[MonteQuest]

As we know, all money today is created as bank debt, but people can no longer take on more debt. The money supply has shrunk along with people’s ability to borrow new money into existence. Quantitative Easing (QE) involved the central bank creating reserves and using them to buy bad financial assets - mainly government debt in a liquidity swap that did not increase the “money supply.” Instead, it made unusable “money supply” usable. Quantitative easing (QE) attempted to re-inflate the money supply by giving money to banks to create more debt, but that policy has failed.

Some are arguing it’s time to try dropping some debt-free “helicopter” money on Main Street.



Helicopter money would involve the FED creating reserves and then giving it away to the general public via a deposit into their bank account like the tax rebate we all received a few years back. A tax rebate involves the government creating more debt, which the central bank would then buy under QE. With helicopter money no additional government debt would be created.

Of course, tax-free rebates and helicopter money are meant to be a stimulus for new spending, and not an “increase in the money supply.” It would make a part of the “money supply” accessible to consumers to spend. The FED, using monetary policy could rein in the “money supply” via interest rates, bond selling, etc.

In a no-growth post-peak future, this is the only mechanism I can come up with to increase the “money supply” when bank loans are no longer possible. Of course, these helicopter drops would have to drop an amount equivalent to the rate of debt repayments and debt defaults. Currently, that is the sum of $60 trillion dollars. The money supply is currently $15 trillion dollars, of which $1.34 trillion is in cash, so that means $45 trillion would be needed in electronic drops to service the debt.

However, as banks fail and the stock market crashes, that $60 trillion in debt will be wiped out—but so will an equal amount of wealth as one person’s wealth is another’s debt. $1.34 trillion would probably be more than enough physical “money” for transactions, and there could be trillions more in circulation as people liquidate assets for cash in the flight to safety. Initially, as Pops says, “cash will be king.” But when the dust settles, will physical dollar bills be worth any more than pieces of paper with IOU written on them? In a no-growth environment what would give either medium any value? The faith that gives them value is gone.

[MonteQuest]

So cash will be King, but the debit card won't work?

Not once the banks fail. Business won't accept them. Before that, the ATM's will empty.

[MonteQuest]

The difference with the buck in the GD was it was backed by gold at least until '34.
Prices fell until then but turned around and rose thereafter.
So deflation then inflation.

Yes, this time it is backed by "faith."

[onlooker]

"The faith that gives them value is gone" And that would be the end of the debt based economic system.

[MonteQuest]

Personally, my biggest goal has always been to own a piece of land as free and clear as possible. In my mind, something, anything, is better than being homeless. You won't save any "wealth" because if things fall apart asset values will have disappeared but you will have a place to squat. I realise everyone can't own a place, sorry.

Beyond that the list is the same as it ever was: tools, skills, knowledge.

On that point, we are in total agreement, Pops! I got the land, the house, the tools, the skills and I am still learning.

[MonteQuest]

I admire and appreciate your civility, Pops!

Thanks, Monte.

Once a person gets used to the idea their opinion is nothing but opinion, civility becomes pretty easy, LOL

.

You are welcome. In my old age, I have learned patience when trying to explain my opinion. That, and a good debate helps me learn. I know more now about this than when I started, as I had to google for data to back up my points.

[evilgenius]

Using the term cash or dollar clouds this discussion. Why?

Consider that all new money is created as a digital entry into the bank account of the person taking out the loan.

New money is not created in the form of dollar bills. The amount of dollar bills in circulation varies according to the needs of society to perform physical transactions, as determined by the FED. It is just a way to carry an electronic deposit on your person. In the future, physical money "cash" may disappear altogether, and be replaced with electronic devices--just like they are being done right now with debit cards.

When I say 'cash' I mean just that, not the virtual kind of money both of us know is created via borrowing. What I mean when I say cash would be king is that, given that people still had faith in the currency, something like a thin dime would have immense buying power. With so little actual cash in the world most people would have no money. Owning a spare shirt would be an example of wealth which most people would admire. You would still have fabulously wealthy people, but they would most likely be connected to the form of government that ruled the people. They would need to be or it could easily be taken from them.

The world used to be that way. We have a contemporary understanding of a much better world, where because of the ability to invest it is different. Capitalism allows individuals to make choices. It doesn't place the power of making those investment choices into the hands of the king. Neither does it guarantee success. I think it is a mistake to assume that cheap energy is the sole component underlying that. But, yes, accept the doubts and wear the robe of complaint as a society and it might be possible to fall back into despotic kingdoms and brutality as a way of life. It could spiral that way if we let it past the threshold.

Life might also devolve away from cities under such a cruel future. Most people would be reduced to whatever they could provide for themselves. The reason, for instance, why a spare shirt would become so ostentatious would be that in order to have cloth you have to weave it yourself. There wouldn't be any just running down to the fabric store because the fabric store owner wouldn't exist. You'd have weavers shops, where supply was limited to what was connected to the land.

But what really happens when a huge portion of the people within an economy go bust all at the same time? Obviously, you get a lot more homeless people. Their ranks swell under such conditions, but that isn't where everybody winds up. Mechanisms exist for people to maintain a semblance: aid, friends and family. It can't be compassion alone that sustains the system either because emotion runs on batteries and doesn't have a means to plug into the wall, so to speak. There are other things beyond the milk of human kindness that sustain the system, fear, greed, empathy, etc. It isn't necessary, in other words, to come from a touchy feely place in order to see that doing unto others as you would have done to yourself is the way to go. These things are also what the system collapses down to when it collapses down to something. Assuming that it might collapse beyond that, into savagery, is to make the same mistake most people make when they conflate ethics with religion, saying that if there is no God then we all ought to eat, drink and be merry. Not seeing that there is a foundation for ethics well beyond religion is akin to not seeing that within a free market structure there are other things that lead to growth than the well advertised and marketed channels for investment we are all so used to.

[MonteQuest]

But what really happens when a huge portion of the people within an economy go bust all at the same time? .. Assuming that it might collapse beyond that, into savagery, is to make the same mistake most people make when they conflate ethics with religion, saying that if there is no God then we all ought to eat, drink and be merry. Not seeing that there is a foundation for ethics well beyond religion is akin to not seeing that within a free market structure there are other things that lead to growth than the well advertised and marketed channels for investment we are all so used to.

Given the complexity of our society, and the widespread divorce from the means of our subsistence, when the wheels come off, even good manners, sharing and a simple life won't stave off the inevitable. Scarcity breeds poverty, and poverty breeds conflict. We will fight over the remaining resources.

[evilgenius]

I think what's underpinning the current problems is not peak oil, but a very unfortunate misunderstanding of the role of wages within the system. For most people what they borrow is repaid out of their wages. While the Fed has little trouble allowing people to go into debt they have instituted a policy of making damn sure that wages are kept in check. Like right now, beginning with the most recent Fed rate hike in December of 2015, the target of that hike is wages. The thing that blew up the economy in 2007-2008 was not too much debt, but too much debt on the part of people whose wages were not high enough to pay off their debt. You can argue that sub-prime went so poorly because it was populated by people who did not have the intelligence to have access to credit, but I think you'd be wrong.

I don't think the current system has a way of addressing the wages of the lowest income earners while not bursting the seams at the mid and upper tiers. Witness the fast food workers continuing fight for $15 an hour. There is a kick over that happens in many people's minds when they try to appreciate that. It sounds like a lot of money to some. To others they wonder why those people don't do something else, and leave the fast food wage structure alone. Empathy, one of the bedrocks of ethics, isn't about seeing everybody else, however, as you, but about seeing yourself in their shoes, including coming from some other background or having certain disadvantages. Some people will be locked into certain job arcs, not just fast food, in other words. Using a wage structure that doesn't rise with everything else within an economy in order to punish them for their class has, I think, proven to be a failure.

So far there has been no real movement toward an idea of economic suffrage that deals with this. The structure of the system itself would have to change. I suppose it's very much like calling a constitutional convention, the gravity of doing such a thing precludes doing so unless there are some real ideas out there as to what to do. Otherwise, it is far too important to all lives going forward to meddle with what is already working, even if it is limping along.

[MonteQuest]

Witness the fast food workers continuing fight for $15 an hour. There is a kick over that happens in many people's minds when they try to appreciate that. It sounds like a lot of money to some. To others they wonder why those people don't do something else, and leave the fast food wage structure alone.

I hear this argument all the time from conservatives. "Get a better job that makes more money." But then who does the job they just left? It's almost like they are saying that minimum wage jobs are to be avoided by anyone with a lick of sense, while at the same time just hand-waving away the reality of low-paying jobs for millions of people performing the myriad of service jobs necessary for society to function.

It's like the lords are proclaiming the serfs need not afford health care or to feed their family. Be quiet and compliant in your position.

[careinke]

I think what's underpinning the current problems is not peak oil, but a very unfortunate misunderstanding of the role of wages within the system. For most people what they borrow is repaid out of their wages. While the Fed has little trouble allowing people to go into debt they have instituted a policy of making damn sure that wages are kept in check. Like right now, beginning with the most recent Fed rate hike in December of 2015, the target of that hike is wages. The thing that blew up the economy in 2007-2008 was not too much debt, but too much debt on the part of people whose wages were not high enough to pay off their debt. You can argue that sub-prime went so poorly because it was populated by people who did not have the intelligence to have access to credit, but I think you'd be wrong.

I don't think the current system has a way of addressing the wages of the lowest income earners while not bursting the seams at the mid and upper tiers. Witness the fast food workers continuing fight for $15 an hour. There is a kick over that happens in many people's minds when they try to appreciate that. It sounds like a lot of money to some. To others they wonder why those people don't do something else, and leave the fast food wage structure alone. Empathy, one of the bedrocks of ethics, isn't about seeing everybody else, however, as you, but about seeing yourself in their shoes, including coming from some other background or having certain disadvantages. Some people will be locked into certain job arcs, not just fast food, in other words. Using a wage structure that doesn't rise with everything else within an economy in order to punish them for their class has, I think, proven to be a failure.

So far there has been no real movement toward an idea of economic suffrage that deals with this. The structure of the system itself would have to change. I suppose it's very much like calling a constitutional convention, the gravity of doing such a thing precludes doing so unless there are some real ideas out there as to what to do. Otherwise, it is far too important to all lives going forward to meddle with what is already working, even if it is limping along.

A solution for this is easy. Getting the politicians to buy off on it, would be hard.

I would not set a minimum wage using a dollar amount. Instead, I would limit the highest paid company executives compensation to 30 times the lowest employees pay, recalculated yearly. This would be a requirement to get a business license in the US.

I feel this would have a more positive impact than a minimum wage. For example:

1. It gives smaller companies an advantage over large mega corporations, opening up competition and innovation.

2. Since corporations are already an invention of government, (Hence the need for a license), it is legal for government to apply this rule.

3. There is no upper limit on what the executives can earn, they just have to bring their employees along with them.

4. Disparity of wealth has been a factor in most civilizations collapse. This would help alleviate it.

You could enforce it with mandatory jail time for the CEO, CFO and the next five highest paid people, if the rule was broken no mater the circumstances.

[Tanada]

A solution for this is easy. Getting the politicians to buy off on it, would be hard.

I would not set a minimum wage using a dollar amount. Instead, I would limit the highest paid company executives compensation to 30 times the lowest employees pay, recalculated yearly. This would be a requirement to get a business license in the US.

I feel this would have a more positive impact than a minimum wage. For example:

1. It gives smaller companies an advantage over large mega corporations, opening up competition and innovation.

2. Since corporations are already an invention of government, (Hence the need for a license), it is legal for government to apply this rule.

3. There is no upper limit on what the executives can earn, they just have to bring their employees along with them.

4. Disparity of wealth has been a factor in most civilizations collapse. This would help alleviate it.

You could enforce it with mandatory jail time for the CEO, CFO and the next five highest paid people, if the rule was broken no mater the circumstances.

I admit this idea has merit and is worthy of some deep cogitation. Guidelines are IMO a much more effect approach than a set limit of any sort, they encourage people to innovate the best way to fit within the guides while garnering the most benefit for themselves. Laws just breed lawyers who twist and distort the supposedly hard fast limits. You don't need a lawyer for a guideline.

[Quinny]

Like the 'self regulation' of the banking industry or the press, you must be having a laugh.

[evilgenius]

When addressing the shortfall in wages there is another culprit, healthcare. A lot of businesses will tell you that they have been paying their workers more over the years, it just hasn't been showing up in their take home pay. It has been going to pay for sky rocketing increases in healthcare coverage.

This sounds like a good trade-off, but it might not be. First of all, it doesn't give those who receive the services an opportunity to manage the costs themselves. It leaves it up to the employer, who is very happy to take it out pre-tax. Pre-tax is bad because it distorts the amount that can be thrown at the expense, making price increases harder to keep up with for those who do have to pay for it themselves. It also doesn't encourage a set of choices that people at different stages of life might appreciate over what is actually offered.