Our Dual Money System

Okay… it has been awhile since I posted an economics article… so for the econ freaks you’re overdue for feeding. today’s input comes from way out on the fringe – ie once again I’m posting my own thoughts and theories that as far as I know appear in NO econ book on theories or systems. ie this (to me) is NEW STUFF!! So get some popcorn and your favorite popcorn-compatible beverage, and maybe… just maybe… enjoy. 🙂

It has occurred to me that the economists and gurus of the financial world are missing a VERY big factor in their understanding of the current economic paradigm.

We currently are operating not ONE money tree… but TWO. The Federal Reserve has split the issue of “money” into TWO classes – each operating independently of the other.

Class 1 is the USD, as represented by the wrinkly paper in your pocket (and the “account balances” in your bank accounts and debt instruments, etc). You know… the stuff with all the “security” features that supposedly prevent counterfeiting? (ROTFLMBO!!! Tell that joke to N Korea!). This is what most people, including Nobel winning Ivy Tower Economists, think of when they postulate their “theories” of monetary systems.

When dealing with Class 1 money, it is permissible to use such words as “velocity”, and to postulate grand economic theories about how such money works in an economy.

Class 2 – “the other money” – the “keystrokes” of the FED that don’t ever see the inside of a working person’s paycheck or pocket, that never cross a grocery store counter. This “money” exists ONLY in the books (a second set of books?) of the FED and is completely and wholly IMMAGINARY in any real sense of the concepts involved.

But it’s “real” in the world it lives in. Grand Economic Theories do not apply, and will not work with this class, and the existence of this class of “secret money” is possibly one of the reasons that none of the current economic theories can drill down and figure out how to make reliable projections of economic activity and the causes of various effects that we see as a result of the existence of this “money”.

So the FED “keystroking” a couple of trillion dollars into existence (as in the “purchase” of the bank created MBS currency* from the banks, and the “funding” of the current US Govt excesses) has no effect on the “greater economy” (class 1) and class 2 money will NEVER see circulation in the “greater economy.” Thus it CANNOT BE INFLATIONARY or contribute to “velocity” because it never “turns over”.

Which leads me to wonder why the US Government requires the people to pay taxes since the amounts “keyboarded” will never be paid back, because it’s wholly immaginary money. There is absolutely NO real world connection between tax collection and govt spending levels. In a Dual Money Regime, the two monetary spheres operate competely independently.

Of course, in such a world there would have to be, but to my knowledge is not currently, an equitable way to recompense people who get caught at the junctures of the two systems. For example – how would the government pay the salaries of those it “employs”? How would the Obamanauts pay for their extensive and expensive travel when part of the expenses overlap into the “people’s economy/money”?? (Like the purchase of ice cream cones in Hawaii.)

The closest I’ve come to figuring out how the interfaces work is that the “taxes” “pay” for these overlaps… but it’s possible that the FED has a method of balancing them out of existence – ie subtract “out-of-bounds” class 2 money from class 1 money using the “reserve accounts” of the banking system as a clearing house, or vice-versa? Or possibly just making an “adjusting entry” to clear them through the FRB?

So… if Econ is your thing, you may now think about the above and consider if I’m right, or fulla beans. Have fun.

 

* When you consider that “currency” is really nothing more than “non-specific debt”, when the banks and MERS separated the RE titles from the derivative securities, it became non-specific debt. So by definition, MBSs were in fact currency created by the banks, and like all good fiat, the MBS’ had absolutely nothing of value backing them up. Unless you’re very astute, or an accountant, you’d have missed the great comic theater of the “Stress Tests” – staged by the FRB. ;-D