Topic: Representational Monetary Identity - page 3. (Read 6224 times)

I went to my bank yesterday and made a withdrawal of almost all my balance. Was that an illusion, period?

(Of course I know the bank is loaning my money and eventually I will be unable to withdraw it. However, this has not happened so far.)


If the bank loaned my money, then it forgot to subtract any such loan from my balance. If my money has indeed "moved into someone else's pocket," then the bank, for not letting me know about it by subtracting the moved money from my account balance, is defrauding me---which you said not long ago it is not doing, remember?

So it is not true all I have is an IOU. What I have is an IOU that I must take as money (since this is what my account balance is telling me).


It is not my choice to treat this IOU as money: it is the only money around. If I don't treat it as money, then I will have no money to pay for things (at least while Bitcoin does not go mainstream).


What you are failing to understand is that even if I am eventually unable to withdraw my money, I am still entitled to do so, which is precisely why fractional-reserve banking is a flawed monetary system.


One thing is my responsibility for the monetary system society adopts. In this sense, I have the responsibility to fight for a better monetary system, for me and for all. However, in the current monetary system I am not responsible for my bank's loans. This is not a matter of considering myself responsible or not: this is a formal contract between me and my bank. Whatever that contract says, my money remains mine and I can always withdraw it.

Without money, I cannot owe you anything: the object of debt is exchange value, of which the only expression is money. That is why money cannot itself be debt, except as a result of some confusion, which is precisely what happens in today's monetary system.

Are you high?

If the bank loans out your money, even though they owe you that money, you thinking you have access to that money is an illusion, no matter how you slice it, period. The $1000 you deposited are not with the bank anymore and have moved into someone else's pocket (the borrower). What you actually have with the bank is an IOU for $1000 that you hold and the bank is a counterparty to.

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.


And these are the facts, no matter what you think depositing $1000 into a demand deposit account entitles you to.


Under the current system with the FDIC and FED you have the illusion of no responsibility because you are protected by them and can count on always getting your IOU repaid which is the huge problem banking has today. But that doesn't mean you aren't actually holding an IOU when depositing into a demand deposit account and that you aren't personally responsible to pick a bank that will prudently loan out your money and keep a prudent reserve ratio. You are, read your contract with the bank, it tells you are when they tell you that under certain circumstances you wont get your money on demand.

My U$ 1.000,00 can rather belong to the bank's excess reserves. Or, I can succeed in withdrawing them if I am quicker than you and benefit from the bank's 10% reserves. And even if there are no excess reserves and I am not quick enough so the bank cannot give me my money, my U$ 1.000,00 still belong to me since it was the bank that loaned them, not me: I am not responsible for what my bank does, am I? The point is that the money created by loans must be money just as much as the money originally deposited (and in practice indistinguishable from it), otherwise the system cannot work. If you say deposit money is an illusion, then you are saying that loaned money is an illusion, and conversely.

YES. Because 90% of it was loaned out so you cannot have $1000 anymore. You only "have" $1000 because the bank is willing to take from some other depositor and give it to you.

No its not meaningless, its precisely what money is; a tradeable representation of debt, aka IOU. Money without debt is what has no meaning, and in our system, it cant even exist. Money doesnt represent anything other than someone else's debt.

Oh. Absolutely. I was thinking of the existing CBs struggling on in a bitcoin economy.

The irony is that CBs would wind up killing FRB because they would not want to backstop retail banks with real, hard-earned money! So they would raise reserve ratios from 10% to 100% so that banks could only lend out 1BTC for each 1BTC of capital. This is the inflexible ideal for banking.

Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion?

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.


What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

The point is that you regard loaned money to be just an illusion.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

For money to account for debt, it must exist independently of the debt it accounts for. Otherwise, what you have is just debt accounting for itself, which is (now truly) meaningless.

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

Unsurprisingly, I would choose to think precisely the opposite. Then, we would sort it out with a little fight. We are about to see something similar in a global scale.

Think of money as an accounting system. What is an asset on my balance sheet, could be a liability on someone else's, or an asset of a company thats owns my company. Does the asset exist 1, 2 or 3 times? Is it the same? Its a meaningless discussion. Money is fungible, and its just accounting of debt.

There is no central bank.  That's the point, decentralization.  In that aspect, Bitcoin is inflexible I suppose but that is by design.

It can't be and it isn't.

I mean of course it is the same money and the same money only, thinking about it any other way is an illusion. How can you tell? Well if all demand depositors at a bank came to withdraw their balance all at once the bank couldn't pay them back.

It's no different if you gave me some money to keep safe and I told you I'm going to loan out some of it and give you a share of the interest but because I have many clients like you I can give you back everything should you really need it - unless I can't.

And that's exactly what demand deposit contracts say. Hence why FRB isn't a fraud (something I used to believe it was until I really thought about it). The problem is that because how FRB works today, with FDIC and the FED there to repay the depositors should a bank run happen and a bank can't get enough short term loans from other banks, it leaves people under the illusion that the money they store in a demand deposit account is always in it's entirety available to be spent at any moment and this affects their behavior. They now instead of knowing that they may not have that money available to them and spend accordingly, they spend as if their balance is guaranteed whenever. This is the only reason why all the balances combined that have been created out of the same money can be counted towards an increase in the money supply - purely because people behave like it - and not because an actual increase in money supply happened.

In a market regulated strictly by consumption i.e. in a free market where there is no FDIC and FED, these risk would be much more apparent and people would spend accordingly and this illusion that they have their entire money available to them would get destroyed. Well I don't there would be no increase in the perception of how much money depositors have available but I'm certain it would orders of magnitude less than today and thus booms and buts fueled by an increase in people's illusion of how much money they have available for spending would be significantly smaller and shorter eventually leading to decent stability assuming this system would keep it's form for a long period of time.

From the text:


I disagree with Austrian monetary theory: I propose a new theory of exchange value that resembles the Marxian variety despite no longer being Marxian.

mirelo, I found this very interesting...

http://dev.economicsofbitcoin.com/mastersthesis/mastersthesis-surda-2012-11-19b.pdf