How the banks create money

[MarkyX]

First off, if banks followed exactly the same rules of accounting as any other business, then any old business should be able to operate as a bank and make "loans" in the same way a bank does

Commercial Paper

 

[tensordyne]

I think it was King Edward (the King Edward who was the son of King William the Conqueror) who started two practices that I like very much. He made a statement of what powers he had and did not have, thus leading to the more general idea of limited government as well as the Magna Carta. The other idea he instituted was tally sticks, which is a great example of debt free money that the banksters dislike so much because it makes us not slaves to them.

Now, as for nice and anything positive about the Monarchy in England, or elsewhere, have done, I am sorry if it upsets anyone, but it is like in that retarded movie 400, "We are Spartans!" [funny thing is, Sparta hated democracy the most of the Greek City States, but I like the emotive power of it, and yeah, replace Sparta with USA, or any other country that has a constitution and no hereditary titles]. Monarchies the world over have been involved in all sorts of evils. I do not like religion, so making anything in government consecrated with religion, I have a problem with. The current Queen of England is connected with Eugenics, and I will not even go into the connection with the Nazi's and the house of Coburg-Gotha (aka the Windsors). The UK connects its identity with the Royals, but it is just as possible to have a national identity associated with many other things, like reason, compassion, etc.

Most people in the UK right now, from what I understand, are Atheists, and yet in that country we have faith-based schools and people thinking it is a good idea to continue the class system with a million cameras everywhere (Now add precrime as the arrest of Veitch shows!). Glad they got rid of the House of Lords. Mostly though, if people across the world think it is a good idea to leave a remnant of a much more beastly time around, which costs hundreds of millions of dollars a year conservatively, and always has the possibility of becoming much more than titular (although I have heard the good Queen has disolved a number of Parliaments in England and other places which makes her more then titular), I am mostly pissed off about the actions of people in my own country.

Obama bowing to the Queen of England, the Emporer of Japan, etc. The news media in my country covering the recent wedding in such gushing terms, instead of just flatly saying a new royal wedding occured. It is disgraceful. As a citizen of the USA I do not have to bow to anyone, and nor will I (conversely, I do not want anyone bowing to me either). If the only way for the Pres. to meet the Queen is to bow and scrape, then he should only meet "commoners" he does not have to treat with deference, to do the nation's business. Same with the Pope, and so on. (I refuse to call Ministers "Father", "Reverend", etc. too, but that is another topic in a way).

OK, I think you get the picture. Read "Common Sense" if you want a good essay on why it is ridiculous to have a Monarchy. I will read the link you gave because I highly believe in reading material presented by others when given.

Thanks for thanking me, but I must say, in a real way, I am just reiterating what I have heard from various sources that I have concluded make some kind of sense. I would be happy to start a thread on various monetary alternatives. If anything, I hope that the most basic message I hope to get across is that many people on the forum make claims about money without anything like evidence.

I think I should start a forum on a real hero of mine, Henry George, the only Economist I have read that made perfect sense to me (Michael Hudson also always makes sense to me and lives in modern times but I have only seen him in videos).

Finally, I may sound prickly -- oh well -- long live the rebelion against unacountable power and slavery in all its forms!

 

[tensordyne]

what is it, and how does it work?

Commercial Paper

I have to say MarkyX, I think you are one of the more well-informed people on this forum. It is interesting that you bring up commercial paper. In some dim part of my mind I think I knew of the name before you brought it up, but on the other hand, until I read up some about it on Wikipedia, I had no idea what it really was.

Now that I have reviewed that source of information, it seems to me that commercial paper acts like an unsecured bond, in essence. If that is the case, then it would seem that such a practice is not like the practice in FRB of creating and destroying money with some interest left over that never gets created (or destroyed) but is still contractually owed. From this I would think that the assertion in the quote is still valid for the moment, unless I have missed something, which is entirely possible.

I remember reading somewhere that during the 1920's big industry in the US found a way to make a parallel banking system for themselves (maybe using commercial paper?) until the Eastcoast banks got wind of it and changed some laws or something.

That is about all I know on this topic. Thank you very much for bringing up commercial paper, but could you go into more detail about what your thinking was on why you brought it up? I am curious to know.

 

[MarkyX]

I have to say MarkyX, I think you are one of the more well-informed people on this forum. It is interesting that you bring up commercial paper. In some dim part of my mind I think I knew of the name before you brought it up, but on the other hand, until I read up some about it on Wikipedia, I had no idea what it really was.

Thanks. It seems my financial services education is somewhat useful. I don't consider myself an expert though, because I'm really just preaching the basics here.

That is about all I know on this topic. Thank you very much for bringing up commercial paper, but could you go into more detail about what your thinking was on why you brought it up? I am curious to know.

You mentioned that only banks can give out loans, or at least given that impression. This is incorrect. Any corporation can give out a loan to another corporation. The problem is, unless the corporation is a bank, they have two disadvantages against them.

1) They cannot use Fractional Reserve Ratio. This is exclusive to the banks

2) Banks are experts at giving out loans. They have highly educated individuals, such as credit officers, who can evaluate on a client and can determine their credit worthiness. Banks also have a centralized automated process as well, mainly with their IT infrastructure. McDonalds doesn't have that type of educated workforce or IT to make safe loans to other corporations unless they get a completely new department, or outsource the loan process.

You also need to remember that commercial papers are NOT backed up by any assets whatsoever. They are backed up by the company's "credit worth"

This means several things. First and foremost, the risk is higher, therefore the rate of return needs to be higher to accommodate that risk. Because commercial papers are essentially bonds, this means the rate of return is the interest rate.

Secondly, the person who is taking the debt needs to high a decent credit rating, otherwise they might be deemed too risky. In other words, anyone within the BBB rating or below is far less likely to be given a commercial paper than a company with an A rating. In fact, constantly writing commercial papers lowers your credit rating.

There is another variant of this commercial paper, which is called a Banker's Acceptance. Sold as a discount and matures at 100, this is a type of loan investment that is given by a non-financial firm but it is guaranteed by the bank in case the firm defaults. Due to less risk involved, the rate of return is smaller.

The other key thing about the commericial papers and banker's acceptance is that they are short term. The reason being is because no corporation is going to give out a loan to another corporation for long periods of time due to high amount of risk. Corporations are designed to make money, and there is very little interest ( sorry ) on giving out loans when that money can be used to expand the firm and increase net profits.

Basically, it all boils down to "why get into a business that we have no business getting into?" Let McDonalds handle the fast food business and let J.P Morgan handle the loaning business.

 

[tensordyne]

Oh, I see. I definitely did not want to give even the impression that Corporations or other businesses can not give or take loans, just that they can not (unless they are a bank) make fractional reserve based loans, which I think we both agree on.

I do not like the term "loan" when it comes to FRB, since such transactions do not act like how people conventionally think of loans acting, in that a loan lessens the amount the creditor has to begin with. A new word needs to be used, like "shelling", or something.

Crash J. P. Morgan, buy Silver!

Banker: The government should get out of the banking business.
Greenbacker: Nonsense, the banks should get out of the governing business!

 

[MarkyX]

Oh, I see. I definitely did not want to give even the impression that Corporations or other businesses can not give or take loans, just that they can not (unless they are a bank) make fractional reserve based loans, which I think we both agree on.

Technically they can, but via a loophole.

A corporation can simply create a subsidy that is a bank. So if McDonalds wanted to do the banking business, they can create a separate company that would be a bank which can take advantage of the Fractional Reserve System.

But since this is still very risky, since the banks that remain today have veteran experience on the field and a skilled management that can handle the obstacles in their way. These subsidies would be new meat in the market and would suffer greatly from business risk.

 

[psionl0]

They cannot use Fractional Reserve Ratio. This is exclusive to the banks.

If by that you mean that non-bank businesses are not constrained by the reserve ratio then you are correct. Banks take deposits of other people's money and have to keep a fraction of it on hand to meet the daily withdrawal demands. Other business don't have to deal with sudden demands for cash payouts by depositors and (in theory) could issue commercial paper or other promissory notes without having a cent of cash on them.

However, if you are suggesting that businesses that issue commercial paper are not creating money then you need to think again. In the first instance, a business that issues a commercial paper has paid for something without the money coming from anybody else. So the commercial paper is money (which will be destroyed once the business redeems it). Depending on the relevant laws, promissory notes (as with cheques) can be made payable to the order of the payee. IE they can be used as negotiable instruments just like notes and coins.

Finally, if a commercial paper can be discounted (cashed) at a bank then the bank is accepting "promissory notes in exchange for credits to the borrowers' transaction accounts."

 

[tensordyne]

Well, I may very well stand corrected, which is fine by me. I still do not completely get this commercial paper thing. Is it just like a company IOU in lieu of payment in some other form, or is something else going on? Who are the players when commercial paper is used? Obviously the corp giving the paper is one of the players, but what about the entities taking the paper?

Interesting topic though. I like that the quote from the Modern Money Mechanics in my signature was used. All right, peace to you all.

 

[psionl0]

I thought MarkyX gave a pretty good explanation of commercial paper but you can find more information at http://en.wikipedia.org/wiki/Commercial_paper.

 

[webb5]

I think it was King Edward (the King Edward who was the son of King William the Conqueror King Edward was not the son of King William) who started two practices that I like very much. He made a statement of what powers he had and did not have, thus leading to the more general idea of limited government as well as the Magna Carta. The other idea he instituted was tally sticks, which is a great example of debt free money that the banksters dislike so much because it makes us not slaves to them.

Now, as for nice and anything positive about the Monarchy in England, or elsewhere, have done, I am sorry if it upsets anyone, but it is like in that retarded movie 400, "We are Spartans!" [funny thing is, Sparta hated democracy the most of the Greek City States, but I like the emotive power of it, and yeah, replace Sparta with USA, or any other country that has a constitution and no hereditary titles]. Monarchies the world over have been involved in all sorts of evils. I agree I do not like religion, so making anything in government consecrated with religion, I have a problem with. I only have problems with religish extremists The current Queen of England is connected with Eugenics, and I will not even go into the connection with the Nazi's and the house of Coburg-Gotha You just did and I have problems with this (aka the Windsors). The UK connects its identity with the Royals, but it is just as possible to have a national identity associated with many other things, like reason, compassion, etc.

Most people in the UK right now, from what I understand, are Atheists I would argue over this it depends where you get the stats from. One survey suggests that 72 % are Christian. Others say that the majority of people pray and believe in God even if the don’t go to church., and yet in that country we have faith-based schools and people thinking it is a good idea to continue the class system with a million cameras everywhere (Now add precrime as the arrest of Veitch shows!). Glad they got rid of the House of Lords. When did this happen! If you are talking about Britain then this is incorrect Britain Mostly though, if people across the world think it is a good idea to leave a remnant of a much more beastly time around, which costs hundreds of millions of dollars a year conservatively, The money brought in from tourism more than covers the costs of the Royal family, they also pay taxes … always has the possibility of becoming much more than titular (although I have heard the good Queen has disolved a number of Parliaments in England and other places which makes her more then titular), Elected leaders can be idiots, Obama is an example. The monarchy gets a good education. Elected leaders are more likely to be corrupted. And elected leaders can still become dictators, Hitler is an example. The governments control the power of the monarchy, and the monarchy control the power of the government, therefore, stopping dictators. I am mostly pissed off about the actions of people in my own country.

Obama bowing to the Queen of England, the Emporer of Japan, etc. The news media in my country covering the recent wedding in such gushing terms, instead of just flatly saying a new royal wedding occured. It is disgraceful. As a citizen of the USA I do not have to bow to anyone, and nor will I (conversely, I do not want anyone bowing to me either). If the only way for the Pres. to meet the Queen is to bow and scrape, then he should only meet "commoners" he does not have to treat with deference, to do the nation's business. Same with the Pope, and so on. (I refuse to call Ministers "Father", "Reverend", etc. too, but that is another topic in a way). They are doing this with respect for the Queen. There is no law that forces anyone to do this. It is old tradition, just as you will clap your hands to show your appreciation to people who entertain you or even to a speech that you very much agree with.

How deep do you want to go down the rabbit hole? I can say at the very least that the Monarchy contitution was put in place to limit the powers of the Monarchs as well as the powers of government against the people. It also protected the rights of the people. The most stable countries in the world are constitutional Monarchies, where the Monarch is aloof from politics.

We could go further but I think this forum is about banking.

 

[tensordyne]

King Henry I was fourth son of King William I and instituted the reforms I mentioned (source: Wikipedia). Thanks for the correction.

I have a problem with the fact that not every nation on the Planet does not have seperation of Church and State.

"In the event that I am reincarnated, I would like to return as a deadly virus, in order to contribute something to solve overpopulation." -- Prince Phillips.

As for the Nazi links with the current Queen, I do not have to say much because it is all pretty well documented elsewhere.

Another correction: the population is 82% Christian with Islam being the next highest at 2.2% (source: Wolfram Alpha). I guess the articles I read about Churches across Europe closing due to low attendence might be overstated. Too bad really.

When did which happen? The arrest of Charlie Veitch or the closing of the House of Lords?

According to a wikipedia article on "the Lords": "The Labour Government introduced legislation to expel all hereditary peers from the Upper House as a first step in Lords reform. As a part of a compromise, however, it agreed to permit 92 hereditary peers to remain until the reforms were complete. Thus all but 92 hereditary peers were expelled under the House of Lords Act 1999 (see below for its provisions), making the House of Lords predominantly an appointed house."

That is too bad, better to get rid of the lot of them. I guess they at least got rid of the Anglican Bishop Lords (?). Charlie Veitch was arrested before the Royal Wedding on Conspiracy to Cause a Nuissance and on Trespassing charges. Both charges seem like to me to be a not so clever cover for doing precrime arrest for the "crime" of speaking your mind around the time that a wedding occurs so that no ones feathers get ruffled.

The Royals volantarily pay taxes from what I understand, how nice. In the UK aren't there taxes for upkeep of the Church of England? Oh well, I guess it is hard sloughing off the Ancien Regime and joining the world with Evolution, Science and Reason. If the Royals really do bring in as much money as is spent on them then where is the harm in just having them abdicate?

There is this habit of Republics becoming Monarchies. So the idea that Constitutional Monarchies are any more stable then any other form of government is pointless. The Roman Republic was around for quite a while before it was taken over by Caesar. A stop gap "reduced" Monarchy is still a Monarchy.

Every person has the habit of thinking that their own religion/government/philosophy that they grew up with is probably the best in the world. I have no problem with anyone in any part of the world questioning the form of government in the US or any other form of government used anywhere. That is part of being free (both mentally and in terms of speech).

As for Obama showing "respect" to the Queen, sorry, diplomacy should give way to a neutral stance because it is not in keeping with the dignity of a free and sovereign people to have anything but such a stance. She is not my freaking Queen but Obama is my President (unfortunately). I am inclined to change my mind on this about as much as I am to stop breathing.

I guess I could also bring in Rhodes and the Council on Foreign Relations and how Rhodes wanted to reunite the US with Britain, but then that would get into what are conventionally called "conspiracy theories". If your countrymen want to have a Queen that is your business, leave me out of it.

 

[tensordyne]

I thought MarkyX gave a pretty good explanation of commercial paper but you can find more information at http://en.wikipedia.org/wiki/Commercial_paper.

Looking over the wikipedia article again there is definitely one difference between commercial paper and currency, commercial paper expires after a set number of days, but for instance, federal reserve notes do not ever expire.

Teasing out the differences between commercial paper and how loans work for FRB is another question that is on my mind. I guess it does not really matter though since I do not go to a corporation to get a commercial paper loan. Commercial paper is sold on money markets to any would be buyers. That is enough for me to see that commercial paper does not allow non-bank companies to act like FRB banks by some other method unless I am missing something.

 

[psionl0]

Are you sure you are not trying to overcomplicate things tensordyne?

At the most fundamental level, all forms of debt are money^*. This is true regardless of how the debt was recorded or delivered. Even the monthly accounts that businesses typically use to deal with each other are records of how much was purchased "on credit". Commercial paper is just one of the many ways that a debt can be recorded.

If your "friendly" wbanker agrees, you can deposit an IOU into your bank account. This is called a "novation". Instead of Mr X owing you $y, the bank owes you $y (less fees and charges) instead while Mr X owes the bank $y instead of to you.

The principal difference between an IOU and a note of fiat currency is that there is a guarantee that the IOU can be exchanged for another form of money some time in the future while fiat note promises diddly squat. The only guarantee you get with a fiat note is that you can use it to settle a debt and the creditor will say, "PAID".



* If you can think of a situation where a debt does not act as money then I would be happy to discuss it.

 

[tensordyne]

Sorry for the unaccountably long time in not responding to your post psionIO. I have been reading Stephen Zarlenga's tome, "The Lost Science of Money." I advocate everyone read this book if you possibly can.

As for the "all forms of debt are money", I strenuously disagree. Some money comes with debt attached, and some forms of debt act like money, but the idea that all forms of debt are money, even in some sense, does not sound correct to me at all.

First off, let me give the three main perspectives on what money is. I say main because these are the main ones that people throughout history have had on what money is, as far as I know.

1. Money is a commodity, with Gold being the best form. The Austrian and English Economic schools advocate this view of money.

2. Money is debt. This is what might be described as the Monetarist School perhaps, since I do not know of some school of economic thought that holds to this viewpoint and has a set in stone name associated with it. Neoliberal perhaps?

3. Money is a token (defining token in the Anthropological sense of the word as an object or physical process that abstractly represents an idea) used for exchanging goods and services and sanctioned by law or custom. This is the Greenback / Zarlenga viewpoint on money. Money in its modern form also often comes with a number of other characteristics, such as being fungible, etc., etc. I wanted to be as broad as possible in this definition and yet still get the characteristic points across.

There is quite a raging debate on what money really is. Zarlenga just about totally destroys the Austrian school definition of money in my estimation. On the matter of, "all forms of debt are money", I can not go to the corner store and buy a gallon of milk with a US Treasury Bond. Bonds are debts, ergo, there is a form of debt that does not act like money (at least with respect to your local grocery store).

Banks under fractional reserve banking make what are called loans of issue, not loans of deposit (a very common misconception). This means that when the "loan" is made, new money is created, but it is in the form of interest bearing debt. Another common term for debt is credit.

Thanks for bringing up the term 'novation', we are just picking up all sorts of terms here lately. Commercial paper, novation, discounting, more? Good, I love to learn, everyone bring up more terms if you want, please.

I have made an argument to show that there is at least one form of debt instrument that does not act like money, but what about money that is not also a debt? That is easy, Greenbacks were a form of money (the best the US ever had) that had no debt attached to them. The Government issued a fixed number of them and spent them into circulation. Since they were spent into circulation instead of being borrowed into circulation (as is currently done now), there was no need to pay them back to anyone, and hence one could not say that Greenbacks signified any form of debt to anyone. Unfortunately, Greenbacks, if I remember correctly, were exchangeable to gold (or something like that. I think it had to do with foreign exchanges were still done in gold or something. I will look up the specifics if anyone is interested). It is best to make fiat currency debt free, non-transferable and limited in issue, as well as payable for all debts public and private.

I love the following line: 'The only guarantee you get with a fiat note is that you can use it to settle a debt and the creditor will say, "PAID".' Makes it sound as if that is a bad thing or something. "This is Legal Tender, good for all debts Public and Private. Not transferable to any other form." are the best lines of English ever written!

Oh well, read some Zarlenga and I hope you will see how logical money can be if it is done correctly. Zarlenga also noted in the past that economists pimping for the bankers have been actively trying to redefine money as debt. I think you might have gotten caught by that bit of propaganda psionIO. It is all good though, I think you are not as brainwashed as michaelsuede obviously is, and there is hope for you yet. I know that sounds condescending, but man, now that I know more about the history of money, views 1. and 2. sound to me like some church sermon on how evolution is the devils work.

All the best to you all!

 

[psionl0]

Hi tensordyne, great to see that you think that I'm "not as brainwashed as michaelsuede obviously is" and that there is "hope" for me yet. Last time you posted about me, you put me in the Iomiller category. (I normally have a pretty thick skin but I cried for a week after reading that ).

I think you might have been reading me backwards. I didn't say that all money is debt, I said that all debt is money. Maybe this diagram will help explain what I am saying:

I was always taught that money is anything that can perform the following functions:

• medium of exchange
• measure of value
• store of value

Any promise to "pay later" fulfills all three conditions.

You appear to have a problem with the negotiability or transferability of the medium you are using. As far as I am aware, there is no requirement for a type of money to be transferable (other than the initial step of getting a creditor to accept what you are offering in settlement of a debt). You might not be able to get a shopkeeper to accept a US treasury bond (nor any other third party IOU) as payment for something but you could SELL the bond (ie exchange it for something the shopkeeper WILL accept).

Even if you can't buy something "on credit" at the shop, you could borrow the money elsewhere. If I have an account at the shop, you could (try to) get me to tell the shopkeeper to put what you are buying on my tab (in which case I am doing a novation for you). What ever you do, you are making a purchase by creating a debt for yourself.

In case you haven't realized it, I'm a "greenbacker". I have no problem with fiat money as long as the supply can be controlled. That being said, "Honest Abe" was very fortunate not to create massive inflation when he printed his "greenbacks" (the confederate states didn't fare out so well). Many of those greenbacks would have found their way into the banks where, under FRB, they would have bred like rabbits.

I haven't bought Stephen Zarlenga's tome, "The Lost Science of Money" because I don't like paying money for information. From a look at its contents page, this book takes a similar view of money/banking as "The Money Masters". If there is something this book says that The Money Masters don't, then no doubt you can point this out.

Ultimately, you might be able to argue that debt does not conform with the definition of money (it depends on how you define money) but you can't deny that you can purchase things by going into debt.

 

[tensordyne]

Awesome! Another Greenbacker.

Yeah, I do have a problem with the idea of having something that is called money but can not be used to buy things in some larger economy. It does not meet the sniff test.

I am somewhat hesitant to criticize a fellow Greenbacker but I think it is important to have clear definitions. I further think you are trying to grasp for a semantic hold by using rather contrived examples. If you have to sell an IOU before you can use it, then you are not using the IOU to buy the thing in question, but what the IOU was sold for.

The previous post of mine showed that there is some credit that acts like money, some money that acts like credit, some credit that does not act like money and some money that does not act like credit. The two ideas are orthogonal (really, they are kind of opposites, but whatever). Credit is a promise to pay and money is a promise to recieve.

I am not so sure about the three properties you have always been taught for money to have. Medium of exchange sounds OK. Measure of value, hopefully it is not too contrived to point out that the value of various forms of money change with time and even that there have been moneys in the past that had no value associated with them (in the I want to say Bronze Age, axes were used as money and did not have any number associated with their use). Store of value to me sounds pretty Austrian School-esque so I will just leave that one alone for now (btw, The Austrians Schoolers like to say that Gold has intrinsic value and Gold has always kept the same value, which is false on both fronts and part of their mythology).

I wasn't reading you backwards, I knew very well your main point was that you thought that all forms of debt are money. That is why I covered it first before going onto the all forms of money are debt question initiated by me. I just wanted to be thorough.

On a final note, I am not a pure Zarlenga follower. I do not think he has necessarily thought through all of the consequences of having a fixed supply of money, however large it may be. I did not see at first the point of having some money around that does not come with debt attached to it, preferring the idea of a totally ballanced supply of money so that when all debts are repaid all the money would be gone. I now think it would be a good idea to have some extra money in the system to allow people to retire with as well as for a general buffer.

Zarlenga rightly distrusts giving private bankers the ability to create money given history. I say that as long as you give parties what they are properly due in terms of both risk and reward, and enact that into law, then there should never be a problem.

One of the most aggregious aspects of the current system is that banks get your house if you do not pay a mortgage. It should be society (in the care of some government) that gets your house if a default occurs. The banks are allowed to just make up the money anyways (in FRB). Ughghghg

Negotiability is an interesting term. Not sure exactly what is meant by that term in the context of the posts so far. As for Transferability, the best forms of money are non-transferable, meaning you can not go to the issuer of the money and ask them to change it into some other form (like gold, silver, dingbats...). Money should be good for negotiating all debts public and private, but I think I have said that before. The above sentences should not be construed to mean though that only things with those properties are money, just that the best designed forms of money have at least those characteristics.

I could go into my own theories on how to set up a just system of loans both of issue and deposit but that would take a while and is not directly relevant to the discussion thus far (I really want to, but it would take up at least three of four paragraphs all by itself).

I hope that covers it. All the best to you all!

 

[psionl0]

Evidently the words "negotiable" and "transferrable" didn't convey the property of money that I intended to describe. I was referring to the ease at which a form of money could be exchanged for something of value. I think the term which I was looking for was "liquidity".

From MMM:

Broader concepts of money (M2 and M3) include M1 as well as certain other financial assets (such as savings and time deposits at depository institutions and shares in money market mutual funds) which are relatively liquid but believed to represent principally investments to their holders rather than media of exchange.

So MMM classifies money according to its liquidity (but note that they still call it money).

I guess that all this proves is that it is possible to get bogged down in nomenclature and overlook the desirable properties that we want in money.

As far as measure and store of value, money definitely has those properties but the "value" is not constant. A case of beer is a store of value but beer has a high evaporation rate (or at least, the bottles leak a lot when I'm around ) so a case of beer would represent a diminishing store of value.

 

[Tippit]

I have made an argument to show that there is at least one form of debt instrument that does not act like money, but what about money that is not also a debt? That is easy, Greenbacks were a form of money (the best the US ever had) that had no debt attached to them. The Government issued a fixed number of them and spent them into circulation. Since they were spent into circulation instead of being borrowed into circulation (as is currently done now), there was no need to pay them back to anyone, and hence one could not say that Greenbacks signified any form of debt to anyone. Unfortunately, Greenbacks, if I remember correctly, were exchangeable to gold (or something like that. I think it had to do with foreign exchanges were still done in gold or something. I will look up the specifics if anyone is interested). It is best to make fiat currency debt free, non-transferable and limited in issue, as well as payable for all debts public and private.

Why were Greenbacks the "best" US money? They were used by Lincoln to finance the bloodiest and most destructive war in US history (in US terms), the Civil War. Without the Greenback, soldiers in all likelihood would not have been paid, and war would have been averted. This is a distinguishing mark of fiat currencies - they rely on force through legal tender laws in order that people accept them, and they are typically used to finance the use of force against others by militaries. Greenbacks were probably the worst example of US fiat currency, and Lincoln one of the worst presidents, although certainly not worse than some contemporary ones.

I love the following line: 'The only guarantee you get with a fiat note is that you can use it to settle a debt and the creditor will say, "PAID".' Makes it sound as if that is a bad thing or something. "This is Legal Tender, good for all debts Public and Private. Not transferable to any other form." are the best lines of English ever written!

The bad thing, is that the government can manufacture them virtually costlessly, and use them to extract wealth from people who have actually produced something - the inflation tax. It's impossible for most taxpayers to comprehend the degree to which this occurs, and it functions not only as a regressive tax, but an arbitrary one, two horrible characteristics. The defining characteristic of money should be its ability to store value independent of the avarice of politicians and bankers.

 

[mhaze]

I have to say MarkyX, I think you are one of the more well-informed people......

Many ways in which Loans NOT EQUAL Banks.

Mastercard and Visa. And banks are not allowed to do home loans. Then there are credit unions and S&L industries. Private lenders that loan money until your paycheck comes. Pawn shops that loan money. Commercial paper. Money market funds that invest only in commercial paper.

So to think that Loan = Bank is flat wrong.

 

[tensordyne]

Many ways in which Loans NOT EQUAL Banks.

Mastercard and Visa. And banks are not allowed to do home loans. Then there are credit unions and S&L industries. Private lenders that loan money until your paycheck comes. Pawn shops that loan money. Commercial paper. Money market funds that invest only in commercial paper.

So to think that Loan = Bank is flat wrong.

Well, the context that has been discussed about so far has been in relation to Fractional Reserve Banking.

Mastercard and Visa as far as I know do Fractional Reserve Banking Loans every time someone swipes a card.

Banks are not allowed to do home loans? Commercial Banks (that do Fractional Reserve Banking) make some of their biggest money on home loans, that was the whole thing behind the Housing Loan Bubble (that involved Control Fraud, look up Prof. Black).

Private lenders do not do fractional reserve banking, nor do Pawn Shops.

In general, as I have said before, the use of the term loan in regards to Fractional Reserve Banking does not denote what people would conventionally think of as a loan.