hey guys,

fozz, Ive been trying to understand your arguments from your view point, both, what youve written, and presumptions on other indisputable parts of the whole(cash_economics...)...and must say I still not sure I have grapsed it...

for example, you wrote 'the notion that we are on a road to disaster because the government's deficit spending equalls a massive debt that must be paid back by the taxpayer.' as 'This is absolutely false! But unless we understand the basic functioning of the modern monetary economy, we will logically assume that Thornton is correct.'...and earlier, 'That being that all currency derives originally from the sovereign (currency monopolist) who are not limited in the amount they may choose to create.', and 'To argue otherwise is to argue that there exists a fixed, unchanging and unchangable amount of currency in the world.' and 'Or business activities "create" an expanding sum (false)', and '
Or that it simply "creates" itself (also false)',...and on

if a structured reasoned argument from ground basics(basic facts everybody will agree with) that develops into a direction led by reason and logic, ending with your conclusions as the most likely/reasonable, then I may be able to give a useful comment...

for on face of it if the 'sovereign' does indeed can make/give anyamount of money independently of any thing else, they why need for taxes...or why worry about inflation...or just give common people money to live...and 'depression' can never occur etc...if you see what I mean...

sam

Hi Sam

You ask a perfectly logical question: if the fed does not need to tax in order to be able to spend, why do they tax us? The answer is that taxation creates demand for the currency the fed issues (Aussie dollars) without which it would be relatively worthless. If you think that taxation does not create demand for $AUSD, try to stop paying! It also lends weight to the legitamacy of the sovereign's authority - they make the rules and the rules are that in order to live and work/do business in Australia, we must fulfill our tax obligations to the fed. By imposing such a rule, demand for that currency is automatically created, for we cannot work or do business in Australia unless we accrue enough Aussie dollars to fulfill said obligation to the sovereign.

Strange concept I know but the fed does not need our tax dollars to spend them, for they are extinguished the moment they are deducted.

Consider the stimulus, $42 billion so far. We already had a $22 billion surplus, so where is the additional $20 billlion coming from? If the fed needs to earn or borrow before it can spend, surely we can then find in the fed's accounts, a deposit slip for $20 billion from the IMF, or the bank of the PRC, or the Sultan of Brunei? If that is not there, where could the money be coming from? The fed simply creates it.

cheers

fozz wrote...'Strange concept I know but the fed does not need our tax dollars to spend them, for they are extinguished the moment they are deducted.'...

just to be clear, lets take American federal reserve, empowering legislation http://www.federalreserve.gov/aboutthefed/fract.htm (some 12 banks, semi-private, and their purpose http://www.federalreserve.gov/generalinfo/faq/faqfrbanks.htm all of which forms us 'central banking system'...

now to printing money without basis... http://www.theaustralian.news.com.au/business/story/0,28124,25212624-643,00.html ('IT'S an ominous day when the world's economic superpower starts printing money to buy its own government's debt.')

been done before, eg Zimbabwe example, inflationary mechanism immediately set up(pre-ww2 Germann govt action demonstrated this catastrophe best in history...), and if not eased then soon worthless...so back to age old barter system...(cash economics ie money is essentially worthless paper, but fed bank 'promises to pay the bearer of...'guarantee, read whats written on your 10dollar note...is actually 'liquid' intermediary to facilitate goods and services trade, therefore no goods/services then there is no money...thus link essential for system working...)

so fozz on the face of it what you are saying is plausible and guess fed bank can print money irrelevant of any other consideration, but like taking something out here, restricting there, and dumping here of an interconnected/interdependant closed loop real_time working/dynamic system, like money_economics, its a very dangerous thing to do at the very least, and worse plunge us all into economic stagnation and end current 'mutual_benefit_international trading' for a long time...

and since 'workbook guidelines' details of inner working of feds is not available...guess all possible, but certainly hope feds not filled with such megalomaniacs whom disconnected to real market forces, while complete power on the money-printing-press at their disposal...to print anything they like to cease any debt at any time to get the problem off their table...is not the case...if so world economics been made to be very fragile indeed...and I for one would like to know exactly who the architects and current real enforcers of it are...

sam

I am hoping that this is a 5th Generation Post Modern Crypto Marxsoid- Harvard antithesis of Reductio ad absurdum ; and mystagogia - out of context and very bad - bad humour; it must be a G-up - Fairdinkum.

Hi Sam

The "very dangerous thing to do" is done every single day as part of the normal functioning of the economy. Fed spending is a flow of an intangible (yet for all intents and purposes, real) medium of exchange. It flows into the economy with each $ they spend and flows out as it is drained out through taxation etc. It does not issue from any stock as no such stockpiling is necessary.

The danger now is not from overall inflation. Aggregate demand is slumping. The price of goods, services and labour is not going to be driven upward if no one is currently wanting them. The fed is attempting to prevent or at least slow the opposite effect by re-introducing some liquidity back into the economy. This will have some positive effect, even if it is largely only to increase household savings which for years have been basically non-existent but I think that a better way to spend the money they are spending would be for them to directly create jobs. Public sector employment as a total share of the labour market has fallen hugely over the past 30 or so years, and the private sector was never able to use all the labour available. Unemployment has long averaged around 7% or so, only falling below 5% at the peak of the boom, while during the preceeeding era of government "intervention" it averaged around 2% in this country.

All,

are you going to forward an explanation of how money is created? Insults do not amount to arguments.

fozz wrote...'flows into the economy with each $ they spend and flows out as it is drained out through taxation etc'...

firstly, your conscious ignoring/rejection of factors that do not fit into your hypothesis leads to rejection of what you are saying...

From my understanding, your saying cash_economy is fed bank pouring money into economy...which flows through system via various avenues...till it returns back to fed bank completing cycle...

so if fed print more money...dump it into economy...there is more to spend...fixing the stagnation...

ok...lets look at history...after all why re-invent the wheel all over again...http://ingrimayne.com/econ/EconomicCatastrophe/HyperInflation.html ...reasonably good with examples of german hyperinflation(like by over printing money)...and note 'Inflation hurts some people but helps others by redistributing wealth and income'(so all savings/super lost but all cash-debts eg loans wiped out by devaluation)...'The segment of society that was hit the hardest seems to have been the middle class'(most with home-loan, income mostly 'fixed' and soon mostly spent on essentials like rapidly escalating food, mortgage defaults back to bank...so poor(nothing to loose but starve like us all), rich(money shifted to assets like gold that relatively increases in value with hyperinflation-good accounting management)...and on...

sure printing money to induce hyperinflation wipes out all the effects of greed/toxic-risk(relative value of $1billion bank toxic debt today in 1000% hyperinflation becomes 1000% less...see)...and start off again...with rich stillwith money, poor per usual...but middle class screw**...back to zero...16hour/days long hours of hard work to start again etc...

so bottomo line...no thanks...this time let the rich/greedy/unbalanced-self-interested face full consequences to their collective acts...which added cumulatively causing this crisis...

sam