Our modern banking system; and it's flaws.

II: The Monetary-Based Economy

1. What is a Monetary-Based Economy?
         A monetary-based economy, also known as a Market Economy, is simply an economy which gives value to money in. This allows the people of the economy to purchase goods and services, based on the supply and demand of these goods and services.
2. Fractional Reserve Banking
   A: Fractional reserve banking is a system which, in the modern age, is the way in which the economics create money for the monetary based economies to work. The fractional reserve banking system undertakes the production and multiplication of money in order to keep the increase of the money supple stable with an increase (or lack of) spending by the people within the economy itself. I will explain this production through an example involving the Federal Reserve and the US Government, which follows:
1. The US Government requests a sum of money (for this example $10 billion)
2.The US Government prints out $10 billion worth of US Government bonds and transfers this to the Federal Reserve.
3. The Federal reserve produces $10 billion in Federal Reserve notes (US Dollars) and transfers it to the US Government.
4. The Government transfers this money into a bank account; and thus $10 billion dollars has been added the US money supply.

This is the basis of the production of money in most countries around the world today. A simple way to produce money through request and delivery through a government and it's central bank.

B: Inflation is a term that is defined as (for our case) “A continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to the available goods and services”. In more simple terms, inflation is the increase in the supply of money, and credit, in relation to the amount of goods and services within an economy. This serves the purpose of keeping the value of a countries money even with the goods and services in an economy in order to keep the purchasing power of that currency at a stable level.

C: Interest is a utilization of the 'fractional reserve system' that allows the central bank of a country (the Federal Reserve from our example), or any smaller bank, to make profit from the amount of money that it loans to the government/people. Interest, for our purpose, is defined as “a charge for borrowed money generally a percentage of the amount borrowed”. The basic concept of interest being that with any money that you are taking out in the form of a loan (borrowed money from the bank) will be paid back to the bank, with a little extra money on top of the initial amount that you took out.

iii: Flaws of a Monetary-Based Economy

      Although a monetary-based economy may seem like an ideal system at first, through the analysis of the fraction reserve system that is currently used and the general ideas of the system itself we can see otherwise. One of the most apparent flaws can only be described through a given example, for this example I will use the previous example of the Federal Reserve and the Government; however, this time instead of just describing the process of money creation I will be analyzing the actual process of the production and the after effects of the creation of the money.

1.The US Government requests $10 billion from the Federal Reserve.

2. The US Government prints out $10 billion worth of US Government bonds and transfers this to the Federal Reserve.

      The problem that arises here comes from two definitions which results in the fact that US Government bonds are literally debt. A Government Bond is defined as “a bond that is an IOU for the US Treasury”. An IOU is defined as “ a paper that has on it IOU, a stated sum, and a signature and that is given as an acknowledgment of debt”. Obviously the government does not just write “IOU $10 billion” on a piece of paper and sends it to the Federal Reserve, the US Treasury produces special IOU's that in would equate to a total of $10 billion. However, the significance of this is that it is “an acknowledgment of debt”; in short the government is buying money with debt.

3. The Federal reserve produces $10 billion in Federal Reserve notes (US Dollars) and transfers it to the US Government.

      Here we find our second problem, the fact that the Federal Reserve is merely printing what we see on the US Dollars onto pieces of (cotton) paper and then selling them to the US Government for IOU’s (debt).

4. The Government transfers this money into a bank account; and thus $10 billion dollars has been added the US money supply.

      The US Government has effectively added money to the debt supply, through its purchase of these valueless Federal Reserve Notes with their government bonds. Taking the time to note this here, the Federal Reserve Notes are completely valueless until they are added to the overall money supply (this step in the money production process) as they only thing that gives the Federal Reserve Notes value is the already existing supply of money within circulation when the new money enters the money supply. Which is why this extra money inflates the money supply, and as immediate result the purchasing power of the overall single dollar. However, this mind-numbing flaw in the system does not stop here. Further utilizing the fractional reserve banking system the government has potential, and in some case, to do the following. When the $10 billion has been added to the bank an immediate 10% is taken from that amount as the banks reserve. They do this so they always have a small amount of all deposits made so when the costumer returns to retrieve a sum of their money they are able to give them an amount from the collective reserve; the other 90% is referred to as an “excessive reserve” which the bank uses for loans. It would be assumed that this $9 billion is taken out of the initial $10 billion deposit; however, in an effort to expand the money supply this extra $9 billion is created out of thin air and created added to the initial $10 billion. Giving us $19 billion total.

The Government does this in order to expand the money supply (and in fact this is how the money supply is expanded. As stated in the document "Modern Money Mechanics":

“Of course, [the banks] do not really pay out loans from the money they receive as deposits. If they did this no additional money would be created. What the do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.”

So in short, what banks do when they make loans is to accept promissory notes (loan contracts) in exchange for credits (money); which means that the $9 billion can be created out of nothing, simply because there is a demand for such a loan and that there is the $10 billion deposit that can satisfy the reserve requirement.

      When the $9 billion is loaned out and redeposited, it also follows this process again and again. The total process for just 4 more deposits on top of the initial two (government deposit included), looks like this:

10% x 9,000,000,000.00 =

           - 900,000,000.00

                                                                                                 $8,100,000,000.00

10% x 8,100,000,000.00 =

           - 810,000,000.00

                                                                                                 $7,290,000,000.00

10% x 7,290,000,000.00 =

           - 729,000,000.00

                                                                                                 $6,561,000,000.00

10% x 6,561,000,000.00 =

           - 656,100,000.00

                                                                                                 $5,904,900,000.00

So, within these 6 deposits the money supply has been increased by a total sum of $46,855,900,000.00. As stated earlier the only thing giving this new money value is the money that already exists, this causes the money that is already in circulation to inflate and lose purchasing power; and the more and more the initial money is expanded the less power the money will have. This falls against the increase that is necessary for the inflation of money generally needed against the supply and demand of goods and services within an economy.

iv: Inevitable Collapse of a Monetary-Based Economy

      Of course the most ultimate flaw of the monetary based economy and its current use of this fraction reserve banking system is that through the economic concept of mechanization, being to “equip with machinery, especially to replace human or animal labor”, the overall system is flawed and bound to collapse. The fatal flaw in mechanization comes from the idea of 'profit' and 'maximizing efficiency' in order to achieve this profit. Mechanization offers the greatest maximization of profit that anyone producing in an economy could hope for. At the expense of electricity and maintenance, a producer could in theory be producing 24 hours a day 7 days a week thorough the complete mechanization of their production line, something a human worker could never do. This offers the greatest capability to achieve maximum profit as your will be able to produce the maximum amount of products for a given price. However good this sounds on the individual level, it is extremely bad news on a macro-economic scale. The reason for this is the fact that mechanization removes humans from the work force; increasing unemployment and decreasing that persons to purchase within the economy as he has no monetary income. This might not seem like a big deal on the minor scale, but if you take all jobs and apply mechanization to them, removing all humans from those jobs the problem starts to become clear. With the rapid expansion of mechanization and the increased loss of human workers making money as a result of their labor we see a greater and greater decrease in the amount of people with money. In theory if there is no one to buy the goods that are being produced, the entire system must collapse because there is no reason to produce the goods if there is no one to produce them for. As one can see, the system has a great flaw that, until now in the modern age, has not been a problem; but with the increased expansion of mechanization of the work place we see a bitter end to the monetary-based economy.

----------------------------------------------END----------------------------------------------------------

*NOTE: Sources include The Zeitgeist movies; Modern Money Mechanics (by the US Federal Reserve); "The Engineers and the Price System" by Veblen, Thorstein; and "Web of Debt" by Ellen Hodgson Brown

Just watched the movie "Transcendent Man".

Without spoiling too much it is a documentary about Ray Kurzweil (a futurist), and his ideas about a point when humans merge with machines, a point he calls "The Singularity." When we reach this point, the advance of technology will become so fast that we will have no choice but to merge with our technology to even hope to comprehend the data we receive from it. I like the idea, and I liked the documentary, if it sounds interesting to you, check it out here:

Transcendent Man Website

Resource Based Economy (RBE)

RESOURCE BASED ECONOMY (RBE)

Definition (as given Jacque Fresco):
A Resource Based Economy (RBE) is an economic system in which all goods and services are available without the use of money, credit, barter, or any other form of debt/servitued to obtain the goods or services in question. All resources become common heritage of all of the people in the world. This means that all goods are distributed as equally as possible.

Features of a Resource Based Economy:

• An RBE strives to create renewable energy facilities (and enough of them) to completely eliminate any worry of energy shortage.Renewable energy sources are obviously favorable over finite energy resources (such as oil, gas, etc..). With only renewable energy humanity will not have to focus on powering itself and will instead be able to focus on improving energy methods to become more reliable and produce more while expending less resources to maintain these renewable energy sources as well as improving technology in general. This would be a huge step forward as it would allow us to relocate a much larger portion of our human capital to furthering humanity.

 

• Another feature of an RBE is the removal of planned obsolescence. Planned obsolescence is the planned break-down of goods that our current Monetary Based Economy (MBE) utilizes. The point of planned obsolescence is to make a good that will eventually break down, making the consumer return again and again every time the good breaks down. This allows for companies to make continuous profit. A major drawback of this is that every time a good breaks an identical good is there to replace it, this means we waste a ton of resources continuously remaking goods that we know are going to eventually break. Planned Obsolescence = Backbone of MBE = Major waste of resources.

 

• Money does not exist in an RBE, it is completely obsolete in the RBE because all resources are made public to everyone. This defeats the purpose of even considering making goods that utilize planned obsolescence because there is no profit waiting on remaking these goods over and over again. This means that when goods are built they are built to last. Money is a social agreement and if a  large majority of the population of a society refused to use money, it would be worthless. Money would also be abolished because it is not a natural resource in any way, meaning there is literally no use for it (expect maybe as toilet paper).
• If removing money seems like a scary idea then imagine that you have the option to live on one of these two islands, island x and island y.
• Island X has a large stockpile of money, you have as much money as you can dream and you have the most money on the island. But this island has a drawback, there are very few natural resources, almost none at all in fact.
• Island Y on the other hand has no money what so ever, it only has a large abundance of natural resources. These resources are free to be utilized by whomever wishes to utilize them.

 

• Jobs in a RBE are largely taken over by mechanization. Mechanization is the robotic replacement of human workers with robot workers. Robot workers are better in every way. They work 24/7, they never need rest, they never need vacations, they never complain or strike, this means that a robot can function 27/7 365 days a year with not a second of production lost in between. The question that is always asked at this point is: "Well then, what do the people do then?". This question has a lot of weight and the answer that I have come up with at this point is that all of the people that no longer need to work now either help in maintaining the robots or do anything else that furthers humanity technologically. This implies that technological advancement will be much faster in an RBE because we have a much larger group of people working to better humanity. 
• A problem that is brought up is that because people do not have to work, they will become fat, lazy slobs. This is not true. Think back to when you were a kid and everything was interesting, everything had a new meaning and your imagination was free to wander and explore the impossible. Then as you grew older, worries started to take those spaces in your mind over. These worries including getting into a good college (to receive a good salary later) or how to pay for your rent, food, your car, etc... As you can see, not having to worry about how much money you need to survive will not make people lazy, but will most likely spark inspiration to return to that child-like state of mind that allows each and every person to explore their own ideals and wants and not be held back by how much it would cost.

 

• The system that an RBE works off of is as follows:

•  Here is how this diagram works. Unbroken lines mean direct result and dashed lines mean indirect relation. First our central database takes into. 
• The system begins with a central database that contains information on the location and amount of all known resources. This allows the system to utilize the best possible utilization of resources. 
• Once the database is compiled people people can access it to utilize the resources they need, this amount  of the resource is then taken from it's location and stored. The storage facility keeps a record of the amount of resources inside of the storage facility and allows for the quickest possible access of the storage facility for production. 
• When production occurs, the resources are taken from the storage facility and brought to a production facility. The product is added to another part of the database, which measures the amount of products a certain city. The Product part of the database is different in each city, although these do connect back up to a central database so the flow of resource use can be managed.
• Once a good is produced it is moved to the people to be used. The database keeps a record of the amount of people in the world as well and this, like the product database, is different in each city but at the same time connects to a central number to record the number of people in the world (think of it as a automatic census machine that counts people every time one is born rather than every 4 years). 
• The expulsion of the planned obsolescence of goods allows goods to last for a much longer period of time, meaning that goods rarely break down. But when they do, everything that can be recycled is recycled and added back to the resource storage part of the database. This allows for resources to be continuously reused and since goods are generally built of recyclable resources, there is very little that can not be extracted from the recycling process.
• The cycle continues on like this as long as possible.

Update March 24, 2011

I just wanted to check in at this point and assure anyone following this that I am still here. I working on two more posts.

The first post that I am working on is a finished result of the Pod House that I drew up a few days ago. I will be adding a few more pods, trying to get down to some more technical stuff such as electricity, pricing, construction, etc...

The second post that I am working on is a sort of short story of the economic flaws of our current Free-Market System. The idea is from the movie "Zeitgeist: Moving Forward", I am summarizing it for easier reading which will, in theory, allow the idea to be spread faster.

Overall these will be my goals for the next few days, the weekend is coming up so I will have a lot more time to work on this.

Also, here is a 40min video of Peter Joseph (Director of Zeitgeist) responding to a few bits of criticism.

Zeitgeist: Moving Forward

I am leaving this here for anyone interested in watching it, it is part of a series of documentaries. If you wish to see the others in the series, simply search "Zeitgeist movies" and they should come up. The other Zeitgeist movies have received some negative feedback, mainly for misleading information, or skewing data. That being said, even this one could be seen to have skewed information if watched from an immovable perspective on the matter of capitalism. Take it how you will, enjoy:

Project: Pod Housing

This is an idea I had while I was in High School for a self-sustaining apartment complex. Currently in large cities we see apartment buildings being used as the primary means of housing the population of said cities. This is due to the fact that you are making the most of the space you are given. Instead of trying to fit one family in 1 house, why not stack 10 or so families in 1 apartment, when they both take up the same amount of space? Looks like a great idea on paper sure, but now you need to feed 9 more families living in a single space, you also have to increase the ability to support those extra people on a utilities grid as well. My solution is simple enough, just build each individual apartment complex to sustain itself, or at the vest least a portion of its own utility cost.

The housing I propose consists of a cylindrical structure. Each level consist of 3 individual units (or pods), which are shaped roughly like thirds of a circle (3 pods completing a full circle). The example I have left below has 11 levels, but this could be expanded or reduced based on the utility support for each individual tower. Each pod contains any number of facilities to support the actual structure (and it's inhabitants.) Some of the pods would contain housing, utility storage (such as water or electricity), community farms food food, recreational facilities, or more. The possibilities are really only restricted by the space of each pod, which could also be increased if necessary. The pods sit around a central support structure, which acts not only as a connection for the pods to be housed, but also as the primary means of getting around as each central pillar will contain 3 elevators (one for each of the 3 pods per floor.) Additionally, each individual building is linked to a grid that connects all of the buildings together. The main reason being to share basic resources between the buildings. The grid itself would be electronic, and a control station would be set up to monitor and influence the system. For instance, if one building needed more water, a quick call could be made to the grid station and the would be able to route water from a building with a surplus of water, to the one that needed a little extra; in essence, built in redundancy.

The benefit of the pods, as opposed to a normal structure, is that is allows the actual structure to be changed as needed. For instance, if you found that a family had moved out, and you needed a boost to the water storage of the building, the housing pod could be removed from the central support structure, and replaced with a water storage pod. Unfortunately, as the it stands right now, you would not be able to easily add up on the structure, which would mean that the height in floors of the building at the time of it's construction would limit the buildings ability to swap out pods. To explain, let's say the family from the above example was not moving out, but the building still needed the extra water storage, you would have to deal with the shortage and take in water from the grid.

Here is a preview of the structure, as I had envisioned in High School. I may at some point, when I have more free time, take this up again and try to draft something that gives more information on the structure itself, and the grid it sits on.

First Entry

This being my first entry should naturally describe what I intend this blog to be about.

This blog will be a personal storage device for all ideas I have or develop on throughout the time that I hold this blog.

These ideas will include my exploration of Engineering, Economics and other subjects that come to my mind.

I hope you enjoy.