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On the Liquidation of Government Debt under A Debt-Free Money System - Modeling the American Monetary Act- Prof. Kaoru Yamaguchi, Ph.D. Doshisha Business.

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Presentation on theme: "On the Liquidation of Government Debt under A Debt-Free Money System - Modeling the American Monetary Act- Prof. Kaoru Yamaguchi, Ph.D. Doshisha Business."— Presentation transcript:

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

2 Background: SD Macroeconomic Modeling Series

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 p. 111 Business Dynamics by John D. Sterman, McGraw-Hill Companies, 2000, p.194 Cash through Operation Cash through Investment Cash through Finance

7 Principle of Accounting System Dynamics - Modeling Corporate Financial Statements - 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 Analytical Methods

8 Creation of Money: Gold Standard

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

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

11 Macroeconomic System Design - American Monetary Act -

12 1.Privately-Owned Central Bank issues Money (Notes) 2.Credit Creation by Commercial Banks (A Fractional Reserve System) Monetary Control by (and for) the Elite Bankers Macroeconomic System of Money as Debt - Money out of Nothing (Thin Air) - What is Money ? Money Supply = Currency Outstanding (Cash: Bank Notes and Coins) + Bank Deposits (Credits) Who can create Money?

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

14 Expert Ideas for Macroeconomic System Design 608 pages, 4 th ed pages, 2002

15 A New Macroeconomic System Design A Debt-Free Money System - the American Monetary Act - 1.Government Issues Money (Nationalization of the Central Bank) 2.100% Fractional Reserve Abolishment of the Credit Creation 3. Monetary Growth for the Economic Growth and Public Welfare Money as Debt System - Money out of Nothing - 1.Privately-Owned Central Bank issues Money (Notes) 2.Credit Creation by Commercial Banks (A Fractional Reserve System) 3. Monetary Control by (and for) the Elite Bankers

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

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 cant they borrow or tax? Run-away Debt Crises (in Japan, USA, Greece, etc.)

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

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

21 File:Public debt percent GDP world map.PNG From Wikipedia, the free encyclopedia Japan189 %Belgium98 %Austria69 %Spain53 % Italy115 %France78 %U.K.68 %USA53 % Greece113 %Portugal77 %Norway61 %Poland47 % Singapore113 %Canada75 %Brazil60 %Finland44 % Iceland108 %Germany72 %India58 %Denmark42 % In 2009

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

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

27 Solutions under the Macroeconomic System of Debt-free Money

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

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? Govt 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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