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Monetary Reform Conference

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Presentation on theme: "Monetary Reform Conference"— Presentation transcript:

1 Monetary Reform Conference
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 Doshisha University, Kyoto, Japan

2 Background: SD Macroeconomic Modeling Series 2003 - 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 , 2004 Aggregate Demand Equilibria and Price Flexibility (SD modeling 2) Boston, USA, July 17-21, > Visit Prof. Jay Forrester (Sept. 14) Integration of Real and Monetary Sector with Labor Market (SD modeling 3) Nijmegen, The Netherlands, July , 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  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

5 Macroeconomic System Overview

6 Engines of Dynamics A Relation between Stock and Flow
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 Business Dynamics by John D. Sterman,    McGraw-Hill Companies, 2000, p.194 Cash through Operation Cash through Investment Cash through Finance

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

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 Bank Deposits (Credits)
Macroeconomic System of Money as Debt - Money out of Nothing (Thin Air) - What is Money ? Who can create Money? Privately-Owned Central Bank issues 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 for Macroeconomic 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 Bank issues Money (Notes) Credit Creation by Commercial 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 Growth for the Economic Growth and Public Welfare

16 Macroeconomic System of Debt-Free Money - Transactions of Government -
Leverage Point Seigniorage

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 Nixon Shock 1971 No Convertibility between US dollar
Debt Crisis in Japan! About $56, per each Japanese Nixon Shock 1971 No Convertibility between US dollar and Gold 2009

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

21 File:Public debt percent GDP world map
File:Public debt percent GDP world map.PNG From Wikipedia, the free encyclopedia In 2009 Japan 189 % Belgium 98 % Austria 69 % Spain 53 % Italy 115 % France 78 % U.K. 68 % USA Greece 113 % Portugal 77 % Norway 61 % Poland 47 % Singapore Canada 75 % Brazil 60 % Finland 44 % Iceland 108 % Germany 72 % India 58 % Denmark 42 %

22 Solutions under the current Macroeconomic System of Money as Debt

23 Mostly Equilibria in the Real Sector

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

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

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

27 Solutions under the Macroeconomic System of Debt-free Money

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

29 Higher Economic Growth by Debt Liquidation

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

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

34 Business Cycles by Mismanaging Money Supply
Increase in spending by 10 for 3 years starting at t=10 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 Thank you for your attention !
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.


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