Von NotHaus and basic economics

[Famspear]

Bernard von NotHaus wrote:

On the other hand, when you hold US dollars, you own debt that you will eventually have to repay. When you give US dollars to someone as payment, they now have debt. Ouch!

--at
http://www.libertydollar.org

Hmmm. This is a guy who has been creating his own currency, and he seems clueless about some of the basic concepts of economics, accounting, and law.

OK, let's go back to college economics. It is true that a Federal Reserve note is sometimes referred to as a debt. In a real economic sense, however, it is not primarily a debt. Money, including Federal Reserve notes, is actually more like a product, as some economists have pointed out. It's a product of government action. (What its value may be is a separate question.) Money has more characteristics of being a product of government than it has as "debt."

And even to the extent that money (such as a Federal Reserve note) can be considered debt, it is a debt owed ONLY by the government, or by the Federal Reserve System, or by whichever Federal Reserve Bank issued the money or note, etc. The HOLDER of the note does not "owe" a "debt." The HOLDER of the Federal Reserve note has an ASSET. Acquiring and holding a Federal Reserve note does make me "indebted" to anyone -- not legally, not economically, not in any way.

Think of it this way: If I borrow money to buy a house and sign a "note" (a promissory note) and give that note to the lender, that lender does not thereby come to "owe" a "debt". The lender is the holder -- the OWNER -- of the note, not the obligor on the note. The note is an ASSET in the lender's hands, not a liability "owed" BY the lender to anyone.

Oh, and Mr. Von NotHaus, please don't try to tell me that the holder of a Federal Reserve note thereby indirectly "owes debt" that he will have to repay under some theory that the note is an obligation of the United States and that every U.S. citizen is somehow indirectly "liable" on the debt. Under that line of "reasoning," every US government debt instrument (T-bills, T-notes, and T-bonds) would be a debt OWED by the person purchasing the instrument, rather than an asset HELD by that person -- from a legal, economic, and accounting standpoint, nonsensical.

This is pretty basic stuff.

Herr von NotHaus might need to take some refresher economics and accounting courses.

[Imalawman]

Hmmm. This is a guy who has been creating his own currency, and he seems clueless about some of the basic concepts of economics, accounting, and law.

Herr von NotHaus might need to take some refresher economics and accounting courses.

Maybe he'll have some time to take classes while he's in the clinker.

[RyanMcC]

Nothaus on CNBC's Kudlow & Company speaking about Liberty Dollar raid:
http://youtube.com/watch?v=FJhMwxL_KR8

[Demosthenes]

It's funny how von Nothaus, economic genius and monetary architect, never mentions that he and his "mint" (a coin store in Hawaii) went bankrupt right before he started his liberty dollar game.

[notorial dissent]

Thank you Demo, one more question answered. I had wondered about the abrupt move to the "states". I would bet there are a number of other little details he has neglected to mention.

I still want to see an actual warehouse inventory. Eventually, I am sure.

[RyanMcC]

It seems the Ron Paul $20 silver coins turned out to be a fairly good investment for the time being. They are selling for over $100 a pop on ebay.

Click Here

All of the NORFED/Liberty Dollar coins seem to be selling at a premium now, well above face and spot value.

Even the certificates that are now worthless are selling at a premium.

A week ago this certificate was valued at 1/10th an ounce of a .999 coin. Aprox. about $.75. Now it has the same value as the Federal Reserve Note (Dollar) that you have in your wallet.

$0.0

Last Wednesday NORFED's offices were raided and all the gold and silver was stolen.


While this certificate has no intrinsic value, It is a beautifully crafted piece of work. The border of the certificate has a unique micro printing of the Declaration of Independence, The First Amendment of The Bill of Rights, The Preamble to The Constitution, and a portion of the Pledge of Allegiance.

Yet it sells for $8.00 anyway. More than what it was worth when there was actually silver to back it.. Wow..

[Demosthenes]

It seems the Ron Paul $20 silver coins turned out to be a fairly good investment for the time being. They are selling for over $100 a pop on ebay.

Click Here

All of the NORFED/Liberty Dollar coins seem to be selling at a premium now, well above face and spot value.

Even the certificates that are now worthless are selling at a premium.

A week ago this certificate was valued at 1/10th an ounce of a .999 coin. Aprox. about $.75. Now it has the same value as the Federal Reserve Note (Dollar) that you have in your wallet.

$0.0

Last Wednesday NORFED's offices were raided and all the gold and silver was stolen.


While this certificate has no intrinsic value, It is a beautifully crafted piece of work. The border of the certificate has a unique micro printing of the Declaration of Independence, The First Amendment of The Bill of Rights, The Preamble to The Constitution, and a portion of the Pledge of Allegiance.

Yet it sells for $8.00 anyway. More than what it was worth when there was actually silver to back it.. Wow..

Kind of like Beanie Babies.

[RyanMcC]

I'm sure I won't be alone in noting the irony of the Liberty Dollar Certificate being worth more now as a "worthless peice of paper backed by nothing" than it was when it was backed by silver.

[Nikki]

They're all backed by Dutch tulips.

[Agent Observer]

I'm sure I won't be alone in noting the irony of the Liberty Dollar Certificate being worth more now as a "worthless peice of paper backed by nothing" than it was when it was backed by silver.

I don’t know why you find that so amazing. People buy all sorts of ridiculous items from online auctions to include soiled underwear and chewing gum allegedly "used" by famous people, as well as grilled cheese sandwiches with patterns that supposedly look like the Virgin Mary or some such thing. Rush Limbaugh recently sold a letter he received from Congress on Ebay for $2.1 Million.

There's obviously a lot of credence in the old saying about a "fool and his money.."

[wserra]

They're all backed by Dutch tulips.

If they were backed by these Dutch tulips, I'd be first in line.

[grixit]

I believe Nikki was referring to the Tulipmania of 1636, one of the first, if not the first recorded case of a speculative commodity bubble. Also perhaps the first use of "-mania" as a combining suffix.

[webhick]

Kind of like Beanie Babies.

During the ass-end of the Beanie Baby craze, a welfare recipient I knew spent over $5000 (that I knew of) on Beanie Babies and sold four of five of those Princess Dolls to buy more. I kept telling her that it's probably not the best investment vehicle since it looked like market was completely saturated with nutbags... I mean old ladies with stuffed animal fetishes... I mean "investors". But she stuck with it, using my lack of investment knowledge and the fact that she was going to use them for her kids college education as excuses.

Then one day she called me up crying about how her collection that she spent a fortune on was only worth 1/10th of the price and how she was so angry she took them all into the back yard and barbecued them. I reamed her out for it, since at this point the only way she was ever going to see a profit off them was to retain them until the market improved and the other nutbags destroyed theirs intentionally or accidentally.

[Nikki]

I believe Nikki was referring to the Tulipmania of 1636, one of the first, if not the first recorded case of a speculative commodity bubble. Also perhaps the first use of "-mania" as a combining suffix.

At least SOMEONE manages to get his mind out of the gutter occasionally.

[silversopp]

And even to the extent that money (such as a Federal Reserve note) can be considered debt, it is a debt owed ONLY by the government, or by the Federal Reserve System, or by whichever Federal Reserve Bank issued the money or note, etc. The HOLDER of the note does not "owe" a "debt."

I agree with you that an FRN is not really a debt. However, you stopped just short in your analysis.

If a debt is owed by the government, it is a debt owed by the people. Government pays off its debts through the taxes, which we all pay.

Whenever a school board or a city wants to raise money by issuing a bond, you will almost always see them advertise it as "not raising taxes." While it's true that the issuance of the bond doesn't raise taxes, when the bond matures, taxes will then have to raised to pay it off.

If the US Government, for some reason I can't think of, had to pay up it's debt that the FRNs represent - the taxpayers would be ultimately responsible for paying that off.

The important thing to remember is the definition of money. Anything that is universally, or near universally, accepted as a medium of exchange is money. A worthless FRN, seashell, or lump of gold can all be money depending on what venders will accept. Since Liberty Dollars were only accepted in a handful of places nationwide, it was never "money."

[The Operative]

And even to the extent that money (such as a Federal Reserve note) can be considered debt, it is a debt owed ONLY by the government, or by the Federal Reserve System, or by whichever Federal Reserve Bank issued the money or note, etc. The HOLDER of the note does not "owe" a "debt."

I agree with you that an FRN is not really a debt. However, you stopped just short in your analysis.

If a debt is owed by the government, it is a debt owed by the people. Government pays off its debts through the taxes, which we all pay.

Whenever a school board or a city wants to raise money by issuing a bond, you will almost always see them advertise it as "not raising taxes." While it's true that the issuance of the bond doesn't raise taxes, when the bond matures, taxes will then have to raised to pay it off.

If the US Government, for some reason I can't think of, had to pay up it's debt that the FRNs represent - the taxpayers would be ultimately responsible for paying that off.

And you have stopped short of how it actually works. Printed FRNs are a liability to the Federal Reserve, i.e. a debt of the Federal Reserve. However, that is why the Federal Reserve is required to have U.S. Government securities equal to or in greater amounts than the number of FRNs outstanding. If the Federal Reserve was dissolved by Congress, the FRNs would become a liability of the U.S. Government, but the U.S. Government securities would become assets of the government. Those securities would never have to be repaid, so $800 to $900 billion in debt would disappear and the liability of the FRNs would take its place. Therefore, the FRNs don't represent any additional debt over the current U.S. Government debt.

[Famspear]

silversopp wrote:

I agree with you that an FRN is not really a debt. However, you stopped just short in your analysis.

If a debt is owed by the government, it is a debt owed by the people. Government pays off its debts through the taxes, which we all pay.

Yes, and I think that this may be what von NotHaus was thinking. The fallacy in his argument (if this is what he was thinking) is that it is incorrect to say that merely acquiring a Federal Reserve note somehow makes the holder indebted based on that theoretical, indirect "indebtedness" because that holder is one of "the people" and the debt is owed by the government, and therefore by "the people," etc., etc.

To the extent that I, as one of "the people," am theoretically, indirectly liable for my pro-rata share of the total dollar value of all the Federal Reserve notes outstanding, that liability would be on that basis alone -- and not on the basis have accepted a Federal Reserve note as an asset owed by me. I am not INDEBTED to anyone because I own or hold a Federal Reserve note.

Indeed, under the "you are liable on the notes because you are one of the people" theory, every American holder of a Liberty Dollar is still theoretically, indirectly liable for his or her pro-rata share of the total dollar value of all Federal Reserve notes outstanding -- even if he or she never owns a Federal Reserve note. If von NotHaus' argument was that you can avoid that liability by using his Liberty Dollars instead of Federal Reserve notes, well, maybe we need to send him a case of Geritol.

[Famspear]

Note, regarding typographical error. Above, where I wrote:

[ . . . ] and not on the basis have accepted a Federal Reserve note as an asset owed by me

The line should read: "an asset owned by me" (owned, not owed). Assets are owned, debts are owed.

[notorial dissent]

From my vantage point, I think a great deal too much thinking goes into all this. For all intents and purposes there is no real difference between the current Federal Reserve notes and the older silver and gold certificates. The certificates were issued for the unnovel reason that people really didn’t want to walk around with pockets full of very heavy coins, and paper was a whole lot easier to transport and warehouse. I still remember silver dollars in circulation, and a handful of those in your pocket and you needed industrial strength suspenders to keep you pants up. Further, until fairly recent times a handful of notes were all that was necessary to cover most transactions.

The certificates represented an easy means of transporting money around as opposed to the actual equivalent in coin. Due to inflation, it has reached the point, where once again, we only carry a modicum of actual cash on our persons, almost all transactions today are done either electronically or in check form.

The point of this all being; the old certificates were backed by metal, the current FRN’s are backed by credit value from govt securities sold in the market.

They are not debt instruments or any other nonsense, any more than the old certificates were, they are currency, backed by the very real commodity of the funds/credit of the government based on paper sales, as opposed to the gold or silver of the government. They represent a commodity, credit, as opposed to a commodity, metal. They represent value not debt.

The actual representation of the debt are the notes and bonds sold to back the currency and support the govt.

Oddly enough, we actually do redeem our FRN’s far more often than the old certificates ever were, for the simple reason that when we deposit them to our electronic accounts we have in fact converted them to credit, making them even more transportable.

[silversopp]

If the Federal Reserve was dissolved by Congress, the FRNs would become a liability of the U.S. Government, but the U.S. Government securities would become assets of the government.

As stockholders of the Federal Reserve system, the member banks would be entitled to maintain possession of the dissolved entity's assets. The US government would still have the liability associated with those securities.

Otherwise, the FRNs would truly be worthless, since there would be no US securities backing them.