The Myth of Money as the Mere Concept of an IOU

johnyj

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Beyond Imagination

Quote from: mirelo on September 24, 2013, 08:37:07 PM

Quote from: herzmeister on September 24, 2013, 04:54:52 PM

Quote from: murraypaul on September 24, 2013, 11:01:52 AM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

Oil does not "back" the dollar: instead, by requiring oil buying with dollars, the US forces countries to use the dollar. It is rather a form of blackmail: either you use the dollar or will end up without oil.

Power companies should advocate that all the electricity bill to be paid with bitcoin Grin

mirelo

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Quote from: herzmeister on September 24, 2013, 04:54:52 PM

Quote from: murraypaul on September 24, 2013, 11:01:52 AM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

Oil does not "back" the dollar: instead, by requiring oil buying with dollars, the US forces countries to use the dollar. It is rather a form of blackmail: either you use the dollar or will end up without oil.

mirelo

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Quote from: johnyj on September 24, 2013, 05:45:17 PM

Quote from: mirelo on September 24, 2013, 12:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

In our present monetary system the money supply constantly expands.

Quote from: johnyj on September 24, 2013, 05:45:17 PM

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

On the contrary: money that circulates faster loses in value.

Adrian-x

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Quote from: johnyj on September 24, 2013, 05:45:17 PM

Quote from: mirelo on September 24, 2013, 12:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

In FRB a run on a bank is the moment you realise there is more money in circulation than there is.
The purpose of a Central Bank is to be the lender of last resort, in order to prevent a liquidity problem created by a run on the bank. As long as the money velocity is high no one will notice.

There should be no doubt that Banks increase the money supply, the 10-1 FR ratio is the legal limit because it can be managed effectively.

johnyj

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Activity: 1988

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Beyond Imagination

Quote from: mirelo on September 24, 2013, 12:55:17 PM

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

At any given specific time, the money in circulation is always the same, but if you add all those income and spending together through a year, it will be a large number, but that large number only tells how many times the money has been turned over

Spend the same money 10 times won't make people 10 times more rich, just make them 10 times more busy Cheesy

herzmeister

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Quote from: murraypaul on September 24, 2013, 11:01:52 AM

The dollar is not asset backed.

one word: Petro-Dollar Tongue

mirelo

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Quote from: johnyj on September 24, 2013, 10:35:48 AM

Banks always try to disguise the truth with FRB, in fact FRB has nothing to do with money supply, it is just an accounting term (checkbook money), it is the same money deposited again and again and be counted again and again (M1). FRB created lots of fictive deposits that in fact does not exist

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

So if we have ten trillion dollars in circulation instead of just one (trillion - or even dollar), everything else remaining the same, one dollar will still have the same buying power? Then answer me: from where will come the additional nine trillion dollars in merchandise for sale? Does it get magically created along with the money?

murraypaul

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Quote from: johnyj on September 24, 2013, 10:35:48 AM

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

The dollar is not asset backed.
Even if it were asset backed, the assets would have stayed the same, and more dollars would exist, so each dollar would be worth less. That is what inflation is.
QE == increasing total money supply == reducing value of each unit of money == inflation

johnyj

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Activity: 1988

Merit: 1012

Beyond Imagination

Banks always try to disguise the truth with FRB, in fact FRB has nothing to do with money supply, it is just an accounting term (checkbook money), it is the same money deposited again and again and be counted again and again (M1). FRB created lots of fictive deposits that in fact does not exist

FRB won't affect the money's value. The money's value is decided by the value that backed it when the money is issued. So in principle the money's value is still stable even after QE, since all the new money issued by FED are based on the value of assets they hold, and those assets were all valued at a stable price

Someday when those assets get consumed or discarded, then the corresponding issued money will lose their value, that is inflation. Since money almost never get consumed but the underlying assets do, the inflation is a constant pressure, it means the goods for trade must be continuously produced to counter this effect

mirelo

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Quote from: murraypaul on September 24, 2013, 05:36:51 AM

Quote from: mirelo on September 24, 2013, 05:32:18 AM

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then it value increases in $100.00. It is not the trust itself, but rather the trusted value: before people can trust any value, there must be a value to trust.

With many securities, and money, the ideal value is fixed.
A $10 dollar note is worth a fixed amount of $10 dollars, if it is redeemed.
What changes is peoples' trust that the security will be redeemed for that fixed value.
As the risk of default increases, the value people are prepared to pay decreases, and that is because they have less trust in the issuer than they did before.
You can see this with company bonds and government debts, they each trade a different discount to face value, because of the different level of trust people have that they will be redeemed, and not defaulted on.
Trust (risk of default) determines the price that a fixed-value asset trades at.

You must tell people behind the CPI they are wasting their time in measuring inflation as the "ideal value" of money "is fixed." Why bother with the buying power of $10.00? It is just... $10.00! We can all stop filling our tanks with gas and start filling them with dollars!

murraypaul

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Quote from: mirelo on September 24, 2013, 05:32:18 AM

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then it value increases in $100.00. It is not the trust itself, but rather the trusted value: before people can trust any value, there must be a value to trust.

With many securities, and money, the ideal value is fixed.
A $10 dollar note is worth a fixed amount of $10 dollars, if it is redeemed.
What changes is peoples' trust that the security will be redeemed for that fixed value.
As the risk of default increases, the value people are prepared to pay decreases, and that is because they have less trust in the issuer than they did before.
You can see this with company bonds and government debts, they each trade a different discount to face value, because of the different level of trust people have that they will be redeemed, and not defaulted on.
Trust (risk of default) determines the price that a fixed-value asset trades at.

mirelo

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Quote from: murraypaul on September 23, 2013, 02:47:55 PM

Quote from: mirelo on September 23, 2013, 01:32:56 PM

Quote from: murraypaul on September 23, 2013, 01:21:07 PM

Quote from: mirelo on September 23, 2013, 12:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

I didn't say anything about trusting each other.
It is about both trusting the money itself, which means trusting the IOU issuer.
And yes, when that trust increases or decreases, the value of money (relative to other currencies) does change.

It is not the intensity of trusting that increases or decreases, but rather the object of that trust: it is the value most people trust that increases or decreases. No matter how intensely people trust that gold is worth $1,400.00, this does not increase its value in a cent. However, if most people trust gold is worth $1,500.00 rather than $1,400.00, then its value increases in $100.00. It is not the trust itself that changes, but rather the trusted value.

Adrian-x

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And then I thought string theory was complicated to reconcile with reality.

murraypaul

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Quote from: mirelo on September 23, 2013, 01:32:56 PM

Quote from: murraypaul on September 23, 2013, 01:21:07 PM

Quote from: mirelo on September 23, 2013, 12:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

I didn't say anything about trusting each other.
It is about both trusting the money itself, which means trusting the IOU issuer.
And yes, when that trust increases or decreases, the value of money (relative to other currencies) does change.

murraypaul

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Quote from: mirelo on September 23, 2013, 01:56:48 PM

He's talking about how money devaluation over time affects chains of transactions: even if the money received for selling something were then worth it, what matters is how much it will be worth when it buys something else. During that time, the money supply will expand, transferring the resulting devaluation amount to whoever controls its emission.

Which over the time period of a standard retail transaction is irrelevant.
At the time of purchase, we both agree that X amount of money is fair value for the goods.
We both have the same information available, so those effects should be priced in on both sides.

mirelo

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Quote from: murraypaul on September 23, 2013, 01:19:40 PM

Quote from: Adrian-x on September 23, 2013, 12:56:24 PM

Quote from: murraypaul on September 23, 2013, 11:48:05 AM

Quote from: mirelo on September 23, 2013, 11:14:48 AM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

He's talking about how money devaluation over time affects chains of transactions: even if the money received for selling something were then worth it, what matters is how much it will be worth when it buys something else. During that time, the money supply will expand, transferring the resulting devaluation amount to whoever controls its emission.

Adrian-x

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Quote from: murraypaul on September 23, 2013, 01:19:40 PM

Quote from: Adrian-x on September 23, 2013, 12:56:24 PM

Quote from: murraypaul on September 23, 2013, 11:48:05 AM

Quote from: mirelo on September 23, 2013, 11:14:48 AM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

I'm implying the money used as a medium of exchange is in general use in the economy.

It just so happens when a transaction occur it typically involves agreeing on a price, then delivering the goods, and then paying for the goods.

This, even affects micro transactions you make in a supermarket, you have the goods before the supermarket pays the vender.
You don't need to interact with the CB, you just need a time delay between both sides of the transaction using Fiat backed by IOU's.

mirelo

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Quote from: murraypaul on September 23, 2013, 01:21:07 PM

Quote from: mirelo on September 23, 2013, 12:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

My opening post is not a mere assertion: it is a reasoning, so it is not enough for you to contradict it with a mere assertion: you must say on exactly which point of that reasoning you see a flaw and why.

Regarding your "trust" argument (https://bitcointalksearch.org/topic/m.3203857):

Quote

[...] Likewise, although we must trust each other to buy from and sell to each other, the exchange value of our commodities and money does not come from our trusting each other (otherwise, the more we trusted each other, the more valuable our commodities and money would become).

murraypaul

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Activity: 476

Merit: 250

Quote from: mirelo on September 23, 2013, 12:44:58 PM

Money has not always been dollars, pounds, euros, or yen, and even in those forms it is not just an IOU: it is rather both practically and conceptually mistaken by an IOU. Please (re)read the post opening this thread.

I disagree with your opening post.
Money is a generalised unit of barter, backed by a central authority.
Remove the trust in the unit of barter, money loses value.

murraypaul

sr. member

Activity: 476

Merit: 250

Quote from: Adrian-x on September 23, 2013, 12:56:24 PM

Quote from: murraypaul on September 23, 2013, 11:48:05 AM

Quote from: mirelo on September 23, 2013, 11:14:48 AM

If you do not understand the difference between monetary exchange and barter, then it will be very hard for you to understand that between money and an IOU.

I don't think there is any difference between money (dollars, pounds, euros, yen) and an IOU.
It is just an IOU issued by a very trusted institution.
As such it functions as a general unit of value transfer, because it is worth the same to both sides of the transaction.

That is what we all think and how we all act, but there unit used (dollars, pounds, euros, yen) to transfer value change over time so it isn't the same to both sides of the transaction. The value of the unit is manipulated by FRB and the Central Bank.

Unless you are buying or selling goods to the central bank, they aren't on either side of the transction, so your comment is unconnected to what I said.

Topic: The Myth of Money as the Mere Concept of an IOU (Read 5153 times)