Most governments forbid the private printing of currency. The reasons for this rest in the simple fact that a public currency always costs less to produce in human resources (time) than it is symbolically worth. For instance, it costs only two cents to make a dollar bill which is worth one hundred pennies; it probably doesn't cost much more than two cents to make a hundred dollar bill which is worth ten thousand pennies or a million-dollar treasury bill which is worth one hundred million pennies. With an average hourly wage of $7, two cents represents or symbolizes about 10 seconds of worktime. A million-dollar bond symbolizes more than the average lifetime spent at work.

Laws against "counterfeiting" currency are designed to prevent people from taking short cuts to possessing buying power without having actually produced the buying power. Such laws are intended to prevent people from deriving income merely by the activity of producing symbols of products rather than the lengthier process of producing actual products.

Public or private counterfeiting of currency cheapens the value of the currency, i.e., causes inflation. The public counterfeiting involves, in part, the various forms of legisflation in which people receive more buying power without having produced any additional wealth. The most obvious form of the legisflated, counterfeiting, of U.S. currency by the modern politicians, is the money presses of the Federal Reserve System, the "Fed". Less obvious are the Treasury presses which print Treasury securities.

When one understands that all currencies have been and are only products of human production, the meaning of counterfeiting should take on new meaning. Currency counterfeiting occurs when the product worth or production time content of the common intermediate product is cheapened by over-production of the currency (money presses) or underproduction of the other products in the system of production--shortage inflation. Thus, public or private sources can counterfeit, cheapen, or inflate a currency by affecting general production.

Excessive use of the money presses by the politicians is the least source of counterfeiting or cheapening a currency. (Usually, the money presses are the last resort.) More immediately are the laws, especially tax laws, that prompt intelligent motivated people to forgo pursuit of production profits for the faster monetary gains of inflationary returns. These illogical legal laws simultaneously divert human resources from business of producing the substance of goods and services into the busyness of merely handling the symbols of production, i.e., money-changers. Consequently, production falls and the value of the currency is cheapened.

Legal strictures against counterfeiting public symbols of production--currency, the common intermediate product--are thwarted by private symbols of production that serve as actual currency. This appreciation will grow on the reader. But first, one must understand how the official public currency has its product worth cheapened--counterfeited--by unofficial public currencies. By public currencies, it is meant scribbled-on paper products (sopps) issued by government agencies, e.g., Reserve Notes and Treasury issues. By private currencies, stocks, bonds, and other scribbled-on paper products are references. These distinctions will become more clear since the bulk of this volume elaborates the ramifications from the interaction of private and public currencies to cheapen the official common intermediate product.

Soppy Public Currencies

When one thinks of currency these days, one usually thinks of a certain scribbled-on paper product (SOPP) that is called money. In addition, there is the coinage of metal currencies. These constitute the official public currencies; in America the official public currencies are Federal Reserve Notes along with the pennies, nickel, dimes, and quarters.

Reserve Notes

Federal Reserve Notes are printed by the Federal Reserve System in order to increase or decrease the "money" supply ... in theory. In theory, the money supply is only increased or decreased by the Federal Reserve System either

lending Reserve Notes through its "discount windows" to banks, or, by changing the "reserve requirement" that the banks must maintain against deposits by customers.

Changing the reserve requirement affects the money supply by increasing or decreasing the loans in circulation. (The Fed's use of open market operations will not be discussed.) If one understands the nature of the convertibility between Treasury Bills and Federal Reserve Notes, one realizes that the public money supply consists of not only the official Federal Reserve Notes, but the Treasury Bills and Savings Bonds. The latter two public sopps constitute a source of unofficial public currencies.

At one time in the past, the Federal Reserve System printed denominations of currency up to the amount of $100,000. If the Fed injected one of these bills into circulation, the money supply would increase by $100,000. Of course, someone would have borrowed the $100,000 and would owe the Fed directly or indirectly the $100,000. Nonetheless, the money supply increased by $100,000. With the $100,000 Fed Note, the person would probably have to go to a bank and convert it into lower denominations before he could spend the $100,000.

Treasury Bills and Savings Bonds

A similar expansion of the money supply occurs when the Treasury Department, in order to fuel the deficit-spending of the politicians in government, prints a Treasury Bill. The denomination of Treasury Bills is some unit of $10,000, up to $1,000,000. When the Treasury Department issues a T-bill of $100,000, someone buys it using dollars that they have accumulated. Upon sale of the T-bill the Treasury Department--and the politicians--become owners of dollar bills as if the Treasury Department had printed the 100,000 dollars and thereby expanded the money supply. Because there is great convertibility--liquidity--between the Fed Notes and T-bills, the latter is an unofficial public currency. Treasury bills are not recognized as an unofficial public currency by some people merely because T-bills are printed in higher denominations than the scribbled-on paper products (sopps) used as the official currency: the Federal Reserve Notes.

Potential Objections

One must distinguish between what economists call money or currency and the functional, logical nature of currency within a system of production. Most economists axiomatically reject the equating of Treasury sopps with Federal Reserve sopps. They do not recognize that currency was and is merely the common intermediate human product by which producers exchange their products, goods or services. Within this axiomatic camp will be those who say that if money and Treasury bonds were the same then they would have been called the same thing, that the legal laws of the land would so indicate. Maybe past necronomists and politicians made a naive or an overt conceptual mistake.

Other economists note certain everyday differences between the Treasury "securities" and money. These everyday differences, they argue, justify maintaining a distinction between the two. Otherwise, we won't know what money is, and therefore won't be able to control inflation. We won't have something to measure and stabilize. Such an arguer is Lindley H. Clark Jr., a regular writer for the Wall Street Journal. Clark offers the following "everyday" occurrence as a basis for distinguishing the two.

There are, of course, differences between Treasury securities and money, as anyone would find if he tried to buy a pair of ostriches from Neiman-Marcus with a $10,000 Treasury bill. There's a missing step. The bill-holder must sell the bill before he can spend the resulting money.

Refuting this argument can be done by considering whether it would be easier to "buy a pair of ostriches" with a $10,000 Federal Reserve Note?

If the writer recalls correctly from the Money Museum in the Detroit Renaissance Center, there are presently four hundred $10,000 Reserve Notes in circulation. Would it be any easier to buy something with a $10,000 Reserve Note than a $10,000 Treasury Note? No! Furthermore, it is plausible to reason that it would be harder to cash a large denomination Reserve Note than a Treasury Note at Neiman-Marcus or at a bank; many, many Treasury Notes are in circulation compared to their Federal Reserve analogs. Bankers and storeowners are going to be more leery of something they have never ever or seldom ever seen, i.e., the more obscure $10,000 Reserve Note. On the basis of liquidity, the ease of cashing or converting something into the smaller, everyday currency that most people experience, including the economists, the liquidity of a Treasury Note probably exceeds that of a large Reserve Note. Is the writer alone in noting the liquid cash nature of Treasury issues?

In addition to safety, the Treasury issues have other advantages. Interest is exempt from state and local income taxes. And the securities are extremely "liquid"--easy to sell quickly if the holder needs cash. That contrasts with savings certificates at the banks and savings and loans associations, which are required to levy penalty for cashing in a certificate before maturity.

There is nothing backing up Treasury issues except other issues from either the Treasury or the Federal Reserve System, new issues freshly printed or old issues collected through taxes. The only thing that makes any of these human products worth anything is the rest of the production in America. If people foolishly buy Treasury issues, people are not capitalizing production. People are instead bankrolling the counter-productive politicians and economists--destructive persons who have to use their monopoly on the official currency in order to prop up unproductive programs. Anyone who understands the destructive nature of deficit-spending by the modern politicians finds the following quotation [which preceded the previous quotation] a tragic, absurd farce.

Despite a flow of gloomy statistics about the economy, one set of figures is providing good news for savers and investors: Interest yields on the safest investments available anywhere--U.S. government securities--are at, or near, record highs (ibid.).

That quotation is extremely gloomy for the money tied-up in T-bills is money which the cash-starved production plants could use. It is a gloomy world when a leading news weekly reports necronomic advice, advice that prompts people to ignore production of substance in preference for mere symbols of production.

What blarney! Buying government securities--Treasury paper or Savings Bonds--is not an investment into America. Rather one finances the federal deficit, a deficit that grows larger each year as a result of corrupt and/or incompetent politicians unable to solve America's problems. Purchasing government securities is fueling the general cause of all inflation--the on-going and rising cost of unsolved problems. Someone has to pay for the cost of problems through taxes or higher charges for one's goods or services. Helping a politician to be a poor problem solver may gain you a few dollars today, but the inflation it causes will eat you up tomorrow!

Immediate and Long-term Inflation from Federal Deficits

Mr. Clark offered another line of reasoning to justify that Treasury securities are not money and have no effect on the money supply and little effect on inflation.

If the Treasury finances the deficit by selling securities to the general public, there is little impact on inflation. The transaction merely substitutes public spending for private spending, and there is no increase in the money supply. In the longer run, however, public spending affects prices more than private outlays, since it is less likely to lead to the production of goods and services.

This line of reasoning is a conceptual chunk of swiss-cheese. All one has to do is consider who buys the Treasury Notes in units of $10,000 up to $1 million and consider the range of people who are supported by deficit spending. By so doing one realizes the immediate "impact on inflation". This immediate impact occurs without an expansion of the number of Reserve Notes in circulation, but has the same effect as if the Fed had printed the money in Reserve Notes rather than the politicians printing Treasury bonds.

Regardless of whether the purchaser derives his income from production profits or inflationary returns, the purchaser of Treasury notes has a lot disposable income. On the other hand, the recipients of the dollars borrowed by the Treasury are engaged in producing nothing or producing national services or national goods. In the balance, more of the federally-subsidized recipients, whether in defense industries, in bureaucracy, or on welfare--are consumers rather than producers of essential goods and services.

Deficit-spending is immediately inflationary in the essential goods and services. With deficit-spending, that is, the government borrows money from people who are well-off, productively or inflationarily. The number of dollars chasing the finite number of essential products increases. Prior to purchasing the Treasury Bond, the excess dollars of the well-off persons were not exerting any inflationary pressure on the essential goods and services, so-called "demand-pull" inflation. However, once exchanged for the Treasury Note, the number of dollars competing for a fixed amount of essential production inflationarily increases.

The amount of production is fixed because the recipients of the dollars in defense or in welfare are not producing any of the essential goods and services which they are consuming. Consequently, deficit-spending through Treasury sopps generates one of the major reasons why inflation of the essential goods and services exceeds the rate of the overall Consumer Price Index.

Properly understood as the means of exerting localized inflation on certain goods and services, one can understand how inflation can occur through deficit spending and T-bills without the overall money supply increasing. Basically, for certain goods and services, deficit spending allows an increase in the localized money supply relative the certain goods and services. Invariably, the increased local money supply without an increase goods and services causes inflation: more money chasing the same number of products. The essentials are the certain products. This localized inflation due to deficit spending could be called deficit inflation. Anyone who thinks that

deficit spending by the modern politicians is not immediately inflationary, and
treasury bills are not a form of currency

is productively unstrung and/or operating with an insufficient number of wires. Furthermore, such people should not be participating in the "fine-tuning" of any economy.

Savings Bonds Are Treasury Security

Savings Bonds are purchased for patriotic reasons moreso than financial reasons. The politicians do not allow the high interest rates on savings bonds as they do for Treasury bills. Treasury sopps, which fund deficit-spending, fuel inflation of the money supply and of essential product prices. If one thinks about it, the purchaser is naively destructive of America and humanity. Foolishly, such naivete is fueling the collapse of production by corrupt and/or incompetent politicians. If people did not underwrite the politician's pork barrel projects that require not only over-taxation but the deficit-spending (a subtle form of taxation), politicians would start being productive problem solvers instead of what they are--see Savings Bonds Are No Investment in America's Future.

Velocity of Circulation: Quantity vs. Quality

Monetary economists are faulted not only within this paper but elsewhere. Herein they have been chastised for failing to realize the currency nature of Treasury issues and the effect of deficit spending on prices of essential goods and services. This effect on essential product prices serves as a basis for criticizing the monetarist for their naive or ignoble use of "velocity of circulation."

By velocity of circulation, monetarists describe how fast the money is changing hands in an economy. In assessing the velocity of circulation, the monetarists content themselves with mere quantitative measures, they measure the amount of money with little or no regard for what hands are handling the money. Without regards to the qualitative product or production impact of the money, the monetary economists do not distinguish whether the money is circulating in the essential or non-essential busynesses, in the busynesses of production profit or inflationary returns. Consequently, an economy could be on the brink of catastrophic collapse due to cash-starved essential production and the monetarists could still be saying that the basic strength of the economy was still there. Afterall, the velocity of circulation had not decreased.

An economy cannot survive without essential production, without production profits. For a given velocity of circulation, which economy is healthier?

An economy in which the money is circulating solely within the busynesses in pursuit of inflationary returns, or,
an economy in which the money is lubricating production profits?

While America was once mostly the latter economy, it is becoming the former at a faster rate each day. The monetarists do not make this qualitative distinction as to the nature of a given quantity of money or given quantity of money velocity. The quality of currency transactions each day becomes more destructive of the currency's future product worth as the velocity of circulation increases in the soppy busynesses chasing inflationary returns.

Do the monetarists realize this? No. Listen to how many continue to cite a basic strength of the America, a strength which is less each day as essential production continues to suffer. Record income in non-production busynesses that handle the soppy symbols of production will not put food on the table, clothes on the body, or heat in the homes. Quite to the contrary, as the velocity of circulation increases in the busynesses of inflationary returns, the velocity of essential products suffers from being "crowded out" of velocity circuits.

Convertibility Affects on Money Supply

In conclusion on public currencies, one must realize that there are official and unofficial public currencies that affect the money supply. Any product issued by the government which is easily convertible or negotiable into dollar bills is a from of public currency. This is true whether it is officially or unofficially recognized by the politicians or necronomists in government. Equally true is how any private product that is easily convertible into dollars serves as a currency. The ramification of realizing that currency is merely another product is not how much money is in circulation, but rather what products are in circulation: Grandma's Law of Product Multiplication, see the chapter "Bankers' Law or Grandma's Law." When the simple nature of currency is not recognized, false distinctions delude the policy makers and the producers into empty pursuits. Pursued is the multiplication of symbols of products, an action that only benefit the handlers and manipulators of these products: sopps, the private forms of currency.

Can the Fed Control the Money Supply or Inflation?

The answer to this question should be obvious. No. The Federal Reserve System cannot control the money supply or control inflation. The Fed, full of politicians and economists, does not understand the nature of currency or inflation. It does not recognize the interaction between official and unofficial public currencies, let alone the private currencies discussed in later chapters. An indication of the interaction between the public and private can be gleaned from an article entitled "The Fed Acts to Drain Banking Reserves as Federal Funds Rate Plummets."

Specialists attributed the sharp decline in the funds rate mainly to an unexpectedly large drop in deposits the Treasury holds with the Federal Reserve. Such deposits, they said, fell to less than $2 billion on Friday, the latest day for which figures are available, from almost $4 billion Thursday.

The decline in the deposit balances reflects payments by the Treasury for such things as monthly Social Security benefits. A drop in Treasury balances at the Fed adds reserves to the banking system because recipients of Treasury payments generally place the proceeds into bank accounts.

In other words, Treasury transactions affect the money supply. Included in those transaction were more than the old official currency collected through taxes. A growing amount of the Treasury funds on deposit with the Fed, which can precipitate wide fluctuations in the money supply and the federal fund rate, comes from collecting old official currency through new Treasury deficits.

What Products, What Production with Human Resources?

If the people in a system of production do not watch their short-term and long-term spending habits, they will find that their production is contracting with the concomitant inflation, unemployment, and violence. Peoples' shopping and savings determine what production is going to multiply and boom, and what production is going to divide and die. The product worth of their spending dollars and saving dollars should not be measured solely in dollars. Confusion of symbolic with substance will result in the symbols of production multiplying while real production is collapsing. Such is happening today.

In buying the high yielding Treasury issues, people may be getting record amount of dollar gains, but they are also receiving record losses of product worth. They did not take the time to figure what production they wanted to stimulate. Consequently, the busyness of Treasury issues is booming while other more essential production is dying. When a Treasury security does not produce more production, for a more secure future, then it is not a form of "security".

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