Bob Wenzel vs. Bill Still and Karl Denninger

Bob Wenzel, an Austrian who blogs at Economic Policy Journal, is engaged in a war of words with Libertarian Presidential candidate Bill Still and his adviser Karl Denninger.

This appears to be the post that started it off.

Denninger responds here.

Wenzel has more to say here and here.

6 thoughts on “Bob Wenzel vs. Bill Still and Karl Denninger

  1. RedPhillips Post author

    I think this Greenbacker vs. “Golf Bug” conflict is unfortunate. Both opposed the Fed and the banking cartel (I won’t say fractional reserve banking because I don’t want to start that up again.). While they have very different solutions, it seems to me that they would be much better off agreeing to disagree and turning their fire on their common enemy instead of sniping at each other. Once the foe is vanquished we can fight about what follows.

    That said, while I’m sure I agree more with the “gold bugs” than the Greenbackers, it seems to me that the distinction between fiat Treasury notes and Federal Reserve debt instrument banknotes is a real one. While both are inflationary, at least every fiat Treasury note wouldn’t grease the palms of the banksters who launder them into the system. This is an important rhetorical/conceptual point IMO even if it isn’t much of a practical one. But the “gold bugs” seem unwilling to concede this point at all or are either too busy denouncing the Greenbacker project in toto to concede that they actually do have a point. Am I missing something here? Is the fiat Treasury note/Federal Reserve debt instrument banknote distinction not a real one. If not why not?

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  3. Dan Reale

    Red Phillips –

    “Is the fiat Treasury note/Federal Reserve debt instrument banknote distinction not a real one. If not why not?”

    GREAT question. And the answer is yes, yes and yes.

    Money is supposed to be a medium of exchange, a way to measure productivity and a store of value. Unfortunately, our system operates functionally as if credit is also money. Every time you swipe that VISA or get a loan, then use the credit created, you are effectively spending what our current system considers “money”. And it does in fact operate this way. It is a very significant and fatal error in the gold bug argument because the gold bug argument makes key assumptions that simply aren’t operative.

    The primary reason a fiat system (with the characteristics of ours, namely a credit driven money system) fails is that there’s always an excuse to issue more credit based on assets that either don’t exist or are insanely overvalued. More specifically, banks simply lie (and of late, don’t foreclose lest they be forced to recognize the loss on their books).

    And incidentally, that’s where the inflation we complain of so much comes from in vast majority.

    In theory and on paper, our banking system requires that your liabilities not exceed the sum of your assets and capital. In law (rightly or wrongly whether you agree with FDIC existing or not, which I think it ought not to), FDIC should have put Bank of America into recievership in 2006.

    The reason why our system is inherently deflationary (as it operates, not as it should be, and I think it should be different) has everything to do with interest as a function of risk and the actual cost of lending money. When you push too much credit into the system, everyone is paying so much interest that they can’t even touch the principal.

    In a just and equitable scenario, we’d simply let that bad debt blow up – the borrower goes bankrupt and the lender takes a haircut to pay for their mutual stupidity. Other competent investors would simply take over the assets in question during the bankruptcy firesale.

    In reality, we just let the banks lie, government pick up the tab for the bad debt while replacing lost GDP by incurring more debt, the homeowner accept his role as a glorified renter with no reasonable expectation of ever getting clean title (that’s a different can of worms, but that’s it) and 0ther pensioners who relied on the entire artifice get rooked to the tune of 90%+ (because the homeowner can’t make the payments, the bank lied about the assets and there’s no way you could ever expect an 8% annual return ad infinitum – that’s mathematically impossible).

    Exponents, by the way, are a bitch, and more specifically, THE bitch we need to address. They are also the reason Medicare won’t exist in 35 years, as Denninger argues. He is right that there’s no way the feds will ever be able to spend $16 trillion on healthcare based on 9% per year cost increases.

    Now Bernanke could declare gold as the only currency tommorrow and say Federal Reserve Notes are no more – but that’s not going to reconcile the fraud, the junk debt, chain of title issues (the ability to acquire and/or foreclose on mortgaged property, incidentally, being the BASIS for most public and private pensions in significant part) OR an orderly transition from the clusterf*&! we live under toward being able to:

    1) make reliable investment decisions
    2) retain purchasing power
    3) conduct business in some reliable form in general

  4. Dan Reale

    So, in rereading the question, there’s a very real distinction between simple fiat money and bills of credit.

    The first is merely deemed so – no other mechanism than a printing press (or keystroke). Legal tender laws command use of the latter for all debts public and private.

  5. Dan Reale

    Explained further:

    If we used simple, mere fiat money, the government would simply print the money, give it to you, and you’d buy the house.

    In our system, you go to a bank, which creates the money out of nothing as you pledge the house as collateral for repayment of that money. The bank then sells that contract to someone, who in turn sells it to someone, who in turn sells it to a GSE (as in Fannie or Freddie). You then have multiple parties all claiming to own the same contract, who in turn use that alleged “asset ” as a basis for repeating the entire process with another sucker. No one (generally) has a real complete right to foreclose on the asset should you not pay, nor do know who to pay, nor do you ever have any realistic expectation to get clean title.

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