Let's Be Free Now

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Month: February, 2012

The Federal Reserve – The Untold Story

People need to know this one, very important fact about the Federal Reserve: when Uncle Sam borrows from the Fed, it’s not like there’s a vault of money they go into, and cart out oodles and gobs of cash.

No, what happens is, an accounting entry is made, and upon the Fed’s issuing of the check, Presto! Debt is created.

Think about that for a moment. Many people realize this is how money enters the economy from the Fed. But most don’t realize one very important aspect: the Fed doesn’t risk anything. It has no skin in the game. And since it’s lending money that formerly did not exist, it is lending out a fiction!

If the Fed has no skin in the game – no assetts at risk – it is lending nothing. And if it’s lending nothing, that means the so-called debt is nothing. Further, if it’s a fictional debt, why the need to raise real taxes to repay it? In fact, what is the point of taxation at all?

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Getting Involved

Yesterday, I had a good conversation with an old friend, about getting a LET system started in the area. We discussed the vision, and broadly talked about what steps we’d need to take to get it off the ground.

I came away from our time feeling good, but daunted, as the concept solidified a bit in my mind. The project is enormous. Mentally, I set a goal of 1500 members, of which several hundred would be merchants. I realized though, our first contacts needed to be in accounting, law, and possibly banking.

We need to have a steering comittee capable of making good decisions on behalf of the community. Freedomworx is a community. Even as I write, this is dawning on me, right now.

A Word About Money

I confess: while trying to put my vision together in words that others can understand, I’ve allowed two competing ideas in my mind to mix, but not blend. My vision – its end result – is clear in my mind, but the steps getting there are clouded. Like how government money and private money mix in an economy, but never blend, so have my ideas appeared in my vision.

Bitcoin and LETS are competing forms of money. After studying both currencies, and seeing the different advantages of both, I’ve been trying to merge the two into one workable system.

The temptation to edit and/or remove all mention of one or the other from this blog is great, if only to help eliminate the confusion about money and what I propose. But this blog is more about exploring how money is used in society, and how we can use it to improve people’s lives.

I realize that eliminating confusion is key to introducing any successful alternative currency to a community. People must thoroughly understand the system, whatever it is, before they embrace it and make it work. Therefore it’s imperitive to explore the nature of money.

In its basic state, money is nothing but information. It’s an idea; a concept shared among at least two people. It is not gold, or wheat, or anything tangible. Money is wealth that has been quantified; given a number. Money is the number – representing wealth – that is entered into an accounting ledger. But not all money entries in a ledger represent wealth.

People use different currencies in order to delineate the different kinds of money. Often, people think of currency as money. It is money, but it’s only one specie of money. For example, we use paper Dollars and digitized Dollars, but these are legal tender, a particular kind of money.

Money, capital, wealth – all these words have many different meanings, depending on the context where they are used. For the purpose of this discussion, money is capital is wealth. We create capital when we combine labor and property (which can be intangible, such as an invention) in production.

The imprtant thing to remember is, real capital is created by people. Without labor, there can be no capital. Real capital having real value is created by labor.

The United States has a central banking system called the Federal Reserve System. It issues Dollars. Dollars are the currency that allows accounting entries be made in order that business can commence. The Federal Reserve System does not create money, but merely nominates it in order that accounting entries can be made.

Dollars, Bitcoin, LETS – all are currencies representing capital. Yet each are fundamentally different from one another, because each rely on different modes of being created. Each occur in an economy under different sets of circumstances.

Bitcoin is a digital currency. It is distinguished from Dollars and LETS by its completely decentralized origin. It has value because people see its ability to store value. There is no centralized issuer.

It is comparable to gold, since it is based on a natural resource: mathematical algorithms that must be solved in order for a Bitcoin to be created. In fact, this process is called mining. People use computers to solve the algorithms, in much the same way that people mine the earth for gold.

Since creating Bitcoin takes real labor to produce, it is capital.  And since people see its ability to store value, it has utility. Realizing this, people buy and sell Bitcoin as a commodity. Therefore it becomes subject to the law of supply and demand. Its value goes up and down, depending on how much is available, and how much people want it.

LETS – from Local Exchange Trading Systems – are units of value in a defined economy. LETS are issued by individuals. They exist in mutual credit associations. It is important to understand that LETS exist only  within a defined group of people, and by agreement.  LETS cannot be be used outside of the group that uses them.

In their most basic form, LETS are nothing more than accounting entries. It is possible to create a physical form of LETS, such as coins, paper, or digitized accounting entries, and use them in exactly the same way Dollars are used. The value they hold is decided among the members as the members transact business. They are “backed” by the community’s faith in the issuer – the individual.

There are many working examples of LETS at large in the world today. Here is one working in the US, with apparent success: http://www.ashevillelets.org/

A LETS requires a central exchange, similar to a bank. It provides the service of recording transactions as they are made among the members, keeping track of debits and credits as a neutral observer.

There is no ability to lend at interest, since its purpose is not for profit. Costs associated with performing its function can be captured in the form of fees or dues paid by members. It is nothing more than a central clearinghouse, where people can find information as to the number of debits and credits that are accruing or reducing.

This is the magic of LETS: Where economies are experiencing a lack of capital coming into a community, capital can be created by people who agree to transact business among themselves. This effectively erects a fence of sorts, that unleashes and keeps capital in the community, yet still allows new capital to enter from outside the community.

Unlocking Capital

Globally, most national and local economies are experiencing a strong credit capital contraction, resulting in what has come to be known as The Great Recession. While the causes for this remain open for debate, the fact is there has been a shortage of capital coming into many communities, which in turn has  depressed local economic activity across America.

Unemployment remains unacceptably high, and many people experience great difficulty in selling their houses. These facts are widely accepted. A fresh infusion of capital is needed to remedy this situation, and get the economic engine running again.

Now, capital (wealth) creation is a greatly misunderstood subject in our society. Many people don’t realize that wealth is actually created when people do business together. Or, they don’t recognize the mechanism whereby wealth is created: the profit motive.

When two people barter, a trade is made where both parties experience gain, or profit. Otherwise the trade wouldn’t occur.This is multiplied billions of times per day, everyday, across America, with every transaction that is made. This is wealth being created.

Since the vast majority of trades use Dollars, people generally don’t realize that they are in fact trading with one another. They are using Dollars as a medium of exchange to facilitate their trades.

As already mentioned, America is experiencing a capital shortage, caused by a number of factors. The federal government is attempting to alleviate this problem by borrowing and spending more money in the economy, but with limited success.

Federal borrowing and spending programs are causing Dollars to become devalued, which is causing food and energy prices to rise, resulting in what most people call inflation.  This is putting consumers in what appears to be an unsolvable dilemma: the shortage of capital in their communities is depressing economic activity, while prices for food and energy continue to rise.

What is the solution? Capital infusion! Not printed currency backed by nothing, but real money. Money that people value because real work goes into creating it. Safe money, backed by real value, and not subject to inflation.

This is why an alternative currency must be introduced – to unlock the capital in every community that is otherwise  unreachable, and turn it loose so people can increase their economic activity. Therefore, we arrive at the solution of Freedomworx, and offer the following:

Our mission is to strengthen communities through promoting charitable works, building solidarity among the members through free enterprise; and to improve the national and local economies by intelligent application of known wealth creating principles.”

By introducing an alternative currency we can accomplish these aims. Bitcoin runs alongside of, and is complimentary to Dollars. Using charitable works as an entry into the economy, and tapping into the natural good will that people have for others in their communities, Freedomworx will begin have positive impact on the economy.

The Mission

“Our mission is to strengthen communities through promoting charitable works, building solidarity among the members through free enterprise; and to improve the national and local economies by intelligent application of wealth creating principals.”

Bitcoin – A Better Currency

http://mobilemoneyafrica.com/bitcoin-will-revolutionize-how-africans-transact-rudiger-koch/

Simply a great article, recent, and informative.

Proposal

  • (Editor’s note – upon further reflection, I came to realize this proposal is flawed. It is presenting Bitcoin as currency to be used in a Local Exchange Trading System. That would be an attempt to mix competing systems like mixing apples and oranges.)
  • We propose a grassroots community effort to raise money for charitable works; to form a Local Exchange Trading System comprised of local merchants and people in the community.

    The goal is to unite the community behind a common cause, such as raising money for library improvements, or some other project as agreed upon by the members.

    The method for accomplishing the goal is for members to engage in normal day to day commerce, so that a portion of proceeds from the sales of goods and services go toward funding the charitable work.

    In order for the project to become funded, there must be some mechanism in place that easily distinguishes member’s contributions from the general cash flow of the member merchants. Some organizations use scrip, coupons, ledger credits, and so on.

    Freedomworx proposes Bitcoin as the medium of exchange among the members. Bitcoin is an electronic currency used around the world for all kinds of trades and exchanges. By all accounts, it is “hack” proof and safe.

    We propose using Bitcoin because the trading platform already exists. Indeed, there are computer applications available that can trade Bitcoin instantaneously by using ‘smart’ phones and the like. In the alternative, a trade can occur by writing down the trade, as in a check, and submitting the trade to Freedomworx for processing.

    Consider this scenario: A community decides to raise $10,000 for library improvements. A member consumer wishes to contribute a small amount to help fund those improvements. He also needs groceries for his household. So, he goes to a member merchant’s store and buys what he needs. He can use Bitcoin for either all or part of his purchase.

    Upon receiving payment, the member merchant remits 5% (by prior agreement with the LETS) of the gross sale to Freedomworx in Bitcoin, depositing those proceeds toward the Library Improvement Fund.

    After a while, and as other members do commerce, the fund grows.  When the goal is finally accomplished, Freedomworks converts the Bitcoin back into Dollars, and makes the promised contribution to the library (along with a lot of self-promotion a d fanfare, of course).

    Here are the benefits :

    1. The community wins, by receiving funds for needed improvements;
    2. The Merchants win by receiving business they might not otherwise have gotten, as well as building customer loyalty, and improving their image in the community;
    3. Consumers win, by building and strengthening their community, without spending more than they otherwise would have for their everyday needs and desires.

    There are many more benefits as well, but they are for another post.

    Hello World!

    Welcome to the Let’s Be Free Now blog. Here we will promote better ways of implementing freedom in our communities.

    To begin, we propose that the current economic stagnation is caused by a massive contraction of available credit. The great housing meltdown has put deflationary pressures on money, thereby greatly hampering the creation of new money in society.

    This has led to doubt and uncertainty about the future. Many people who need to sell their homes are unable to find suitable buyers. Their equity (what little is left, if any) remains locked in their houses. And, since equity can’t be transformed into money – while debt continues being paid down – the useable money supply is effectively shrinking.

    The government has countered this phenomenon by increasing its borrowing. By spending more in the economy, it seeks to ease the deflationary pressures brought on by the housing collapse. By design, this stimulus is creating inflation in order to cancel out the deflation.

    However, while some measure of success can be seen from implementing the stimulus, the structural defects in the economy that caused the housing collapse remain. Therefore the economy remains stagnant, and by most economist’s accounts, is likely to remain for quite some time.

    This is why a new solution must be found. A solution that relies on harnessing the nature of money, and directing it toward creating wealth in communities.

    Local Exchange Trading Systems (LETS) have been developed and in existence for quite some time. There are nearly 900 such systems in place in Canada and England. We believe that implementing these strategies in our communities will unleash the power of wealth creation, and ease the economic burden afflicting much of America today.

    It all begins with you. Go to http://www.gmlets.u-net.com/faq.html#section1 and learn about how LETS can work in your community. Ask questions here, and we will find answers. Our goal is to discover ways of implementing this technology effectively in our communities.