Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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In March of this year, I posted: The end of private banking: Why the federal government should own all banks.
Recently, Warren Mosler wrote:
the question of public vs private is about pricing of risk. when the public sector prices risk it tends to get politicized, like Solyndra, and all the other scandals surrounding loans by the public sector. When the private sector prices risk you get the problems we’ve seen recently. both have serious issues. i tend to favor the private sector pricing risk with some skin in the game/private capital, but operating narrowly as per my proposals. http://www.facebook.com/l/rAQGPndBhAQHD25OMjMaQw2w8asEGyW_cHLLiZWdi49-qyw/www.moslereconomics.com/?p=8968
and
And bank regulation and supervision is plenty tight to consider today’s banks public sector entities. The FDIC can fire bank management and limit compensation as well as dividends at will. What we’ve seen in the last 5 years is a total failure of regulation and supervision, partly because congress’s banking regulations allow them to do more than regulators can possibly keep up with.
My response was: “Warren: There never will be a time when bank regulators are able to keep up with regulations or with bankers. If regulators ever were able to maintain the tight reins you describe, they would in effect, run the banks. At that time, bank employees would be unnecessary puppets.
“Not only are the regulators unable to keep up, but the regulations themselves are unable to keep up. Why? The profit motive taints the entire banking industry. Remove the profit motive and you eliminate virtually all the illegality.
“You worry about Solyndra ?? I worry about JPMorgan Chase, BoA, Citigroup, Wells Fargo and all the other crooked, “too big to fail” banks, that bribe lawmakers and regulators to look the other way.
“So long as there are private banks with ‘skin in the game’ (aka ‘profit motive’) there will be bankster criminals bribing regulators and lawmakers, and the public will pay the price. This has been true, throughout history.
“(By the way, Solyndra was a private company with a profit motive. Just sayin’)”
The importance of this debate cannot be underestimated. Banks create the vast majority of dollars in existence. And banksters are ruled by the profit motive. They do not care what’s best for the public or for the nation.
(The green line is total dollars; the blue line is bank-created dollars; the red line is federally-created dollars)
Now, the blog Naked Capitalism has published a post titled Is Public Ownership A Solution? Excerpts from that post:
Gar Alperovitz, professor of political economy at the University of Maryland, pointed out how the growth expectations for public companies are at odds with resource conservation and how their rampant short-termism stunts investment. Some economists have recently taken a systematic look at the latter problem. From a 2011 post:
Most recently, in 2011 PriceWaterhouseCoopers conducted a survey of FTSE-100 and 250 executives, the majority of which chose a low return option sooner (£250,000 tomorrow) rather than a high return later (£450,000 in 3 years). This suggested annual discount rates of over 20%.
Recently, Matthew Rose, CEO of Burlington Northern Santa Fe (America’s second biggest rail company), expressed frustration at the focus on quarterly earnings when locomotives lasted for 20 years and tracks for 30 to 40 years. Echoes, here, of “quarterly capitalism”.
That same post published a comment by someone named “psychohistorian,” who wrote:
The propaganda argument that private industry can be more responsive and do everything cheaper is bunk.
Yes, there are things private industry can do better, and there are things the government can do better. But we Americans have become so vaccinated with “free enterprise always is better than government,” we tend to be hostile to any government action, which we incorrectly label, “socialism.”
When private individuals control vast amounts of money, and when they are compensated according to their control of this money, even the saints among us would be tempted. Bottom line, private banking is, and always has been, crooked, the bigger the bank, the greater the temptation, the more crooked.
In banking, the profit motive corrupts. And combining the profit motive with short-termism corrupts absolutely. Always has; always will.
All banks should be federally owned.
Rodger Malcolm Mitchell
Monetary Sovereignty
==========================================================================================================================================
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Rodger
There’s nothing wrong with the profit motive, as in business one invests time, effort, capital and prestige in a way that can only be rewarded by selling goods and services at a price greater than cost.
I was rather surprised to see you mention the real problem with the private banking business sector – almost correctly,
I believe what you said was that the banks create most of the money we use in the economy – and the profit motive means that the use of that money goes to shorter and shorter-sighted endeavors, which has been ruinous.
My answer here is the same as I left at Naked Capitalism.
You need to nationalize the money system.
And leave the banking to the bankers.
So, first up is to clarify that the real national economy is where we all live and work – in the M1 money supply, and when we’re really lucky, a bit of M2.
Second up is to repeat and hopefully drive home the reality that ALL of the money that is in use in the real economy is now created by the private bankers. ALL of it. (except some coins).
So the tragedy unfolds exactly as you said – short-sighted investment decisions for even greater profit, especially including by externalizing the environmental costs from products to the public purse.
Etc. etc.
But the solution has nothing to do with the evils of the profit motive. It is in placing the well-being of the people and the planet at the mercy of a group of privileged financialists who create the nation’s money when they make their loans.
Economist Fisher in writing his textbooks and course work in money and central banking was very specific n the solution. It was all one word.
Separation.
Separating the banking function of making loans and accepting deposits from the act of creating the nation’s money – a governmental function.
For the Money System Common.
PS – as you suggested I brought my case against the claim that government creates money when it spends to Warren
He’s in denial, and a bit of a bad mood.
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Warren isn’t “in denial.” He’s just denying your hypothesis — as do I. You should read Warren’s book.
Unintentionally humorous comment: “But the solution has nothing to do with the evils of the profit motive. It is in placing the well-being of the people and the planet at the mercy of a group of privileged financialists who create the nation’s money when they make their loans.
And why do you think these “privileged financialists” do what they do? Profit motive, perhaps?
Other unintentionally humorous comment: “Separating the banking function of making loans and accepting deposits from the act of creating the nation’s money – a governmental function.”
Lending is the way banks create money.
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Roger: That’s a thoughtful article above. But I agree with Joebhed when he says it is possible to separate money production from borrowing and lending. The latter separation is achieved by full reserve banking. Or in the words of Irving Fisher, ““We could leave the banks free . . to lend money as they please, provided we no longer allowed them to manufacture the money which they lend.” That’s from his booklet: “100% Money and the Public Debt”.
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Ralph,
How do banks create dollars? Answer: By lending.
The banks have no other money-creation process. The very act of bank lending is what creates the dollars. No bank lending = no bank-created dollars.
Full reserve lending merely limits the amount of dollars a bank can create. It works like this:
Assume a bank has $1 million in reserves, and is constrained by full reserve lending. So, the bank can lend $1 million.
The bank lends the $1 million by crediting its borrowers’ checking accounts for $1 million. Now the borrowers have $1 million, but the bank still has its $1 million in reserves.
So, there now are $2 million in the economy. By lending, the bank has created $1 million.
Bank reserves do not diminish when it lends.
That is how banks create dollars.
Rodger Malcolm Mitchell
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Please explain? If banks are restricted to lending their reserves, then how would they create additional money by lending them? Instead wouldn’t they need to coax additional deposits to increase lending. I do not understand how if they are not permitted to create money through lending beyond their respective reserves their reserves are not diminished. If you are allowing the banks to credit checking accounts by lending then you are still allowing the banks to create money; are you not?
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Rodger Malcolm Mitchell
While full-reserve banking does not really describe what the Kucinich-Bill proposes, the functional result for the bank is almost the same.
The purpose of the change to public money creation is to achieve full-employment while maintaining the purchasing power of the currency (economic stability).
Every effort is made to ensure adequate lending power.
Banks can only lend up to the amount of their savings/investment account balances.
There are no reserves.
The bank has borrowed $1 Million from its savers, and lent the $1 Million into checking accounts of its borrowers.
Banks are doing banking.
If there are no additional savings – from which the bank BORROWS in order to lend – then the bank borrows from either another bank or the government, ALL at equivalent borrowing rates (VERY CHEAP).
There is a legal factual chain of connection between the money first created by the government (ALL MONEY) and the nature of the ownership of the bank’s depositors and borrowers that ensure monetary, financial and economic stability.
And THAT is the name of the game.
What was the problem again, Ralph.
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Rodger,
I think this argument slightly confuses the difference between credit and money. See this post from yesterday (http://www.freebanking.org/2012/07/17/100-reserves-confusion-about-%e2%80%9cmoney%e2%80%9d/). Private banks create credit, not dollars. The govt/Fed choose to ensure that bank credit is convertible into dollars.
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To Ralph,
Thanks for opining on this.
To not recognize that “greedy-bankers-crash-economy” is the symptom of the problem and that the solution lies in not allowing the banker the “power” to crash-the-economy, by limiting bank lending to only his and other people’s real money, is one hallmark of MMT that I just don’t get.
They continue to defend fractional-reserve-based money creation, ostensibly as if it were the only means to ensure adequate credit in the economy.
Once you move to “real, permanent money creation”, through public money administration, we remove any potential for connecting bank lending, or the lack thereof, from the proverbial business-cycle crash.
And a quick read of any of Fisher’s textbook Chapters on full-reserve banking as part of central bank policy would show all the advantages – even to the bankers – from such a reform..
For the Money System Common.
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Steve Keen recently pointed out that out current system is not really a fractional reserve system (http://www.debtdeflation.com/blogs/2012/07/14/mish-steve-debate-steve-says-i/). Reqs only apply to certain types of deposits and are maintained on a lagged basis.
Currently the Federal Reserve ensures that banks can always obtain enough reserves. With full-reserve banking, would this practice be continued (allowing unconstrained lending) or would the Fed be responsible for limiting reserves and therefore the supply of credit?
Lastly, If the govt were to take over lending responsibility it would not alleviate the connection between credit and the business cycle. The govt would simply be the bank doing the lending.
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If when lending the banks were required to possess 100% reserves in order to do so and the US Treasury possessed the sole ability to create dollars, money, what ever you choose to call it, then why would the Federal Government need to be in the banking business. If along with 100% reserve requirements legislation like Glass-Steagal where put back into place, then the profit would be from usury and community investment only? Just askin’.
As for Mr. Mosler, I have read his book and blogs and admire his intelligence, however, my personal opinion is he believes that the regulatory system is adequate and works. The system just needs some minor tweaking and all will be well. Well for the likes of Mr. Mosler certainly.
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I regret I have to take up so much space, but I hope you can understand why, I must..
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.” JAMES MADISON
Excerpts from mises.org /Fractional-Reserves.
There must be a separation of FOR PROFIT private banks and a Not FOR PROFIT central bank.
Mises,”Only free banking would have rendered the market economy secure against crisis and depression. (And) (t)here is no reason to abandon the principle of free enterprise in the field of banking.Free banking…means operating, governed by rules and laws…{without) special previveeges and protections by the government.(Justaluckyfool-they have proven themselves to be untrustworthy to charge interest on as well as issue new currency. Only the central bank should have this duty and privilege.)
Hurta de Soto “Theoretical analysis yields the conclution…The establishment of a 100 percent reserve re quirement as an eccential principle of private property rights.”
Read , challenge “Don’t End The Fed, Amend The Fed” (Google-“justaluckyfool”)
H. Minsky, calls for seperation. Don’t dare read William Black
and if you wish to be sleepless at night read what Michael Hudson has to say about compound interest!!!
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Definitely agree with regards to reading Warren’s book and your assessment of the troubles with regulation/rent-seeking. My trouble with your conclusion is, how will federally owned banks decide to grant loans once separated from the profit motive? Surely there must be some process by which to weed out credit and non-credit worthy borrowers, but without a market for prices how will that be done?
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Woj,
Profit need have nothing to do with the decision to grant a loan, which is based on the borrower’s ability to repay.
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Rodger,
I think my question was worded poorly. If there is no (profit) incentive, what is the motive to determine the borrower’s ability to pay?
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i haven’t totally thought this out, but it seems reasonable that banks should be public. but, there’s one question i’ve been turning about in my head of late, that being, if the government is the banker, then what would be the point of making loans to the public?
banks make loans to make a profit. the government, on the other hand, doesn’t need to make a profit, and so, doesn’t lose or gain anything by making a loan.
on the other side of the ledger, why does someone take out a loan? because they didn’t have the money. why didn’t they have the money in the first place?
there could be many reasons for that, but the main reason is government spending being too low and/or taxes set too high.
and this is most likely why private banks exist. as long as government spending remains low, they will always find enough customers to make a profit. well, up to a certain point…
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You are correct. Good point. Not only does the government not need to make a profit, it doesn’t even need to receive the loan money back. The government literally could give money rather than lend it.
The problem then becomes: To whom to give the money, and how much. The credit system provides a method, albeit a method that could be criticized on many fronts: Give (or lend) money to people who have good credit. It’s weak, but it’s a method.
As for why people borrow, it is not just that “they don’t have the money.” It could be that they don’t have all the money today, or they can earn more on the money than the cost of the loan.
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i totally understand where you’re coming from, rodger, and your last point is well taken, but i’m beginning to wonder if the whole notion of bank lending is bad.
i’m looking at the totality of loans from a macroeconomic point of view. when banks make loans, they inject new money into the economy, but then they have to take it back out. from a macroeconomic view, where’s the benefit to the public? if the government doesn’t inject more money into the economy, then where is the money gonna come from to pay back all the loans?
so, what i’m driving at is that bank lending is in reality a trap and a destabilizing force on the public because a certain percentage of borrowers will “automatically” default, because the money will just not be there for them to pay back their loans, which, chances are, they wouldn’t have needed in the 1st place had government spending been higher (and targeted to them).
so, i guess i’m beginning to question the legitimacy of all bank lending, regardless of whether the bank is private or public.
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Yuu Kim – It sounds like you are not only questioning bank lending but debt, period. There are many issues with debt but it is also an important manner by which entrepreneurs are able to start new business or attempt new innovations. Banks are a means to reduce costs of lending by pooling risks. Our current system is far from ideal, but I strongly believe that without debt and some unit(s) able to pool lending our economy would be far less advanced than it is today.
Rodger – You make a good point about the issue with determining how to allocate funds. The credit system, however, works because it is a market in which the profit motive helps different individual/institutions price credit. Giving sole possession of the ability to lend to a govt without the profit motive removes the market aspect, making pricing practically impossible and ensuring a far more inefficient allocation of credit.
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Woj, there is no difference between credit and money (and debt.) They all are synonyms. The broadest measure of money is: Debt Outstanding Domestic Non-Financial Sectors. There is no money that is not debt (or credit).
The one difference is when you guarantee someone credit, and he does not use that credit, no money is created. When he uses the credit, that creates money.
The basis for a dollar is the full faith and credit of the United States Government.
I know. I know. This semantic argument could go on forever. I wrote about it at A dollar bill is not a dollar . . .
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To all those who think banks can lend without creating dollars, or the reverse, create dollars without lending, I think I see the fundamental misunderstanding.
You visualize bank operations as being like your wallet. That is, if you have $10 dollars in your wallet, and you lend it to a friend, you no longer have $10. No money was created.
Except:
1) If your friend gives you his note for that $10 loan, you now have $10 (the note is money) and your friend has the $10 you gave him. So where there is a legal note involved, money is created.
(On your dollar “bill” are the words, “Federal Reserve Note. The words “bill” and “note” signify debt.)
2. When a bank lends to you, it merely credits your checking account. It does not remove dollars from its reserve account to place them in your checking account. Lending always creates dollars.
Example: A bank has $1 million in its reserve account, which is an asset. It lends $500 thousand. It still has $1 million in its reserve account, on which it receives interest. It has just created $500 thousand.
And that $500 thousand loan also is listed as an asset on the bank’s books.
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Charles Fasola,
Banks do not lend their reserves. The reserves merely serve as a guarantee. When banks lend, their reserves are not reduced. Bank lending, indeed all lending that is supported by notes, creates dollars.
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Thank you for the clarification. I now understand I am using incorrect terminology. If I stated lending cannot exceed cash on hand would the answer change significantly?
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Ralph,
A 100% reserve requirement merely means the banks would deposit with the Federal Reserve, an amount equal to the total of outstanding loans. So?
All banks have more money than the total of their reserves, and reserves are available from the Fed itself. So?
The idea that 100% reserves might prevent the “liars loans” that caused the crash is ludicrous. You could have a 200% reserve requirement — no, make it a 500% reserve requirement — and banks still could make just as many “liars loans” as ever.
Bank lending is NOT constrained by reserves. Banks easily can obtain all the reserves they want — that is, unlimited reserves— from the Fed or from other banks.
Bank lending is constrained only by bank capital.
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Perhaps,we have a misinderstanding as to what 100% v. Fractional banking means.
I believe that it is a liquidity question as it means that private banks would have to have 100% “cash” in storage in order to make a loan.
Thereby curing the problem of creating money from thin air to make a
loan from stored money with has its own right to value.
When a Fraction Reserve Banking lender use someone else’s money they are creating a DOUBLE demand for goods or services, thats like counterfeiting. Example: If a bank has $1,000 in deposit (stored), that $1,000 has an owner other than the bank, who can demand that money be returned at any time (unless he allows the bank to use it, with full knowledge that there is a risk of loss. The bank deposits in the name of a borrower $1,000 in any bank account; this is a creation of money that can buy $1,000 of goods and services in addition to the stored money. You now have $2,000 in circulation. If it were not for the moral hazard protection of the central bank’s FDIC insurance, any sane person would know that the bank is insolvent .
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Lets describe it like this. I have $100 which I deposit in the bank. The bank has a reserve requirement of 10% (which I think is close to the actual requirement). The bank can then lend out $90 but must hold onto $10. The $10 is the reserve requirement. As soon as the $90 is lent out the bank has just created $90.
The problem is that I also have a claim to the $100 dollars and can withdraw it at any time. Therefore, out of a $100 deposit the bank can create $90 dollars out of nothing.
With 100% reserve banking when I deposit my $100 the bank now has to keep $100 in reserve. It cannot create the $90 out of nothing.
The bank however can charge me $10 to handle my money. It can then lend out $10. In this case no new money has been created. The bank therefore uses its capital ie..fee and interest it charges on the money it does lend as the basis for its lending and does not create more money out of thin air.
One note..the same applies to the federal government. That is the federal reserves is quasi private. The system itself is private but the
reserve board appointed by congress.
Therefore when the federal government spends, it creates money in that it it borrows from the federal reserve and it is that borrowing that also creates money.
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Tom,”One note..the same applies to the federal government. That is the federal reserves is quasi private. The system itself is private but the
reserve board appointed by congress.
Therefore when the federal government spends, it creates money in that it it borrows from the federal reserve and it is that borrowing that also creates money.”
That is not correct.
The Feds can “print an unlimited amount of currency” as they are the issuer of the Monetary Sovereigntys currency.
If they were smart enought they could mandate that all private banks borrow what they need to be at a 100% reserve, even if $999 trillion were needed. Thereby curing the desease of fractional reserve banking as well as FDIC insurance because they would be solvent and at the same time “raise revenue by other than federal income taxes” (charge the for profit financial institutions compounded interest).
There is a major difference between private for profit banks and the Fed (Central Bank); that is, private banks turn their profits over to the 1%; Central Bank (Fed) must turn 95% over to the US Treasury.
“Don’t End The Fed, Amend The Fed” (Google it) would have the Fed turning over 100% to 100% of “we the people” via the US Treasury.
By the way lending out $999 trillion does not increase spending as in going over legislated spending limits.The Fed would have $999 trillion in assets on its books which creates an equal balance. Please note that were the Fed to charge 2% interest for a term of 36 years it would produce A FAIR INCOME TAX REVENUE of over $55 trillion a year.
Could you imagine, Private financial institutions using our money to make a profit (Isn’t that what they are doing) ?
But now paying interest so that we no longer pay federal income taxes ?
May God continue to bless America.
“Justaluckyfool” asks for profound answers.Challenge and Improve.
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Yes the feds can create as much money as they want
I don’t believe I said differently.
What we were talking about is how the government creates money.It does so by borrowing from the feds. The fed is private it is not part of the government. Also I don’t believe the feds shares their profits with the government.
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Yuu Kim,
Lending is necessary, because it allows short term needs to be paid over time. For example, consider an airline buying a billion dollar plane. The airline needs to give the plane manufacturer a billion dollars today, but the plane will last 20 years.
So the airline takes out a 20-year, billion dollar loan, pays the manufacturer, and has the plane earn money for the 20-year term of the note.
Similarly, a person making $250K per year might wish to buy a $2 million home. He may not have $2 million today, but he has a nice income. So, he takes out a loan, that allows him to pay over time. This gives him his house, while benefiting the builder, the builder’s employees, the stores where the employees shop, the shop owners employees, and on and on — all from that one loan.
While money fuels an economy, lending is the lubricant.
You are correct that lending is only temporary, while federal deficit spending is (almost) permanent. There are two primary ways by which money is created and destroyed:
Created: Bank loans and federal deficit spending
Destroyed: Bank loan repayments and federal taxes
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I would disagree that federal taxes destroys money. The government which I believe actually prints the physical money may destroy the physical money but not the digits or debt behind it.
That is the federal government creates money by borrowing from the federal reserve. The federal reserve is not part of the federal government. Obviously the federal government can borrow as much as it wants and the federal reserve would never deny the federal goverment the ability to borrow, so the goverment can create as much money as it wants.
However when taxes are paid, it does not pay off the debt to the federal reserves or I should say it does not pay it directly. When the government actually pays off the debt to the federal reserves then money is destroyed but not when taxes are payed.
For this reason I would argue that the U.S. is in fact not monetary sovereign. Obviously it can be by changing the laws and how the system operates which is what people here are arguing ie..for the goverment to issue money directly and not as debt but right now as far as I can see it is not monetarily sovereign.
Now if you want to argue that the federal reserves is in fact part of the government then that is another issue….but I would argue it is not. That is an important distinction that cannot be overlooked.
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Tom,
Regarding Monetary Sovereignty, what is the difference between the U.S. and Greece?
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The differences is a layer of bureaucracy. Greece right now is similar to a u.s state in that it has to go through the E.U. and its central bank
The U.S. itself has to go through its central bank, the federal reserves.
If the federal reserves were truly part of the U.S. Government and was in control of monetary policy then yes it would be monetarily sovereign but it is not. The system is private and most belong to it and those banks are private.
Or am I missing something?? I do realize that some people because it is quazi government and congress can repeal the laws and take back its sovereignty at any moment argue that it is part of the government which if that was the case then the U.S. would in deed be MS.
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Sorry it should say “and most banks”. I am typing this on my phone..
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Tom,
Banks are not reserve constrained, because unlimited reserves are available from the federal government discount window or from other banks. You could have a 200% reserve requirement, and still bank lending would not be constrained.
So-called “fractional reserve lending” is misleading. They should call it fractional capital lending. A bank with zero deposits can lend billions, if it has sufficient capital.
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I may be wrong but the reserve requirement is to protect deposits so that people seeking to withdraw money will to some degree be protected. Or rather i should say the bank will be protected in that it will have enough money to cover withdrawals.
You are absolutely correct that all a bank need to lend is capital,it does not need deposits but for most banks deposits make up it’s core lending and that is where fractional reserves come in.
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Tom says,”the reserve requirement is to protect deposits so that people seeking to withdraw money will to some degree be protected.”
Yes, but how does for example $1 trillion ,10% of $10 trillion protect a loss of $10 trillion without saying, “sorry I can only pay you 10 cents on every dollar of yours that I lost?
But not to worry,because private banks have a special deal with the US government called FDIC. A deal in which all the money they lose their Uncle Sam will make good and they don’t have to pay it back.
If I were a bank, I would be betting $88 trillion in derivatives-win I make and keep the profit, lose Uncle Sam makes the payment for me ; but wait a minute, isn’t that what Bank of America revealed it presently has as a position on its books ? .
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That is where the federal reserves come in. If the banks need to add to their reserves then they go to the feds and good old ben will basically print more money and loan it out to the bank.
The FDIC on the other hand I believe only protects if the bank goes out of business otherwise it is the federal reserves.
Also just a note..I don’t agree with the system as it is now and I don’t agree with fractional reserve banking…
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Is not the point, in the end, to create a new system of banking and money creation rather than working within the same tired constraints of the present one? A system that works to the benefit of we the people, the public good instead of a system that works to ensure maximum profits for the banks, one that serves their purposes first and foremost? A system which ends the Fed and breaks up the largest banks? It seems an attempt to tweak the system currently in place, a system rife with fraud and criminality, is the excercise rather than working to replace it with a better one.
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Charles Fasola, please read, “Don’t end the Fed, Amend the Fed”
The Fed has the power to end Fractional Reserve Banking.
The Fed has the power to control the quality and quantity of issuance
of this sovereign nations currency.
We know where we went wrong, just get those elected to office who will ,
“Amend the Fed”
by justaluckyfool
To RMM and others, Excerpt from “justaluckyfool”…
Have you read the Federal Reserve Act? The authorizing legislation projected a body:
“…to provide for the establishment of the Federal Reserve banks…”
Where we went wrong- Established Federal Reserve Banks owned by private banks, domestic and foreign.
How we can fix it-Establish Federal Reserve Banks owned “by the people,of the people,for the people.
“… to furnish an elastic currency…”
Where we went wrong-The elastic currency’s quality and quantity can be controlled by private banks using a legalize counterfeit system called Fractional -Reserve Banking.
How we can fix it- End Fractional Reserve Banking making the correctly established Federal Reserve Bank the ONLY supplier of new currency.
“… to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States..”
Where we went wrong-Allowing private banks to charge compound interest on the paper they create “out of thin air”.
How we can fix it-Private banks will only be allowed to invest, or purchase assets with 100% margin.They will be responsible for all
losses and entitled to all gains.And stop the absolutely insane practice of paying interest on our own money!
“… and for other purposes.”
Where we went wrong-By now can we identify the operative phrase? Of course: “for other purposes.”
How to fix it-For the purposes of funding the government by redistribution of issued currency, so that ”“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…””
READ MORE: Google “Don’t End The Fed, Amend the Fed”
or Google “justaluckyfool”
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Money is not debt.
But IF you have a debt-based SYSTEM of money, THEN all money will be debt.
All that is necessary to change this temporary reality is to move to a non-debt based money system.
Then all money that is issued is issued permanently into circulation without issuing any debt to anybody.
Once money is in circulation , it can be saved, it can be lent. It can become debt. BUT, there will be more money than debt.
With the debt-based system of money, all money must come into existence as a debt. It must be replaced by more debt when that debt is repaid. Or, we have less money.
This is the reality that MMTers cannot grasp, as their perspective is built upon Innis’ view on money.
Here is monetary historian Stephen Zarlenga – author of The Lost Science of Money, critique of the Innis perspective.
http://www.monetary.org/critique-of-innes/2012/06
But, it is incumbent upon all to FIRST consider what is money.
Nothing but a legalized convenience to provide the means of exchange in the national economy.
If you’re a debt purveyor, you make sure all money comes into existence as a debt prior to its utility as a means of exchange.
If being in debt is not your cup of tea, then you nNEED a new money system.
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non-debt based money system is fiction. For the reason Roger has noted below
But money is mostly a FINANCIAL ASSET. A financial asset is always without exception backed by a financial liability (called debt) held by another party.
Debt free money is fiction promoted by people who I believe are well meaning but unfortunately do not understand enough about this money and banking subject to form sound recommendations.
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Yeah.
I’m absolutely positive that you, like Rodger, think that you know of what it is you speak.
A monetary asset IS something held against a liability.
Thus, the securitized Promissory Note and the bank deposit.
Both are both assets and liabilities, on the other party’s balance sheets.
The monetary asset – promissory note – is a promise to PAY money.
It’s an IOU from the borrower to the bank.
Monetary assets are not money.
Sorry to disappoint.
IOUs can be converted to money, and THEN act as money and BE money.
But, in the form of the monetary asset, they are NOT money.
Sorry for the out of time reply, but this is very easily, factually, historically and legally established.
Nationally and internationally.
What proof do you have?
Thanks.
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Joe,
There are two kinds of money: Commodity money and debt-money.
An example of commodity money would be gold. And I’m not talking about a gold standard. I mean actual, physical gold, lugged around and used as money.
A gold standard would be an example of debt money in that the holder of the money is owed gold.
Unless you are suggesting a return to the use of a physical commodity as money, all money, by necessity, must be debt.
Today, no matter how a dollar is created, whether by a bank or by the federal government, it has no physical existence, so it’s value has to be based on a debt, collateralized by full faith and credit.
If you have a checking account, your bank owes you the dollars in that account. If you have a money market account, the money market owes you the dollars in that account.
If you have a dollar Bill in your wallet, that piece of paper is a Federal Reserve Note. The words “bill” and “note” refer to documents that are evidence of debt.
That paper dollar bill has value only because the federal government owes you full faith and credit, Without that debt, paper dollar bills would have no value. They would just be paper.
Thus, all modern money has value only because it is a form of debt, collateralized by some entity’s full faith and credit.
All bank lending creates money. When a bank lends, the borrower receives money in the form of a credit to his checking account, and the bank receives money in the form of a note.
That note essentially is identical the the above-mentioned Federal Reserve Note (dollar bill). It is evidence of a debt, backed by the full faith and credit of the borrower.
For the same reasons, every form of lending, memorialized by a note, created money. You can create money just by lending a friend $10, if that friend gives you his note in return.
If you don’t want banks to create money, you don’t banks to lend. If you don’t want debt-money, you want commodity money, which would not be backed by anyone’s full faith and credit.
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I hope you don’t mind but I think this article explains some of this well that is debt money and fractional reserve banking.
http://mises.org/daily/4631
Also I would not say commodity money is not backed by anything. As a commodity it is backed by the item itself. The item itself may or may not have much value think sea shells vs gold but the commodity is back by something (hope that makes sense).
In the case of gold it has certain properties which makes one of the best choices for commodity money and it is why it has been used for non-debt money for thousands of years but that is whole other issue…
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As commodity money is backed by “itself”, so is fiat money.
The dollar promises the holder………another dollar.
A money form can have ‘intrinsic” value, but that is not the same as its backing.
All modern monetary economies function with fiat currencies.
The problem is not the fiat.
The problem is that ALL fiat money is crated as a debt, repayable with interest that is not created.
Due to compounding interest, the system becomes saturated in debt.
At the point the saturation of debt in the money system, it is not possible to create enough new debt-based money to pay the interest on the debt money already out there.
Therefore : Debt-deflation.(*)
We are here(*)
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I agree with your last part “are we here yet” …Yes we are. I also agree with you that as long as we have a debt based system we will never get rid of the debt.
Maybe I was not clear when I mentioned commodity money.
When I say backed I mean that commodity money has value outside of it being money. Gold for example has certain properties that make it worth something even if it is not used as money. It also has properties that make it ideal for money such as it is hard to create more of it, it lasts forever and cannot easily be destroyed, it is easily recognizable and so on. All of these give it value.
Fiat money on the other hand has no value outside of “fiat” or decree or what the law says it has. It has no real worth. I guess you could recycle the paper that the money is printed on and use it as paper but again it is not worth much. Digits well that has no value whatsoever outside of “fiat”.
So when I say it is backed by itself I guess that is the wrong terminology to use. What i was referring to was the value. Commodity money is also backed by its value while fiat has no real value.
Again the problem is debt based money along with fractional reserve banking.
I would disagree with you that you don’t have to have a goverment to issue money all you need are laws surrounding the issuing of the money. A private entity could issue money, private citizens getting together could issue their own money, as long as everyone agreed.
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Trying to be nice…..
Rodger,
I said money, in its essence and function, is not debt.
But money, as designed by the debt-industrialists, will not only always be equal to debt, there will always be MORE debt ( IOUs ) than money.
In a debt-based money system such as ours, ALL money must be debt,
And we need to change to a non-debt based money system.
Your attempt to respond to my statement is all wrong.
I don’t know what you mean by “kinds of money”.
Gold that you lug around in bags is not money.
What makes money “money” is the stamp of the sovereign on an authorized issue of media.
Monetary assets are not money; they are commodities.
An authorized, stamped and issued $100 gold coin IS money.
But bags full of gold, in that form, is a barter instrument.
Rodger, it’s near pathetic that while I repeatedly advocate for government issue of debt-free permanent fiat money, you resort to question whether I am proposing the return to commodity money.
Your statement that money gets its value by existence of a debt shows typical confusion between money – the national circulating means of exchange – and the UNIT of account of that money – the dollar.
Rodger.
The promissory note the bank receives is NOT money.
It is a promissory note.
It is an IOU, but it is not money.
A while back, on another thread, I implored you to update your understanding of The Legal Aspects of Money.
Because money is a legal construct at its essence, failure to understand money’s legal aspects leads to uninformed confusion about money.
And your comment is replete with that lack of being informed.
As it is with most MMT learners about money.
Unfortunately.
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“The promissory note the bank receives is NOT money.
It is a promissory note.
It is an IOU, but it is not money.”
Of course it’s money. Except in the fantasy world that some debt free money supporters like to inhabit.
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A very foolish and, sorry to say, ignorant reply.
If you want me to quote you from “The Legal Aspects of Money” – the common international legal Bible on the subject as to what is money, I would be glad to.
Or, how about YOU prove that a Promissory Note IS money.
I’ll give you one, and you try to spend it.
PROMISSORY NOTES are trade-able financial assets
And NOT money.
Not because I say so.
Because the law says so.
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@Rj,
Please explain why money has be debt?? Why there cannot be debt free money??
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Is there really commodity money?
IMO if gold is exchanged for other goods or services etc based on the value of the gold then this is a barter (not money) exchange.
If however gold is used based on the bank credit link. Then this is money but gold is used just to stop counterfeiting. But the coin is valued based on the credit link NOT the gold (or other metals in the coin) value.
Most coins used throughout history seem to have been credit linked valued.
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joebhed and Roger
“ALL money must be debt,”
Money is not debt.
Money is a financial ASSET and debt is a financial LIABILITY from the our (non bank) viewpoint. So debt can not be used as money (only an asset can be). Rather debt is what what gives money (bank credit) its value (from the banks viewpoint). As our liability (debt) is the bank asset. And our money asset is the banks liability. I
But in effect the bank is the intermediary between the money financial asset holder and the financial debt liability holder supporting or backing this money.
So debt back bank credit (money). It is not money now and never has been.
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Money is a unit of account. It could be colorful piece of paper,special shaped metal, a computer bit. Regardless of what form it is shown in it is a record of debt and credit. A liability of the issuer, an asset for the holder. It is as valuble as “the good faith and trust ” of the issuer that it will be redeemed.
So how much faith and trust do you have that the trillions created by financial institutions will be redeemed when due?
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If you began your comment with:
“Today, in the debt-based money system, ALL ……
I would agree with you.
And I agree with your concluding question – which is another way to ask – “….just how big a haircut are these financialists going to have to take before the ‘monetary assets are equal to their monetary value?”.
My guess is 81 or 82 percent?
Thanks.
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Justafoolish question:
In your comments you (joebhed) state,
“Again the problem is debt based money along with fractional reserve banking. ”
and”
“The problem is that ALL fiat money is created as a debt, repayable with interest that is not created.”
and
“With the debt-based system of money, all money must come into existence as a debt. It must be replaced by more debt when that debt is repaid. Or, we have less money.”
These assumptions are just that and not fact.
All “money” is debt by definition, it is a receipt of a value.
I believ you are referring to some thing else with “debt based money”
because “money” can be and must be convertible into its receipted value-no more, no less.
But your “debt based money” has an interest burdon attached.
That is a horse of a different color.Currency of a Monetary Sovereign
cannot be issued debt free (who would or could accept one that was convertible by good faith and credit into nothing)?
and it could be very well issued INTEREST FREE.
I hope that is what you mean be “debt free based money”.
And then I would feel that you have hit the bullseye, Where we went wrong, why are we paying interest on our own money that we can not only issue (debt) interest free but also charge interest to control the quality and quantity as well as the redistribution of the currency.
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I guess MY luck ran out.
No “bulls-eye” hit by me.
So, I start out asking where is there is a ‘definition of money’?
“Money is defined as …..”.
There is none.
That is why we are having this discussion.
Aristotle said one thing.
Money is an artifact of law. Or authority..
Rodger Malcolm Mitchell says another, based on Randy Wray’s interpretation of A. Mitchell Innis’ theory of money as debt.
Click to access wp_717.pdf
Here is the American Monetary Institute’s critique of Innis’ theory and work.
http://www.monetary.org/critique-of-innes/2012/06
Rather we are in an environment of discussing what money “IS”.
I rather enjoy when people acknowledge the unsettled nature of what money is – so as to state that, by definition, we are all making it up – establishing what money IS – as we go along.
However, that reality has nothing to do with all my statements you quoted.
I was not discussing what money is.
I was discussing OUR present system of money.
My statements are incontrovertibly all facts – if you understand the money system.
And they are all consistent with the Fed’s “Modern Money Mechanics” publication, which I first read about 40 years ago.
Rather than say they are all assumptions, why not say what part of what one is incorrect?
Money has many functions.
And by focusing on its “unit-of-account” value function, Wray, MMT and Rodger all conclude there MUST be an accounting, and therefrom, due to our methods of accounting, a match of a debit and a credit in the account.
But I hope you are not one who contrives from a debit – a Debt.
They are not related.
One is an accounting norm.
The other is a legal OBLIGATION owed between parties.
Something first owned and lent, something borrowed, to be repaid.
I hope we can avoid semantic arguments over the role of government in taxation, etc.
For people who don’t understand what money IS, I recommend a read of two books by Dr. Frederick Soddy. One is “Wealth, Virtual Wealth and Debt”. The other is “The Role of Money”.
The latter is available free online. Not sure about the former.
Good luck.
Thanks.
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@Joebed, when you say a commodity needs to be stamped by a sovereign to be money are you saying it just needs to be official where everyone agrees to the amount in circulation and the issue price or are you saying only a goverment can issue money??
Also @ RJ in an earlier post you said money is a financial assets and without exception backed by a financial liability. How do you define a financial asset?? How about a rental property that is all paid up, is that not a financial asset?? How about a vintage car that I own outright, is that not an asset??
One of the things that people need to recognize is that money in and of itself is not an asset and has no value. The good thing about commodity money is that depending on the commodity, the commodity itself still has value.
Money is simple a medium of exchange that represents goods and services. Money represents real products. We don’t really see that connection because in today’s world good and services are easy to get and many people don’t see the end result of there work, the finished product or they work for someone else and receive money in exchange. Money rightly so has taken on a life of its own and is now considered an asset or is considered wealth and it is hard to see that it is not that it represents wealth but is not wealth.
Think of it this way you can have a million dollars in the bank. Most people would say you are rich but what do those digits or even the physical dollar bills represent. What if people defied the goverment and no longer accepted them or started to only accept moonrocks as money would you still be rich?? Or would the person who owns a farm and produces food or the person who own a company with actual physical assets or owns several rental properties or even a McDonald or the electrician or carpenter who can fix things and has tools to do so??
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Tom, how do you place a value on those assets.
They are only worth “the amount of ‘money’ someone is willing to exchange for them. (What ever the money is at that time.
Money buys goods and goods buy money. Whatever is used as the physical representation of “todays” money
is only as good as the issuers “Credare” to honor its redeemability.
This is why, perhaps “justaluckyfool” believes a Monetary Sovereignty must controll the quality and quantity of its “fiat” (paper,beans or metal) and in order to do that -it’s own Central Bank must be the only source of issuence,period.
Justaluckyfool asks, Why not have a control that would help “to form a more perfect union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”” at the same time reduce personal income taxes to zero ?
Read, Challenge,and Improve “Don’t End The Fed, Amend The Fed”
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There are physical assets and financial assets
Physical assets are supported by real physical assets. Like gold or silver or a house or car etc
Financial asset are backed by an equal obligation held by another party
Money is a financial asset. It is in effect a IOU asset held by one party backed by an IOU liability to make good in the future held by another one.
The IOUs are now accounted for and the IOU asset guaranteed by the commercial banks.
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@luckyFool, I think we can agree on how value is placed on an asset. That the value placed is determined by the market or at least it use to be…how much people are willing to pay for it, trade for it and other conditions which itself is determined by things like how useful it is or how durable it is etc..
I guess I am getting hung up on the word Sovereign. I would disagree that only a central bank can issue money or only sovereign (if you mean government) can issue money.
Also I see the fed as a major problem, that you really can’t “improve”. If you try to improve it at some point you will just end up in the same place.
@RT..ok but an asset is an asset some are financial and some are not. Most financial assets exist because there is a hard asset behind it.
Money is simply a medium of exchange. Money does not have to be a financial asset backed by an iou or debt. Money can be a commodity like gold or digits that can convert to gold or simply digits but that does not mean it has to be derived from debt.
I don’t understand why people think money has to be issued as debt. Commodities have been used as money for thousands of years and so has fiat paper. Both have there problems but commodity money does not have to be based on debt that enriches the 1%.
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“Money is simply a medium of exchange”.
Money is an IOU ASSET used as a medium of exchange. The IOU asset has value and only has value because it is backed by another party as an IOU debt liability. Without this debt backing it could not act as money.
People who think debt free money is possible live in a dream world. Based on ignorance about the world (people do not hold assets without any backing at all) and really a lack of common sense.
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@Rj,
We disagree on this, so this will be my post lost on it especially since Rodger is probably getting sick of us.
However Fiat money as it is today is debt backed and without the debt backing we would not have money.. if we eliminate all the debt there would be no money…That is correct. Let me emphasis that is correct for our current fiat system.
However to say that you can only have money that is debt back ignores much of history and the last few centuries of different types of monetary systems, unless you believe history only started in the last century.
Again money is simply a medium of exchange that has evolved over several centuries, it can be debt back or it does not have to be with the more stable monetary systems being non-debt back.
That is just a fact of history that both “dreamers” like me and “realist” like yourself cannot ignore.
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Tom,
The currency forms that are money are whatever is specified in the laws regarding printing and stamping of circulating media. What is agreed upon is that we are a nation of laws, and that the government has the sovereign power over money, and can determine what is money.
If we don’t agree to any of that, then we need to change the laws.
There are no laws about the amount in circulation – only about achieving macro-economic goals.
Only the government HAS the issuing authority, but that authority can be delegated in many ways.
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Can individuals outside of goverment do the same thing?? Can banks do the same thing?? Why does the goverment only have the authority to issue money.
Be careful I am not talking about the laws or the system as it is now. I know that currently only the goverment can issue money…technically the government does not issue money, the goverment gave that power to fed which is a private entity.
So again can private institutions true private institutions (not fed like) or individual getting together create their own money or do they need a “goverment” to create money??
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Tom,
With that kind of question, we may drill down to what IS money.
They NEED a government to create real money, but that doesn’t stop the inventive, the greedy or the counterfeiters.
Private peoples can do anything they want in regard to means of exchange – and therefore things that serve the same function as money. But, being sub-national, that does not make them currency, or money , again in the sense of the national money system.
Look at the success of all the Municipal Scrip created during the Great Depression, or the many community-based exchange systems in place now and growing all the time. Tremendous amounts of real wealth were created with Scrip and can be with Local Exchanges.
While this exchange media are often expressed as “dollar-equivalents’, they are not dollars.
Those are the inventive.
The biggest problems are associated with the “financialistas” – the greedy.
The create what I call non-money – perhaps what the Austrians call “money-substitutes” – and they become monetary assets that get securitized into real money — putting the real money at risk
.
Every $US-denominated monetary asset is a claim against the future wealth of the national economy. CDS, ABS, SIV, and their derivatives should either not be allowed to exist, or they should exist only in a fire-walled non-banking arena that has no relationship with, and cannot have any effect upon, the real-money banking system where we all live and work.
Thanks.
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Moving left……
So as to save margin.
RJ says:
“”Money is an IOU ASSET used as a medium of exchange. The IOU asset has value and only has value because it is backed by another party as an IOU debt liability. Without this debt backing it could not act as money.
People who think debt free money is possible live in a dream world. Based on ignorance about the world (people do not hold assets without any backing at all) and really a lack of common sense.””
Now, now.
I promise not to resort to charges of ignorance and a lack of common sense.
I believe I have already expressed the GREENBACK DOLLAR as proof positive that a government could issue a currency (money) without issuing a debt in order to do so.
Regardless of backing or no-backing, the GREENBACK was issued as a “permanent” means of exchange, proven by remaining in existence and being used for exchange for a hundred years without any debt associated throughout.
So, to be clear, again proof positive that peole DO hold assets without any debt-backing.
Sorry, RJ, but that proves you are wrong, and that your argument cannot claim the “common cents” mantle.
Which I do.
Now, the soldier can buy some goods and the merchant can either continue its exchange or save her income, making it available – for interest aforesaid – to the local bank, who can THEN lend it out and secure the loan with any previously non-secured asset.
At that point – the “money” has become debt by virtue of a private transaction..
But because it is PERMANENT money, when THAT loan is paid off, the GREEENBACK base money remains in existence. It can only be destroyed either accidentally or illegally.
So to simply correct RJs statement – Money is ALWAYS a means of exchange, expressed within the national economy as a unit of measure(dollar account), and used as in commerce TODAY as a debt – BECAUSE WE HAVE A DEBT-BASED MONEY SYSTEM.
Bring back the GREENBACK and end money as debt..
For the Money System Common
Thanks.
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I should not have said that upon being lent, the GREENBACK “becomes” debt.
Real money being borrowed does not become debt. It is, more correctly, “used” to fund a debt.
And that should be “people”, and not peole, who hold the debt-free asset..
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“I believe I have already expressed the GREENBACK DOLLAR as proof positive that a government could issue a currency (money) without issuing a debt in order to do so.”,joebhed
How so ?
When a government issues a ” Greenback Dollar” are they making a promise to redeem that dollar for a value of goods or services?
That I believe is a liability, a/k/a debt.
No matter what the form of the “money” albeit gold,colorful paper,beans as in Jack, it is still a receipt for a future redemption.
The US government by constitutional mandate must “pay all debt”
and has no restriction as to how much it can purchase in assets with its debt (obligation to redeem) currency-whic by the way is backed by the same thing that backs gold, its colorful paper and its beans-i.e., the
“good faith and trust” in the American people and their rule of law that they will abide by their constitution.
There in we can hope that our newly next elected representatives
will be selected, knowing that “We The People ” may be on the hook for hundreds of trillions of dollars if we do not get out of the illiquid market of derivatives. “”There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” — Ludwig von Mises
WE MUST STOP ALLOWING FOR PROFIT PRIVATE BANKS
TO “CREDIT EXPAND “OUR CURRENCY. Not only with our legal sanction,, but also with our guarantee to pay for them.
Google-justaluckyfool-“Don’t End The FED”
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I just explained above that all currency legally issued must possess the quality of settling public debts – that is debts TO the monetarily sovereign government.
The private person comes to the OBLIGATION TO PAY its taxes via governmental tax policy norms. That person can claim they do not have the OBLIGATION TO PAY, but once it is acknowledged, any form of legal money will suffice.
Even though today private banks issue credits that serve as money, they can only do so under the laws that provide that quality to the bank credit money – settlement of debts public and private.
If I NEED to repeat what I wrote above, I will, but I hope NOT.
GREENBACKS were issued without any obligation to pay back anything to anyone. Debt-free by definition.
Of course the government must pay all debts, but what debt are you talking about? To receive a payment is the opposite of paying a debt.
Your points about the INSANITY of real government-issued DEBTS – as in Securitized Promissory Notes of the government for monies borrowed- is well taken and spot on, but it has NOTHING to do with GREENBACKS.
And, I don’t agree about the “public” responsibility for the non-money derivatives out there. They must be cross-party settled.
The only problem is if they bring down the banks.
Which is why we NEED to separate money issuance from banking. I agree with von Mises on THAT point.
Thanks.
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“I believe I have already expressed the GREENBACK DOLLAR as proof positive that a government could issue a currency (money) without issuing a debt in order to do so”
This is not proof positive. In fact the opposite.
The Greenback only had value because it can be used to pay future or current tax. So the Govt was willing to make good in the future (or present) by exchanging a tax asset (tax due) for an otherwise worthless piece of paper.
Today of course $ notes (and bank credit / Fed reserves) can also be exchanged for treasury bonds. But the bonds also have value because of the tax factor.
Unfortunately debt free money supporters have barked up the wrong tree and just will not let it go.
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Sorry, but ……..
What you’re describing is nothing more than what is a currency – something legally issued, with the utility of paying a public or private debt.
You need to remove the blinders and FIRST get your head around the definition of a debt.
Today, money is created by ISSUING a debt, via a DEBT-instrument, an OBLIGATION DUE between parties..
The debt is the obligation of the borrower (a securitized Promissory Note – a debt instrument) to REPAY the amount borrowed.
When government issues a security, it has the same qualities.
When the GREENBACKS were issued, no debt obligations were incurred by the government – only that to fulfill the legal obligations of currency.
While all money has the quality you describe – utility of public debt settlement – your understanding of what is debt-free money is somewhat pathetic. It is ISSUED without debt.
I suggest you Google-Up the 1939 Program for Monetary Reform – an outstanding work by six prominent economists that was publicly supported by over 400 economists when it was presented.
Milton Friedman supported debt-free money. (A Program for Monetary Stability)
Your sad ignorance about money is showing, but perhaps not to the MMTers.
You NEED to learn some stuff and get off your high horse.
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joebhed says:
July 21, 2012 at 9:33 am
“who can THEN lend it out and secure the loan with any previously non-secured asset.”
No.
You really to drop what you think you know and start again
And what is this real money? Money can be either
Bank credit. This is our spending money.
Bank reserves. This is the banks and treasuries money.
Notes and coins. This is really just a token for bank credit.
All have value because of either Govt or non Govt debt backing. All are real money and have an equal value. But are just used in different circumstances.
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I really do not understand this comment.
“No. You really to drop what you think you know and start again”. Please explain.
Again, please read the 1939 Program for Monetary Reform, or Friedman’s Program or his Fiscal and Monetary Framework for Economic Stability.
I believe I provided Wray’s take on this earlier.
Bank reserves, eh?
That’s a whole other subject?
What are bank reserves?
Aren’t they only “money”?
Only cash and liquid deposits – mostly cash?
What makes them so special, please?
NOTHING.
They’re behind the curtain.
Reserves are the hoop going through your nose by which informed partisans control the issuing power of money in this country.
MMT’s inability to GET what real public money is will likely, though unnecessarily, lead to its failure.
Pity. For all their good intentions.
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Justafoolish question.
What if we were to put aside all misdirection and go for the issue?
Should private for profit banks be “euthanized” (Minsky’s word),separated (Keynes, Mises words).
is a very easy question to answer.
Private for profit banks have a valid function in a free capitalistic society when operated for a reasonable return on their capital. But it is not reasonable to ask them to do so for in their charter they are to “maximize profits for their owners.” Therein lies the rub, because in this present day they are not “free” because America has legislated that they may use the “full faith and credit” of the American people to “print and leverage” unlimited amounts of this nations currency.
As de Soto says, “it may be a quadrillion dollar problem”. We the people have legislated that if they “win” make a profit; they get to keep that reward, and if they “lose” their wagers, we the people will honor their debt without recourse or repayment as well as stupidly allow them to continue.
What is the solution?
Mises,”Make them “free”.
Take away their gov sponsered privilages of creating currency , and make them accountable to commercial and civil law-pay their own debts albeit, keep their gains.
As de Soto states, “on 100% reserve.
As for the issuance of currency as well as the control, we need a central bank (FED reserve)
which must be FOR PROFIT FOR THE PEOPLE.
Read More: “Don’t End The Fed, Amend the Fed.”
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