I would like to congratulate on an excellent contribution to the field of economics. I've read through your web site over the course of a week, and I find myself in agreement with you on all points. You have done an exceptionally good job over the years, which deserves greater recognition and praise. Your Mathematically Perfected Economy is the only solution I believe to resolve the current financial crisis in America and Europe. Your emergency provisions are good and would prevent a rapid deflation, while providing liquidity for commerce, trade, productive capital formation, investment, consumption, sustainable growth etc.. Like yourself, I am also an admirer of Thomas Jefferson and have read his works, my favourite being 'The Life and Selected Writings of Thomas Jefferson' by Koch (1944). A large picture of Thomas Jefferson sits on my wall at home, and another one of Washington crossing the Delaware sits right beside it. One picture typifying ideals and principles and the other the great sacrifices made to realise these ideals. It would appear that freedom requires sacrifice in each generation. Jefferson was the true founding father of America, and implemented many of the Enlightenment ideals which built up America and made it great. He had to contend with Alexander Hamilton, a royalist, tory and supporter of britain and central banking. This division soured politics in the early years of the republic, and led to much unnecessary bitterness. I've also read books on President Jackson and was deeply impressed with him and he too had to contend with supporters of central banking. It would appear that American history could be defined as a constant struggle against these banker rats and their tory and royalist / aristocratic ideals.
I am from Ireland myself. Your ideals sound very Jeffersonian and in many ways you express yourself in a similar manner to Thomas Jefferson. I could see your ideals taking root in Ireland and throughout Europe due to great panic and anger which presently engulfs much of Europe, and also the simplicity of your solution, and its ability to effectively hit the causative factors, and provide remedy.
I contacted the Irish Times newspaper in response to an article by John Waters concerning bank debt and the financial crisis. I mentioned your ideas as credible solutions tot he problem:
"Waters provides a vague description of the problem which is a start. Not great, but at least a start, a recognition that deeper problems concerning massive debt and accumulated interest over many years is the real issue, the causative factor. And by debt, I mean government, business, banking and individual / family debt, combined together. The only economic theory with any credibility for resolving this is Mike Montagnes' Mathematically Perfected Economic system which address the issues of massive levels of debt and accompanying recession, depression and deflation and inflation in a logical, coherent and practical manner. His web site is at http://www.perfecteconomy.com
I have the following questions to ask you in relation to Mathematically Perfected Economy. These questions are intended to develop a better understanding of Mathematically Perfected Economy and how it would work in practical terms and what impediments and obstacles it may face.
“There is one and one only solution to inflation and deflation;this being maintenance of a circulation which is at all times equal to the remaining value of the very assets for which the circulation was issued.
A schedule of payment equivalent to the rate of depreciation or consumption is key then not only to implementation of mathematically perfected economy™, but to the very economic justice of receiving for an equal measure of our own work, the equivalent work of others.”
Source: Mike Montagne. http://perfecteconomy.com
Inflation has a number of causes:
- Inflation is related to the capacity to create credit through loans on a collective level, and the capacity to manipulate prices of assets or goods / services. It is these two factors which determine what price can be determined for an asset. Or more precisely, what price can be extorted from many competing buyers with access to credit facilities. An under-capacity to create credit and manipulate prices leads to deflation in asset prices and an over-capacity leads to inflation in asset prices. Credit is the fuel for asset price increases or decreases, while price manipulation is the accelerator. The same applies to consumer goods. Excessive credit capacity (for buyers) enables sellers to manipulate and charge excessive prices for their goods and services in the short to medium term - to use their terminology they can charge “as much as the market can bear”. The term “economic rent” is used to describe a situation where sellers can extract excessive or above market rate prices for their goods and services. This is done at the seller or broker level, not at the manufacturer level. Yet this “economic rent” would be impossible if credit creation was tighter or subject to more stringent controls, such as some multiple of average industrial earnings. This “economic rent” is temporary as the ever mounting debt and interest on debt enforces limits on individual and collective capacity to create credit / loans and consume and on how much sellers can manipulate and charge. Thus there is an in-built limit on rising prices. How would a mathematically perfected economic system resolve the problem of excessive credit creation and accompanying price manipulation and rising prices for assets and goods / services ?
- Also interest on debt filters into costing and price mechanisms to force prices higher over time. There is no in-built limit on this at present. The mathematically perfected economic system addresses and resolves this problem.
- The “economic rents” extorted for commercial property, especially during a boom or bubble directly feeds into costing and pricing mechanisms for goods and services forcing producers to charge higher prices for goods and services. This has an inflationary impact. This is often overlooked by economists. Its effect is more direct than interest costs, but the combination of this with interest costs has a strong inflationary effect. How would a mathematically perfected economic system resolve the problem of “economic rents” in commercial property ?
- The “economic rents” extorted for individual / family home property, especially during a boom or bubble directly feeds into costing and pricing mechanisms for wages and encourages workers and unions or representative profession organisations to fight for higher prices for their labor, ie higher wages / salaries. This too has an inflationary impact. Its effect is more direct than interest costs, but the combination of this with interest costs has a strong inflationary effect. How would a mathematically perfected economic system resolve the problem of “economic rents” or excessive prices for family home property ?
- The quality of debt is also important. Is debt being created to fuel productive capital formation, innovation in products, services and production, and higher productivity from workers and capital, capitalising renewable energy, etc. or is the debt being created to fuel increases in asset prices and the prices of commodities and in consumer goods and services. Is it increasing and enhancing productive supply or merely feeding a bubble ? How would a mathematically perfected economic system resolve this problem ?
- There is also the cost-push inflation in the form of oil prices, wage increases above productivity levels, commodity price increases, commercial property price increases and “economic rents” by suppliers which may be monopolies or restrictive practises. How would a mathematically perfected economic system resolve these cost-push factors in inflation ?
The drive to acquire “economic rents” and excessive prices is driven by “what the market can bear”. Interest has an effect on inflation, but a lot of other factors also have an effect.
The opposite of inflation is true during a recession or depression where lack of capacity to create credit (by buyers) and accompanying lack of capability to extort “economic rents” leads to either a price plateau or price deflation. It is the buyer who is then able to get an “economic rent” as she / she can extract below market prices for the goods and services of a seller. Though, there are exceptions as some professional organisations, civil servants, union members, and monopolies are able to maintain and increase their wages during recessions and depressions. The insider-outsider theory applies.
Capacity to create credit is itself determined by :
(i) the existing levels of debt, including interest. This includes debt at individual, business and government levels. Under conditions of interest-related debt and excessive accumulation of debt from “economic rents” and price manipulation of assets and goods / services, this tends to increase to an unsustainable level over time. This in turn imposes limits on credit creation.
(ii) the income one can generate or is generating which itself is related to the consumption of others which in turn is related to their overall debt levels and capacity to create credit and consume. Taken as an aggregate of consumers, this has a powerful effect on all incomes and on one’s capacity to generate income.
(iii) the level of confidence (or “animal spirits” as defined by Keynes) which itself is determined by the prevailing ethos in the press and media and by the perceptions of individuals, businesses and government. Even perceptions are governed by the total amount of debt and one’s income generating capacity.
(iv) the decisions of central bankers and retail bankers. Both are involved in money creation and interest creation. They can inject new money into the system or withdraw it from the system - this power is largely privitised and is not properly controlled and regulated and is not accountable to the people. These banks can also deny loans to individuals and businesses by using false criteria or abusing their power as lenders of money.
(v) The ability of powerful monopolies, oligopolies and restrictive practises to extract excessive value or prices from the system, while depriving others of their rightful or fair compensation. This is further worsened where they transfer large numbers of jobs and employment from one country to another, thus destroying income generating capacity and the capacity for credit creation and credit repayment.
How do these factors integrate into the mathematically perfected economic system.
“Simply by re-financing all debt under mathematically perfected economy, we would immediately achieve full employment and *multiples* of our present "prosperity," because so much *existent* cash could be devoted to commerce, versus its present dedication to servicing debt.”
“mathematically perfected economy™ would re-finance a $100,000 home with a hundred-year lifespan at the overall rate of $1,000 per year or $83.33 per month. Without costing us anything, we would immediately become as much as 12 times as liquid on present revenue. Transitioning to MPE™ would apply all payments already made against existent debt toward principal. Many of us would be debt free. There would be no housing crisis, no credit crisis. Unlimited funding would immediately be available to sustain all the industry we are capable of.”
Source: Mike Montagne. http://perfecteconomy.com
I have the following questions
- In relation to both paragraphs above, how will individual / family debt, business debt and government debt be re-financed and restructured under the mathematically perfected economic system ?
- In relation to the first paragraph above, should all government debt and interest owed to the Federal Reserve be written off ? The US Constitution states that Congress alone has the power to issue currency. As it was the US government borrowing from itself (The Federal Reserve ; a semi-private Federal agency), then surely it can write off it’s own debt to itself. And then abolish the Federal Reserve and restore Constitutional powers of money creation to Congress.
- In relation to both paragraphs above, as regards refinancing mortgage debt, should we include fair price for the property or the manipulated high price for the property ? The manipulated price having been determined via “economic rent” by the seller / broker during the boom or bubble. Why should mortgage payers have to pay double or treble the fair price, in the form of principal, for a property ?
The US Constitution gives Congress the right to print and issue the currency. In 1913, the Federal Reserve (semi-private bank) illegally took over this right, and started printing and issuing the money and lending it to the US government and the retail banks, making massive profits in the process. These loans had to be paid back by taxpayers and mortgage holders and indebted businesses. After abolishing the Federal Reserve, would a mathematically perfected economic system allow Congress to print and issue the currency ? and if so, what limitations would be put on the printing of such money printing ? suppose too much money or too little money is printed ? and what limitations would be put on taxation ?
In the late 1990’s and first decade of the 21st century the bankers managed to create hard cash by packaging sub-prime mortgages together and selling them as Collateralised Dent Obligations (CDO’s) to bigger banks and investment houses in New York and other financial centers around America and the world. These were then sold on again for profit and so on. Then there were derivatives, approximately $10 trillion which was basically money or electronic credits created out of nothing to gamble on movements in the prices of assets or commodities or risks or market indexes or other derivatives. All of these new financial instruments greatly expanded the profits of mortgage banks and big investment banks and brokerage houses - profits from the creation of money (in many cases electronic credits) and interest out of nothing. This fuelled massive bonuses, share options, share price surges, salary increases and wasteful conspicuous consumption. How could a mathematically perfected economic system de-leverage all of this and restore the system to normality ?
How can the bankers be legally punished ? how can they be forced to pay back everything they have looted from the people ? how can taxpayers and the unemployed, the disabled, the elderly be compensated for being robbed of their income and entitlements ? Can new laws be enacted and vigorously enforced to punish financial crimes and treason committed in the past under a corrupted and ineffective legal system ? would this be part of a mathematically perfected economic system ?
How does the mathematically perfected economic system deal with high concentrations of wealth. For example the richest 5% of a population owning over 50% of the wealth of a nation ?
In the assessment of fair value / compensation for one’s production, how does one determine this for disabled people ? In particular those disabled people who are being deprived of proper medical treatment and are left to suffer and die in indignity ? They are obviously being deprived of their capacity to produce and thus their capacity to receive fair compensation for their production. How does one resolve this in a mathematically perfected economic system ?
There is also the matter of disabled people who have illnesses which cannot be cured at present. Yet, many disabled people desire and are able to work part time. Some are able to work full-time. But they are denied this opportunity by discrimination, prejudice and stigma against disabled people. Thus, they are being deprived of their capacity to produce and thus their capacity to receive fair compensation for their production. How does one resolve this in a mathematically perfect economic system ? The web site at http://galway.ncpd.ie
outlines this problem and possible solutions, though this disability organisation was forcefully closed by the intervention of the Irish government and the Irish banks, yet re-opened through the will of disabled people, carers and volunteers.