To quantify the process of monetizing an economy ideally, let us examine a small closed economy (one with no imports or exports to another economy). This small closed economy has only two products and two producers. One producer grows apples and the other grows oranges. They each produce more than enough for their own consumption. They directly exchange one apple for one orange so they each may enjoy the fruits of their economy completely. These two producers desired to expand their quality of life by instituting a civil authority to establish things such as roads and police protection from criminals and instituted a civil government. They brought in an expert in the field to establish the government. The new Governor provided the desired services to the community, and, since what he provided was a service rather than a product, created currency to use to purchase apples and oranges from the producers. The value of his service was one apple and one orange per time period, the same time period in which the producers exchanged in barter their produce and received one unit of government service. The governor realized that his currency would be worthless to the economy after he had used it for the purchase and would be piling up at the producers and costly to continuously produce. So the Governor decided that his unit of currency should be used for all transactions. After he had created 2 units of currency, call them dollars, to purchase his first apple and orange he created two more to use for his next purchases at which time he would take the first two as payment for his services and created two more and gave one each to the two producers to use in their exchange of goods with each other. This provided the quantity of currency in the economy to allow one simultaneous exchange of goods and services in one time period using currency. Six dollars fully monetizes this economy.
Another producer wanted to enter the economy, a banana producer. All the existing participants had sufficient capacity to accommodate the new producer and the banana producer had sufficient capacity to supply his own needs for his product and the needs of the rest of the economy for his product. The economy welcomed the banana producer into the fold. The governor determined he would need to create six more dollars to integrate the new producer to full participation into the economy. Three dollars would be given to the banana producer to purchase an apple, an orange and a unit of government service. One dollar would be given to each of the three existing participants to purchase a banana. There are now 12 dollars in circulation which allows one simultaneous exchange of goods in the economy per time period.
Mathematically this relationship between currency and goods and services can be represented as:
MV = (GS)V
Where:
M=Money (or Currency), V=Velocity in exchanges per unit time, GS=Goods and Services
As demonstrated in the model, if velocity remains constant then quantity of goods and services exchanged in the time period must be matched exactly with the quantity of money exchanged in the time period.
Thursday, May 27, 2010
Tuesday, July 31, 2007
IDEAL MONETARY POLICY (The solution to our deficit and debt.)
In 1992 I wrote the following letter while having a brainstorming session with regards to our stagnant economy and considering how our government funding policies might be improved. I feel I developed some very valuable perspectives with regards to this during that session. I developed the following economic model and sent copies to many legislators and friends. This model implies the possibility for significant improvements to our economic environment.
Living in a democratic environment a project such as this will require strong political will on the part of the people who it will benefit. I therefore originally created this document as a letter To The People of The United States of America, and it is indeed to the benefit of the people of the world.
The Solution to Our Deficit and Debt Problem
To The People of The United States of America
In 1985 I wrote a letter to then President Ronald Reagan and Former Chairman of the Soviet Union Mikhail Gorbachev in short requesting that we put aside our differences and as two peace loving nations focus our efforts on the true enemies of mankind: poverty, hunger, disease and hopelessness. Although I never received a direct response from either, I was awed at the events which unfolded shortly thereafter. I wish to thank these men for their historical efforts and accomplishments in making this a more peaceful, secure and kinder world. I would also like to thank President Bush and all those involved for continuing this dialog and progress as best they could.
The ensuing Presidential elections, Gulf War, and break up of the Soviet Union had a diffusing effect on the processes of global progress which were and are in the works and left the United States and the rest of the world floundering in a sea of economic woes. These problems (our economic woes) can and should be addressed by maintaining our focus on improving the living conditions for all mankind of which economic shortcomings are a by-product.
During the Cold War, untold trillions of dollars were spent in promoting our ideals in defense against our enemies, and even more precious, many millions of lives. Now that we have had a meeting of the minds with our primary adversaries, we seem unwilling or unable to redirect our efforts to more beneficial endeavors. Deficit spending and the apparent inability to finance new programs has a strangle-hold on our country and our international partners.
National spending cannot and should not incur a deficit. Borrowing money has detrimental effects on the economy and is not even a viable option. For example, say that we have a country. A trusted friend and man of notable character comes to us for funds to build a medical university and hospital. We deem this to be a worthy project and of benefit to our nation. We will fund this project. We have two options that we are aware of since we don't have sufficient liquid assets to fund the program. We can create the money or we can borrow it from an international bank. If we borrow the money, when we borrow it will convert equally in value to it's present value on the international exchange. Our friend completes the project. Now our nation has a new asset. Doctors are trained. The sick have better care. Exactly the same amount of cash will be put into circulation within our country as would be if we created it. The same assets exist as would if we created the currency. Since money has absolutely no value other than reflecting the nations assets to allow a convenient method for the exchange of goods, borrowing the money does not gain us anything. The difference is now we have to levy a tax to pay off the debt incurred since we don't create money.
The profit margin of the hospital and school will be minimal or non-existant due to reinvestment to buy the latest technologies available to give their patients and students the best available services. Therefore, taxes levied will have to be income taxes.It will be quite some time before we can pay off the loan ( we approximate 25 years ) By then, we will have to pay back double what we borrowed, if we approximate the interest at 8%. Meanwhile hospital and education costs will go up because the teachers and doctors have to pay living expenses AND taxes. To maintain their standard of living, they will have to increase their rates. This same situation would be true throughout our nation. Many would not have such an immediate solution as raising their rates so their living conditions would suffer. We will remove from our country a reflection of the actual assets it has so internal reinvestment is sluggish since the international banker is not likely to spend all of his money in our country. This scenario probably sounds familiar to you. It is the driving force within our American economy. Albert Einstein once said that the most important factor in solving a problem is identification of the problem, or words to that effect. Now that we have identified the problem, we can set about solving it. In the future we should create currency for new projects and programs, but the first order of business is to remove the tax burden and pay off the debt. Raising taxes to pay off the debt would depress the economy further and another aspect of this type of economics would become more apparent: Deflation. The assets within the country remain the same or go up due to natural productivity. However, the currency within the country decreases due to removal of currency from circulation and sending it to the international bank. Less currency is available for use to represent products and available to use for purchasing. The prices of goods must drop, although their value to the user remains the same. This may appear to be a good thing at first glance, but, a closer examination will show it to be tremendously damaging to the nation. Remember when we borrowed the money initially it had a specific value equal to a specific value of another nation's currency. After we borrowed the money and used it for the project, presuming it was judiciously spent, our currency would be of approximately the same international worth. If another country's economy was not experiencing deflation there would be more of their own currency in circulation within their economy which would make it very lucrative for them to buy products in our country and sell it back to their own country taking advantage of the exchange rate. Highly automated industry in which labor was less of a factor would be extremely lucrative. Now we have products and services as well as currency leaving the country. Foreign investment in our country is a good thing, unless the primary motives are as outlined above, rather than to save shipping expenses to bring their products to our country. It produces jobs and goods without the initial investment by our government or citizens. If we created the money to pay off the debt, our currency would become inflated in the international exchange market. We would not immediately see all of the new currency within our country so the laws of supply and demand should keep prices down within our country. The banker having all this currency, in our denomination, and seeing that the best bargains for this currency are within our country, would come into our country to buy. After all, money is of little value if not exchanged for goods and services. We could refer to this as Gush Down Economics. Weapons should not be sold to the banker by our nation and hopefully no other nation would sell them to him. Weapons are of no value to the world other than to deter tyranny or aggression. There are plenty of weapons in the world and they are well enough placed to serve this purpose.
All this brings us to another important issue. How do we pay for our government? We definitely don't want to borrow the money. Should we levy a tax for it? If we do, it will have the same type of effect as borrowing the money in inflating the costs of services. If we wanted to expand the services of our government we would have to raise the taxes to pay for the expansion and offset the benefits by removing money from general circulation and increase inflation. For this too we should create the money as the inflationary effect would at least be offset by the increase of liquid assets in the economy. This would help to spur production and new developments which would bring additional assets to justify the additional currency. More Gush Down Economics. This money should, of course, be spent judiciously by the government. Free enterprise and non-monopolization laws should keep price gouging to a minimum as the money gushes down.
The government cannot and should not expect to receive back any of the money it spends on new projects but instead receives products and services within the nation which reflect the additional currency. Money is of itself of no value other than to reflect assets and to be used as a convenient tool for the exchange of goods and services. With all this money gushing down, the government should have to spend less for new programs as investment and spending within the country would be at an all time high. Benefactors too should become more common.
For further clarification of this principle, let me propose another hypothetical situation. Suppose we had just started a new nation. Currency did not yet exist within our nation and it was up to us, at this time, to introduce the currency into circulation for use by the citizens. If we tax the citizens for the currency we will issue to them, the only way they could pay for it would be with their assets. By the time we had created enough currency to properly reflect all the assets, our citizens would have no assets, only currency. Our government would have all the assets.
This is my letter to You The People of The United States of America, and indeed The World.
I hope I have presented enough insight in this letter to convey to you that this is not just a good idea, but, is the only workable solution to our economic difficulties.
If you are so inclined please copy this letter and pass it on.
God Bless you all.
Sincerely,
William C. Balmer, III
To The Editor
In 1985 I wrote a letter to then President Ronald Reagan and Former Chairman of the Soviet Union Mikhail Gorbachev in short requesting that we put aside our differences and as two peace loving nations focus our efforts on the true enemies of mankind: poverty, hunger, disease and hopelessness.
Now that we have ended the Cold War, we seem unwilling or unable to redirect our efforts to more beneficial endeavors. Deficit spending and the apparent inability to finance new programs has a strangle-hold on our country.
The Federal Government should judiciously create currency, rather than borrow it. Creating currency would bring the same new assets into existence in our country and put the same amount of currency into circulation as borrowing currency, WITHOUT DEBT.
In the future we should create currency for new projects and programs, but the first order of business is to remove the tax burden and pay off the debt. Raising taxes to pay off the debt would depress the economy further and another aspect of this type of economics would become more apparent: Devaluation. For this too, we should create the currency.
This brings us to another important issue. How do we pay for our government? Levying a tax for it will have the same type of effect as borrowing the money in inflating the costs of services. Again, we should create the money. Productivity constantly produces increases in assets, this method of supporting the government would produce a constant increase in currency to reflect this. If necessary a temporary currency reduction, or burn off tax, could be imposed if government expendatures were too great.
Money is of itself of no value other than to reflect assets, and to be used as a convenient tool for the exchange of goods and services.
Best Regards.
Sincerely,
William C. Balmer, III
Published in the Greenville News November 18, 1992 under heading "The Federal Government Should Create Currency".
To The Editor,
Monetary policy has a profound impact on the economy. It determines whether the government should create currency or debt. Unsound monetary policy is the root cause of our National debt, our recession, and the government's inability to fund new programs.
Our monetary system and policies, and indeed world monetary policies and systems, should move away from the banking dominated view of currency as a commodity toward a more useful view of currency as a reflection of national assets and allow the preconception of additional assets to bear significance on new currency before the project has been completed. International exchange rates on currency should be permanently frozen to prevent monetary judgements causing inflation and deflation.
The creation of currency and the development of monetary policy should not lie in the hands of the banking industry, as it does not have the proper perspective to know the will of the people and has a conflict of interest, in that, monetary policies which are in the best interest of the people may not be in the best interest of the banking industry, or at least not when only immediate benefits are considered.
Our Nation's monetary policies are formulated by our Federal Reserve System, Our Nations central bank. Operating under Government authority and owned by banks which have purchased shares of stock. While a strong central banking system is of vital interest to our Nation, the formulation of our Nation's monetary policy by a special interest group is not.
Best Regards,
Sincerely,
William C. Balmer, III
Published in the Greenville Piedmont January 5, 1993 under the heading "Monetary Policy Wrong".
Living in a democratic environment a project such as this will require strong political will on the part of the people who it will benefit. I therefore originally created this document as a letter To The People of The United States of America, and it is indeed to the benefit of the people of the world.
The Solution to Our Deficit and Debt Problem
To The People of The United States of America
In 1985 I wrote a letter to then President Ronald Reagan and Former Chairman of the Soviet Union Mikhail Gorbachev in short requesting that we put aside our differences and as two peace loving nations focus our efforts on the true enemies of mankind: poverty, hunger, disease and hopelessness. Although I never received a direct response from either, I was awed at the events which unfolded shortly thereafter. I wish to thank these men for their historical efforts and accomplishments in making this a more peaceful, secure and kinder world. I would also like to thank President Bush and all those involved for continuing this dialog and progress as best they could.
The ensuing Presidential elections, Gulf War, and break up of the Soviet Union had a diffusing effect on the processes of global progress which were and are in the works and left the United States and the rest of the world floundering in a sea of economic woes. These problems (our economic woes) can and should be addressed by maintaining our focus on improving the living conditions for all mankind of which economic shortcomings are a by-product.
During the Cold War, untold trillions of dollars were spent in promoting our ideals in defense against our enemies, and even more precious, many millions of lives. Now that we have had a meeting of the minds with our primary adversaries, we seem unwilling or unable to redirect our efforts to more beneficial endeavors. Deficit spending and the apparent inability to finance new programs has a strangle-hold on our country and our international partners.
National spending cannot and should not incur a deficit. Borrowing money has detrimental effects on the economy and is not even a viable option. For example, say that we have a country. A trusted friend and man of notable character comes to us for funds to build a medical university and hospital. We deem this to be a worthy project and of benefit to our nation. We will fund this project. We have two options that we are aware of since we don't have sufficient liquid assets to fund the program. We can create the money or we can borrow it from an international bank. If we borrow the money, when we borrow it will convert equally in value to it's present value on the international exchange. Our friend completes the project. Now our nation has a new asset. Doctors are trained. The sick have better care. Exactly the same amount of cash will be put into circulation within our country as would be if we created it. The same assets exist as would if we created the currency. Since money has absolutely no value other than reflecting the nations assets to allow a convenient method for the exchange of goods, borrowing the money does not gain us anything. The difference is now we have to levy a tax to pay off the debt incurred since we don't create money.
The profit margin of the hospital and school will be minimal or non-existant due to reinvestment to buy the latest technologies available to give their patients and students the best available services. Therefore, taxes levied will have to be income taxes.It will be quite some time before we can pay off the loan ( we approximate 25 years ) By then, we will have to pay back double what we borrowed, if we approximate the interest at 8%. Meanwhile hospital and education costs will go up because the teachers and doctors have to pay living expenses AND taxes. To maintain their standard of living, they will have to increase their rates. This same situation would be true throughout our nation. Many would not have such an immediate solution as raising their rates so their living conditions would suffer. We will remove from our country a reflection of the actual assets it has so internal reinvestment is sluggish since the international banker is not likely to spend all of his money in our country. This scenario probably sounds familiar to you. It is the driving force within our American economy. Albert Einstein once said that the most important factor in solving a problem is identification of the problem, or words to that effect. Now that we have identified the problem, we can set about solving it. In the future we should create currency for new projects and programs, but the first order of business is to remove the tax burden and pay off the debt. Raising taxes to pay off the debt would depress the economy further and another aspect of this type of economics would become more apparent: Deflation. The assets within the country remain the same or go up due to natural productivity. However, the currency within the country decreases due to removal of currency from circulation and sending it to the international bank. Less currency is available for use to represent products and available to use for purchasing. The prices of goods must drop, although their value to the user remains the same. This may appear to be a good thing at first glance, but, a closer examination will show it to be tremendously damaging to the nation. Remember when we borrowed the money initially it had a specific value equal to a specific value of another nation's currency. After we borrowed the money and used it for the project, presuming it was judiciously spent, our currency would be of approximately the same international worth. If another country's economy was not experiencing deflation there would be more of their own currency in circulation within their economy which would make it very lucrative for them to buy products in our country and sell it back to their own country taking advantage of the exchange rate. Highly automated industry in which labor was less of a factor would be extremely lucrative. Now we have products and services as well as currency leaving the country. Foreign investment in our country is a good thing, unless the primary motives are as outlined above, rather than to save shipping expenses to bring their products to our country. It produces jobs and goods without the initial investment by our government or citizens. If we created the money to pay off the debt, our currency would become inflated in the international exchange market. We would not immediately see all of the new currency within our country so the laws of supply and demand should keep prices down within our country. The banker having all this currency, in our denomination, and seeing that the best bargains for this currency are within our country, would come into our country to buy. After all, money is of little value if not exchanged for goods and services. We could refer to this as Gush Down Economics. Weapons should not be sold to the banker by our nation and hopefully no other nation would sell them to him. Weapons are of no value to the world other than to deter tyranny or aggression. There are plenty of weapons in the world and they are well enough placed to serve this purpose.
All this brings us to another important issue. How do we pay for our government? We definitely don't want to borrow the money. Should we levy a tax for it? If we do, it will have the same type of effect as borrowing the money in inflating the costs of services. If we wanted to expand the services of our government we would have to raise the taxes to pay for the expansion and offset the benefits by removing money from general circulation and increase inflation. For this too we should create the money as the inflationary effect would at least be offset by the increase of liquid assets in the economy. This would help to spur production and new developments which would bring additional assets to justify the additional currency. More Gush Down Economics. This money should, of course, be spent judiciously by the government. Free enterprise and non-monopolization laws should keep price gouging to a minimum as the money gushes down.
The government cannot and should not expect to receive back any of the money it spends on new projects but instead receives products and services within the nation which reflect the additional currency. Money is of itself of no value other than to reflect assets and to be used as a convenient tool for the exchange of goods and services. With all this money gushing down, the government should have to spend less for new programs as investment and spending within the country would be at an all time high. Benefactors too should become more common.
For further clarification of this principle, let me propose another hypothetical situation. Suppose we had just started a new nation. Currency did not yet exist within our nation and it was up to us, at this time, to introduce the currency into circulation for use by the citizens. If we tax the citizens for the currency we will issue to them, the only way they could pay for it would be with their assets. By the time we had created enough currency to properly reflect all the assets, our citizens would have no assets, only currency. Our government would have all the assets.
This is my letter to You The People of The United States of America, and indeed The World.
I hope I have presented enough insight in this letter to convey to you that this is not just a good idea, but, is the only workable solution to our economic difficulties.
If you are so inclined please copy this letter and pass it on.
God Bless you all.
Sincerely,
William C. Balmer, III
To The Editor
In 1985 I wrote a letter to then President Ronald Reagan and Former Chairman of the Soviet Union Mikhail Gorbachev in short requesting that we put aside our differences and as two peace loving nations focus our efforts on the true enemies of mankind: poverty, hunger, disease and hopelessness.
Now that we have ended the Cold War, we seem unwilling or unable to redirect our efforts to more beneficial endeavors. Deficit spending and the apparent inability to finance new programs has a strangle-hold on our country.
The Federal Government should judiciously create currency, rather than borrow it. Creating currency would bring the same new assets into existence in our country and put the same amount of currency into circulation as borrowing currency, WITHOUT DEBT.
In the future we should create currency for new projects and programs, but the first order of business is to remove the tax burden and pay off the debt. Raising taxes to pay off the debt would depress the economy further and another aspect of this type of economics would become more apparent: Devaluation. For this too, we should create the currency.
This brings us to another important issue. How do we pay for our government? Levying a tax for it will have the same type of effect as borrowing the money in inflating the costs of services. Again, we should create the money. Productivity constantly produces increases in assets, this method of supporting the government would produce a constant increase in currency to reflect this. If necessary a temporary currency reduction, or burn off tax, could be imposed if government expendatures were too great.
Money is of itself of no value other than to reflect assets, and to be used as a convenient tool for the exchange of goods and services.
Best Regards.
Sincerely,
William C. Balmer, III
Published in the Greenville News November 18, 1992 under heading "The Federal Government Should Create Currency".
To The Editor,
Monetary policy has a profound impact on the economy. It determines whether the government should create currency or debt. Unsound monetary policy is the root cause of our National debt, our recession, and the government's inability to fund new programs.
Our monetary system and policies, and indeed world monetary policies and systems, should move away from the banking dominated view of currency as a commodity toward a more useful view of currency as a reflection of national assets and allow the preconception of additional assets to bear significance on new currency before the project has been completed. International exchange rates on currency should be permanently frozen to prevent monetary judgements causing inflation and deflation.
The creation of currency and the development of monetary policy should not lie in the hands of the banking industry, as it does not have the proper perspective to know the will of the people and has a conflict of interest, in that, monetary policies which are in the best interest of the people may not be in the best interest of the banking industry, or at least not when only immediate benefits are considered.
Our Nation's monetary policies are formulated by our Federal Reserve System, Our Nations central bank. Operating under Government authority and owned by banks which have purchased shares of stock. While a strong central banking system is of vital interest to our Nation, the formulation of our Nation's monetary policy by a special interest group is not.
Best Regards,
Sincerely,
William C. Balmer, III
Published in the Greenville Piedmont January 5, 1993 under the heading "Monetary Policy Wrong".
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