"Positive Money" a Debt Crisis Solution?

[Tippit]

I haven't "denounced the fact". As far as I recall I have always accepted that credit multiplication creates money (not base money).

Ok.

I merely commented on what I have come to find usually follows the referenced soundbite. Which is usually a wrong headed and internally inconsistent call to criminalise credit and call banking theft/fraud and recommend money fixed to element 79 in the periodic table.

So when people acknowledge what we've both already established to be true, your immediate assumption is that they're wrong about something else. This doesn't make much sense.

I don't think anyone here wants to "criminalize credit". With regard to central banks and fiat money issuance, I want to force these creditors to actually produce something in exchange for the money actually required to provide credit in the first place. This will vastly benefit the rest of society and abolish the parasitical "inflation tax" which, obviously according to you, doesn't exist (in spite of admissions to the contrary by the most powerful central bank chairman and equity investor in the world, Bernanke and Buffett respectively). With regard to fractional reserve banking, I want to remove the layer of abstraction between "saving" and "lending", forcing savers to take a more proactive and individually responsible role in investing, whether it happens to be credit or equity-based, and it simultaneously removes the ability of private banks to issue credit for-profit out of the public's right to issue (or not issue) money. This is full-reserve banking.

These are not extreme reforms, when you consider that they reform the systemic problems which are the root cause of financial crises, and inequitable wealth condensation around the globe. There are plenty of opportunities for credit in a sound money, full reserve system. The Real Bills Doctrine (see Antal Fekete) is but one.

 

[psionl0]

This "positive money" nonsense will create immediately a demand for credit outside the financial system that will result in the creation of "chits" or "quanta" or something else that people can actually use.

That makes even less sense than saying that positive money is an anti-semitic plot.

Imperial sixteenth century Spain had the closest modern equivalent to "positive money" and first their economy, then their military, and finally their entire social structure collapsed as a direct consequence.

Sure it did.

 

[psionl0]

That conveyed to me all I needed to hear about these folks.

Couple of the previous go-rounds of this stuff.

I'm not impressed if the proposition is that fractional reserve ratios and credit multiplication should be outlawed.

Which is usually a wrong headed and internally inconsistent call to criminalise credit and call banking theft/fraud and recommend money fixed to element 79 in the periodic table.

You are all over the place on this Francesca. And neither of your links even mentioned full reserve banking. It's almost as if you don't want to know anything about full reserve banking.

This is puzzling. If anybody could have delivered the knockout blow that proved positive money unworkable I would have thought it was you (although after reading your posts in that second link, I'm not so sure now). I can only conclude that you have no rebuttal to the proposal in positive money so you are playing the SCRUT instead.

 

[Francesca R]

If you could point out any inconsistency in the quoted/linked stuff you would have done so, rather than wish something was there.

Since I have argued the merits of FRB ("F" = fractional) and the folly of other ideas since before you were born, forum-wise, I'm not that inclined to do it again for you.

 

[psionl0]

It's almost as if you don't want to know anything about full reserve banking.

If you could point out any inconsistency in the quoted/linked stuff you would have done so, rather than wish something was there.

Since I have argued the merits of FRB and the folly of other ideas since before you were born, forum-wise, I'm not that inclined to do it again for you.

Can't even say "full reserve banking" eh?

That "quoted/linked stuff" only dealt with government debt and fractional reserve banking. (Although I could have pointed out some errors in those links, they are necro threads). You only put up those links because you were pretending that your objection was about the way positive money described how banks create money.

Afterwards, you switched tack and stated your objection was based on the idea that positive money wanted to do away with fractional reserve banking. You have NEVER put forward a coherent argument (nor even provided a link) that explains why full reserve banking is unworkable.

 

[kevsta]

Since I have argued the merits of FRB ("F" = fractional) and the folly of other ideas since before you were born, forum-wise, I'm not that inclined to do it again for you.

huge bonuses vs not nearly so huge for those involved?

 

[psionl0]

huge bonuses vs not nearly so huge for those involved?

That is one possible explanation for why Francesca did so much weaving and ducking in "this stuff"

 

[Francesca R]

Here's another one. The point of that thread is to say that full reserve banking in consistent with opposition to all derivatives (including forward transactions in goods and services)

Plenty of errors, none of them mine

 

[psionl0]

Here's another one.

Fractional reserve lending certainly creates money out of thin air. That is why higher monetary aggregates are larger than the monetary base. I don't know why this would be in dispute. It's purpose is to multiply money in circulation.

(This one is for Tippit).

 

[Francesca R]

See post 39 of this thread (me) and 41 (Tippit). You are in error if you suppose I have said that credit multiplication does not create money.

 

[psionl0]

It was post 28 that started the trouble. In that post, you falsely claimed that you had a problem with the expression "thin air".

 

[Francesca R]

You are in error about what I claimed, again.

Again, see post 39. When I see youtube videos that state this and then follow it with ". . . And this is a socially beneficial feature" then I will re-assess my reaction.

Nothing yet.

 

[psionl0]

Here's another one. The point of that thread is to say that full reserve banking in consistent with opposition to all derivatives (including forward transactions in goods and services)

Plenty of errors, none of them mine

Hmmm, it depends on who you ask I suppose.

Some of the positions you took in that thread include:
- It is irrelevant whether governments can print money or have to borrow it (post#86)
- FRB is the moral equivalent of shorting commodities (post#109)
- Taxpayers ought to be on the hook to bail out both current account and investment account holders (post#136)
- Only base money is real money. M1 is either money or not depending on what you are arguing (post#151)
- Bank loans are backed by deposits, not the borrower's promissory note (nor the collateral that the borrower might have pledged to back up the promissory note) (post#151)
- Banks lend money that has been deposited. They don't lend from their reserves. (post#164)

About the only thing I would comment on for now is that fractional reserve banking is not a moral issue - it's a question of whether it is the best system for the needs of people who are not bankers. The fact that under FRB (and with commodity based money for that matter) governments have to borrow money because they can't print it instead is the elephant in the room that you don't want to address.

BTW I spotted an error of my own in post#143. I incorrectly asserted that in a covered short situation the original share owner could sell his interest in his shares. Of course, that would blow the cover off the short.

 

[Francesca R]

I acknowledge you at least reading through it again, which is good (thanks). You've fairly accurately represented two of those positions, but not the others. This is a problem with trying to paraphrase rather than quote.

"It is irrelevant whether governments can print money or have to borrow it" (these questions are irrelevent to the argument for fractional versus full reserve lending, not irrelevant to everything), "Only base money is real money." (never said) and "Bank loans are backed by deposits, not the borrower's promissory note (nor the collateral that the borrower might have pledged to back up the promissory note)" (not said), and that "Banks lend money that has been deposited. They don't lend from their reserves" is semantic to the economic effects of fractional reserve lending.

I think the moral issue is the central one to most argument about this, and meeting the needs of the public is a moral issue.

Fans of full reserve banking believe (wrongly IMO) that they are asserting a moral right to prevent certain transactions from occurring, which they probably believe are a net harm to the public interest, and which they frequently also confuse/conflate with government transactions (of course nothing in higher-velocity-money (EG MZM) multiplication is an act of the government or the central bank).

Advocates of fractional reserve lending believe that the moral right for voluntary transactions between private agents to occur (as in all forms of leverage, derivatives and forward purchases/sales) generally supersedes the desire to circumscribe them (and those who desire this should have a high burden of proof to show net damage), and that credit multiplication is an age-old innovation that permeates the financial system and is practised approximately everywhere because it provides substantial benefit to the public interest.

To boil it down simply to the ethics of freedom/liberty, full reserve lending is assuredly on the authoritarian side of fractional. This is generally not acknowledged by its supporters, who IMO cloak their position as being in some way anti-authority (state, banks) but who fail to convince on this. That alone is a stong count against it in my view, before getting to the matter of social benefit versus damage, in which it fails further.

 

[psionl0]

Clearly, the "" and "" symbols can be misinterpreted if they don't accompany text. I assumed that you were merely contradicting the statements that I had made.

If you believe that I adopt a full-reserve position based on moral grounds then it is no wonder that we are often posting at cross purposes.

Would you be willing to discuss the effects of base money creation (under both schemes) without considering the "moral" implications?

 

[Francesca R]

Sure.

 

[psionl0]

Sure.

I take it the basics aren't in question.

If the government creates new base money then over time, an even bigger amount of M1 money will get created. We might not get the theoretical maximum (9X) of new M1 money but we will get enough to force the government to be circumspect about how much money it "prints".

As a result, for any but the smallest of budget deficits, the government is forced to borrow the money it needs to fund the deficit.

 

[tensordyne]

I do not see the how the logic in the last post works to force the Government to borrow.

Plus, at least for me, the basics are in question. Steve Keen makes some arguments (based on others works if I remember correctly) that money grows endogenously in the banking system, or in other words, debt in actual practice is not limited by any fractional requirements but by how much debt people and institutions are willing to get into (the money multiplier effect in such a case would then be fictional).

psionl0 you should really read Keen if you have not already.

 

[psionl0]

Are you sure you didn't just read my post too fast ?

It was only a brief precis but it mentioned that you might not get the theoretical maximum of deposit expansions. Some newly created base money will find its way into the cash economy where there is no deposit expansion and ultimately, there may not be enough demand for the extra creatable credit - initially. (If government printing creates bubbles then this would probably change).

Maybe you might like this more detailed explanation better.

 

[tensordyne]

Oh, I was mostly just responding to the money multiplier effect idea being used.

As per post #57, it is not about how the debt process starts, but about how to do a specific monetary policy?

Oh man, having to read Tippit is like having to hear nails scratch across your skull as your face is shoved into a chalk-board. I go by history, Austrian types just make up their history to suit various striven for ideals.

Here is a fun video:

http://youtu.be/qG3CU1st_l8