Conservation of Objects in MMORPG Games

By Ken Griffith
Game Research
Tuesday, October 24, 2006

http://game-research.com/index.php/articles/conservation-of-objects-in-mmorpg-games/

INTRODUCTION

Over the past decade as Massively Multiplayer Online Games (MMOG’s) have grown more numerous the need for a different approach to the management of “game objects” has become evident. Because an MMOG world, regardless of the genre, is populated with objects that players can take, use and trade, it is inevitable that in-game economies develop.

Unlike the real world, game objects are “virtual” and can therefore be created infinitely by the game host with zero marginal cost. This situation can create problems and limitations for the game world and its human participants.

By adopting a software model that conserves the creation of persistent objects several existing problems may be solved as well as opening the door to new possibilities for online games.

This paper sets forth an object management model that is based on theory from the disciplines of economics, financial cryptography, and sociology.

GAME-INFLATION: THE PROBLEM

Description of the Problem
A significant problem with current MM games is in-game inflation and deflation. As the game world progresses in time, the constant creation of persistent game objects in the form of regenerating NPC’s creates imbalances in the ratio of certain objects in the game relative to other objects. This problem may manifest itself in the form of skyrocketing prices of game items in terms of “game money” or the opposite (price deflation) may occur if other objects regenerate faster in the game than money objects.

Ultimately the problem is caused by the unlimited creation of persistent objects in the game world.

One example of the havoc this can create for players of the game is the case where money is so easy to come by in the game that scarcity becomes meaningless. Players buy up all of the outfitting items at the in-game merchants. Game hosts may respond to this by increasing prices in the in-game merchants to consume more money.

This creates a problem for new players because they have to kill an extremely large number of NPC’s in order to save up enough money to buy even the most basic items. In-game inflation creates an ever-widening gap between low-level players and high-level players who started playing significantly earlier.

For experienced high-level players, the game developer has to create ever-harder challenges to keep the game interesting. These high level players may end up with thousands or millions of game money units in their accounts and nothing significant to buy with it. Thus the game money decreases in utility per unit for high-level players. In fact, a cottage industry has sprung up to sell guides to players of certain games to show them how to make hundreds of thousands of game money units per week or month .

In-game inflation causes the return on time invested to decrease for low-level players as well. The number of low-level creep slayings required to save enough money to buy basic items to outfit the player tends to grow as the price index in the game rises.

As time progresses the hyperinflation becomes more pronounced until it eventually becomes a dampening factor on player enthusiasm, as well as a hindrance for recruiting new players to the game.

The Cause of the Problem
In-game inflation is caused by the fact that NPC’s in the game constantly regenerate along with various items that they carry. When PC’s kill NPC’s the players collect the items and can use them in the game. Some items will perish with use, for example those that confer “buffs” to the player character. Others, notably money, are persistent and can be exchanged in the game but not destroyed. (Unless the developer creates a money-sink in the game such as a store that sells items to players and erases the money.)

When persistent objects are created on regenerating NPC’s they will accumulate over time in the game to the point where their value falls due to the supply greatly exceeding the demand. In the case of game money this process manifests itself as in-game price inflation.

This is similar to the root problem that causes inflation the real world, except in that case it is national treasuries that constantly print new currency for use in government spending. Online gamers may find some familiarity in the situation in Germany after World War I. In 1923-27 German Reichsmarks were printed and spent by the German government in such copious quantity that it was actually cheaper to burn a wheelbarrow full of Deutschmarks in the furnace than to use them to buy fuel oil or firewood. This was the first time that the German currency suffered from raging hyperinflation. Notes were printed in denominations of 50 trillion and 100 trillion. One billion paper marks became equivalent in value to one gold mark and many families lost their life savings overnight before some form of stability was restored .

Inadequate Solutions
There are several measures that game developers can currently take to put a bandage on the problem, but these solutions ultimately require a great deal of micro-management because they do not attack the root of the problem - which is the generation of persistent objects on regenerating NPC’s.

For example one superficial approach to the inflation problem is to create money-sinks in the game, in the form of “merchants” that sell items to players for game money and then erase the game money obtained. Another form of money sink is to create new areas of the world with more merchants and items to be purchased.

Money-sinks have not proven to be very effective in controlling inflation because the number of regenerating money sources (NPC’s) greatly outnumber the practical capacity of in-game money-sinks. New areas of the game also have regenerating NPC’s that carry money, so the problem tends to accelerate with the increase of creep generation points in the game. Players generally spend more time killing NPC’s and solving quests than offloading their money at in-game merchants.

CONSERVATION OF OBJECTS

Rather than micro-managing the problems that result from a flawed object management model, it makes more sense to change the model from the very beginning of a game development project.

MMOG’s, whether for entertainment or other purposes, are inevitably simulations of certain aspects of the real world. Therefore, it makes sense to modify the game model to more closely reflect the real world in order to reduce or eliminate economic problems in the game.

Before describing the new model, let us first examine the laws of economics in the real world.

The conservation of mass and energy effectively operates in the universe so that mass and energy can be transformed but not created or destroyed. (There have been recent challenges to this theory, but for our purposes here it suffices.)

Any given sub-system in the universe may experience a net import or export of mass or energy. Energy travels faster and is easier to import and export than mass. So, taking the planet Earth as an example, we have a system where mass is effectively conserved (excepting nuclear reactions, which are negligible), but energy is effectively unlimited because of the constant import of new energy into the system. The sun and stars radiate energy that enters the Earth’s system, and the Earth and its atmosphere radiate excess energy back into space in the form of IR radiation.

The resulting biological system on earth has a constantly replenished input of solar energy. This means that biological objects (flora and fauna) have an unlimited capacity for the capture of energy, and therefore regeneration; but mineral objects are limited by their relative finite supply on the Earth.

The only effective limitation on biological activity is the availability of space and relative availability of water. This is true because the availability of bio-active trace elements and chemical building blocks is far greater than the maximum biomass that could cover the earth’s surface.

As the designers of the fictional “Matrix” found in the movie by that name, human beings like to play in virtual worlds, but we tend to be unhappy unless the world reflects the real world that we were programmed to live in. In order to translate these realities into a game model, we must recognize the difference between regenerating objects and persistent objects. Plants and animals and fuel from plants and animals are renewable resources, while metals, some minerals, and certain chemicals are finite in their supply. Certain elements and compounds are so common as to be effectively unlimited in their supply. This would include rocks, air, salt water, and in some cases fresh water.

There is a further distinction between objects that are consumed with use and those that persist. A leather jacket is effectively persistent (though in real life it will eventually wear out within one to five decades of use). A potato is perishable.

Also, in the case of the leather jacket we see that some perishable regenerating things (cows) can be converted into “effectively” persistent items, at least for the relative time scale of human beings. We see this in some game worlds where regenerating items such as polar bear skins in Everquest can be manufactured into various useful objects in the game.

The game world may mimic the real world with regard to converting perishable objects to non-perishable ones, where the only effective limitation on the creation of persistent objects from regenerating sources is the market price of the finished product. For example, if every human being in the world devoted all of his or her spare time to making denim blue jeans out of cotton fibers, the only limitation on the production of infinite blue jeans is the fact that the cotton-supply that is only limited by the arable land where cotton can be grown. However, given infinite time an infinite number of blue jeans could be created. In reality this does not happen because the price of blue jeans would fall as the supply increased.

Schema
The conservation schema for a game world should recognize two super-classes of objects: persistent and perishable. Persistent objects will be conserved while perishable items may be generated without limit in the game because they are constantly destroyed as they are used.

Here are example subclasses for each super-class:

Perishable:

· NPCs : (NPC’s exist, they die, they regenerate.)
· Products from NPC’s : Meat, hide, fur, etc.
· Fuel : (Food, drink, fuel, wood, power-ups, buffs, ammo, spells etc.)
· Vegetation (trees, bushes, logs, etc.)

Persistent:

· Money : Gold, silver, currency, etc.
· Weapons
· Armor
· Containers
· Special Items

Conservation Engine
The conservation model requires an engine that controls the creation and transfer of persistent objects according to the following rules:

1. Only the conservation engine may create new persistent objects.
2. In all other cases persistent objects can be transferred, and in some cases destroyed, but not created.

Implications
The implications of conservation of objects include:

1. Persistent objects must be recycled in the game. Therefore the game will require a mechanism to recycle persistent objects from players back to NPC’s in the game (if the game has NPC’s). For example, a rule could be made that if a player character is killed by an NPC some or all of the player character’s inventory is transferred to the NPC, or a general account for NPC’s to draw items from.

2. A conservation economy allows the option to directly correlate game objects with real-world objects. For example game money could represent and be convertible to real money, allowing a new game genre that is a hybrid between online gambling and pure entertainment MMOG’s. (This can only work for a conservation engine that is effectively spoof-proof. Otherwise, bugs in the conservation engine might allow the creation of game objects that can be “converted” to real money/objects, allowing the cheater to economically exploit, and possibly bankrupt the game system.)

ACCOUNTING

The Game Currency
The conservation of money means that there is a finite supply of money in the game world. No new money is created in the game; it is only transferred around inside the game. An additional option is to allow money to be imported and exported to and from the game world and the real world, as if the game world is a country in the real world. (This is called a “convertible money model” is covered in the paper “Convertible Money Economies for MMO Games” by the same author.)

Keeping Track of Conserved Objects
Any conservation model requires an accounting system to prevent the unlimited creation of money and other persistent objects inside the game. This is especially important for games that plan to use the convertible money model because a dupe bug could allow a player to get million gold pieces for nothing and cash them out, which would ruin the backing of the game money. These issues have already been worked out for online gaming and online digital currency systems using a set of algorithms and functions collectively referred to as “financial cryptography”. Because of the work done in these other fields the most difficult problems have already been solved, often by several completely different methods.

In order to prevent the unlimited creation of conserved objects in the game, it is necessary to control the way conserved objects are created and transferred. Developers in the field of financial cryptography have invented several methods of doing this kind of thing. One approach is the use of a “book-entry” database system that keeps track of every individual object in massive table.

The other approach to object management, that may be better suited to MMOG’s (and is much more elegant), is to use “signed digital coins” to represent objects and even player attributes (hit points, size, strength, etc.). When an object is used or transferred it is “spent” and a new coin for that object is created for the new recipient. Rather than keeping a massive central database of who owns what, the digital coin model merely maintains a “spent coin number” database to guard against double spending. Possession of a coin constitutes ownership, so the system doesn’t need to worry about who owns what until they actually use or transfer the item. This allows a game to be designed that pushes inventory management down to the client machine, but prevents cheating through the use of digital signatures on the coins.

The digital coin model is harder to understand mathematically, but it is alleged to use 1/10th the processing power and is probably better suited for MMOG’s that run on multiple linked servers . There are many papers and even patents published on digital coin systems , but none that I know of that presently apply the concept to object management in MMOG’s.

A Sample Schema for a Book-Entry Object Conservation Engine
For this paper we will simply assume a book-entry model where the game engine has a database for “persons” in the game, which can include player and non-player characters. This database contains a table for inventory where each entry has the player id and the object id type. One approach for this model is to create an additional inventory table with the same fields called “conserved objects”. Write access to this table will be limited to two functions, MINT and TRANSFER.

Each player character has an account as a “person”, and NPC’s would either have individual “person” accounts, or one master “person” account representing all NPC’s (The Creep Trust Fund). Likewise, each special conserved object would require an entry in the database with the owner_id, class_id, and quantity. Money and special objects can both be handled in the same table this way.

Your object_class table will have entries specifying the properties for each object type (class_id).

The Mint
Regardless of which accounting method is used, conserved objects in the game can only be created or destroyed by the “Mint”. The Mint is a function that adds or removes conserved items from the game world. The Mint would create the items and money to initially populate the game world with value, and occasionally to add new conserved items for the occasional balance tweak after the game has gone live, or to add new areas and objects when expanding the game.

When creating new scenarios, quests, or zones, the Mint will be used to populate the new area with persistent objects.

The Mint is much more important in a convertible system. Whenever a player or the game host imports or exports money to or from the game, the Mint function will be called.

Object Transfers
The second important function in the game accounting system will be the Transfer function.

The first practical application for in-game transfers involves what happens when a player kills an NPC. While there are several ways to approach this, here is one practical way to maintain conservation of money in the game with the least amount of database processing power.

Instead of having a different “person” account for every creep in the game, there is just one master account for all creeps and NPC’s.

When a player character gets killed some or all of his inventory items, including money, on his corpse can by picked up by other players, or the same “regenerated” player if he can get there fast enough. If no one picks up the items within a certain amount of time then any conserved items, including money, go into the creep fund. An alternative would be a master account for each class of NPC or creep. So, if a gnoll kills your character, your money goes into the gnoll account, etc.

When a player kills an NPC, a function is called that determines after the fact what items will be found on the NPC’s corpse. Suppose you set the rule so there is a 33% chance that “Creep Type X” will have 6 units of money, as well as any other non-conserved items that might randomly appear on the corpse. The function is called in the event of NPC_death, and in this case determines that this creep’s corpse should have 6 units of money. The function queries the “Creep Fund” to see if it has at least at least 6 units of money in it. If “yes”, then a Transfer is made from the Creep_Fund to that particular NPC corpse. The Transfer function should be the only function other than the Mint with “write access” to the “conserved_inventory” table, so you shouldn’t have to worry about other functions making unauthorized transfers. This control precludes the possibility of “dupe bugs” creating money from nothing. Like a player corpse, if no one loots the creep corpse in a certain amount of time then the conserved items on the corpse are transferred back into the Creep Fund and the non-conserved items are erased.

But what if the Creep Fund is empty? In that case, even though the “creep_death” function called for 6 units, the transfer is denied and no transfer takes place. The creep corpse has zero money on it. Other inventory items can be recycled in this manner as well.

This method solves the financial implications of the Dupe Bug Problem because:

1. Except for the initial outlay to populate the game world, the Creep Fund is financed entirely by player characters that get killed.

2. If a dupe bug exists, the worst thing that can happen is the player cleans out the Creep Fund. Even if the player cashes all of his game money out, the game host doesn’t lose any money and the integrity of the backing of the game money stays intact. The creep fund will be replenished soon enough by all of the newbie players getting killed on the battlefield. The game host might want to add a routine to flag players who suddenly get rich to have a human look at what the player did to see if there is a dupe bug. If a player finds a dupe bug and exploits it for money, you can be sure he will go back to the same place and do it again and again until the bug is fixed. It isn’t a serious problem as long as the game maintains the conservation of money.

This set of rules would also tend to encourage increased player cooperation. If one player gets his character killed then his buddies can guard his items or carry them with them until his regenerated character can join back up and get his stuff back. Loners would tend to loose more money and items to the Creep Fund than players that group with others.

CONCLUSION

A game schema that properly maintains the conservation of persistent objects can potentially solve the supply demand problems currently associated with MMOG game economies. Furthermore, the use of conservation of game objects allows the possibility of convertible game economies where game currency is fully exchangeable for real money.

Comments may directed to the author of this paper at the following email address:
griffith at goldeconomy.com

TERMS

Buff(s) - One-use items that improve the player’s statistics.

Creep(s) - Industry term referring to “monsters” and other NPC’s in the game that can be killed by the players.

Creep Fund - A money account into which dead player’s gold is transferred. As creeps are regenerated their pockets are funded with money from the creep fund. This conserves money.

Creep Tax - When a creep loots a player corpse a percentage of any money found is transferred to the Creep Tax account for the benefit of the game host.

Dupe Bug(s) - A coding error that enables a player in a MM game to obtain the same item over and over again with no additional expenditure of time or resources. When there is a dupe bug for money the player can get “rich”.

Financial Cryptography - The science and art of using cryptography to protect and authenticate the transfer of financial assets in an online environment.

Inflation - Increase in prices of tradable items in the game world caused by a constantly growing money supply inside the game.

MMOG - Massively Multiplayer Online Games with thousands of players who interact with one another and the game environment.

Non-Perishable(s) - Game items that persist or cannot be destroyed with use: includes money and other objects.

NPC(s) - Non-player character. I.e. monsters, merchants, creeps, slaves, etc.

PC(s) - Player Character. I.e., the player’s in-game persona or avatar.

Perishable Object(s) - Game items that disappear with use.

Persistent Object(s)- Game items that are not destroyed with use and remain in the game world as inventory perpetually.

Power-up - An item that confers a Buff to the PC as soon as the player touches it. It disappears rather then being added to inventory.

Ken Griffith is a website developer at Clinch Mountain Communications and former editor of The Gold Economy Magazine. Reprinted with permission.

Gold Reclaims Its Currency Status as the Global System Unravels

By Ambrose Evans-Pritchard
The Telegraph, London
Sunday, June 20, 2010

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7841961/Gold-reclaims-its-currency-status-as-the-global-system-unravels.html

We already know that the eurozone money markets seized up violently in early May as incipient bank runs spread from Greece to Portugal and Spain, threatening the first big sovereign default of our era. Jean-ClaudeTrichet, the president of the European Central Bank (ECB), talked days later of "the most difficult situation since the Second World War, and perhaps the First."

The ECB's latest monthly bulletin gives us some startling details. It reveals that the bank's "systemic risk indicator" surged suddenly to an all-time high on May 7 as measured by EURIBOR derivatives and stress in the EONIA swaps market, exceeding the strains at the height of the Lehman Brothers crisis in September 2008. "The probability of a simultaneous default of two or more euro-area large and complex banking groups rose sharply," it said.

This is a unsettling admission. Which two "large and complex banking groups" were on the brink of collapse? We may find out in late July when the stress test results are published, a move described by Deutsche Bank chief Josef Ackermann as "very, very dangerous."

And are we any safer now that the EU has failed to restore full confidence with its E750 billion (L505 billion) "shock and awe" shield -- that is to say after throwing everything it can credibly muster under the political constraints of monetary union? This is the deep angst that lies behind last week's surge in gold to an all-time high of $1,258 an ounce.

The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan, and Venezuela have been buying gold, and Saudi Arabia's monetary authority has "restated" its reserves upwards from 143 to 323 tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.

It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.

Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6 percent. The yield on two-year Treasury notes is 0.71 percent. This is an economy in the grip of debt destruction.

Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation -- that ninth Circle of Hell, "abandon all hope, ye who enter." Such an accident may be coming. The ECRI leading indicator for the US economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low. The latest reading is -5.70, the level it reached in late-2007 just as Wall Street began to roll over and crash. Neither the Fed nor the US Treasury were then aware that the US economy was already in recession. The official growth models were wildly wrong.

David Rosenberg from Gluskin Sheff said analysts are once again "asleep at the wheel" as the Baltic Dry Index measuring freight rate for bulk goods breaks down after a classic triple top. The recovery in US railroad car loadings appears to have stalled, with volume still down 10.5 percent from June 2008.

The National Association of Home Builders' index of "future sales" fell in May to the lowest since the depths of slump in early 2009. RealtyTrac said home repossessions have reached a fresh record. A further 323,000 families were hit with foreclosure notices last month. "We’re nowhere near out of the woods," said the firm.

It is an academic question whether the US slips into a double-dip recession or merely grinds along for the next 12 months in a "growth slump." For Europe, nothing short of a sustained global boom can lift the eurozone out of the deflationary quicksand already swallowing up the South.

Spain had to pay a near-record spread of 220 basis points over German Bunds last week to clear away an auction of 10-year bonds, roughly what Greece was paying in March. Leaked transcripts of a closed-door briefing to the Cortes by a central bank official revealed that Spanish companies have been shut out of the capital markets since Easter. Given that the Spanish state, juntas, banks, and firms have together built up foreign debts of E1.5 trillion, or 147 percent of GDP, and must roll over E600 billion of these debts this year, this is a crisis unlikely to cure itself.

Read the rest of the article.

For further reading:
"The gold standard: generator and protector of jobs", Hugo Salinas Price, June 16, 2010

Medvedev Promotes Ruble as World Reserve Currency

By Paul Abelsky
Bloomberg
Saturday, June 19, 2010

http://www.bloomberg.com/news/2010-06-18/medvedev-talks-up-russia-s-ruble-as-global-reserve-currency-of-the-future.html

Russia wants the ruble to be one of the world’s reserve currencies as President Dmitry Medvedev renews his push to reduce the dollar’s dominance and make Moscow a global financial hub.

“Only three, five years ago it seemed like a fantasy” to create a new reserve currency, Medvedev said yesterday in a speech in St. Petersburg, Russia. “Now we are seriously discussing it.”

Medvedev, who has repeatedly called for a supranational currency to match the dollar, said discussions with China are continuing on broadening the global options. Russia sold U.S. Treasuries for a fifth consecutive month in April, the U.S. Treasury Department said June 15. The world may need as many as six reserve currencies, Medvedev said.

“It’s something that’s obviously needed,” he said at the St. Petersburg International Economic Forum. “Developing a financial center in Moscow will considerably help to strengthen the ruble’s position as one of the reserve currencies.”

Reasserting Power

Medvedev’s comments underline Russia’s ambition to reassert its global power following the financial crisis. Gross domestic product shrank 7.9 percent last year, the worst contraction since the fall of communism in 1991, after the credit crunch sent commodity prices plunging.

If a country wants to alter the world economic order, including the number of reserve currencies, it must become an international financial center, Bank of Israel Governor Stanley Fischer said in an interview yesterday.

“For a currency to be a reserve currency, you have to have capital markets in which you can sell it and buy it very easily,” Fischer said. “New reserve currencies don’t emerge by fiat. They emerge as countries change.”

The ruble and the yuan may by 2015 be added to the basket of currencies that set the value of International Monetary Fund units called special drawing rights, Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said. O’Neill coined the BRIC term in 2001 to describe the four nations -- Brazil, Russia, India and China -- that he estimates will collectively equal the U.S. in economic size by 2020.

Free Float

The ruble “has as many reasons to be in it as the pound,” he said today in an interview in St. Petersburg. “If Russia really wants to be in it, it’s got to allow people to use it all over the world.”

Allowing the ruble to trade freely is “very important,” O’Neill said.

“Inflation targeting is key,” he said. Without a shift to an inflation targeting regime, the ruble “isn’t going to be part of the SDR. You can’t have it both ways, really, unless the Chinese change the rules, which they might do by the end of this decade. China is going to be so big.”

Russia may “come very close to floating the ruble” in the course of one year to 18 months, Bank Rossii Chairman Sergei Ignatiev said in April. Even so, the central bank doesn’t need to take on legal obligations to stop intervening in the currency market, he said.

Yuan Flexibility

The People’s Bank of China today said it will allow more yuan exchange rate flexibility and reform of the exchange-rate mechanism as the nation’s economic recovery has “cemented” after the global financial crisis.

Medvedev said he envisages a new economic hierarchy allowing emerging-market giants such as Russia and China to drive the global agenda as the world emerges from the first global recession since the 1930s.

“We really live at a unique time, and we should use it to build a modern, prosperous and strong Russia, a Russia that will be a co-founder of the new world economic order,” he said.

Read the rest of the article.

For further reading:
"Russia Backs Stronger Rivals to Dollar", The Wall Street Journal, June 19, 2010
"Medvedev sees single currency dream in G8 coin gift", Breitbart, July 10, 2009

Alternative Currencies

By Alex Newman
The New American
Thursday, June 10, 2010

http://www.thenewamerican.com/index.php/economy/economics-mainmenu-44/3738-alternative-currencies

The Federal Reserve’s monopoly on money and credit has caused so many problems for average Americans and the nation that addressing this issue is a prerequisite for returning the nation to economic sanity. Congressman Ron Paul has introduced a bill called the “Free Competition in Currency Act” (H.R. 4248), which would end the government-enforced monopoly by repealing “legal tender” laws, allowing private mints, and eliminating taxes on gold and silver coins.

It would definitely be a great start to getting rid of the central bank altogether. But unlike Paul’s proposal to audit the Fed, the free competition legislation has not yet enjoyed much visibility.

In fact, because of the constant loss of purchasing power of Federal Reserve Notes (dollars), various alternatives have already been developed and tried over the years. Many are still in existence. But each one has its drawbacks, and the government has already quashed some of the efforts.

The “Liberty Dollar,” privately issued silver and gold coins as well as warehouse receipts for the metal, was touted as “America’s inflation proof currency” when it was in circulation. It was founded in 1998, but the federal government eventually confiscated what it could of the backing and arrested its founder in late 2007 on ludicrous charges that the Liberty Dollars had a “resemblance” to “genuine coins of the United States.” The legal troubles persist, but a class action lawsuit against the feds is also in progress.

“Digital gold currency” and other “e”-metals are making significant headway. A company called e-gold Ltd, which allows users to trade in gold electronically, claims to have over five million accounts set up through its system. It stores gold and other precious metals and allows account holders to spend or accept electronic gold as payment with each other. GoldMoney, a firm that provides a similar service, says on its website that it is holding nearly a billion dollars worth of gold, silver, and platinum.

Alternative paper monies are also being used. In several communities across the nation, entrepreneurs have banded together to produce their own currencies, which operate alongside Federal Reserve Notes, but are used only locally by those willing to accept them in exchange for goods and services. Among them are Detroit Cheers, BerkShares in Massachusetts, and Ithaca Hours in New York. “The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency,” USA Today reported last year in an article entitled “Communities print their own currency to keep cash flowing.” The goal is to help local economies in bad times.

But while various routes to set up alternative currencies and expose — and eventually end — the Federal Reserve gather momentum, none of the options currently in existence would offer a viable substitute for the present system if and when it suddenly collapses. And that has one monetary expert very worried.

“We have to start looking seriously at what the practical remedy is going to be as this system comes down,” warned Edwin Vieira, a constitutional attorney and an expert in monetary theory who has litigated cases involving money issues. He compared the central bank’s effect on the economy to having square wheels on a car: “Sooner or later, you’re going to shake something loose and the car will fail. And that’s our situation, we’re driving this car with square wheels — the front end, the rear end and the transmission are about to fall out — and we’re in the middle of Death Valley. Literally!”

Vieira told The New American that “the whole present monetary system is unconstitutional,” but if the scam was exposed and the general population suddenly lost faith in its paper debt money, an economic collapse and chaos would quickly follow without a viable system ready to replace it. “This is frightening to me, because imagine one of these lawsuits [against the Fed] wins, and now it becomes absolutely clear to the general public that this operation is totally permeated, if not entirely based on fraud … the house will come down.”

While Vieira had varying opinions of the different attacks on the Fed’s monopoly and secrecy, he praised e-gold and competition as practical solutions. He also noted that, despite various government barriers, it is possible to negotiate contracts in precious metals. But his main suggestion for now is to start at the state level with a precious-metals-based monetary system in which the state government collects part of its tax revenue from corporations in gold.

Vieira has actually written model legislation that would accomplish this goal, and he predicts that the system would catch on. “If — or rather, when — we have another crisis down the road, at least you already have a system set up and it can immediately expand to take the entire state out from under the collapsing banking structure. So it’s a kind of insurance policy — a really cheap insurance policy,” he said.

Reprinted with permission.

Facebook's Virtual Currency Ambitions

By Niraj Chokshi
The Atlantic
Tuesday, April 27, 2010

http://www.theatlantic.com/science/archive/2010/04/facebooks-virtual-currency-ambitions/39572/

Facebook's expansion plans have moved into the realm once reserved for central banks and kings: creating its own currency.

Details on Facebook Credits emerged at last week's f8 Facebook developer conference, although the news was obscured by the network's plans to extend its reach and an ensuing privacy debate. Credits can be used to purchase virtual goods, such as items in games, and at least one company seems to have already benefited. Facebook's mobile payment processor of choice, Palo Alto-based Zong, today announced $15 million in new venture funding.

The marketplace for virtual goods is on a tear. Domestically, it is expected to reach $1.6 billion this year and possibly $3.6 billion in three years, according to an analyst cited by Bloomberg. The founder of the 28-year-old video gaming giant Electronic Arts is much more optimistic: He expects the market to hit $100 billion within the decade.

Whatever the numbers, Facebook is positioned to reap huge rewards from the expanding market. Credits will be the only currency allowed on Facebook and the company will take a massive 30 percent cut of all transactions. Its users currently engage in roughly 800 million game sessions a month, Facebook Credits manager Deb Liu said last week.

Read the rest of the article.

For further reading:
"Is This the Dawn of the Facebook Credit Economy?", Ian Schafer, Advertising Age, May 20, 2010
"Stored Value Systems vs. Currencies – Which One is Better for Your Community?", Cha-Ching!, May 17, 2010
"Facebook Faces Payment Feud Down on the Farm(ville)", Karen Webster, May 13, 2010
"Zynga: 'Facebook’s Not Always Going To Be The Answer'", Nicholas Carlson, May 10, 2010
"Offerpal Media launches a virtual money war with Facebook", Dean Takahashi, May 4, 2010
"Virtual Goods: A license to print money", James Grant Hay, May 2010
"Will Facebook Credit become your default payment method?", Yann Ranchere, April 25, 2010
"Zuckerberg: 'There’s Just Going to be One Currency that People Use' on Facebook Apps", Eric Eldon, April 23, 2010
"Which businesses has Facebook just killed?", Andrew Davies, April 22, 2010

The Recovery Starts With Sound Money

By Judy Shelton
Atlas Sound Money Project
Thursday, May 27, 2010

http://www.soundmoneyproject.org/?p=1703

The willingness to work for the sake of future prosperity is a universal human quality, but people must believe there is a link between effort and reward.

The euro is beset with fiscal calamities that threaten its downfall, and markets in the U.S. are roiled by uncertainty over the government’s financial regulatory legislation. But don’t worry. Treasury Secretary Timothy Geithner meets with European finance officials today to discuss the economic situation. According to a Treasury Department statement, they will focus on “measures being taken to restore global confidence and financial stability.” So everything is under control.

Right.

What government policy makers in the U.S. and Europe fail to realize is that far from being seen as capable of delivering economic salvation, they are increasingly perceived as primary contributors to global financial ruin. Whether it’s the fiscal recklessness of spendthrift politicians or the refusal of government officials to acknowledge failings—distorting mortgage markets through Fannie Mae and Freddie Mac, skewing assessments of credit risk through loose monetary policy—the influence of government over the real economy is proving disastrous.

No wonder people are flocking to gold as they flee government-supplied money. Neither the dollar nor the euro inspires much global confidence; despite the dollar’s relative safe-haven status, neither currency holds out the promise of financial stability.

How can the real economy, i.e., the private sector, where genuine wealth is actually produced, continue to function in the absence of reliable money? Europeans will be wary of the euro from now on, given that the European Central Bank has relaxed its standards for safeguarding monetary integrity by absorbing Greek debt. Meanwhile, the perilous fiscal condition of the U.S. has convinced many that our government will resort to future inflation to reduce its own untenable debt burden.

It’s hard to see how economic recovery can proceed when citizens suspect that the monetary foundation beneath them is crumbling away. The willingness to work and sacrifice for the sake of future prosperity is a universal human quality—the hallmark of entrepreneurial faith—but people must believe there is a link between effort and reward. Money forges that link by providing a dependable store of value; in doing so, it performs a vital social function.

The private sector is fully capable of recovering from economic downturn if individuals have a meaningful tool of measurement for evaluating alternative choices in a competitive environment. Comparisons based on accurate, free-market price signals yield optimal economic outcomes. But what we are witnessing today is a clash between the real economy’s will to resurrect itself and the persistent failure of government, here and abroad, to deliver an appropriate platform of sound money based on sound finances.

Even as the first inklings of rebounding growth can be discerned—increased retail sales, higher corporate profits—it takes only the latest headline about government failure to come to grips with deficit spending and accumulating sovereign debt to snuff out any potential market rally. Pledges to achieve balanced budgets by some distant future date do little to convince people that anything has really changed.

Tough rules to enforce fiscal discipline were part of the original plan for persuading Europeans to abandon national monies in favor of adopting a common currency. Limits on deficit spending and government debt were clearly stipulated in the Stability and Growth Pact—no more than a 3% budget deficit, maximum debt equal to 60% of GDP. But these criteria were quietly jettisoned years ago and have now been flagrantly breached en masse by European nations responding to the financial crisis with bailout packages and fiscal stimulus.

In the U.S., frustrations over Washington’s seeming inability to resist fiscal profligacy have found voice in the tea party movement. As national sentiment grows in favor of limited government and constrained powers, legislation has been introduced in nine states to nullify federal legal tender laws; the Fed’s monopoly on supplying the money U.S. citizens must use is being challenged by authorizing payment in gold and silver.

Invoking the 10th Amendment strictures of the Constitution, proponents argue that the Founding Fathers never intended to grant federal government both the right to borrow money as well as the power to manipulate the value of the monetary unit of account. Money linked to gold and silver retains its value, which prevents the medium of exchange from falling victim to the federal government’s inherent conflict of interest if it can fund its own debt with money created from thin air. Updated for our times, a number of the legal tender proposals specify that citizens would be allowed to tap electronic exchange-traded funds (ETFs) backed 100% by gold or silver to conduct digital transactions with state government.

The idea of rising above the administrative dictates of fallible government to reclaim the virtues of sound money is profoundly liberating—and could prove economically empowering. Who believes that officials in Brussels or Frankfurt will safeguard the value of euro-denominated savings in the face of political pressures? Who expects the “Financial Stability Oversight Council,” led by the Treasury secretary as prescribed in the regulatory overhaul bill, to spot the next asset bubble before it ruptures with catastrophic financial consequences for American retirement accounts? The transition to a firmer monetary footing to support entrepreneurial capitalism could be initiated by linking major global reserve currencies to gold and silver—commodities long associated with monetary functions. It would logically begin with the dollar. As a first step, U.S. citizens could ask Congress to authorize the limited issuance of gold-backed Treasury bonds that would provide for payment of principal at maturity in either ounces of gold or the face value of the security, at the option of the holder.

The level of public confidence in fiat dollar obligations versus gold would be revealed through auction bidding, with yield spreads clearly reflecting aggregate expectations of their comparative values. In the same way that inflation-indexed Treasury bonds measure expectations about future changes in the Consumer Price Index, gold-backed Treasury bonds would provide a barometer of the Fed’s credibility.

By linking the dollar to gold, Americans would establish a vital beachhead for sound money and provide a model that other nations could emulate.

Ms. Shelton, author of “Money Meltdown” (Free Press, 1994), is a senior fellow at the Atlas Economic Research Foundation and co-director of the Atlas Sound Money Project.

This article was originally published in The Wall Street Journal.

Why Silver Should Be Legal Mexican Currency

Scott Smith of The Daily Bell interviewed Hugo Salinas-Price on "Why Silver Should Be Legal Mexican Currency" (May 23, 2010).

Introduction: Hugo Salinas Price, 75, is a successful, retired businessman who lives in Mexico. He has been a follower of the Austrian School of Economics since his youth. He has written three books in Spanish on how and why silver should be instituted as money in Mexico, in parallel with paper money, and numerous related articles in English and Spanish, posted at his website. His organization, the Mexican Civic Association Pro Silver, is actively lobbying the Mexican Congress to approve legislation, which will institute the pure silver "Libertad" ounce as money.

Daily Bell: What is your campaign in Mexico for sound financial policy?

Hugo Salinas-Price: I actually avoid discussing "sound financial policy" because one can argue about that till the cows come home. During the last fifteen years I have devoted my efforts to one single aim, and that is to achieve the monetization of a silver ounce coin currently minted by our Central Bank. This coin has no engraved monetary value and is called the "Libertad" coin; it can very easily be turned into a monetary coin, that is to say, a coin with a monetary value. As such, anyone owning such a coin could, if he or she wished, be able to pay any bill or debt denominated in Mexican pesos.

The monetary value of this coin would be slightly higher than its bullion value; the monetary value would not fluctuate according to the price of the silver ounce, but its monetary value would be raised if the bullion price of silver rose and closed in on the monetary value. The Central Bank would give the coin its monetary value, according to a formula in the proposed legislation.

If the price of silver fell to $1 dollars an ounce, the monetary value of the coin would remain where it was last pegged. (But it would still be better money than any paper or digital money in the world!)

On the other hand, if silver should go to $50 dollars an ounce, this coin would remain in circulation, useable as money, because then its monetary value would be about $57 dollars, and stay there until a further rise in the value of bullion silver.

The monetized silver ounce would be an excellent refuge for savings and would attract them irresistibly. You don't need a bank account, you don't even have to know how to sign your name, to invest your savings in this simple and inflation-proof way.

This coin would be better money than the US dollar and I expect many Americans would be wanting to own these "Libertad" ounces once monetization is realized.

Daily Bell: Has Mexico always suffered from an unsound economy? Does Mexico now have a stable political structure?

Hugo Salinas-Price: The first question is like asking me "When did you stop beating your wife?"

Seriously, I think the Mexican economy is sounder than the US economy – which isn't saying too much. The Mexican economy is much less complex than the American economy. Think of the Mexican economy as a low, wide pyramid or mound. The American economy is by comparison a skyscraper. Personally, I don't like to occupy hotel rooms above the 12th story, thinking of the possibility of a fire. Think also of all the things that can go wrong for a skyscraper: a power outage, and you and your family are on the 30th floor. No elevators, no water, no refrigerator...you get the idea. The American economy is vulnerable in ways that the Mexican economy is not.

Mexicans have mostly fully-paid housing – the house may be very modest, such that most Americans would not care to live that way, but – it is paid for! Mortgages are not widespread; during recent years there was an increasing use of mortgages but on the whole, the Mexican population lives in housing that is paid for.

Mexican indebtedness is not as great as in the US; because until recently, 70% of the population did not have bank accounts – which given the behavior of banks in general, is a very good thing.

Mexicans, unlike Americans, are used to bearing with hard times. They can "cope" with situations which would drive an American to despair. We do not have a government that prints the World's money, so we haven't been as coddled by all levels of government, as the American people.

About political stability: I don't think American political stability is stronger than ours. We don't have Tea Parties and we don't think about taking up guns and holing up in our houses. Matter of fact, I think I see a Revolution brewing right in the old U.S. of A. But of course, we can always be the object of "Regime Change" by the Powers That Be in Washington, D.C. It's happened before, though most Mexicans are not aware of the fact that our Glorious Revolution of 1910, was a "Regime Change" Operation, carried out covertly by the U.S., because Mexico was getting too prosperous and inviting European Capital into the country, in preference to American Capital. So, it can happen again – any excuse will do. How about: "The Drug War in Mexico threatens American security"? That ought to do the trick.

Read the rest of the article.

From The Daily Bell After Thoughts:

Hugo Salinas-Price comes across as thoughtful and gracious soul – someone who truly has the good of his country in mind in many ways. His is certainly a life well-lived. He has built a national Mexican company from the bottom up, provided for his family and then spent his mature years engaged in a great struggle to introduce sound money into the economy of his native land. In fact, given the sensibleness of his endeavor (which grows closer to success in our opinion every year) you would think that his campaign to create a legal and circulating silver dollar in Mexico would already have borne fruit.

Given the shape of the Mexican economy and of paper money in general, Hugo Salinas-Price's monetary solution makes sense. Silver is the money of the people, just as gold has traditionally been the money of bankers and the wealthy. Silver has traded in a ratio with gold for millennia, and thus bi-metallism has been the monetary standard of choice for many cultures and countries. Historically, this is provable and seems reasonable to us here at the Bell, but such is the decrepitude of modern understanding of money that the Internet is assaulted a thousand times a day with elaborate monetary plans featuring all kinds of money stuff and strategies.

Essentially, money over the millennia has proven to have four characteristics:

(1) durability (value),

(2) divisibility (malleability),

(3) transportability, and

(4) noncounterfeitability (serviceability)

As free-market economist Murray Rothbard has famously pointed out, money evolved from a competition featuring different kinds of money stuff. Gold and silver (and to a lesser extent copper), precious metals often found together, were not appointed by a committee or king. The market itself determined the choice of money historically – and in fact money has manifested itself in other forms as well – beads, salt, sugar even large, carved rocks. But ultimately and over and over, the market itself has chosen gold and silver as the money of choice.

We have often observed in these modest pages that a gold (or silver) backed currency would prove most attractive if some country were to step forward and issue it. In fact, were Iceland or Greece or some other nation currently struggling with the ruinous ramifications of mercantilist fiat money to simply back the national currency with gold, many difficulties would be reduced or eliminated. (Of course, a country would need to find the gold to begin with, but that is a separate question.)

In the best of all worlds, of course, a country and a ruling class will not mandate the composition of money nor control its circulation. The market itself would decide on the composition of money, the kinds of banking that was demanded and even the level of fractionality with which money would circulate, if any. In fact, money really is a pretty simple issue once the market itself is re-involved. In a laissez-faire money economy, interest rates would fluctuate regionally, no doubt, the supply of money would vary from region to region and even inflation or deflation rates would be variable.

What we have today, of course, is much different. The powers-that-be have taken the various paraphernalia of money – its banks, bills and issuance – and gradually hollowed them out, offering instead an imitation that provides a historical representation but none of the control or value. Even government mints, which used to stamp gold and silver, today work overtime stamping what in the past would have been considered slugs – any kind of non-precious metals.

From our point of view it is only a matter of time until some nation, some group or even some region re-introduces currency backed by precious metals – or even, as Hugo Salinas-Price hopes, circulates the metal itself as a national money. If he has his way, Mexico will be the first major modern country to do this. We wish him well in this important quest. When Mexico does begin to circulate its Libertad, others countries will soon follow. The benefits will be clear and fairly immediate.

'Pieces of Eight': The Constitution and the Dollar

By Seth Lipsky
The Wall Street Journal
Saturday, May 29, 2010

http://online.wsj.com/article/SB10001424052748704852004575258282696297108.html

With everyone suddenly fretting about the need for a new world reserve currency, unorthodox views on the Federal Reserve are getting a new hearing.

Edwin Vieira Jr. escorts a visitor through his gray, clapboard home at the north end of the Shenandoah Valley, and into the woodworking shop. Laid out on a table is his latest project, a handcrafted doorframe, each joint precisely squared and fitted. Nearby, on the wall of the stairway leading to his study, is a copy of his real obsession: the U.S. Constitution.

I've driven to Virginia from New York to visit Mr. Vieira, a retired chemist and a lawyer, because I've been reading his magisterial, 1,800-page book called "Pieces of Eight." It is a two-volume treatise on the monetary powers of the Constitution. Now out of print, it has become a kind of cult classic, selling on the Internet for hundreds of dollars a set. It addresses questions that, with the value of the dollar having collapsed to 1,200th of an ounce of gold, are suddenly timely.

What is a dollar? How did it become our money of account? What powers in respect of money were given to the federal government in 1787? What disabilities, or prohibitions, are in the Constitution? How have we managed to get so far from the law as the Founders wrote it? And what can be done to bring us back from the brink?

The title of the book comes from the nickname for the coin the Founding Fathers were referring to when, in the Constitution, they twice used the word "dollars." Its definition was codified in the Coinage Act of 1792, which provided for minting gold and silver coins and defined a dollar as having "the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver."

Mr. Vieira speaks for a school of thought—it goes back to James Madison and Alexander Hamilton and comes together today in, among other places, the Foundation for the Advancement of Monetary Education—that reckons such dollars, and their free-market equivalent in gold, are the only constitutional money in America. Lately he has been arguing for the establishment by the states of separate monetary systems. The authority to do so is in Article 1, Section 10, of the Constitution, which prohibits the states from making "any Thing but gold and silver Coin a Tender in Payment of Debts."

"What are you going to do when the currency doesn't function any more?" is one of the ways Mr. Vieira puts the issue to me as we tour his study, a trig garret crammed with such books as a multivolume set of the Colonial Records of Rhode Island, where Mr. Vieira, the son of a U.S. Navy physician, was brought up. "If you look at the hyperinflations of the 20th century—Weimar Germany, Hungary, Argentina, Brazil, Uruguay, Bolivia—in every one of those systems, there was, somewhere in the world, a first-class currency that they could use, directly or indirectly [when their own currency collapsed]. What happens now, when the Federal Reserve Note goes down, what are we going to use?" He pauses and then asks, with a chuckle, "Are we going to stabilize the euro?"

The Southern Poverty Law Center has criticized Mr. Vieira because of the importance he attaches to the Founders' concept of the militia. He and other sound-money activists are sometimes dismissed as cranks, given that the Supreme Court sustained paper money as legal tender in 1871 (Knox v. Lee). But with the value of the dollar now at a historic low and everyone from the communist Chinese to the United Nations fretting about the need for a new world reserve currency, he is starting to look less like a crank than a prophet.

Mr. Vieira—who holds degrees from Harvard (a B.A., an M.A. a Ph.D. in chemistry and a doctorate of law)—came to the cause of constitutional money via his legal work. He started at the National Right to Work Legal Defense Foundation, where he argued and won a famous Supreme Court case, Communications Workers of America v. Beck (1988). The opinion, written by Justice William Brennan and joined by justices across ideological lines, established the right of a nonunion member not to have the fees he paid to a union for representational services go to political activity he disapproves of.

An earlier case drew Mr. Vieira into the money question. It involved the efforts of the owner of a property seized by Maryland in an eminent-domain proceeding to get paid in the gold or silver coin that states are permitted to make legal tender. Mr. Vieira, who speaks with a gentle voice most of the time, still shakes with indignation when he talks of the refusal of the courts even to consider the constitutional question.

He eventually lost that case, but his research took him in the early 1980s to Washington to meet Rep. Ron Paul (R., Texas), who was part of a just-established United States Gold Commission. An aide suggested Mr. Vieira submit his points to the commission in writing, and work began on what would become "Pieces of Eight."

The finished book begins with a quote from Justice Stephen J. Field's dissent in a legal tender case, Dooley v. Smith (1871), warning that arguments in favor of legal tender paper currency "tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress."

Read the rest of the article.

Mr. Lipsky, founding editor of The New York Sun, is the author of "The Citizen's Constitution: An Annotated Guide" (Basic Books, 2009).

Reconstruction of America's Constitutional Systems of Money and Banking

Michael S. Rozeff, on June 2, 2010, published the final section, part thirteen, of his brilliant story on America's decline into unconstitutional money, entitled "The U.S. Constitution and Money".

Rozeff's mission is to summarize one of my favorite monetary books of all time, Edwin Vieira’s Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution.

Part thirteen of the series is on reconstruction and Rozeff states, "It spells out the specific changes that will restore a constitutional money and a constitutional banking system. It explains why this should be done and how it is feasible. It provides an idea of what will happen and what to expect as it is being done. The article also explains some of Vieira’s thoughts on the political issues involved in reform and his idea of making officeholders subject to absolute liability. My postscript places the Constitution and money issue into a broader Misesian-Hayekian framework."

The U.S. Constitution and Money, Part 1 and Part 2, can be found here.

The U.S. Constitution and Money, Part 3 and Part 4, can be found here.

The U.S. Constitution and Money, Part 5, can be found here.

The U.S. Constitution and Money, Part 6, can be found here.

The U.S. Constitution and Money, Part 7, can be found here.

The U.S. Constitution and Money, Part 8, can be found here.

The U.S. Constitution and Money, Part 9, can be found here.

The U.S. Constitution and Money, Part 10, can be found here.

The U.S. Constitution and Money, Part 11, can be found here.

The U.S. Constitution and Money, Part 12, can be found here.

The U.S. Constitution and Money: Reconstruction of America's Constitutional Systems of Money and Ban...

Michael S. Rozeff is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

Euro 'will be dead in five years'

By Edmund Conway
The Telegraph
Saturday, June 5, 2010

http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-will-be-dead-in-five-years.html

The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph.

The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.

Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:

• The economy will grow by well over a percentage point less next year than the Budget predicted in March.

• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.

• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.

But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.

Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup – I'd put the likelihood of that over the next five years as around one in four."

Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching – Germans are opposed to paying for others and may well quit."

Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.

Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries – plus Denmark – will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."

Read the rest of the article.

For further reading:
"Whatever Germany does, the euro as we know it is dead", By Jeff Randall, The Telegraph, May 20, 2010

The Unconstitutionality of America's Money and Banking System

Michael S. Rozeff, on May 29, 2010, published part twelve of his brilliant story on America’s decline into unconstitutional money, entitled "The U.S. Constitution and Money".

Rozeff's mission is to summarize one of my favorite monetary books of all time, Edwin Vieira’s Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution.

Part twelve of the series is on the unconstitutionality of America's money and banking system and Rozeff states, "This article pinpoints and explains four reasons why the money we use is unconstitutional and three more reasons why the Federal Reserve is unconstitutional. How do Federal Reserve Notes differ from United States Notes issued by the U.S. Treasury? Are the latter constitutional? This kind of issue is also addressed in this article. I am summarizing Edwin Vieira Jr.’s two-volume out-of-print cult classic Pieces of Eight: The Monetary Powers and Disabilities of the U.S. Constitution. We are nearing the end. After this come his recommendations for reform."

The U.S. Constitution and Money, Part 1 and Part 2, can be found here.

The U.S. Constitution and Money, Part 3 and Part 4, can be found here.

The U.S. Constitution and Money, Part 5, can be found here.

The U.S. Constitution and Money, Part 6, can be found here.

The U.S. Constitution and Money, Part 7, can be found here.

The U.S. Constitution and Money, Part 8, can be found here.

The U.S. Constitution and Money, Part 9, can be found here.

The U.S. Constitution and Money, Part 10, can be found here.

The U.S. Constitution and Money, Part 11, can be found here.

The U.S. Constitution and Money: The Unconstitutionality of America's Money and Banking System (Part 12)

The U.S. Constitution and Money, final Part 13, can be found here.

Michael S. Rozeff is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.