on the liquidation of government debt under a debt-free money system - modeling the american...
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On the Liquidation of Government Debtunder A Debt-Free Money System
- Modeling the American Monetary Act-
Prof. Kaoru Yamaguchi, Ph.D.Doshisha Business School
Doshisha University, Kyoto, Japan
E-mail: [email protected]
The 6th Annual AMIMonetary Reform Conference
At University Center in Downtown Chicago
Sept. 30 – Oct. 3, 2010
Background:
SD MacroeconomicModeling Series
2003 - 2008
National Model A creation of a system dynamics
model of the United States economy - a project as leading to a new approach to economic science and a fundamental understanding of
the way macroeconomic systems work.
Although his national economic model remains unfinished, the most
noteworthy intermediate result is that the model generates a 40- to 60 year economic cycle or “long wave (or Kondratiev cycle)” that not only explains the Grerat Depression of
the 1930s, but also shows that deep economic slumps are a repetitive feature of capitalist economies.
Sept. 14, 2005, MIT
SD Macroeconomic Modeling Series
① Principle of Accounting System Dynamics - Modeling Corporate Financial Statements - New York City, July 20-24, 2003
② Money Supply and Creation of Deposits (SD modeling 1)University of Oxford, England, July 25 - 29, 2004
③ Aggregate Demand Equilibria and Price Flexibility (SD modeling 2) Boston, USA, July 17-21, 2005 -> Visit Prof. Jay Forrester (Sept. 14)
④ Integration of Real and Monetary Sector with Labor Market (SD modeling 3)Nijmegen, The Netherlands, July 23 - 27, 2006
⑤ Balance of Payments and Foreign Exchange Dynamics (SD modeling 4) Boston, USA, July 29 – August 2, 2007
⑥ Open Macroeconomies as a Closed Economic System (SD modeling 5) Athens, Greece, July 20 – July 24, 2008
Macroeconomic System Modeling Overview
Consumer(Household)
Producer (Firm)
Banks
Central Bank
Government
ForeignSector
National Wealth(Capital
Accumulation)
GrossDomesticProducts(GDP)
Labor & Capital
Wages & Dividens (Income)
Saving Loan
Investment (PP&E)
Investment(Housing)
Investment (PublicFacilities)
Income Tax Corporate Tax
Consumption
Public ServicesPublic Services
Money Supply
Export
Import
Production
Population / Labor Force
Macroeconomic System Overview
Principle of Accounting System Dynamics- Modeling Corporate Financial Statements -
Presented at the 21st International Conference of the System Dynamics Society , New York, 2003
Cash
AccountsReceivable
Inventories
Book Value ofPP&E
AccountsPayable
AccruedExpenses
Long-TermDebt
Capital Stock
(Current Assets) (Current Liabilites)
Shareholders' Equity
Prepaid Expenses
(Net Fixed Assets)
CurrentPortion of
Debt
RetainedEarnings
Income TaxesPayable
(Long-Term Debt)
Assets Liabilities
Other Assets
-------------------------
Balance Sheet as a System of Stocks
Liabilities
Assets
Capital Stock
Retained EarningsRevenues
Debit Credit
---------------------------------------------------------------------------------
Increase in Assets Decreased in Assets
Decrease in Liabilities
Decrease in Equity
Increase in Liabilities
Increase in Equity
Costs, Expensesand Dividends
(Shareholders' Equity)
Double Entry Rule of Bookkeepingas Debit and Credit
AnalyticalMethods
Creation of Money: Gold Standard
Gold (CentralBank)
CurrencyOutstanding
Currencyin
CirculationDeposits(Public)
Deposits(Banks)
Vault Cash(Banks)
Reserves(Central Bank)
Loan
Debts (Public)
Gold Certificates
Gold (Public)
RequiredReserve Ratio
Loan Adjustment Time
Depositing(Public)
<Depositing(Public)>
Central Bank Commercial Banks
Non-Financial Sector (Producer & Household)
Deposit Time
Currency Ratio
Borrowing
Cash Inflow
<GoldCertificates>
Lending
Reserves byBanks
<Borrowing>
Deposits in
Reserves(Banks)
ReservesDeposits
RequiredReserves<Deposits in>
ReservesAdjustment Time
Cashing
Cashing Time
AdjustedDeposits
<Cashing> Depositsout
ExcessReserves
ExcessReserve Ratio
Vault Cash Rate
Net Deposits
AdjustingReserves
<AdjustingReserves>
Equity (Public)
Golddeposited
Amount ofGold Deposits
<Gold deposited>
<GoldCertificates>
<ReservesDeposits>
Creation of Money: Gold Standard
Money Suppl y1,000
750
500
250
05
5 5 5 5 5 5 54 4 4 4 4 4 4 43
3
3
3
33 3 3 3
2
2
2
22
22 2 2
1
1 1
1
1 1 1 1 1
0 2 4 6 8 10 12 14 16 18 20 22 24Time (Year)
Doll
ar
"Money Suppl y (Base)" : Current 1 1 1 1
"Money Suppl y (Data)" : Current 2 2 2 2
Money Suppl y : Current 3 3 3 3 3 3
Monetary Base : Current 4 4 4 4 4
"Hi gh- Powered Money" : Current 5 5 5 5Currency Outstandi ng
240
180
120
60
0
6
6
6 6 6 6 6
5
55
5 5 5 5
4
4
4 44
4 4
3
3
33
3 3 3
2
22
2 2 2 2 2
1
1 1 1 1 1 1 1
0 2 4 6 8 10 12 14 16 18 20 22 24Time (Year)
Doll
ar
Monetary Base : Current 1 1 1 1 1Currency Outstandi ng : Current 2 2 2 2Currency i n Ci rcul at i on : Current 3 3 3 3"Vaul t Cash (Banks) " : Current 4 4 4 4"Reserves (Central Bank) " : Current 5 5 5 5Cash outsi de Central Bank : Current 6 6 6 6
Gold Standard
Money Multiplier Control
C Ratio Change-0.2 0.8
RR Ratio Change-0.1 0.9
RR Ratio Change Time0 24
C Ratio Change Time0 24
Amount of Gold Deposits0 500
Deposit Time0 6
Required Reserve Ratio10% -> 4% at t=8
Money Multiplier: 4 -> 5Money Supply: 800 -> 1,000
Monetary Base of Gold = 200
Creation of Money: Gold Standard
Gold Standard
Money Multiplier Control
C Ratio Change-0.2 0.8
RR Ratio Change-0.1 0.9
RR Ratio Change Time0 24
C Ratio Change Time0 24
Amount of Gold Deposits0 500
Deposit Time0 6
Required Reserve Ratio10% -> 100% at t=8
Money Multiplier: 4 -> 1Money Supply: 800 -> 200
Money Suppl y800
600
400
200
05
55
55 5 5 54 4 4 4 4 4 4 4 43
3
3
3
3 3 3 3 3
2
2
2
2
22 2 2 2
1
1 1
11
1 1 1 1
0 2 4 6 8 10 12 14 16 18 20 22 24Time (Year)
Doll
ar
"Money Suppl y (Base)" : Current 1 1 1 1
"Money Suppl y (Data)" : Current 2 2 2 2
Money Suppl y : Current 3 3 3 3 3 3
Monetary Base : Current 4 4 4 4 4
"Hi gh- Powered Money" : Current 5 5 5 5 Currency Outstandi ng240
80
-80
-240
-400
66
6
6 6 6 655
5
5 5 5 54
4
4
44 4 4
3
33
3 3 3 32
2 2
22 2 2 2
1
1 1 1 1 1 1 1
0 2 4 6 8 10 12 14 16 18 20 22 24Time (Year)
Doll
ar
Monetary Base : Current 1 1 1 1 1Currency Outstandi ng : Current 2 2 2 2Currency i n Ci rcul at i on : Current 3 3 3 3"Vaul t Cash (Banks) " : Current 4 4 4 4"Reserves (Central Bank) " : Current 5 5 5 5Cash outsi de Central Bank : Current 6 6 6 6
Monetary Base of Gold = 200
Macroeconomic System Design
- American Monetary Act -
1. Privately-Owned Central Bankissues Money (Notes)
2. Credit Creation by Commercial Banks (A Fractional
Reserve System)
Monetary Control by (and for) the Elite Bankers
Macroeconomic System of Money as Debt- Money out of Nothing (Thin Air) -
What is Money ?
Money Supply=
Currency Outstanding(Cash: Bank Notes and Coins)
+Bank Deposits (Credits)
Who can create Money?
Money as Debt System- Transactions of the Central Bank -
Gold
CurrencyOutstanding
Reserves(Central Bank)
Notes Newly Issued
Central Bank
Reserves byBanks
<Required Reserves>
<Cashing>
Gold Certificates
GovernmentSecurities
(Central Bank)Open Market Purchase
Open MarketPurchase Time
Open MarketPurchaseOperation
<GovernmentSecurities(Public)>
Open Market Sale
Open MarketSale Time
Open MarketSale Operation
Open Market Sale(Public Purchase)
Notes Withdrown
Open MarketPurchase
(Public Sale)
Open MarketPurchase
(Banks Sale)
<GovernmentSecurities(Banks)>
<Open Market Purchase(Public Sale)>
Open MarketPublic Sales Rate
Discount Loan(Central Bank)
Discount Lending(Central Bank)Amount of
Discount Lending
Lending TimeLending Period
<Discount Lending(Central Bank)>
<Gold deposited>
<AdjustingReserves>
<Open Market Purchase(Banks Sale)>
Open Market Sale(Banks Purchase)
Expert Ideas forMacroeconomic System Design
608 pages, 4th ed. 2002 724 pages, 2002
A New Macroeconomic System Design
A Debt-Free Money System- the American Monetary Act -
1. Government Issues Money(Nationalization of the Central Bank)
2. 100% Fractional Reserve ( Abolishment of the Credit Creation )
3. Monetary Growthfor the Economic Growth and Public Welfare
Money as Debt System- Money out of Nothing -
1. Privately-Owned Central Bankissues Money (Notes)
2. Credit Creation byCommercial Banks (A Fractional
Reserve System)
3. Monetary Control by (and for) the Elite Bankers
Macroeconomic System of Debt-Free Money- Transactions of Government -
Seigniorage
LeveragePoint
Macroeconomic System of Debt-Free Money- Transactions of the Public Money Administration -
The Issue We are Facing
• Repeated Financial Crises (in September 2008)
• Government has no money! Why can’t they borrow or tax?
• Run-away Debt Crises
(in Japan, USA, Greece, etc.)
Debt Crisis in Japan !
About $56,000.00per
each Japanese
Nixon Shock 1971No Convertibilitybetween US dollar
and Gold2009
of annual gross domestic product. of annual gross domestic product.
Debt Crisis in OECD!
Japan
Italy
USAFrance Germany
Canada
U.K.
110 %
190 %
File:Public debt percent GDP world map.PNGFrom Wikipedia, the free encyclopedia
Japan 189 % Belgium 98 % Austria 69 % Spain 53 %
Italy 115 % France 78 % U.K. 68 % USA 53 %
Greece 113 % Portugal 77 % Norway 61 % Poland 47 %
Singapore 113 % Canada 75 % Brazil 60 % Finland 44 %
Iceland 108 % Germany 72 % India 58 % Denmark 42 %
In 2009
Solutions underthe current Macroeconomic
Systemof Money as Debt
Mostly Equilibria in the Real Sector
Government Debt is Build in the System of Money as Debt
Built-in DebtFor Growing Economy
Liquidation of Government Debt under the System of Money as Debt
Liquidation of Government DebtBy
Primary Balance Ratio of 91%(9% Spending Cut) at t=6
Built-in DebtFor Growing Economy
Liquidation of Debt is Costly !
Recession
Current Macroeconomic System is Dead-End !
Solutions underthe Macroeconomic System
of Debt-free Money
Liquidation of Government Debt and Debt-GDP Ratios
Liquidation of Government DebtUnder
A Debt-Free Money System
Higher Economic Growth by Debt Liquidation
Higher Economic Growth
Comparison of Prices and Inflation Rates
No Inflation is triggered by the Liquidation of Debt
Criticism of Debt-Free Money System:
Inflation !!!
Can we trust the Government ? No: Political business cycle proves it.
Then
Can we trust privately-owned Central Bank ?No: History of economic crises proves it.
So, what can be trusted?Gov’t Policies based on SD models
No Inflation under GDP Gap
GDP gap by changingthe Exponent of Capital
0.4 -> 0.43
New Issues of of money by the amount of 23
for 10 yearsfrom t=6
Inflation by Mismanaging Money Supply
In Equilibrium increase spendingby 10 for 3 yearsstarting at t=10
Political Business Cycle
Business Cycles by Mismanaging Money Supply
Increase in spendingby 10 for
3 yearsstarting at
t=10
Political Business Cycle
Build-in Feedback Mechanism for Preventing Inflation
Inflation Rate> 8 %
Step down of the Head ofPublic MoneyAdministration
Independence of Political Power Abuse
Conclusion
From a viewpoint of system design,
macroeonomic system of debt-free money
is worth being implemented
to avoid government debt, financial crisis
and environmental destruction
EconomicGrowth
Money
GovernmentDebt
Money as Debt
Debt-free Money
Thank you for your attention !
Macroeconomic DynamicsMacroeconomic Dynamics- Accounting System Dynamics Approach-- Accounting System Dynamics Approach-
On-going Draft (v.2, 350 pages) and SD Simulation Models
are available
at Session A, 5PM, Oct. 2.