Money – Electronic & Debasement
QUESTION: Hello Mr. Armstrong,
Thank you for all you have done, your blog is amazing.
I have a question (well many but will only ask one). Will electronic money fully displace all currencies or will we go with a 2 tier system one for domestic and one for international?
Thank you very much,
rms
ANSWER: Of course there will be a two-tier system. Some less developed countries will most likely retain some form of paper currency. Whether the developed country will is highly debatable since their objective is not to create some new monetary system, which may be forced on them, but to collect taxes and the objective there is to eliminate physical currency.
Unfortunately, way too many people think that money should not be debased. The first coinage in gold was debased pictured above. Some try to argue that somehow bitcoin prevents debasement. The value of bitcoin has risen and fallen. How do you get a bitcoin? You use money. So what if everyone swapped dollars for bitcoins? Wouldn’t bitcoins then merely be the same as the dollar? Increasing the supply will only result in the same process.
You cannot create any form of money that RETAINS its value and prevents debasement no matter what it is or represents. The very first coinage was in Lydia was debased because of war. There has NEVERbeen a single currency since the dawn of time that has never suffered debasement and that includes gold. Eliminating debasement would be total communism for you are talking about the elimination of the business cycle which is what Marx advocated.
As soon as you try to create a currency that cannot be debased, that means your house cannot rise in value for that amounts to the decline in purchasing power of the currency (DEBASEMENT). Likewise, wages cannot be increased nor taxes or anything. This idea that money should not be debased comes from Marx. Sorry, but such philosophies are anti-human nature. Get use to living with the business cycle instead of fighting it. Forget the idea that money should have some magical property of retaining value constantly. That is totally unrealistic. The business cycle is all about the rise and fall in the purchasing power of money. It declines in a boom and rises (deflation) during depressions and recessions. Bitcoin rises and falls and that is not controlled by government. This is a natural cycle between boom and bust that does not matter what you use as money for it is the swings in confidence inherent within human nature.
QUESTION: Hello Mr. Armstrong,
Thank you for all you have done, your blog is amazing.
I have a question (well many but will only ask one). Will electronic money fully displace all currencies or will we go with a 2 tier system one for domestic and one for international?
Thank you very much,
rms
ANSWER: Of course there will be a two-tier system. Some less developed countries will most likely retain some form of paper currency. Whether the developed country will is highly debatable since their objective is not to create some new monetary system, which may be forced on them, but to collect taxes and the objective there is to eliminate physical currency.
Unfortunately, way too many people think that money should not be debased. The first coinage in gold was debased pictured above. Some try to argue that somehow bitcoin prevents debasement. The value of bitcoin has risen and fallen. How do you get a bitcoin? You use money. So what if everyone swapped dollars for bitcoins? Wouldn’t bitcoins then merely be the same as the dollar? Increasing the supply will only result in the same process.
You cannot create any form of money that RETAINS its value and prevents debasement no matter what it is or represents. The very first coinage was in Lydia was debased because of war. There has NEVERbeen a single currency since the dawn of time that has never suffered debasement and that includes gold. Eliminating debasement would be total communism for you are talking about the elimination of the business cycle which is what Marx advocated.
As soon as you try to create a currency that cannot be debased, that means your house cannot rise in value for that amounts to the decline in purchasing power of the currency (DEBASEMENT). Likewise, wages cannot be increased nor taxes or anything. This idea that money should not be debased comes from Marx. Sorry, but such philosophies are anti-human nature. Get use to living with the business cycle instead of fighting it. Forget the idea that money should have some magical property of retaining value constantly. That is totally unrealistic. The business cycle is all about the rise and fall in the purchasing power of money. It declines in a boom and rises (deflation) during depressions and recessions. Bitcoin rises and falls and that is not controlled by government. This is a natural cycle between boom and bust that does not matter what you use as money for it is the swings in confidence inherent within human nature.
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Writing a Bill for Congress
QUESTION: Marty; did I hear correctly in your interview with Glen Downs that you are writing a bill to eliminate debt to be introduced to Congress?
DB
ANSWER: Correct. I will go over that at the Solution Conference. I have written legislation legalizing gold at state levels back in 1974. So I have been there and done that much before. I have testified before the House Ways & Means Committee and worked on Capitol Hill trying toreform taxes and to save Social Security. I have written op-eds on the subject of manipulating the debt for the Wall Street Journal and debated Steve Forbes at Princeton University on tax reform. I attempted to set up a process to create a national wealth fund where the SS money would have been privately invested. I gave up on those ideas for there was just way too much self-interest on the Hill to cut through without an immediate crisis.
So I have been there and understand intimately how the system works and what is necessary to even get your foot in the door. You will not get there yelling on a soap-box, picketing in from of the White House, or just writing a blog. It takes a lot more than that.
This time, hopefully we can get a debate going on the Hill. The way government acts is very simplistic. We are in government by crisis. You have to be be ready with the proposal for when the crisis hits, then and only then will they vote on something instantly. I have testified before Congress on many of these subjects. You do not get called just to express an opinion for that does not count among governments and serious clients. Soap-boxes will get you nowhere in life beyond ego trips and certainly not before Congress. We have tended to be more institutional rather than retail so our clients were the cream of the crop and the smartest. When it comes down to the bottom line, only experience counts so this puts me in a unique position, which has opened a lot of doors.
We will publish the bill when ready.
QUESTION: Marty; did I hear correctly in your interview with Glen Downs that you are writing a bill to eliminate debt to be introduced to Congress?
DB
ANSWER: Correct. I will go over that at the Solution Conference. I have written legislation legalizing gold at state levels back in 1974. So I have been there and done that much before. I have testified before the House Ways & Means Committee and worked on Capitol Hill trying toreform taxes and to save Social Security. I have written op-eds on the subject of manipulating the debt for the Wall Street Journal and debated Steve Forbes at Princeton University on tax reform. I attempted to set up a process to create a national wealth fund where the SS money would have been privately invested. I gave up on those ideas for there was just way too much self-interest on the Hill to cut through without an immediate crisis.
So I have been there and understand intimately how the system works and what is necessary to even get your foot in the door. You will not get there yelling on a soap-box, picketing in from of the White House, or just writing a blog. It takes a lot more than that.
This time, hopefully we can get a debate going on the Hill. The way government acts is very simplistic. We are in government by crisis. You have to be be ready with the proposal for when the crisis hits, then and only then will they vote on something instantly. I have testified before Congress on many of these subjects. You do not get called just to express an opinion for that does not count among governments and serious clients. Soap-boxes will get you nowhere in life beyond ego trips and certainly not before Congress. We have tended to be more institutional rather than retail so our clients were the cream of the crop and the smartest. When it comes down to the bottom line, only experience counts so this puts me in a unique position, which has opened a lot of doors.
We will publish the bill when ready.
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Debt & Reserve Currency
QUESTION: Marty, Would nations still issue debt in the reserve currency or their local currency? If countries issued debt in the reserve currency, wouldn’t that be the same problem you have pointed out with the euro?
You have made it clear that debt is the great destroyer of civilization. It seems that this is the one factor that wipes out the monetary system every time. Do you think it is possible to eliminate government debt?
Thank you so much
SD
ANSWER: Historically, all nations default and that is what wipes out civilization. Only a fool assumes that debt is some how a natural part of the system. They clearly do not know their history. The US debt was entirely paid off before the Civil War. Such people never heard of the sin of usury or the Arab culture of prohibiting interest. Is it possible to eliminate government debt? Of course it is. Government debt has not always existed.
In fact, not only was there no national debt, the US government did not issue paper money after the Revolution until the Civil War. So there is plenty of precedent to demonstrate that government can function without debt at the federal level. Keep in mind, that states still borrowed. There was a massive sovereign state default in the 1840s.
Andrew Jackson’s war against the Bank of the United States eliminated a central bank and set in motion total chaos. Jackson unleashed the age of Wildcat Banking where private banks issued their own paper money that nobody knew even where these banks were located.. The currency issued by Oxford County Bank of Fryeburg, Maine, was actually issued by speculators who then sold their currency wholesale at deep discounts in New York City. A fraud market emerged because there were countless banks all issuing money (receipts) based upon pretend deposits without a central bank regulating anything.
This is the classic example of Wildcat Banks that were created thanks to Andrew Jackson’s personal vendetta against the Bank of the United States. Oxford County Bank was chartered in 1836, but never actually entered the banking business. There was no bank taking deposits or lending money. They onlyissued currency against deposits that never existed. These notes are very common confirming that this type of fraud was successful and quite common. There were numerous Wildcat Banks and there was no way for people to confirm any bank’s notes were worth anything following the antics of Andrew Jackson.
Jackson unleashed a massive financial crisis. As state banks then failed, some states like Louisiana issued bonds to bail out the banks. However, the fictional money was far too vast and many states went into default on their bonds by 1842 – even permanently. So we have the same reaction of government trying to bail out banks and in turn they themselves go bust. Those who support Jackson because they hate banks, also fail to notice history.
Consequently, it will require the crisis to accomplish such reform. We will not simply change monetary systems for the hell of it. So we have a lot to do and the analysis cannot be made up of hot air and opinion. You have to have the proof. So can governments exist without debt – absolutely.
There is a tremendous difference between issuing debt in a reserve currency and a domestic issue. You are correct. If there is a reserve currency and governments issued their debt in the reserve, you would end up with total chaos just as you have in the Euro. That would also tend to suggest the requirement of a central control, and that is not likely for nations will not surrender their sovereignty in such a manner.
A reserve currency simply replaces the dollar. That is the political goal of China and Russia. It also makes sense for it separates the problem of the reserve currency being impacted by domestic policy objectives which become exported. The Fed lowered rates sharply to bail out US banks and other nations issue dollar debt because of the low interest rates. Japan had strict currency controls whereas you could not issue debt in yen without the permission of Japan.
The debt crisis is separate and distinct from the reserve problem. Obama’s former chief economic adviser has already floated the idea that the USA should let the reserve status of the dollar go. This is not a voluntary position. Congress has no ability to prevent other nations from using dollars without imposing the same capital controls as Japan imposed. That prevents the from emerging as a reserve currency, but if the US did that then we absolutely have to have some electronic reserve currency. There would be not choice.
The US debt is linked to the reserve currency insofar as there is a deep dollar bond market unlike other currencies. The US debt can be used as reserves and is to the extent of about 40%. This is what will eventually force the evolution to a reserve currency replacement. When I am in meetings around the world, this much seems to be understood as inevitable. So the nut-jobs can tout some impractical new currency to strip government of power as if that will ever get a vote and the bankers will fight hard to keep the government borrowing so they can make a commission. Between these two extremes lies reality.
QUESTION: Marty, Would nations still issue debt in the reserve currency or their local currency? If countries issued debt in the reserve currency, wouldn’t that be the same problem you have pointed out with the euro?
You have made it clear that debt is the great destroyer of civilization. It seems that this is the one factor that wipes out the monetary system every time. Do you think it is possible to eliminate government debt?
Thank you so much
SD
ANSWER: Historically, all nations default and that is what wipes out civilization. Only a fool assumes that debt is some how a natural part of the system. They clearly do not know their history. The US debt was entirely paid off before the Civil War. Such people never heard of the sin of usury or the Arab culture of prohibiting interest. Is it possible to eliminate government debt? Of course it is. Government debt has not always existed.
In fact, not only was there no national debt, the US government did not issue paper money after the Revolution until the Civil War. So there is plenty of precedent to demonstrate that government can function without debt at the federal level. Keep in mind, that states still borrowed. There was a massive sovereign state default in the 1840s.
Andrew Jackson’s war against the Bank of the United States eliminated a central bank and set in motion total chaos. Jackson unleashed the age of Wildcat Banking where private banks issued their own paper money that nobody knew even where these banks were located.. The currency issued by Oxford County Bank of Fryeburg, Maine, was actually issued by speculators who then sold their currency wholesale at deep discounts in New York City. A fraud market emerged because there were countless banks all issuing money (receipts) based upon pretend deposits without a central bank regulating anything.
This is the classic example of Wildcat Banks that were created thanks to Andrew Jackson’s personal vendetta against the Bank of the United States. Oxford County Bank was chartered in 1836, but never actually entered the banking business. There was no bank taking deposits or lending money. They onlyissued currency against deposits that never existed. These notes are very common confirming that this type of fraud was successful and quite common. There were numerous Wildcat Banks and there was no way for people to confirm any bank’s notes were worth anything following the antics of Andrew Jackson.
Jackson unleashed a massive financial crisis. As state banks then failed, some states like Louisiana issued bonds to bail out the banks. However, the fictional money was far too vast and many states went into default on their bonds by 1842 – even permanently. So we have the same reaction of government trying to bail out banks and in turn they themselves go bust. Those who support Jackson because they hate banks, also fail to notice history.
Consequently, it will require the crisis to accomplish such reform. We will not simply change monetary systems for the hell of it. So we have a lot to do and the analysis cannot be made up of hot air and opinion. You have to have the proof. So can governments exist without debt – absolutely.
There is a tremendous difference between issuing debt in a reserve currency and a domestic issue. You are correct. If there is a reserve currency and governments issued their debt in the reserve, you would end up with total chaos just as you have in the Euro. That would also tend to suggest the requirement of a central control, and that is not likely for nations will not surrender their sovereignty in such a manner.
A reserve currency simply replaces the dollar. That is the political goal of China and Russia. It also makes sense for it separates the problem of the reserve currency being impacted by domestic policy objectives which become exported. The Fed lowered rates sharply to bail out US banks and other nations issue dollar debt because of the low interest rates. Japan had strict currency controls whereas you could not issue debt in yen without the permission of Japan.
The debt crisis is separate and distinct from the reserve problem. Obama’s former chief economic adviser has already floated the idea that the USA should let the reserve status of the dollar go. This is not a voluntary position. Congress has no ability to prevent other nations from using dollars without imposing the same capital controls as Japan imposed. That prevents the from emerging as a reserve currency, but if the US did that then we absolutely have to have some electronic reserve currency. There would be not choice.
The US debt is linked to the reserve currency insofar as there is a deep dollar bond market unlike other currencies. The US debt can be used as reserves and is to the extent of about 40%. This is what will eventually force the evolution to a reserve currency replacement. When I am in meetings around the world, this much seems to be understood as inevitable. So the nut-jobs can tout some impractical new currency to strip government of power as if that will ever get a vote and the bankers will fight hard to keep the government borrowing so they can make a commission. Between these two extremes lies reality.