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In fractionally reserved economies however, when interest rates are manipulated lower artificially and money & credit creation is continuous, lower interest rates benefit those entities that are closest to the central bank first.

This results in high barriers to entry in business and industry, industrial overcapacity thus the misallocation of resources and, eventually, the unnecessary depletion of natural resources. All through this process, the cost of living rises paving the way for gradually more onerous fiscality.

Not quite.

The asymmetrical purchasing power advantage enjoyed by those entities that have first access to money, guarantees the eventual monopolisation of business and industry. Granted this is a process but, eventually, the arithmetical advantage enjoyed by the finance industry ends up absorbing all profits thus ownership of productive capital

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Relevant excerpt:

“The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions.”

In which we are talking about two different processes. Financial corporations purchasing shares or even controlling interests are not ‘new entrants’, they are purchasing existing [profitable] businesses.

New entrants however are new entrants qua new entrants. Their business model if it is predicated on low costs of capital predispose to mis-allocation of capital and resources as already detailed.

The issue of Corporatism has been around since Rockefeller. They have been careful to smear capitalism with responsibility for their misdeeds.

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In fractionally reserved economies however, when interest rates are manipulated lower artificially and money & credit creation is continuous, lower interest rates benefit those entities that are closest to the central bank first.

True.

This results in high barriers to entry in business and industry, industrial overcapacity thus the misallocation of resources and, eventually, the unnecessary depletion of natural resources. All through this process, the cost of living rises paving the way for gradually more onerous fiscality.

I would argue that because debt is nominally lower, the barriers to entry are lower. Because there are many new entrants, resources are increasingly used. However, because demand has not driven the creation of the business profit margins are low.

These profit margins will be higher than the low cost of capital [nominal cost of debt] but should the nominal rate rise, the business will be required to liquidate, unless demand for their product rises. A liquidation releases factors of production back to businesses that have higher profit margins – demand.

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Do you think we have property of the money we earn?

Ergo, does my argument hold water?

As a banknote is a promissory note that cannot be redeemed, clearly the ‘money’, which in this case is the gold/silver that underlies the promissory note, viz collateral, is being retained. Possession is being retained, and thus ownership.

If we argue from a different direction, we get the same result. Given that what we get is a promissory note that can be devalued at will through inflationary policy of either monetary or fiscal nature, clearly we cannot control our possession – thus, it was never our property.

So yes, your argument is proven through law and ratiocination.

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Issue: Does the government, after an exchange of money for goods/services, retain legal title [ownership] of money

Law:

Nyberg v Handelaar (1892) In sale of goods/services transactions, the ownership of the seller, the transfer of which, for a money consideration is the hallmark of a sale is called the general property [and is being delivered as other than the special property].

Special property is used to signify the possessory entitlement of a pledge.

Possession & ownership together exhausting the category of legal property rights in a chattel. It follows that the general property is the ownership, in view of the identification of special property with possession.

Sale of Goods Act 1908

s3(1) A contract for a sale of goods is a contract whereby the seller transfers or agrees to transfer the general property in goods to the buyer for a money consideration, called the price.

Dublin City Distillery v Doherty [1914] delivery means voluntary transfer of possession from one person to another. Delivery is a bilateral matter. The buyer must simultaneously demonstrate an intention to assume control.

Kuwait Airways Corp. v Iraqi Airways Co [200] (HL): there are many common situations where the owner may not, in fact, be in a position to enjoy the property objrct in question, because the right to possession has been given up.

Young v Hitchens (1844): possession as a legal concept consists of two elements: [i] the exercise of factual control over the chattel [ii] the concomitant intention to exclude others from exercising control.

Analysis: The analytical question of whether a bank note is a chattel or a chose in action may shed a little light on the question.

A banknote was once a promissory pledge: redeemable to a specific weight in gold/silver. As this is no longer the case, the banknote has become a chattel. Thus, money, in the form of a banknote, is capable of becoming general property and being delivered.

Delivery, gives possession, to the other party. Therefore, when I exchange my labour for the chattel money, and it is delivered to my possession, certain elements of the various requirements are made.

The issue that remains is: do I have the intention to exclude others from exercising control? Clearly, the answer in the majority of cases is yes.

As the quality of redemption has been defaulted upon, there is of course an argument that control/possession of ‘real’ money, viz, an exchangeable commodity good is retained, viz, ownership.

To some of your specific points:

Alternatives to money, are valued in money. The value of bonds, insurance contracts or deposits is expressed in Dollars.

Yes they are. They however reflect the time preference quality of money and pay you interest [except insurance contracts]

Incidentally, if your reserve currency is the US$, you are merely allowed the decency to call your currency the Pound Sterling or the Yen. But you are arithmetically tied to the US$ so you have, for all intents and purposes, dollarized your economy. The utility of assimilating other economies in your monetary system is due to the diminishing marginal utility of debt. When a country chooses to make its currency convertible to the US$, this effectively constitutes an expansion of US GDP if only by proxy.

Ergo, convertibility is what allows the Federal Reserve to contrast the diminishing marginal utility of debt thereby extending the life of the Have central banks ever pursued their prerogative to enforce their ownership of the currency? Of course they have.

The most recent example was the Euro. But Argentina and Zimbabwe have repeatedly withdrawn their money in circulation and substituted it with a currency of different value. The difference between what Zimbabwe does and what the Fed does is merely a question of size. The Zimbabwe Dollar only circulates in a small economy so the diminishing marginal utility of debt quickly reaches its limits. Think of the first time the US$ monetary system hit the buffers in 1929. The great depression only began to resolve with the Land Lease Act and then WWII.monetary system AND absorbing assets along the way.

Essentially I agree.

Value is an intangible quality, measured by marginal utility, which is unique to each individual. The theory of marginal utility mandates that an increasing quantity of X will reduce the desire to increase the quantity further in relation to marginal utilities of other goods/services.

This was commonly referred to as the paradox of value which sort to understand why water, critical to life, was priced in exchange [money] terms lower than diamonds.

Gold has exchange value based on two very separate properties. The first is it’s commodity based useage for dental fillings, jewellery, electronics, etc. The second, is it’s use as money, that has endured now for thousands of years.

The consistency of gold as money, is key to understanding the marginal utility, or value of gold, and hence the money price, or exchange value that it commands for other goods/services.

Fiat money can be created at the States pleasure or need. Their need seems to expand infinitely, thus, the exchange value is diluted continuously and is drifting inexorably to zero.

Exchange markets, based on money, are critical to maintain the standard of life that we enjoy. Money as a good and service, is critical to their functioning, barter exchange would put us back to the Dark Ages.

While it is always possible that some other commodity could serve as money, after thousands of years fulfilling that function, it is highly unlikely that gold & silver would relinquish that service. Therefore, while placing a precise value, or marginal utility on gold is not possible, zero is a highly unlikely outcome.

Interest and devaluation are two different dynamics. Although the result is the same, one is overt the other covert.

Both dynamics however are carried out arbitrarily.

Both dynamics are made possible by the fact that we have no ownership of money.

“Interest however does not ceteris paribus affect the exchange value of money.”

Only in an unencumbered monetary system would interest rise and fall according to time preference.

When interest is manipulated unilaterally and arbitrarily however, it most certainly affects the exchange value of money creating an asymmetrical purchasing power advantage in favour of the earlier recipients of money.

The fundamental problem is that economic theory today has seemingly forgotten what capital actually is. The abstraction of money is so prevalent, not that economists seem to understand money either, that capital and its function has been lost.

Take the mind experiment of Crusoe on the island alone. He has a bright idea to build a boat and a net to catch more fish. He has the idea, now, how to build the boat and net. Both will require time to build/make and both will require materials, which again require time to be gathered.

The time required to gather and manufacture his products, require him to forego time spent gathering food. He decides to gather extra food each day for 3 months and save it. Then when he is manufacturing his product, he can allocate time from gathering food to manufacturing his products, living off of his saved capital, viz. stored/saved food.

The saved food is present value consumption. It is valuable. More valuable than future value consumption. The future haul of food will however be far more using a boat and net than current production of food. The difference or discounted value is the return to capital. Whether this capital be the saved capital goods of stored food, or the capital goods manufactured, capital is critical to actioning an idea.

If however there was a second castaway, and instead of Crusoe ‘saving’ food [capital] he could borrow the food [loan]. The difference or interest rate, will be the future haul of food, which will however be far more using a boat and net than current production of food. The difference or discounted value is the return to capital and is the interest rate charged for the loan [food].

Another way of looking at it is if I want to manufacture a boat and I can borrow money [food] to do so: will the return exceed the cost of interest? If it does, I build the boat. If not, I don’t.

Or,

I manufacture wigits. I can borrow at an interest rate of 5%. My selling profit is 18%. My net profit is 13%. It is worth borrowing the capital.

When the interest rate is low, more projects of production will be profitable, the marginal project. When it’s high, less.

So the only way to manipulate the interest rate is through inflation, creating money to maintain and overcome time preference. So it is more accurate to talk about inflation rather than the interest rate, as the natural rate of interest is not able to be manipulated by Central Bank. The natural rate of interest, eventually, dictates the the trend of the economy.

Constant devaluation leads inevitably to increase cost of living AND hardening of the fiscal framework.

Agreed.

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18 U.S. Code § 333 – Mutilation of national bank obligations Whoever mutilates, cuts, defaces, disfigures, or perforates, or unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, or Federal Reserve bank, or the Federal Reserve System, with intent to render such bank bill, draft, note, or other evidence of debt unfit to be reissued, shall be fined under this title or imprisoned not more than six months, or both.

So ownership of bank bills etc is retained by the State. But there is nothing preventing one from immediately converting fiat to a commodity money [silver/gold] and thereby negating the effect of non-legal ownership by oneself, converting possession to legal title.

However possession in law is almost as powerful as ownership of legal title. Possession is defined as the ability to control by oneself, and preventing the assertion of control by all others.

Taxation would be the exception to possession being complete. The State through the coercive power wielded, can demand fiat money to be yielded up, thus effectively retaining legal title.

As previously stated, the issue is not legal ownership per se, it is the ability [through control of the money supply, which is provided through ownership] to create fiat at will, without any legal constraints. This is not ‘interest’, rather it is an additional hidden tax.

Which rather begs the question…how do you avoid the tax?

Through debt. By holding minimal fiat and the majority in real assets through debt. You use the depreciating fiat cash-flow to service the depreciating debt value. For most, this means a mortgage, as this provides the maximum leverage that the average person can acquire.

So what if you own your own home? Re-mortgage and invest the fiat into real productive assets, common stock being the primary investment vehicle. The cash-flow from dividends can off-set much of the repayment costs of the mortgage.

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Ducati… I’ve had an epiphany in the past few weeks. Appreciate your comments on the thought process if you would indulge me.

Presumably democratic countries are predicated on a fundamental arithmetical problem that, assuming they are aware of it, few want or are ready to discuss.

The problem is money.

The money that is imposed by the state is the legal property of the central bank.

There are three major issues here: [a] the vast majority of ‘money’ is not held as fiat currency at all…it is held as an [electronic] deposit. What about the ‘monyness’of: bonds, insurance contracts, alternative currencies? [b] a deposit account in law is a chose in action [intangible property] which consists of an entitlement arising from obligations that are enforceable at law. [c] transfer of [legal] rights of assignment deal with the transfer of choses in action, and thus whether property could be retained by Central Banks for fiat currency. So without undertaking a legal analysis, the answer to that assertion is unclear at the moment.

Would Central Banks, even if in law they retained property rights, actually ever pursue those rights given that the legal right to print fiat currency underlies their power in the first place? A wholesale abandonment of fiat currency for say gold…would likely cause a crisis that would precipitate their collapse.

Since money is the legal property of the central bank, the money that is circulated for use is only lent to society at interest.
Money lent at interest is inherently debt.

Accepting for the sake of discussion that this is true, certainly inflation is a tax on fiat currency’s purchasing power. Could it be construed as ‘interest’? I think you would need to define ‘interest’ first and foremost.

And here is the crux of the problem.

If you agree that your ideas and your skills are your natural God given property, then in accepting money in exchange for your work you are inherently exchanging something you own (your skills) for something you do not own (money).

I agree with the premise, I’m not sure that the conclusion follows based on previous objections.

But money requires that interest be paid to the central bank.

Thus, by exchanging something you own outright for something you owe interest on, you are inherently and inevitably in debt.

This is the fundamental iniquity built into the architecture of this monetary system the ramifications of which reach far and wide giving rise to real life, arithmetically preordained results at the social, political and economic levels.

I accept that inflation is a tax. An exchange of values, that depreciates post-exchange is not an equitable exchange.

***

The key to understanding this problem is the following:

On one hand the state arbitrarily imposes upon society the use of one type of money under penalty of law

On the other hand, the central bank is under no reciprocal obligation to guarantee the value of money

Interest however does not ceteris paribus affect the exchange value of money. Interest is time preference, which allows for a discounted value of money to be calculated. Taxation through inflation does however alter the value of money through dilution.

***

Effectively, if you have a basic grasp of arithmetic, you can work out how this dynamic will eventually channel wealth towards the owner of the currency … which brings us to today…. ?

Well certainly government through policy advocates wealth redistribution!

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Monday is the third Monday in October, marking the anniversary of “Black Monday,” the day of the 1987 stock market crash that saw the Dow fall more than 22%, its worst day in history.

It was sheer panic on Wall Street.

David Rosenberg, now chief strategist at Gluskin Sheff, told Barry Ritholtz on his Masters in Business radio program back in September that “Black Monday” is the scariest thing he’s seen in his time on Wall Street.

“I’ve been through the savings & loan crisis, I’ve been through what happened in 1994, the tech wreck, I was there on Wall Street between New Century Financial, and Bear Stearns, and Lehman, and AIG, but I’ll tell you something: the palpable fear, there was nothing like October 19, 1987,” Rosenberg said.

“People actually thought that the world was going to come to an end.”

Black Monday also happened to be Rosenberg’s first day on Wall Street.

On that Monday, Rosenberg joined the Bank of Nova Scotia as an economist after working for the Canada Housing and Mortgage Corporation, which Rosenberg said is like the Canadian equivalent of Fannie Mae.

“It was my first day on the trading floor, and it was pure pandemonium,” Rosenberg said. “If somebody had offered me a ticket back to my cushy civil servant job in Ottawa, I probably would have taken it.”

“So many things happened at around that time that shaped my thinking at a whole range of levels.”

Amid this panic, Rosenberg remembers the economists who brought him on to work at Bank of Nova Scotia going around to every part of the bank — including the CEO’s office — and remaining totally calm.

This past Wednesday amid choppy trade and historic volatility in the bond market, we highlighted comments from Rosenberg who reminded investors to take a deep breath and remember what is important for building wealth.

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