Money is not just money. There's a whole fucking market behind it.

It sounds like the perpetual motion machine, but really, it's not. You just need to read about economics. The essential thing to keep in mind is that money represents something... most often gold, crude oil, but human services too for example. And we just keep harvesting that out of the earth, or out of nowhere...

Think of the joke in austin powers, when doctor evil says I want 1 billion dollars, and his board of directors say there isn't that much money on earth.

$995 per person before April 15, 2003

$1,195 after April 15, 2003 up to the day of the event.

That's not the future of my money.

These conferences are primarily interesting because of the people that attend them, yet by pricing their conferences like that they are virtually guaranteeing that the only people who turn up are Sun and Microsoft's [insert conference buzzword here] evangelists, and a bunch of journalists.

Most technical conferences give out lots and lots of free complimentary tickets to their events. That's partly why the remaining tickets get to be so expensive. If you don't receive any free complimentary tickets yourself, then it could possibly mean you're not really part of the social fabric of those communities.

I am not making an assertion, so please don't get upset, I am just making a guess based on my personal experience.

http://www.urbanlegends.com/drugs/cocaine.money/co caine_tainted_money_wsj.html [urbanlegends.com]

You typically use a credit card to set lines of cocaine, of course. Not that I'm sure anyone's actually snorting it anymore.

[...] would you be comfortable paying by credit card for a copy of 2600? How long before ashcroft starts checking [...]

Then again stuff like Credit card and what not, go through this humoungous worldwide database... which I can only imagine is one massive flat text file. But I'm surely wrong =).

And finally, when you wire stuff between two banks, you have to basically have a period where *if* the source bank bails out of the transaction, and the destination bank has already used the cash, there is no floating cash debt - in the end, you have to remember cash is not electronic, there still is the money involved.

Is Slashdot in the business of granting Nobel prizes now?

In 1991, he became one of thirty living Laureates of the Business Hall of Fame.

The submitter must have read this too quickly, and presumed that Laureates refered to a Nobel prize.

[... gold standard good ... no bad ... no good ...]

You're absolutely right! And before cars existed, traffic accidents didn't exist! Before space flight, shuttle accidents didn't exist!

People still had problems with money before there were credit cards; the problem may have been exasberated because of the availability of credit and people (like me) spending money that they don't have, but the problem of overspending and spending money that they didn't have has been around for ages, man.

Perhaps the end of paper money will have similar positive effects; it will make robbery and drug dealing very difficult, for example.

Anyway, this sort of indicates that when the entire equation is looked at: cash handling costs vs. credit card costs, cash comes out cheaper for retailers (otherwise companies wouldn't be charging more for credit).

Or, alternatively, when phone/telecommunications systems go down. Anyone who was in Manhattan on September 11th and the days immediately following will probably recall that many stores had either ceased accepting cards at all, or had set up special lines because only a few of their readers were working. This was due to the incredible call volumes that were jamming up the city's relatively limited numbers of long-distance circuits.

Fortunately, most of the ATMs were up and running (though a few had run out of cash, because so many people were using them where previously they'd just relied on their check/credit cards.)

I love my check card, but I'm pretty sure it won't be there for me on that occasion when I most desperately need it.

If you ask a store owner why they don't accept credit, they'll say that they don't trust it.

Not only for that reason, but small business owners get reamed for service charges by credit card companies for credit purchases.

Dolemite

Where does this Slashdot obsession with a cashless/e-gold/alternative currency come from?

I am a lazy programmer . I can write small python scripts, java applets and such, but I am too lazy to create a full blown app that anybody would pay more than 5 dollars for, especially without knowing if it catches on.

Now if there was a system that would let me easily set up an account for collecting 10 cent fees without adding 1 dollar commission to each transfer, I could try to write some mini-apps (I actually have a few ideas for a 10 cent mini-apps) and see if people buy any of them. Well, if they did I could add some features and sell the lucky app for 20 cents per licence then and get rich :-)

Well, with the current system I could ask people to send me coins in letters, but I think no one would bother, filling a secure web form is much easier.

Feel free to answer with "business model" jokes, heh heh.

Tell me about it - the day pubs, bars, and clubs start accepting proton [proton.be] is the day I totally stop needing to carry cash...

-- Pete.

blog-O-rama [annmariabell.com]

If the US government increased its budget to 7 trillion next year (creating massive deficit spending, resulting in hyperinflation), how long would your faith in that dollar last? Or if they reduced and balanced the budget, and the deflationary pressures that are currently in effect sent us into a depression... how long would you accept the dollar?

" Libertarians are Republicans who get high..."

Which ultimately comes back to the supply of money - which is controlled by the government. For better or for worse, we have a "managed" currency. Sometimes the managers are insightful (Volker)...sometimes delusional (Greenspan).

You know, I used to believe that too. More and more, however, I am coming to realize that there is a new truth. The dollar bill represents faith in something other than the US government, it represents faith in the world economy. I can take that single US dollar to another country and exchange it for other fiat currency, or for precious metal on the world exchange. If I want gold, I can get it, just not from the US Treasury as previous generations could.

You are correct, I may not receive a set unit of foreign currency for it. Foreign governments may or may not decide to honor my US dollar; however, if they don't, it's likely in this age of the 'global village' that their own economies will be adversely affected. The concept of economy has become larger than national borders, and as a result, paper fiat currency has more power now than it did before.

And arguments about "inherent value" are really silly. Value is something we humans ascribe to things. Nothing in nature has any value independent of that. But if we're going to start assigning values to things, than we in the US may as well use units of dollars, and my piece of paper may as well be worth 1 unit.

Dollar bills can be repudiated at ANY time. The US is on its fourth currency. Anyone holding bills from the previous three hold nothing.

You mean like in Argentina, where without warning people were prohibited from accessing cash accounts????? Doesn't anyone read the news anymore???

Governments can default on debts (Russia), disembowel currencies (Thailand), etc with almost no warning! In fact by default these actions are done without warning as a run on the bank would negate the action in the first place.

The reponses I am seeing (including yours) seem to be woefully ignorant of the sorry history of fiat currencies. Thats the way the government(s) like it! They don't want you to know that over three hundred fiat currencies (including some in the US!!!) have been repudiated in recent economic history. If you knew the sorry history of fiat currencies you might horde precious metals (like Warren Buffett, who owns a moutain of silver).

The cash in your pocket has no inherent value! There is no counterargument. Read some history.

Yeah, I think I only mention that about thirty times in different postings.

I'm not sure what the banking requirements for e-money schemes would be like, but banks are only required to keep a small fraction of deposits in reserve. If that applied to e-money as well it would expand the investment options for the money collected by e-money firms.

Of course, consumers understand this logic perfectly well --- why should I pay for the privilege of spending my own money? why not just use a debit card and cut out the intermediate steps? That's one reason why these ideas have been floating around since the 1980's without really catching on.

My point: a lot of hype about a "cashless society" is coming from firms with an interest in replacing the current system with one in which they effectively "issue currency" and make money off of the float, as well as from percentage based and flat fees. They don't mean "cashless"--they mean "use our cash instead of theirs."

arrrggh, I never thought it would come to this, but...

1) issue alternative currency
2) ????
3) Profit!

except that in this case ????? = collect interest.

blog-O-rama [annmariabell.com]

t reminds me of the "computers will solve all your paperwork problems. We will be a paperless society in 25 years." Cash is not going away anytime soon just because some money-geeks think they found an alternative.

(one again putting on my flame-retardant suit)

Karl Marx has already explained exactly where money is going to go... into the ash-heap of history.

We're already starting to see it. How much anger are you seeing over corporatism and capitalism in general? Everyone is fed up: THE SYSTEM DOESN'T WORK. Everyone knows it, but so many people are afraid to face it. They're afraid of what might replace it. "Better the devil you know, than the devil you don't".

But there is a better way! Do your research. Look at some of the alternative political parties.

The future is a moneyless society where everyone shares everything equally. We all do the jobs that we are best at, not the ones that you HAVE to do to "make a living". Everyone contributes to the public trust, and everyone shares in the public trust. No money needed!

There are so many people afraid right now, but I see that as a sign of hope. Finally everyone is seeing the absolute black soul of capitalism and are searching for something better. Soon we will be tearing down the walls of corporations, and the whole idea of "ownership" in general. Just like music and software shouldn't be owned, neither should physical resources, either. Everything should be publically owned. And no ownership means no need for money.

All of this was predicted over a hundred years ago. Read about it and learn.

In case you haven't noticed, the terrorists are generally from those fucked up third world countries, and they attack the modern world because of jealousy and ignorance.

They tend to be from fucked up countries because people from those countries are angry at cunts like you fucking with them - for example Chile, Nicaragua, El Salvador, Panama/Colombia, Grenada, Vietnam, Korea...

Who the hell would want to attack Cuba? There's nothing left to attack!

Because all you Spetic Tanks fucked their economy via a completely unnecessary blockade for the last few decade

"Pretty funny how that works -- the more a country embraces policies of compassion and fairness, the more liked they are in the world." Pretty funny how impotent the "liked" socialist nations are. They are powerless. Do you understand the idea of power? Other countries will decimate a weak populace, and socialism breeds weakness.

Whoever said that socialist countries should not have a defensive military? Not me. But you pull out all these cliched statements that you ascribe to me without thinking anything through.

A thought experiment: What if every country on earth was socialist/communist? With democratically elected leaders? With STABLE democracies? How many wars of agression are started by stable democracies? Almost none (although there are certain exceptions, but almost always civil wars of aggression like Croatia).

You can only believe that socialism breeds weakness if you believe that compassion is weakness. A compassionate society is one that cares about ALL its members, not just the rich ones. When you eliminate money completely, then all class distinctions will be eliminated (by definition), and thus all will be treated equally. That is one definition of a compassionate society. It's hard for me to understand how you would see that as weak.

Easier to be 15 and read childhood social/political philosophy than to accept reality, isn't it.

Easier to spout insults rather than engage in honest debate, isn't it? But just for the record, I'm 38, married, two kids. I make a good income, live a modest lifestyle, and most of my money goes to helping those less fortunate. How much of YOUR income goes to helping people, or does your "understanding of power" preclude any sort of compassion?

so I want a lifestyle that is better than "equal".

Ah HA! That's where your philosophy breaks down, and you don't even know it. Note that you're not asking for a lifestyle that is satisfying to you, you're asking for a lifestyle BETTER THAN OTHERS. What difference does it make how someone else is living? Wouldn't it be more rational to worry about your own lifestyle? And ask whether it is satisfying or not?

Now ask yourself: why if EVERYONE could have a satisfying lifestyle? Forget questions of money and luxury; it's only an immature society that craves decadent luxury. Is it really necessary that someone lives in a house of gold? Wouldn't it be a better world if everyone was guaranteed a healthy, productive, fulfilling lifestyle that was primarily concerned with personal growth?

Yes, I understand that your response will be something like "screw personal growth, I want houses of gold". And that's why the world isn't ready for true communism. But someday, we will grow out of our adolescent "I WANT CANDY CANDY CANDY NOW NOW NOW" lifestyles. The fact is, it doesn't cost that much money to give everyone fulfilling lifestyles.

It's not your decision, fuckwad, to determine what a fulfilling life for me is.

Ah, but it is. My (meaning society's) role is to tell you EXACTLY what you can and can't do. For example, we don't allow you to find a fulfilling life by being a mass murderer.

Either tell me what society gives each of its members a Ferrari, or get the hell out of my way, because I'm busy earning one.

In other words, you want the house of gold. But your response will be "wanting a Ferrari doesn't infringe on other's rights like being a mass murderer". But doesn't it?

For the price of that Ferrari, society can feed hundreds of people. Put 5-10 people through college for a year. Produce thousands of volumes for a library. You damage society by owning a Ferrari, and for what? So you can prove your dick is bigger.

On the other hand, there IS room in society for art and sport. Maybe your passion lies in building cars for art. Maybe your passion lies in road racing. A communist society doesn't have to be bland, dull and gray -- just fulfilling for all its members. There is room for Ferraris in a communist society, but it needs to be done for the right reasons: art or sport, and it needs to be participatory. There is room for Ferraris for the right reasons.

Time to move on, dude.

Communism is a failed experiment, but what people forget is that the problems it was trying to solve were real. And they're still with us.

If the trucks bearing the US flag rolled up to crowds of people to deliver global welfare direct to individuals were accepted, would the problems still exist?

Karl Marx has already explained exactly where money is going to go... into the ash-heap of history.

You're quite right, although the [singinst.org] singularity [singinst.org] will be what causes it.

Nanotechnology [foresight.org] will [singinst.org] play a big part in this. What it boils down to is, once we can replicate materials (like in Star Trek) we won't need to exchange pieces of paper in order to obtain goods. Services, perhaps, but the machines will be able to perform most services and you can replicate the machines.

This should all happen within our lifetimes. Perhaps in less than a generation (~20 years).

The submission is unclear as to if a Nobel prize winner will be speaking. It just says he's been "tapped". I'll leave that for others to interpret.

There is no Nobel prize in economics.

It's actually The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel [web.uvic.ca].

The system of fractional reserve lending extends to the top of the food chain - the Fed - who may redeem treasury notes (the currency of high level banking) with fictional accounts at their whim (a capacity granted in 1982 by act of Congress).

So of course banks will be at the conference - they have more interest in reducing paper cash than anyone else. It is a drag on their business.

That is incorrect. You cannot redeem your dollars for anything at the Fed. The US dollar is a fiat currency. The "deal" you speak of is still a transaction of trust between you and your other parties, both of whom implicitly trust the power issuing (not backing, issuing) the currency. The US only puts its mark on those bills as a representative of fiat power.

What I was talking about is how anytime you make any transaction involving money you're probably dealing directly with a bank, unless it's in cash, which is still a deal with the Fed.

No! You still don't understand. The Fed has no relationship with the cash once it is issued. Once we left the gold standard we dropped any notion of cash relating to any physical store of value.

People under 18 can have checking accounts. That's how you learn how to manage money, by having a finite amount to manage, not by having some open-ended letter of credit.

The reason it's illegal to give you credit (not that anyone would anyway) is that it's illegal for a minor to enter *any* kind of contract. You could maybe get one if your folks cosigned.

I've always been baffled by people saying "you can't get a credit card until you're 18" stuff. I had a credit card during my entire senior year in high school and I didn't turn 18 until the summer after. Maybe Mastercard made a mistake or something but it sure made buying crap a lot easier. It's possible that one of my parents co-signed -- I honestly don't remember. But I never had any problems with it. In fact, I'm now in my early 30s and I still have the same damn card! (of course, I have multiple cards nowdays).

GMD

You left out the IANAL disclaimer, but that's ok, because it's damned obvious anyway. Do you really think it's illegal for a minor to enter into a contract? It only happens millions of times a day. I hope they don't haul them all off to jail.

They could give minors credit cards if they wanted to. It's just not a very bright thing to do. The problem, at least in the US, is that most contracts a minor enters into can be, by the minor, broken at will and without consequence. So credit card issuers don't like the idea of a kid going on a spending spree and then saying "I changed my mind and won't be honoring my agreement." But there's nothing illegal about it.

Many of the debit cards have something called a virtual wallet intended for mini payments, but loading money just costs too much, 0.5 euros, 3 % or something, totally crippling this mechanism.

To be widely successful, a new system should have no additional costs when compared to cash. If it involves additional costs, people are not going to change. Many people are willing to change money (=a lot of positive associations) only for something that is better in every aspect.

Here's an example. Your paycheck is deposited, putting your account at $1500. The next day, someone goes and fradulently buys some stuff, say $1500 worth. Your account balance is now $0. If you report the incident, your balance will still be $0. Not until everything is tracked down will you get your $1500 back. In the meantime, I hope you have some savings, since your rent and phone bill will still come due.

Solution? Always use a credit card. In that case, it's the bank's money that's gone missing. And, suddenly, they're much more interested in recovering it.

http://www.futureofmoneysummit.com/advisoryboard.p hp [futureofmoneysummit.com]

E-money is the ultimate form of Fiat if you ask me. All fiat has a history of corruption and collapse (the american dollar and other world currencies are heading that way as well). Fiat money is the money of the statist, since it allows those in charge of the press to create as much money as they need, while dilluting what the rest of us hold.

The question isn't "what form will money be in", the question should be "what assets will back our money". I don't care if its in the form of rice crispies, as long as it is backed by an asset (gold, food, land, space rocks) and has real value.

All fiat has a history of corruption and collapse (the american dollar and other world currencies are heading that way as well).

You have to have inflation under debt currency, otherwise you find yourself struggling under deflationary pressure. Our money is created in the form of loans, so when you get 100K to buy a house it is created into the economy, but has to be returned over time plus interest. So every loan adds money to the economy, and then returns back to nothingness. To pay the interest though, someone else needs to go into debt to keep to make up the difference. There is a natural debt creation/destruction cycle in fractional banking, Fiat money doesn't stop it, it just magnifies the timeframe and magnitude.

Printing money with the purpose of "diluting" cash (raising the real rate of inflation) is not inherently evil

Inflation isnt "good" for an economy, just in ours it is better than the alternative, which is crushing deflation. There is only about 1T in M1 money supply in the US, and there is in the ballpark of 8T in outstanding debt. Paying off debt very quickly contracts the money supply. We have to keep borrowing money to keep from contracting. If you really trust politicians and bankers to do the right thing with your money, more power to you. We'll ignore for now that on the watch of these two groups we have seen:

• Massive bubble of the roaring 20s
• Bust of the 1930s
• Depression
• Great Depression
• Confiscation of gold and illegalization of its ownership
• grinding periods of inflation and recession over the last decades
• Increase of debt to GDP to a ratio of 3/1
• Uncontrolled government deficit spending
• The bubble we just went through, wiping many peoples retirement funds out

I'm not ready to pat these people on the back just yet. They have yet to solve the problem inherent in fractional banking and the creation of debt.

Could you explain that concept? Seriously?

You seem to be saying that Fiat money doesn't collapse, because ours hasn't yet. Name the oldest Fiat currency on earth, and what is the longest time a Fiat currency has ever lasted in History? Not one Fiat currency has ever stood the test of time. The US has already gone through a couple Fiat currencies that have collapsed before the federal reserve note was created.

This is the kind of crap governments pull with money... "The printing of such large sums created a major problem. Paper, engravers and printers were hard to find. In desperation, the Secretary of the Treasury recommended that counterfeit money be utilized. Anyone holding a counterfeit bill was supposed to exchange it for a government bond and the government would stamp it "valid" and spend it." That was the confederacy did to their Fiat money.

Fiat money almost always dies the same death, uncontrolled inflation due to state spending. It also usually results is some very socialist measures as governments try to stop people from running from it. If you get a chance, read up on what happened to Rome when its Fiat money hyperinflated, its pretty funny how they attempted to control prices. I can't name any good links off the top of my head, but this one looks like it has some good examples [sjsu.edu].

The only times that fiat money has been a problem, in general, is in third-world countries...

What amazes me is the ferosity of some of the people arguing with me. Its not like I am saying "switch back to gold", I'm just saying Fiat always implodes, and an electronic fiat will be no different. They can turn paper into anything they want, but as long as it isn't asset backed, it will not last.

The question isn't "what form will money be in", the question should be "what assets will back our money". I don't care if its in the form of rice crispies, as long as it is backed by an asset (gold, food, land, space rocks) and has real value.

Tying it to a hard asset doesn't help you. The reason it doesn't help you is that the asset itself is fluid just like the money that represents it: more of the asset can be acquired if need be in order to make the country in question appear "richer", and indeed that was commonly done back when gold was the standard. Acquisition of more of the backing asset is usually a matter of expending sufficient labor (sometimes in the form of the use of the military). Print money simply has a much lower expenditure rate per dollar produced. And as described below, it's highly advantageous to have your exchange mechanism be as fluid as possible.

Money itself is just a means of representing the value of something relative to the value of something else. Usually one of the things whose value is being measured is your labor (when you get paid and then spend the resulting money on something, the price of the something in question is just an indicator of the value of your labor relative to the value of the object you just purchased, and the value of the object is ultimately, more or less, the sum total of the value of the labor used to produce it). Ultimately, since the value of an object is essentially the value of the labor used to make it (which includes all the labor used to generate the raw materials, to process those materials, to assemble the object, and to manage all of that), money simply represents the value of your labor versus the value of someone else's.

In a perfect world, a change in the overall wealth of a country (as measured by the ability of the country to do work) would be instantly reflected in the price of goods relative to the price of labor. Unfortunately, the world is not perfect and there is a delay. And this is the reason for printing more money: so that the price of goods and services does not need to change significantly as the country is able to do more work. Print too much and the society has to adjust the prices to reflect the larger supply of tokens, just as it does if the country does't print enough.

Where things get complicated isn't really within a country's economic system: the currency for that is reasonably well-defined. The complication comes when dealing with other countries with their own currencies, particularly when those currencies are not managed the same way.

The cost of labor in India is lower than it is in the United States. It's lower because the cost of living is lower. But the lower cost of living isn't necessarily a consequence of the lower amount of total work it takes to supply someone with the goods and services needed to live, even when the person in question is living at the same standard of living as someone in the U.S. Nor is it necessarily a consequence of one country being more desirable to live in than another, though that probably factors into it some. Most of the difference is the result of the fact that markets require time to adjust themselves properly relative to other markets.

That's why programmers in India will eventually be paid roughly the same as programmers in the U.S.: the value of their labor isn't really much (if any) less than the value of the labor of programmers in the U.S. -- the hysteresis between the two labor markets just makes it appear that way temporarily. Corporations are now attempting to use that hysteresis to their own advantage, by shifting the demand for work towards markets which have not equalized themselves with the others. And the reason the markets themselves don't adjust on their own is that the labor in those markets isn't as fluid as the Corporate demand for labor, thanks primarily to immigration laws. That means that the labor cannot move to where the demand is. And even if it could, it would take time for the labor to move, and thus for the market to adjust. That time is the very thing which causes hysteresis between the markets.

I understand the theory behind our Fiat money, but the problem remains. A massive buildup of debt is still created due to the debt nature of our system. If people stop going further into debt, then the economy shrinks and deflationary pressures kick in as money is sucked out of the economy from loan payments on existing debt. All the talk about how fiat lets our money supply remain fluid are nice, but the debt creation/destruction cycles are catastrophic under fiat. Fiat doesn't work, it can in the short run, but reality always catches up with it.

Noone has given me an example yet of a Fiat money that has stood the test of time, or that didn't expire in a massive failure.

Yes, it does. It creates stability and mitigates human meddling.

In a perfect world, a change in the overall wealth of a country (as measured by the ability of the country to do work) would be instantly reflected in the price of goods relative to the price of labor. Unfortunately, the world is not perfect and there is a delay. And this is the reason for printing more money: so that the price of goods and services does not need to change significantly as the country is able to do more work

Oh man, you are soooo off course here as to why money is printed, it probably isn't worth it to go into it at this point. Suffice to say the "printing presses" of money are used as a political and fiscal tool at this point, not having anything to do with anything you have described.

The thing I love about fiat currency is it seperates the wheat from the chaff, since it takes a certain subtlety of mind to understand how it really works.

Where to start...

"How is this different from a gold-backed currency like the old American Dollar. Well, since the old dollar did not actually come attached to a piece of gold and in fact was not even exchangable for gold it's last 40 years."

I'm going to ignore the insult to my intelligence in the title to your reply, and just say you made my point for me. In 1933 the ownership of gold by you and I was made illegal to keep banks and the Fed solvent. Since then we have moved toward a fully Fiat system, and under Nixon we achieved full Fiat status. We are allowed to own gold again, but its not the legal currency of the US. Inflation like we have now didn't exist before going Fiat, and depressions usually lasted less than a year. We are very likely entering a new one now, as we are at the end of a K-wave cycle and debt accumulation is strangling growth. This is the result of central control of money supply, as the roaring 20s and the great depression that followed were as well.

"If you cannot trust the US to back the current dollar, why could you trust them to back the old one, in the absence of proof that it is equivalent to gold?"

The US didn't back the old dollar, the US never has backed the dollar. Banks have always been and still are private in the US. Even now, the Fed is a private institution. Our money now is Fiat, that means there IS NO BACKING, even if the US claims otherwise. All the FDIC promises is to print more money if banks get in trouble, which dilutes everyones money.

Before 1933 gold was money. When you carried a note, you could physically walk to a bank and trade it for gold. Money was an asset, and notes were titles to that asset. Now all that makes money valuable is the trust (and law) that others will accept it as payment. If that trust is broken, the dollar collapses. Switching to an electronic dollar only makes it easier for banks to recklessly create money. Without sound policy behind them, all we gain is a loss of privacy, and the banks save a few pennies per dollar on printing costs.

Before you go insulting someone with a statement such as "you have a shallow understanding of the issues", maybe ask them a few questions to make sure you can verify that.

1. Exactly how does new money make it into the market? They cant just give it away right?

The easiest way to learn about all of this is just do a google search on Federal Reserve System. All money enters the economy as a loan, which is why we call it debt money. Its not based on an asset, so the control of its creation and destruction is interest rates. Low interest rates encourage borrowing, and high rates discourage it. All money put into the economy has to be returned though. When you borrow money from the bank, they create it, and you pay it back and it is removed from the economy. The Fed (private central bank) buys printed money from the US Treasury for pennies on the dollar (to offset printing costs). Through a process thats kind of complex and beyond this question they distribute that to banks for use in extending loans. The US government goes to the Fed to satisfy its budget needs, and the Fed sells securities on the open market. If they can't find enough buyers I believe they would printing in what is called "monetizing the debt". I'm a bit fuzzy on that part of the process, but the end result is...

The government makes its budget, and the Fed funds it, regardless how much it is. Our tax money that is collected every year goes to the Federal Reserve (private bank) to pay interest to those holding the securities they bought, and the remainder is used to pay some securities.

An oversimplified way to look at it I think is that the Government has a credit card with the bank of Federal Reserve, and we (taxpayers) get the bill. The federal government doesn't actually care if there is enough tax revenue to pay for their budget, since on their end it looks the same either way. The only thing that keeps the system in check as far as I can tell is the realization that if they push it too far, investors in securities will pull out and invest in Euros or Yen or other currencies that aren't being inflated as quickly.

2. If the banks are private, and the gov't is not 'backing' the money, again, how can the gov't print more and how do they distribute it?

Same deal, they are allowed to run up as much of a tab with the Federal reserve as congress sees fit. The only limitation being you can only dilute money so much before investors abandon your currency, or start demanding higher interest rates for the increased risk in investing in your money.

Its a fun subject to read up on. One of my favorite guys to read is Senator Ron Paul, who is on the banking committee I think. Just put his name into google with federal reserve and enjoy.

First you have to understand that most of the money doesn't have to be printed. It doesn't exist in any real sense.

We tend to assume that because we have $5000 in the bank that somewhere there is $5000 in 20's stacked away somewhere. There isn't. Only a very small percentage (too lazy to search for accurate figures right now) exists as tangible money.

So in answer to 1) How does new money make it into the market? Money is created when someone borrows money. Debt creates money. Make sense? Bear with me. If you have $5000 in the bank the bank can lend out a certain amount. They only set aside a percentage of the money they actually have, the rest is loaned out. So you have $5000, I borrow $2000, a some others borrows $1000. Pretty soon $50000 exists for that $5000. And some of that gets deposited and more is loaned out. New money is born.

But wait, this creates inflation. What to do? No problem, just raise interest rates. People don't borrow for that new car, businesses don't expand, people concentrate on paying off that debt and new money isn't created. In fact the opposite happens.

When you pay off your student loans or your mortgage where does that money go? It just disappears. Poof.

But now businesses aren't expanding, capitol investment is down. Just to keep up with costs they have to cut back. Jobs are lost, the economy starts to slide. Now what? Raise those interst rates back up.

Who makes these decisions, giving our economies a daily dose of fiber to stay regular? The government I hear you say. No.. the banks do. But thats ok, because the banks have our best interest at heart. Oh and OPEC exists to help us with a healthy supply of oil too.

In answere to number 2, how can the gov't print more and how do they distribute it? They don't. That would be bad and cause inflation. So instead they borrow it. The central bank prints it for them. This is good because while it still has the same effect, it means it costs them more and creates debt. And since the only way to pay off this debt is by taxing the people more, no sane government would want to do this.

It's not that it doesn't work. All Fiats work fine until they bite the dust, and that usually happens quickly once they start to crumble.

Also, the enourmous wealth growth of the past 70 years isn't as obvious as you think. Those who lived through the depression, and my mother and grandmother who just lost their retirement funds might disagree with you. All of those living on credit cards might also take your view of the sucess of Fiat money into dispute. We have also seen an increase in the gap between wealthy and poor, as well as an increase in the total number of people in poverty. The US is now a socialist government, and it has Fiat money to thank for that. Even Alan Greenspan is a believer in asset based money, and recognizes that Fiat is the money of the statist and works counter to freedom.

“Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”
Alan Greenspan

The US was creating enourmous wealth before Fiat money. Be careful not to confuse the wealth of the industrial revolution (cars, planes, electronics, rockets, physics, medicine, etc) as a success of fiat money. All of those industries would have existed with or without Fiat money.

You also seem to keep attacking me as if im some extremist you need to beat down. I'm simply stating that our money is Fiat, and being such, it has a finite lifespan now. It will continue to funnel an increasing % of our national product to the financial sector, and will continue to fund government expansion. That has nothing to do with isolation or whatever you are accusing me of. It's just a statement.

It's not that it doesn't work. All Fiats work fine until they bite the dust, and that usually happens quickly once they start to crumble.

In most of the cases I am familiar with its been out of control government spending. Banks haven't been in charge of fiat in the past as far as I know, they usually we gold or other asset bankers who would engage in fractional banking.

The only reason anyone would chose to use Fiat money over an asset money is if they are forced to by law, or if an asset like gold isnt available. The US couldn't just go back to gold now for example, since very few people own it. I'm not actually encouraging moving to gold as money, I'm only saying that money always goes back to assets when Fiat runs its course.

And yeah, that is the theory (ability to smooth out the economy) but it comes at a cost under our current system. That cost is debt accumulation to a degree you would never see w/o fiat, and some REALLY painful corrections. Judging by ratios the Dow should be at 5000 right now, so there is a lot of pain left from this last money supply bubble. Low interest rates when debt is already high only makes the problem worse. Right now for example, low interest rates are less effective since noone is in a position to borrow. The debt problem has to work itself out before things can resume.

Meanwhile my gold has been rising in value as people catch on to the fact the market isnt going anywhere until our currency corrects itself.

For five thousand years gold has been used to represent value between cultures, civilizations, and even history itself. Satisfactorily pure gold left dormant for two thousand years still has value today. How about the currency of the nation where the original owner held it? Maybe useful as a museum piece! It is because we do not/should not trust central meddling that we place value in precious metals to this day.

Agreed.

Our money has problems are two-fold, one is the lack of backing, the other is the debt system that creates a debt trap. The two problems keep each other in check to some degree, but its not stable (as our current debt ratios hilite) and slowly moves increasing %s of wealth to the financial sector.

The economy grew more before the fiat currency than after it. The economy grew more before their was a Fed than after it. These are not opinions, they are facts.

I'm sorry, the modern financial system is based upon trust any many levels. There is no more risk in accepting a fiat Dollar than there is in accepting a check, or delivering goods with an invoice for 90 days payment.

Yes, but this risk isn't zero like you think it is. For example, Argentina. With almost no notice, depositors were prohibited from accessing accounts. Governments cannot succesfully manage currencies!! Over three hundred fiat currencies have been repudiated. By that, I mean, made worthless. Why do people think this can't happen here???

BZZZT! Nice try. No, the economy grew more in the nineteenth century than in the twentieth, pre-Morgan (who only bailed out the govt once, and in no way acted as the "Fed" if you knew the history of his actions). Once again, not opinion, fact.

Your comments about the failure of fiat currencies are misleading. It isn't as if backed currencies were never repudiated. If you use currency issued by a government, you lose that money if the government fails, whether the currency was backed or not. At the moment the backing government fails, it becomes a fiat currency. And thus your argument is circular.

The point is that gold-backed currencies fail much more rarely, and technically you could have redeemed the currency for gold to wait through the crisis. In no way is this circular.

Since movng from the gold standard the dollar has lost, what, 75% of its value? What has followed is one crisis after another. LTCM. Russia. Peso Crisis. Thailand. Argentina. Actually the crises have been happening about every twenty four months. How many similar crises occurred under the gold standard??

The premise of a gold-backed currency is that some things have more lasting value than nation states. Gold is one of them - for five thousand years it has represented wealth and traded as such across cultures.

But still will be based in the way we see money today, even if exist better conceptual ways to give value to work, ideas, etc, the actual economy is very based in the money per se, not in actual value of things.

The other thing I believe that could change (maybe in more than 25 year) is some way of unified money and values around the world, that the same product cost the same anywhere (in similar amount of hours of work or something like that, no mean US dollars)

Where will the idea go from here? Well, we have to ask ourselves what the problem with the money system is for that. We have gotten off of the gold standard (or other standards, for other currencies), so there is nothing but consumer confidence holding up any currency's value now. The only steps to be taken from here are to further consolidate world currencies into a single, accepted currency.

But will it be the dollar or the euro, and will wars be fought over it? I have a feeling that many stubborn states with long-established monetary systems will never be friendly to the idea of a universal monetary unit, especially one that emphasizes the weakness of their economy.

Gah... I could ramble on and on. I'll stop here though. :-)

It's worth reading Dee Hock's writings. He sounds like a collectivist nutcase at first. But this is the guy who designed how Visa, the organization, works. He got all the big banks to sign on. And he was a mid-level guy at a small bank when he did it.

Few people outside the banking industry understand what Visa really is, let alone how it's organized and governed. Internet people should. It's a good model for shared infrastructure, like Internet backbones.

Visa is a major corporation organized as a cooperative. Its members, and owners, are banks. Visa sets standards and runs the backbone network that transfers credit card transactions between banks. Visa doesn't issue credit cards or do financial transactions itself.

The details of how that works politically are complex. Yet it does work, and a lot better than, say, ICANN. I'm not going into how it's done; read Dee Hock's book.

"Simple, clear purpose and principles give rise to complex, intelligent behavior. Complex rules and regulations give rise to simple, stupid behavior."

In his magnum opus "A New Kind of Science", which I have glanced at in the bookstore and have not the slightest intention of reading anytime soon, Wolfram has spent a great deal of time and money working out simple rules that give rise to complex and interesting behavior.

The important point to notice in the present context as well as in Wolfram's is that while surprisingly simple rules can in some cases give rise to complex intelligent behavior, and indeed it's endlessly interesting when they do, most of them don't.

I presume Mr. Hock is well aware of this. I suggest, though, that this caveat is something for the reader to keep in mind before storing this quote among their Guiding Principles.

There is a face [futureofmoneysummit.com] and name to this evil!!!!

I am leery of replacing money with anything else. Money, cold cash, is anonymous. One can purchase something without a paper trail pointing at you. Credit cards, check cards...they all scream your name and just give fodder to databanks that can be used to profile you, violate your privacy, or feed the tyranny of the Patriot Act I and II. No thank you.

If you insist on replacing money with something else, that something else better include an anonymous form equivalent to cash or it just wont cut it.

As for banking, there will continue to be a roll for credit extension agencies for years to come. The fractional reserve system of banking is both a source of great potential peril and great potential growth in the economy - our entire system of lending based on it. It extends all the way back to the Fed, which by law is empowered to create cash accounts out of thin air to redeem treasury notes from lending institutions.

On a side note, I would also like to announce my free money recycling center. You don't want to just throw that money that will be worthless away do you? Think of the planet! So you can give it to me right now and be ahead of the game when money is abolished!

Depends on your bank and country, but at mine, Handelsbanken [handelsbanken.fi] in Finland, I pay nothing for my:

• accounts themselves
• debit card
• ATM withdrawals in Finland (any ATM) and Sweden (Handelsbanken ATMs)
• online banking
• electronic money transfers (within Finland, soon to be all the EU as well)
• service at physical bank branches (I know my teller by first name)

And yes, this kicks ass. Handelsbanken has been signing up a lot of people since the thousand-pound gorilla of Nordic banking, Nordea [nordea.fi], started jacking up its fees.

Cheers,
-j.

What's funny is a pissant country of ~4million people has usable cash-less transactions sorted out while other larger countries are still messing around with a mishmash of cash and credit cards :)

Ooh! Me! Me! Pick me! Please?

Somehow, institutions will need to be established to keep track of everyone's net worth. What happens when crackers manage successful attacks on these? Shudder.

For non-U.S. residents it is a bit suprising that all geeks here really only discuss the monetary/banking system inside the U.S.. Please please listen: In other countries things are alreay waaay different.

E.g. I mean, here in Germany we have a banking system with fully functioning direct deposit/direct debits which can be used by almost everybody, not only big business. These direct money transfers work at small cost (probably $0.10-$0.30 per transaction, but not something like 1% of the amount) and usually with at most 1-2 days of delay. This is the reason why something like Paypal wasn't necessary at all in Germany -- the German banks already offer these services by themselves.

We have the bank-independent online banking protocol HBCI, with a free implementation here [openhbci.de] and GnuCash [gnucash.org] supporting it. This means that for a direct deposit (money transfer) I can directly enter the destination account in a GUI form in GnuCash, enter my secret RSA key passphrase, and *pow* the money goes its way. Same way for statement retrieval -- no screen scraping anymore or browser incompatibilities. HBCI is a full protocol so all these business actions are fully specified in that protocol, and no web browser is needed anymore.

cstim

I haven't seen much discussion here about alternatiev economic systems. Most of the talk is about whether we have cash or electronic cards. Why not talk about more interesting stuff, like altering the way money itself works. Ever heard of demurrage? Neither had I until I read some stuff over at transaction.net [transaction.net] - the concept of negative currency is a fascinating one.

If you've ever read the Mars trilogy, you'll probably have some idea of the kinds of things I'm thinking about: limitations on the size of corporations and so on. Basically Capitalism version 2 (or 3).

What you are referring to is the growth in the money supply through the Fed down to the fractional reserve banks. M3 money has grown by leaps and bounds in the Greenspan era. This and only this is the source of the stock market bubble.