Episode-538- A New Understanding of Money – Part One
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My hope today is to help you understand money from as many new perspectives as possible. If you think about it nothing in general has a greater effect on the lives of most Americans than money. Money is why we work, how we provide our housing and food, how we are taxed and how our class structure is defined. We can deny this if we choose to but a family with a gross income of 100,000 dollars a year lives a much more comfortable life than one with a gross income of say 25,000 a year.
Yet if you ask most people, “what is money” they really have no idea. Now if you are going to answer that question with something like, “gold and silver” you really don’t have the answer either. Money is far deeper than to try to simply define it with a group of commodities. I promise you that no matter what you think about money from its constitional basis, national purpose or method of creation that today’s show will expand your horizons. It may also challenge you.
As always, I reserve the right to be wrong and that includes today, but I have spent more effort on gaining a new perspective on this issue than any other in the past year. So tune in with an open mind today and when you feel challenged really think about what I have to say, examine and re examine it but please don’t dismiss anything due to political allegiance or personal bias, that is all I ask.
Join me today to discuss…
- How money is created today in the US
- The birth of dollars
- The dollars have children, grandchildren and great grandchildren and so on
- Buying nothing, with nothing and creating something
- How does money derive worth
- Inflation
- Deflation
- Monetary Velocity
- Vanishing dollars
- Paying off debt eliminates money
- Defaults on debt eliminate money
- The shrinking M3 Supply – how is it possible
- The Monetary Systems Traps
- Total debt is always bigger than total supply
- Elimination of debt contracts the money supply
- The income tax exists to service the debt not primary spending
- New Federal Debt in 2009 was 1.1 Trillion
- The expense of interest alone in 2009 was 383 Billion
- Personal Income Tax Receipts in 2009 where 1.21 Trillion
- We spent 1.48 Trillion to service debt in 2009 about 200 Billion more than income tax receipts
Resources for Today’s Show
- Members Support Brigade
- TSP Gear Shop
- Join Our Forum
- Back Yard Food Production – (sponsor of the day)
- Safecastle Royal – (sponsor of the day)
- The Creation of Money by Chris Martenson – Chapter Six and Chapter Seven
- Modern Money Mechanics (PDF so right click and save as for best results)
- Members Support Brigade
- Ron Hood’s Survival.com Magazine
Remember to comment, chime in and tell us your thoughts, this podcast is one man’s opinion, not a lecture or sermon. Also please enter our listener appreciation contest and help spread the word about our show. Also remember you can call in your questions and comments to 866-65-THINK and you might hear yourself on the air.
Resources for Today’s Show
- Members Support Brigade
- TSP Gear Shop
- Join Our Forum
- Back Yard Food Production – (sponsor of the day)
- Safecastle Royal – (sponsor of the day)
- Members Support Brigade
- Ron Hood’s Survival.com Magazine
Remember to comment, chime in and tell us your thoughts, this podcast is one man’s opinion, not a lecture or sermon. Also please enter our listener appreciation contest and help spread the word about our show. Also remember you can call in your questions and comments to 866-65-THINK and you might hear yourself on the air.
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Thanks for the podcast. It is informative. I am in Lewisville so not far away. I have my dehydrator and am also going to be working on an edible landscape here soon. Would appreciate knowledge on very local free range meat, dairy, and eggs. And non gmo anything. Do you know a local ranch or farm with mesquite trees that will let me harvest the beans for flour? I am allergic to wheat. What about green belts, and parks. I have found plum trees and other free foods just growing. Am I able to harvest these or do they belong to someone and would I be stealing? Thanks again
Thanks
@kathy,
You will love the Berkey. It has a bit of a up front premium cost but over the years it is the most economical and effective system I have found. Did you buy from The Berkey Guy?
Jack, what do you think of the idea of replacing the income tax a sales tax (the Fair Tax proposal)?
Also, as an aside, I have been trying to get through to a person I know how little of government that truly impacts us is funded by the federal government. He is convinced that the federal government provides a large number of services to everybody and I keep on pointing out how these services are mostly funded without the federal government.
@Tim I would support it if the rate wasn’t 23%! It would also have to come with a permanent cap preventing it from being risen at all.
Now some say we could get rid of both the income and social security taxes along with medicare with a 30% tax. Said tax would only be charged at the final point of sale (unlike a VAT) and would not apply to used goods. I think the economy would be vastly better off this way the but cost is still too high.
When you tune in tomorrow it will change the way you even think about this, so after that I would love to hear your thoughts on all of this.
OK Jack I knew about some of this but got an education on many other aspects. I am really looking forward to tomarrow’s show!
Jack,
I’m really enjoying this show, and that was quite a cliff hanger you left us with.
The only thing you went through today that I’m not understanding is how defaulting on debt causes money to be destroyed.
If you are a bank and you lend me $100 that I then spend, you have created a new $100 that is now circulating around the economy. Eventually I gather up the $100 and pay off my debt, and that money is thus destroyed. I think I get all of this.
However, if I default on this debt and do not pay you off, it seems to me that the $100 that you created will then continue to circulate forever, and will never be destroyed (because I spent it and am not going to pay you back).
Unfortunately, I was in a position where I had to allow repossession of a boat by a bank, and, the end result was not just an auction with the bank taking whatever they could get for the boat [my point to the banker was that, if we couldn’t come up with payments, how could we come up with a lump sum if they auctioned it off and had to cover the remaining balance? And, their reply was don’t worry about it, they would just write it off!]. Well, the following January, we got a 1099 for everything the bank was going to write off; the difference in the loan and auction amounts, and the ENTIRE FUTURE VALUE of the remaining payments for the life of the loan. There was no “destruction” of money in our case.
When a person defaults and does not pay because it isn’t possible. Like all the people walking mortgages now that can not be pursued. Or when they file for bankruptcy protection the money is GONE.
Remember the money is backed by debt that is HOW it exists. The bank holds the loan paper as an asset, when it becomes worthless the money is gone. Sure the say 100K they gave you is out there but the paper backing it that allows payment and loans to other customers vanishes.
I know this seems complicated but the reality is it is so simple that the mind is repelled by it.
So the money isn’t gone, it’s still out there. It’s just that there is no one who is owed that money and as a result it becomes worthless. This should cause inflation and I wouldn’t think it would effect M3.
Bill,
WHAT!!????
So you had to count that as INCOME?- even though it was money you didn’t have?? The guy that sold you the boat has that money, not you. And value on interest too?? ..This can not be legal.
Jack,
tell me that is not legal
Great show BTW
looking forward to tomorrow’s!
GREAT show Jack!
@LisaPainterGirl,
Doesn’t sound like it and if they could account for the loss they should have been able to negate the 1099. A 1099 is not a statement of tax owed but of income recieved. All you have to do is off set it to no pay taxes but that that is between individuals, their CPA, lawyers and the IRS. I don’t go there with specifics.
@Justin,
You have to understand that the mortgage itself began as an asset on the banks books when created, it now becomes a liability and must be covered with other reserves. Since banks loan against the reserves the requires them to either call in other loans (contraction) or not make new loans (contraction)
Defaults in mass do not cause inflation or expand the M3, the first stall and then contract it.
From 2008 – 2010 over 4 trillion was pumped into the economy just at the base level, yet look at the M3
http://www.shadowstats.com/alternate_data/money-supply-charts
So where did it go? Do you think that much debt was repaid during the greatest financial implosion in history?
It is like musical chairs, 5 chairs, 6 people. The bank may sell the mortgage and that buyer may sell it again, new funds for the ponzi scheme but when the music stops someone who was holding a 150 piece of paper is not holding a say 50K piece of paper. That 100K was real money able to help make more money yesterday, it is only 50K today.
Again when a few people default it is insignificant to the machine. When millions default the effect is actually seen.
Again we start with 13 T6illion add 4 Trillion and end up with 4% less then we started with. Don’t be tempted to think some rich guy took it and horded it or something like that, M3 is ALL THE MONEY even the Fed notes under your mattress.
Thanks Jack, that makes sense.
@LisaPainterGirl
It is indeed legal and codified at 26 USC Sec. 108
Forgiven or discharged debt can indeed be considered taxable income, given certain circumstances (>$600 of debt discharged) As it is money that you were obligated to pay, but no longer have to pay which basically means more money in your pocket than if you had paid off your obligation.
IRS Form 1099-C is what is reported with your income tax return.
@Matt that makes sense! Same thing as an “abandonment” on say a commission advance that was never earned yet never repaid either.
we could pay off the debt by minting (as per constitution) some billion dollar coins and giving them to the federal reserve. think of the interest we would save! I forget where I heard of this, the thom hartmann show or something.
@marco,
One the constitution doesn’t require gold or silver at all.
Two we could do what Lincoln did, use the constitutional power to create debt free currency and pay off all foreign debt. As for what the Fed says we owe, I say screw them, they have been bilking us for almost 100 years. If we don’t tar and feather them on the way out, they should consider themselves lucky.
I will be damned if they get bullion on my watch in exchange for paper with out a fight! Now I am happy to have us give them paper for paper to be rid of them if we have to.
@Matt, you are right on the discharge of debt and 1099. Not just mortgages, but debt forgiven on credit cards also counts.
When I was doing taxes I saw several. The other tax preparers said yep it is taxable income, but I checked further to see and there can be exceptions so you aren’t paying tax on all or some.
If you are insolvent (owe more than you own) you want to have a tax preparer who is familiar with form 982 http://www.irs.gov/pub/irs-pdf/f982.pdf
Been a while since I’ve done taxes, but I advise anyone who gets a 1099 for forgiveness of indebtedness, not to just pay tax on the whole amount without looking into this form.
IRS tax code is convoluted and even very good preparers, cpa’s, and enrolled agents are known to make mistakes. Make sure they’ve looked for exceptions, not just punched numbers into their tax software.
Now if you messed up and paid the irs for the full amount and were truly insolvent, do yourself a favor and amend that year’s tax return, esp if you are now making payments to the irs for tax on that money. If it is less than 3 years since then, the irs will even refund you the extra you have pai with interest. (and a 1099 the next year on that interest)
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I think you made a mistake when you put forward the idea that the when the amount of debt doubles, the interest rates double. Would that that were true.
No, the more you owe, the higher the rate of interest goes as well. It’s because, after a point, every additional borrowed dollar makes you a bigger risk. It’s true of individuals, and its true of nations.
Assume that the debt at T1 is the (p)rinciple x (i)nterest, then at T2, it’d be 2p x (i+?i).
Never mind, it only makes it worse than you described. But it is a bitch, particularly when it is compounded.
@Barry that is not what I said, I said if we double the debt we double the interest on the debt, not the rate, the total interest payments.
The truth is we AT LEAST double the interest, rates are at an all time low, the must go up at some point.
I strongly recommend the movie “The Secret of OZ” which explains the financial history of money, banking, and debt. It shows how a gold based money system would mean less freedom and power for the citizens and more power and control of elite banking families and oligarchies.
Who controls the money supply is who controls the world.
@Scott, My intention was to watch it before this show. I went to Youtube last week and watched about 10 minutes of it. I hit pause and went back about two hours later and it was gone.
Bill Still had taken it down to upload the new version. So I had only watched 10 minutes of it. To support Mr. Still also ordered a copy on DVD, it is sitting in my to watch stack. My gut is it will say a lot of the same things I did, I also expect it will expand my perspective on this as well.
[…] bank, a much better way to teach your kids how to spend wisely? I highly recommend listening to The Survival Podcast for tips on teaching kids the value of money… more than a few episodes Jack tells folks about […]