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A Message To All Libertarians, Anarchists And Even Some Conservatives.

Self-Knowledge Government Politics

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52 replies to this topic

#36
Dylan Lawrence Moore

Dylan Lawrence Moore
  • 476 posts

You still didn't answer my initial question of if the US dollar is backed by nothing, how was and is the USA supposed to settle balance of payment issues with other countries being a debtor nation? The art of the unseen or implicit. 

 

Foreign exchange market and central banks. Let's start with Carroll Quigley from Tragedy & Hope page 63:

 

 

Western Civilization to 1914

International Financial Practices

 

The financial principals which apply to the relationships between different countries

are an expansion of those which apply within a single country. When goods are
exchanged between countries, they must be paid for by commodities or gold. They
cannot be paid for by the notes, certificates, and checks of the purchaser's country, since
these are of value only in the country of issue. To avoid shipment of gold with every
purchase, bills of exchange are used. These are claims against a person in another country
which are sold to a person in the same country. The latter will buy such a claim if he
wants to satisfy a claim against himself held by a person in the other country. He can
satisfy such a claim by sending to his creditor in the other country the claim which he has
bought against another person in that other country, and let his creditor use that claim to
satisfy his own claim. Thus, instead of importers in one country sending money to
exporters in another country, importers in one country pay their debts to exporters in their
own country, and their creditors in the other country receive payment for the goods they
have exported from importers in their own country. Thus, payment for goods in an
international trade is made by merging single transactions involving two persons into
double transactions involving four persons. In many cases, payment is made by involving
a multitude of transactions, frequently in several different countries. These transactions
were carried on in the so-called foreign-exchange market. An exporter of goods sold bills
of exchange into that market and thus drew out of it money in his own country's units.
An
importer bought such bills of exchange to send to his creditor, and thus he put his own
country's monetary units into the market. Since the bills available in any market were
drawn in the monetary units of many different foreign countries, there arose exchange
relationships between the amounts of money available in the country's own units (put
there by importers) and the variety of bills drawn in foreign moneys and put into the
market by exporters. The supply and demand for bills (or money) of any country in terms
of the supply and demand of the country's own money available in the foreign-exchange
market determined the value of the other countries' moneys in relation to domestic
money. These values could fluctuate — widely for countries not on the gold standard, but
only narrowly (as we shall see) for those on gold.

 

A foreign exchange market exists where there is generally enough currency available for any given nation's money that it's readily exchangeable. Back in the day of the gold standard, as Quigley points out here, any time there wasn't enough specific currency available, actual gold needed to be shipped between countries to settle accounts.

 

The modern day is a little different, as there is no gold-standard; currencies aren't backed by anything.

 

The foreign exchange market still exists. So if US Company pays CAN Company in USD, CAN Company can simply go to the foreign exchange and turn their USD into CAD. In the event that there isn't enough currency available on the foreign exchange, CAN Company can go to the Canadian Central Bank and exchange the money there. In this case, the Canadian Central Bank prints/creates new money to do the exchange, then holds USD on reserve, because they aren't able to print/create their own.

 

Now you asked specifically about the US government: "how was and is the USA supposed to settle balance of payment issues with other countries being a debtor nation?" The US has the option to use commodities, of which oil certainly could be one of them, but the US can pay same way that international companies pay each other: by making stuff up at the printing press and trading on the foreign exchange.


Ok 2 examples to make my point.

 

Would a policeman?

a) Prevent injuries to the public.

b) Prefer or appreciate more people being knifed to death.

 

Would a locksmith?

a) Make locks to keep horses in the stables. Cut keys etc

b) Prefer or appreciate more break ins, to provide security.

 

If the later they are not a policeman and they are not a locksmith. 

 

In the same way "Guns don't kill people, I do". (Postal II)

Tools don't give value to people, people give value to tools. Behind the tool there is a fundamental desire or need, in the person.

 

I really don't understand what's being misunderstood here. The fact that I can use US dollars to pay taxes, and thereby prevent the violence of the state from seizing my property or throwing me in prison, makes US dollars VERY valuable to me. My preferences don't really matter.


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#37
RichardY

RichardY
  • 366 posts

The modern day is a little different, as there is no gold-standard; currencies aren't backed by anything.

 

Yes they are, they are backed by the USD, which has World Reserve Currency status.

 

The foreign exchange market still exists. So if US Company pays CAN Company in USD, CAN Company can simply go to the foreign exchange and turn their USD into CAD. In the event that there isn't enough currency available on the foreign exchange, CAN Company can go to the Canadian Central Bank and exchange the money there. In this case, the Canadian Central Bank prints/creates new money to do the exchange, then holds USD on reserve, because they aren't able to print/create their own. 

 

Now you asked specifically about the US government: "how was and is the USA supposed to settle balance of payment issues with other countries being a debtor nation?" The US has the option to use commodities, of which oil certainly could be one of them, but the US can pay same way that international companies pay each other: by making stuff up at the printing press and trading on the foreign exchange.

 

If they are making stuff up then they are not paying each other. Oil is often priced in USD or EURO's, which gives the United States or Europe the chance to buy up commodities before inflation in commodity prices. They can only do this with countries like Saudi Arabia because they back the regime with weapons. If like Gaddafi they choose to take payment in Gold, well after shaking his hand and releasing the Lockerbie Bomber....

 

As you quoted from Carroll Quigley "Bills of exchange" were often used as claims against the assets of the other person, which may fluctuate on the foreign exchange market. The Government alternative would be the sale of monopolies to foreign creditors, as is happening with Nuclear Power in the UK and mid-west solar power in the USA. Eventually though the government is going to run out of assets to plunder.

 

I really don't understand what's being misunderstood here. The fact that I can use US dollars to pay taxes, and thereby prevent the violence of the state from seizing my property or throwing me in prison, makes US dollars VERY valuable to me. My preferences don't really matter.

 

But you haven't prevented the seizure of your property. The fact something is demanded through violence does not provide value to it. People in the government can demand all the Gold and bits of paper in heaven and Earth, but it isn't going to provide value to it. Paying taxes out of desperation, for potential future freedom maybe a good idea, the Soviet system could not function without gulags.  

 


 


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#38
neeeel

neeeel
  • 589 posts

 

Yes they are, they are backed by the USD, which has World Reserve Currency status.

 

 

 

If currencies are backed by USD, and USD is backed by nothing then ?????


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#39
RichardY

RichardY
  • 366 posts

If currencies are backed by USD, and USD is backed by nothing then ?????

The USD is backed by oil,  who ever gets hold of the US dollars first gets to buy commodities first before inflation sets in. Even something like Bitcoin could be said to be measured against the USD, most people want to pay the lowest price they can quality being equal. Maybe there is a local currency somewhere that only has value in its region, but I think that's pretty rare most people need oil in one form or another. How many people would prefer to take USD in Africa or S.America rather then their local crap currency.


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#40
shirgall

shirgall

    Bacon

  • 2958 posts

If currencies are backed by USD, and USD is backed by nothing then ?????

 

The currency is backed by being the only way to legally pay US taxes and the only tender used by the US government to buy goods and services.


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#41
Dylan Lawrence Moore

Dylan Lawrence Moore
  • 476 posts

The currency is backed by being the only way to legally pay US taxes and the only tender used by the US government to buy goods and services.

 

Ding!


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#42
RichardY

RichardY
  • 366 posts

The currency is backed by being the only way to legally pay US taxes and the only tender used by the US government to buy goods and services.

How is economic price calculation performed then? 


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#43
shirgall

shirgall

    Bacon

  • 2958 posts

How is economic price calculation performed then? 

 

Individually.


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#44
RichardY

RichardY
  • 366 posts

Individually.

Based on, subjective preferences?

 

How would a project such as an oil rig or mine be calculated to be potentially profitable?

 

If the USD is backed by taxes, does the USA have the tax base to cover foreign debt obligations? If not, then how is it backed by taxes.


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#45
shirgall

shirgall

    Bacon

  • 2958 posts

Based on, subjective preferences?

 

That's exactly how prices are determined: What am I willing to give to get what I want?

 

And, amazingly enough, both sides of free transactions come out with more they went in with.


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#46
RichardY

RichardY
  • 366 posts

That's exactly how prices are determined: What am I willing to give to get what I want?

 

And, amazingly enough, both sides of free transactions come out with more they went in with.

So taxation is not subject to economic price calculation, but central planning? There is a concept called the "Laffer Curve" that beyond a certain  marginal tax rate, tax revenues are greatly reduced. For example if particular marginal tax rates for various industries were at 90% as they were during WW2 then tax revenue in that area, was and would be probably greatly reduced. As a whole therefore, if the dollar is backed by taxes, there would be a particular marginal tax rate beyond which people would probably opt for leisure then work or the black market. With the end result being that taxes would have to be reduced or more draconian measures taken to maintain the size of the state. Beyond what tax rate does the USD cease to be viable or is it backed by tax at all levels of taxation.   

 

---------

 

A thought occurred to me of the concept of exclusivity. The Swiss Franc is often seen as a stable currency, perhaps this in partial due to some of the exclusive Swiss companies such as Rolex, Victorinox  and probably some other very high tech manufacturing ones. Perhaps there is some exclusivity in "good" products only offered in bitcoin somewhere.


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#47
shirgall

shirgall

    Bacon

  • 2958 posts

So taxation is not subject to economic price calculation, but central planning? There is a concept called the "Laffer Curve" that beyond a certain  marginal tax rate, tax revenues are greatly reduced. For example if particular marginal tax rates for various industries were at 90% as they were during WW2 then tax revenue in that area, was and would be probably greatly reduced. As a whole therefore, if the dollar is backed by taxes, there would be a particular marginal tax rate beyond which people would probably opt for leisure then work or the black market. With the end result being that taxes would have to be reduced or more draconian measures taken to maintain the size of the state. Beyond what tax rate does the USD cease to be viable or is it backed by tax at all levels of taxation.   

 

---------

 

A thought occurred to me of the concept of exclusivity. The Swiss Franc is often seen as a stable currency, perhaps this in partial due to some of the exclusive Swiss companies such as Rolex, Victorinox  and probably some other very high tech manufacturing ones. Perhaps there is some exclusivity in "good" products only offered in bitcoin somewhere.

 

Taxation is determined by pushing it as far as they can to maintain a level of consent. Still determined by individuals.


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#48
Dylan Lawrence Moore

Dylan Lawrence Moore
  • 476 posts

If the USD is backed by taxes, does the USA have the tax base to cover foreign debt obligations? If not, then how is it backed by taxes.

 

The USD is not backed by taxes. It is backed by nothing. The act of taxation gives otherwise meaningless paper and digital tokens value.


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#49
RichardY

RichardY
  • 366 posts

So taxation is determined by consent?


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#50
shirgall

shirgall

    Bacon

  • 2958 posts

So taxation is determined by consent?

 

What the market can bear, so they say.

 

when I moved from the bottom of Washington to near Seattle my sales taxes went up 25% and property taxes went up a similar amount (although I rent up here). It was shocking the general difference in retail demeanor for such a seemingly small difference. Taxes change very slowly so no one senses the shock that I did.

 

Property taxes were hiked around me in the recent election. It was a close change, but it passed.


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#51
DaVinci

DaVinci
  • 469 posts

What I still don't get is why invest in gold when you could invest in the stock market, or go to Vegas to keep the value of your money? 


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#52
shirgall

shirgall

    Bacon

  • 2958 posts

What I still don't get is why invest in gold when you could invest in the stock market, or go to Vegas to keep the value of your money? 

 

I don't think anyone advocates investing in any single thing. It's always a mix. You always hedge against one form or another of investment failing utterly. Investment isn't just assets, also. It's skills. Friends. Family. Location. Situation.


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#53
DaVinci

DaVinci
  • 469 posts

I don't think anyone advocates investing in any single thing. It's always a mix. You always hedge against one form or another of investment failing utterly. Investment isn't just assets, also. It's skills. Friends. Family. Location. Situation.

 

Sure, I've seen very rich people who have a varied portfolio including gold, but the message here is that fiat money isn't money. Gold is money. 99% of people who make this type of thread bring up that you can't go into a grocery store with a lump of gold and buy food, which is true. I'm sure there is probably an exception or two out there, but the norm is paper money gets you products. So if gold is just a way to retain value then why not play the stock market? Because that too would disappear if the economy tanked? 

 

I know some people would say that if the economy went under gold would become useable for barter, but I view this scenario the way I view the "if they drop an EMP on us I've got my non-electric car to drive into the mountains" scenario which is that being the only person to have gold is going to paint a huge target on your back. You don't need a non-electric car in the apocalypse, you need a non-electric helicopter so you can actually escape the mob. The same is true of having gold in the SHTF scenario. And no, "I've gotta gun to protect my stash" isn't a guarantee of anything. 

 

My point being, I see the value of gold in a completely civil society, but right now or if SHTF, it doesn't really make sense. 


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