Title:
SYSTEMIC
ERROR IN THE MONETARY SYSTEM OF CENTRAL BANK
Author:
Andrés F. ANTHEUS
Brief
summary of the work.-
It
Explains the history of money from antiquity to today, it happens to
Also Explains what banks and how to create bank money. The gold
standard and why is not used. The systematic error appears in the
monetary That system of Central Bank and Federal Reserve Of When you
can not destroy enough money not to collapse the system. It is in
este documento to offer a vision of the Monetary System as a whole
with a historical vision and another of Its current vision, Including
the problematic of Cryptocoins. Also AIMS to allow the reader to
discern Whether we are doing the right thing or not and offer a
series of solutions to the problem to Prevent Such cases as
"subprimes" or "real estate bubbles" including
Spain. This is useful information to Understand the Economic cycles
but Also the reason for the crises. Today, Having knowledge esta
Gives a broader view of how our works and Monetary System failures
Also its, Which Makes it possible to act and discuss With the
knowledge of cause. The concepts are applicable here to Given the
whole world and are not only for Spain or Europe, systemic mistake is
a global concept and Local not, before the Solution Which is war or
crises but I have found other outlets.
KEYWORDS:
Money, Banks, Monetary System, Sistemic Error
JEL
classification with two digits: JEL: B22
What
is money? Money is a tool that companies use to establish different
relationships with each other, both internally and externally.
The
concept of money is not usually questioned in everyday life but its
history and its operation are great unknown for the vast amount of
the population, that makes it a great unknown.
process
that occurs to resolve the complications related to barter because
finally it requires matching needs and is based on the assessment of
use of property. Menger explains:
[...]
individuals had only account in their exchanges, the use value of the
assets and all operations were limited to those cases where the goods
available to an economic subject had for the lower value of use that
who owned the other subject, while for the latter the opposite
happen. A has a sword that has less value for use plow B. While for B
plow use has less value than the sword of A.
His
story, probably written in 425. C., begins with the story of the
Lydians, describing events that occurred at about the sixth or
seventh century. C. and this is important, because it can not be said
that the story begins with writing.
In
fact, writing began about four thousand years before the Sumerians
and it is not until the fourth century. C., ie in the first
millennium, the time when writing the first story. The Greeks know
about writing
in
the century XV or XVI. C. and it is almost a millennium after being
written the history of Herodotus and that history has made ignore
almost every case Mesopotamian civilizations that preceded the
Lydians, who are in the historical moment
a
sort of mixture of Mesopotamian Greeks or Phoenicians. Herodotus
seeks to understand that they are different from the Greeks, are
ashamed of nudity, but allow moral dissipation of his daughters, give
children and are addicted to the
game
they invented. But these kings Lydians have a mine that has made them
immensely rich. That will allow them to be the first to make a
monetary issue. But fit some questions, if the currency did not exist
before the first issue made by Croesus then what Keynes speaks when
it comes to this issue is a purely symbolic act? Is the currency
existed before? What about bartering which is spoken in world
economic history? How does Menger statement of institutional
evolution is? Well, the goal is to try to answer these questions.
Money existed before, such a thing can be deduced from reading a
previous document to the History of Herodotus, a Mesopotamian
document speaks of commercial and civil relations of Babylonian
civilization.
49.-
If one has received borrowed money from a trader and the trader has
given one arable wheat field or sesame saying: "Cultivate the
field, harvest and takes wheat or sesame be there" when the
farmer has made come on wheat or
sesame
in the field, at harvest time the owner of the field will take the
wheat or sesame exists on it and give the trader wheat for the money
with the interest he took from the merchant and the cost of
cultivating the field. "
According
to financial education portal http://www.svs.cl/educa
about
the history of money: "The trade is as old as the earliest human
settlements in Asia more than 6 or 7 thousand years ago, at the
beginning traded what they produced, then step was given to trade
around the year 3200. C traders Mesopotomia used gold bullion and
silver kings put a seal to ensure its weight and quality, thus was
born the concept of currency, however the first similar coins to
today we know are used in Lydia around the century 7. C. were made of
gold and silver (electro), the Roman Empire used silver coins minted
by the State that were valid in all their territories. paper money
better known as "ticket" would have been used for the first
time China in the ninth century AD. C, would have been used in Europe
for the first time in the sixteenth century d. C.".
Naturally,
the money was used in its beginnings in ancient times, it was not as
we know it today. Civilizations adopted various goods to meet with
them the role of money: food, shells, metals, feathers, precious
stones, etc.
Over
time, gold and silver were widely used as money because its value is
accepted worldwide, and also because of the ease of transportation,
the benefits of conservation and so on. To guarantee or certify that
a piece of metal or coin contained a certain amount of gold and / or
silver coinage began, as a guarantee or certification by entities
recognized and respected (kingdoms, governments, banks), which to
Prove the weight and quality of the metal containing.
an
evolution in which States issued notes and coins that gave right to
the bearer to exchange them for gold or silver reserves of the
country was necessary. The evolution of the backing paper money is as
follows:
·
In the eighteenth and nineteenth centuries, many countries had a
pattern of two metals based on gold and silver.
·
Between 1870 and the First World War was mainly adopted the gold
standard, so that any citizen could convert the paper money in an
amount of gold equivalent.
·
In the period between world wars he tried to return to the gold
standard, although the economic situation and the crisis or crack of
the 29 ended the convertibility of notes into gold for individuals.
·
In the World War II end, the allies established a new financial
system in the Bretton Woods agreements, in which it was established
that all currencies would be convertible into US dollars and only the
US dollar would be convertible in gold bullion at the rate of $ 35
per ounce for the foreign governments.
·
In 1971, expansionary fiscal policies of the US, driven primarily by
the Vietnam war spending, caused the abundance of dollars,
considering doubts about its convertibility into gold. This made
intentasen European central banks convert their dollar reserves into
gold, creating an unsustainable situation for the US In response, in
December 1971, US President Richard Nixon unilaterally suspended the
convertibility of the dollar into gold for the public and devalued
the dollar by 10%. In 1973, the dollar becomes devalued another 10%,
until, finally, it ends with the convertibility of the dollar into
gold also for foreign governments and central banks.
·
From 1973 until today, the money we use today has a value that is in
the subjective belief that it will be accepted by the other
inhabitants of a country or economic zone as a means of exchange.
Monetary authorities and central banks do not intend to defend any
particular level of the exchange rate, but intervening in currency
markets to smooth speculative short-term fluctuations, in order to
maintain short-term price stability, and avoid situations like
hyperinflation, which make the value of that money is destroyed, the
confidence to disappear in it, or deflation.
In
fact, money is the result of a social pact where everyone accepts
deliver their goods or services to others in exchange for monetary
symbols (notes, coins, etc.); therefore backed by money is the sum of
goods and services of the population; that is, the Gross Domestic
Product or GDP. This covenant is based on the same markets and trust.
The
government should prevent the monetary aggregate exceeds GDP to
sustain its value. However, the government can choose to print more
bills that would lead to inflation and devaluation of its currency as
a way of financing.
From
the XXI century appeared the cryptodivisas, being the most popular
bitcoin, since its birth in 2009, and perhaps not be surprised to
know that it is the most popular virtual currency of the world,
involved in 70,000 transactions a day and your current value is
estimated at 14,000 million dollars, according to Coindesk. But
cryptodivisas production is not regulated by any agency which means
that you can create as many as you want and there are no limits in
theory. There are no currency markets for cryptodivisas yet what can
only be speculative transactions but only "physical" with
the cryptodivisas of which are available. The value of 1 bitcoin is
currently almost $ 1,300 and the price of an ounce of gold. There are
other cryptodivisas that follow bitcoin as ethereum and does so with
some force.
History
of banking
The
Order of the Poor Knights of Christ, commonly known as the Knights
Templar or the Order of the Temple was one of the most famous
Christian military orders. This organization remained active for less
than two centuries. It was founded in 1118 by nine French knights led
by Hugo de Pavens after the First Crusade. Its original purpose was
to protect the lives of Christians pilgrimage to Jerusalem after its
conquest. Not only they knew how to create an entire market system,
but became the first bankers since the fall of Rome. And they did
knowing the scarcity of money in old Europe and offering in its
dealings much less usurious than those offered by Jewish merchants.
So they created ledgers, accounting modern, commercial paper and even
the first draft. At this time it weighed heavily the idea of
carrying cash on the road, and the Order of supporting
documents ordered to collect an amount previously delivered in any
other parcel of the order. Only
signature
was needed, or where appropriate, the stamp. It is again the trust
that is needed in the market economy.
There
is a little known fact but true: in the Middle Ages the Church
persecuted usury and condemned as sin, although usury was exercised
by Jews and was condoned by the Church, the Crown and society, not as
a privilege but as something unworthy although it is somewhat
paradoxical today and see a great banker. You could say that the
modern economy is a Semite invention which aims at maximum enrichment
of an individual or group of them at the expense of others, this can
be seen in "The Merchant of Venice" by William Shakespeare,
for example.
The
dollar: "In God we trust"
"But
when a long train of abuses and usurpations, invariably aimed at the
same Object evinces a design to reduce them to the people under
absolute despotism, it is their right, it is their duty, to throw off
such government and to provide new guards for their future security
and happiness."
Thomas Jefferson. Declaration of Independence. July 4, 1776.
Thomas Jefferson. Declaration of Independence. July 4, 1776.
God
and money have nothing to do, as Jesus Christ said: "Give to
Caesar what is Caesar's and to God what is God's" personally
think uses the word God in money is nothing more than to create false
confidence the American people possessing great religious fervor.
When
the dollar was established as international currency globally and
subsequently unilaterally canceled by the United States conversion to
gold, the United States was aware that entailed them a unique
advantage position worldwide.
To
explain it easily and I'm not as expert in economics I would say that
we could use the game of Monopoly: if the US is player and also plays
the role of banks should change all the money from the other players
to dollars so it was a game but just it was not done. US through
Keynesian macroeconomic policies, create a "Marshall Plan"
of European reconstruction funds in dollars (ie it is paid in a
currency that could only be used to purchase goods and international
services, though convertible local currency) and It gave the
opportunity to the US to benefit from European goods and services.
But of course it was a very lucrative business.
In
the same way oil is paid in dollars and that makes the oil producing
countries accumulate large fortunes (in dollars) .But what if the US
decides to unilaterally change its currency rather than converting
existing dollars or had a change of government and currency? It
should be noted that the Federal Reserve is a private entity that is
not a central bank as the European (ie is backed by warranty
countries with a high degree of confidence of Europe). The answer is
that you could not do anything because the value of the dollar is
imposed not by the economy or confidence if not for the military
power of the US and international agreements.
But the US perhaps
was aware of it and has a law on monopolies, to prevent countries
with large resources of dollars could buy the entire production of
essential goods and plunge into chaos the country, also to prevent
could be acquired their factories (which are already scarce for
relocation). Briefly in 2007 there were 829 billion dollars
"physical" and GDP ($ 14.660.000.000.000) plus gold
reserves worth more Fort Knox but there are many thousands of
millions of dollars that are not "physical "but there is no
accurate and reliable data and exceeding many times that amount since
years that are not published. At the moment, according to the latest
forecast of the International Monetary Fund (IMF)
Returning
to the example of the game of Monopoly player would be as if the USA
was the winner from the beginning to have unlimited dollars. But
there's something wrong, the US population in 2007 was 302,688,000
inhabitants, ie all physical money distributed per capita gives us
only $ 2,738.79 and must take into account that most of that money US
physicist is out; the answer is that Americans use credit cards and /
or debit cards. But to prove my theory that there are many thousands
of millions of $ (there is no way to compensate for US) worth another
example: daily US imports oil worth $ 1,221,593,100 day which gives
us that spend 678 days equivalent of all their 'physical' money and
30 years would have spent the equivalent of its GDP,
The
Federal Reserve Monetary System or Central Bank without skipper
Explain
how the monetary system of the Central Bank or Federal Reserve
operates without pattern is complex to understand but to explain it
simply, the system creates money issuing bank or central bank (coins
or bills) / physical money, and private banks licensed to create
FunMoney / (loans, credits, etc.), then play money becomes real and
returns the process printing more money the issuing bank or
accounting scoring numbers in the private bank. The money generated
system exponentially, depending on supply and demand, except that
there is less supply unless it is destroyed and no one will give up
his money, in principle, in a capitalist system to remove it from the
market the system to work properly:
The
systemic error of the monetary system of the Federal Reserve
In
the US there was a monopoly of the Federal Reserve and Gold, in the
20s before this problem and not knowing what to give in return for
the money destroyed these private banks, the Federal Reserve decided
to let this systemic error continue generating money supply to
infinity, banks face much money decided to get profitability and made
loans to its clients who invested in the stock, plus they make also
investments, inflating excessively values for a short period
won but then was a complete Crack the 1929 , customers lost their
farms or homes because they can not pay their loans and was a
national crisis. The subprime is another example of this systemic
error excess money supply in private banks for not destroying large
amounts of money. There are other cases like the crisis that suffered
with the US Subprime in Spain, where excess money supply in the
German private banks had to seek a niche market where you get
profitability and lent large amounts of money to Spanish banks that
gave loans mortgage, and all types, with ease until the "housing
bubble" .What curious of all is that the culprit but is really
the Federal Reserve, nobody knows ballooned, so for everyone are
banks or real estate or any other, because nobody knows the system
does not work without a pattern. Well if there is a method but it is
a bit strange. where excess money supply in the German private banks
had to seek a niche market where you get profitability and lent large
amounts of money to Spanish banks giving mortgage loans, and all
kinds easily until Inflated " housing bubble ".What curious
of all is that the culprit but is really the Federal Reserve, no one
knows, so for everyone are banks or real estate or any other, because
nobody knows the system does not work without Pattern. Well if there
is a method but it is a bit strange. where excess money supply in the
German private banks had to seek a niche market where you get
profitability and lent large amounts of money to Spanish banks giving
mortgage loans, and all kinds easily until Inflated " housing
bubble ".What curious of all is that the culprit but is really
the Federal Reserve, no one knows, so for everyone are banks or real
estate or any other, because nobody knows the system does not work
without Pattern. Well if there is a method but it is a bit strange.
The curious thing about all this is that although the culprit is
really the Federal Reserve, no one knows, so for everyone are banks
or real estate or any other, because nobody knows the system does not
work without a pattern. Well if there is a method but it is a bit
strange. The curious thing about all this is that although the
culprit is really the Federal Reserve, no one knows, so for everyone
are banks or real estate or any other, because nobody knows the
system does not work without a pattern. Well if there is a method but
it is a bit strange.
I
confess one thing money is supposed to be used to purchase goods and
services, but private bankers when they do not think a lot of money
to acquire those goods and services but gold or more money so it does
not work. Any / as they have thought that private bankers themselves
can buy gold would correspond on a gold standard system to destroy
money. It should not do so the Federal Reserve or the Central Bank or
Issuer because otherwise the seller of gold would have that money in
the system, mientra that if he had the Federal Reserve or the Central
Bank or Issuer they give gold and destroy money, leaving the
stabilized system. Any / as they have thought that private bankers
themselves can buy gold would correspond on a gold standard system to
destroy money. It should not do so the Federal Reserve or the Central
Bank or Issuer because otherwise the seller of gold would have that
money in the system, mientra that if he had the Federal Reserve or
the Central Bank or Issuer they give gold and destroy money, leaving
the stabilized system. Any / as they have thought that private
bankers themselves can buy gold would correspond on a gold standard
system to destroy money. It should not do so the Federal Reserve or
the Central Bank or Issuer because otherwise the seller of gold would
have that money in the system, mientra that if he had the Federal
Reserve or the Central Bank or Issuer they give gold and destroy
money, leaving the stabilized system.
At
the beginning I said that economics is a giant with feet of clay, it
is possible to carry out the destruction of the vast amount of money
you have private banks without gold using standard goods and
services: Private banks consume goods and services to give their
customers if they make deposits, deposits, besides consuming office
equipment, etc; I suppose that central banks and private banks may
enter into partnerships with others with producers who have to
commute the proportional share of taxes or social security are thus
eliminates the amount of money from the system without gold and using
goods and / or services. It is possible that the government
confiscates the money to the banks but in principle goes against
logic, It is also possible in a war cost the same money would serve
to destroy not issuing war bonds and establishing excise duty. But
once they know everything, ideally destroy the system of $ 500
trillions, and would be remediated for several decades in the US.
What
is the systemic error of the monetary system of Federal Reserve or
central bank without skipper?
The
issuing bank releases large quantities of banknotes and coins
(representing 5% of the total of the money in the system) to meet the
demand of the money market of the population and private banks,
private banks and other private entities generate debt private (play
money that will become real money) requiring the issuing bank to
issue more cash. The problem occurs when the system can not be
returned the amount of cash necessary to destroy to ensure proper
operation, through fiscal or tax policies and methods of the system.
The system has a periodic form of bell curve with periods of severe
crises and short periods of economic bonanza before those who give
this systemic error caused the lack of use of a pattern.
Theoretically economic engineering from last decades aims to improve
the system, in practice its sole purpose is to find a way not to come
face to face with debt tremendous that has been generated over the
past 40 Age of Fiat money (without skipper) .This is not another
cycle of economic downturn. We're probably before the inevitable
consequence of an economy based on nothing. Between 1945 and 1970,
called Golden Age was stable increased monetary US mass but from 1971
with Nixon Shock increases without reaching a stable period anymore.
But money is debt so what if we make more money ?: Suppose a large
country with a huge debt that wants to fund it and for that emit
sovereign debt bonds to be rated by the rating agencies and as this
market demand or not these bonds at the price set by the market based
on trust and profitability. Therefore, the system engulfs itself,
since the more increases the money supply, more accumulation in the
chain and will result in more debt. more money is made to balance the
system. The money is accumulated at some point in the chain causing
the need to continue to bring money to balance the system. Since
capital is accumulated at some point, will have to re-inject money
into the system to keep it circulating, generating more debt, and
back again. more money is made to balance the system. The money is
accumulated at some point in the chain causing the need to continue
to bring money to balance the system. Since capital is accumulated at
some point, will have to re-inject money into the system to keep it
circulating, generating more debt, and back again. more money is made
to balance the system. The money is accumulated at some point in the
chain causing the need to continue to bring money to balance the
system. Since capital is accumulated at some point, will have to
re-inject money into the system to keep it circulating, generating
more debt, and back again.
Money
has two main functions are a means to facilitate transactions, normal
purchases and sales, and a means to store value, ie, to save.
This
money is controlled by the central bank and its goal is to have
enough money, of all types, in the financial system to the needs of
economic activity are met. That consumers have enough money to make
purchases, companies have enough money to make purchases, pay their
obligations and make their investments and for the government to have
enough money to meet their expenses and make investments.
Moreover,
the central bank has an obligation to ensure that there is too much
money, of any kind, not fuel inflation and that too much liquidity
compared to the needs of the real financial market and you would
cause price increases, with more demand products and services your
offer.
The
central bank has several ways to ensure that the money is needed in
the financial system and usually works through the financial system.
You
can print more money so that you have more cash, M0, or cash
withdrawals buying these banks and thus reducing the level of cash in
the system. In addition, the central bank can inject money into the
system through in other forms of money defined in the previous
concept entitled
Ie,
the central bank may allow the financial system has more or less
paying deposits or withdrawing liquidity from banks, usually made
through the purchase or sale of short-term securities.
The
level of money includes all types of money, including cash (M0) and
various types of debt, short and long term, the financial system
remains on its behalf and on behalf of its customers.
For
reasons of solvency, banks are required to maintain a level of
capital against total balances. The minimum capital considered safe
8% of the total balance and level of capital of 10% of the total
balance, until recently, has been considered very conservative and
very safe.
The
power of the system and the different types of money is that with
that level of capital required, banks can multiply your balance more
than ten times per euro capital they have, through the loans they
make and give.
As
an example, a bank with capital of 10%, when you receive a deposit of
€ 100 can lend or invest € 90, ie 90%. In turn, this 90% is
deposited somewhere in the financial system, where 90% again this
deposit can lend or invest, causing another deposit or deposits in
any part of the financial system, and so on, with the only limit the
need to maintain the level of capital.
This
multiplier effect, using the leverage ment has the result that each
euro that the central bank provides to the financial system is
multiplied by ten or more, depending on the level of capital that
banks hold.
Of
course, the opposite effect is also. That it is, if the central bank
wants to reduce the total level of liquidity in the market, provides
less liquidity in the system and multiplying the level of reduction
by the same effect multiple described above.
In
addition, in environments of difficulty or financial insecurity, the
same financial institutions may negatively impact the liquidity of
the market is not responding to injections of liquidity the central
bank rather than leveraging loans or investments. The multiplier
effect requires their participation.
The
central bank can carry out this reduction by increasing the level of
required deposits banks must keep with the central bank. These
deposits have the result of reducing the multiplier effect and can go
up and down depending on the objective of the central bank and
depending on the country, as there are variations.
Another
way in which the central bank can influence the financial system is
through changing interest levels. If you want to impact the level of
interest it does with its operations in the market by issuing or
withdrawing (buying or selling) titles with the financial sector and
leaving this sector more or less liquidity more or less interest
levels. These interest levels affect the levels of interest with
which the financial system operates.
These
interest levels also affect liquidity levels of the financial system
through how they influence growth, ie higher interest rates cause
less loans and, in conclusion, reduce the aforementioned multiplier
effect.
For
all these reasons, when the central bank sees that there is too much
liquidity in the system or too much inflation, actual or potential,
work by reducing the level of liquidity in the system, through a
mixture of steps. They can raise the required deposit that banks have
with the central bank, thus reducing available liquidity on the above
activity and, especially, can raise the level of interest and,
because of the multiple effect, each euro reduction has impact end to
reduce the liquidity of the financial system by a multiple of ten or
more.
If
the central bank decides to increase the level of liquidity in the
system, because it believes that there is no inflation in the system
or because it considers it important, can reduce the level of
interest and thus cause the opposite effect on growth, liquidity and
financial activity.
These
considerations the central bank are related to the level of liquidity
in the system. This liquidity also is impacted by the deficit or
surplus of the state budget and, money and liquidity is very
international, dollars, euros, etc. become important deficits or
surpluses around the world.
Deficit
countries spend more than they receive, financed by debt issuance and
every dollar or euro, etc. government spending has the same
multiplier effect described above. By measuring the level of
liquidity that the central bank considers it desirable, these
deficits or surpluses at international level are also taken into
account in their calculations.
In
addition to its primary role as a regulator of the participants in
the financial system to ensure its solvency, the role of the central
bank in the middle management level of money and the financial system
is paramount.
In
Spain, the regulatory role is exercised by the Bank of Spain, while
the central role in the monetary system in the countries of the Euro,
including Spain, is exercised by the European Central Bank (ECB).
for
example. This systemic error in synthesis is that money exponentially
created to infinity soon if it is not removed from the system by the
Central Bank or Federal Reserve, but pattern is not possible simply
and there is no simple method redemption of money through tax policy
or tax to recover cash destroying of private banks by the central
bank, because as just compensation could in a system without skipper
offering money in exchange for money or bonds, which is absurd and
not solve the problem.
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