The National Debt - Who is the Creditor?

On the Ron Paul forum, someone asked me via private message:

If the Fed Reserve is gone, then we won't have to pay interest for paying them for printing their valueless money.. but someone pointed out that the American treasurer receives the interest? is this true?

I posted this, but this guy responded back:

3) The destruction of the Federal Reserve would lead to a halt on the interest we pay to them for the pleasure of using their valueless paper."

The American treasurer receives the interest from the valueless paper that's you and I.

http://www.publiceye.org/conspire/flaher...

can you help?

That's a broken link.

This is another question that deserves its own separate post.

I see the fool is quoting Edward Flaherty. I've already mentioned that Edward Flaherty is a paid disinformation agent. Edward Flaherty is an economist who makes a lot of posts on the Internet. He says things like "There's no such thing as the Debt Virus.", which is another name for the Compound Interest Paradox. His arguments are frequently cited by clueless people, who say "This guy has a PhD in economics, so what he writes must be true."

The problem is that university economics professors are primarily funded by government grants. Someone who writes articles critical of the Federal Reserve will *NEVER* get a research grant and thus be out of a job. If you want a good analysis of economics, someone with a PhD in economics is the LAST person to ask. Mainstream orthodox Keynesian economics says that the Federal Reserve is better than sliced bread. Anyone smart enough to question that is weeded out from the economics field.

In the above counter-argument, there is one small grain of truth. The Federal Reserve owns about 10% of the outstanding Treasury Bonds at any given time. The interest the Federal Reserve earns on these bonds is first used for the Federal Reserve's own expenses, and the remainder is turned back over to the Federal government. However, this is a tiny fraction of the actual interest paid on the national debt, and it's a tiny tiny fraction of the humongous government subsidy the financial industry receives.

Hidden in your your question is another question, which is what you're really asking:

Who's the creditor for the national debt?

According to this official government document on the GPO website, the amount paid in interest on the national debt was 2% of GDP. That document only includes debt held by the "public". Some debt is held by US government agencies, such as the Social Security Trust Fund.

There's another interesting observation from that table. The statistic "2% of GDP used to pay interest on government debt" is fairly constant over time. That makes natural sense. If the value got too high, there would be inflation. The US national debt is continually being defaulted on due to inflation, due to negative real interest rates. The default is at a rate of 1%-10% per year, depending on whether you consider M2 or M3 to be a reliable measure of inflation.

About 2% of the total wealth generated in the USA last year was used to pay interest on the national debt. The wealth confiscated by income taxes and paid in interest on the national debt doesn't vanish into thin air. It winds up in someone's pockets.

Suppose a bank decides to invest in Treasury Bonds. Banks are allowed to use a leverage ratio over 100x when investing in Treasury Bonds. The 2 year Treasury Bond yield right now is around 3%. This means that the average expected Fed Funds Rate over the next 2 years is around 2.8%. If it were higher, banks would short sell 2 year bonds and lend the proceeds at the Fed Funds Rate. If it were lower, banks would borrow at the Fed Funds Rate and buy bonds. This arbitrage mechanism insures that the Treasury Bond yield approximately equals the average future Fed Funds Rate plus a little more. It isn't exactly equal, due to transaction costs.

Suppose the average Fed Funds Rate over the next 2 years is expected to be 2.8%. Banks know this by predicting the Federal Reserve's interest rate policies. They know that the Compound Interest Paradox will force the Federal Reserve to continue cutting interest rates, because otherwise there would be a deflationary crash of the dollar.

Suppose the bank has $10 billion in capital. The bank is allowed to use 100x leverage, so it is able to buy $1 trillion in Treasury Bonds. This means the bank is borrowing at an average rate of 2.8% to buy a bond that yields 3%. This spread of 0.2%, multiplied by the leverage ratio of 100x, yields a profit rate of 20%.

Hedge funds can also use this high leverage trick when buying Treasury Bonds. They have to pay higher transaction fees than banks, so hedge funds would normally borrow to buy other types of debt or buy stocks.

Notice that the bank or hedge fund has performed NO REAL WORK, yet they get to make a huge practically riskless profit.

That is where the interest on the national debt goes. It goes into the pockets of banks and hedge funds. They borrow at the Fed Funds Rate and buy Treasury Bonds. Further, the yield on other debt is set by the Treasury benchmark. Suppose a corporation wants to borrow for 2 years. The 2 year Treasury yield (3%) plus a spread (3%) equals what the corporation is charged for borrowing, around 6%. This spread is pure seignorage profit for banks and hedge funds.

At any given time, about 10% of the outstanding Treasury Bonds are held by the Federal Reserve. Due to a 10x reserve ratio, banks can then create, via fractional reserve banking, the money required to purchase the rest of the national debt. The Federal Reserve creates 10% of the money needed to purchase the national debt, and banks can create the remaining 90% by fractional reserve banking.

The interest paid on the national debt shows up as seignorage income for banks when they create money.

Consider China, who holds around $1 trillion in US Treasury Bonds. Is wealth being transferred from the USA to China via interest on the national debt? NO! China has an *UNLEVERAGED* long position in US dollars. China doesn't have only $10 billion and is borrowing $990 billion like a bank would. China actually has $1 trillion in US dollars.

China owns $1 trillion in US Bonds without using ANY leverage at all! China is being credited with 5% interest on this debt, but inflation actually is 6%-15%. China is earning a NEGATIVE return on its investment in US Bonds. Purchasing power is moving AWAY from China and towards someone else!

The mechanism whereby China acquires dollars is interesting. Suppose there is a factory in China that manufactures lead-painted toys for sale in the USA. The Chinese factory sells the toys to a US corporation in exchange for dollars. However, the Chinese factory doesn't pay its workers in dollars; they get paid in yuan. The factory turns the dollars over to the Chinese government in exchange for newly printed yuan. The Chinese government has an unlimited supply of yuan, just like the Federal Reserve has an unlimited supply of dollars.

The Chinese government wants to keep the dollar/yuan exchange rate stable, so it prints more yuan. This causes inflation in China. The USA is, literally, exporting its inflation to China. Who gets to profit when new yuan are printed? It's *NOT* China. It's banks and hedge funds and the USA! China is, literally, subsidizing the profits of banks and hedge funds in the USA.

China's government is content to hold dollars and lose ground to inflation. If China took its dollars, bought tangible goods, and put them into China's economy, then printing more yuan would NOT be inflationary. For example, if China spent its dollars buying copper to be used in China, then there would be more yuan in China but there would also be more copper/goods, and people in China would not experience inflation.

Is this a bad deal for China? A lot of US companies are building factories in China. China is getting advanced US manufacturing technology. However, China needs the customers in the USA, to justify all the factories that have been built there! Right now, China is shipping the USA manufactured goods, and the USA is giving China technology along with a piece of paper with a number printed on it. When China catches up to the USA technology-wise, then they probably won't be as eager to export to the USA in exchange for a piece of paper.

Summarizing, China is earning a NEGATIVE REAL RETURN on its Treasury Bond investment. The US financial industry is booking a seignorage profit exactly equal to the purchasing power China loses due to inflation.

The above argument applies to all foreign central banks that hold dollars, not just China. They are subsidizing seignorage profit to the US financial industry, from their willingness to earn a negative real return on their Treasury Bonds. Every foreign central bank has substantial dollar reserves. All those reserves are beings slowly eroded due to inflation.

Similarly, suppose an elderly retired person is invested in Treasury Bonds. Like China, they have an unleveraged long position. Like China, they are losing their purchasing power to inflation.

The Social Security Trust Fund is similarly invested in Treasury Bonds. The Social Security Trust Fund earns a negative inflation-adjusted return. The Federal Reserve is slowly stealing the Social Security Trust Fund by crediting it with a negative real interest rate.

For the entire history of Social Security, taxes collected have exceeded benefits paid. Where does that wealth go? It goes to the financial industry. The Federal government doesn't "store value" by holding Treasury Bonds, because the Federal government is the issuer of dollars. A government can't "store" a surplus in the currency it issues.

All the Social Security Trust Fund means is that inflation can occur elsewhere, without the average person noticing. They notice the Social Security taxes they pay, but they assume there's going to be a benefit later. After adjusting for inflation, Social Security is a ripoff to CURRENT retirees, much less those who will retire 20 years from now.

As a sidenote, when Kennedy issued his "U.S. Notes", they had a special clause on them "cannot be used to pay interest on the national debt". In other words, *ONLY* Federal Reserve Notes can be used to pay down the national debt. The Federal Reserve issues Federal Reserve Notes, and the national debt is GREATER than the M2 money supply! The national debt can *NEVER* be repaid unless the Federal Reserve Act is repealed or amended!

Federal Reserve Notes are printed by the Treasury, but they are promptly sold to the Federal Reserve for the printing cost. This gets around the loophole that says "only the government may print money".

Technically, Congress has unconstitutionally delegated its money printing authority to the Federal Reserve, a private corporation. The US Supreme Court does not care. The Supreme Court is controlled by the same bankers who control Congress and the President!

Back to your original question, which was:

Why can't Congress repeal the Federal Reserve Act and directly print and spend money?

The financial industry currently is the recipient of a government subsidy equal to the sum of:

- 2% of GDP, the amount paid in interest on the national debt

*PLUS*

- the purchasing power that China and foreign central banks lose due to negative real interest rates on their dollar holdings

*PLUS*

- the loss of purchasing power in the Social Security Trust Fund, due to negative real interest rates

*PLUS*

- all the seignorage revenue that they incur by expanding the money supply. In other words, when the dollars in your pocket lose 10% of their purchasing power each year due to inflation, that wealth moves from your pocket to the pockets of banks.

[Some things are double-counted in the above list, but you get the idea.]

One minor adjustment is needed to the above calculation. When the Federal Government runs a budget deficit, some seignorage revenue is claimed by the Federal Government instead of by the financial industry. There can only be a certain amount of inflation before people get wise to the flaws in the monetary system. That's why a Federal budget deficit is "bad". By having a deficit, the Federal government is stealing some of the seignorage income from the financial industry.

However, the seignorage income earned by the financial industry is FAR GREATER than the seignorage income the Federal government earns by running a deficit. The benefits of printing new money accrue primarily to the financial industry, rather than to the government. If Congress reclaimed its money printing authority, then all this seignorage income would accrue to the government instead.

Banks borrow at the Fed Funds Rate and issue loans, expanding the money supply. The difference between the Fed Funds Rate and the loan rate is revenue for the financial industry. Banks can use leverage ratios of 10x-100x, depending on the type of loan. Even though real interest rates are negative, banks profit by issuing loans because they can borrow at a government-subsidized negative real interest rate.

If you add up all the above, I estimate that the financial industry receives a government subsidy of 10% of GDP or more. It's hard to come up with a clear estimate, because the details are carefully hidden through layers of loan transactions and derivative transactions.

Some of this money trickles down from banks to large corporations. Large corporations also receive a massive government subsidy, but not as large as the financial industry. Large corporations can borrow at 6%, while individuals and small businesses have to borrow at 8% or more.

That's the reason a corporation with a "sound capital structure" has a certain amount of debt. By having debt and paying only 6%, the corporation is profiting from negative real interest rates. If a corporation has "too little debt", then it becomes a takeover target by hedge funds. Hedge funds can profitably buy a corporation and load it up with debt because real interest rates are negative. The profits earned by hedge funds are paid by everyone else as inflation. The hedge fund industry didn't explode until after the gold standard was abandoned, because under a gold standard real interest rates can't fall below 0%.

The people who control the large banks can easily afford to spend a fraction of their stolen wealth supporting the "right" candidates, to make sure that the US monetary system is never reformed. If you're able to transfer 10% of GDP into your own pockets *EACH YEAR*, it then becomes very easy to buy up all the TV stations and all the newspapers, making sure your misdeeds go unreported.

The bottom line is:

If the Federal Reserve Act were repealed, banks would lose this MASSIVE government subsidy they now receive.

The people who control the banks won't give up this massive loot and pillage scam without a fight.

This subsidy is REALLY VALUABLE, so the people who control the banks can afford to fight REALLY DIRTY.

They control all the TV stations and newspapers, guaranteeing that no fair analysis of the Federal Reserve is presented to the public. They control all the university economics professors, by making sure that research grants are only given to professors with the "right" viewpoints. They'll assassinate or harass Congressmen or Presidents who try to oppose their plans. Ron Paul is pretty much the only current member of Congress who has publicly stated his opposition to the Federal Reserve. The other Congressmen are either too corrupt and/or clueless to understand how evil the Federal Reserve is.

For some bizarre reason, the bad guys haven't been able to control or subvert the Internet. The Internet allows people to share information in ways that were previously impossible. The Internet is the tool that allows the bad guys to maybe be defeated. Isn't that odd?

The money the financial industry receives isn't just the 2% of GDP they receive in interest payments. The financial industry also receives the benefits of inflation. When your dollars lose 10% of their purchasing power due to inflation, that money doesn't vanish; it winds up in the pockets of large banks.

The vast majority of the people who work as bankers, traders, and hedge fund managers don't understand the arguments I'm outlining. They sincerely think they make a ton of money because they're brilliant and clever. They don't realize that they're receiving a massive government subsidy. Only a handful of people at the very top are fully aware of the details of this scam.

There is another problem. Suppose Congress repealed the Federal Reserve Act. Suppose interest rates were allowed to rise to the natural free-market level. The Compound Interest Paradox would cause all the money to drain out of the economy as more loans were repaid than issued. Congress would need to make sure adequate money remains in circulation. They would need to repurchase Treasury Bonds, purchase private debt, or directly spend money into circulation, just to make sure there was an adequate money supply. Currently, the money supply is only $7 trillion while total outstanding debt is over $50 trillion. An extra $43 trillion would need to be introduced into circulation so all those loans could be repaid.

There is another problem with Congress printing money to pay off the national debt. If Congress directly spent $10 trillion into circulation, it would cause $100 trillion of inflation. Fractional reserve banking would cause the money spent by Congress to multiply. It is possible to reform the US financial system, repealing the Federal Reserve, without a complete collapse of the economic system. I already have a detailed post about Ron Paul and the Federal Reserve.

However, the wealthy greedy bastards who control the US financial industry and the US government will *NOT* allow monetary system reform to occur. The current economic system and political system deserves to collapse.

I consider Ron Paul to be the only interesting candidate for President in 2008. However, I think that the agorism philosophy is better than putting your hope on a specific candidate. If Ron Paul fails to be elected, hopefully some of his supporters can be converted to agorism.

Does that answer your question? Leave a comment or E-Mail me if you still don't understand "Who is the creditor for the national debt?"

Reader Mail #16 - Paying Taxes is Stupid

This collection is interesting bits from other blogs more than reader comments. I'm really appreciating Google Reader! The ability to look at the "shared items" folders of others is really cool.

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According to Google Analytics, someone from Saudi Arabia has been reading OPEC Currency Advice.

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I liked this post on The Picket Line about tax resistance.

Economists consider tax compliance to be an irrational behavior. That is, the penalties for tax evasion are not severe or certain enough for it to be an economically rational decision not to try to evade your taxes. And yet, to a great extent, people willingly cough up what the government tells them to. Why?

I've never seen a careful analysis. What exactly *IS* the risk of being caught for tax evasion? I think it depends on how clever you are about making sure you don't generate a paper trail. Depositing cash in your bank account is a tip-off to the bad guys.

If you work in a corporate W-2 job and you're a wannabe tax resister, you're SOL. The corporation is required to report your income to the government, and taxes are automatically withheld.

If you really want to be a tax resister, you have to find trusted off-the-books trading partners.

People pay their taxes because they identify taxpaying with being honest, with being fair, with being a good citizen, with their value system as a whole.

In other words, if people fully realized how the current economic and political system was a fraud, they would be more willing tax resisters.

The idea of a "war tax resister" is a good way to introduce people to the idea of agorism. You can't oppose the Iraq war by voting. Did you like the way the democrats stopped the Iraq war after they took control of Congress? If you don't pay taxes, you can oppose the Iraq war and show a profit at the same time!

Some really foolish tax resisters are paying something like 50% of their actual tax bill. That's like begging the IRS for an audit.

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I liked this post on Scholars and Rogues. Summarizing, Thomas Jefferson thought he was an idealist establishing the perfect form of government. In actuality, Thomas Jefferson was designing the most effective oppression tool ever invented.

By providing people with the false impression that they can control the government, they will not resist an oppressive government. In theory, the people can replace their readers anytime. The reality is that the voting system is defective.

Nobody is more hopelessly enslaved than someone who falsely believes he is free. (Goethe)

A democracy or republic is a great system for providing people with the illusion they are free, while they are hopelessly enslaved. People are given the false impression that they can move up the economic chain and become one of the power elite. The reality is that the rare success stories are heavily touted.

In the present, the wealthy elite can pass their power on to their children with nearly 100% reliability. The present is the LEAST RISKY time in history to be a powerful wealthy person, extracting favors from the state for your own enrichment.

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Everyone who has a blog should maintain a list of blogs they read regularly. You should also maintain a list of blogs you are considering adding to your regular rotation.

I now manage my blog hitlist exclusively through Google Reader. I keep track of when I added the blog to my hitlist, along with how many times I decided to put a post in my "shared items". If a blog's RSS feed has enough "interesting items", it gets promoted to my regular rotation. (I rename the feed name to keep track of the date added and the # of "interesting items".)

BTW, some blogging services, most notably wordpress, don't come out properly in the RSS feed. The RSS feed is only showing the first paragraph, rather than the entire article. I thought that the RSS feed should carry the entire article. Verifying my own blog's RSS feed, you appear to get the entire article via the RSS feed.

There's one skill I've discovered that's very useful. In the first few seconds of reading a post, you should be able to decide "This is interesting" or "This is nonsense". A lot of stuff falls into the category "This is interesting, but hard to read." Lately, I've been rejecting the "interesting, but hard to read" content unless it was written by Kevin Carson.

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I liked this article, forwarded by Kung-Fu Monkey. The subject is "Why Americans Hate the Media".

Here's one interesting quote from that article: "Elite reporters show surprisingly limited curiosity." Obviously, if an elite reporter had intellectual curiosity, he might eventually start asking questions about the Compound Interest Paradox. The very process of becoming an "elite reporter" makes sure that all the people with intellectual curiosity get weeded out. The system is designed that way on purpose!

Here's another interesting quote (paraphrased) "The political pundits are frequently more powerful than the Congressmen. Most pundits are more famous than all but a handful of Congressmen. Congressmen can be voted out, but the pundits have real job security."

It's definitely worth going through Kung-Fu Monkey's blog and reading his older posts.

I liked this post on Kung-Fu Monkey's blog.

Yet Cheney and Gonzales have dropped the Constitution into a hole in the White House basement and are currently dancing naked around the pit, penises tucked between their legs, screaming "It rubs the lotions on its Amendments!" at the shuddering, terrified document, and there's nary a peep.

What happens if the people who control the government have gone completely and utterly insane? I suspect that the Supreme Leader of Humanity is intentionally choosing insane people to run the government, because he's decided that government is a bad invention and he's getting rid of it.

I also liked this post by Kung-fu Monkey.

[There was a gruesome bloody murder in the neighborhood.]

Your neigbor decides to take precautions. He leaves his doors and windows unlocked. He sits on the roof, armed with a SpongeBob SquarePants air-rifle, just in case the killers return and attack the house by hang-glider this time. And the air rifle doesn't work. And he spent EVERY DIME HE HAD on the air rifle.

...

Simply put, if you are voting for these guys who call themselves Republicans, then you are voting for crazy air-rifle guy. You just walked up, nodded, and said: "Wow, I gotta get me a ladder."

I would amend this by saying "ALL the candidates are crazy air-rifle guy."

When you pay taxes, the money all goes to crazy air-rifle guy.

I also liked this post, comparing George Bush to Leeroy Jenkins. Leeroy Jenkins is a famous World of Warcraft character who stupidly gets his entire party killed, in a "viral video" that has circulated widely on the Internet.

I liked this post.

Network television is executive welfare.

As usual, this doesn't just apply to television. The ENTIRE ECONOMIC SYSTEM is executive welfare.

The problem is that with broadcast television, the networks have a monopoly enforced by government violence. The networks received the exclusive right to broadcast at a specific frequency, and those rights were sold for a huge discount to their fair value.

Cable television is only marginally better. In each city, the cable network is given a monopoly. The cable company is given the exclusive right to lay cables and connect them to customers. There are 100+ channels, but the cable company has a monopoly over deciding which channels are broadcast.

For example, it doesn't pay for me to develop my own "Anarchists' TV Network", because I couldn't get a cable network to carry it. If Fox wants to release a "Fox Business Network", they already have a relationship with the cable companies and can easily get their channel added to the lineup.

The Internet is leveling the playing field somewhat. That's why eliminating network neutrality is such a high priority for the bad guys. Why hasn't the the Supreme Leader of Humanity allowed network neutrality to be destroyed? It would be a simple matter to tax or regulate the Internet out of existence, although that would just drive the real hackers back to the old BBS systems.

I also liked this bit from the same post:

It's famously said said that one in ten Britons who could read, read Dickens when he was alive.

The most popular writer in the history of the English language ... had a ten share.

Is someone going to be scrounging around on the Internet looking at these posts 20-50 years from now? What message would I have for those people? Let's see. The price of a new computer is around 100-150 ounces of silver. How does that compare to prices you pay?

I like this calculation of the annual death toll in Iraq. Apparently, some people say that living in Iraq is safer than living in Washington D. C. According to that post, those people either are lying, can't do arithmetic, or completely insane.

There's a lot of good bits in Kung-Fu Monkey's blog

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I liked this post on Wirearchy. It says that, if you only hang out with people with views similar to yours, your views become more extreme.

Personally, I reinterpret that as "If you don't waste your time hanging out with fools, the quality of your thinking and writing improves." I haven't found any philosophy that's sounder than agorism, so I'm sticking with that for now. Unfortunately, there are VERY FEW good resources for agorism on the Internet, and there are a lot of "phony anarchists" on the Internet.

I don't think that I personally have that problem. I still try to respond to trolls on the Ron Paul forum! Actually, the Ron Paul Forum seems to be declining in quality lately. They made too many subforums, which has fragmented the discussion too much.

I try to answer all non-spam comments. However, there's a selection bias. If you don't agree sort of with my writing, then you won't be wasting your time reading this!

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I've been reading all sorts of stories about Taser-wielding, out of control police. There's a presumption that using a Taser is "safe", so it's used much more commonly.

A gunshot always results in serious injury or death. A Taser will not lead to many serious injuries. Suppose a Taser seriously injures someone 1 time in 10,000. If a Taser starts being used 10,000 times per day, then you start having 1 person seriously injured from a Taser per day. The presumption "Tasering is OK" leads to more Taserings than is really appropriate.

The problem is that if you're inappropriately Tasered, you usually have no recourse. The policeman claims "sovereign immunity" and you can't sue him profitably. In cases where someone videotapes the Tasering, the police are now smart enough to confiscate and destroy videotapes and surveillance cameras.

If policemen were subject to true free-market competition, you could hire another police force to investigate and protect you if you were inappropriately Tasered by another police force. Under the current system, you have no choice but to pay taxes to support corrupt police.

What incentive do police have to treat people fairly?

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I liked this post on the Liberty Papers. The author understands the unfairness of fiat money, but he doesn't understand the Compound Interest Paradox. I left a comment saying, "It's the Compound Interest Paradox, stupid!"

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I liked this post about trying to explain World of Warcraft to someone from 1977. Reading blogs written by professional writers sure is interesting! I wonder if I can convert some of them to agorism?

Some of these blogs attract a TON of comments. I don't bother looking through them to read them all, though. Does it pay for me to read 100 lousy comments to find the 5 that are actually worth reading?

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I liked this article about free market behavior in ants. Each ant is individually stupid. However, by acting according to predetermined rules, an ant is smart. An ant will go foraging for food if it detects returning foragers at a certain rate. Are foragers returning with food rapidly? That means there's food nearby. Are foragers being eaten by predators by the nest entrance? Is there no food nearby? In either case, it isn't a good idea to go out, because you aren't encountering returning foragers.

The model for humans is that people can individually act intelligently, and reach the correct conclusions. Unfortunately, there's a huge predator (the State) eating all the returning foragers.

The state prevents individual human intelligence from aggregating and forming the optimal global solution. That's the reason a hierarchical structure is so inefficient. The individual decision-making abilities of everyone but the leader are wasted.

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I didn't realize that the US Post Office has a government-mandated monopoly. They have *EXCLUSIVE* right to deliver mail to citizen mailboxes. Any competing mail service that delivers to mailboxes is committing a crime! Apparently, that's the reason that FedEx and UPS always demand a signature, rather than just putting the letter in your mailbox.

That's hard to enforce, though. This sounds like a decent agorist business opportunity. However, it would only be practical for delivering things of high value you don't want the red market to know about. For example, if I opened an agorist coin and silver dealership, I probably would have to hire an agorist courier to make deliveries in other cities. The USPS, UPS, and FedEx are probably obligated to report anyone shipping gold or silver to the government.

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I liked this post on Bored Zhwazi. It actually was quite encouraging. Suppose there already are a handful of people who have tremendous wealth and power. After a certain point, it doesn't pay for them to go after the middle class anymore; they don't have enough power to be worth stealing from. If you're the 5th most powerful person in the world, your ideal theft target is the 6th through 10th most powerful people in the world. The 5th most powerful person in the world probably won't be able to touch the 4th most powerful person in the world.

In other words, it's practically already certain that there already is a Supreme Leader of Humanity. Somewhere, someone has already seized complete and absolute control of practically the whole world's resources. My question is not "How do we prevent someone from seizing absolute control of the entire world?" From my point of view, that has already happened. My question is "What does the Supreme Leader of Humanity want to do next?"

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I've been wondering if making T-shirts is a good agorist business opportunity. I wonder how much it costs to buy a printer that prints T-shirts? I have some clever design ideas. If you can buy raw materials for $5 each and sell them for $10-$15 each, that could be worth it.

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On the Ron Paul Forum, someone asks:

Isn't it dangerous to expose the evils of the Federal Reserve? Look at what happened to Kennedy.

Actually, you've got it half right.

Any President who has tried to expose the evils of the Federal Reserve or banking cartel has died in office. Most members of Congress who have tried to expose the evils of the Federal Reserve have had nasty things happen to them, with Ron Paul the only current exception.

Private citizens have written negative stories on the Federal Reserve without adverse effects, although you might have trouble getting a mainstream news source to acknowledge your work.

Someone responded that the founding fathers successfully fought a central bank. That doesn't really count; I'm referring to recent history.

On the Ron Paul Forum, a troll is aggressively defending the Federal Reserve again:

It is the massive trading on debt derivatives that is directly responsible for what's going on, NOT Fed interest rate policies.

No. Under the Federal Reserve, real interest rates are negative.

Bond derivative speculators KNOW that the Federal Reserve will bail them out in the form of an interest rate cut during a credit crunch. The Federal Reserve's interest rate policy eliminates most of the risk from derivative speculation.

The explosion in derivatives didn't occur until AFTER the US abandoned the gold standard. You can't have a derivatives market under a gold standard. Under a gold standard, exchange rate arbitrage occurs naturally due to the shipment of physical gold.

Why does any discussion of the Federal Reserve on the Ron Paul Forum bring out the "aggressively defend the Federal Reserve" trolls?

On that same thread, and the same troll:

I'm not talking about forex derivatives, I'm talking about repackaging and reselling debt.

Repackaging and reselling debt is much less risky than it should be due to the Federal Reserve. If the Fed Funds Rate is 4.5%, the "repackaged debt" is 6%, and inflation is 15%, then banks and hedge funds can profitably buy the repackaged debt. A hedge fund will borrow at 4.5%, use a leverage ratio of 20x-50x and buy debt yielding 6%, making a tidy profit. During a credit crunch (like the present), the Federal Reserve lowers interest rates, which makes this trade continue to be attractive.

Due to increased default risk, the repackaged debt yields only 5% instead of 6%. However, when the Fed Funds Rate is cut, the profit equation leads to the same level of profit.

The Federal Reserve provides people with the illusion that bonds are fairly priced, while real interest rates are negative.

The fact that people on both sides of the fence are screaming bloody murder and seem to be unhappy, makes it seem to me that the Fed is probably doing the right thing.

Just because two groups of people are simultaneously claiming they are being robbed does not mean that no theft is occurring.

One group of people is pressuring the Federal Reserve to cut interest rates (banks and hedge funds). Another group of people is pressuring the Federal Reserve to keep interest rates high. (Foreign central banks holding unleveraged long positions in Treasury Bonds. It's not Ben Bernanke's fault that foreign central banks are run by fools.) Both groups are claiming they are being unfairly treated. You cannot draw from this the conclusion that the current economic system is fair.

This sounds like the name of a new fallacy. How about the "If Everyone Is Screwed, It's Fair" Fallacy.

The people who aggressively defend the Federal Reserve seem to fall into several categories:

- People who are professional economists, who can't admit that everything they've been taught is a lie.
- People who are professional journalists, who can't admit that mainstream media's presentation of the Federal Reserve is completely and utterly false and misleading.
- People who work at large banks, who benefit greatly from the current corrupt system.
- People hired to spread disinformation about the Federal Reserve.

I suspect the above troll is a paid disinformation agent, but he may merely be a clueless fool.

I'm extremely offended by people on the Ron Paul forum aggressively defending the Federal Reserve. One person said it was like going to a Orthodox Jewish wedding and throwing a roasted pig on the table.

The problem is that the trolls aren't really debating. They repeat the same false counter-arguments over and over again, and it's like they're not listening to the detailed examples I give. A naive person can see the trolls and falsely come to the conclusion that maybe the Federal Reserve isn't so bad after all.

That troll also uses the Strawman Fallacy aggressively. He said in another thread "If you advocate for a return to a gold standard, you undermine your credibility." If you can't recognize that as troll-speak, I can't really help you.

On the Ron Paul Forum, the exact same troll says:

In fact, one of the primary reasons given for the Fed not being fully under government control is precisely due to concerns that money creation power will otherwise be under undue influence of the political process.

Anyway to go back to Rothbard, if we are to follow what he prescribes, what we should actually have is 'privately minted' money. But if you look at the Fed, it IS actually quasi-private money created by a cartel of bankers! It is actually a balance between money controlled by 'private' interests versus money controlled by the supposedly public interest.

The problem with having the Federal Reserve under the control of bankers instead of the government is that the bankers will manipulate policy for their own benefit.

Let's try this in other industries.

A handful of oil executives should get together and decide what the price of oil is.

A handful of doctors should get together and decide how much health care should cost. (The AMA already does this, by restricting the supply of doctors.)

A handful of auto executives should get together and decide how much a car should cost.

A handful of telecom executives should get together and decide how much phone and Internet service should cost.

All of the above would be decried as an outrage, but when you say:

A group of bankers should get together and decide how much money should cost. (interest and inflation are the price of money)

For some reason, putting control of money in the hands of bankers is considered to be sound policy.

On Reader Mail #15, jeff says:

Whenever I run across someone that labels themselves as an anarchist, I comment that they must get a lot of speeding tickets.

There's a lot of media bias about anarchists. There are a lot of phony anarchists out there. That's why I prefer to call myself an "agorist", which has a much clearly defined meaning. I haven't identified many people identifying themselves as "agorists" that are faking it, but that may change if the philosophy becomes more popular.

The problem with speeding tickets is that the government tends to view them as a revenue tool rather than an enforcement tool. There is nothing intrinsically evil with stopping people who are driving at an unsafe speed. If you are driving at an unsafe speed, you are increasing the risk that someone else will get in an accident. In fact, even in a free market, I would expect police to continue to stop and fine people who are driving too fast. The fine would be based on the risk of an accident, rather than some arbitrary punishment scale. Further, the police might be hired by insurance associations! If you speed, you might see your insurance rates rise.

On many highways, the actual optimal safe speed is typically higher than the posted speed limit. Federal government regulations require states to keep speed limits at a certain level, or they lose Federal highway money. Some states workaround this requirement by being lax in their enforcement. That's just one example of the Federal government usurping states' rights.

On Reader Mail #15, Ineffabelle says:

Hehehe. Actually I don't pay income taxes. My job is totally off the books. But none-the-less, by providing actual economic value to others, I am helping to build civil society.

Good for you if your job is off the books. That does raise difficulties. For example, you can't deposit that money in your checking account without raising government red flags. Does your landlord accept rent payment in cash? How do you convert your Federal Reserve Points into tangible assets? Do you take your surplus savings and buy gold and silver coins?

You still pay sales taxes when you buy stuff in a store. You still pay property tax for where you live (or your landlord pays property tax and adds the cost to your rent). You still aren't living a totally tax-free life. Those taxes go to the local government instead of the Federal government, which is less evil.

If your job is on the books, you are helping the state more than you are helping civil society. Due to taxes, the state gets paid more for your labor than you do!

Unfortunately, I still work on-the-books, which may classify me as a wimp. I'm on the lookout for opportunities that pay a better rate than my regular slave job.

On the Ron Paul Forum, someone asked:

Do you know how long it takes salaries to adjust to inflation?

Yes. Forever.

(More accurately, until the US government collapses. At that point, people will return to a sound monetary system.)

Ron Paul Full-Page USA Today Advertisement

A wealthy individual recently placed a full-page advertisement for Ron Paul in the USA today. The advertisement was paid for personally, so it didn't count as a campaign contribution.

Are some wealthy people starting to realize that the current economic system is in danger of collapsing? It probably is in their rational self-interest to promote Ron Paul.

At this point, the choices may be "Ron Paul is President" or "The current economic and political system completely collapses." There still may be another chance in 2012 or 2016, if Ron Paul fails to be elected President.

Personally, I think it would be fairer if the current economic and political system completely collapses, and we can start over with a better system.

Real Annual Income is Decreasing

According to official government statistics, the income of the average US citizen is increasing, after adjusting for inflation. Here is the official census statistic. Of course, this statistic is completely false.

The defect in the methodology is that it is "adjusting for inflation" using the CPI. The CPI understates the true inflation rate. I prefer to use the Federal Reserve's M2 statistics instead of CPI.

In 1980, median US household income was $17,710 in constant dollars, with no inflation adjustment. In January 1980, M2 was 1486.2 billion. Dividing 17710 by 1486.2 yields 11.92.

In 2005, median US household income was $46,326 in constant dollars, with no inflation adjustment. In January 2005, M2 was 6408.4 billion. Dividing 46326 by 6408.4 yields 7.23.

I use median instead of mean, because that better represents the condition of the typical American. Very high incomes distort the mean.

Dividing 11.92 by 7.23 yields 1.648. From 1980 to 2005, the money supply grew 65% faster than the median household income.

One final adjustment is needed. I need to correct for the increase in the number of households. If there are 10% more households, then the money supply can increase by 10% without causing inflation (although the financial industry still books this inflation as seignorage revenue).

From 1980 to 2005, the number of households increased from 82,368 thousand to 114,384 thousand. Dividing 114,384 by 82,368 yields 1.38869. Dividng 1.648 by 1.38869 yields 1.187. Technically, I should look at the reciprocal: 0.842.

Summarizing, the purchasing power of the median household income in 2005 is 84.2% of what it was in 1980.

My calculation is more valid than the "official" government calculation, because M2 is a much more accurate measure of inflation than the CPI. The CPI understates the true inflation rate.

The median American in 2005 is only paid 84.2% of what they were paid in 1980, when you correct for money supply inflation divided by population growth. If you use M3 instead of M2 to measure money supply inflation, then the median American is in even worse shape. I didn't use M3 in my calculation, because the Federal Reserve stopped publishing M3 in 2006. However, from 1980 to 2005, M2 grew by 331% and M3 grew by 419%. If you use M3 instead of M2, then the median American's paycheck is only 70% of what it was in 1980.

Depending on how you count, the median American has lost 15.8% or 30% of his paycheck since 1980. I use money supply inflation instead of the CPI, because the CPI is biased. When you correct for money supply inflation and population growth, the median American has lost 15.8%-30% of his purchasing power from 1980 to 2005.

Reader Mail #15 - Productive Work Supports the State

I'm starting to appreciate Kung-Fu Monkey's blog. It's been promoted from my "hitlist" to my "read regularly" rotation. He's employed as a writer in the entertainment industry, which probably explains why his posts are well-written. He sounds like a closet agorist, even though he doesn't consciously know it yet. I liked this post.

Anyone who asks why the all writers don't just start their own studio system should consider this: What would your life be like if, in order to keep your current job, you suddenly had to learn to do the of every person in the company above you, and a couple of your co-worker's jobs, just to stay employed. Given the choice of that radical new existence or just, say, making a bit of noise to make sure they're fairly compensated for their work, I'd bet most people would go for the bit of noise.

The above paragraph doesn't just apply to screenwriters. It applies to pretty much every job in every industry. What Kung-Fu Monkey fails to recognize is that most of those upper-management, HR, and accounting jobs are ONLY necessary due to a corrupt economic and political system. In a truly free market, a writer or other worker could start his own business with very little required overhead.

What does a writer do? He writes stories or scripts and sells them. Why should writers have to go to the hassle of funding their own studio, just to get a fair market price for their scripts? In a truly free market, there would be lots of independent studios. Individual writers could focus on writing and selling their stories. The presence of many independent competing studios would guarantee that prices would be fair. In the present, there are a few studios organized as a cartel. That means that there's no other vendors for a writer to sell to. If a writer wants to sell to someone other than a cartel member, he has to completely create his own competing studio.

The above argument applies to ANY industry. There's nothing special or noteworthy about writers.

He had another excerpt I really liked. The writer found a way for a pilot to pay for itself, via various advertising deals paid for in advance. This was too much of a threat to existing business models.

We lay out the model. The Studio Human nods. He says "That would absolutely work."

"But it would put everybody in this building ..." He then pointed out his window to an adjacent office structure, "... and everybody in that building out of a job."

Again, this applies to reform in ANY INDUSTRY. Why should we abolish government? Think of all the people that would lose their job. They would do productive work instead.

This post on the Extrapolated Everyday Bull**** Comparison promoted Kung-Fu Monkey from my hitlist to my "read regularly" list.

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There's a lot of phony anarchists out there. On "Human Iterations", the author equates agorism to cheating on your taxes. That's like saying it's immoral to prevent other people from stealing from you. If you're really an anarchist, you should also believe that all forms of taxation are theft.

Without taxes, there is no government. Without the ability to use violence to steal, there is no government.

If you want to fight the government, you have to fight economically, because that's the only method that has a chance of succeeding.

That author didn't have comments enabled on his blog, so I asked him by E-Mail. He said it was meant as a joke. However, he said that other means besides economics are going to be required to achieve change. He said that, even en masse, people refusing to pay taxes wouldn't hurt the government. Really? Imagine 100 million americans refusing to pay income taxes, and having the spare resources to organize their own private police force? That would pretty much be the end of the government.

If you're not going to fight economically, what is left? What else are you going to do, stand around getting tasered?

Personally, I'm much more interested in the economic issues. I think that economics is the key to everything. Many people think "economics is nonsense", because the economics taught in state-funded schools REALLY IS nonsense. Could you imagine what would happen if university economics courses did a serious analysis of the negative effects of taxation and a corrupt monetary system?

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Kevin Carson says that he's concerned that his web writings may someday cost him his job. A potential employer who Google searches his name may refuse to hire him based on his political views. Dilbert's author lost his regular job based on his comic strip.

If loss of job is a concern, why not blog under a screen name instead of your real name?

After all, isn't an anonymous online identity as "legitimate" as your state-given slave name?

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I read a post on the Ron Paul forum saying that Ron Paul's campaign is strangely appealing to white nationalists. I've had my blog quoted on all sorts of weird discussion forums. I've been cited on pro-free-market websites and on pro-communist websites.

It's amazing how ethnic group XYZ thinks the government is discriminating against them in favor of group ABC. At the same time, ethnic group ABC thinks the government is discriminating against them in favor of group XYZ. The skill and extent of the brainwashing is impressive. Of course, the handful of people who control the government are discriminating against everyone but themselves.

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I found this thread on the Ron Paul Forum to be interesting. The US government admits to planting spies on Arabic blogs, to disrupt anti-American debate. Of course, isn't it obvious that there are also people disrupting debate on the Ron Paul Forum?

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I really am appreciating Google Reader. If you get my blog via the RSS feed, you should check out "FSK's Shared Items" if you haven't already. Google Reader allows me to share what I think are the best articles from other blogs I read. That has its own separate RSS feed.

I really like the "shared items" feature of Google Reader. It's an excellent way for people to share the best articles in other blogs. Everyone should have a Google Reader "shared items" widget on their blog.

I also use Google Reader to keep track of my blog "hitlist". I keep track of when I added the blog to my hitlist, along with how many times I decided to "share" a post from that blog. The blogs with the most "shares" get promoted to my regular reading list. The others get demoted to the "honorable mention" or "reject" category.

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According to Google Analytics, someone in Novosibirsk, Russia is an active reader of my blog now. Is that person working on a Russian language equivalent of the content from my blog?

Unfortunately, on the Map Overlay screen, Google Analytics doesn't give a breakdown of Absolute Unique Visitors by region. I can't tell if it's the same visitor a bunch of times, or several different visitors.

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I was watching some of the commentary on the writers' strike. One person suggested that so many people are willing to write for free/cheap, that it makes it harder for the professionals.

Is it immoral for me to blog for free? Of course not, I can do whatever I want with my spare time. Am I undermining the "professional writers" in newspapers like the NY Times? I sure hope I am! If they are so corrupt that they can't write about the truth, then they deserve to lose their market share.

Hopefully, other people benefit by reading my blog. If I educate enough other people, there may be a direct personal benefit for me later. If blogging for free is an investment in the future, then it might make economic sense to do it. There's no chance that a mainstream media outlet would hire me to write an article on the Compound Interest Paradox or agorism. If they're going to be that corrupt, then they deserve to have their business model undermined.

Another commentary on the writers' strike suggested another problem. Due to the "dumbing down" of mass culture, the most talented writers are forced to work as amateurs for free. Corporations intentionally dumb down their product. However, wouldn't it be practical for someone to make a TV station that catered to the most intelligent 1% of the population? It seems weird to me that niche product hasn't really materialized, unless there were other factors manipulating the market. If there's a Food Network, how come there isn't also an Anarchists' Network?

On The Reason Anarchists Are Weak, Ineffabelle writes:

Agreed with this post, but as a corollary:
The reason for the enormous level of violence directed at "anarchist" and "anti-globalist" protestors is not ONLY to discredit them. You wouldn't need a small army of riot police to take down a handful of thugs, some of whom were red-market agents provocateur.
It is to psychologically brutalize the protestors in general, especially the more non-violent ones, in order to infect them with violent tendencies. (if you notice any accounts of protests that got attacked by police they always go after women and more timid/frail people much more brutally. The "tough guys" are usually arrested and let go later, with little interaction. ) And people with that psychological infection are more easily "turned" later on, because they are already compromised.

I think the key is to distract people with pointless protest methods.

People think "I was injured by a policeman. I'll sue the government!" That's a waste of time.

"The government is evil. I'll participate in a peaceful (or violent) protest!" That's a waste of time.

IMHO, the *ONLY* protest mechanism that works is the agorism solution. Only by creating wealth outside the control of the state, refusing to pay taxes, and switching to a fair monetary system, do you undermine the evil power of the state.

Actually doing this is INCREDIBLY difficult. As a stopgap measure, I would advocate spending 5-10 hours/week building an alternate economic system, while still keeping your regular slave job. Personally, I'm going to stick to blogging until I can find some in-person trading parters.

This is exactly what happened in the late 60s/early 70s.
When the hippies were peaceful dropouts, they were actually much more of a threat to the establishment than when they started "fighting back".
The establishment wants you to "fight", because that's a battle they can win, and psychologically, they can absorb you later when you're disillusioned.

If you fight back violently, it's very easy to arrest and jail you. If you resist nonviolently, it becomes harder for a judge and jury to convict you without looking foolish themselves.

I'm not sure what would happen if there was massive economic resistance. That hasn't been tried yet. Are the bad guys going to start arresting people for working?

Were hippies building their own alternate economic and political system? I never heard about an underground hippie economy. If they weren't doing that, then they were not a threat.

If you fight violently, you're fighting on the establishment's terms. They have more and better-trained police than any group of amateurs could have.

If you fight in a government court, you're fighting on the establishment's terms. You aren't going to achieve real change by fighting in a government court.

People need to realize that the only way to defeat the bad guys is to create wealth that they can't easily steal.

Agorism works because it peacefully competes with the establishment.
At some point an agorist organization might employ violence, but only rigorously in self-defense, and only in situations where it is feasible to do so.

Agorism has not been proven to work yet. After all, there's still a red market! However, I think that it would be hard to get a jury conviction in a case of agorist grey market activity. In the USA, the presumption still is that whatever you do in private is none of the government's business, provided you stay away from forbidden activity like drug dealing and prostitution. I haven't seen a lot of stories of agorists getting arrested, going to juries and being convicted or acquitted, so it's hard to be sure.

Agorism is the most promising philosophy I've found. I think that 1%-2% of the population need to be active participants before I would call it a success. Once you have a certain critical mass, the growth will be exponential.

On Reader Mail #12 - Are You Sure You're an Anarchist?, Ineffabelle writes:

There's quite a bit of good stuff in this one.
Personally at my job I set up point of sale systems and write support software for small businesses, mostly restaurants that cater to non-corporate communities in Brooklyn. So I actually do think I'm producing honest wealth.

This is the exact opposite of the point I made in that post.

I can work for a financial firm in good conscience, knowing that my job is completely and utterly pointless. If my job is useless, I'm not contributing to the evil power of the state. My salary is merely a share of stolen government property. All government property is unowned property, so it isn't immoral for me to claim a share of unowned property.

If your work is productive and useful, then you are supporting the evil power of the state. Do you pay income taxes? If you live in NYC, there goes a direct 50% to the evil power of the state: 25% Federal, 15% Social Security and Medicare, 10% state and city taxes. Plus, there's the effect of inflation eroding your salary and savings; your pay increases probably don't keep up with the true inflation rate. The state gets paid more for your labor than you do! Your managers (and their managers) are paid partially based on your productivity, and they also pay income taxes. The owners of your employer's business also pay taxes on the return on their investment. If the owners have accepted "venture capital", then their business is ultimately owned and controlled by banks.

Unfortunately, by doing work that is actually productive and useful, you're supporting the state more than someone whose work is pointless! You support the red market more than an IRS agent does!

Unless you're doing useful and productive work OFF THE BOOKS (agorist-style), the very act of working supports the red market! That's the whole problem with the current economic system. Literally, you can't work without supporting the bad guys!

The restaurant industry has resisted the cartelization that plagues other industries. A skilled cook working with fresh ingredients will always outperform pre-prepared and re-heated food, at only a slightly higher cost. If I have a choice of spending $6 for a fast-food meal or spending $10 for a decent hamburger, I and many other people will usually choose the latter. This guarantees that, in spite of state regulations, there will always be a certain number of small restaurants.

Food cost must necessarily be fixed and low, because otherwise the poor people would start having food riots!

I am still economically constrained by the effects of our financial system on the labor market however, which leads to a sort of indirect exploitation. My boss is able to get much more production out of me than I am able to get in wages from him.

The state isn't just stealing from you directly via taxes. The difference between the fair value of your labor and your actual salary also accrues primarily to the state. The state restricts your ability to find a job where you could be more productive.

The usual retort is "If you don't like it, start your own business", but there are many obstacles to starting a successful business. If you need to raise millions of dollars to get started, only someone with the right connections has a chance of success. In software, there have been occasions where a handful of people started a business that became spectacularly successful. However, the terms of your employment contract probably says that all software you write when not at work belongs to your employer. Further, Amazon.com was not the first online bookstore and eBay was not the first online auction house; their political and financial connections enabled them to succeed where others failed.

Even if I managed to write some "killer app" and start my own website, I would immediately find lots of imitators from well-funded opposition. They would file a bunch of patents, and I would be unable to improve my business without running afoul of their patents. Even if I patented my own business model, I still would need to raise money to apply for the patent and then fight patent lawsuits.

One of the problems that agorism faces is initial capitalization, which is why it hasn't taken over yet. Saving currency doesn't work, and a lot of profit from isolated black market operations gets eaten by the cost of self-protection/surreption. (One of the problems with wholesale black market operations is that they favor the violent, due to a lack of private protection agencies)
Agorists don't have a safe information network yet in order to coordinate their information and gain larger markets, make arbitrage gains, etc.
As the pink and red markets fail more, more gaps will open for agorist actions to take place, for instance grey market protection services and encrypted/anonymous networks and such.
In the mean time, there are some simple rules of thumb for would be agorists to help create an initial capitalization that might help jump-start things. I will post my ideas on this on my own blog tonight.

Raising capital for an agorist business is hard. The best way to get started is to find something you can do for 5-10 hours/week, and then pay for growth from earnings. Eventually, you would be able to quit your regular slave job.

Saving Federal Reserve Points is useless. If you hold Federal Reserve Points, you're just losing your savings to inflation. If you trade with the state's worthless paper money, you are indirectly supporting that state. Actually, you could trade with Federal Reserve Points, provided you immediately spent them buying a tangible asset. It's tricky, because if you work off the books, you can't deposit that cash in your bank account without getting caught. You'd have to find a gold or silver coin dealer that accepts cash. A licensed gold or silver gold dealer probably is obligated to report to the government someone who makes frequent cash purchases, so you'd have to buy from someone you trusted.

If you enter any long-term contracts, you should insert gold clauses to prevent the value of the contract from being eroded by inflation. Ideally, agorists should always quote prices to each other in real money (gold or silver). They can settle in fiat money, based on the current spot price. If you think of your salary in terms of gold or silver, it's much more meaningful. If you make a graph of "salary divided by gold price", almost everyone would find it to be a decreasing function.

There are problems with using gold and silver as money. It's very hard to trade back and forth between physical metal and Federal Reserve Points, without paying a substantial transaction fee. If you use an on-the-books coin dealer, you risk having your transactions reported to the red market. Most businesses still expect to be paid in Federal Reserve Points, so if you have physical gold or silver it will be hard to make purchases outside the agorist community.

I've been considering that as a possible agorist business, opening an coin dealership. I'd probably have to offer a wider bid/ask spread than the online dealers offer to cover my risk, but I would offer to make anonymous cash transactions to trusted trading partners. In the present, I have zero trusted trading partners! I read that in-person coin dealers offer pretty high bid/ask spreads, so perhaps I could offer a wider bid/ask spread than online dealers, but offer a tighter spread than an on-the-books in-person dealer.

For example, suppose someone wanted to buy an ounce of gold from me, offering to pay $880 cash for an anonymous transaction. I already have $880 in my bank account, so I could buy an ounce of gold legally online for $860 and give it to the buyer, booking an $20 profit. I can't deposit that $880 in my bank account without triggering government spying regulations. However, suppose I normally spend $500/month on purchases. For the next 2 months, instead of using my ATM, I spend the money the anonymous purchaser gave me, thereby "laundering" it. If I had friends and relatives helping me, I could handle larger transactions. For example, if someone wanted to buy 10 ounces of gold from me with cash, I could repeat the above process and have 9 friends help me.

I could do the converse if someone wanted to sell me an ounce of gold for cash or sell me 10 ounces of gold. I can withdraw $850 cash from my checking account without arousing suspicion. Unfortunately, I can't withdraw $8,500 cash from my checking account without arousing suspicion, but if I had 9 friends helping me we could withdraw $850 each. If I seriously was running an agorist coin dealership, ideally I would have a stream of buyers AND sellers, and hopefully I could match them up. I could even keep track of bids and offers and open my own exchange. I could say "Person #1 is willing to buy 10 ounces of silver for spot. Person #2 is willing to sell 100 ounces of silver for 1% over spot. Person #3 is willing to buy 1 ounce of gold for spot, etc."

It really isn't practical to open an agorist bank. The state distorts the credit and capital markets too much. An agorist bank that deals in Federal Reserve Points would not be able to make loans at a practical rate. A corporate bank can issue loans at 6% while inflation is 15% because the bank is allowed to borrow from the Federal Reserve at 4.5% and use leverage ratios of 20x or more. An agorist bank would not be able to borrow from the Federal Reserve. An agorist banker who issued Federal Reserve Point-denominated loans at 8% or 10% would still be losing ground to inflation. The would-be agorist would be better off funding his business from personal savings or a home mortgage, instead of funding it by borrowing from another agorist.

Suppose I decided to offer a gold-denominated bank. I would lend gold, or gold-denominated debt. In other words, if you borrow an ounce of gold, you can borrow a physical ounce of gold or the equivalent in Federal Reserve Points based on the current spot price. However, inflation is around 15%. If you borrow gold-denominated debt, you'd be borrowing at a rate of 15%, adjusting for inflation! The borrower can get better terms from a corporate bank, by mortgaging their house. I couldn't even offer a warehouse service to depositors, because I could not offer assurances that the red market won't raid me and steal my metal. At best, I could offer a distributed network; instead of storing all my metal in my residence, I can store some in the residence of each of my friends. If the network has 100 or more people, it becomes impractical for the red market to raid them all simultaneously.

A corporate bank can rely on state violence to help it collect if a debtor defaults. The cost of debt collection is externalized from the bank to the state. It's Distributed Costs and Concentrated Benefits again! An agorist banker would be lacking private justice systems to help him collect his debts. That's the reason disputes among drug dealers always are settled with violence and bloodshed; they're locked out of state justice systems for settling disputes, and private alternatives haven't evolved yet.

An agorist dealing on a small scale, such as manufacturing and repairing air conditioners probably would be able to resolve his disputes peacefully. Just like in the BitTorrent economy, someone who repeatedly defaulted on their promises would find themselves banned from the community. It is possible to resolve disputes nonviolently.

What a horrible economic system we live in, where the best safe rate of return an investor can hope for is 0%, by buying and holding physical metal! If you had enough laundered money, you could buy land and rental properties. However, land comes with property tax obligations; you don't really own your land!

Ineffabelle mentions that she writes software. It is possible to write a P2P software network that would enable an agorist economy; all transmissions would be encrypted by default, and it would have to be heavily decentralized, even more so than BitTorrent. I already outlined a specification. At this point, it's probably more beneficial to educate people than write software tools that would be useful.

On The Social Credit Monetary System, Ineffabelle writes:

The SCMS could also operate by a series of circulating IOUs, with various trust agencies competing with different ratings systems. Redemption would be in either other IOUs or partial redemption of the services and goods promised by that IOU. You could write an IOU for silver if you wanted to, or gold, or shoes or shirts.
As far as any issuing authority goes, any problems of interchangeability could be solved by competing clearing houses, which might operate alongside the "trust" agencies, only they would literally exchange people's IOUs at a rate determined by their preferred trust ratings.

It's hard to circulate paper, because you may not trust the issuer. If you circulate paper, there's a counterfeiting problem. I think electronic credits is better. Pretty much everyone has a computer with Internet connection.

The problem with writing an IOU for a shirt is that not all shirts are equal. Metal coins make great money because they are fungible. Every 1 ounce .999 fine silver coin is equivalent to every other 1 ounce .999 fine silver coin. If you give me an IOU for a shirt, and I know you can sell shirts for 1 ounce of silver each, I would prefer to accept an IOU for an ounce of silver instead of an IOU for a shirt. If I trust you, I won't need to ask for physical silver unless you had an imbalance of trade or I needed to trade with strangers. If I ask a stranger to accept one of your shirts, an IOU for a large shirt won't work if he's medium. I know that physical silver is always tradeable.

That's the reason the free market selected gold and silver as money before the state started interfering with money. It's very easy to trade gold or silver, or trusted promises for gold or silver. It's very hard to trade other barter credits, unless the counter-party wants exactly what you have. Other standards, such as "hours of labor" also fail because everyone's labor is not valued equally.

Until the state is defeated, any implementation of a fair monetary system has to be completely decentralized. Otherwise, the centralized vendor becomes an attack point. The key is to write software that enables the average person to behave correctly without much effort. Besides, the first participants in an agorist economy would probably be people of above-average intelligence.

Clearing houses would probably assure the transactions of all its members. You would only need a clearing house when dealing with a stranger. If your partner is trusted, you can just deal with them directly. For example, if you're trading with a stranger, you need to be sure he isn't an undercover red market agent. The clearing firm would be taking responsibility that the people it's representing aren't really undercover cops.

On The Subprime Mortgage Problem was Created by Bankruptcy Reform!, Ineffabelle writes:

Although in the long run, mortgages are better as a default for the banks, because they can foreclose on them. I know that that causes liquidity problems higher up the chain, but some people will probably create firms that buy defaulted mortgages at a discount and foreclose on them as their business model.

A default on a credit card leaves a bank with nothing. A default on a mortgage leaves a bank with a house. If the bank is large and diversified, it will hold onto the house until the next boom phase of the business cycle, when it can sell the house at a profit.

I read that in house foreclosure auctions, the bank will almost always place a bid equal to the value of the remaining loan amount. This guarantees that the loan portfolio doesn't show a loss due to a default. This means that the bank is not forced to write down other shaky mortgages in its portfolio. The bank may take a loss on its purchase of the house, but that falls under another accounting rule. Besides, the bank can hold onto the house until the next boom phase of the business cycle and sell it at a profit then.

On the Ron Paul Forum, someone asked:

Hasn't Congress violated its charter to regulate the value of money:

Powers of Congress:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

Technically speaking, Congress has not violated its charter by setting the value of the dollar.

Congress has chosen to set the value of the US dollar at zero. There is nothing in the Constitution that says that money must have a value greater than zero.

This response is half-joking, half-serious. The official opinion of the Supreme Court is that the Federal Reserve does not violate the Constitution, so setting the value of money to be zero must be acceptable.

On Barry Bonds and Abuse of Government Power, Steroid Nation says:

Actually MLB memos indicate steroids and PEDs were prohibited as early as 1991.

http://grg51.typepad.com/steroid_nation/2007/09/illegal-perform.html

http://www.typepad.com/t/app/weblog/post?__mode=edit_entry&id=41654308&blog_id=372688

http://sports.espn.go.com/espn/eticket/story?page=steroidsExc&num=19

Furthermore, the drugs that Bonds allegedly used are illegal as PEDs.

There's a blog dedicated to athletes and steroids? That is amusing, surprising, and unsurprising at the same time.

The second link you gave me is broken. If you're going to post a link to your own blog, can you at least post it in user mode, not in blog admin mode?

I didn't know that baseball had an anti-steroid policy back in 1991. The mainstream media sources I read indicated that baseball didn't have an anti-steroid policy until the players' union renegotiated their contract a few years ago.

Another interesting idea mentioned in those links is "steroids are illegal, so MLB didn't have to specifically ban it". Player contracts probably give the team and league the right to discipline players if they do something illegal.

However, that does not invalidate the fundamental point of my post. What right does the government have to ban people from using steroids? Even if they are harmful, why should the government ban them from being used? It's irrelevant that their primary use is by athletes looking for performance enhancement contrary to the rules of their league.

This enforcement action was paid by money stolen from me by taxes. Why does MLB get to externalize its contract enforcement costs on the government? Why should the government subsidize MLB, in helping it resolve a dispute with players who used performance enhancing drugs? Why can't MLB pay the cost of investigators checking into players breaking its contract?

Why should I be forced to subsidize MLB?

Why should money stolen from me be used to resolve a private dispute between MLB and Barry Bonds? If you figure that over $10M was spent on the investigation so far, that means I personally paid $0.04 in taxes to fund the investigation. You might say "so what, $0.04", but when you multiply it by all the inappropriate government actions, it's a huge amount of money. It's Distributed Costs and Concentrated Benefits.

My point is that MLB should be forced to directly pay the cost of enforcing its contract with its players. Why should MLB get to force me to pay for it by taxes? It's not one isolated incident. It happens over and over again.

In a truly free market, MLB should be forced to hire private investigators and a private police force to make sure its players don't use performance enhancing drugs.

On OPEC Currency Advice, an anonymous reader says:

Makes a change seeing the truth so clearly when compared to mainstream media, where 'serious' current affairs programs avoid such simple and obvious 'news'.

Obvious news goes unreported by mainstream news sources. "If you want a sound and stable currency, use gold or silver." is kind of simple. Of course, the "official" viewpoint is that a gold or silver standard has been roundly discredited.

Historically, every unbacked paper currency has collapsed in hyperinflation.

If you like ideas censored by mainstream media, here is another: "Health care is expensive because the government artificially restricts the supply of doctors." No mainstream media source will ever discuss the effect of government restrictions on the supply of doctors. For example, if an insurance company is paying too much on doctor salaries, they should be able to hire and train their own doctors, without approval from the AMA.

On OPEC Currency Advice, Lexx says:

The European Central Bank only has 500 bil reserves so you are right about the backing of the money.

But with oil prices rising and a dropping dollar the Euro is the stronger currency stronger at the moment.

Switching to the Euro by the OPEC would only make the Euro stronger imho.

I don't follow the Euro as much as I follow the US dollar. Nobody even *KNOWS* how much gold the US government has. Allegedly, the US gold supply has been unaudited for decades! Ron Paul says that he would do a full audit of US gold inventory, if elected President.

You have to be careful when central banks report their gold inventory. If the gold has been lent out for short sales, central banks still sometimes claim that gold as an asset on their balance sheet! You would have to carefully read the EU central bank financial statements to figure out how much gold they ACTUALLY have. They might not even disclose gold leases. Why should the central banks have honest accounting?

I know without even looking it up that the Euro is unbacked fiat debt-based money. *ALL* the major world monetary systems are fiat debt-based money. There is no country anywhere that has a fair monetary system and fair taxation system.

If OPEC switched from the dollar to the Euro, that would put inflationary pressure on the dollar and deflationary pressure on the Euro. OPEC member countries themselves would not benefit much. All that means is that the EU instead of the USA would receive a massive seignorage subsidy.

The problem is that OPEC countries agree to sell oil at a fixed dollar price years in advance. Inflation makes these futures contracts worth a lot less. An OPEC member country doesn't have to sell oil futures; they could sell all their oil on the spot market. If OPEC member countries didn't sell any futures, and they IMMEDIATELY spent their dollars on tangible assets, they wouldn't be screwed over by inflation of the US dollar.

They could, in theory, achieve the same result by buying Euro futures or gold futures, so they would be hedged against inflation of the US dollar.

I don't consider the inflation rate of the Euro relative to the dollar to be meaningful, because they're both unbacked fiat money. It's like asking what the value of zero divided by zero is!

In the present, the Federal Reserve is much more concerned about bailing out large banks in the USA, than it is concerned about OPEC countries losing to inflation.

Wow! Two comments on the same post! That's a lot by FSK standards. I look at other blogs and see 100+ comments.

OPEC Currency Advice

I saw a news story that OPEC was considering trading oil using a currency other than dollars. The most commonly mentioned candidate is the euro.

The problem is that OPEC countries sell their oil in advance for a fixed price in dollars. Suppose an OPEC country sells a 2 year oil future for $110/barrel. Two years from now, it turns out that the price of oil really is $165/barrel, due to inflation. The OPEC member country wound up selling oil for only 2/3 of its actual value. Where does the rest of that money go? The benefits of inflation, as usual, proceed to the US financial industry.

Switching from the dollar to the euro is merely switching from one unbacked paper currency to another unbacked paper currency. Instead of the US receiving a massive seignorage subsidy, the EU instead would receive a massive seignorage subsidy. If OPEC switched from dollars to euros, the OPEC member countries themselves would not benefit. All that would mean is that the EU instead of the USA would receive a massive seignorage subsidy by printing the paper money that others use to trade.

Most OPEC member countries are reluctant to switch away from dollars. Either the government already is the recipient of US military support, or the government fears a US invasion.

If OPEC really and sincerely wanted to sell oil for a hard currency, there's already a time-tested model. OPEC should sell oil for gold! (or silver)

Of course, no leader of an OPEC member country would dare suggest selling oil for real actual money (gold). He would be assassinated faster than you could say "Why was Kennedy killed?"

OPEC could even agree to sell oil for gold without switching away from the dollar. All OPEC would need to do is start inserting "gold clauses" into their oil sale contracts. Instead of agreeing to sell oil for $100/barrel or 80 euros/barrel, they could agree to sell oil for 0.1 ounces of gold per barrel. OPEC wouldn't even need to accept physical gold. They could accept the fiat-money equivalent in dollars or euros, based on the spot price of gold in that fiat currency on the delivery date. OPEC member countries could then immediately spend that fiat money on hard assets, before inflation steals the value. People who use oil would then buy gold futures to hedge their oil purchases.

If OPEC really wanted to annoy the rest of the world, they could accept either gold or fiat money, and charge a premium to people who pay in fiat money instead of physical gold!

OPEC could achieve the same result by simultaneously selling oil futures and buying gold futures. This way, they would be hedged against inflation.

Also, any government that has reserves in a foreign fiat currency is run by fools. The only valid reserves are gold, silver, or other hard assets. Accepting any fiat currency as a reserve means your reserves will be eroded by inflation. Foreign central banks who hold dollars earn around 5% on their Treasury Bonds, while the Federal Reserve increases the money supply at a rate of over 6% (according to M2) or over 15% (according to reconstructed M3). That means that foreign holders of dollars earn a negative real return of -1% to -10%, depending on what measure of inflation you use.

My advice to OPEC is very simple. They should start quoting the price of oil in gold or silver. Foreign central banks should convert their dollar reserves and fiat money reserves to actual gold or silver. Unfortunately, no leader of an OPEC member country could suggest such a possibility and expect to live much longer.

Redpillguy and a Campaign Finance Scam

Redpillguy's post on The Campaign Contributors of the Media Anointed has been widely cited on many other discussion forums. It links back to redpillguy's post on The Compound Interest Paradox, which of course links back to my post on the Compound Interest Paradox. A bunch of visitors have come to my blog via redpillguy's blog in the past week, and that's the reason. I noticed that redpillguy has Google Analytics enabled on his blog. I wonder how many unique pageviews that page received?

The government releases campaign contribution statistics by employer and by name. Redpillguy observes that the "top tier" candidates have received a substantial amount of funding from employees of large banks, whereas Ron Paul has received practically no funding from employees of large banks. The "top tier" candidates have received $100k-$300k each from employees of banks. Ron Paul has not received more than $25k from employees of a single corporation.

What happens is that the top management at certain corporations all make the maximum legal contribution to the "preferred" candidates. If they all make the maximum legal contribution of $2,300, and there are 100 executives in the "club", that leads to a contribution of $230,000. Top executives at banks make quite a bundle, and they can easily afford the $2,300 contribution each.

There's another important contribution that isn't listed in redpillguy's statistics. Corporations can let political candidates use their private corporate jets to travel. The candidate only has to reimburse the corporation for the value of an equivalent first-class ticket, rather than the fair market value of a leased private jet. During the flight, the candidate gets to talk policy with senior executives of that corporation. I don't know how redpillguy's statistics would change, if updated for the value of these contributions. I believe this rule was recently changed; now, the candidates must reimburse the corporation for the fair market value of a leased private jet. However, whenever you close one loophole, a bunch of others start being exploited instead.

The statistics in redpillguy's article have a important corollary that redpillguy didn't notice. Voting is anonymous. This prevents abuse, such as your employer firing you for failing to vote for a specific candidate. Campaign contributions are *NOT* anonymous. You can get this information from many sources, such as C-Span. This allows abuse, such as your employer demanding you make the maximum legal contribution to a specific candidate and firing you if you fail to comply.

Obviously, if a bank demanded all its employees contribute to a specific candidate, there would be a pubic outcry. However, if the top 100 executives are told to contribute to specific candidates, they will of course comply and keep the order a secret. And the contributions are public, so any executive who doesn't follow orders will find himself out of a job!

You can't have private campaign contributions, because then you don't know who is supporting which candidates. You can't have public campaign contributions, because then your employer can fire you for failing to contribute to a specific candidate, or for contributing to the "wrong" candidate. We have arrived at one of many contradictions in the current economic and political system. It's time to give up and start over with a new economic and political system.