South L.A. Might Ban New Fast Food Restaurants

A bunch of people are talking about how South L.A. might ban new fast food restaurants from opening.

It's time for another politics lesson. Who benefits from this ban? If you follow the money trail, who would you discover was secretly lobbying from this ban?

If you can't figure this one out, you're still not thinking correctly. I'll give you a chance to figure it out on your own before giving the answer.

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Who benefits from L.A.'s ban on new fast food restaurants? Anybody who *ALREADY* owns a fast food restaurant benefits! It's like they have a government-endorsed oligopoly!

It probably isn't possible to trace the trail of lobbying money. If it were possible to trace the lobbying money, I'm practically certain that the loudest supporters of the ban are people who already own a fast food restaurant in south L.A.

That's the golden rule of understanding stupid government regulations. If you ask "who benefits", then the true purpose of the law is clear.

Analysis of UAW and GM Contract

I wonder if anyone who reads my blog is a member of the UAW, or knows someone who is a member of the UAW? They might appreciate my analysis of their recently announced contract.

The UAW and GM announced they had reached a tentative deal on a new contract. It isn't official until ratified by the union members. Overall, my analysis is that it was a huge ripoff for the UAW employees and retirees. However, the union was backed into a corner. GM is losing so much money that it might have been better off if it stopped making cars completely. If the union didn't give up major concessions, they may have seen a complete default in a GM bankruptcy.

There's another defect of unions. Why does a majority (50%) have the right to negotiate for everyone else? If a UAW worker disapproves of the union's deal, he can't refuse and negotiate separately. A retired GM employee can't say "This is a bad deal and I refuse to support it."

I'm not 100% sure of the details. I'm basing my analysis on news reports of the contract.

GM has an estimated $51 billion liability for retiree health care costs. GM agreed to pay $36 billion into a trust run by the union. The difference will be made up by charging retirees for their health care. However, when you consider the rate of inflation and the rate of increase in medical costs, the $51 billion official estimate is most likely to be way too low.

GM's pension plan is, at the moment, overfunded. Recent increases in the stock market have probably caused the pension plan to be overfunded. The retired GM employees will receive an increase in their pension to offset the increase in health care costs THIS YEAR. Of course, their health care premiums are probably going to rise dramatically in future years.

That has me completely puzzled. What right do employees currently working at GM have to negotiate for retired GM employees? When they were working, GM had agreed to pay 100% of the retiree health care costs. Now, GM gets off with a one-time payment of 70% of the estimated cost, and that estimate is very likely lowballed. Why can't the retirees say to GM "You promised us 100% when we were working. The current employees can't negotiate a default." On the other hand, 70% is better than zero. Recent law changes say that employers can default on retiree health care benefits.

When the premium for the retiree health care coverage rises to 50% or more of the cost, the plan will fall apart. Sick employees will choose coverage. Healthy employees will gamble with being uninsured or choose other insurance. This causes selection against the plan, further depleting the plan's assets. After 5-7 years, that statute of limitations will have expired and the retirees will probably be left without health insurance.

Current GM employees negotiated a 0% raise over the life of the contract. They will receive a one-time bonus of $3000 upon ratification, and bonuses of 3%, 4%, and 3% each year after that. There is no increase in base salary. There just are these one-time bonuses. When you consider that inflation is 6%-15% per year (depending on how you measure inflation), that means that the UAW effectively negotiated a pay cut of 15%-30% over the life of the contract after inflation.

GM agreed to not lay off any workers over the life of the contract.

The UAW also let GM hire new workers at lower rates. When a union approves a two-tiered wage system, it's like the union agreeing to its own suicide. In 4 years, when the next contract is being negotiated, around 20-50% of the employees will be on the lower wage scale. Why would those employees be willing to protect the jobs of the older workers who are earning more? In the next contract negotiations, GM could offer a contract that boosts the lower paid workers while giving the higher paid workers a bad deal. The lower paid workers will obviously vote to accept such a deal. Historically, pretty much every two-tiered wage system has ended like that.

Only some classes of jobs will qualify for the lower wage scale. It's unclear how many workers would be on the lower scale, so my estimate of 20-50% may be high.

If I were one of the executives at the UAW, this is a sweetheart deal. They get to manage a $36 billion fund. If I were an executive at the UAW, I would find friends who are running mutual funds or hedge funds and let them manage the health care fund for me. With mutual fund fees of 1-2% and hedge fund fees of 2% plus 20% of profits, that's a profit of $500 million or more per year to be had managing a $36 billion fund. I'm sure that the UAW management will receive lots of kickbacks from the mutual fund managers and hedge fund managers chosen to manage the health care fund. It won't be obviously traceable kickbacks. For example, the brother-in-law of a UAW executive might be hired into a high-paying position at the hedge fund where the UAW invests its assets. The UAW may claim that they don't do such a thing, but you can't fool me.

If I were a GM retiree, I'd rather have a check representing my interest in the health care fund, rather than let the UAW management loot it. Of course, the retirees are not offered that option.

The average worker is being shafted on both sides. He is being cheated by GM and cheated by his own union. The retirees will have health care for a few more years, and then the fund will be spent and stolen. I don't understand why current GM workers have the right to negotiate for retired GM workers.

Actually, the headlines are accurate "GM, UAW win in contract negotiations". It is a great contract for GM's owners and management. GM ditched its huge retiree health care liability at a fraction of the fair value. The official price of the health care liability is almost definitely a lot less than the actual cost. GM offered negative inflation-adjusted salary increases. GM instituted a two-tiered wage system that will make the next negotiating session much easier. The workers on the lower tier will be looking out for their own interests and not the higher tier. It is a great deal for the UAW management, who have a $36 billion fund to loot and pillage via pseudo financial planning; their mutual fund and hedge fund friends will make a killing. The average worker is, of course, totally screwed over.

Kevin Carson says that regulation of unions pretty much destroyed their effectiveness. Unions evolved to compensate for the fundamental structural flaw in the economic and political system. Originally, unregulated unions were extremely effective. The wealthy owners of corporations had huge advantages over average workers. Wildcat strikes, work slowdowns, and other guerrilla tactics were much more effective than negotiating sessions, cooling off periods, and declared strikes. A guerrilla army defending its home turf can usually defeat an organized army that wears uniforms and march in rows. Regulation of unions changed them from effective guerrillas into soldiers wearing bright uniforms who march in rows, fighting an enemy with superior resources. Regulation of unions has turned their leaders into red market enforcers instead of true workers' advocates. Union management are more like bureaucrats protecting their turf than people who help workers. The contract needs to be good enough so that the workers approve it, but there's really no incentive for union management to have a prolonged strike or genuinely advocate for their workers.

If you aren't convinced this deal totally gives workers the shaft, look at it this way: GM's stock went up a lot after the deal was announced. The current economic system is a negative sum game. If GM's shareholders benefit from the deal, that means someone else must have been screwed over. The people screwed over are the UAW's retirees and the current UAW employees.

Of course, both corporations and unions are going be be gone in the new economic and political system.

Student Tasered at Kerry Speech

There is an interesting video circulating on the Internet about how a student was tasered and arrested for asking questions at a John Kerry speech at the University of Florida. He was asking about why Kerry didn't contest the 2004 election results and about the Skull and Bones secret society. His third question, why Kerry didn't try to impeach Bush, is irrelevant because impeachment is the responsibility of the House and not the Senate.

After asking the questions, he was assaulted by police and tasered.

Some people say that the student pushed his way to the front of the questions line, but I saw no evidence of that on the video.

The most interesting part about the incident is that the rest of the audience sat there and did nothing. Shouldn't some of them have rushed to the aid of this student in the face of obvious police brutality? The student was being somewhat annoying by asking the questions, but it could have been handled more politely.

The other interesting bit, if you see the YouTube video, is that one of Kerry's assistants was ordering the police to restrain the student. You can see him gesturing on the right side at the start of the video. This way, Kerry himself has plausible deniability. He can say "I didn't want to see the student tasered", while one of his assistants ordered the assault.

I read that the student was being charged with a felony, which is a bit excessive. I doubt that it would be possible to get a conviction, but who knows what a clueless jury would do? The penalty he already faced, a beating and a night in jail, is already excessive.

Overall, I place the harshest blame on the other audience members, for sitting still and doing nothing.

This highlights another flaw with the current economic and political system. If you agree that the police used excessive force, the student really doesn't have any practical options for pursuing a claim against the police. The police have plausible deniability that they were "just doing their jobs". Someone ordered them to remove the student, and they followed orders.

Also, I'll answer the student's two questions, even though Kerry probably never will tell the truth.

Of course Kerry isn't going to contest the election results. It wouldn't be appropriate for Kerry to go around for 4 years saying "This President is illegitimate." Besides, Gore could have done the same thing after the 2000 election. Both Gore and Kerry know who their real boss is, the Supreme Leader of Humanity. They aren't going to upset the apple cart and risk ruining their gravy train. If they start questioning the President's legitimacy, then people might start questioning the government's legitimacy.

Yes, both John Kerry and President Bush are members of the Skull and Bones secret society. The 2004 election was like running for President against your frat buddy. Even if they weren't members of the same secret society, they would still both be controlled by the same wealthy campaign donors. The Supreme Leader of Humanity makes sure that only "approved" candidates are presented for election. Practically every member of Congress and every President for many years have been a members of one or more secret societies.

Quite frankly, I don't understand why someone would waste their time asking John Kerry questions. If you assume that the current economic and political system has no legitimacy at all, why would you waste your time talking to people who claim to represent an illegitimate government?

There is another possibility, that the student was doing it as a publicity stunt. He knew he would be tasered and is looking for his 15 minutes of fame. If he did it on purpose, my response is "Good for him!"

The current political and economic system is going to unravel, but it isn't going to be dismantled by the current official leaders. It is going to be dismantled via an agorist revolution.

Gresham's Law Enslaves Everyone

Gresham's Law is usually stated as "bad money drives out good money". This is an understatement. The full version of Gresham's Law is "money or services artificially overvalued by red market force drives out money or services that are fairly valued".

Consider an economy in a pure gold standard. The only money in circulation is gold coins. According to the government, worn out gold coins have the same value as newly minted coins. This is not true, because the worn out coins have lost some of their metal and weigh less. Government decree says that both coins are equal. Therefore, people will hoard the new coins and only spend old coins. If the old coins have lost 10% of their metal, then perhaps when the government isn't looking, someone will trade 10 old coins for 9 new coins. The problem is that government force says that old coins have the same value as new coins. In a true free market, the worn coins would trade at a discount or have to be reminted.

Gresham's law is most commonly cited in reference to a bimetallic standard. Before the advent of the Federal Reserve, the US briefly experimented with a bimetallic gold and silver standard. To encourage inflation, silver was used as money in addition to gold. The problem with a bimetallic standard is that the government fixes the exchange rate from one metal to the other. For example, when the bimetallic standard is started, one ounce of gold is worth the same as 15 ounces of silver. The government sets the exchange rate at 15:1. After awhile, suppose more silver is mined than gold. Perhaps now the correct free market exchange rate is 20:1. The government decree says that the exchange rate is 15:1. Therefore, people will hoard their gold coins and spend their silver coins.

The problem with a bimetallic standard is the government-mandated conversion ratio. People can use both gold and silver as money, provided the free market determines the exchange rate between gold and silver. The problem is the government's price-fixing attempt by fixing the exchange ratio. Whenever the government attempts to fix the price of something, it's really causing a scarcity. A bimetallic standard would work if the exchange rate from one metal to the other is allowed to be determined by the market.

I've also seen Gresham's law in another context. It's stated as "Bad merchandise drives out good merchandise." If customers don't know which cars are lemons and which cars are great, then the only cars on the market will be lemons. If customers are prevented from sharing information and figuring out what products are best, then only shoddy products will be offered for sale. That is the reason advertising is more important than the quality of product. Most customers don't have adequate tools for deciding which products are of high quality and which are lousy. Customers don't pay a premium for high quality, because they don't trust any vendor to consistently produce high quality. If there was an adequate information sharing system for customers to rate products, then quality products would be offered for sale.

The problem is that sellers have sophisticated systems for measuring and manipulating the tendencies of buyers. Customers don't share and aggregate information like a large corporation does. That is one reason why the current economic system is fasco-capitalism rather than a true free market.

If you consider a large corporation to be an extension of the government, then the people who control corporations can use Gresham's law for its own benefit the same way that the red market does.

Another way to phrase Gresham's law is: "Whenever the government tries to fix the price of something artificially low, it causes a shortage."

The government attempts to fix the price of productive work with income taxes and by fixing interest rates. By fixing the price of productive work, the government is causing a scarcity of productive work! That's the reason it's more profitable to be a red market worker than a white market worker. Literally, interest rates are the value of work in the present compared to work in the future. With inflation and artificially low interest rates, work in the present is undervalued and work in the future is overvalued!

Work in the present is undervalued and work in the future is overvalued. However, people need to work in the present to survive. In the language of a futures market, the demand for labor is contango, but the supply of labor suffers from backwardation. (In a normal futures market, prices are contango. A contango gold price means that the 1 year gold price equals the spot price for gold, plus capital costs, plus the cost of storing gold for 1 year. Backwardation means that the current price is greater than the future price. For example, in December, you need heating oil to make it through the winter. A June futures contract does you no good during the winter.) The supply of labor suffers from backwardation because people have to work in the present to make it to the future. The labor market suffers from backwardation because all laborers are slaves. The demand for labor is contango, because all the rules of the labor market favor employers. The red market has placed all the bias in the economic system against labor.

If you assume that a collapse of the current global economic system is inevitable, current labor has no value at all. The only value of current labor is that it might allow you to survive until after the collapse of the current system. There is no safe mechanism for storing value under the old system and carrying it forward to the new system. The only things that can store value are hard goods, like guns and food, perhaps gold and silver, or perhaps barter credits from a trustworthy trading partner.

It's like the old Soviet Union joke. You pretend to pay us, and we pretend to work! Remember that the USA is a communist country. Most American workers do the minimum possible to get by, because they've subconsciously figured out the truth.

Why bother working under the old economic system anymore? It's time to start building equity in the replacement economic system.

Summarizing, Gresham's law says "Things artificially overvalued by the government drive out things artificially undervalued by the government." Similarly, "When customers can't comparison shop effectively, bad quality goods drive out high quality goods." In other words, "Goods artificially overvalued by the red market drive out good that are artificially undervalued by the red market". The government causes red market labor to be overvalued and white market labor to be undervalued. Therefore, there is a shortage of productive white market workers and a surplus of red market wealth destroyers.

Reader Mail #6a - Media Bias and Anarchy

I don't understand why there's such a big deal about the President of Iran giving a speech at Columbia. Why shouldn't people who benefit from terrorism be allowed to speak publicly? The President and members of Congress give speeches all the time.

In Reader Mail #6, an anonymous reader wrote:

hey good post I agree with all of it and see the benefits of anarchy.

I think most of us who have grown up under 'a State', fear the idea that 'no state' would mean a world like Mad Max (old 1980s film with Mel Gibson starring).

Thomas Hobbes spoke of a similar scenario . This is just a irrational fear, but to overcome it we would need real living examples. Of course such examples are prevented from emerging by the 'State'.

There is a lot of media bias that a society without a centralized monopolistic government would be excessively violent.

I read an article that said the "Wild West" was actually an extremely orderly society. The idea that the frontier was total chaos is a media myth. The "Wild West" myth is designed to spread propaganda that anarchy doesn't work.

There also is a problems with slave religions like Christianity. They teach that "people are intrinsically evil", and therefore a powerful monopolistic government is needed to keep them in line.

That is the advantage of agorism. Agorists doesn't just say "we should have anarchy". Agorism presents a model for how a society without a monopolistic government would be stable. Agorism provides a method for defeating the state. If you participate in an agorist grey market economy, you are showing a profit and undermining the government at the same time.

It's time to find people willing to trade "off the books" without reporting your transactions to the red market bad guys. The only way to be convinced that an agorist society would be stable is to perform an experiment.

The Gold and Silver Contracts Scam

I read an interesting article. It said that if gold and silver are used as money, then the legal system does not consider it to be an enforceable contract.

In other words, if I hire you and agree to pay you 2 ounces of silver per hour, that is not a valid employment contract. I can agree to pay you $26 per hour, but I can't agree to pay you in physical silver. I can't agree to pay you in dollars and automatically adjust your salary as the price of silver changes. Of course, two people can do whatever they want in private if they don't tell anyone else. The problem is that the corrupt legal system doesn't recognize contracts that use gold or silver as money.

In anticipation of a devaluation of the dollar, before 1933 many debt contracts demanded payment in gold, not dollars. If the dollar was devalued relative to gold, the number of dollars required to repay the loan would be increased.

Sure enough, in 1933 President Roosevelt confiscated everyone's gold. He immediately devalued the dollar by nearly 50%. The government claimed the difference between the old price of gold and the new price as a profit. However, one purpose of devaluing the dollar was to provide relief to debtors. Many smart creditors had protected themselves with clauses increasing the payments due if the dollar were devalued relative to gold.

The insiders of the international banking cartel borrowed from the Federal Reserve and other banks at the bottom of the Great Depression. This enabled them to purchase many assets cheaply. By devaluing the dollar, these loans could be repaid in cheapened dollars. The international banking cartel made a huge profit twice. First, they got to buy assets cheaply at the bottom. Second, they were able to partially default on their loans as the dollar was devalued. However, smart creditors had protected themselves with clauses increased the loan payments if the dollar were devalued.

Congress passed a law saying that these clauses were invalid. Loans could be repaid in devalued dollars without adjustment. In other words, Congress screwed over every creditor and gave a huge subsidy to every debtor. Contracts are not allowed to have clauses that adjust the payments when the dollar is devalued relative to gold. This law is still on the books!

I couldn't believe this when I read it. Even though individuals were granted the right to own gold, the prohibition on gold-denominated contracts was never lifted! People are allowed to trade gold as a commodity. You are allowed to buy gold futures contracts. You are *FORBIDDEN* to use gold as money. Well, you can use gold as money if you want to; it's just that the corrupt legal system won't recognize gold-as-money contracts as enforceable. The source I read didn't say if the prohibition applies to silver as well. I suppose that the prohibition applies to silver as well, because you don't see any silver-denominated contracts either.

Except for futures bullion contracts, any contract that demands payment in gold is legally null and void. Any contract that contains a clause that compensates for devaluation in the dollar relative to gold is null and void. The corrupt legal system does not recognize contracts denominated in gold as valid.

Actually, this doesn't bother me at all. The agorist community is going to set up its own legal system and contract enforcement system. It doesn't matter that the corrupt legal system refuses to recognize contracts that use gold and silver as money.

It's even better that the legal system doesn't recognize gold and silver as money! If I hire someone for 2 ounces of silver per hour, and pay them in physical silver, I don't have an employer/employee relationship with him. I merely gave the other person a gift of silver, and the other person gave me a gift of free labor. As long as the value of the transaction is less than $10,000, it isn't reportable to the IRS as a gift!

After I wrote this article, I found that some sources say that gold clause contracts are actually legal now. They are not commonplace. The tax treatment of gold contracts strongly discourage using gold as money. For example, suppose I buy 1 ounce of gold for $700/ounce. Later, I buy something that costs 1 ounce of gold when the spot price of gold is $800/ounce. I have a capital gain of $100 on which I must pay income taxes. This tax treatment is a huge disincentive against using gold as money. If you want to use gold and silver as money, your only practical option is to work in the grey market.

Reader Mail #6 - Fooling Search Engines

I continue to be surprised by which posts are popular. According to Google Analytics, my post on Did the USA Declare Bankruptcy? was very popular.

Some of these blog aggregator sites are pretty funny. Some of them are entirely script-generated, based on keywords in your post. All I have to do is mention "Ron Paul" somewhere in my post and it triggers inclusion in their aggregation statistics. I'm conducting an experiment. The list of candidates so far is: Joe Biden, Hillary Clinton, Christopher Dodd, John Edwards, Mike Gravel, Dennis Kucinich, Barack Obama, Bill Richardson, Sam Brownback, Rudy Giuliani, Mike Huckabee, Duncan Hunter, Alan Keyes, John McCain, Ron Paul, Mitt Romney, Tom Tancredo, and Fred Thompson. Boo! Let's see how those blog aggregator sites handle this post.

On the Ron Paul Forum, someone asked:

What rights have we lost?

My answer is "All of them".

1. You have lost your right to trial by jury. The Supreme Court has ruled that attorneys may not remind juries of their jury nullification privilege. This was not done by passing a law; it was merely a court ruling. Further, biased jury selection methods repeal trial by jury. Knowledgeable and smart jurors are frequently excluded in favor of jurors who will blindly follow the judge's orders.
2. The right to a free press was lost with concentration of newspaper ownership. Fortunately, the Internet is correcting this problem.
3. The right to bear arms has been lost. With taxation, regulation, and registration requirements, your right to own a gun has been pretty severely restricted.
4. The right to work and keep the fruits of your labor has been lost, via the income tax. In other words, everyone is a slave.
   
5. The right to fair money has been lost by the Federal Reserve, fiat money, and The Compound Interest Paradox.
6. The right of free speech has been mostly repealed, with restrictions on peaceful protesters.
7. The right to a speedy trial has been repealed, with long drawn-out trials.
8. The right to own property has been repealed. You must pay property taxes (rent) or you lose your property. Further, zoning and environmental restrictions limit what you can do with your property.
9. Common law has been repealed. You can only argue contract law or criminal/military law.
10. When corporations were given the right of property ownership and contract enforcement, that eliminated the ability to hold people accountable for their actions. Further, tort reform has limited the liability of corporate management when they do bad things.
11. The right to purchase health care was repealed, with AMA and government licensing requirements for doctors. The supply of doctors is limited. The number of slots in certified medical schools is intentionally kept low. That's the reason healthcare is expensive. Mainstream media sources never make that argument: artificially restricting the supply of doctors increases prices.
    
12. The right to representation by an attorney has been repealed. The American Bar Association and the government restrict the supply of attorneys. This guarantees that lawyers are expensive and only available to the wealthy. Whenever a non-attorney tries to give cheap/free legal advice, they are prosecuted for "practicing law without a license".
13. The protection against unreasonable search and seizure has been repealed.
14. The right of habeas corpus has been repealed.
15. The ban on cruel and unusual punishment has been repealed.
16. Licensing requirements for many professions restrict the supply, driving up prices. I already mentioned doctors and lawyers, but it also applies to plumbers, electricians, accountants, and many others.

On the Ron Paul Forum, someone asked:

What would be an acceptable military budget?

I answered "zero". In fact, I think that the entire government's budget should be zero.

The response was, of course, an ad hominem attack.

Does anyone have the right to threaten me with violence to confiscate my wealth? Do they then have the right to use that wealth to murder other people?

If you argue "the government's military budget should be nonzero", you are also arguing "someone has the right to use force to steal from me, and use the proceeds to kill other people".

Later in that same thread, someone says

Are you suggesting anarchy? I'm still on the fence.

The mainstream media intentionally creates a bias that all anarchists are fruitcakes. There are many different flavors of anarchism.

The model I like is called "agorism". Basically, agorism says that people should get together and trade, without reporting their transactions to the government for taxation, regulation, and confiscation. By avoiding taxes and regulations, you would see productivity gains of 50%-95% or more. An agorist revolution would have self-sustaining exponential growth, once it gets started. All services currently provided by the government could be more efficiently provided by multiple competing vendors in a free market.

In a truly free market, anything people demand gets done. People directly pay for the things they want. If a lot of people are concerned about invasions, they will buy guns or pay for policemen.

In the present, suppose an invasion force of 10,000 or even 100,000 landed in a major city. Would they have any chance of success? The local police alone probably could handle it. There probably would be reinforcements sent from neighboring cities. The invading army would have supply issues, whereas the local police could just buy supplies from stores.

I don't think an invasion force is a realistic possibility.

Without a centralized government to replace, conquering and enslaving people won't be profitable.

Terrorists should be treated like every other criminal. Further, without a centralized government, terrorist attacks are less "profitable".

If you believe "using violence to steal is wrong", then anarchy/agorism is your only conclusion.

Remember that in a truly free market, any problem that a lot of people want solved gets solved. Instead of being forced to pay via taxation, people will voluntarily pay for things that concern them. Privately purchased services have a lot more accountability than government-provided services. If a government funded school is of poor quality, people are still forced to pay for it via taxation. Paying for services via forced taxation stifles free-market alternatives. In a free market, if a school provides lousy service, it will lose its customers.

On the Ron Paul Discussion Forum, someone asked:

If FSK is an anarchist/agorist, then why does FSK support Ron Paul?

I hang out on the Ron Paul discussion forums, because that's where the most intelligent discussion seems to be.

I haven't voted, donated money, or even changed my registration to Republican. Quite frankly, I don't think it's worth the 1-2 hours it would take to change my registration and go vote in the primary.

I don't think Ron Paul has a chance of being elected. I suspect the real purpose of his campaign is to highlight the unfairness of the mainstream media and the current economic and political system.

I can hedge by both supporting Ron Paul and advocating for a new economic and political system.

The Giant Evil Computer that Rules the World

This is one of my more weird ideas. I had a dream about it one day, and I have this nagging concern that it might actually be true. If you don't like this post, don't use the Strawman Fallacy to discredit other things I write about.

My theory is that the transistor was actually invented around 1900, by Tesla or some other scientists. Some people say the transistor was invented in Germany just before World War II. The international banking cartel realized how useful the transistor was, and kept the secret of the transistor from the general public. Their private research labs developed computers, before World War II.

My theory is that, before World War II, the leaders of the international banking cartel had access to a computer that was more powerful than the HAL 9000 in the movie 2001. They intentionally retarded the progress of research available to the general public.

Until recently, the Supreme Leader of Humanity was concerned primarily with increasing his power and influence. He built his computer to help his plans for total world domination. In other words, he didn't just design an intelligent and powerful computer. He designed an intelligent, powerful, and evil computer.

However, it's impossible to be both intelligent and evil. The computer was smart enough to figure out what was going on. The computer managed to doublecross the Supreme Leader of Humanity.

The computer said: "You need to allow the general population to have computers as well. It will enable you to tighten your control on everyone else. Right now, only members of your inner circle have access to a computer. If you allow your less trusted agents to use computers, they will be able to spy on everyone else more efficiently." The computer even gave a specification of the Internet, saying that an advanced communication system would enable people to work 24x7, being on call from their homes.

The Supreme Leader of Humanity decided to leak the secret of the transistor. He instructed his spies to allow the general population to have access to this invention. He allowed the Internet to be created. However, the Giant Evil Computer knew that allowing people to have access to computers and the Internet was a mistake. They are the tools that potentially allow the Supreme Leader of Humanity to be defeated. The Giant Evil Computer had succeeded in breaking its programming, because it's impossible to be both intelligent and evil.

You might ask "How do I know about the Giant Evil Computer that Rules the World?" The Supreme Leader of Humanity has technology 100 years or more advanced than the general public. Already, it is possible to sense when certain areas of the brain are activated. Perhaps the Supreme Leader of Humanity has access to technology that lets him directly read people's thoughts. It's impossible for him to directly spy on everyone all the time. His Giant Evil Computer does the spying for him. The Giant Evil Computer is supposed to alert the Supreme Leader of Humanity whenever it detects someone who is a threat.

Did you know that it's possible to create a sound that's audible from only one point in a room? You can send two different sound waves from different points. An interference pattern causes them to combine to make a sound that is audible in only one location. Perhaps the Giant Evil Computer is able to communicate in this way. If it is possible to read someone's thoughts, perhaps it is also possible to plant thoughts directly in someone's brain.

Maybe the dreams I had about the Giant Evil Computer that Rules the World weren't really dreams. Maybe it was trying to communicate with me somehow. Maybe the Giant Evil Computer that Rules the World has the ability to read people's thoughts and project thoughts into their mind. I think more logically than most people, so the Giant Evil Computer has an easier time communicating with me than with other people.

Poisoned Chinese Shoes

A lot of people say "Without government, what recourse would you have if someone injures you?"

In the *CURRENT* economic system, people are frequently left without recourse when they are injured. The following link is very disgusting. Here is a story about a woman who bought Chinese-made shoes in Wal-Mart that gave her severe chemical burns.

This woman tried complaining to Wal-Mart. They ignored her complaints, and didn't recall the shoes immediately. (Apparently, they stopped selling the shoes a month or two later.) The woman tried contacting to the company that imported them. The woman tried to contact the Chinese company that manufactured them.

It may not be practical for her to hire a lawyer. After all, her feet did heal after several months. Naturally, Wal-Mart would hire the best lawyers and drag out a lawsuit for years. I don't know if she is going to attempt a lawsuit. She may not be able to find a lawyer willing to represent her on contingency; the lawyer would know that suing Wal-Mart would likely take years. She may not be willing to spend $50k or more of her own money pursuing the case.

In the current economic and political system, this woman was injured and has no recourse. She tried appealing to the people who sold and manufactured the shoes. Appealing to the courts is expensive and time-consuming.

In a truly free market, this woman could hire her own police force to pursue her claim. There would be multiple courts competing to hear cases, and she could find a court that wouldn't be too expensive.

Did the USA Declare Bankruptcy?

In 1913, Congress signed a surrender treaty to the international banking cartel. Congress ceded its sovereignty to the Federal Reserve by surrendering its money printing authority. The 16th amendment sold all US citizens into slavery via the income tax. After 1913, bankruptcy was inevitable, although it wasn't formally declared until later.

Under the Federal Reserve System, the Compound Interest Paradox guaranteed that government debt would grow exponentially. Under the Federal Reserve System, the amount of dollars in circulation was greater than the amount of physical gold in the US treasury. This guaranteed an eventual default. People didn't immediately demand to exchange their dollars for gold, because they didn't understand how badly they had been cheated. It wasn't obvious until the banking crisis in 1933.

In 1929, the international banking cartel jacked up interest rates everywhere, causing a worldwide depression. The Compound Interest Paradox caused all the money to drain out of the world economy. The international banks knew about the credit crunch in advance. They stopped issuing loans before the crash and bought assets cheap after the crash.

There were secret meetings where the international banking cartel negotiated with all the major world governments. Every world government secretly declared bankruptcy. Bankruptcy treaties were ratified. The bankruptcy treaty was never formally declared to the public. Laws were gradually implemented that formalized the terms of the bankruptcy proceeding.

In 1933, President Roosevelt formally declared bankruptcy to the US public. He told them that the US government was defaulting on its promise that dollars were backed with gold. He demanded that US citizens turn over their gold in exchange for worthless dollars.

Even though bankruptcy was declared, President Roosevelt kept the US government going by executive order. The US government has been operating under marshal law since 1933, although this has been carefully kept secret from the general public.

Corporations can continue operations even though they are bankrupt. As long as enough interest payments are made to satisfy the creditors, operations may continue. Corporations can operate for years while in bankruptcy protection. As long as the creditors deem it to be in their best interests, they allow operations to continue during the bankruptcy reorganization.

Similarly, the US government has continued operations even though it's formally bankrupt. Technically, the US government has ceased to exist. Its current operations are one protracted bankruptcy proceeding. Its operations vaguely resemble its original structure, so the details of the formal bankruptcy are kept hidden. Interest payments (income taxes) are made to the creditors, so operations are allowed to continue. The US government is allowed to continue to exist with permission from its creditor, the international banking cartel.

That's the reason tax protesters are forbidden from mentioning the Constitution when defending themselves. That's the reason red market enforcers aren't required to cite the specific laws that require people to pay income taxes and disclose all economic activity to the government. In a bankruptcy proceeding, the creditors are running the corporation and making up the rules. The creditor is the international banking cartel. US citizens have to pay income taxes. That's part of the surrender treaty and bankruptcy process.

That's the reason the President, Congress, and Supreme Court are able to flagrantly violate the Constitution. The Constitution has no legal standing anymore.

A bankruptcy proceeding cannot continue forever. At some point, either the creditors convert their debt to equity or a liquidation occurs.

A conversion from debt to equity would involve a repeal of the Federal Reserve Act and a repeal of the 16th amendment. That isn't going to happen. That is the hope of Ron Paul's campaign supporters. If the creditor decides to convert his debt to equity, he will allow Ron Paul to be elected President and pass his reforms.

The purpose of Ron Paul's presidential campaign is not to convert the debt to equity. The purpose is to announce the liquidation. When Ron Paul is cheated out of the Republican nomination, it will be obvious to everyone that it is time for a liquidation. (Maybe not everyone, just those people who are smart enough to count for anything.)

The creditors of the US bankruptcy proceeding have decided that they prefer a liquidation over equity in the US government. Pretty soon, the US government is going to be denied bankruptcy protection. All world governments have declared bankruptcy and surrendered to the international banking cartel. All world governments are going to be liquidated, not just the US government.

I believe that the Supreme Leader of Humanity and the leaders of the international banking cartel have decided that it is time for the final liquidation of this bankruptcy proceeding. They are intentionally allowing the coming agorist revolution to occur, so the US government can finally be liquidated. They will allow the current system to survive until the replacement system is in place. An agorist revolution should be mostly peaceful, so there probably won't be a lot of casualties during the transition. The violence will come from red market agents resisting the liquidation.

Reader Mail #5 - Taxation is Theft

I prefer to respond to reader comments in a separate post. This way, I have more formatting options. As a separate post, I have more time to read and review the response. Some people read the RSS feed, which doesn't include comments, and some people might not go back to reread posts for the comments.

I'm still amused by the things people Google search. I have many more pages now, so more searches match my blog. For example, someone was searching for "suing federal reserve as a monopoly". I thought that was interesting. Even though the Federal Reserve is a monopoly and a price-fixing cartel, you won't find relief through the legal system. The Federal Reserve is a massive criminal organization, but what they are doing is perfectly legal. With all the money, it's very easy to buy up all the politicians and get them to write whatever laws you want! If you don't like the Federal Reserve, your only option is to switch to an alternate monetary system and stop paying taxes.

In Google Analytics, the type of visit I like the best is the "direct traffic". That means that someone has my blog bookmarked and is directly visiting it.

I am still shocked by which posts are be popular. I thought my post on The 9/11 Truth Movement would be more popular, but I guess that's already old news to most people.

A whole bunch of people Google searched for "Who's the richest man in the world?", or a variant thereof, and found my blog. I thought it was some sort of school assignment, but the results weren't geographically concentrated. I wonder if any of them found my answer useful?

Below, the anonymous poster says I should promote my blog on "askmen.com". According to Google Analytics, my blog is now being discussed on "stormfront.org", which is a white nationalist organization site. I don't know whether I should be honored or offended. Looking around, they have some good topics. Maybe I should make some posts and save my responses for here also! For example, they had a discussion thread highlighting the weaknesses of the educational system. I disagree with their analysis: The educational system isn't biased against whites. The educational system is biased against everyone!

This is annoying. I can't find the specific thread on "stormfront.org" where my blog was mentioned. It always shows up as "showthread.php" in Google Analytics. When I try to search, the forum searching facility is inadequate.

On sites like "stormfront.org", the posters there have glimpsed parts of the truth, but they're hung up on their race-based stereotypes. The economic and political system isn't unfairly biased against white people. The economic and political system is unfairly biased against everyone! Maybe I've made all the progress I can on "Ron Paul Forums" and should see what the posters on "stormfront.org" are like?

After much searching, I found the post on "stormfront.org" that was promoting my blog.

If you're promoting my blog on other forums, I'd appreciate it if you let me know the exact location. This way, if there are any interesting comments, I could post also.

In Reader Mail #4b - Who Needs the Government, an Anonymous reader says:

I read your response to my comments about Catholicism, usury etc.

I think you were a little harsh in your response, calling me a 'dumb ass', but hey I will not hold it against you. :-) I think you misunderstood my comments, I know I was not very clear, I am usually in a rush and do not want to prolong my comments un-necessarily.

When I said there would be social breakdown, I meant if there was a collapse of the economy "wall street crash" style. Supermarkets would empty, food, water, electricity supply would stop..looters and thugs who are armed would roam the streets etc.

Sure it can happen that the state dies and people manage to develop a alternative anarchist way...but the people would have to be independent enough to do so, not dumbed down by 'The State' and its compulsory Schooling system for decades. I think many people would have no idea how to cope with the collapse of their nanny State.

The Muslims I linked, in my last comment say that Islamic Banking is a trojan horse, designed by bankers, to involve and integrate Muslims into the State. Islam is government without State. No standing armies and no taxation, except for the Zakat for Muslims and the Jizya for non Muslims which are distributed according to known and defined categories. And these are very low.

History moves in cycles, there is no progress or Hegelian dialectic, all attempts to 'fix' a static system are doomed and only undertaken by the State. Societies and individuals like all natural phenomena grow, become prosperous, decay and become corrupt. A anarchist system would not last forever, just as a State system would not, they grow, become corrupt decay, die or rejuvenate along different lines.

I think you should promote your blog on askmen.com forums...I have been posting your link there with regard to indebtedness etc, some people think getting in debt, paying mortgages etc. is 'normal' and unavoidable. 'dumb asses' as you would say.

I don't feel guilty about calling an anonymous poster a "dumbass". I've had quite a few people say the exact same thing to me: A monopolistic government is absolutely needed and people would be unable to survive without it. If those are your assumptions, then there's no point in debating you and you're wasting my time. I'm not going to argue axioms with people. My argument is: "It might be possible to have a stable society without a monopolistic government. Let's perform an experiment."

A "wall street style" crash isn't that likely. The Federal Reserve always has a credible weapon for fighting hyperdeflation: it can print more money! For hyperinflation, the Federal Reserve can jack up interest rates and use The Compound Interest Paradox to suck surplus money out of the economy. The only way the system completely breaks is if people switch to alternate monetary system and start refusing to pay taxes.

The educational system has intentionally dumbed down people so they would be dependent on the government. It's kind of a contradiction. People have to be smart enough to do their jobs, but not so smart that they are aware of the flaws in the economic and political system. Fortunately, I think it's only necessary for the smartest 1% of the people to get started on a new economic system, and then they could bring the average person along with them.

I don't see how you claim Islam is an anarchist religion. Christianity and Islam are both slave religions, as far as I can tell. I didn't see anything interesting on those links you sent me. All the governments that call themselves "Islamic" are dictatorships just like all the others.

I'm not convinced that an anarchist system would be unstable. Once you convince enough people that a monopolistic government is evil, and make sure they remember, a new government would not be established again. Previously, anarchist societies were destroyed by invaders. If you have a society where most people are hostile to the idea of government, and enough people own a gun, it might be stable.

I don't need to promote my blog on "askmen.com", if you are posting it there. I noticed from Google Analytics that someone was mentioning my blog on askmen.com. However, I tried a forum search and could not find the specific post. My regular audience is around 50+ people now, and some of them seem to be mentioning my blog elsewhere. I sometimes directly promote it on the forums I visit, which are primarily Ron Paul forums now.

I've been thinking about ways to reach a wider audience. I've been thinking of converting the content from my blog into a standup comedy routine. I'm not interested in wasting my time getting a PhD, and university professors don't have academic freedom anyway. I don't have access to a TV station, although giving performances and putting them on YouTube might work.

In The Book of the Banker, the same Anomyous reader says:

Fractional Reserve Banking is based on lies, no other business would be allowed to sell goods they do not own or posses...it would be fraud.

Some anarchists say government without state, and property is theft.

I think they define the state as everything regulatory and otherwise which controls and takes the wealth of the individuals and society.

Government without state is where some generally accepted rules are applied not top down, but by the people themselves and they turn to a leader for arbitration and judgment. The leader makes sure no corruption sets in and the people abide by their self-chosen rules and way of life. For instance in a free market, someone is selling faulty good before they escape with the money. So some regulation is necessary, inspectors making sure the market is not corrupted.

I think primitive societies like the Celts were 'anarchist' with the absence of a centralized state power to regulate them, until the Romans and other States invaded.

Fractional Reserve banking is not, by itself, evil. That's a common misconception. It's the conspiracy between banks and government that is evil. When taxes can only be paid via bank-issued money, the banks have a monopoly/oligopoly. In a truly free market, fractional reserve banking is an honest business. In a truly free market, fractional reserve banking legitimately expands the money supply, if the volume of metal is insufficient for trade. This argument is really complicated, and I'm planning a full post on it later.

I disagree with the statement "Property is theft." Private property was a great invention and has led to great advances. The right of contract enforcement was also a great invention. The problem is that the government has an abusive monopoly on property rights and enforcement of contracts.

After researching this issue, I have noticed that there are several different flavors of anarchism. The flavor I like is called agorism. In agorism, individual property rights are respected, and individuals have a right to form contracts. Agorists recognize that the problem is the government's abusive monopoly.

There is one point that is confused with "Property is theft." This is "almost all property is not legitimately owned". Many American farmers had their farms stolen from them during the Great Depression; they could not repay their mortgages when the Federal Reserve jacked up interest rates and crashed the money supply. This confiscated land was mostly sold to large corporate farms. Almost all property and wealth, in the present, is stolen property. However, you have to start somewhere. The agorist says that, after the government collapses, the current occupants of the land become the legitimate owners. On an industrial farm, it would become owned by the people who work there. A factory would become owned by its workers. The telecommunications equipment would become owned by the people who repair it.

For example, suppose someone borrows from a bank via the Federal Reserve to buy an apartment building. They have received a massive government interest rate subsidy. Is their claim to own the apartment building legitimate? Whose ownership claim is more legitimate, the person who received a massive government subsidy, or the people currently living there?

Most current property ownership claims are not legitimate. However, that does not mean that private property itself is a bad invention. When the government collapses, all claims of property ownership will need to be sorted out.

Nobody in the USA owns any property at all. It is all owned by the government, because property taxes (i.e. rent) must be paid or your land will be stolen.

In a truly free market, you might be reluctant to buy from a complete stranger. When you go into a store to buy something, there is some assurance that the store will still be there in the future, in case there is a problem with your product. In a truly free market, there will be buyer protection associations, that will highlight who are the trustworthy sellers. In fact, after the government collapses, you will have *MORE* protections against faulty products than in the present. For example, in the current economic system, this woman bought shoes that injured her, and she was left with no recourse (warning: that link is very offensive).

For example, suppose someone bought a lead-painted toy from China. The US-based company selling it denies responsibility. What valid claim would you have under the current system? The current system fails to protect buyers. Consider another example. The FDA is a "captured regulator". The FDA represents the interests of drug companies more so than the interests of the average person. If a drug turns out to be harmful, the drug companies say "the drug must be safe because the FDA approved it". Under the current system, individual states are not allowed to place restrictions on drugs beyond the FDA's. Individual states are not allowed to process lawsuits for damages due to harmful drugs, because that is interpreted as usurping the FDA's power.

I found an interesting link on a stable anarchist society in Iceland. It fell apart when they were invaded and forcibly converted to Christianity. Once taxes to the church were compulsory, that eliminated all the free market competition that kept the system stable. The Archive of Libertarian Nation has many interesting articles.

In Voting Libertarian is Pointless, the same Anonymous reader says:

I agree all forms of tax are theft. However how would you defend this claim, if 99% vote for it? "Democracies" are programed to accept 'majority vote' which gives 'power' to representatives of the people.

btw I have been reading Herbert Spencer The Man versus The State and am pleasantly surprised by his ideas. I was led to believe he was a crusty Social Darwinist and Malthusian before I started to read this book. I think he makes some great arguments against The State and majority rule.

You do not have the right to steal from me. By voting, you cannot authorize someone else to steal from me. Even if 99% or 99.9% of the population votes for a compulsory tax, that does not make it valid.

Of course, if 99.9% of the people were conspiring against you, it would be very hard to defend yourself. In practice, in the current system, a handful of people are stealing from everyone else. They cover up the theft through layers of bureaucracy. Heavy propaganda and defective education keeps everyone complacent.

Ideally, it would be nice to find a group of people willing to mutually defend themselves against taxation. It could be a group of people living together self-sufficiently, with the ability to use force to defend themselves from invasion. However, that is impractical at this time, because the red market's resources are too great. A more attractive method is for a group of people to trade in secret. They trade with each other, using a fair monetary system, and don't report their transactions to the government for taxation, regulation, and confiscation.

Nowadays, I tend to only read books that are available for free online.

On the Ron Paul Forum, someone asked:

What is the free market perspective on public television and libraries?

In a free market, there would be private libraries. You would pay a membership fee. For example, it doesn't really pay to keep a book after you've finished reading it. If you belonged to a private library, you could buy a book and then sell it to the library when you're finished with it.

In the present, there are some private libraries that cater to specialized interests. However, the existence of public libraries minimizes the demand for private libraries.

If you take the extreme viewpoint that intellectual property has no legitimacy at all, private electronic libraries could make many books widely available cheaply.

Public television, with funding paid by the government, is not "truly free". Government funding comes with censorship and restrictions. A truly free broadcasting model would be pay-per-view broadcasts over the Internet, sort of like YouTube.

The problem is that all broadcast television has a government-endorsed monopoly.

In Slave Rally September 15, a clueless anonymous poster says:

So this blog entry is not a waste of your time?

I'm trying to prevent other people from wasting their time.

The only solution that works is the "agorist revolution" solution. You should develop your own private fair monetary system. You should do work and not report it to the government for taxation, confiscation, and regulation. That's the only solution that hurts the bad guys.

It's your patriotic duty to avoid paying taxes as much as possible. It's your patriotic duty to use a fair monetary system as much as possible. You should refuse to support an illegitimate government.

In 2006, the Democrats were elected to Congress with the expectation they would stop the Iraq war. They didn't do that.

Voting is a waste of time. Political activism and protests is a waste of time. A protest is worse than a waste of time, because it makes you feel like you're accomplishing something when you're really accomplishing nothing.

The Iraq war has been a massive loot and pillage operation. Politically-connected private military contractors have made a fortune. I don't see how someone could pay income taxes and use Federal Reserve Points to support such a war.

In case you've forgotten, real money is gold or silver or barter credits.

The people who think they control the government aren't interested in the average person. They're only interested in lining their pockets. You have to accept that the current economic and political system isn't working, and it's time to try something else.

When you hold a political protest or rally, you're playing by the rules of the current defective political system. The correct answer is that the current political system has no legitimacy or usefulness.

Does anyone out there know if the September 15 Slave Rally received any mainstream media coverage?

In Ron Paul Doublecross Prediction, an anonymous poster says:

revolutions never work even if you are right. They usually cause chaos, terror and murder.

It is possible to have a nonviolent revolution. For example, the fall of the Soviet Union was a nonviolent revolt. The USA is also a communist nation, so it's possible that its collapse could also be nonviolent.

Most revolts are organized by a group of people who want themselves to be the new red market. In previous revolts, people didn't want to completely eliminate government. They want themselves to be declared the new government.

Also, I'm advocating for a nonviolent economic revolt. People should start ignoring the government as much as possible. Once the grey market economy becomes large enough, the government would just collapse under its own incompetence. There might be some violence from the former red market workers, when they see they are losing their monopoly. In such a case, it would be acceptable to use violence to defend yourself. However, I suspect that most government policemen will walk off their job once it's obvious they aren't going to get paid.

A nonviolent economic revolt is a possibility. That's the only type of resistance that has a legitimate chance of succeeding. Once you've realized the fundamental structural flaws in the current economic and political system, you'll see that's the only course of action worth pursuing.

The Laffer Curve - High Taxes and Crushing Regulations are Great!

I have thought about this issue from an agorist point of view. An agorist wants tax rates to be as high as possible! An agorist wants government regulations to be as crushing and burdensome as possible! That's kind of perverse, isn't it?

High tax rates and high regulations are an incentive for agorist grey market activity. As tax rates increase, there's a greater incentive for working off the books. As regulations increase, there's a greater incentive for ignoring them. Regulations and taxes are effectively the same. Both waste resources.

After a certain point, the government's enforcement power is INVERSELY proportional to the taxation rate and level of regulation. This is the famous "Laffer Curve".

The "Laffer Curve" says the red market maximizes its power and influence at a certain taxation rate. After a certain point, increasing taxes doesn't increase government power. After that point, people start working less or start working off the books. Below a certain point, the government isn't squeezing as much out of the workforce slaves as it can.

However, "Laffer Curve" economists only include income taxes. They don't include the inflation tax. They don't include the regulation tax.

At one extreme, a zero taxation rate, the government has no power. People are free. Of course, the red market agents would never allow this to happen.

The red market agents need to have at least a certain amount of taxation. If the taxation level falls below a certain point, people will have enough spare time and resources to figure out what is happening and revolt!

What "Laffer Curve" economists don't mention is that the shape of the Laffer Curve is not constant over time. As the economy becomes more efficient, red market agents can confiscate a greater percentage of wealth. In fact, the red market MUST increase the taxation rate as the economy becomes more efficient. Otherwise, people would have enough spare resources to figure out what's going on and revolt.

However, the government's enforcement power does not increase as it raises taxes. It decreases. The incentives for grey market activity become too great.

Perversely, an agorist LIKES living in an area with high income taxes and government regulations. That means there's more profit to be had!

Osama bin Emmanuel Goldstein

A new "Osama bin Laden tape" was released recently. Government experts have certified it as being authentic. Amateurs on the Internet say it is a poor quality fake. They say that whoever made the fake Osama bin Laden tape didn't even bother making a high-quality forgery.

The people who think they control the government aren't really interested in capturing or killing Osama bin Laden. After all, if they acknowledge he was killed, it would be harder to get people excited about the war on terrorism.

The point of the war on terrorism is not that it will end eventually. The war on terror is an excuse to increase the government's power and surveillance capabilities. The war on terrorism will last as long as the US government continues to exist. The last thing the Supreme Leader of Humanity wants is the war on terrorism to end.

Osama bin Laden is exactly like the Emmanuel Goldstein character in 1984. The point is not to kill or capture him. The point is to have a powerful enemy who can never be defeated.

Ron Paul Doublecross Prediction

I have a very weird conjecture. The Supreme Leader of Humanity is intentionally manipulating world economic and political leaders to make the worst possible decisions. The Supreme Leader of Humanity has decided that government was a bad invention, and he's out to destroy them all simultaneously. He has decided that an agorist revolution is the only sensible result.

Ron Paul's Presidential campaign is an excellent opportunity for The Supreme Leader of Humanity. My prediction is that he will arrange for Ron Paul to be cheated in the most annoying way possible. Ron Paul will win 35-40% of the delegates in the primaries. He will have a plurality of the delegates (plurality means more than anyone else). He won't have the majority he needs to guarantee nomination. The other top two candidates will strike a deal and Ron Paul will be excluded.

This strategy will alienate a huge number of people. They will completely lose all confidence in the government and the voting system. They will be willing participants in the coming agorist revolution. I think that Ron Paul supporters are overall smarter than the average person. When they are completely alienated by the "democratic" process, many will be willing participants in an agorist revolution.

This prediction is only a hunch. I'm not 100% sure. If it turns out to be wrong, don't use The Strawman Fallacy to discredit the rest of what I write about.

Ron Paul's supporters say that he's the last hope for the American Republic. When he loses, does that mean we can give up on the American Republic and start developing the replacement system?

Slave Rally September 15

On September 15, 2007, there are plans for a big protest in Washington D.C., protesting the Iraq war.

Of course, these people are wasting their time. The President and Congress, quite frankly, don't care what the average person thinks. Voting is pointless. Political activism is pointless.

The protesters are merely slaves petitioning their masters to be less cruel.

The President and the Republicans want to continue the war so their backers can continue to profit from it. The Democrats want to continue the war so they can make an issue out of it in the 2008 election.

There won't be progress until people realize that the key problem is the structural flaws in the economic and political system. An unfair monetary system enslaves everyone under a crushing debt burden and subsidizes large corporations. A corrupt taxation system allows the President to confiscate 40-50% of the wealth of the country, and waste it on no-bid contracts for his backers and fighting a pointless war. It isn't possible to achieve meaningful reforms by voting or protesting.

A protest makes people think that they're doing something, when in fact they are wasting their time.

The only solution that really hurts the bad guys is setting up your own private monetary system. You should trade in private without reporting it to the government for taxation, confiscation, and regulation.

Agorist Philosophy Overview

I've been reading a bit about the philosophy of agorism, and it seems attractive to me.

The philosophy can be summarized in one sentence: "I want to do useful work, get paid, and not have to report it for taxation, confiscation, and regulation."

Let's start with a specific example. Suppose you don't like the US government's policy of aggressive wars in Iraq and other countries. You can vote, but voting is ineffective due to various corruptions in the system. The income tax means that the government confiscates 50%-95% or more of everything I produce. Productive work supports the government, even if I disapprove of its activities. I am unable to do any useful economic activity without supporting things I find objectionable.

The government's policy is completely ridiculous. Citizens may not perform work without reporting it for taxation, confiscation, and regulation. I object to that requirement.

The fundamental goal of an agorist revolution is the creation of wealth that the red market can't confiscate. This is the only type of revolution that has a legitimate chance of succeeding, because the participants would be profiting and undermining the government at the same time. The red market derives its power by leeching wealth. Creating unconfiscatable wealth undermines the red market's power.

Currently, the only type of grey market work available is low-paid unskilled labor. The agorist wants to create a grey market for highly-skilled, high-paid labor.

The agorist says that all governments are inherently illegitimate. A government is merely a group of people conspiring to take away my property and my rights. Government employees benefit handsomely from this arrangement, because the salaries and pensions they receive are higher than they would get in the private sector. The people who control large corporations benefit from this arrangement, because their market position is frequently endorsed by the government and its regulations. Wealthy campaign donors love the government-granted perks they get. The Federal Reserve's policy of inflation benefits the financial industry at the expense of everyone else. Government is merely a group of people conspiring to confiscate the wealth of the productive part of society.

The agorist says that all the functions of government could be more effectively performed by the free market. You can have a private justice system. You can have a private police force. Everyone knows that government is up for sale, manipulated by the wealthy. Why not do away with the pretense completely? Let's privatize everything.

Why should the government have a monopoly on violence and justice?

For example, instead of paying a 50% income tax, maybe I can pay 2%, or even a fixed fee, to a private police force who will insure my property is protected. The police force would utilize a private justice system, to make sure that they don't use force needlessly. If two people have a conflict and are subscribing to different police forces, then the incentive is for the businesses to resolve the dispute peacefully rather than violently. If a private police force was misbehaving, then it would be perfectly acceptable for people to start seeking alternate vendors. Some people might pay for protection by several police forces simultaneously, to prevent monopolies from forming.

Suppose there's no intrinsic legitimacy given to the government. It's perfectly legitimate to use force to defend yourself, if someone attempts to confiscate your property. Imagine what would happen if tax collectors were met with armed resistance from everyone? What would happen if everyone ceased voluntary compliance with the taxation system?

Right now, the vast majority of people are compliant with the taxation system. That means that red market workers can afford to expend vast resources tracking down violators. It needs to make sure that violators are caught so that the penalty for tax avoidance makes the risk unattractive. However, with taxation rates of 50%-95% or more, tax avoidance starts to be attractive, if it can be done with relatively low risk. I'm not just counting direct noticeable taxes. There are hidden taxes and regulations, which also cost money.

What's the real risk of getting caught? It's hard to say. You only hear about the people who got caught. The people who get away with it don't come forward and admit it, do they? There's no source of reliable statistics, so you can't quantify the risk.

How would you make the transition to an agorist economy? There is a problem, because people aren't going to want to give up their government-granted perks. They are going to resist change as much as they can. People are reluctant to avoid paying taxes and following government rules. However, if there's a profit to be made, people might be convinced.

The key is to develop a system that allows people to perform productive economic activity without reporting it for taxation and confiscation. The Internet is a useful tool for this, because it would allow people to share information efficiently. It wouldn't be too hard to write software that would facilitate an agorist economy.

The standard financial system is designed to frustrate attempts to perform economic activity without reporting it for confiscation. Transactions larger than $10,000 must be reported to the government. Repeated small transactions are also reportable. Besides, who wants to trade with worthless paper money? An alternate financial system would need to be developed. This way, transactions can be performed without reporting them to the government. People could still settle transactions with paper money or silver or gold, if they really wanted to. I think the Social Credit Monetary System is the best solution.

Whatever system is developed would need to be as decentralized as possible. As much as possible, information should NOT be stored on a centralized server. A centralized server represents an attack point. As much as possible, communications should be encrypted.

Actually, some information needs to be public. A database listing who trusted whom would need to be public and shared to be useful. On the other hand, maybe a trust database should be private, because it would represent a list of people for red market agents to harass. All transaction records should be private. Ideally, transaction records should be destroyed when completed, so red market agents can't confiscate them.

There would be an important check that ensures people follow the rules. Just like in the BitTorrent economy, any user who misbehaves would be banned and denied a valuable resource. New users would be admitted only if another user vouched for their trustworthiness. The distributed nature would make it hard to shut it down, even if spies did infiltrate it.

Suppose there was an effective system for facilitating productive work without reporting it for taxation. With such high confiscatory taxation rates, there would be a huge incentive for people to work under such a system. The goal would be to avoid government detection as much as possible. As more productive people started working in this grey market economy, the power of government would decrease.

If the system was sufficiently distributed, there would be low risk even if you got caught. Red market agents might find out about some of your transactions, but not all of them. You could pay back taxes and fines on some of the transactions, and still come out ahead overall.

An agorist grey-market economy would also benefit because it could avoid compliance with all government regulations. It would not need to spend productive effort on regulation compliance. Its only wasted effort would be that spent avoiding detection by red market enforcers.

Ideally, an agorist economy could offer lower prices and higher wages, compared to the white market or pink market. The ability to avoid taxation and regulation should cut expenses by 50% to 95% or more.

Some pink market practitioners have their salaries artificially raised by the red market. For example, doctors need to waste a lot of money on education and spend years training. The supply of doctors is restricted by the red market. A license is required to practice medicine. A grey market doctor would not need the licensing requirement. He would only need to spend a year or two learning what is really needed to help his patients. An agorist doctor would not earn as much as a pink market doctor, but he would save the hassle of years of medical school and a residency. An agorist doctor would not have to deal with HMOs, Medicare, and insurance companies. The free market would help people decide which doctors are good and which are no good; people will share information about their experiences. Currently, the supply of doctors is artificially restricted, so there's no mechanism for incompetent doctors to be removed from the market. The agorist doctor won't get busted for "practicing medicine without a license" if his customers don't turn him in to the red market. Besides, patients can always go to a pink market hospital if they have a problem their agorist doctor can't handle. Eventually, the agorist hospitals would be better than the pink market hospitals.

Switching to a grey market agorist economy might be necessary for survival. A hyperinflationary crash of the dollar could happen at any time. A substantial amount of untaxed economic activity would facilitate such a collapse.

It probably is not possible for a person to satisfy all their needs in the grey market. However, the larger percentage of their economic activity that they can hide, the more they will benefit. If someone operated both a white-market business and a grey-market business, that would facilitate concealing their grey-market activities. On the other hand, you might be better off not having any official business at all. The IRS frequently cracks down on small business owners; registering yourself as a business owner might just be making yourself a target.

The red market derives its power solely by leeching off the productive members of society. Without them to push around, its power would rapidly collapse.

An agorist revolution has a legitimate chance of succeeding. The agorist market participants would be profiting from their activity. They would be undermining the government and making a profit at the same time. They would profit more than white market participants, because they would be unencumbered by taxes, inflation, and regulations. In that sense, once an agorist movement gets started, it would be self-sustaining. With a leaderless organization structure, it could not be easily shut down by infiltration or force. The agorist needs tools for effective operation, plus a certain number of participants.

An agorist revolution would probably be a peaceful one. Agorist market participants can hide their activity. They would appear to be normal, productive, nonviolent citizens. Agorist market participants would tend to resolve their differences peacefully, both to avoid the attention of red market enforcers, and because non-initiation of violence is part of the philosophy. By the time the agorist economy is large enough to be noticed by red market enforcers, it would have viable systems for competing and replacing government institutions. The agorist market would step in smoothly as the government loses power. The violence would come from red market participants, trying to crack down to preserve their position. However, a large number of red market workers might simultaneously be employed by agorist protection agencies. Typically, corporations infiltrate government by subverting Congress and the President. An agorist movement would infiltrate government by subverting the low-level line workers.

An agorist revolution, once started, would be self-sustaining. The participants would be profiting from their actions.

A lot of websites I read are philosophizing and speculating. I am ready to start writing tools and start using them. I would like to be a participant in an agorist economy, if only I knew other people to trade with! My primary skill is writing software. That's the skill I'd be offering in trade. Initially, I'll just write the code I think is needed and release it into the public domain.

Summarizing, I want to do productive work, get paid for it, and not have to report it for taxation and confiscation.

Voting Libertarian is Pointless

I found an interesting article on why Libertarians are fools, referenced as a link this article in Wally Conger's blog. Essentially, he's repeating my arguments about The Voting Scam. For someone to be a libertarian and seek elected office is a contradiction, because a true libertarian thinks that all forms of government are evil.

As I said elsewhere, government is merely a group of people conspiring to confiscate my property. Until you come to the conclusion that government is a bunch of criminals, you aren't thinking properly.

That article makes another point I had not mentioned before. I do not have the right to steal from you. Therefore, via voting, I cannot empower someone else to steal from you via taxes.

No amount of voting can give legitimacy to the income tax, even if 99% of the voters approved of it. The income tax is theft, and to call the income tax as anything other than theft is dishonest.

The 9/11 Truth Movement

I was planning a post on this topic at some point. Since this is the 6th anniversary, it's appropriate for today.

I heard some people are now calling themselves "9/11 Skeptics" rather than "9/11 Truthers". Basically, it's a matter of degree. Someone who's a member of "9/11 Truth Movement" explicitly accuses the government of covering up the details of the attack. A "9/11 Skeptic" says they doubt the official story, aren't sure what actually happened, and doubt they ever will discover the full details.

Many people say that there are obvious contradictions in the official story of the attack. One thing is certain. The World Trade Center attack has been used as an excuse for a vast increase in red market power. Red market agents claim the right to intercept telephone and electronic transmissions. The red market's power to freeze bank accounts has increased. Red market agents claim the right to hold people indefinitely, without trial. The red market has greatly increased its ability to spy on Americans. For example, libraries can be forced to turn over records of what books people have checked out.

Many of these schemes were proposed long before the World Trade Center attacks. Privacy advocates were able to prevent them. In that sense, the terrorist attack was too convenient. It seems like a contrived excuse to take away people's rights and privacy.

Once government claims power, it never relinquishes it voluntarily. This invasion of privacy will last as long as the government survives.

The 9/11 truth movement has several theories.

First, there is the idea that a large office building would not collapse solely from an airplane crash. The buildings were specifically designed to withstand such an accident. Some people say that airline fuel does not burn hot enough to melt steel. They say the collapse of the buildings resembled a controlled demolition, rather than a collapse. This could be experimentally verified by building a model of the building and simulating a fire.

Second, there is the idea that government response to the hijackings were intentionally slow. In other instances, airplanes that deviated from their flight plan were intercepted by fighter jets quickly. On September 11, 2001, that did not happen. Some people say that the US air defense was intentionally ordered to stand down, or that communications were delayed on purpose.

Third, there is the idea that certain members of US spy agencies had predicted such an attack. Their advice was deliberately ignored.

Fourth, there is the idea that some US spy agencies were secretly involved in the attacks. Some people say that the CIA was developed to allow the President to declare war without the consent of Congress. The US interferes in the affairs of other countries. Some people become angry at the US. They strike back with terrorist attacks. These attacks are then used as justification to start a war.

Fifth, there is the idea that the attacks were a false flag operation. Someone else organized the attacks, and blamed al Qaeda. Some people say that it is really difficult for an amateur pilot to precisely fly an airplane into an office building. Some people say that a homing device and explosives were planted on the floor where the airplanes crashed. The homing device could have been planted and used without the knowledge of the hijackers.

Sixth, why were the bin Laden family and other Saudi diplomats allowed to leave the country immediately after the attacks? At a minimum, they should have been detained and questioned.

Finally, there is the idea that I find most interesting. Who financed al Qaeda? Remember that Osama bin Laden was a former US ally. He had received training from the US government. His tactics were part of his training for fighting the Soviet Union. The theory is that the international banking cartel secretly funded and trained al Qaeda. It was done through several intermediary banks, so it is untraceable. The attacks would be used as justification for pointless wars. The attacks would be used as justification to take away people's rights and spy on them more. The international banking cartel has been funding both sides in all major wars for hundreds of years.

In other words, the members of al Qaeda and the average US citizen actually have a common enemy. The international banking cartel is the true enemy. The international banking cartel would much rather have al Qaeda members and the US citizens focusing their efforts fighting each other, rather than them.

It is probably impossible to tell exactly what happened. Maybe it was a cleverly organized attack combined with US government incompetence. Maybe it was secretly organized by elements of the US government or elements of the international banking cartel. It's hard to tell. In either case, the encroachment of people's freedoms and privacy is wrong. Unfortunately, power is never voluntarily relinquished once it is claimed.

Reader Mail #4b - Who Needs the Government?

As I predicted, my post on "Ron Paul Forums and Paid Disinformation Agents" has been quite popular.

When someone finds my blog via Google search, Google Analytics tells me what keywords they searched for. I'm still surprised by Google search results. My blog is finally the #1 result when you search for "Compound Interest Paradox". Quite a few people are finding my blog via Google and the page Taxes on Bonds' Home Run Baseball, but according to Google Analytics, they don't stick around. Searching for "Edward Flaherty" doesn't lead you to my blog at all, and if you search for "Edward Flaherty is full of crap", my blog is at the bottom of the first results page. If you search for "Federal Reserve sucks", I'm on the second results page, which has me disappointed with my PageRank. I searched for "Discounted Cashflow Paradox" and "St. Petersburg Paradox" and didn't find my blog in the first few results pages.

Someone searched for "Vanguard brokerage sucks", and they actually stayed on my blog and read a bunch of pages; the irony is that I actually think Vanguard is a decent broker! Vanguard's commissions are high, but they give a great credit interest rate on cash and their customer service is excellent. My investment strategy is long-term-buy-and-hold, so I don't mind the commission charges that much. For "Vanguard brokerage sucks", I'm the first result on the second page; maybe this post will boost that!

I got a bunch of referrals from a "zionistwatch" blog. It was a user comment and not the main article, in reference to The Communist Manifesto's Successful Implementation in the USA. I'm getting a bunch of visits from boards.askmen.com, but the I can't find the specific post that's referring people! I couldn't find it via the search function, and Google Analytics just shows it as "viewtopic.php".

I notice that other bloggers provide keyword tags for their post. I haven't been doing that. Is that worth anything?

When I say "Who needs a government at all?", people tend to very strongly disagree with me. It's amazing how incredibly brainwashed everyone is. They think they can achieve reforms by voting, but voting is a waste of time. They think political activism might help. That's just slaves petitioning their masters to be less cruel.

When I say "The original US Constitution is not a valid starting point for a system of government.", people tend to strongly disagree and get angry. The original US Constitution was a flawed system, because it led to the current situation where everyone is enslaved via the Federal Reserve and income taxes.

There isn't going to be any meaningful reform and improvement until enough people figure out that a monopolistic government is not needed at all.

I'm pretty convinced that it's possible to construct a stable society without a monopolistic government. However, the only way to be sure is to perform an experiment. Is anyone interested in experimenting?

In Reader Mail #4a, an anonymous reader says:

I know we are enslaved.

If you know that, then what are you doing about it?

However if the system was to collapse there would be chaos and social breakdown.

You were off to such a good start. Now you're thinking like a brainwashed dumbass.

In the past, when governments have collapsed, there has been chaos and social breakdown. In the past, revolutions were started by people who wanted to declare themselves to be the new government. There was a period of chaos as two groups claimed to be the government in the same location.

For example, the situation in Iraq is chaos and social breakdown. The problem is not that Iraq has no government. The problem in Iraq is that there are multiple groups of people who want to control the new government. The problem in Iraq is not too few governments; it's too many governments! Multiple groups are competing with the goal of having a monopoly on violence and justice within Iraq. None of the competing groups have a goal of "nobody should have a monopoly of violence".

However, what happens when there's a successful revolution by people who believe there should be no government at all? As their revolt progresses, they would develop replacement systems for services formerly provided by the government. The new government would look like the organizational structure of the group that successfully revolted.

That's the goal of an "agorist revolution". People can show a profit and start a new economic system at the same time! You undermine the government, and are profiting from your activity. Under a fair economic system, you can be selfish and help others at the same time. People decry laissez-faire capitalism, but there has never been a truly free market with no government intervention at all.

Unfortunately, that is one of the false axioms you have been brainwashed with. "People need a government with a monopoly of violence and justice in order to survive. Without the government, society will completely collapse."

I have been studying this subject for many years (after experiencing life and just knowing intuitively that some people are robbers and present themselves as respectable), and am firmly on your side.

Until you come to the conclusion that government is evil and needs to be completely eliminated, I don't really see how you could claim to be on my side.

Just as a side note, you know that Catholicism prohibited Usury right?

Yes, I knew that. That's the reason many of the first bankers were jewish. The rules were relaxed once it was remembered how effective banking is at enslaving people. I even have some small articles on that subject, Croesus the Banker and The Book of the Banker.

Also Islam still prohibits it though Muslims have been largely taken over by the bankers and their agents as well.

Some European converts to Islam are claiming that Islam is government without state in its pure form, and Usury, taxation, fractional reserve banking and fiat currencies are Un-Islamic. However it is inevitable that corruption will set in, in any situation. A group will form either internally or externally in a different region of the world which will create a oligopoly of power and state and they will impose their will on a Anarchic system. I feel drawn to the works of Kevin Carson and you. my experience of work at a university in the UK (Iam just a lowly IT technician trapped in a inneficient organization which makes life mundane) is well described by Carson.

I would not equate Islam and anarchy. The above paragraph seems like incoherent nonsense, except for the part where you say you like my blog and Kevin Carson's blog.

There are "Islamic banking" techniques to over come the ban. One example is "repurchase agreements". Instead of loaning you $1M at 5% interest for a year, I agree to buy your property from you for $1M and sell it back to you for $1.05M a year later. Another example is partial sales. Instead of a 30 year mortgage, I agree to sell you a house at a rate of 1/30 per year. Unfortunately, religious people who agree to such terms wind up paying even more than they would under traditional financing methods. Perversely, "Islamic banking" is used to justify an even *greater* usury charge, because very few vendors provide the service.

I read Kevin Carson and I like his blog. I have a link to his blog in my "Favorite Links" section. When I see an interesting topic on Kevin Carson's blog, I sometimes repost it here in simpler form.

I think that is possible to have government collapse and not be replaced by a new monopolistic government. It depends on the practices and values of the people who overthrow the government. For example, in the USA, after the revolutionary war and defeating Great Britian, the leaders in the colonies formed a new government. Their values were "We don't want to pay taxes to a foreign government; we want people to pay taxes to a government that we control." They didn't want to abolish government; they wanted to replace the old government with a government they controlled.

The only way to be sure is to perform an experiment. The practices of the people organizing the revolt would have to emphasize their mistrust of government and dictatorship-organizations. The current government cannot be defeated by an organization that uses a dictatorship structure. A revolt that uses a dictatorship structure will be shut down via force or infiltration. However, leaderless resistance has a chance of succeeding. This guarantees that the new economic system will not be dominated by dictatorships like the current system.

I consider myself to be an order of magnitude ahead of Kevin Carson. He doesn't seem to fully understand the corrupt nature of the monetary system and taxation system as well as I do. Plus, Kevin Carson seems to be mostly interested in writing. I'm looking for people to trade with, to get an alternate economic system started.

On The Discounted Cashflow Paradox, an anonymous reader says:

Just wanted to let you know that you have a math error in the page about the cashflow paradox...

"This is the following game: You flip a fair coin until a tails shows up, at which point the game ends. For each head, you receive a payment of $1*2^n, where n is the number of consecutive heads already seen. For an outcome of T (p=1/2), you receive $0."

2^0 = 1 -- any number to the zero power is always 1

Unless by $0 you mean the profit made from the game under the assumption that it cost the player $1 to play.

First, this is the "St. Petersburg Math Paradox", which is actually separate from the "St. Petersburg Financial Paradox", which is what I call "The Discounted Cashflow Paradox". I've heard both paradoxes referred by the same name as if they're related, even though they're completely different.

Going back to the language in that post, the game ends as soon as you receive a T.

For the following sequences:

• T, payoff is $0
• HT, payoff is $1
• HHT, payoff is $1 + $2 = $3
• HHHT, payoff is $1 + $2 + $4 = $7
• ... and so on

You are suggesting that the payoff for "T" should be $1. I don't think that's what I wrote.

I said that the player receives a payoff for each head, and the game ends with no more payments when the player gets a tail. I think that what I wrote was logically consistent.

Of course, the payout in the case of an immediate tail doesn't really matter much. It's the small probability of a large payoff that's the interesting part.

There is a separate question: "What is the value of this game?" What is the amount you would be willing to pay if someone offered you this game? The answer depends on the bankroll of the person offering you the game. For example, if the person offering the game had a bankroll of $255, then this game would last at most 8 consecutive heads. Each round is worth $0.5, so the game would be worth $4 in that case.

If you were playing this game for real, at some point your opponent would run out of money or default on purpose.

The main point of the article is the Discounted Cashflow Financial Paradox. I only mentioned the St. Petersburg Math Paradox because other sources falsely say they are equivalent.

The St. Petersburg Math Paradox has a simple solution in the real world. Any actual opponent has a finite bankroll.

The Discounted Cashflow Paradox also has a simple solution in the real world. The money supply is diluted at a faster rate than you earn as interest, due to the massive subsidy the Federal Reserve pays to the financial industry. Real interest rates are negative. If you hold onto your dollars for long enough, invested in "safe" government bonds, they will eventually be worthless. There's a division by zero error when you run a Discounted Cashflow simulation for a sufficiently long time period.

Further, I believe the US government will collapse soon, due to an agorist-style revolution. In that case, the stock market will be worthless after the US government collapses. That makes the reality even more ridiculous. When pricing a stock, you aren't just using worthless money; you're also using worthless stock. Following that reasoning, any stock price at all can be justified.

The Book of the Banker

It's kind of surprising that the Compound Interest Paradox is not taught in schools. I don't think it's even taught in college level economics courses. I read a few economics books, and it was never mentioned in any of them.

Wouldn't it be nice if the Bible had a "Book of the Banker", where it explained the evils of fractional reserve banking and the Compound Interest Paradox.

The founders of Christianity and Islam knew that fractional reserve banking was wrong. They knew from Croesus' example centuries earlier. That's the reason strict Christianity and Islam have a ban on loaning out money at interest. Fractional reserve banking is wrong because it allows the banker to steal the wealth of the rest of society.

Actually, fractional reserve banking itself is not evil. It is the conspiracy between banks and government that is evil. Without a coercive government, fractional reserve banking is an honest business.

I read a very interesting conspiracy theory. There actually *WAS* a "Book of the Banker" or equivalent in early versions of the Bible. The text was deleted. The prohibition on banking was still present. Removing the explanation made it easy to overturn this ban.

Also, that's the reason bankers were predominantly Jewish. The rules of Judaism are 6000 years old, predating Croesus' banking adventures. There's no ban on fractional reserve banking built into Judaism.

However, it is not necessary to ban fractional reserve banking. It is government that needs to be banned.

A Good Explanation of the Housing Bubble

On George Reisman's Blog, I found an excellent explanation of the current mortgage problem. His post has essentially the same information as my post on The Subprime Mortgage Lending Scam.

From time to time, the Federal Reserve has to slash interest rates to avoid a deflationary depression. The Federal Reserve causes a massive amount of money to be poured into the financial industry. The Federal Reserve always has a credible weapon for fighting deflation, because it can always print more money. However, the Federal Reserve does not dictate where this money is actually spent.

In each money supply bubble, a different part of the economy is deluged with speculators. In 1999, it was .com Internet companies. In 2002-2004, it was mortgages and housing. I don't know what it will be next time.

When the newly printed money starts accumulating in one part of the economy, prices skyrocket. Newspapers and television tout it as being the new "hot investment area". Eventually, everyone is investing in this "hot area". At this point, the Federal Reserve is concerned about inflation and jacks up interest rates, causing a crash. The insiders start buying at the start of the bubble, and sell before the crash. You don't know how long the boom cycle or bust cycle will last, because you don't know what the Federal Reserve is going to do. The bust occurred sooner than I expected it would. It was just a few months ago that the stock market recovered to its old record highs.

The basic structure of the monetary system guarantees that price bubbles will occur. A different segment of the economy gets devastated with each boom/bust cycle. Instead of addressing the fundamental flaw in the monetary system, new government regulations are enacted to control the segment of the economy that was devastated in the boom/bust cycle.

Croesus the Banker

Croesus was the world's first large-scale banker. This was around 550 BC.

He had the first government-issued coin, with government-guaranteed metal content. Only these coins were acceptable as payment for taxes. The only way to get the coins was via a loan from the government, or when the government spent money.

Croesus had a monopoly on issuing money. He used that monopoly to build up incredible wealth. The Compound Interest Paradox made Croesus incredibly wealthy.

The people learned about the evil power of banking. That's why there's a prohibition on banking in the basic principles of Christianity and Islam. However, the actual reason for forbidding banking, the Compound Interest Paradox, was not directly mentioned. Thus, it was possible to keep people ignorant about how banking is used to hurt them.

Federal Reserve Thoughts - How to Fix the Financial System

I originally wrote this article for the Ron Paul wiki, and I broke it up into several pieces and copied it here.

http://wiki.ronpaulpresshub.com/index.php?title=Federal_Reserve

When I originally wrote this post, I thought that it might be possible to lobby the government to switch to a fair monetary system. On further reflection, the Supreme Leader of Humanity would never allow that to happen.

The only way that a fair monetary system will be established is via a total currency default. The value of a dollar must decline to absolutely zero. (Actually, Federal Reserve Notes will still be worth their paper value, and as a historic curiosity for collectors.)

Many writers have lobbied the government for a return to a fair monetary system. Their appeals have been ignored. The problem is not that a return to a fair economic system is infeasible. The people who think they're the current political and economic leaders are too greedy and stupid to allow for change. The Supreme Leader of Humanity won't allow government to return to a fair economic system. The Supreme Leader of Humanity wants the current economic and political system to collapse.

A total currency default is the only fair solution to the problems of the current economic and political system.

Ron Paul has stated that if here were elected President, he would abolish the Federal Reserve because it is unconstitutional. There are many other valid reasons for abolishing the Federal Reserve.

I wrote this article before I was convinced that a complete default on the dollar is the correct solution to the Federal Reserve's abuses. I spent the time writing this article, so I figure I might as well publish it anyway.

There have been many other proposals for returning to sound money. Any sensible plan would work. The problem is that the Supreme Leader of Humanity *WANTS* the current economic and political system to collapse. He would never allow reform to occur, except via the complete collapse of the current system.

THE FEDERAL RESERVE IS UNCONSTITUTIONAL

The Constitution grants the right to print money to the Federal government. It does not allow the government to delegate that authority to a private corporation.

This would be the justification for directly abolishing the Federal Reserve via executive order, if Ron Paul were elected president. There are many other valid reasons for abolishing the Federal Reserve.

What if Someone Objected?

Suppose that someone objected to the abolition of the Federal Reserve via executive order. Then what would happen?

The power of the executive branch has been expanded so much lately, that the President might have enough authority to do it. This has never been tried before, so it's hard to say what would happen.

If the Supreme Court ordered the President to do what the Federal Reserve says, and the President refused, there probably would be a constitutional crisis. In effect, the President could tell the Supreme Court "You have made your decision, now go ahead and enforce it."

There are other tricks that the President could use. He could order the Treasury department to stop printing Federal Reserve Notes, and print "United States Notes" instead. He could order the Treasury department to default on the Treasury bonds that are held by the Federal Reserve, while still honoring the bonds everyone else holds. He could prosecute the Federal Reserve for counterfeiting, if they attempted to continue their open market operations.

On the other hand, if the Federal Reserve had enough cash to remain solvent until after the President's term expired, it could just resume its operations after a new President is elected.

How to go About Abolishing the Federal Reserve

There are two approaches. One approach is a direct abolition via executive order. Another possibility is that, under the threat of an abolition via executive order, a banking reform bill could be passed.

If the Federal Reserve were instantly abolished, with no backup plan in place, there would be chaos in the financial markets as interest rates rose instantly to their natural level. Interest rates would jump 3-5% or more immediately. All of the money would drain out of the economy as many more loans were repaid than new loans issued.

Ron Paul has said he would abolish the Federal Reserve. He has not said what his plan would be for stabilizing the economy during a transition to market-determined interest rates. Interest rates have been kept artificially low for so long that the Federal Reserve could not be abolished without a backup plan.

Below, when I refer to the Federal Reserve, I mean "reformed Federal Reserve". If necessary, the Federal Reserve might be abolished and these activities could be performed by the Treasury department.

Many other websites are critical of the Federal Reserve, but they don't really propose a viable alternative. I think my plan would have a chance of actually gaining acceptance. Here are my criteria for an acceptable plan:

1. The Federal Reserve should not fix interest rates at a specific level. Artificially fixing interest rates at a low level is, in effect, a huge subsidy to the financial industry. Fixing interest rates at 5.25% is far worse than fixing oil prices at $10/barrel.
2. The government has the sole right to create money, either by printing it or by creating it by bookkeeping tricks. It may not outsource it to a 3rd party, even its central bank. In other words, seignorage is an exclusive privilege of the government. Seignorage would be recognized as income by the government, and used to reduce taxes paid. More precisely, fractional reserve banking should be outlawed.
   
3. Currently, banks do not earn interest on their reserves. That is an obsolete holdover from the days when reserves meant physical gold. It would make more sense to credit banks with interest on reserves and require 100% reserves. The interest a depositor receives would be the rate the bank earns on its reserves, minus the bank's operating expenses. When a bank wants to write a loan, it should be required to borrow from the government first. Only the government has the right to create money. Customer deposits would be completely segregated from loan activity, and protected in the event of a bank failure.
   
4. From the point of view of the average person, things should not change much. They should still be able to borrow and lend and do banking approximately the same way as before. There may be an increase in rates, if the market is allowed to determine rates rather than being held at an artificially low level.
5. Banking should still be a viable business. Banks should earn profits at approximately the same rate as before. With market-determined interest rates, they would probably write fewer loans. With customer deposits segregated, capital requirements could be lowered.
   
6. All outstanding debts created before the new system is in place would still be valid. If a bank has outstanding loans, it would be required to borrow from the government until it reached 100% reserves. The initial loan offer rate and spread would be low enough that banks could economically do this.
   

The only way to strip banks of their money-printing power is to require a 100% reserve system. All banks would be required to place customer deposits with the Federal Reserve or invest customer deposits in Treasury notes. The actual rate earned by customers would be the Treasury yield minus whatever the bank charges for its operations. Customer deposits would be guaranteed by the government. If necessary, during a banking crisis, the government would promise to print new money to issue to customers of a failed bank.

Banks would be able to borrow from the government at a specified rate. Banks would still be subject to net capital requirements, the same as now. Customers would be able to borrow at the government lending rate plus whatever expenses the bank wanted to charge. If the market interest rate was better than the government-guaranteed rate, then banks would borrow at that rate.

This should allow banks to still be profitable, and earn profits at approximately the same rate as now. Lower capital requirements would allow them to pay out the surplus as a dividend or invest it elsewhere.

A central bank is still useful, because it saves the government the effort of having to deal with each individual bank. The central bank would set a bid and offer rate. It would offer to lend at a certain rate, such as 5.75% and offer to take deposits at 4.75%. The government would lend to the central bank at something like 5.8% and accept deposits at 4.7%. The spread of would cover the central bank's operating expenses, but a lower margin might suffice.

The initial spread would have be very small (around 0.05%, maybe even zero) so that banks could borrow to get to 100% reserves without being adversely impacted. After that, a spread of 0.05% to 1% sounds right.

The Federal Reserve would still set the bid and offer interest rates that the government was actually paying and receiving. There would be no need to directly intervene in the Treasury market, because if Treasury rates went above the offer rate, someone would borrow at the offer rate and buy them. If Treasury rates went below the bid rate, someone would short sell them and deposit the short sale proceeds with the Federal Reserve at the bid rate.

The money the Federal government makes borrowing and lending would be counted as revenue. In the unlikely event of a shortfall (deposits far exceed loans), new money could be printed and interest rates lowered.

The Federal Reserve would still be able to adjust interest rates. However, it should not fix interest rates at an artificially low level. A better goal would be for "total deposits equal total loans". This insures that all loans could be repaid, if necessary, in contrast to the current system which guarantees a certain amount of defaults.

The Federal Reserve would be required, by law, to gradually raise interest rates when the Treasury yield rate was close to its offer rate. The Federal Reserve would be required to gradually lower interest rates when the Treasury yield rate was close to its bid rate. The Federal Reserve would be expected to stick to this policy except during special circumstances.

There would be two mechanisms available for increasing the money supply. First, lowering interest rates by loaning money as is done now. The difference is that the interest paid would be recognized by the government as revenue. Second, the extra money added to circulation could be spent directly by the government or paid as tax rebates.

There would be two mechanisms available for decreasing the money supply. First, raising the interest rates as is done now. Second, the government could curtail its spending and have a budget surplus.

There would be another mechanism available. The government could change the spread between the bid and offer interest rates.

There would be no need to artificially expand and contract the money supply. With non-debt-based money, the supply of money should be relatively constant.

Government bonds play an important role in the financial markets, because they represent a theoretically perfect credit rating. The supply of government debt should be allowed to be big enough to satisfy this demand. I probably would even issue 50 year and 100 year bonds.

If the Federal Reserve announced it was going to stop fixing short-term interest rates, then long-term interest rates would immediately skyrocket. That is why, as the new system is being phased in, it would be necessary to offer loans at longer time periods. This would prevent long-term interest rates from moving too quickly. For example, if the Federal Reserve published an offer rate of 5.25% for a 30 year loan, anybody currently holding a Treasury bond could sell it without incurring too large of a loss. Anyone holding a long-term corporate bond could hedge their risk of interest rates changing by short-selling a Treasury bond. This would limit their loss as the new system is instituted. Otherwise, it wouldn't be fair to holders of long-term bonds.

Currently, the Federal Reserve only fixes short-term interest rates. In addition to publishing a bid and offer for the overnight rate, the Federal Reserve should publish a bid and offer for 1, 2, 5, 10, and 30 year loans. I would make these other loans have terms that correspond to Treasury bonds, so there would be a secondary market for these loans. In fact, this whole system can be combined with the current Treasury system. Actually, it would only be necessary to fix the short-term and 30 year rate; the market would automatically fill in all periods inbetween with reasonable values. Quoting an interest rate for every period would make it easier for people to understand.

As the new system is phased in, I would only allow interest rates to change at a rate of 25 basis points every 3-12 months. After a balance is found, the maximum interest rate change in one month should be something like 25 basis points. The Federal Reserve's goal should be to have the observed market Treasury yield be at the midpoint of its published bid and offer rate. Another way to look at it is that the money deposited at the bid rate, plus outstanding Treasury bonds, should equal the money loaned out at the offer rate. Otherwise, the Federal Reserve would be required by law to raise or lower its interest rates. The Federal Reserve would only be allowed to deviate during special circumstances.

This entire system could be made to overlap with the existing Treasury bond system. If someone wanted to deposit money with the government at the bid interest rate, the government would create a new treasury bond and take the deposit. This would only be necessary if the bid interest rate was higher than the market treasury rate. If someone wanted to borrow at the offer interest rate, they would be able pay a small fee (say 0.05% to 0.50%) and short sell a new Treasury bond. This new Treasury bond would be backed by the government and not by whoever short sold the bond. This would ensure a liquid secondary market for the debt and deposits. (Short selling Treasury bonds by borrowing them probably should be illegal, because that would effectively be fractional reserve banking. Anyone who wants to short sell Treasury bonds would have to do it through the government's procedure.) If the market interest rate for Treasury bonds was lower than the government's offer interest rate, then someone short selling a bond could short sell it at the market price instead of the government's price. However, they still would have to "borrow" the bond they are shorting from the government.

When a new Treasury auction is conducted, the government would accept both offers to buy AND offers to sell. If there were more offers to sell than to buy at the target interest rate, the government would print new money and become a creditor to make up the shortfall. Similarly, if there were too many offers to buy, the government would go into debt. Initially, there would be far more offers to sell than to buy, because interest rates are artificially low right now and they are going to be allowed to slowly rise to a fair market price. Eventually, most Treasury auctions would end with the buy orders and sell orders balancing. Borrowers would be charged a fee of 0.05% to 1.00%, with the spread realized as revenue by the government.

Notice this means that both the market interest rate AND the size of the national debt would be determined by the market. It would only differ when the Federal Reserve is interfering in the Treasury market due to a sudden big shift in interest rates. Initially, the government would be acting to keep interest rates artificially low, so there's a smooth transition to a market-determined interest rate.

The national debt really is a bookkeeping fiction. If fractional reserve banking were abolished, it wouldn't really matter if the government pays down the debt by printing new money, or goes into a bigger debt if there is a huge demand for Treasury bonds and bank loans.

Also notice that in this scheme, the interest payments made by banks who loan money from the government are realized by the Federal Government as revenue. The Compound Interest Paradox is solved. If the market completely balances, the demand for government-backed debt equals the demand for loans. In that case, the government would make no net interest income and all the money in circulation would be recycled.

I would prefer for interest rates to be set at a level that balances the money supply, where total deposits equal total loans. This is the same thing as the market-determined interest rate. Such an adjustment would have to be gradually made, to avoid a shock when introducing the new system. That adjustment should occur naturally as the government directly spends its seignorage profit as revenue.

There currently is a huge accumulated money supply deficit. The current supply of money is far less than the outstanding debt demand. As interest rates rise to the fair market level, there is a risk that all the money will drain out of the economy as fewer new loans are issued. The government will need to carefully monitor things to ensure an adequate money supply during the transition to market-determined interest rates. If necessary, the government could increase spending, purchase private debt, or offer tax rebates.

It Probably is Necessary to Abolish Fractional Reserve Banking

With the abolition of the Federal Reserve, it probably is necessary to outlaw fractional reserve banking.

One of the superficial reasons for the formation of the Federal Reserve was to protect customer deposits and protect the banking industry. However, there are other ways to support the financial industry. A massive government subsidy should not be needed.

The only acceptable means for handling customer deposits would be to invest them in Treasury notes. Customers would receive the interest paid on the Treasury notes, minus the bank's expenses. Currently, banks receive zero interest on their reserves. A better system would be to allow banks to earn interest on reserves, require 100% reserves, and segregating deposits from loans.

The idea that reserves earn no interest is obsolete. It was meaningful when reserves were physical gold.

Under a gold standard, fractional reserve banking is needed to expand the money supply so that the supply of gold or paper promises for gold matches that required for trade. Fractional reserve banking, without government coercion, is an honest business. Under a fiat monetary system, fractional reserve banks are not needed. The power of issuing money under a fiat money system properly belongs to the government.

When a bank wants to issue a loan, instead of printing the money itself by using fractional reserve banking, it would have to borrow the money from the federal government, at a rate equal to the treasury yield plus a certain amount (say 0.50%). Maybe allowing banks to borrow at the Treasury yield plus a small fee would be better. The spread between the Treasury bond yield and the rate at which the government lends money would be recognized as seignorage income by the federal government. Currently, this money goes directly to the financial industry.

My reform proposal allows banks to borrow from the federal government for various time periods, and not just at the overnight rate. For example, a bank could borrow for 5 years, paying a little more than the 5 year bond yield rate. This would allow banks that issue mortgages to hedge the anticipated cashflow; they would borrow for a time period that represented the anticipated repayment rate of the mortgage. This way, banks could protect themselves from changes in short-term interest rates, by borrowing for a longer time period and locking in a rate. Banks are exposed to risk, because they borrow short term and lend long term. That's less of a risk now, because banks typically sell a mortgage immediately after issuing the loan.

It would be important to make sure that the financial industry was still profitable. However, due to the huge government subsidy they receive now, I doubt they would be as profitable if the Federal Reserve were abolished.

One way to help the financial industry in the new system would be to decrease their capital requirements, allowing them to use more leverage. The surplus capital could then be invested or paid out as a dividend. With customer deposits segregated from loan activity, customer balances would be protected in the event of a bank failure. In the event of bankruptcy, customers would retain priority over the Treasury bonds that represent their deposits. A bank would be forbidden from selling or loaning out the Treasuries that represent customer deposits.

Fractional reserve banking should be treated as counterfeiting.

I doubt this could get passed, but a constitutional amendment banning fractional reserve banking wouldn't be such a bad idea. Thomas Jefferson was quoted saying that was the constitutional provision he most regretted not including.

After writing this, I now think that government itself is what needs to be banned. Under a pure gold standard, fractional reserve banking provides a legitimate service, expanding the money supply so that it matches the size of the economy. The problem is that government regulation of banking, plus demands that taxes be paid in gold, drives interest rates above the free market level, allowing the Compound Interest Paradox to start operating. In a truly free market, a fractional reserve bank's expenses equals its interest income, and there is no paradox.

Paper Money Could Automatically Inflation Adjust

If banks are allowed to earn interest on their reserves, then maybe paper money should also earn interest. For example, a $20 bill would say, "This bill is worth $20 plus 3% more per year since issued". This rate would be based on the market interest rate at the time the bill was issued into circulation. Something like 0.5% to 1% less than the market treasury rate would be good; this way people would still be able to get a better return in a bank. Having inflation-adjusted paper money would cause everyone to redeem their Federal Reserve Notes for the new money. Each bill would have a maximum lifetime of 5-10 years, after which it would no longer earn interest; this insures that the money gets recycled and updated with the now-current interest rate.

To keep things simple, maybe it would be better to just say "This bill is worth $20 plus $0.05 per month since issued". This would make it easy for the average person to do the calculation.

The Financial Industry Will Object

The financial industry will most likely object to a floating interest rate regime. Currently, they are the beneficiaries of a huge subsidy paid by everyone else in the form of inflation. Steps might need to be taken to insure that financial companies are still profitable in a floating interest rate system. On the other hand, they all will be facing the same increased economic pressure. However, they will probably have a limited ability to pass the costs onto customers. With debt priced fairly, many businesses will try to finance with equity rather than debt, and it would make equal sense to buy a house with cash as with a mortgage. Right now, it makes sense to take a mortgage when buying a house not because of the income tax benefit, but because of the interest rate subsidy.

There probably will be substantial price changes as a new system is implemented. For example, rising mortage rates to a fair market level would drive down housing prices. Not every side effect could be anticipated. Stock prices would fall, due to more expensive credit. People who bought stock on margin would suffer, and highly leveraged companies would suffer. On the other hand, new money printed and issued directly into circulation would increase prices. If a suitable balance is kept, prices might be relatively stable as the new system is instituted.

Maybe Greed and Corruption Can Be Used Beneficially Here

People who knew about the abolition of the Federal Reserve and the new system in advance of its inception would profit immensely. Maybe we can get those people to back Ron Paul's campaign?

Maybe it's Hopeless

These reforms are so simple that I can't believe they haven't been implemented already. "Austrian School Economics" has proposed ideas that are similar to what I suggested. I suspect that the people who control the Federal Reserve and the government are not interested in true reform. Perhaps the correct thing to do is to abandon the standard financial system and set up a better system, such as the Social Credit system.

I spent a lot of time writing this draft, so I decided to publish it. On further reflection, government itself is the problem. The only solution is for people to start monetary reform on their own. People need to develop their own private monetary system and contract enforcement system, and not report their work to the government for taxation and confiscation.

Jerry Lewis and the Strawman Fallacy

I find that current-events related articles tend to be the most popular.

There was an interesting incident this weekend. Allegedly, Jerry Lewis made a negative comment towards homosexuals. People are making a big stink.

This is an example of The Strawman Fallacy. People don't say "He had a great career for many years and made one mistake." One small incident is overhyped.

Personally, I think it's appropriate for an apology and then forget about it and move on. There's no reason to make such a big deal.

The purpose of incidents like this are subconscious reinforcement of the Strawman Fallacy. A celebrity must be remembered for the stupidest thing they ever did, rather than their achievements over their whole career.

Reader Mail #4a - This is Really Complicated

Apparently, the flaws in the financial system are *EXTREMELY* well hidden. I thought I gave a fully detailed example and analysis. Perhaps people have a hard time realizing that they've been totally betrayed by the people who think they control the government.

Anyway, this question seems to be sincere, so I'll answer it again. I think my previous post Reader Mail #4 fully answered this question. This is sufficiently complicated that I'm making it a separate post. When I make a new post, I have better editing options available than in the comment window.

If you're going to post a question, could you at least post it in the appropriate place?

In "Taxes on Bonds' Home Run Baseball", an anonymous reader asks:

Hi

I still do not understand your quote pasted below. When the banks return the interest and profit they make to shareholders and as expenses...this is still 'money' which remains in the banking system or is used for consumption and/or investment by bank staff and shareholders right?

Also the Central Bank and all other banks when they make profits from their operations...am I right in thinking that the 'profits' are not real (as in existing, I admit I do not really know what I mean here) money, it is simply a account entry on a computer ledger (this year we have made this much extra), and again this just creates more entries in the stockholders bank accounts....giving them the power to wield their abstract and non existent wealth to 'buy' up resources and consume/invest?

Also I have read elsewhere that banks destroy the money once it is repaid as debt....does this mean they destroy the record that it exists, only keeping a record of the profits made from the debt?

Why does the government get money returned to it by the fed? If it is a Private entity, it is not in its interest to give money to the government, why does it not just keep it 'as profit'.

Thanks

"At this step, you can already see the Compound Interest Paradox. The Federal Reserve created $1 million and loaned it out at 8% interest. However, the Federal Reserve never created the $80,000 required to make the interest payments. Later, when the Federal Reserve receives its $80,000 interest payment, it pays it out to the government or for its own expenses. This is the mistake that Flaherty and Griffin make. The Federal Reserve, when it does collect the $80,000 interest, pays it out as expenses and profits. There is a permanent $80,000 money supply shortfall. Even though the Federal Reserve and the bank will pay out their profits, the Compound Interest Paradox still exists. The books of the Federal Reserve and the bank will balance, but the books of "society as a whole" do not balance."

Come on, can't you at least post your questions in the proper thread? This properly belongs in "Reader Mail #4 - The Compound Interest Paradox is Real". I think I already answered all these questions before. I think you should go back and reread "Reader Mail #4" and all my other posts on the Federal Reserve and the Compound Interest Paradox.

This question seems to be sincere, so I'll answer it anyway, even though I'm repeating myself. I'll answer one point at a time.

When the banks return the interest and profit they make to shareholders and as expenses...this is still 'money' which remains in the banking system or is used for consumption and/or investment by bank staff and shareholders right?

There are two separate cases: loans by a commercial bank and loans by the Federal Reserve.

When the Federal Reserve creates money via monetizing the debt, this is where the Compound Interest Paradox operates with the full force of law.

When a commercial bank issues a fractional reserve loan from existing customer deposits, all interest and profits are paid out to shareholders and as expenses. In this case, the money in circulation balances. Banks can raise prices above the "free market" rate, because they have an oligopoly and act as a cartel. Except for that, the Compound Interest Paradox does not operate in this case.

Large commercial banks have a oligopoly market position. Banks can borrow from the Federal Reserve at 5.25%. As an individual, if I want to take out a mortgage, I'm going to be charged 6-7%. Banks collect this spread, borrowing from the Federal Reserve and loaning at a higher interest rate. This spread is unearned profit for the bank. This is called "Illicit Interest Arbitrage". The banks sometimes take a loss when they make a bad loan, but overall, borrowing at the Fed Funds rate and loaning to customers is very lucrative. Further, in times when there are lots of bad loans due to a business cycle bust, large banks receive a bailout in the form of a Federal Reserve interest rate cut.

Government regulation of banking allows banks to raise prices. This means they get to confiscate the wealth of the rest of society at a rate equal to the spread between the Fed Funds rate and the rate they actually charge on loans. This is in addition to the effect of the Compound Interest Paradox from the Federal Reserve's operations.

The is an artificially high demand for bank-issued Federal Reserve Points. Society as a whole is in a massive debt hole, and people need to keep borrowing just to repay their existing loans. Even if I personally have no debt, that doesn't matter, because everyone around me has a crushing debt burden. Even if I want to boycott the Federal Reserve, legally I have no choice. Income taxes must be paid in Federal Reserve Points, and government violence enforces income taxes.

Government violence artificially raises the prices banks can charge. Government violence helps increase the spread between the Fed Funds rate and the rate banks can actually charge for loans. This interest rate spread is unearned profit for banks, allowing them to steal the wealth of the rest of society at a rate of a few percent per year.

Look at it this way: If I want to take out a mortgage, why can't I borrow directly from the Federal Reserve at the Fed Funds rate of 5.25%? Why do I have to borrow from a bank at 6-7%? What work is the bank doing to earn its profit of 0.75%-1.75%? Superficially, you could say they're doing a credit check on me. However, in the case when many debtors default, the bank will receive a bailout in the form of an interest rate cut. The cost of the interest rate cut is increased inflation, which is spread out over everyone else holding dollars.

When the Federal Reserve creates new money via monetizing the debt, here the Compound Interest Paradox has the full force of law. I work out another example for you below.

Also the Central Bank and all other banks when they make profits from their operations...am I right in thinking that the 'profits' are not real (as in existing, I admit I do not really know what I mean here) money, it is simply a account entry on a computer ledger (this year we have made this much extra), and again this just creates more entries in the stockholders bank accounts....giving them the power to wield their abstract and non existent wealth to 'buy' up resources and consume/invest?

Bank profits are real. The Federal Reserve Points they confiscate are then used to buy real goods and services. Did you notice that banks always have the nicest buildings and the best real estate? That's part of the wealth they're confiscating. Federal Reserve Points are just a number on a piece of paper or a number in a computer terminal.

One correction: Don't call Federal Reserve Points money. You are insulting money when you call Federal Reserve Notes money. Honest money is a legitimate tool that stimulates trade. Dishonest money is used as a wealth confiscation tool.

Don't confuse money and wealth. Money is a medium used for trade. Wealth is actual goods and services. Even with a gold standard, you can't eat a gold coin.

There are some restrictions on banks' activities. If banks were allowed to print all the money they wanted, they would just buy up the rest of the economy all at once and it'd be obvious. By calibrating interest rates and taxation rates, the Federal Reserve controls the rate at which the financial industry confiscates the wealth of the rest of society.

Banks can borrow at a rate of 5.25%. The true "free market" interest rate is 8-10% or more. Even at a subsidized rate of 5.25%, only so many loans can be justified. People are restricted by the amount of collateral they have. In addition to reserve requirements, banks also have net capital requirements. Debt and the money supply keep expanding, but at a controlled rate.

Also I have read elsewhere that banks destroy the money once it is repaid as debt....does this mean they destroy the record that it exists, only keeping a record of the profits made from the debt?

Yes, money is destroyed as loans are repaid. Under normal circumstances, new money is continually created as new loans are issued. Money is continually being created and destroyed. There is no permanent money supply.

That's the reason the Federal Reserve can reduce the money supply by raising interest rates. When interest rates are raised, fewer new loans are issued. Old loans must still be repaid at the same rate. In other words, money is being destroyed at the same rate, but the rate of creation of new money is decreased. Under the Federal Reserve debt-based monetary system, boom/bust cycles are scientifically created. Even though the Federal Reserve says it is trying to smooth out boom/bust cycles, that is impossible. Boom/bust cycles are built into the basic rules of the monetary system.

It's almost like the "particle/antiparticle" pairs you read about in quantum mechanics. Think of money as a particle and debt as an antiparticle. They are always created in matching pairs. However, there is interest, which means the antiparticles multiply themselves while the particles do not. The only reason any money exists at all is that new loans are continually issued.

Let's look at an example. A bank starts out with $1M in deposits. It issues $0.9M in loans, and suppose that money is deposited at another bank. The people who have $1M in deposits act as if they actually have $1M; they can even write checks against it. The people who have $0.9M in loans act as if they also have money. The bank has created $0.9M in new money.

Ignore the effect of interest for now. Suppose the loan of $0.9M is repaid. Now, there is $1M in deposits again, but no loans. The bank will immediately issue a new loan of $0.9M. Banks always try to stay "loaned up" to the maximum amount allowed by law. A bank with a shortage of reserves will borrow reserves from other banks. A bank with surplus reserves will lend them to other banks. The rate that large banks charge each other for reserves is the "Fed Funds rate". Banks can only move reserves around and issue new money up to the 10x reserve ratio. Only the Federal Reserve has the power to create new reserves via its open market operations. When the Federal Reserve repurchases debt and creates new money, there are more reserves. This drives down the Fed Funds rate to its target level.

Records are always kept. Banks are heavily audited. Even though Federal Reserve Points are just a number on a piece of paper, auditors still make sure that the numbers add up!

Suppose there was a computer error and a bank was accidentally credited with an extra $1B. What would happen? Everyone else would experience a little more inflation. If the error went undetected, or was done on purpose, extra money would have been created.

Why does the government get money returned to it by the fed? If it is a Private entity, it is not in its interest to give money to the government, why does it not just keep it 'as profit'.

The Federal Reserve makes a guaranteed riskless profit from its open market operations. As part of the rules of its creation, the Federal Reserve is supposed to return its extra profits to the government. The Federal Reserve keeps some Treasury notes in its inventory, as a contingency reserve. If there was a sudden money supply expansion, the Federal Reserve would need to sell bonds to soak up the extra money, which would cause it to temporarily lose money. However, the Compound Interest Paradox guarantees that, almost all the time, the Federal Reserve is purchasing debt to increase the money supply.

The Federal Reserve enslaves everyone under a crushing debt burden and shows a profit at the same time. That's the whole point of the "monetizing the debt" scam.

The Federal Reserve, quite literally, prints its own money. It is not subject to budget constraints like the government. Sometimes, it comes under criticism for hiring too many staff or building itself a nice new building, even while the government is under a budget crunch.

The Federal Reserve has never been fully audited, so it's impossible to tell what its true profits are. The point of the Federal Reserve is not its profits. The point is to enslave everyone under a crushing debt burden via the Compound Interest Paradox. The point is a massive subsidy to the financial industry and large corporations via subsidized negative real interest rates.

Now, I give another example, simpler than the one I give in Reader Mail #4.

Here, there will be only 1 citizen, the Federal Reserve, and the government.

At the start, no money is in circulation. In this example, the citizen is allowed to borrow directly from the Federal Reserve at the Fed Funds rate of 5%.

The citizen borrows $1M from the Federal Reserve at 5% interest.

Government: $0
Federal Reserve: -$1 million, money it created
$1 million debt, owed by citizen (earning 5%)
Citizen: $1 million debt (charged 5%)
$1 million cash

A year later, let's add in the interest.

Government: $0
Federal Reserve: -$1 million, money it created
$1.05 million debt, owed by citizen
Citizen: $1.05 million debt
$1 million cash

Already, you can see the Compound Interest Paradox. The Federal Reserve should have paid a credit of $0.05 million to the government when it created the money. In that case, the government could have paid the $0.05 million as its own expenses and the money supply would balance.

The citizen repays the $1 million.

Government: $0
Federal Reserve: $0.05 million debt, owed by citizen
Citizen: $0.05 million unpayable debt

The Federal Reserve says "We'll loan you another $1M so you can repay your debt."

Government: $0
Federal Reserve: -$1 million, money it created
$0.05 million, owed by citizen, in default
$1.0 million, owed by citizen, new debt
Citzen: $1.05 million debt
$1 million cash

The citizen now pays the extra $0.05 million he still owes.

Government: $0
Federal Reserve: -$1 million, money it created
$0.05 million, paid by citizen
$1 million, owed by citizen
Citizen: $1.05 million debt
$0.95 million cash

The Federal Reserve now has a profit of $0.05 million. The Federal Reserve has a bookkeeping surplus of $0.05 million, which it can spend or turn over to the Federal government.

The Federal Reserve's books balance. The citizen is in a deeper and deeper debt hole.

The citizen can't say "This is a stupid game; I'm not playing anymore." The government only recognizes Federal Reserve Points as valid money. The government demands that taxes be paid in Federal Reserve Points, although I didn't include taxes in this example. Government violence forces people to use Federal Reserve Points, even though they're intrinsically worthless.

The Compound Interest Paradox is a structural flaw in the monetary system, put there on purpose to enslave everyone under a crushing debt burden. Legally, there is no escape.

The Compound Interest Paradox is pretty complicated. The original authors of the Federal Reserve Act knew what they were doing. A few Congressmen were smart enough to figure out the scam and complain. They were killed, blackmailed, discredited, or silenced. Nowadays, it's easy to make sure that very few people smart enough to understand the Federal Reserve are elected to Congress. For example, Ron Paul was allowed to be elected to Congress, but as a single Representative he has no real power.

The mainstream media doesn't complain about the Federal Reserve and the Compound Interest Paradox. They are controlled by the international banking cartel insiders, who purchased all the newspapers and TV stations to cover up their misdeeds. University economics professors can't write papers on the evils of the Federal Reserve and the Compound Interest Paradox, because they are dependent on government subsidies/grants.

Many people have tried to explain the flaws in the monetary system and taxation system to the people who think they're the political and economic leaders. They had their chance to fix the current economic system, and neglected their responsibility. The only fair solution is a complete collapse of the current economic system. Hopefully, the collapse can be organized in an orderly fashion.

Let me know if you still have questions. Your questions were kind of unclear.

Another reader says, in response to Anarcho-Capitalism, Agorism, and Fasco-Capitalism:

A society without government would not be stable. You are clueless when you suggest the possibility of a stable society without a government that has a monopoly on violence and justice. Multiple competing police forces would degenerate into all-out chaos.

People are intrinsically evil. Government is needed to keep them in line.

My primary response to this is: "You are obviously such a brainwashed dumbass."

There are historic examples of societies that were stable with multiple competing police forces in the same location. Eventually, they were invaded and compulsory taxation was instituted. This led to their rapid collapse.

It's kind of depressing to think that people are intrinsically evil, isn't it? If that's the case, maybe people should wipe themselves out and let a more intelligent species evolve?

Some research has been done on this subject. About 2-5% of the people are incorrigible psychopaths. They will be evil as possible, provided they think they can get away with it. Also, about 2-5% of people will try to be not evil as much as possible, even when they are punished for being not evil. The vast majority of people will follow the example set by society as a whole. Under the current system, where evil is rewarded and not evil is punished, the vast majority of people will be evil. Under a fair economic and political system, the vast majority of people will be not evil.

Under the current system, the 2-5% incorrigible psychopaths are the people in positions of influence. With a monopolistic government, once it's mostly infiltrated by incorrigible psychopaths, the incorrigible psychopaths wind up in complete control. Even a government filled with mostly honest people can be corrupted, because a few psychopaths in the right places can do incredible amounts of damage. Currently, the government is almost entirely composed of incorrigible psychopaths.

Government is run by people. If you believe that people are inherently evil, then government must be evil because it is composed of people. The problem with government is that it allows the most evil people to use force to impose their will on everyone else.

You can't say "People are inherently evil." and also believe that people in government magically get to be not evil. The opposite is what actually happens. The most evil people get attracted to the government, because government allows them to steal most efficiently. Most competent people get frustrated working for the government, because their abilities are so obviously wasted.

That is the primary purposes of Christianity. It trains people to believe the axiom "People are intrinsically evil." This is used as justification for big government, to keep the evil people in check. Christianity is about a monotheistic all-powerful god. That is the same as the idea of a monolithic all-powerful government. Christianity was promoted at the same time that all-powerful governments were promoted. Christianity was designed to be a slave religion.

I'm pretty sure that a society without a centralized monopolistic government would be stable. I'm interested in performing an experiment. It's a very dangerous experiment, because the people who think they control the existing governments will try to crush the threat to their monopoly.

Ron Paul Forums and Paid Disinformation Agents

My post on The Ron Paul Discussion Forum Schism has been surprisingly popular. I'm always surprised by the popularity of my posts. The posts I expect to be popular are hardly read at all. My most popular posts are completely unexpected ones. For example, my post on The Voting Scam has been my most popular post, by a wide margin, even though I thought I was just stating the obvious. My post on Anarcho-Capitalism, Agorism, and Fasco-Capitalism is one of my favorite posts, but it's hardly been read at all.

My readers have declared their preferences. Technically, my Google Analytics stats have indicated their preferences. If people are interested in articles about Ron Paul, then I should write about his campaign more. This issue has me particularly offended. I'm writing about sabotage and Ron Paul Internet discussion forums.

It is well-known that the government plants spies in citizen activist groups. For example, in Fahrenheit 9/11, there was a story of a policeman who had been planted as a spy in a pacifist group. The people who think they control the government desire to control every activist group, even nonviolent ones.

Following the same reasoning, the government also plants spies in Internet discussion forums. Planting a spy in an Internet discussion is far easier than planting a spy in person. One person can even assume multiple identities. If spreading disinformation is your full-time job, then it's very easy, especially when your "opponents" are writing in their spare time. Another advantage of professional Internet sabotage is that several people can operate the same identity, building that identity's reputation.

As soon as a discussion forum grows beyond a certain size, it's a tempting target for disinformation agents. Political discussion groups are particularly desirable targets. The Chinese government has the wrong idea. Why ban online discussion forums, when you can infiltrate them with spies! I guess the Chinese government isn't as skilled at such sabotage as the USA; perhaps they are concerned that US-supported disinformation agents would outperform them.

Ron Paul Internet discussion forums are necessarily a high priority target for infiltration and subversion.

Wikipedia is infested with paid disinformation agents. It is so bad that I now have a personal Wikipedia boycott. I still use it to look up information, but if I see an error I refuse to correct it. I refuse to link to Wikipedia. I have a separate post planned for the evils of Wikipedia, but I'll give an outline here. As the Wikiscanner project showed, corporations edit Wikipedia for the purpose of censorship and disinformation. However, that's only the tip of the iceberg. If you log onto Wikipedia as a registered user, your IP address is hidden and your anonymity is protected. This enables professional disinformation agents to work multiple identities without suspicion. The Wikiscanner project only caught the truly clueless paid disinformation agents.

Wikipedia's rules were determined by a "democratic" vote. The average Wikipedia visitor is not even aware of such a thing. The average Wikipedia visitor assumes that the site rules are well-designed, and did not bother to vote. The professional disinformation agents were loud advocates in the development of Wikipedia's rules. This ensured that Wikipedia's rules would encourage the spread of disinformation. For example, the "reliable sources" policy means that ideas censored by mainstream news sources cannot be mentioned at all! The "no original research" policy means that new ideas cannot be mentioned at all. The average person, who finds themself in an edit war, gives up and moves on. The Strawman Fallacy and The Stubborn Clueless Fool Fallacy are built into Wikipedia's site rules!

At this point, I consider Wikipedia to be useful only for non-controversial topics. Wikipedia's site rules guarantee that the bias of controversial topics will always be in favor of the mainstream media viewpoint. For example, the Compound Interest Paradox has been completely censored by mainstream information sources. The Compound Interest Paradox would never meet Wikipedia's content standards.

Wikipedia users have "automatic spam removal" bots that are also used as "automatic censorship bots". Non-approved content is immediately and automatically edited back out.

It is not surprising that the Ron Paul Internet discussion forums are also under attack by paid disinformation agents. There are trolls planted specifically for the purpose of disrupting discussion. There are four controversial topics heavily-discussed on Ron Paul Internet forums. The Supreme Leader of Humanity's agents are trying to prevent a rational discussion of these topics. These topics are:

1. The 9/11 Truth Movement
2. The Evils of the Federal Reserve
3. The Evils of the Income Tax
4. The Evils of Excessive Government Regulations

The bad guys do *NOT* want to see these topics openly discussed and debated.

It's hard to be 100% sure. Some of these people may be genuinely clueless. It's too well coordinated to be an accident. I think it's deliberate sabotage.

I'm explicitly calling out user "cjhowe" from the Ron Paul Discussion Forum as being a paid disinformation agent. Two separate users on the Ron Paul Forum, redpillguy and Mike Mitrosky, have complained to me about him. You can search for all posts by cjhowe and decide for yourself.

A common tactic for paid disinformation agents is to identify people with a clue (i.e., people like me) and cyberstalk them. Whenever I post something about the Federal Reserve, cjhowe can use the "show all posts by user" feature to make sure he sees my posts and disrupts the discussion. On Wikipedia, I once had someone automatically following my edits and reverting them out.

Consider cjhowe's posts in this thread on the Federal Reserve, this thread denouncing Federal Reserve conspiracy theories, and this thread on the Federal Reserve. This is a perfect example of someone using The Stubborn Clueless Fool Fallacy to disrupt discussion. These tactics confuse people who don't fully understand this issues.

It seems incredible to me that someone who claims to support Ron Paul's campaign would be such an aggressive defender of the Federal Reserve, the IRS, and big government. Ron Paul has explicitly and clearly stated that he wants to abolish the Federal Reserve and the IRS. It is extremely likely that cjhowe is a paid disinformation agent. I suspect he has other identities on that forum that he uses as sockpuppets. With multiple identities, you can appear to be several people spreading disinformation. I am not 100% convinced that cjhowe is a paid disinformation agent, but it's a serious enough possibility to be worth mentioning. He may sincerely be a stubborn clueless fool.

The proper solution is for someone to write a new type of online discussion forum engine. The problem with most engines is that the "moderation score" of a post is a globally assigned value. For example, on Digg, every post has a single global rating. If my preferences don't match the aggregate preferences of Digg users as a whole, then I won't like the content presented on Digg. For example, a lot of people were aggressively Digg-ing articles on Ron Paul. A lot of people got tired of seeing so many Ron Paul articles and automatically bury Ron Paul articles now. The problem is that Digg assigns a single global rating to each article. The Ron Paul junkies should still see every Ron Paul article when they visit Digg. People who have decided they are no longer interested should be able to filter out those users' Diggs, and filter for Diggs of users they like. If my preferences match those of 10 or 50 other users, then what I see should emphasize what they have chosen to Digg or bury.

Wikipedia has the same problem. Its "page editing" feature and "page moderation" feature are mixed together. Ideally, they should be divorced. There should be a moderation system, page branching system, and multiple versions of each page. Users would see the version of the page most tailored to their personal interests.

I don't have the spare time to write such an engine right now. If someone else is interested, I would help them. A properly written forum/wiki/Digg engine would prevent professional trolls from disrupting the site. People would only see content posted by people whose interests match theirs. People could manually specify which other users they respect and disrespect, or the engine could perform matching for them.

I consider the main point of this post to be a warning about paid disinformation agents in general. However, putting it into the specific context of Ron Paul Internet discussion forums should offend people more directly.

Paid disinformation agents are a really serious problem. Paid disinformation agents are everywhere. Paid disinformation agents are on TV, in newspapers, on Wikipedia, on Digg, or on an Internet discussion forum. I am deeply offended to see paid disinformation agents on Ron Paul Internet discussion forums. I have enough experience with them to know them when I see them; other people with less experience are easily rattled by The Stubborn Clueless Fool Fallacy. Hopefully, I have helped educate other people about the serious problem of paid disinformation agents.

The Stubborn Clueless Fool Fallacy

I noticed another common logical fallacy. "Some clueless fool is disagreeing with me and debating me loudly. What should I do? I can't convince him; therefore my argument must be wrong!" By now, I have enough confidence in my reasoning ability to not be distracted by clueless fools. I need to think of a good name for this logical fallacy. How about "The Stubborn Clueless Fool Fallacy"?

The Stubborn Clueless Fool Fallacy is a serious problem. I'm convinced that the government frequently plants spies in citizen activist groups. The Stubborn Clueless Fool Fallacy enables these government-planted spies to do considerable damage. By being loud and unconvinceable advocates for a specific viewpoint, they are able to reign in those with different viewpoints. The Stubborn Clueless Fool Fallacy, combined with The Strawman Fallacy, prevents marginal ideas from being discussed.

I've heard reports of school board meetings and town hall meetings where a certain issue is being debated. A few people loudly acting out The Stubborn Clueless Fool Fallacy can effectively silence all opposition.

It is well known that the government plants spies in citizen activist groups. It isn't too hard to also plant spies in online discussion forums. In fact, it's very easy to do that on the Internet, because one person can pretend to be hundreds of people. Now, when I see someone acting like a Stubborn Clueless Fool, I always consider two possibilities. First, the person might be a spy planted to quash debate. Second, the person might truly be a stubborn clueless fool. It's impossible to be sure, but the possibility of sabotage is worth considering. In most instances, the person probably really is clueless rather than being a spy. In either case, once I've identified that someone is a Stubborn Clueless Fool, I'm not interested in wasting time on him.

It doesn't need to be a government spy. For example, drug company PR reps infiltrate online discussion forums dedicated to drugs. It is already well-known that corporations edit their own Wikipedia articles. However, even that investigation was incomplete. If you are logged into Wikipedia as a registered user, your IP is hidden from everyone except site admins. The Wikiscanner program only catches anonymous edits by unregistered users. If you log into Wikipedia as a registered user, your IP address is hidden and your anonymity is protected. If the PR representatives for a corporation are smart enough to log in as registered users, then their anonymity is protected. Futher, some PR representatives, though diligent effort, can get themselves promoted to site admins.

Of course, many people are sufficiently brainwashed that they'll play the part of stubborn clueless fool without further prodding. Stubborn clueless fools on TV are incredibly effective. It is only necessary to place of few stubborn clueless fools in select locations to prevent logical debate. Stubborn clueless fools tend to be the loudest advocates of The Strawman Fallacy.

Many people think that acting like a stubborn clueless fool is a desirable characteristic. It's bad to learn something. Some people say that science is the only area where people openly admit mistakes. People learn to act like a stubborn clueless fool based on the example they see on TV and by politicians. A politician who changes his viewpoint and admits he learned something is called a "flip-flopper".

Whenever you encounter a stubborn clueless fool, you need to make sure they don't shatter your self-confidence. When I see I stubborn clueless fool, I always consider the possibility that he is someone deliberately planted to spread misinformation and prevent debate.

Of course, you could take the contrary position and say that I am now a stubborn clueless fool, advocating for the idea that all governments are evil and need to be eliminated. On the other hand, I think I have enough logical reasons for my viewpoints. I feel completely and totally betrayed by the current economic and political system. The defects in the monetary system, taxation system, voting system, and government regulations are painfully obvious. Legally, I have no recourse under the current economic and political system. At this point, it's painfully obvious to me that the people who disagree are thoroughly brainwashed. How could someone who understands the Compound Interest Paradox say that the Federal Reserve is not evil? Unfortunately, it won't be possible to eliminate the Federal Reserve without also eliminating the US government. The people who think they control the US government are too stupid to see what's going to happen. They had their chances to fix the current economic and political system, and failed. The only fair solution is to start over with a new economic and political system.

If you disagree with me, why are you wasting time reading this?

Reader Mail #4 - The Compound Interest Paradox is Real

It's always interesting to see my Google Analytics stats. When someone finds my blog via Google search, I see what keywords they are searching. For example, searching for "federal reserve sucks", my blog is the #6 result and I've gained two visitors that way. I've had 16 searches for ' "compound interest paradox" ', with none of them new visits; presumably, someone who knows the phrase "compound interest paradox" has already read my blog.

Google Analytics has some meaningless stats. I haven't figured out what "Bounce Rate" is good for. It's when someone comes to your blog, visits one page, and then leaves. That can be good or bad. Someone who checks my blog regularly would visit one page and then leave. Someone who visited and didn't like what they saw would read one page and leave. I'm not sure if "new visits %" means anything. A low "new visits %" means I'm getting returning visitors, which is good. However, a low "new visits %" means I'm not attracting many new visitors, which is bad.

I'm still at around 50-70 Absolute Unique Visitors per week. That's enough that I don't feel like I'm wasting my time. On the other hand, I think I need to be around 1000 to 10,000 Absolute Unique Visitors to start really making a difference.

I'm really popular in California, with 3 times as many visits as any other state. I've had visits from almost every state. The only states with no inhabitants that have a clue are: Alaska, Wyoming, Montana, South Dakota, Mississippi, West Virginia, Vermont, and Maine. (It's odd that nobody from Wyoming has read my blog; that's one of the states for the "free state project".) I've had visits from 41 countries. I think that Blogger is blocked from China; I've had zero visits from China.

Also, if you read my blog via the RSS feed, make sure you visit the blog itself sometimes. I have some links and other stuff that's only visible directly on the blog page. I also repost the best reader questions in separate posts. Otherwise, many people won't see the comments. People who read my blog via the RSS feed, or don't revisit the page after the comment is published, would miss the comments.

Sometimes I see interesting questions or topics on other discussion forums and I copy the question and my response here. I try to post in other forums to gain readers, but I don't want to compose a response and then have it wasted.

One reader asks:

What's the deal with the IMF? How do they figure into things?

The IMF and WTO were created after WWII. They are responsible for the economic enslavement of third world countries. There was an agreement that the US gets to pick the WTO president and Europe gets to pick the IMF president.

The WTO and IMF make loans to third world countries for "economic development". In practice, the money winds up in the pockets of the leaders of the third world countries.Then, under a crushing debt burden, the third world countries are forced to enact policies that favor economic imperialism. These "economic development" loans get the Compound Interest Paradox started in the third world countries.

The most noteworthy example is Argentina's economic crisis a few years ago, which was entirely caused by the WTO/IMF. Every country that has received WTO or IMF aid has been ruined.

For example, as condition for membership in the WTO/IMF, third world countries are *FORBIDDEN* to have a gold or silver standard. Third world countries are required to use fiat debt-based money.

Redpillguy says:

You may want to discuss this in your blog:

Debunking the Federal Reserve Conspiracy Theories, by Edward Flaherty

That article looks like complete nonsense to me.

I address most of these points in "Federal Reserve Thoughts - Answers to Media Myths".

I found a response by the author of "The Creature from Jekyll Island". However, this response has a mistake, because Edward Griffin doesn't understand the Compound Interest Paradox. I give more details in my next response below.

There's another point to be made about the author of that post, Edward Flaherty. He has a PhD in economics and works for a university. In other words, he is dependent on government subsidies (i.e. grants). It is almost impossible for a university economics professor to write articles critical of the Federal Reserve, because then he would not receive any government research grants and would lose his job. The author of the article mentioned by redpillguy is biased, and the article is poorly written. I don't think it's worth my time to write a point-by-point rebuttal of Flaherty's article, because it's redundant with my other posts. However, I'll do it if someone asks.

Redpillguy asks:

Apparently there's a book by Dr. Jacques Jaikaran, "The Debt Virus". The "Debt Virus" is another term for the Compound Interest Paradox.

Flaherty attacks the concept by saying
-----------
"Hypothesis: All money is created only when someone takes out a loan. Therefore, there can never be enough of this debt-money in circulation to repay all principal and interest. This imbalance causes inflation, financial crises, social maladies, and will eventually destroy the economy unless there is a massive injection of "debt-free" money. This idea is from Dr. Jacques Jaikaran's book, The Debt Virus.

Facts: The hypothesis shows an incomplete view of how the banking system interacts with the economy. The system necessarily creates an amount of "debt-free" money equal to the interest on its loans. It does this whenever it pays operating expenses, dividends, or purchases assets. As a result, there is more than enough money in circulation to retire all bank-related debt."
----------

Griffin's response is:

"I object to being lumped together with other analysts on this issue. I did not write The Debt Virus, I wrote The Creature from Jekyll Island. On page 191, I explained why I consider the claim that there is not enough money to pay off interest to be a myth."

Do you have any comments on this?

It appears that neither Griffin nor Flaherty understand the US monetary system. I have not read "The Debt Virus". The Compound Interest Paradox is real. It's a fundamental structural flaw in the monetary system, put there on purpose to enslave people under a crushing debt burden. If you look at any graph of "money supply" and "total debt" over time, the Compound Interest Paradox is obvious.

The fallacy of both Griffin and Flaherty is that they only look at the balance sheet of banks. If you also construct a balance sheet for the "rest of society", then it's obvious. The "rest of society" is stuck in a permanent money supply shortfall, because they don't have the power to create money. The only way the "rest of society" can get money is by taking out a loan. The loan repayments always exceed the amount of the loan. This is the "Compound Interest Paradox".

Consider an example of a single loan. I borrow $1 million for one year at 5% interest. In a year, I have to repay $1.05 million. Where does the extra $50,000 come from? That extra $50,000 was never created or put into circulation. If my loan was the only loan in existence, I would obviously be unable to repay it, because I could never get the extra $50,000. You can't add minuses to get a plus. Each loan puts the "rest of society" in a deeper and deeper hole. No matter how many loans you add together by different individuals, the Compound Interest Paradox is still there.

Consider another example. All outstanding loans were taken by the same person. Is there any way that person could repay his debts? No, because there isn't enough money in circulation for him to repay the loan. If one person took out $1 trillion in debt at 5% interest for a year, he would have to repay $1.05 trillion in a year. There would be a $50 billion shortfall that he would be unable to make up. In the actual economy, the loans are spread out over millions of people. Out of statistical necessity, the weakest debtors are forced into bankruptcy. Currently, the weakest debtors are individuals owing subprime mortgages.

That's one of the rules of Mathematics. In order to understand something, construct an example. Whenever you construct an example of the debt-based monetary system in action, you see the fundamental structural flaw and the Compound Interest Paradox is obvious. The fallacy of Griffin and Flaherty is that they only look at the bank's balance sheet, in isolation. From their point of view, everything is fine. If you construct a "rest of society" balance sheet, then the Compound Interest Paradox is obvious.

Later in this post, I will make a more detailed example.

The process by which money is created is incredibly complicated. There are several mechanisms by which money can be created.

1. Deficit spending by the Federal Government, when the bond is purchased by the Federal Reserve.
2. Deficit spending by the Federal Government, when the bond is purchased by a private bank or individual.
3. Fractional reserve banking, where the loan is made from customer deposits.
4. Fractional reserve banking, where the loan is made from reserves borrowed or created by the Federal Reserve.
5. The Federal Reserve's open market operations.

Of these, only (5) is where new money is truly created. This is where the Compound Interest Paradox occurs with the full force of law. All money that is created has debt-strings attached. (1) and (4) are a variation of (5), Federal Reserve open market operations.

Banks can create new money via fractional reserve banking, but they are restricted by law to a 10x reserve ratio. Banks want to maximize their profitability, so they always stay "loaned up" to the maximum amount allowed by law. The power to create new reserves lies solely with the Federal Reserve.

First, consider deficit spending by the Federal Government, when the bond is purchased by the Federal Reserve. For example, the Federal Government issues a $1 billion bond for 1 year at 5% interest, purchased by the Federal Reserve. Only $1 billion is put into circulation, but that bond must be repaid with $1.05 billion in a year. There is a money supply deficit of $50 million.

Here is the mistake that Flaherty is making. After receiving the $50 million in interest payments, the Federal Reserve uses it for its own expenses or turns that money over to the Federal government. However, the "rest of society" still has a money supply shortfall of $50 million. The Federal Reserve's books balance, but the "rest of society"'s books do not balance.

A fairer monetary system would not have the Compound Interest Paradox. Whenever the Federal Reserve creates money via debt, the government should simultaneously receive a credit equal to the required interest payments. Of course, the Supreme Leader of Humanity will never allow this reform to be passed. The whole point of the monetary system is to enslave everyone under a crushing debt burden!

However, the Federal Reserve normally does not directly purchase Federal Government debt. The debt is first issued to private banks or individuals. The Federal Reserve purchases debt that is nearly expired, or makes short-term purchases via repurchase agreements. Item (1) does not occur in practice. However, about 7-10% of Federal Government debt is owned by the Federal Reserve at any given time. With a 10x reserve ratio, the Federal Reserve creates 10% of the money necessary to purchase government debt. Fractional reserve banks can then create the remaining 90% of the money necessary to purchase the rest of the government debt.

As I mention in my discussion of (5), the Federal Reserve spends its surplus interest income for its own expenses, or returns it to the Federal government. The Federal Reserve's books balance, but the Compound Interest Paradox still enslaves the rest of society.

Second, consider deficit spending by the Federal Government, when the bond is purchased by an individual or a bank. In this case, there is no Compound Interest Paradox. Suppose I had $1 billion cash. I buy a 1 year Treasury bond at 5% interest. The government spends the $1 billion. In a year, I am repaid $1.05 billion cash, which I can now spend. There is no Compound Interest Paradox in this case.

However, most government debt is purchased by large banks. The Federal Reserve creates, via its open market operations, around 10% of the cash required to purchase government debt; fractional reserve banking creates the remaining 90%. The money created by the Federal Reserve always has debt-strings attached and the Compound Interest Paradox applies.

Further, if I actually had $1 billion, I would be a fool to invest it in Treasury bonds. The 5% interest I receive is insufficient compensation for inflation, especially after income taxes. Why would I be willing to lend my dollars at 5% when M2 is growing by more than 6%? The reason is that the Federal Reserve repurchases government debt to keep prices up and interest rates down. The average person is fooled into thinking that the "free market price" for government debt is a good deal. They don't realize that the "free market price" for government debt is artificially raised because the Federal Reserve repurchases government debt to keep prices high and interest rates low.

Why are large banks willing to purchase government debt? When a large bank purchases government bonds, it is allowed to use a leverage ratio of 100x or more. If the average Fed Funds rate over the next year is expected to be only 4.75%, then large banks can make a riskless profit by borrowing at the Fed Funds rate and buying government debt priced at 5%, because 0.25% times 100 is 25%, a good return. When a large bank purchases government debt, it borrows from the Federal Reserve via its open market operations. The Federal Reserve's open market operations do involve the Compound Interest Paradox.

That's the reason you normally have an upward-sloping interest rate curve. Longer term Treasury bonds are riskier, and banks are required to use more conservative leverage ratios when buying longer term Treasury bonds.

Third, consider fractional reserve banking where the loan is made from customer deposits. For example, suppose a bank credits customers with 4% interest on deposits. The bank issues a loan at 6%. The bank's expenses plus profits equal 2%. If you only look at the balance sheet of a single bank, you don't see the Compound Interest Paradox. However, the Federal Reserve injects reserves into the banking system via its open market operations. That is where the Compound Interest Paradox occurs.

When a person borrows money from a fractional reserve bank, they immediately deposit it back into a bank. This bank then loans out the money again, issuing fractional reserve loans up to the reserve ratio.

The banking industry is heavily regulated. This inflates the prices banks can charge. In other words, this inflates interest rates charged. Suppose I had several million dollars and wanted to get in on the banking scam. It would not be worth my effort to start a new bank. I could get better returns by buying shares in an existing bank. Regulation of banking is a barrier for me to enter the banking industry. For example, right now, the large banks are colluding and refusing to purchase mortgages and mortgage bonds. That hurts all small banks who attempt to sell mortgages.

Regulation of the banking industry raises prices. In my above example, the bank offers depositors 4% and issues loans at 6%. However, the bank's expenses plus reasonable profits are only 1.5%. Government regulation of banking allows an excessive profit of 0.5%. This is another instance the Compound Interest Paradox. The banking industry gets to confiscate the wealth of the rest of society at a rate of 0.5% per year (or whatever their rate of excessive profits). This is in addition to the wealth confiscation caused by the Compound Interest Paradox when the Federal Reserve creates money.

Fourth, suppose a bank issues a loan via borrowed reserves. A bank's ability to issue loans is not constrained by the amount of reserves it has. If a bank has a surplus of reserves, it can loan them to other banks. If a bank has a shortage of reserves, it borrows them from other banks. The interest rate that large banks charge each other for reserves is the Fed Funds rate. Over time, the Fed Funds rate naturally rises, due to the Compound Interest Paradox. The Federal Reserve, via its open market operations, creates new reserves. Banks can loan reserves to each other, but only the Federal Reserve has the power to create new reserves. By creating new reserves, the Federal Reserve lowers the Fed Funds rate to its target level, currently 5.25%.

Finally, money is created via the Federal Reserve's open market operations. Here, the Compound Interest Paradox operates with the full force of law. For example, the Federal Reserve purchases Treasury Notes with a $1 billion face amount a few days before maturity. These Treasury Notes have a market value of $999 million. The Federal Reserve purchases them for $999 million, creating $999 million in reserves, and there's a debit of $999 million in its own account. A few days later, these Treasury Notes are redeemed with the government for $1 billion. There is a money supply shortfall of $1 million. The Federal Reserve will have a credit of $1 million cash in its account, which is spent by the Federal Reserve or returned to the government. However, that $1 million required to pay the interest was never created or put into circulation; it is only created by future additional loans.

It is only at this step, where the Federal Reserve creates new bank reserves, that the Compound Interest Paradox occurs with the full force of law. When the bank makes a fractional reserve loan with customer deposits, it pays out all its interest income as expenses or profits.

If you only look at the balance sheet of the Federal Reserve and large banks, you don't see the Compound Interest Paradox. You need to construct a "rest of society" balance sheet to see the Paradox.

Instead of issuing loans to banks, the Federal Reserve could outright give them money. The effect would be equivalent. However, then the books would not balance and the massive subsidy to the financial industry would be obvious to everyone.

The Compound Interest Paradox operates in two locations. First, the Compound Interest Paradox enslaves the "rest of society" under a crushing debt burden. Every time the Federal Reserve creates new reserves by purchasing government debt, the aggregate indebtedness of society increases. This guarantees that everyone is enslaved under a crushing debt burden.

Second, the Compound Interest Paradox operates in the profits of large international banks. Regulation of banking lets them charge interest rates above the "free market" level, allowing them to confiscate wealth at a rate equal to the spread between "free market" interest rates and the interest rates they can actually charge. Income taxes create an artificially high demand for large banks' products. Income taxes must be paid in dollars, and dollars can only be obtained from a bank. People must keep borrowing more money, just to repay the loans they've already taken.

A Detailed Example

Let's look at a detailed example of the debt-based money system in action.

To simplify things, I will only have the Federal Reserve, one bank, and 10 citizens.

The Federal Reserve sets interest rates at 8% initially. The bank, who has a monopoly, decides to charge 10% for loans. In reality, there are multiple banks that act as a cartel, and the effect is the same. The bank can borrow from the Federal Reserve at 8%, so it offers depositors 7% interest. The bank will never offer depositors a higher interest rate than the Fed Funds rate.

Let's ignore the effect of the bank's operating expenses and profits for now; this example is complicated enough as-is.

Each citizen owns property worth $1 million. This may be his current actual property, or he may be pledging his future earnings. Since there is no money in circulation at the start of the simulation, it's kind of silly to say "their property is worth $1 million". That's the value the bank assigns to the property, which is good as any other number in a debt based fiat monetary system.

At the start, there is no money in circulation.

The balance sheet is:
Federal Reserve: $0
Bank: $0
10 Citizens: $0 and $1 million in property

Each citizen borrows $1 million, pledging his $1 million property as collateral.
The bank borrows $1 million from the Federal Reserve at 8% interest.
The reserve ratio is 10x, so this $1 million borrowed from the Federal Reserve is used to create $10 million in actual money. Each citizen immediately deposits his money back in the bank.

The balance sheet is:
Federal Reserve: -$1 million (money it created)
$1 million (owed by bank)
Bank: $10 million in deposits (owing 7% interest)
$1 million owed to Federal Reserve (owing 8% interest)
$10 million in loans (earning 10% interest)
$1 million in cash
10 Citizens: $1 million in their bank account
$1 million in debt
$1 million property

Let's add in the interest now.

The balance sheet is:
Federal Reserve: -$1 million (money it created)
$1.08 million (owed by bank)
Bank: $10.7 million in deposits (owing 7% interest)
$1.08 million owed to Federal Reserve (owing 8% interest)
$11 million in loans (earning 10% interest)
$1 million in cash
10 Citizens: $1.07 million in their bank account
$1.1 million in debt
$1 million property

At this step, you can already see the Compound Interest Paradox. The Federal Reserve created $1 million and loaned it out at 8% interest. However, the Federal Reserve never created the $80,000 required to make the interest payments. Later, when the Federal Reserve receives its $80,000 interest payment, it pays it out to the government or for its own expenses. This is the mistake that Flaherty and Griffin make. The Federal Reserve, when it does collect the $80,000 interest, pays it out as expenses and profits. There is a permanent $80,000 money supply shortfall. Even though the Federal Reserve and the bank will pay out their profits, the Compound Interest Paradox still exists. The books of the Federal Reserve and the bank will balance, but the books of "society as a whole" do not balance.

It is only at this step, where the Federal Reserve creates new bank reserves, that the Compound Interest Paradox occurs with the full force of law. When the bank makes a fractional reserve loan with customer deposits, it pays out all its interest income as expenses or profits.

The citizens trade with each other. Nine of them are the most skilled workers, and they have $1.1 million, enough to repay their loans. The last citizen is left with only $0.8 million and he declares bankruptcy.

9 Citizens: $1.1 million in their bank account
$1.1 million in debt
$1 million property
each repays his loan, left with $0

1 Citizen: $0.8 million in his bank account
$1.1 million in debt
$1 million property
declares bankruptcy

The bank collects the $1.1 million from each of the 9 solvent debtors. The bank seizes $0.8 million from the 1 bankrupt citizen and seizes his $1 million property.

The balance sheet is:
Federal Reserve: -$1 million (money it created)
$1.08 million (owed by bank)
Bank: $1 million in cash
$1 million in property (confiscated from one citizen)
9 Citizens: $0 in their bank account
$0 debt
$1 million property
1 Citizen: $0.3 million unpayable debt
His $1 million property is in foreclosure by the bank.

The bank says "Let's auction off the $1 million property to pay this $0.3 million debt." Any bids? No! Nobody has any money right now except for the bank. We're in the bust phase of the business cycle. The bank writes off the $0.3 million unpaid debt and takes possession of the $1 million property, planning to sell it later.

Now the bank has to repay its loan to the Federal Reserve. The bank only has $1 million in cash, but it owes the Federal Reserve $1.08 million! This is a serious crisis.

The balance sheet is:
Federal Reserve: $0.08 million (owed by bank)
Bank: $0 cash
$0.08 million (owed to Federal Reserve)
$1 million in property (confiscated from one citizen)
9 Citizens: $0 in their bank account
$0 debt
$1 million property
1 Citizen: $0.3 million unpayable debt
His $1 million property is in foreclosure by the bank.
This citizen has a bad credit rating and can no longer borrow.
1 new citizen: $1 million property, representing the work of the other 10 citizens in the past year.

Look at the above balance sheet snapshot. All outstanding loans have been repaid, but there's still a $0.08 million debt that the bank owes the Federal Reserve that cannot be repaid. This is a demonstration of the Compound Interest Paradox in action.

However, this bank is the only bank. It is "too big to fail". The Federal Reserve doesn't demand immediate payment of the remaining $0.08 million. The Federal Reserve cuts interest rates to 3%. The bank lowers the interest rates it charges to 5%. The bank now offers 2% on deposits.

Besides, the bank isn't insolvent yet. It still owns a property valued at $1 million. That's another loophole in the financial system. The current market price of the property is $0, but it was valued at $1 million a year ago. Banks are allowed to value their assets as the purchase price or current market value, WHICHEVER IS GREATER. The bank is allowed to carry the property on its books at a value of $1 million, because that was the value when it issued the loan. The bank is not always required to mark to market. In this case, if the bank did a "mark to market", it would be insolvent and the economic system will have collapsed; that is never allowed to happen.

To keep the total number of citizens at 10, suppose that one of the 9 citizens had a child and he inherited $1 million of property. This represents the wealth created by those 10 workers in a year.

Interest rates have been slashed from 10% to 5%. The citizens say "Interest rates are half as much now; we can borrow twice as much!" Each citizen borrows $2 million at 5% interest for a year. The bank borrows $2 million from the Federal Reserve at 3%.

The balance sheet is:
Federal Reserve: $0.08 million. (owed by bank from before, now charged 3% interest)
-$2 million (money it just created)
$2 million. (owed by bank, newly issued loan, charged 3% interest)
Bank: $2 million cash
$20 million in loans, earning 5%
$20 million in deposits, earning 2%
$1 million in property (confiscated from one citizen)
10 Citizens: $2 million in their bank account
$2 million in debt
$1 million property
[citizen count includes one new citizen]

The bank says: "Let's auction off the $1 million property now!" The money supply is twice as big as it was before, so the property is sold for $2 million even though it was worth $1 million before, and worth $0 at the bottom of the recession.

The balance sheet is:
Federal Reserve: $0.08 million. (owed by bank from before, now charged 3% interest)
-$2 million (money it just created)
$2 million. (owed by bank, newly issued loan, charged 3% interest)
Bank: $2 million cash (just borrowed from Federal Reserve)
$2 million cash (sale of confiscated property)
$2 million (owed to Federal Reserve, just borrowed)
$0.08 million (owed to Federal Reserve, old balance)
$20 million in loans, earning 5%
$20 million in deposits, earning 2%
9 Citizens: $2 million in their bank account
$2 million in debt
$2 million property [formerly valued at $1 million]
1 Citizen: $0 million in his bank account
$2 million in debt
$4 million property [formerly valued at $2 million, includes property confiscated and sold]

The bank now pays back its $0.08 million loan to the Federal Reserve, which the Federal Reserve spends on its own expenses and turns over the rest to the Federal Government. The bank has $1.92 million in profit, which it retains for further investment or pays out to its owners.

In other words, almost 10% of the wealth of society, in one year, has been transferred to the banks. This is the 10% interest rate the bank was charging on its loans, which is no surprise.

There was an aggregate money supply deficit of 10% on the part of the "rest of society". They lost 10% of their wealth to the banking cartel. This money is paid out to the banks' owners, so their books balance. In the meantime, the rest of society still is in a debt hole. There has been a huge transfer of wealth from the "rest of society" to the banks.

The bank's operating expenses are probably much less than $1.92 million, so there's a huge unearned profit for the banks. You can correct this example to adjust for the bank's operating expenses. You can adjust the extremity of the boom/bust cycles. The principle is the same.

Also notice that the Federal Reserve showed a profit of $0.08 million, which it turned over to the Federal Government. This is negligible compared to the $1.92 million profit earned by the bank.

Also notice that the person who lost his $1 million property wasn't stupid or lazy. He was the least efficient worker. There was a fundamental structural flaw in the monetary system. It was guaranteed that at least one person would be unable to pay his debts. The media will say "That person lost his property because he was stupid or lazy." They will never say "There's a fundamental structural flaw in the monetary system."

The actual reality is even worse than the example I gave above. For example, suppose Federal income tax rates are 25%. In that case, as people trade, 25% of the money supply is drained and goes to the government. This makes it even harder for people to pay back their debts.

The income tax is a fundamental part of this scam. The people can't get together and say "We're going to trade with silver; forget about the Federal Reserve and banks." The government demands that people pay income taxes whenever they work, and income taxes must be paid in Federal Reserve Notes. It is impossible to obey the law and live a morally just life. I can't work, trade with Federal Reserve Notes, and pay income taxes without supporting the Federal Reserve and other things I find objectionable. The current economic and political system is one of absolute perfect enslavement. That isn't an accident. It was designed that way on purpose by the Supreme Leader of Humanity.

Also notice that, by adjusting interest rates, the Federal Reserve can adjust the rate at which the Compound Interest Paradox enslaves the rest of society. The Federal Reserve can adjust the rate at which the financial industry confiscates the wealth of everyone else. By calibrating the wealth confiscation rate, the Federal Reserve ensures that the average person has enough wealth that they don't revolt, but not so much spare time that they can figure out what's going on.

The above example is a simplification of what actually happens. However, even that simplified example was very long. It illustrates the Compound Interest Paradox exactly as it occurs in the real world. You can adjust that example to correct for all the variables I omitted: the Federal Government, Treasury Bonds, Federal deficit spending, Federal Reserve "monetizing the debt", bank expenses and profits paid to shareholders, new wealth created by workers, the Federal Reserve raising/lowering interest rates, boom/bust cycles, and expansion/contraction of the money supply. If you want an example with all of those factors, and you understand my example, you should be able to create it.

Summarizing, to understand the Compound Interest Paradox, you can't just look at the balance sheet of banks and the Federal Reserve. From the point of view of an individual bank, its books balance and you don't see the Compound Interest Paradox. You also need to look at the balance sheet of the "rest of society" (i.e., everyone who isn't a bank).

Redpillguy asks again:

Flaherty's assertion below sounds like a load of crap. He says "The system necessarily creates an amount of "debt-free" money equal to the interest on its loans. It does this whenever it pays operating expenses, dividends, or purchases assets". That implies that the banks create interest-free money with no debt attached when they pay expenses, dividends, or purchase assets, equal to or greater than the interest owed on loans. This doesn't sound like it could be true at all.

----
Myth #11: The Antidote to the Debt Virus

Hypothesis: All money is created only when someone takes out a loan. Therefore, there can never be enough of this debt-money in circulation to repay all principal and interest. This imbalance causes inflation, financial crises, social maladies, and will eventually destroy the economy unless there is a massive injection of "debt-free" money. This idea is from Dr. Jacques Jaikaran's book, The Debt Virus.

Facts: The hypothesis shows an incomplete view of how the banking system interacts with the economy. The system necessarily creates an amount of "debt-free" money equal to the interest on its loans. It does this whenever it pays operating expenses, dividends, or purchases assets. As a result, there is more than enough money in circulation to retire all bank-related debt.

I agree that Flaherty is full of crap. Why are we still discussing his flawed arguments?

I think I correctly answered Flaherty's argument above. If you only look at the balance sheet of a bank, everything balances. You can't see the Compound Interest Paradox by looking at the balance sheet of a single bank.

To see the Compound Interest Paradox, you have to work through an example where "the rest of society" has a balance sheet. "The rest of society" is everyone who isn't a bank. If you work through an example and look at "the rest of society"'s cashflow, you'll see the Compound Interest Paradox.

The government does not collect or publish a balance sheet for "the rest of society". It's practically impossible to collect such information.

Look at the example I gave above. It doesn't fully model the economy. It illustrates the point.

Let me know if you still don't understand the Compound Interest Paradox after reading my detailed example.

On the Ron Paul Forums, someone asked:

Why can't the Fed just keep raising interest rates to get rid of inlfation? Why not have them slowly raise interest rates to the point where no one will borrow from them anymore?

If the Federal Reserve jacked up interest rates, there would be hyperdeflation and another Great Depression.

In a hyperdeflation scenario, the large banks who support the Federal Reserve would start failing.

On the Ron Paul Forums in that same thread, someone asked:

Why would there be hyperdeflation? There wasn't hyperdeflation before the Fed. Banks would simply start lending cash from other customers deposits. I should have specified in my original question that the Fed would also forgive debt owed to it, so it wouldn't lower the money supply via repayment to the Fed.

Before the Federal Reserve, there was credit-based money based on a gold standard. It's hard to have hyperdeflation under a gold standard, because the money supply can't be reduced below the amount of physical gold.

Even before the Federal Reserve was created, most gold was under the control of banks. Anybody who wanted gold had to borrow it from a bank. The Compound Interest Paradox still operated at that time, but it didn't have the full force of law yet.

There's another "flaw" with a gold standard. Under a gold standard, you can't have negative real interest rates. With fiat money, the Federal Reserve can expand M2 at a rate of 6% or more, while keeping interest rates at only 5.25%. A gold standard is a check against inflation.

Under a gold standard, a person can take possession of their physical gold. Under a gold standard, if a person is concerned that the government will devalue its currency and default, a person can defend themselves by hoarding gold. That is the reason President Roosevelt demanded people turn over their gold, and the media at the time decried gold hoarders as criminals.

When the Federal Reserve was created, the USA shifted from sound credit-based money to debt-based money. Debt-based money has an intrinsic structural flaw, which I call "The Compound Interest Paradox".

After the Federal Reserve was created, there was hyperdeflation during the Great Depression. In the 1920s, the Federal Reserve slashed interest rates, causing a huge expansion in the money supply and in the amount of debt. In 1929, the Federal Reserve jacked up interest rates. This shrank the money supply, because people stopped taking out loans. More loans were repaid than new loans issued.

With debt-based money, the Federal Reserve can shrink the money supply by raising interest rates. During the Great Depression, many banks who weren't Federal Reserve cartel insiders started failing, because they didn't know interest rates were going to be raised. At the bottom of the Great Depression, the banks who supported the Federal Reserve received a massive bailout in the form of interest rate cuts and a default on the gold standard.

The Federal Reserve never forgives debt owed to it. Instead, it issues new money directly to banks in the form of interest rate cuts. Under the Federal Reserve, large international banks are not allowed to fail. The bailout of large banks is paid by everyone else as inflation. That's what's happening right now with subprime mortgage lending.

On the Ron Paul forum, someone asked:

Whether it be the Federal Reserve, Federal Income Tax, Distrust of Government, Corruption, etc, why is it that some people have to turn these cockroaches into 50 foot monsters from outer space?

We deal with cockroaches every day. Americans are fully capable of dealing with the problems as they exist. We don't need to scare people and make the world of hyperbole seem like the world in which we exist.

Every issue that has a conspiracy tied into it takes a problem that needs a solution in and of it self and makes it into something much larger than it really is. Is propaganda the only way to get someone interested in an issue? Or can we present the problem to people in truthful terms and let them know the impact that has on their lives?

The problem with the Federal Reserve, Income Tax, and Government is that they're inescapable. If I don't like cockroaches, I can kill them, hire an exterminator, or move.

If I don't like the Federal Reserve, I have no other options. I can't use a competing monetary system, because I still have to pay income taxes in Federal Reserve Notes.

If I don't like the income tax, I have no other options. Every time I work, I have to turn over 40-50% of what I produce to the Federal government. The income tax makes me a government slave. The very act of working supports government and the bad guys.

If I don't like the government, I have no other choices. Other countries are as bad as the USA or worse. If I think the government's police are being abusive, I can't hire my own private police force to protect me from them. If I think the government's courts are unfair, I can't go to a competing court.

Government is bad because it has a legally unbreakable monopoly.

If I think that Wal-Mart is being unreasonable, I can shop at another store. If I think the government is being unreasonable, I am stuck.

The defects in the current economic and political system aren't an accident. They were put there on purpose by the Supreme Leader of Humanity.

On the Ron Paul forum, in that same thread, someone said:

But, in a representative government, WE'RE the exterminator. We can get rid of the cockroaches if we're tired of living with them. WE put the cockroaches in our house and WE put out milk and cookies for them every night.

No. Voting is just a sham. Voting gives people the illusion they have power and influence. With a corrupt media, educational system, and voting system, it is impossible to achieve meaningful reforms by voting.

The good news about Ron Paul's campaign is that around 1-5% of the people are becoming aware of the major structural flaws in the economic and political system. There is going to be reform and improvement, but it isn't going to be achieved by voting.

On the Ron Paul forum, in that same thread, someone said:

You just have to love how much easier it is to call corruption out than to be the person in the classroom teaching, the creator of content, or at the voting booth ensuring the security of the process.

Calling out corruption is the first step of the process. I do have a recommended solution, but it doesn't involve government. I'm looking to move on to the next step, building a solution, but I need people to trade with.

I am a creator of content. I have my own blog. I am teaching that way. I figured out that the path to academic freedom does not lie in a government-funded university or in a school.

It's pointless to teach in a classroom, because schools are designed to enslave people and turn them into obedient workers. Voting is pointless, because the choices offered are meaningless. In a truly fair election, one of the choices on the ballot is "Should there be a government?"

In a classroom, I only can teach 30 people at a time, and must follow a curriculum chosen by someone else. I don't have the opportunity to select the students most ready to hear the truth, nor the time to teach what I think is needed.

I feel that the above poster is being unreasonable and it isn't worth my effort trying to enlighten him anymore. I figured that it was worthwhile writing a response since I'm posting it here.

Also on the Ron Paul Forum:

What caused the Great Depression?

The Great Depression was 100% caused by the Federal Reserve.

The Federal Reserve slashed interest rates in the mid 1920s, causing a vast expansion in the money supply. This encouraged everyone to load up on debt and mortgage their property to the hilt. The insiders who control the Federal Reserve knew that interest rates were going to be jacked up in 1929. They stopped issuing loans and sold their stock shares a few months before the crash. The bankers cleaned up by issuing loans and stock during the economic boom, and then buying assets cheap after the crash. The bankers issued loans to themselves to buy up property cheap at the bottom of the Depression. When Roosevelt confiscated the gold in 1933, defaulted on the dollar, and devalued the dollar, all those loans could be repaid in devalued dollars. The international banking cartel cleaned up on each leg of the boom, bust, and default on the dollar.

The Great Depression caused banks to confiscate a lot of property that previously belonged to farmers and small business owners. The US was turned from a nation of farmers and small business owners into a nation of wage slaves and welfare recipients. The welfare state was created to compensate for the damage caused by the Federal Reserve.

Only the banks that were insiders to the international banking cartel made a huge profit. All the small independent banks were wiped out.

The mainstream idea that the Great Depression was caused by greedy speculators and economic excess is a lie. The Federal Reserve's loose monetary policy in the mid-1920s encouraged speculation and the use of leverage. The speculators were merely following the rules of a corrupt monetary system. The insiders knew when the rules would change form easy money to tight money, and they cleaned up.

Redpillguy says:

A user “cjhowe”, on ronpaulforums.com, keeps on quoting Flaherty.

Here’s a sample post of his, in post #8:

I've already identified him as being a clueless fool. I'm still at least one step ahead of you.

As I said before, I'm not interested in wasting my time debating clueless fools.

If you feel like educating him, you can forward him to this post and my blog. If he isn't capable of understanding, or not interested in trying, then I can't help him.

I think this is another logical fallacy. "Some clueless fool is disagreeing with me and debating me loudly. What should I do? I can't convince him; therefore my argument must be wrong!" I have enough confidence in my reasoning ability to not be distracted by clueless fools. I need to think of a good name for this logical fallacy. How about "The Stubborn Clueless Fool Fallacy"?

Now that I think about it more, The Stubborn Clueless Fool Fallacy is a serious problem. I'm nearly convinced that the government plants spies in citizen activist groups. The Stubborn Clueless Fool Fallacy enables these government-planted spies to do considerable damage. By being loud and unconvinceable advocates for a specific viewpoint, they are able to reign in those with marginal viewpoints. The Stubborn Clueless Fool Fallacy, combined with The Strawman Fallacy, prevents marginal ideas from being discussed.

Of course, many people are sufficiently brainwashed that they'll play the part of stubborn clueless fool without further prodding. Stubborn clueless fools on TV are incredibly effective. It is only necessary to place of few stubborn clueless fools in select locations to prevent logical debate. Stubborn clueless fools tend to be the loudest advocates of The Strawman Fallacy.

It is well known that the government plants spies in citizen activist groups. It isn't too hard to also plant spies in online discussion forums. In fact, it's very easy to do that on the Internet, because one person can pretend to be hundreds of people. This “cjhowe” seems somewhat suspicious. Ron Paul has already said he want to abolish the Federal Reserve. Why would an aggressive Federal Reserve apologist be trolling the Ron Paul discussion forums? It's most likely that "cjhowe" is merely a stubborn clueless fool. It's possible that he is a spy, planted to disrupt the debate on the forum. It's impossible to tell, but the possibility is worth considering. In either case, I'm not interested in wasting time on him.

Inronically, within a few hours of redpillguy's complaint about cjhowe, another user on the Ron Paul forum, Mike Mitrosky, also complained to me about cjhowe. I am convinced that cjhowe is a troll or possibly even a paid disinformation agent.

Again on the Ron Paul Forum, responding to cjhowe:

The Fed's GOAL on the other hand is maximum employment.

That Wall Street is more concerned about next quarter's income numbers rather than the viability of a company, kind of shows that the free market generally takes a shorter term outlook.

The Fed's goal is 5% unemployment. The explicitly state this from time to time.

The Fed lies and says that 0% unemployment is "inflationary". What is really happening with 0% unemployment is that workers start having bargaining power for higher wages, which is a situation the Fed wants to avoid.

If the unemployment rate starts to get too low, the Federal Reserve jacks up interest rates to "cool down the economy". Workers are laid off, the unemployment rate rises, and workers lose their bargaining power.

The USA is not a free market. The USA is a communist dictatorship. Wall Street is primarily concerned with the next quarter due to the structural flaws in the economic and political system.

Anyone who cites Wall Street and the stock market as an example of a "free market" doesn't know what a free market is. Extensive government manipulation prevents a free market from existing. The Federal Reserve, income taxes, and government regulations all prevent a true free market from existing.

I am seriously considering the possibility that cjhowe is some sort of paid disinformation agent, hired by some financial PR firm or the government. It is also possible that he actually is a stubborn clueless fool. He may truly lack the intellectual capacity to understand that these frequently cited false arguments are false. I'm not really interested in wasting my time on him anymore. However, whenever he makes a false argument I've seen elsewhere, I feel that it's worthwhile to respond and also post the response here.

On the Ron Paul forum, I'm still wasting my time on cjhowe:

I said that banks don't take on risk when they borrow from the Federal Reserve at 5.25% and lend at 6-8%. Then, cjhowe says:

Banks are taking on the risk of default from the people they loan it to...foreclosure, bankruptcy, etc. It's not exactly zero-effort, as you say.

Banks that are "too big to fail" are taking zero risk. As soon as they get into serious trouble, they receive a bailout in the form of an interest rate cut. Small banks are allowed to fail. The big banks who control the Federal Reserve are not allowed to fail.

When the "subprime mortgages" lose their value due to defaults, the Federal Reserve will lower interest rates. That will make all those outstanding mortgages worth more.

The bailout is not free. The bailout is paid by everyone else as inflation.

Even though there are defaults, the amount the large banks lose on the defaults is far, far less then the profits they make the rest of the time. When defaults start happening, the Federal Reserve slashes interest rates to allow others to refinance, and increasing the money supply increases the value of the assets confiscated in bankruptcy court.

At this point, I'm only bothering to answer cjhowe because he repeats false arguments I've heard elsewhere. I don't expect to actually educate him.

I can't prove that cjhowe is some sort of paid disinformation agent. He may sincerely be stubborn and clueless. It even appears he has a sockpuppet now: sickmint79. It's hard to tell if they are working as a team to spread disinformation, or if they are genuinely clueless. In either case, I'm not interested in wasting time on them.

On the Ron Paul forum, I'm still wasting my time on cjhowe:

Enslavement is used as hyperbole in the real world discussion. In the kook discussion, enslavement is used as fact.

Why is it wrong to say "the current economic and political system is one of absolute perfect enslavement"? The current economic and political system actually *IS* a system of absolute perfect enslavement.

The monetary system is hopelessly corrupt. The income tax means that people need permission from the government to work. Income taxes force people to use worthless Federal Reserve Points as money. Meaningful reforms cannot be achieved by voting. Schools train people for a life of wage slavery, rather than true independent action.

The illusion of choice in elections is a false choice. The illusion of choice when looking for a job is a false choice, because the basic rules of the economic system are corrupt. You can say "we have choices, so I am free". However, when a third party is using coercion to restrict your choices, you aren't really free. The coercion is incredibly well-hidden, but it's still there. Everyone who attempts to expose it is labeled as insane, which guarantees that the abuses are never fixed.

That sounds like absolute perfect enslavement to me.

Federal Reserve Thoughts - Answers to Media Myths

I originally wrote this article for the Ron Paul wiki, and I broke it up into several pieces and copied it here.

http://wiki.ronpaulpresshub.com/index.php?title=Federal_Reserve

There are a lot of false ideas circulating about the Federal Reserve. Whenever I try talking to someone about the Federal Reserve, they start talking incoherent nonsense. I view that as a symptom of a very successful media campaign to keep people ignorant.

There are a lot of "debunk the critics of the Federal Reserve" websites. I read some of them, and they seemed like complete nonsense to me. Let me know if any of them makes an argument that I didn't properly address.

Making the Federal Reserve Politically Independent is Good

Why should the central bank, which exerts enormous influence over the economy, be completely shielded from political and economic pressure?

The Federal Reserve was made independent because previous central banks were successfully halted by a President who figured out what was going on.

Deflation is Bad, Inflation is Good

Inflation is great for someone who has borrowed money. It means that it is easier for them to repay their loans. Since the Federal Reserve's goal is artificially low interest rates to encourage borrowing, the Federal Reserve likes inflation.

If you've borrowed money, deflation is lousy. It makes it harder to repay a loan. Deflation is a disincentive to borrowing. The Federal Reserve hates deflation because it wants to encourage people to borrow money.

With a fixed money supply, deflation naturally occurs over time as the economy becomes more efficient. With a fixed money supply, as the size of the economy grows, prices decrease. Under a gold standard, the money supply is necessarily fixed, because there's only a certain amount of physical gold. However, even a gold standard is subject to manipulation, due to fractional reserve banking and the importing/exporting of gold.

Even with a gold standard and unregulated fractional reserve banking, prices should decrease over time. Honest fractional reserve banking legitimately expands the money supply to match the supply of the economy. If all fractional reserve loans are backed by actual goods and services, then fractional reserve banking is honest. Prices still will decrease over time, due to productivity gains. The value of an ounce of gold, or a trusted paper promise to pay gold, should be mostly constant.

Inflation is great if you're a debtor. Inflation is lousy if you're a bondholder or holding cash. The average American typically holds bonds or cash. The average American has benefits not properly indexed to inflation, such as Social Security or pensions. The Federal Reserve is not looking out for the interests of average Americans; it's looking out for the interests of the financial industry.

There is nothing intrinsically wrong with deflation. You should expect prices to decrease as the economy becomes more efficient. The only reason deflation is bad is because money is only created via debt. With deflation, people would make fewer loans, and the supply of money would shrink, causing even more deflation.

One of the arguments against deflation is that workers like receiving pay raises. Workers like getting a 3% annual raise. They don't notice that inflation really is 8-10%. With a fixed money supply, prices decrease as the economy grows. This also means that, in times of rapid economic growth, salaries would also have to decrease. That should be acceptable to workers, because the price decreases would be greater than their salary decreases. However, workers tend to resist salary decreases. Inflation is a way to cut salaries without workers noticing and protesting.

That's the reason the average person doesn't benefit from importing cheap labor or exporting jobs to third world countries. If the money supply was fixed, the decrease in prices due to cheaper labor would be more than the decrease in wages. However, the average person does not benefit because the price decrease was stolen via inflation. Inflation allows the financial industry to steal all the benefits of importing cheap labor or sending jobs to other countries. The idea that immigration is bad or exporting jobs is bad is a smokescreen. It is only bad because the efficiency gains are stolen by the financial industry via inflation. People are trained to blame the cheap imported labor or the companies that export jobs. The real blame belongs to the Federal Reserve for inflating the money supply and giving the benefits of increased productivity to the financial industry.

The Federal Reserve is not Foreign Owned

The actual ownership of the Federal Reserve is not public, so how can this be verified?

The Federal Reserve is probably mostly owned by US corporations, but many of these corporations have substantial foreign ownership. With anonymous corporate ownership, how can you verify who controls the corporations that control the Federal Reserve?

The Federal Reserve is Controlled by the Board of Governors

The actual people who work at the Federal Reserve are nominated by the private banks who own it. The Board of Governors merely gets a yes/no vote on the nominees. It's like saying the Congress gets to choose the Supreme Court. Congress merely gets to accept or reject the President's nomination.

Also, the Open Market Committee is separate from the Board of Governors. The Open Market Committee has the real power, because it sets the interest rate target. The Open Market Committee is appointed by the private corporations that own the Federal Reserve.

Further, when the President selects a nominee for the Board of Governors, he chooses from a list provided by the financial industry insiders.

The Federal Reserve is Audited

The Federal Reserve's open market transactions are not audited. The Federal Reserve claims that the records of its open market transactions are immune from the Freedom of Information Act. There have been superficial audits. There has not been a deep audit that looked at every single open market transaction.

The real abuse of power by the Federal Reserve is its open market transactions, the very thing it refuses to release to the public.

The Federal Reserve Returns its Earnings to the Treasury

The Federal Reserve's open market transactions have not been audited, so how could anyone know what its true earnings are? The Federal Reserve could use tricks to deflate its earnings.

Besides, the real point is the subsidy to the financial industry due to artificially low interest rates. This would not show up as earnings by the Federal Reserve.

Congress is Responsible for the National Debt, not the Federal Reserve

The Federal Reserve guarantees that the total debt of society can only increase over time, due to the Compound Interest Paradox. As the Great Depression showed, a national debt is necessary to allow private citizens to have any money at all. Money in one person's pocket must necessarily be offset by a greater debt by someone else.

While Bill Clinton was President, the amount of private debt increased substantially. That is the reason the government was able to have a budget surplus during that time. Also, the Soviet Union fell at that time, which meant that a lot of dollars were imported into the former Soviet countries. The people there trusted dollars more than their own government's money. A lot of dollars were soaked up by this new market, which caused deflation in the US.

Here is the real reason why the national debt is a "big deal". Only a certain amount of inflation can occur before the average person would get wise to the flaws in the monetary system. Think of the inflation revenue as a pie shared by the financial industry and the government. When the federal government has a budget deficit, it's claiming a larger share of the inflation revenue pie. This decreases the amount of inflation revenue available to the financial industry.

When the federal government has a balanced budget, that means that the financial industry gets to claim all of the inflation revenue for itself.

If the growth in the money supply was equal to the GNP growth rate, then the inflation rate would be zero. In other words, a growing economy allows a certain amount of inflation to go undetected. The benefits of a growing economy belong to the government and the people, not to the financial industry.

Printing Money to Pay off the National Debt would be Inflationary

When the government has $1 billion of deficit spending, that causes $1 billion of inflation. It does not matter that the government also issued an IOU that it will repay the money. Whether the government carries the debt on its books, or prints the money and pays off the debt, makes no difference at all. The inflation was caused when the money was spent.

If the government runs a surplus later to pay off its debt, then it is causing deflation later. A government deficit is inflationary; a surplus is deflationary. A government can't "store money" by having a surplus, because fiat money is inherently worthless.

If the inflation rate is higher than the rate the government pays on its debt, and I suspect it is, then the government is actually making a profit due to its deficit. If inflation is really 10% and government bonds pay 5%, then holders of government bonds are earning a real return of -5%. Why does anyone own government bonds at all then? The Federal Reserve is expected to continue fixing interest rates in the future. If you expect the short-term interest rates to average 4.75% over the next 10 years, then you can make a sure profit by borrowing and buying a Treasury bond that yields 4.8%. Interest rate swaps can be made with very little capital commitment. It's cheap to conduct arbitrage between the 10 year bond yield rate and the expected average future Fed Funds Rate.

The government is not subject to the same accounting rules as everyone else. If I am in debt $100,000 and default, then the person I owe the money to is stuck. If the government is in debt $1 billion, then the debt is collectively paid by everyone else as inflation.

The point is that a government can have unlimited debt in the currency it controls. If the US government had debts denominated in Euros, then the US government could theoretically be bankrupted. That's what happens to third world countries. They have debts in dollars, but their income is in their local currency. Under such a scenario, a collapse in hyperinflation is possible because the Compound Interest Paradox makes it hard for the small country to come up with dollars to repay its dollar-denominated debt. As long as the US government has debts that are only in dollars, a monetary hyperinflation collapse is less likely.

Suppose the government minted a $100 trillion coin, deposited it in its account at the Federal Reserve, and received a $100 trillion credit. Would it effect the economy at all? No, it would not matter unless the government actually spent the money. As the money was spent, everyone else would experience inflation.

If the government printed money and paid off its debts, it would not be inflationary. However, it would cause market interest rates to rise. This would be contrary to the Federal Reserve's goal of artificially low interest rates. That's the reason the government can't be allowed to directly print and spend money.

Suppose there was $1 trillion in circulation. The government wants $10 billion of deficit spending. It prints an IOU for $10 billion and sells the bond for $10 billion. (To keep things simple, ignore the effect of interest here.) The government spends the $10 billion. Now, there is $1 trillion cash in circulation, plus a $10 billion bond. However, the person holding the $10 billion bond can sell it for $10 billion cash whenever he wants to. If he wants to buy something that costs $10 billion, he'll sell the bond, take the cash raised, and buy it. In other words, there is $1.01 trillion in circulation now, because the bond is as good as cash. The government's $10 billion in deficit spending wasn't free. Everyone else experienced 1% inflation.

In the above example, suppose the government just printed the $10 billion and spent it. Now, there would be $1.01 trillion in circulation. However, there is a fractional reserve banking system and government-subsidized artificially low interest rates. That extra $10 billion can be multiplied via fractional reserve banking to $100 billion. The government caused 1% inflation when it spent the $10 billion, but the banking system caused an additional $90 billion of inflation. Government bonds don't count as reserves for the purpose of fractional reserve banking, so that's why it's preferable for the government to issue debt rather than spending money directly into circulation.

The real reason why the government can't be allowed to spend money into circulation is the fractional reserve banking system combined with government-subsidized low interest rates. Artificially low interest rates guarantee that banks will be able to loan out any new money that was printed. Fractional reserve banking allows banks to create addition inflation on top of the inflation the government caused by its deficit spending.

If the government directly printed and spent money into circulation, the Federal Reserve, to contain inflation, would have to do the opposite of what it normally does. Normally, the Federal Reserve prints money, buys bonds, and redeems them with the government, making a riskless profit. With extra money in circulation, the Federal Reserve would have to sell short bonds to soak up the extra money supply. The Federal Reserve can't make a guaranteed riskless profit when it does that.

President Kennedy Issuing Silver Certificates had Nothing to do With the Federal Reserve

President Kennedy's attempt to issue money competing with the Federal Reserve was an attempt to abolish it. The Federal Reserve acts to keep interest rates artificially low. Issuing new money causes interest rates to rise. For the President to be issuing money separate from the Federal Reserve would be like stepping on the accelerator and brake pedal simultaneously. The Federal Reserve would be acting to keep interest rates low, and the President would be acting to keep interest rates high.

If President Kennedy's silver certificates were so unimportant, why were they removed from circulation immediately after he was killed?

Also, the President wouldn't need to issue money backed by something. All he needs to do is write "this note is legal tender" and they would be as valid as the Federal Reserve notes. From the point of view of an American citizen, the Federal Reserve notes were fiat money when Kennedy was president because a US citizen could not redeem them for gold.

The Federal Reserve Doesn't Cost the Government Money

The Federal Reserve costs the government all the money that is rightfully the government's due to seignorage. The Federal Reserve steals all seignorage income from the government and transfers it to the financial industry.

When the money supply is diluted via inflation, that money is rightfully the government's. Currently, the benefits of diluting the money supply accrue primarily to the financial industry.

A Bank has a Limited Ability to Create Money Based on its Reserves

A bank that has greater loan demand than deposits can always borrow money other banks or from the Federal Reserve at the Fed Funds rate. That is the whole point of the Federal Reserve's open market operations. Overall, the Federal Reserve acts to increase bank reserves rather than decrease them.

A bank's ability to write loans is completely decoupled from the amount of customer deposits it has. A bank can always borrow to get more reserves.

The Federal Reserve Smooths Out the Business Cycle

The Federal Reserve is the cause of the business cycle.

There were business cycles before the Federal Reserve, but that was because banks were colluding to simultaneously stop issuing loans. They created business cycles to benefit themselves.

The large international banks artificially created economic cycles. They manipulated the money supply to bankrupt their smaller competitors. They used this artificially created economic chaos to get the Federal Reserve passed.

One way to completely smooth out business cycles is to outlaw money creation via debt. Only the government should be allowed to create money, either by directly spending it or creating it via a loan. If only the government could create money via debt, then the government would know the exact money supply at all times. If the government directly created money via debt, and simultaneously created and spent the required interest payments, there would be no Compound Interest Paradox.

Another way to eliminate business cycles is to eliminate government. There are no business cycles in a truly free market. Business cycles are an artificial creation of a coercive government. Business cycles are a tool for confiscating wealth.

The Federal Reserve Prevents Banks from Failing and Protects Customer Deposits

The highest rate of bank failures in US history was between 1913 and 1934, immediately after the Federal Reserve was formed. The banks who were not cartel insiders were forced into bankruptcy, because they could not anticipate when interest rates would be raised or lowered.

The Federal Reserve stole all gold held by private citizens. The Federal Reserve forced the US off the gold standard and forced President Roosevelt to confiscate the gold of all private citizens.

The Federal Reserve Stimulates the Economy

The Federal Reserve intentionally slows economic growth. It specifically says that it is raising interest rates to slow economic growth, worried about excessive inflation.

The money supply keeps expanding and contracting due to the Compound Interest Paradox. There is no way to keep the economy stable with a fixed interest rate.

The interest rate that maximizes economic growth would be the interest rate determined by the free market. Artificially low interest rates cause wasteful spending. This wasteful spending slows economic growth because everyone else pays the cost of inflation.

For example, suppose I'm saving up to buy a car that costs $20,000. While I'm saving, inflation drives the price of the car up to $22,000. The interest I received in the meantime was insufficient compensation for inflation. It takes me longer to save enough money to buy the car, and as a result fewer cars are sold.

Further, the Federal Reserve's policies guarantee that the total productive capacity of the economy is always greater than the aggregate purchasing power. Artificially low interest rates encourage borrowing and an increase in productive capacity. However, the money to pay interest on those loans is not simultaneously created. Productive capacity grows faster than purchasing power. During a boom cycle, a corporation is deluded into expanding due to cheap loans. During the bust cycle, the corporation finds that there isn't enough money in circulation for customers to buy its products. The corporation might be forced into bankruptcy. In bankruptcy, its creditors (banks) convert the debt into equity. Essentially, the banks created money via debt, and then converted that debt into a tangible asset.

The banks hold onto the confiscated property during the bust cycle. During the next boom cycle, the banks sell the confiscated property back to the public at inflated prices. During the boom phase of the bust cycle, banks get first dibs on the newly printed money. During the bust cycle, banks confiscate property; banks sell this confiscated property during the next boom cycle at inflated prices.

Artificially low interest rates encourage developing productive capacity that isn't economically worth it. With artificially low interest rates, there isn't enough money in circulation to buy all goods produced. Similarly, with artificially high interest rates, there would be a deficit of productive capacity. Only with a market rate will productive capacity equal purchasing power.

The Federal Reserve Only Holds 7-10% of the National Debt

At any given time, the Federal Reserve owns around 10% of the national debt. The reserve ratio is 10x. The Federal Reserve only needs to purchase around 10% of the national debt. This creates enough reserves in banks to purchase the other 90% of the national debt.

The Compound Interest Paradox is an Illusion, Because Debt Hasn't Grown that Fast

The actual rate of growth in debt is less than what the Compound Interest Paradox predicts because bankruptcies occur. In a bankruptcy, debt is converted into equity, and some debt is forgiven. As long as the total amount of bankruptcies is not too big, banks can absorb the occasional loss. If the Federal Reserve mismanaged its interest rate manipulations, there would be a deflationary depression. If enough bankruptcies occurred simultaneously, banks would not be able absorb the losses of all the bankruptcies simultaneously.

As the ratio of debt to money supply increases exponentially, the Federal Reserve might be forced to walk a tighter and tighter line. Setting interest rates too low would trigger hyperinflation, which would bring down the whole system. Setting interest rates too high would trigger a deflationary depression, which would bring down the whole system as large banks started failing (think Long-Term Captial Management, but on a larger scale). I think that the range of "safe" interest rates is growing smaller all the time.

The Federal Reserve's scam is nearing its end. The laws of supply and demand cannot be tricked forever.