Topic: Real money vs debt, and the value of bitcoin. (Mitchell-Innes credit theory) (Read 7058 times)

Banks get their money from the FED, not from each other (lately, they started leaving it there since the FED now pays them above-market interest in return).


The FED will not "suddenly get the ownership of a large amount of money": when it finally chooses to sell those assets, there will be nobody to buy them (there isn't already, which is precisely why it is buying tens of billions in assets every month).

Actually to avoid bank run, banks already borrow from each other in financial crisis, that LIBOR rate is their lifeline. So it seems they have already made the system quite robust, almost no flaw

The only flaw I can think of is the money creation moment when FED suddenly get the ownership of a large amount of money. And since FED is owned by a group of regional reserve banks, all the member banks get dividend based on the value of their share, which is decided by the FED's asset

Banks usually try to confuse people by saying that they are creating money through multiplier effect, but that refers to multiple times of loaning of a part of the same money (first time $90, and then $81, and then $72.9... ), and they add these number together and call it M1. This way of calculation is very absurd: Does taking a $100 note in and out of bank 10,000 times make you a millionare? It is still a $100 note! So M1 is just a measure of circulation speed of money, not the amount of money supply

All of those $100, $90, $81 when they were deposited into bank become some checkbook numbers. After the original deposit has been loaned out, these numbers can not be loaned out again, can not be withdrew, do not have payment function, but they are counted as part of M1

Base money is that $100 note, it is the only money in circulation, not checkbook money, must be created before all the above scheme start to roll out

The monetary base consists in both circulating and reserve money: the part not circulating is called reserves. It is precisely the monetary base that is today 97% checkbook money.


Again, 97% of the world's money is "just numbers," which we certainly do use every day. As you correctly said, when a commercial bank makes a loan it does not withdraw the corresponding amount from the source account, hence duplicating that money. This is known as the "multiplier effect," by which commercial banks "multiply" the reserves provided by the central bank. Today, bank money is entirely checkbook money as either it consists in or derives from reserves coming from a central bank's checkbook.


The end of physical money is not the end of cash: Bitcoin is digital cash.

Banks already made their own money 100% digital. What they want is not make all money digital but rather eliminate any form of money other than theirs. This is what they mean when they talk about money going 100% digital. This would eliminate bank runs for the simple reason that you would never be able to withdraw your money from the banking system: some bank would always have it. Then, banks could finally "multiply" money without worrying about bank runs. If that excites you, well...

Not every invention by Hinkel was bad. That's not an argument. All in all, a collectivist system is growing rampant per se and destructing the planet.


It is a tool to pay taxes (protection money) to the state mafia. To organize division of labor is a subordinated function.


Bitcoin is a liquid asset. No state - no need for liquid assets.

Only the base money is circulating, all the checkbook money can not circulate. Banks loan out the same base money again and again, every time they do it, they keep some checkbook money

For example, a customer deposited $100 to a bank. And then bank loaned out $90 from customer's deposit, after this loan, the customer's deposit should shrink by $90 (they were loaned out, bank A don't have it anymore), but bank A never do that. So on their check book customer's deposit remains unchanged, but in reality it is reduced by $90, so these $90 of checkbook money are just numbers, banks do not have them, and they can't use them either

Your word about dream of bankers is quite interesting, I happened read an article today on local newspaper about a cashless society, I'm going to draw some accounts and see what is the consequence of that. If banks can really avoid bank runs with this approach, people's trust with fiat money will be strengthened, then I suppose that every ambitious guy will try to become FED and start to loan money to the government (What FED is doing does not have any technical content, anyone can do it)

I will respond you despite your offensive tone.

My point is precisely the opposite: neither the division of labor nor the resulting need for exchanging the products of labor depend on the state. It is you that are holding the opposite view, despite yourself calling it "sociopathic."


It is not even clear precisely what you are calling a "false dichotomy."


My uncle bought my old monitor, does that qualify?


Primitive forms of money are salt, grains, etc, not coins. You are ignoring thousands of years of economic development.


Money does not originate directly from the division of labor: it originates from the problems posed by direct commodity exchange, which in turn originates from the division of labor.


Did Mr. Graeber manage to generalize exchange without using money?


Again, my point is that neither the division of labor nor the resulting exchange of labor products, whether monetary or not, depend on the state. It is you that are holding the opposite view.


If you refer to the idea that money depends on the state - which is usually not a libertarian view - then again: I hold precisely the opposite view (namely, that money does not depend on the state).

According to your definition, 97% of all money circulating in the world today is just "checkbook money": central banks have no bank account from which to withdraw the money they loan to the government: just a (virtual) checkbook. This money becomes in turn the reserves for commercial banks to loan the majority of the world's money into existence. Additionally, only 3% of all money today exists in physical form - and shrinking. The dream of bankers, whether central or commercial, is to make all money digital to eliminate any risk of bank runs. Then, 100% of the world's money would be just "checkbook money."


As I just told you, in the context of economics, today "debt" is usually a synonym for monetary debt.


The government only sells bonds to the central bank when the market is no longer willing to buy them. This is precisely because the central bank does not require them to be valuable since it can buy them as you put it, "freely."

This is a very mechanical and sociopathic view on humans. Probably you've read too much Hoppe or Ayn Rand. Humans are not machines. They also have the capability to share things without involvement of a state. That is why it is a false dichotomy, very clearly. Or do you use currency in your own family to trade tit-for-tat? Similarly, ancient societies consisted of tribes, i.e. extended families. That's why the step to minted coinage is not as straightforward as you believe it to be. Still, they also had "division of labor" to some degree nevertheless. For larger tribes they were some kind of reputation systems in place, if you read anthropologists like Professor (and anarchist) David Graeber, who dispels many myths like Adam Smith's thought experiment (nothing else it was) about the origin of money from barter.

At larger scale, things surely get more complex, but I mentioned that myself. Even then there are other approaches without requiring a state. Again, you should watch the linked documentaries to broaden your horizon, just a little. You have this reductionist view that is too typical for US Libertarians, it already has become a cliché.

Sorry, but you are not addressing my point: it is not enough just to declare it is a "false dichotomy" - you have to show precisely why. Here is my point again:


To justify your disagreement, you must show precisely where my reasoning went wrong.

Or pearls, or rhino horns, or seashells.
There is nothing magical about gold.
Money, as you said, is whatever society decides to accept as a general medium of barter, and assign to it value greater than its intrinsic, commodity, value.
But everything that has value isn't money, it has to be generally accepted as such by society, or by a particular sub-group.
In prisons, for example, cigarettes might function as money.

Gold becomes money when society decides to use it as money, just like with silver or any other form of money.

FRB is usually the first thing people know when it comes money creation, but after many years research, I can be sure that it has nothing to do with money creation, it is just a term of accounting (same money recorded on the checkbook multiple times). The money creation I'm talking about is the base money, not checkbook money

Banks indeed create more checkbook money when doing the lending, and those checkbook money will disappear when the loan is paid back. That's the reason they did not really create money, they just created a checkbook entry. If you want to withdraw all of those checkbook money, you will find out that the maximum amount that you can withdraw will never be higher than the amount of base money


Have you heard about this: "The debt that can not be paid with money is debt of gratitude"  


Bond is a promise of payment in the future, of course the government don't have something valuable now, but that promise also has value, thus bonds are traded like any other securities freely on the market

Gold doesn't become money, it stays as gold.
Just as silver stays as silver, pearls stay as pearls and rhino horn stay as rhino horns.
They may have value, but they are still commodities.
Otherwise, what is your definition of money, if it isn't 'anything that has value'?

False dichotomy.

Watch this docu: Living Utopia (The Anarchists & The Spanish Revolution)

Or, for a more modern example of syndicalism, this one: The Mondragon Experiment - Corporate Cooperativism (1980) FULL

I've said it many times, the issue is not about trading ("capitalism") vs sharing ("socialism"). It is about scale. People need to feel in control of their own affairs again, and that works best on a local level (which can also be virtual in the age of the internet).

Once labor gets divided among people, they are no longer individually self-sufficient. Then, as each one owns that one's product, there is the need of exchanging the social product among them. That's where money comes from: it makes that exchange always possible. The alternative is to have the state controlling social production and distributing social product, which is precisely what you don't want.

Maybe you think the creation of money by the FED is the only form of money creation?


My point is that although debt and money are fundamentally different, they are the same in the fractional-reserve and central banking monetary system (please read this thread from the beginning).


The term "debt" means a monetary debt when the debtor owes an exchange value, or does not, when the debtor owes a merely concrete object lacking an independent expression of its exchange value. In your example, after destroying someone else's property, if I owe the exchange value of what I destroyed, then this is a monetary debt. Otherwise, if I owe the merely concrete objectivity of something identical to what I destroyed, then this is not a monetary debt. In the context of economics, "debt" usually means a monetary debt.


Bonds are an instrument of debt: if the government already had something valuable, then it would have no need of going into debt.


The money that returns to the FED ceases to exist, just like a loan repaid to a commercial bank.


Both the FED and the government appropriate value in exchange for nothing valuable.

you could argue though that self-sufficiency doesn't scale.

Or that top-down structures and hierarchies in human history had an evolutionary advantage after all.

People do like exotic goods after all which the kings and rulers indirectly provided when they issued currency which enabled trade along the (ancient) Silk Road.

So, not every invention by kings and rulers was bad. Some satisfied real demand. Money seems to belong into this category. Money is a tool to organize division of labor on a grand scale. Recognizing that fact, Bitcoin may be the first currency not issued by an authority, and the first without force behind it (to the gold bugs: no, gold was never free, was always mined on territory of rulers and thus initially belonged to them).

As I said already: Money is debt and has never ever been something different. The first debt is the tax and all other money (debt) arises as a derivative of this first debt, the tax.
Never ever any money (debt) came into existence in a free territory beyond the state. Nobody needs money there, because they are not taxed. They are self-sufficient.

Now I understand where is your way of thinking coming from, it is this "loaning and creating money at the same time". Maybe you also think that without that debt, the money can not be created?

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

Same, you destroyed something valuable, you have a debt to the owner, but you don't necessary need to pay him money, you can work for him to clear your debt. Debt simply means value to be paid in future, it is not necessary to have relation with money

Back to the topic, it does not matter if loaning and creating money happened at the same time or one after another, the result is the same. Have a look at the situation before and after the money creation:

Before:
Government have government bonds. FED has nothing.

(The issuering of government bond is the responsibility of treasury. It has nothing to do with FED. In fact the previous picture indicated that FED only holds 10% of total government bond)

After:
Government have money. FED has bond

So, before and after the money creation, the Government's net worth do not change, they just changed from holding the bond to holding equal value of money. But FED's net worth changed from 0 to the value of those bonds

And at a later time, FED could sell the bonds to get money back (tightening), but then the money they get back will become their asset

So, during this strange money creation process, FED get a boost in net worth without doing anything