates money, to give to the Canadian Government. Usury on the government bond is paid back to the Government as a dividend. 3) Government spends money into the supply on infrastructure and other public commons. 4) Private Banks are required to have reserves, where those reserves are high powered money. High powered money is really the former government money that has no real debt. This high powered money enters the reserves of banks, and some portion also becomes savings for people. 5) Money supply is controlled with interest rates, and also reserve ratios. Money supply is a mixture of private bank credit and high powered money.

        The downside of the system is that private bankers still get to charge usury and hence get interest seigniorage. Also, as history as shown, since the private banks hold money power they will mount another takeover in future, as they did in 1973 or so.

      • Thanks for the video Larry. At 2:25 into the presentation, the kind gentleman introduces us to the Bank for International Settlements in Zurich Switzerland. Hummmm! Funny how charming situations seem to vanish whenever the Swiss come to the financial rescue.
        “Do business with us, and your national assets will be secure.” (Insert diabolical laugh here.)

        I mentioned that Hitler in 1939 was in a most advantageous position to invade the rogue country of Switzerland on Anthony’s other page. Yet for reasons vague, no one seems to perceive any problem with the Swiss/Vatican stranglehold on nearly every formerly charming situation… See every war since about the 1780’s.

        If Hitler were actually serious about countering communist Russia, why didn’t he rip a new ass on Switzerland? Wouldn’t that move have served to cripple British, French, and American war efforts as well? Wouldn’t that have served to put usury out of the twisted expression of “currency” and lending?

        Usury is the basis for all New World Order agendas. If Germany, Canada, the United States, and other EU countries would simply tell the Swiss to bugger-off or be destroyed, the problem would resolve out rather quickly. I’d give the bastards about three days before lunching on them.

        Anyone care to comment?

        • Paul, you’re more likely to get comments on one of the threads that were linked by Makow – they have more traffic.

          BTW; the BIS “was originally intended to facilitate reparations imposed on Germany by the Treaty of Versailles after World War I.”

          • Hi Larry: Thanks for the tip, but not aware of where you are directing me. Makow? Most of this information is totally new to me, so rather a novice at who’s zooming who. The triumvirate of you, Anthony, and REN have created a very interesting and robust method of sorting through the chaff. My compliments to all.

    • Oh, all these silly people with their stupid ideas! Luckily Barry has Larry to keep him grounded!

  18. I think debt free money should be the basis of credit. So, the best option is to have a number of currency units in circulation, in the sense that there is a positive net balance of currency units, and that credit is based on these money units.

    The currency unit should be a demurrage currency, to make interest free credit possible. If the money is pure credit, then I see problems arise. There is a natural rate of interest, which reflects the return on capital, and somehow this should be reflected in the credit.

    To think of it in another way: if I have the option to invest in interest free credit or interest bearing money, I may be tempted to invest in interest bearing money as it may provide a higher return. I think it will be a dead end because it is not competitive. But maybe I am missing out on something.

    • I have to add to this that the number of the debt free money units should be constant. In this way economic growth may lead to a rise in value of the debt free money units.

      Economic growth can make the value of the money unit rise because there may be more goods and services available for the same number of money units.

      In this way, the money unit can rise in value and provide a competitive real return that can compete with interest bearing money.

      • I don’t agree; there is no return on investment necessary. Return on investment is good when we invest in our own life/business. For instance: it’s good and natural that when we plant a seed, we get back a 100 fold. But then it’s nature that is providing the return. If other people are paying, we should avoid ‘return on investment’. The more so, since it’s completely unnecessary (see previous reaction).

        The money supply SHOULD grow, when activity does. Otherwise we’d in effect have deflation, which is detrimental to economic growth, beneficial to those holding money at the cost of all other assets and bad for debtors.

        • I do not agree on two issues:
          1. Deflation is not detrimental to economic growth. This only happens if people can store their money without cost and can leave it out of circulation. This will not happen with a demurrage. Hence money supply does not need to grow to have economic growth as prices can drop.
          2. The problem is not return on investment being good or bad. Interest on money is not a monetary issue in the first place. If I have excess funds, or if I have produced something for which I could receive money, I will try to get the best return on those funds.

          About 1. Money supply itself is not relevant. You can play a game of Monopoly of 1938 or a more recent game with the notational value of the banknotes multiplied by 100. The game is the same. If there is a relatively stable economic growth, then there may be a relatively stable rate of deflation, which does not need to create problems. Credit may grow if economic activities grow, but this does not need to be inflationary.

          About 2. I may prefer to buy stocks instead if there is no return on money or credit, and consequently there will be no credit. There is the risk of default. You need profit oriented banks to make the best decisions, otherwise there will be too much abuse. Avoiding return on investment will fail for that reason. So either you accept interest on money or you accept a rise in value of the money unit. The latter is better because you do not have the problem of compound interest.

          • REN permalink

            “1. Deflation is not detrimental to economic growth. This only happens if people can store their money without cost and can leave it out of ”

            Deflation and inflation changes the relationship between creditor and debtor. In a demurrage money system (not credit), the money is taxed and hence is forced into circulation. The creditor is usually over the debtor, but in this case the creditor is somewhat compelled to loan their savings, and hence will charge less usury.

            With regards to Creditor, think of Usury as a compelling force, compelling him/her to loan. The demurrage tax is a “push” force encouraging savings to be issued into the money supply via new loan formation. Debtor then receives the new loan at lower usury rates because of the tax.

            With deflation the debtor gets screwed because his future labor is devalued from the time he borrowed. Debtor pays back with higher valued money in future to pay for debts incurred in the past. Creditor wins out, and it is a form of RENTS taken against labor. Inflation is seen as a way to even the playing field against usurious creditors; however a demurrage system levels the playing field – but I still give advantage to Creditors and hence inflation is prefered, even in a money demurrage enviornment.

            • “With deflation the debtor gets screwed”

              With interest, the debtor gets screwed, if there is a limited amount of money units in circulation. With inflation, the saver gets screwed.

              Anyway, interest is not a monetary phenomenon, so it will still exist if interest on money is abolished. If I do not get interest on money, people may prefer stocks because they will receive a dividend.

              As a consequence, there will be no credit at zero interest. It will not work. The only solution is to allow the value of the money unit to rise, so no-one gets screwed.

              • Dark Dirk permalink

                No, value of money should not rise, because it will lead to deflation. People will hoard money, because their value rises. Money value have to be kept at near constant level via price index and participants count index. I personally like the demurage system with money created debt free as Silvio Gesell proposed.

          • REN permalink

            “Money supply not relevant”

            The composition of the money supply is totally relevant. Today’s money supply consists of some money, mostly double entry credit, and then claims on money. Bonds for example are claims on money. Lately the FED has been doing QE, thus making money (FED doesn’t ever have to sell the bonds they used as an “asset” swap). The U.S. money supply composition is thus changing from too many claims on money to more money. However, the path the QE money takes is into reserve loops of banks, and some of it goes to former bond holders in the money supply. Those former bond holders then gamble in the stock market, or try to buy up real assets in the producing sector of the economy. So, when thinking of the money supply, one must think of the composition, the volume, the velocity, and the paths of the various units. Yes it is complicated.

            Do a thought experiment: If the money supply is all bonds, then people cannot do transactions i.e. trade their output. They need money to trade. Banks play funny business with things like no maturity stocks and land, pulling them onto their ledger, thus creating the credit that does not need to reflux to the ledger. (Hence this form of ostensible credit is really money, as it does not have a debt association. The bankers are then taking rents using their money creation privilege.) In monopoly, the banker cannot make new money, nor can he participate in the game – at least they got that right. It should be noted that in a real economy using money, there needs to be more than demurrage. RENTS need to be taxed away from predators. Even a non money economy has rents, as man is a rent seeking animal.

            • That may be true, but the amount of money is still not relevant. Anyway, lets get into rents. For example, if I build a house I could live in it, but if someone else has no time to build a house, I may build a house for him and receive rent.

              In this case rent caused me to build a house for someone else who has no time to do the job himself. Maybe he was far too busy protesting against rent and demanding taxes against rent and profits🙂. Profits and rents are needed to get things done.

              The real problem is not profit or rent or interest on capital. It is interest on money, because for money to remain stable in value, the number of money units must remain stable. This is logically impossible with interest on money.

              • Heh. If I were King I would abolish all forms of rent, whether property based or currency based. Rents and tax manipulations are a perpetuation of the feudal mentality, wherein the serf never controls the terms or conditions of private lands. For lowly serfs, rents and taxations are just another word for having nothing left to lose.

                Increase in “capitol” should be the prerogative of governments that provide capitol for the benefit of civil expansion and circulation within an improving economy. It is hardly a measurable improvement in social policy, when an estimated 14 million people will starve to death in 2013. > Unless your name is Henry Kissinger (recent “useless eater”) or the likes of wild Bill Gates.

                I resent that we can tax justify the collapse of housing (see Detroit) due to the “failure” of derivatives markets, then end up with more homeless and unemployed serfs. How many times do we have to repair the same financial plumbing problem? Tax write-offs on multi-owned property units; provide no benefit to anyone but the landed gentry.

                Interests baring bonds are another perpetual form of financial regress argument.
                Time to ditch all fanciful forms of tyranny, and get our collective house in order.

              • REN permalink

                See the explanation to Larry above, as to why stability is an impossibility. The best you can do is establish bounds. For example, demurrage bounds the equation by forcing V to be somewhat stable, and forcing M to come out of hiding. Pricing, per Gesel, is then used to feed forward money issuance.

                The temporal dimension if there is deflation is still relevant. A loan taken out today and paid tomorrow with more valuable “dollars” is rents taken against labor.

                Rents are defined as any costs above the true cost of production. So, usury is rents on money.

                Inflation is rents taken against a creditor, where labor pays back past loans with cheaper future dollars.

                • This is wishful thinking. The difference between capital and money is important. If there is no return on capital, the economy would cease to exist. Because there is a return on capital, there must be a return on money, otherwise there would be no credit.

                  When there is a demurrage, money is never in short supply, even when it rises in value. A speculator that keeps the money for the rise, has to pay the demurrage, which is higher than the appreciation of the money unit.

                  The maximum interest rate of zero percent, makes the lender choose the best borrowers, which are the ones that are best capable of paying back the loan. Problematic debt will be rare and debts cannot grow out of control because of interest.

                  Profits and rents are needed to bring goods services on the market. They are unavoidable, unless you desire a primitive economy. Most poor people in many developed countries have a better life than most rich people in the middle ages because of economic development.

                • About Larry’s comment, he writes: Interest Free money, like all debt money, is inherently deflationary. Debt Free money should be considered as permanent money as it does not extinguish itself.

                  There are two types of deflation: monetary deflation and price deflation. Larry writes about monetary deflation while I write about price deflation. In fact, I am proposing exactly the same.

                  Natural Money is debt free money with a demurrage. Because the debt free money supply is constant, any economic growth will translate into price deflation, because more goods and services are chasing the same amount of money.

                  The trick is to make the rise in value of money compete with interest on loans in the interest based financial system. As the economy will perform better without usury, this may be a very attractive proposal.

                  Savers may prefer to invest in the interest free economy because real returns may be better.

    • debt free money combined with demurrage is certainly a very powerful proposition.

      But I’m not really too sure what you mean with interest-free credit facing competition from interest-bearing credit to attract investors: interest-free credit is just created by bookkeeping.

      • “interest-free credit facing competition from interest-bearing credit”

        On a small scale interest free credit may be possible. For example, suppliers give credit to their customers, often without interest. If market interest rates are high, custumers may get a bonus for prompt payment. This interest.

        In general, if I have to the option to invest in interest free credit versus a savings account that gives interest, I would prefer the interest on the savings account.

        So, if you want to implement interest free money on a large scale, you must have a competitive proposition.

  19. Great topic Anthony! Your article was short and understandably; you missed several key points.

    First, if we ever do indeed move away from usury into the realm of a sustainable economy – then a major transition will need to occur to end the interest bearing sovereign debt of nation states. This is one facet of the problem that you aren’t addressing.

    If a nation actually repaid their debt, then the economy would crash as there wouldn’t be any money left in circulation. In the U.S., the national debt is around $17 trillion. If that debt were to be repaid; circulation would vanish as there would be $17 trillion less in the economy. An untenable situation as the M2 money supply is only around $10.7 trillion.

    Simply put, the debt IS OUR money supply (circulation) – we can’t operate without it!

    Debt free money is a mathematical necessity unless one is willing to default on the debt and stick the millions of bond holders. The vast majority of bond holders bought the instruments under good faith. They represent an important part of private citizens life’s savings and retirement funds.

    Debt free money affords us the opportunity to make the transition in an orderly fashion.

    How do we do it?

    Easy, we create debt free money as the bonds become due to pay the debt. This would not be inflationary since the debt would disappear and the money in the economy, created by the debt, would remain.

    There would be no need to default nor stiff innocent people and most importantly, we would not destroy the economy.

    • Thanks Larry! You’re right: I’ve ignored the transition phase. Sharp observation, but understandable, since you’re undoubtedly actually thinking about how to get it done. As am I. And there are issues.

      You say debt-free money is necessary to pay off the debt, while not ending up with no money. I don’t necessarily agree: we could pay off the debt with freshly printed interest-free credit too.

      The main problem I see is, that our money supply is now moving at 0,5 per year (M2). This is a slow velocity.
      Its sluggishness is due to usury, which is drastically slowing circulation: Trillions are just sitting there as savings, not circulating at all.

      If we do away with interest, the main reason to hoard the money will end. So if we replay the usurious credit with interest-free credit of debt-free money, the entire money supply will come out of hiding and start circulating with a vengeance. We’d see hyperinflation.

      That’s my main problem, atm, when thinking of the migration.

      • Anthony wrote: “You say debt-free money is necessary to pay off the debt, while not ending up with no money. I don’t necessarily agree: we could pay off the debt with freshly printed interest-free credit too.”

        Yes, we could pay off the national debt (interest bearing) with interest free, debt money but; at least in the U.S., we would owe $17 trillion to ourselves. As the debt (principal) is repaid, the money would be destroyed in cancelling the notes. This would be highly deflationary as we would effectively be eliminating the money supply.

        And why would we need to repay ourselves as a sovereign nation? I think I’m safe in saying that as mattter of GAAP (Generally Accepted Accounting Principles) the same entity cannot both be both the debtor and creditor to the same note. They are cancelling entries.

        Create the money debt free and think of it as a cancelling entry on our national balance sheet.

        This can be a one time act that clears the books.

        I should mention that in repaying the debt, not all bond holders need to be treated the same. Priovate bond holders could be repaid as the notes become due. When it comes to the Federal Reserve, I’d instantly repay the debt before its due and just pay principal which would make the money and their debt disappear.

        • I think the issue here is: is the Government creating the money to provide a permanent money supply, or to finance its projects.

          if it’s to create money that it wants to circulate permanently, there obviously is little point in using interest-free credit for that, as it would suggest the debt would have to be paid off. Which, by the way, is not the case. As long as the ‘debt’ is interest-free there really is no reason it should. But clearly, debt free money is more natural here.

          If it’s creating the money to finance projects (infrastructure and the like), it’s more natural to use interest-free credit, because this money will indeed have to be repaid, so that new projects can be taken on without inflating the money supply permanently.

      • Anthony – another reason why we (U.S.) should not epay the $17 trillion national debt with “interest free” debt money is that it unesciarily punishes the people. This applies to any nation with a national debt.

        The people would have to continue paying income tax at even a greater amount than today for the next 17 years in order to repay what I consider to be onerous bebt. And as they earn that money through hard work, it would ultimately be destroyed.

        A sovereign nation has the power and authoruty to create debt free money and we should excercise this perogitive in freeing mankind from the yokes of slavery in the form of usury.

        • we agree Larry, the idea of ‘paying it off’ with interest-free credit is possible, but not with idea of paying back that (self) loan. Like I said: if the money is meant to serve as the money supply, it’s no use using interest-free credit for it.

          Another issue is: is it the Government that should provide the money supply? The downside is that the Government is probably not the best entity to spend the money. Why not the people?

          And when it’s the people, interest-free credit DOES become a viable option again, even when the money is meant to circulate indefinitely: by having people pay off their loans (for instance mortgages) the money can be spent back into circulation time and again, allowing, for instance, the next generation to share in the pleasure of doing so.

          • Anthony wrote: “Another issue is: is it the Government that should provide the money supply? The downside is that the Government is probably not the best entity to spend the money. Why not the people?”

            My point was that government, through the congress, should create the debt free money to repay the national debt. They are the only body, at least in the U.S., authorized to do it.

            Beyond the national and sovereign debt, I would prefer that the power to create debt free money be held separate from the power to spend that money into the economy as a check and balance. For example, if it was decided that some amount of debt free money was needed to rebuild infrustructure, I would have congress create it but I would prefer that the states/provinces decide where it should be spent.

            The power to spend should be held as close as possible to the people to de-centralize the system.

      • ahum……..”Sharp observation, but understandable, since you’re undoubtedly actually thinking about how to get it done.”

        this could be read as if I were surprised with a sharp observation from your side, which is very much not the case………….

  20. Me thinks we quibble. Money is credit in circulation. end of story.

    • I like the thinking behind this and ultimately it’s probably true too, but I’m pretty sure far from all will agree………..

    • Good News! Yamaguchy is BACK!
      Submitted by DrKrbyLuv on Sun, 03/06/2011 – 12:08.
      Great news for those interested in actual history — Yamaguchy is Back!
      Here is the new address–
      http://www.yamaguchy.com/
      Thank you Yamaguchy !

      Larry leech
      END the FED before it ENDS US

      some people go a bit far in their admiration of me and my hobby….. but it is true, my handywork is the place of actual history

      “Lincoln was great leader, but Mao Ce-tung was even greater than Lincoln, because Mao was not only great leader, but also great revolutionary.” —CK Liu
      The State, using its sovereign credit and issuing it as currency units, should be the giver and taker of all prosperity —CK Liu
      Ellen Brown acquired much of her immense knowledge from CK Liu…..

      According to Mary Hobart, money is a claim, a representation of debt owed by society to the individual —this obligation (debt) of society to the holder of the crown piece should not deminish over the years, hence the sovereign piece must retain its purchasing power over the decades; the holder of the crown piece is not obligated to part with his claim at societies pleasure, the crown piece is redeemable at the pleasure of the holder (even if his heirs have to do it for him)

      According to Nicholas Biddle, president of the Bank of the United States, money credit printed on piece of paper—
      “proper credit system is funded on paper money” and
      “all the capital of the country should be turned into credit, and all the credit into currency”

      http://www.tomwoods.com/blog/the-greenbackers-fake-quote-industry/
      https://realcurrencies.wordpress.com/2012/08/02/lincoln-was-indeed-a-money-power-agent/

      • REN permalink

        Huber does a good analysis of whether money is credit.. The short answer is that many times (most) times it is circulating IOU’s, which make it credit. Credit always comes into being with an associated debt. (Mutual Credit is a little different to my eye, as it can circulate in its system for a long period of time – making it more like money.) I’m fond of saying, we don’t have good definitions, and when we use certain terms, we are talking past each other.

        There are many other times in history when money is simply floating without an associated debt, which makes it something else….money. According to Aristotle, the natural basis of money is law, good for paying debts public and private.

        Real money can pay off debts, but the reverse is not true: Credit money cannot pay off Real Money.

        http://sovereignmoney.eu/33-relation-of-money-to-credit-and-debt

        So, if we issue a Trillion dollar coin, is it credit or debt? The coin has no associated debt, and hence it is money. It is seigniorage on the money supply, so one can squint and say it is a public credit, but that is really stretching the definition.

        How about the coins Huber mentions (see link) that circulated for millenia, they were money – not IOU debts.

        Reading some of the old Greenbackers arguments, they wanted their “greenback” money to circulate for centuries as a permanent “credit” to the country – something they paid for. No more debts, so it becomes money.

        When somebody cancels their debt, say with bankruptcy, their former credit becomes money.

        http://sovereignmoney.eu/33-relation-of-money-to-credit-and-debt

        • It’s a good thing you bring up the definition issue Ross, because we indeed use a different definition: mine is money is a means of exchange agreed upon by the community to be used as such.

          I’m not saying my definition is better than yours, but I do think it helps elucidate my position on MC.

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