The Myth of Money as the Mere Concept of an IOU - page 3.

benjamindees

legendary

Activity: 1330

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Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

Bitcointalk: the forum of a revolutionary new cryptocurrency, where the moderators don't understand the downsides of fiat and fractional reserve, and argue that government regulation is a good thing.

I could've sworn this place was populated by relatively intelligent people at one point, but that memory is getting pretty fuzzy.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 21, 2013, 11:18:08 PM

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured, it only works psychologically. Of course the banks can always print more money to reduce the risk, but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

Suppose that fiat money start to lose its purchase power 20% per year, and people start to withdraw all their savings to purchase value holding assets like gold and bitcoin, what can FDIC help?

Banks being too big to fail is one step in the direction of their being too big to give you money back, but even if you do get it back (less taxes), don't worry as it will not have all the buying power it had when you deposited it: no matter what, you lose ownership of at least part of your money (less taxes).

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

Also,

Quote from: mirelo on September 20, 2013, 03:30:57 PM

For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner

No, that's not true. In this case, the bank has a IOU to the depositor, and the lender has a IOU to the bank. The money belongs to one person only: the lender. The bank has a fraction of the deposits in cash for customer withdraws, hence why the bank can also fulfill the depositor's withdraw request at any time (to an extent).

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

Why would I need all that, if I am asking you not just to trust your money to me, but rather to give its ownership to me? Do you know the meaning of the word "ownership"? If you don't: it means your being the owner of something. I am asking you to give me your money for good since you told me you wouldn't mind losing its ownership.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 21, 2013, 03:43:09 PM

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

I'd rather believe it is unawareness of how bank operates instead of "accepting the risk in exchange for convenience". 1% of insurance capital means only 1% of depositors are insured, it only works psychologically. Of course the banks can always print more money to reduce the risk, but then the question become: Why exchange your work for some paper that can be printed at will (to save the banks)? When people start to understand how fiat money works and lose their trust in fiat money, the risk of a systematic failure is very high, none of the insurance can cover

Suppose that fiat money start to lose its purchase power 20% per year, and people start to withdraw all their savings to purchase value holding assets like gold and bitcoin, what can FDIC help?

grue

legendary

Activity: 2058

Merit: 1431

Quote from: johnyj on September 21, 2013, 02:37:17 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

Also,

Quote from: mirelo on September 20, 2013, 03:30:57 PM

For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner

No, that's not true. In this case, the bank has a IOU to the depositor, and the lender has a IOU to the bank. The money belongs to one person only: the lender. The bank has a fraction of the deposits in cash for customer withdraws, hence why the bank can also fulfill the depositor's withdraw request at any time (to an extent).

Quote from: mirelo on September 21, 2013, 12:30:56 PM

Quote from: grue on September 21, 2013, 11:20:19 AM

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

you don't have deposit insurance
you can't give me my money at moment's notice
i don't know or trust you
you are not bound by any government regulation or audits

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 21, 2013, 11:20:19 AM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Deposit_Insurance_Fund

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 21, 2013, 11:20:19 AM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

grue

legendary

Activity: 2058

Merit: 1431

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: Adrian-x on September 21, 2013, 12:46:17 AM

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

It is much worse than that: inflated debt in this case is identical to inflated exchange value, so what you are getting here is a partially false monetary value. You may be lucky and get your promise, but many will not.

Adrian-x

legendary

Activity: 1372

Merit: 1000

Quote from: mirelo on September 20, 2013, 10:54:34 PM

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

Bang on.

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 11:38:40 PM

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

Commercial banks do not have the right to create money, they can only borrow money from central bank. Central bank is the lender of the last resort, they can't borrow from anyone else, they must create money

http://en.wikipedia.org/wiki/Money_creation

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 11:32:38 PM

Quote from: mirelo on September 20, 2013, 11:09:35 PM

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 11:09:35 PM

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 10:53:13 PM

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: mirelo on September 20, 2013, 10:47:06 PM

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

mirelo

sr. member

Activity: 242

Merit: 250

Quote from: johnyj on September 20, 2013, 10:39:51 PM

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

Quote from: grue on September 20, 2013, 10:36:16 PM

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

Just like FRB, IOU is checkbook money, not real money, it is just an accounting term, same money can be counted multiple times, thus create a illusion of lots of money, when in reality the real money is much less

johnyj

legendary

Activity: 1988

Merit: 1012

Beyond Imagination

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

grue

legendary

Activity: 2058

Merit: 1431

Quote from: mirelo on September 20, 2013, 10:32:21 PM

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

Topic: The Myth of Money as the Mere Concept of an IOU - page 3. (Read 5132 times)