Clarifying confusion about money

I enjoy writing. By the age of 15, I had written lyrics for several songs. Of course, I also did some writing for school. However, I generally did not especially enjoy writing for school.

I enjoy writing from a passion to communicate some principle or point. I write to focus attention on something of interest to me. I write to produce the result of attracting people in to specific conversations with me. I write to provoke interaction. I write to lead.
 
bob feldman grandfather and grandkids
When I write, I often write about some perception that I have which others seem to lack, and which I sense could be of value to them. I write to contribute to clarity- the clarity of others and also to my own clarity. I will give some examples below.
 
First, writing requires a private, uninterrupted creative process. I am writing at 5 am now- a time that is typically quiet. I write at a wide range of times throughout the day- whenever I am ready. Reading does not require quite as much focus as writing, but it can also be very attractive to have privacy and quiet when reading, right? By the way, I highly recommend that you have a setting that allows you to focus when reading this particular composition….
Anyway, writing songs for me has been to share with others to impress them (get them to like me) as well as therapeutic. The musical aspect of song-writing is quite distinct from just writing like this, where I can also include images and tables of data.
 
lady with fan of cash
 
Money is a rather useful thing. I knew when I began to write this morning that I would say a few things about money.
 
Many people seem to me to be quite confused about money. Some of us may even be afraid of having “too much money,” and so we may cling to confusions about money rather than allow for clarity.
 
Untitled
So, some people may resist the simplicity of the following points about money. Some may intensely reject the points or say they are nonsense (because they may conflict with some pre-existing ideal) or that they do not really care about them (but then, contradicting the alleged lack of concern and interest, they may think to present some rebuttal or explanation of why they do not have any interest in devoting any attention to the subject they are explaining why they do not have any interest in).
 
To me, those are all signs of fear. Intense rejection (arguing passionately against something) is natural when there is a perception of a threat. If the following words are perceived by you as a threat to some cherished, sacred model which is challenged as potentially inaccurate or imprecise by some comment below, then I would fully expect you to ridicule the point or- even more revealing- to ignore the point itself and instead criticize the author for making it. That is to push the perceived threat away. That is very reasonable and also a very common response to some of my comments on money and economic trends, which I have been publishing for over 10 years.
It involves courage to face certain realities and some people are just not interested enough in something to move through fear in to courage. After all, you may want people to think that you are not interested in money (what it is, how to accumulate it efficiently, and why one might wish to accumulate it).
 
 
So, let’s start with what it is. How would you explain the term money to a young child? If a person from a primitive tribe asked you about some money that you carry around with you and what is so unique about those objects, what could you say? What differentiates paper that is money from other paper? What differentiates rounds metal tokens that are coins from other round metal objects, like a button or a washer?
 
Money of course is particularly useful for influencing the behavior of other people. You can use it to buy items from a merchant or to buy services from an employee or contractor. But why is money useful for influencing the actions of others?
 
I am using the term money to refer to a particular accounting unit that is declared by a specific institution to be an acceptable form of payment for the tax liabilities invented by that institution. For instance, a casino token is not money unless the operators of the casino go out and coerce people to exchange other things for their token. Likewise, if an operation of organized extortion stops functioning (like the Confederate States of America after their military defeat in the 1860s), then their paper contract which previously was money within the territory of their operation is no longer money because there is no demand generated by their ongoing threat of violence for non-payment of taxes (threats of levy, garnishment, arrest, seizure, foreclosure, bankruptcy, etc…).
 
In simpler terms, money is whatever a functioning court system declares to be money. The reason it is money is because that court system says they will accept the money to pay the tax claims which they invent and extort from the public.
When the “enforcement” of their system of extortion (“taxation”) is strong, compliance rates are very high. In contrast, if the public senses that the threat of repercussions for non-compliance with a tax system is decreasing, it is typical that rates of compliance will also decrease. Further, if the tax system gets “too effective,” then some people will eventually move their business to other tax jurisdictions that are more attractive to them.
 
In very simple terms, money is the accounting unit declared to be sacred by a particular system of coercion. Some people find this definition confusing. However, this is a very useful way of defining money.
 
When you walk in to a temple building past the huge columns and the security guards and then you sit down in the courtroom and the ruling priest of the temple dictates to you what you must pay to the clerk of the temple and then finally threatens you with a ritual of human sacrifice for non-compliance, or threatens the tortures of their Inquisition, or threatens an invasion and occupation of your farmlands by Crusade, then their threat is sacred. It is backed by “the full faith and credit” of the operation of organized coercion for whom the ruling priest is issuing the threat. 
 
 
Of course, these definitions of money may be somewhat unfamiliar. You may be reading formations in language that do not precisely fit with things that you may have been repeatedly told in your youth.
You may have been a participant in a ritual in which you were given particular phrases as “the correct answer” and then manipulated in to repeating those phrases and writing them down so as to advance through the ranks of the system. They were testing you. They were training you. They were programming you.
They were influencing your attention and your perceptions and your behavior. They were promoting your compliance.
It is also quite reasonable and predictable that a publicly-funded training program would promote that participants in the training programs be loyal donors to the tax collection agencies of that system. Should we expect a system to last hundreds or thousands of years and not promote compliance through a variety of methods, such as publishing sensationalized stories of the punishments administered to those who do not comply?

 

Now, the point of all of the preceding was to establish that the public demand for a particular form of money is entirely rooted in the existence of tax systems. When a tax system demands of people that they accumulate a particular sacred object as money, that creates public demand for that sacred object. When a tax system collapses, public demand for their sacred object also collapses.

The only reason that the public want money is because they expect it to be useful in the future. In particular, they expect it to be useful for paying taxes (and avoiding arrest and collection activities by tax agencies).

Because lots of people expect that sacred object to be useful in the future for paying taxes, they also can use money in transactions with other members of the public. Everyone values that money as sacred because the court system of coercive taxation demands that everyone pay taxes using the dictated sacred objects.

By the way, court systems are all violent. Justice (as it is defined by the patterns of human behavior called “court systems”) is violent. Justice is coercion, violence, extortion, intimidation, taxation.

When a court system collapses (or is invaded and taken over), then their system of “justice extortion” may no longer produce public demand for the sacred object of their system of justice extortion. For instance, when the USA invaded Mexico and “annexed” the territory now called Texas, a new currency was in demand in Texas. A new ruling system of justice extortion was in operation.

If there were other local systems of extortion in Texas, like gangs and Indian tribes and mafias and Catholic Inquisitions of tithing, those systems are distinct in their lack of widespread geographic influence. In a “county court system,” every taxpayer who “owns” property (real estate) in that county must pay property taxes or else their tenancy (legal access) will be ended in a tax lien foreclosure auction.

In modern-day Catholicism, however, the tithing is voluntary. Non-Catholics may not be terrified of going to hell for not paying tithes to that system. The images of torture and ritual human sacrifice so popular in Catholicism may only terrify a small percentage of a local population in to contributing 10% of their productivity to “promoting the common good” or whatever other mythology is presented by a ruling system of governing human perceptions and behaviors.

So, what is the fundamental difference between a Crusade that is publicly declared by a Pope and a “World War” in which a group of systems of “justice extortion” collaborate to invade a competing system? There is no fundamental difference. All political invasions are violent. The new recipient of tithes or taxes or tributes or treasures may be called a Pope or a Pharaoh or a Queen or a Holy Senate. Their title is trivia.

Empires are just institutionalized piracy. The fact that their violence and extortion and justice are institutional only increases the demand for their sacred object all the more.

Again, all of the preceding has been to gradually “disturb” your presumptions and confusions, to confront you with an opportunity for clarity. Systems of coercive taxation are the ONLY foundation for the public demand for the sacred objects dictated to be acceptable as “money” by that system of coercive taxation.

Now, here is why I mentioned all of that. There is a major shift underway.

Public demand for cash is shifting. I wrote about it in 2003. I just was not as provocative and daring and clear in my presentations. Also, by 2003, the shift was not as obvious as today in 2013.

Here is what shifts public demand for money- changes in any of the following:

1) Demand produced by governments through taxes, fines, licenses, etc….

2) Actual supply of money

3) “Velocity” of money (how willing people in general are to spend it, measured by how many times money changes hands in a given period of time.)

Many people focus on the second item only. Why? Because that is what they are programmed to do by the media and public school indoctrination.

They call it “a concern for inflation.” It is largely a distraction. That is why those people are so often surprised (as in the 1980s, when the spike in metal prices of the 1970s abruptly collapsed).

Let’s start with the first item on the list above. If governments lower tax rates, that lowers the demand for money. If governments increase tax rates, that increases the demand. Got it?

There’s more though. When governments give hand-outs (corporate welfare or socialist welfare or even setting up public systems of education or health care), that redistributes money to the recipients of the government benefits or government spending.

For instance, when governments “rescue” the real estate industry with special loan programs for veterans and tax credits for first-time buyers and so on, that raises overall prices for real estate, right? That also counters the demand caused by taxation (reducing the demand by increasing the supply of money to those beneficiaries, to those favored expenditures).

Tax favoritism for health care MUST raise health care prices. Tax favoritism for IRAs has the same inevitable result on stock market prices.

So, demand for the sacred money of a particular tax jurisdiction is not as simple as tax rates (income, sales, etc). In fact, the income tax system in the US is so complex that one might suspect that lawyers wrote it specifically to create a market for the hiring of tax attorneys and CPAs!

Further, there are things like criminalizing the possession of alcohol or marijuana. Such criminalization schemes can be extremely lucrative for governments, resulting in the collection of huge fines and the seizure of automobiles used for the transportation of criminalized substances.

Is it illegal to sell fresh (raw) milk in your state? If so, then the government may not only confiscate your milk (which they will just discard), but also your computers and your vehicles and your farm. Why? Because you were using those things for criminal activities.

Will the government auction those items and then keep the revenue? Of course!

Mixed Media Installation by Tony Oursler: 20 F...

Mixed Media Installation by Tony Oursler: 20 Franc / Baronian Francey / The Armory Show 2010 / 20100305.7D.03963.CC / SML (Photo credit: See-ming Lee 李思明 SML)

What if you are a Native American repairing your roof? That is a crime in some places. Someone could be arrested and held in jail until someone else brings thousands of dollars (thousands of units of the sacred object) to “bribe” the rulers to release them.

So, when governments face serious budget crunches, one thing they may do is increase enforcement of existing revenue-producing activities (raising quotas to issue more speeding tickets, etc…). They can also raise the fines for speeding (or for selling raw milk or repairing a roof illegally).

Is your building up to code? Well, even if it is right now, what if the government alters the building code and now your building is not up to code? Of course, that is great for the renovation specialists. For others, it is not so great.

Due the to ADA, lots of businesses in the midwest of the US were forced to close. It was just too expensive to install elevators for disabled people. Many small businesses did not have an extra $15,o00 to comply with the new code. Their commercial property suddenly was not up to code and the value of those properties plummeted.

Why would the government want to charge thousands of dollars for inspections and licenses that drive up most real estate prices? Why not! Mandatory inspections and building licenses (plus stiff fines for non-compliance) increase demand for the sacred object of the governing systems of justice extortion.

As for “money supply,” most people do not understand that the credit bubble greatly skews people’s perception of the supply of money. If it is easy to get credit (like from a bank to buy real estate with mortgage financing), then obviously that will balloon the prices of favored markets like real estate (temporarily). What is not so obvious is that “easy credit” (from furniture stores, car dealerships, credit card banks) also creates a PERCEIVED increase in the total supply of money.

It does not create any extra money when a furniture store says “if you give us $200 on this bedroom set, then we will let you take it home and keep it as long as you pay us $100 per month for the rest of the year.” What is created when people enter in to debt contracts like that is FUTURE DEMAND for cash.

No additional cash is created by the issuing of credit by the furniture store. However, people THINK like there is more money available to them when credit is extended. That is understandable.

If I have $200 and I can get $2000 of furniture for only a deposit of $200, then it is almost like I have $2000 instead of $200. However, I will still owe a bunch of money or else the furniture store can legally come later and repossess the furniture. They still own the furniture. I owe them some amount of remaining debt.

No actual new money has been created. However, extending credit both DECREASES current demand for cash and INCREASES future demand.

In other words, the current global credit bubble both results in people ACTING like there is a lot more prosperity available to them (an increased supply of money in stock for that individual or business) as well as making a HUGE future demand for cash. When the credit bubble starts to deflate (shrink), all of that accumulated demand for cash will result in a huge increase in purchasing power (a collapse in prices across all markets). That is what has happened in Japan in recent decades and it happened in several countries in the 1930s and numerous other times.

japan 21 years

Deflation is simply the releasing of that postponed demand for cash. That is what drives down prices of speculative bubbles and their speculative assets (like real estate, stocks, and gold).

When people promise to pay $200,000 across the next few decades for a particular real estate investment, that does not increase their personal supply of cash at all. That increases their future demand for cash however by $200,000.

Adding up all of the contractual promises of mortgage borrowers and insurance companies and so on, we can see that there is a huge accumulated demand for cash. Imagine that $10 trillion of promises are all chasing $1 trillion of actual money available. Those promises are not an increase in money supply by a single dollar. Instead, that is a huge bubble of demand for cash.

When that demand eventually gets “priced in” to the actions of the masses, the “cash crunch” can also be called a “credit market crisis.” All new debt contracts produce a future “crisis” of meeting the extra demand for cash. When such a surge in demand for cash to pay off old loans all happens at once, like I forecast in 2003 (along with lots of other competent forecasters), that is called a crisis.

It is just a budget crisis. The mainstream media and public school curriculums can present it as a great mystery, but there is nothing mysterious about it.

For instance, the government of Greece accumulated lots of promises to make future payments to it’s creditors (bond-buyers). Eventually, Greece was challenged to fulfill the old promises (meet the demand for cash that they had accumulated).

We may think that the government of Greece could just do what Icelanders did and default. However, there are some differences. Iceland is not in the EU and does not use the Euro as money. Iceland is a long way geographically from mainland Europe and has a population much smaller than any of the first 27 states of the EU.

The Euro currency system is the world’s newest major governing system. Just as 13 independent states in in the late 18th century unified to create the “united States of America,” so have 27 countries in Europe unified under a new central bureaucracy (which dictates the central tax rates that create the fundamental demand for the Euro currency).

The last item on my list was “velocity of money.” The idea is that when people think it will be easy to pay their debts and their taxes and their basic living expenses, they are liberal with spending. When they think it may be challenging, they are conservative with spending.

If a hurricane or earthquake or wildfire interrupts their plans (and contractual promises), they get conservative really fast. If a new contagious disease breaks out and terrifies people, again, they get very conservative- clinging to what is familiar at first, but perhaps desperately opening in a panic to anything that might be somehow helpful.

Now, if a new extortion racket comes to town and says “everyone in Iceland now owes 2% of every transaction to the EU as a sales tax,” then that actually slows down the economic transactions.  People spend a little less. People spend a little more slowly. People hold on to more money longer and save more money “for emergencies” and are more conservative about debt and credit.

The velocity of money declines. Conservatism increases. Liberalism declines or disappears. People cancel their parade when a hurricane warning starts to knock over a few trees, right?

So, there is a shift in regard to how people perceive money. Many myths are about to collapse. Many confusions are about to be clarified. Those who are clear early and act early on that clarity may have very different results than those who focus elsewhere, who are terrified by competent analysts and forecasters, who argue and ridicule rather than slow down and contemplate and inquire.

Who shall inherit the earth and receive the fullness of the blessings of the kingdom of heaven? Will it be the meek and humble and curious and dignified… or the naive and dismissive and argumentative and belligerent and terrified?

Easy Money

Easy Money (Photo credit: @Doug88888)

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