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On the Liquidation of Government Debt under A Debt-Free Money System - Modeling the American Monetary Act-

On the Liquidation of Government Debt under A Debt-Free Money System - Modeling the American Monetary Act-. The 6th Annual AMI Monetary Reform Conference At University Center in Downtown Chicago Sept. 30 – Oct. 3, 2010. Prof. Kaoru Yamaguchi, Ph.D. Doshisha Business School

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On the Liquidation of Government Debt under A Debt-Free Money System - Modeling the American Monetary Act-

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  1. On the Liquidation of Government Debtunder A Debt-Free Money System- Modeling the American Monetary Act- The 6th Annual AMI Monetary Reform Conference At University Center in Downtown Chicago Sept. 30 – Oct. 3, 2010 Prof. Kaoru Yamaguchi, Ph.D. Doshisha Business School Doshisha University, Kyoto, Japan E-mail: kaoyamag@mail.doshisha.ac.jp

  2. Background:SD MacroeconomicModeling Series2003 - 2008

  3. SD Macroeconomic Modeling Series • Principle of Accounting System Dynamics - Modeling Corporate Financial Statements -New York City, July 20-24, 2003 • Money Supply and Creation of Deposits (SD modeling 1)University of Oxford, England, July 25 - 29, 2004 • Aggregate Demand Equilibria and Price Flexibility (SD modeling 2) Boston, USA, July 17-21, 2005 -> Visit Prof. Jay Forrester (Sept. 14) • Integration of Real andMonetary Sector with Labor Market (SD modeling 3)Nijmegen, The Netherlands, July 23 - 27, 2006 • Balance of Payments and Foreign Exchange Dynamics (SD modeling 4)Boston, USA, July 29 – August 2, 2007 • Open Macroeconomies as a Closed Economic System (SD modeling 5)Athens, Greece, July 20 – July 24, 2008

  4. Sept. 14, 2005, MIT • 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. National Model

  5. Macroeconomic System Overview

  6. Business Dynamics by John D. Sterman, McGraw-Hill Companies, 2000, p.194 わかる！図解キャッシュフロー 　　　久保豊子著、ダイアモンド社 　　　２０００年、p. 111 Engines of DynamicsA Relation between Stock and Flow Cash through Operation Cash through Investment Cash through Finance

  7. Double Entry Rule of Bookkeepingas Debit and Credit Balance Sheet as a System of Stocks Analytical Methods Presented at the 21st International Conference of the System Dynamics Society , New York, 2003 Principle of Accounting System Dynamics- Modeling Corporate Financial Statements -

  8. Creation of Money: Gold Standard

  9. Creation of Money: Gold Standard Monetary Base of Gold = 200 Required Reserve Ratio 10% ->4% at t=8 Money Multiplier: 4 -> 5 Money Supply: 800 -> 1,000

  10. Creation of Money: Gold Standard Monetary Base of Gold = 200 Required Reserve Ratio 10% ->100% at t=8 Money Multiplier: 4 -> 1 Money Supply: 800 -> 200

  11. Macroeconomic System Design- American Monetary Act -

  12. What is Money ? Who can create Money? Macroeconomic System of Money as Debt- Money out of Nothing (Thin Air) - Privately-Owned Central Bankissues Money (Notes) Credit Creation by Commercial Banks (A Fractional Reserve System) Monetary Control by (and for) the Elite Bankers Money Supply = Currency Outstanding (Cash: Bank Notes and Coins) + Bank Deposits (Credits)

  13. Money as Debt System- Transactions of the Central Bank -

  14. Expert Ideas forMacroeconomic System Design 608 pages, 4th ed. 2002 724 pages, 2002

  15. A New Macroeconomic System Design Money as Debt System - Money out of Nothing - A Debt-Free Money System- the American Monetary Act - Privately-Owned Central Bankissues Money (Notes) Credit Creation byCommercial Banks (A Fractional Reserve System) 3. Monetary Control by (and for) the Elite Bankers • Government Issues Money(Nationalization of the Central Bank) • 100% Fractional Reserve（Abolishment of the Credit Creation） • 3. Monetary Growthfor the Economic Growth and Public Welfare

  16. Macroeconomic System of Debt-Free Money- Transactions of Government - Seigniorage LeveragePoint

  17. Macroeconomic System of Debt-Free Money- Transactions of the Public Money Administration -

  18. 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.)

  19. Debt Crisis in Japan！ About $56,000.00per each Japanese Nixon Shock 1971No Convertibilitybetween US dollar and Gold 2009

  20. of annual gross domestic product. of annual gross domestic product. 190 % Debt Crisis in OECD！ Japan Italy 110 % Canada USA France Germany U.K.

  21. File:Public debt percent GDP world map.PNGFrom Wikipedia, the free encyclopedia In 2009

  22. Solutions underthe current Macroeconomic Systemof Money as Debt

  23. Mostly Equilibria in the Real Sector

  24. Built-in Debt For Growing Economy Government Debt is Build in the System of Money as Debt

  25. Built-in Debt For Growing Economy Liquidation of Government Debt By Primary Balance Ratio of 91% (9% Spending Cut) at t=6 Liquidation of Government Debt under the System of Money as Debt

  26. Liquidation of Debt is Costly ! Current Macroeconomic System is Dead-End ! Recession

  27. Solutions underthe Macroeconomic Systemof Debt-free Money

  28. Liquidation of Government Debt Under A Debt-Free Money System Liquidation of Government Debt and Debt-GDP Ratios

  29. Higher Economic Growth by Debt Liquidation Higher Economic Growth

  30. Comparison of Prices and Inflation Rates No Inflation is triggered by the Liquidation of Debt

  31. 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

  32. GDP gap by changingthe Exponent of Capital 0.4 -> 0.43 No Inflation under GDP Gap New Issues of of money by the amount of 23for 10 years from t=6

  33. In Equilibrium increase spendingby 10 for 3 years starting at t=10 Inflation by Mismanaging Money Supply Political Business Cycle

  34. Increase in spendingby 10 for 3 years starting at t=10 Business Cycles by Mismanaging Money Supply Political Business Cycle

  35. Build-in Feedback Mechanism for Preventing Inflation (Deflation) Independence of Political Power Abuse

  36. 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

  37. Macroeconomic Dynamics- Accounting System Dynamics Approach- On-going Draft (v.2, 350 pages) and SD Simulation Models are available at Session A, 5PM, Oct. 2. Thank you for your attention !

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