Monetary proxies exist because they serve a purpose.
Of course, they serve a purpose, which is not making loans possible, but rather making money circulation easier. Before loaning receipts for deposited gold, people loaned the gold, which nobody could multiply at will: Bitcoin makes this possible again. You need not scam people in order to loan them your money. What are you even talking about. Sure, they make money circulation easier, but so would non-fractional reserve. That is precisely what I said: monetary proxies are not exclusive to fractional-reserve banking - nor is their purpose. There needs not to be a centralized authority in order for a fractional reserve multiplying effect to occur. Person A lends person B 10 BTC, person B gives 10 BTC to person C, person C lends person D 10 BTC, then person A & person C want to buy coffee but don't have the money since they lent it, but the person selling the coffee decides to accept Person B and person D's IOUs instead of actual money because they carry an interest rate, and he knows Person B and Person D to be reliable.
Since the 2 IOUs act as currency, 30 BTC worth of goods were exchanged, and 10 BTC is still owned by a borrower about to be spent, so the money was effectively quadrupled, and there was no central reserve authority.
Let us play this game: imagine everyone using Bitcoin IOUs thus partially replacing Bitcoin as money while multiplying the supply of "bitcoins" by, say, ten. Then, answer me: since the supply of actual bitcoins is fixed, from where would come the additional bitcoins to pay the outstanding interest on those IOUs? Would we create new IOUs for paying interest on the old ones? Then create even more IOUs, until we eventually start backing IOUs with IOUs and utterly forget about bitcoins? Of course, this game is meaningless from the start since no coffee seller would prefer to rely on debtors just to gain interest on their debt instead of owning an ever-appreciating money that requires trusting nobody. |
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It's not the system that's wrong, it's the people trying to achieve personal gains with it.
Debt-based money is unsustainable because it requires an exponential growth of the money supply: when money is debt, paying interest on this debt requires creating more money, hence more debt. |
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Each dollar the bank loans and the borrower deposits into a new bank account exists in two bank accounts at the same time, so the loaner and the borrower can and usually do spend it at the same time.
Not at the same time. Before the loan process started, that dollar belongs to bank; after that, the dollar belongs to borrower. The borrower then have the ability to spend that dollar, but the original bank lose the ability to spend that dollar, they only have a number saying that customer A owes them that dollar Suppose you deposit $1,000.00 into your bank. Before loaned by the bank, the money belongs to you (unless you consider your act of depositing it as a donation to the bank). When the bank loans it, the money goes into the borrower's account without living yours. Then, both of you can spend it, regardless of whether at the same time or not, and whether by withdrawing it from the bank or not, which is precisely why the money supply increases (to simplify things, imagine the borrower has an account in the same bank as you and after the loan is credited in his account both of you simultaneously spend that money merely by transferring it to other two accounts in the same bank). |
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This really opened my eyes; I knew it was bad but not this bad. Thank you for sharing this, I would've never seen it otherwise. Time to save up in Bitcoin...
Edit: Also, it seems Maloney does not consider Bitcoin a money, but a currency; I can see why he would believe this, since Bitcoin, in its simplest form, is nothing more than a distributed ledger (numbers in a system as one might call it), but I believe the aspect which makes Bitcoin a money is the fact that its supply cannot be increased (without consensus anyway), which does make it suitable as a store of wealth, unlike a currency.
A shame, but from his standing point, if you're invested primarily in gold and silver, you'll want others invested in it as well. I'm the same way with Bitcoin.
This is the only flaw in Maloney's monetary ideas: his conceptual distinction between "money" and "currency" does not resist a serious examination. |
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Fractional-Reserve banking is essential to understanding precisely what you are failing to understand: how money becomes debt. It starts with fractional-reserve banking, then evolves into central banking.
Suppose that you have a $100 bill and 0 reserve requirement, you loan out and deposit back this same $100 note for 10,000 times. You have created lots of transactions and deposit records, but you did not create any money: you still have that $100 bill So all those transactions are illusions? Is the house I bought with the borrowed money (sorry, it is not money) also an illusion? Is the resulting inflation also an illusion? If I default on a bank loan, will my default also be an illusion? However, in the common FRB misconception (also in this video), you have created 1 million dollar in the process! FRB add the same dollar at different time together again and again.
Each dollar the bank loans and the borrower deposits into a new bank account exists in two bank accounts at the same time, so the loaner and the borrower can and usually do spend it at the same time. The practice of FRB started from goldsmith, but even then, the base money is gold. They must first have gold to run FRB, and in order to acquire gold, they must do business or work just like anyone else. But today, central banks just create base money out of nothing. Notice that unlike checkbook money, which is backed by a corresponding debt, base money is not backed by anything, this video successfully explained this critical concept very well
The money created by central banks is created in exchange for government promises of paying it back plus interest, just like the money created by commercial banks is created in exchange for the promise of private entities to pay it back plus interest. It is exactly the same process, whether the borrower is respectively public or private. |
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Monetary proxies exist because they serve a purpose.
Of course, they serve a purpose, which is not making loans possible, but rather making money circulation easier. Before loaning receipts for deposited gold, people loaned the gold, which nobody could multiply at will: Bitcoin makes this possible again. You need not scam people in order to loan them your money. |
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There is a huge difference between a Bitcoin 'proxy' and a Gold proxy. Gox-Bitcoin, Bitstamp-Bitcoin, Coinbase-Bitcoin, those are all Bitcoin 'proxies.' Do those eventually obsolete Bitcoin? Obviously not, because merchants can easily accept Bitcoin itself, not the proxy, and thus the proxy is constantly being converted into the base currency.
Money proxies go through many stages. In the beginnings of gold-based fractional-reserve banking, although goldsmiths gave people receipts for deposited gold, those receipts were not yet money: people started using them as money because they were much more convenient than the gold they represented. Then, goldsmiths started loaning receipts for nonexistent gold. Fast-forward to 1971: Nixon eliminates the last vestige of gold-backing from the dollar. Do not get fooled by the seeming innocence of monetary proxies. Still, you are not just talking about money proxies, but about those proxies in the context of fractional-reserve banking. In other words, you already start in a relatively advanced stage of monetary proxy development. In that stage, fractionally backed proxies are loaned recursively at interest, so: 1. Their supply must become a multiple of the money supply they represent. 2. Even more money must be created to pay the resulting interest. Because no more bitcoins can be created, the ratio of bitcoin to its proxy representations must continually decrease, just like that of gold to dollars continually decreased, eventually reaching zero. However, we need not worry too much about all this because Bitcoin proxies have no inherent reason to be more convenient than bitcoins themselves. |
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Traditional Fractional Reserve: Gold
The traditional form of Fractional Reserve is that of Gold. Depositors, due to practicality, must usually deposit their Gold into a bank so as to allow convenient transactions. There are some maintenance costs associated with storing gold, so the bank must either engage in Fractional Reserve practices, or charge the Depositors, either in the form of transaction fees (this possibility is greatly increased due to the internet) or through periodic holding fees. If Fractional Reserve occurs, it is difficult for the customer to verify how much gold is actually in reserve, thus making the process even more dubious. However, the bank is ultimately responsible for its own lending practices to avoid a bank run, so it can be argued that in a free-market scenario most trusted banks would be responsible with user's deposits. Also, the system is somewhat stable, since without the existence of Fractional Reserve banking, there is still a finite amount of base currency which can be used to sustain market activity, although depending on the gravity of the credit collapse, there is a possibility of severe deflation. Finally, no bank has an infinite line of credit since a bank must still loan out Gold, and cannot loan out more Gold than it has. It can lend the same gold multiple times to create a similar effect, but this cannot be done by the bank "whenever."
Modern Fractional Reserve: Fiat
Currently, fractional reserve banking is done in Fiat, which might also be called "no-reserve banking." In this system, all currency is created through a fractional reserve process which begins when government bonds are exchanged for the first fiat notes. It is difficult for the customer to verify how many fiat notes any bank has in reserve. The bank is not responsible for its own lending practices to avoid a bank run, since more fiat will be lent to it by a Central Bank. This Central Bank effectively does have an infinite line of credit since it is the issuer of the monetary base consisting of fiat notes. As such this scenario is by definition, not a free market. Finally, the system is not stable because without any debt (public or private) no currency can exist in the system. This means that, even in a 'fiscally responsible' scenario assuming no expenditures on the part of governments, constant inflation must be maintained to pay back the interest associated with this debt. The deflationary problem under this system can be avoided.
Bitcoin Fractional Reserve
Bitcoin fractional reserve is like gold in that the bank's are responsible for their own lending practices and that a monetary base exists outside of the fractional reserve system. However under Bitcoin, it is potentially possible for a bank to provably show it has a reserve, and to quantify that reserve. Also, there is less need to engage in depositing Bitcoins at all, since transactions can easily occur outside of any banking system. The problem of deflation in the case of a fractional reserve collapse still exists, however.
Fractional-reserve banking based on Bitcoin must replace Bitcoin with a Bitcoin proxy, just like fractional-reserve banking based on gold replaced gold with a gold proxy. The only difference is that the money supply available for bank reserves would be fixed and easily verifiable, so the central bank no longer could create money against government debt. However, fractional-reserve banking eventually requires the central bank to have that ability, which would in turn press for the conversion of Bitcoin proxies into independent money based on debt, just like today. So fractional-reserve banking based on Bitcoin is just its own programmed obsolescence. |
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Maloney's newest video is really brilliant.
I admire him for how he tries to explain and visualize complex relationship comprehensibility.
Unfortunately most people still think this is total rubbish and worst conspiracy theories when they see videos like this.
Are you sure? I think most of the educated people will understand if they watch this video. It's a no brainer: No matter how hard they work, they can't create that huge amount of wealth that banks did, so banks must be acquiring those wealth through a very easy way, no hard working at all Previously there is no such video that can explain it clearly, books from economy schools are full of text and formulas, which just spread many misconceptions about money creation Well, I can only speak about my personal environment which are mainly people in Germany. Most of them have studied. Maybe it's a German thing. But they don't understand it or they understand it, but don't want to let it be true. The not so "long educated" people often understand the situation faster and better then the ones you stayed too long in university etc. Of course there are also some who understand the situation and are taking the right steps, but they are clearly the minority. It's frustrating... Of course most of the people who already had an idea about economy won't agree with a conflicting idea at first, but they will start to compare the concept in the video with what they learned from school and start to think. Another reason is that they fear the powerful entity, so most possibly those higher officials in the government will understand it first I think this video is still a bit too long, if it can remove the FRB part (what presented in video is a common misconception anyway), reduce the steps to 3-4, it will be much more convincing Fractional-Reserve banking is essential to understanding precisely what you are failing to understand: how money becomes debt. It starts with fractional-reserve banking, then evolves into central banking. |
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This is by far the best video about money creation!  The FRB part could be listed as a separate fraud, because that involves money circulation, most are checkbook number in banks, it does not increase the amount of base money that banks can loan out (a fraud in a fraud  ) When the central bank directly or indirectly buys debt instruments created by the government, the money comes from its own "checkbook": the only thing "backing" that money are the same debt instruments it buys. Then, this money becomes the "reserves" for commercial banks to make loans from their own "checkbook": both reserves and commercial bank loans are "checkbook money," and both increase the money supply, although the latter kind by a much larger factor. It is a very simple process, not that complex as you described. Don't use loan or IOU, it will be much easier to see the truth without them Notice this: If banks loan out 90% of the deposit and those money were put under mattress by someone, then banks will immediately lose the ability to further loan out any money (money creation through FRB will stop). Although at the same time their checkbook are full of customer deposit record (All those deposit records are not money, just records. But banks call them M1) Before we can even begin to discuss whatever you are trying to prove, I must make the following observations: 1. Commercial banks do not primarily rely on deposit money, but rather on reserve money created by the central bank against government debt. So the money commercial banks loan is always debt, issued either by the central bank or themselves. 2. It is impossible for the public to keep 90% of commercial bank money "under the mattress" because: 2.1. Less than 3% of the money supply exist in physical form. 2.2. Loans must be repaid with interest, so the public must not only return that money to their creditor banks but also give them additional money, which in turn must be created by the central bank against additional government debt. Loan or debt means some value to be paid in future, it involves a value in a different time. Without a time axis, it is very dangerous to discuss the concept of loan, because that lacks a whole axis of freedom and you will easily mix different concept together. A $100 can not exist at two points on the time axis at the same time. If it did, one of them is an illusion, banks are creating this illusion to everyone in the name of loan And, central bank create money to buy government debt, not against government debt, this video explained it very well The government only becomes indebted when the central bank (or anyone else) buys its debt instruments - rather than the resulting debt. Nobody can buy a debt only created by their own act of buying it. |
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This is by far the best video about money creation! The FRB part could be listed as a separate fraud, because that involves money circulation, most are checkbook number in banks, it does not increase the amount of base money that banks can loan out (a fraud in a fraud ) When the central bank directly or indirectly buys debt instruments created by the government, the money comes from its own "checkbook": the only thing "backing" that money are the same debt instruments it buys. Then, this money becomes the "reserves" for commercial banks to make loans from their own "checkbook": both reserves and commercial bank loans are "checkbook money," and both increase the money supply, although the latter kind by a much larger factor. It is a very simple process, not that complex as you described. Don't use loan or IOU, it will be much easier to see the truth without them Notice this: If banks loan out 90% of the deposit and those money were put under mattress by someone, then banks will immediately lose the ability to further loan out any money (money creation through FRB will stop). Although at the same time their checkbook are full of customer deposit record (All those deposit records are not money, just records. But banks call them M1) Before we can even begin to discuss whatever you are trying to prove, I must make the following observations: 1. Commercial banks do not primarily rely on deposit money, but rather on reserve money created by the central bank against government debt. So the money commercial banks loan is always debt, issued either by the central bank or themselves. 2. It is impossible for the public to keep 90% of commercial bank money "under the mattress" because: 2.1. Less than 3% of the money supply exist in physical form. 2.2. Loans must be repaid with interest, so the public must not only return that money to their creditor banks but also give them additional money, which in turn must be created by the central bank against additional government debt. |
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This is by far the best video about money creation! The FRB part could be listed as a separate fraud, because that involves money circulation, most are checkbook number in banks, it does not increase the amount of base money that banks can loan out (a fraud in a fraud ) When the central bank directly or indirectly buys debt instruments created by the government, the money comes from its own "checkbook": the only thing "backing" that money are the same debt instruments it buys. Then, this money becomes the "reserves" for commercial banks to make loans from their own "checkbook": both reserves and commercial bank loans are "checkbook money," and both increase the money supply, although the latter kind by a much larger factor. |
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I'm trying to find the flaw of today's system, but I have not found one so far.
I suggest you rather try to find a flaw in your own reasoning, according to which the money supply has nothing to do with inflation. You could begin by trying to find a convincing explanation for inflation that does not involve the money supply. Another suggestion would be trying to come up with an argument capable of convincing the world to keep holding USA dollars and treasuries, but I guess by the time you are done with my first suggestion it will no longer be necessary. |
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This "vale of tears" will end once Bitcoin-like money becomes dominant: for the first time in monetary history, money alone already prevents its own mistaking by debt.
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Banks already made their own money 100% digital. What they want is not make all money digital but rather eliminate any form of money other than theirs. This is what they mean when they talk about money going 100% digital. This would eliminate bank runs for the simple reason that you would never be able to withdraw your money from the banking system: some bank would always have it. Then, banks could finally "multiply" money without worrying about bank runs. If that excites you, well...
Actually to avoid bank run, banks already borrow from each other in financial crisis, that LIBOR rate is their lifeline. So it seems they have already made the system quite robust, almost no flaw Banks get their money from the FED, not from each other (lately, they started leaving it there since the FED now pays them above-market interest in return). The only flaw I can think of is the money creation moment when FED suddenly get the ownership of a large amount of money. And since FED is owned by a group of regional reserve banks, all the member banks get dividend based on the value of their share, which is decided by the FED's asset
The FED will not "suddenly get the ownership of a large amount of money": when it finally chooses to sell those assets, there will be nobody to buy them (there isn't already, which is precisely why it is buying tens of billions in assets every month). |
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FRB is usually the first thing people know when it comes money creation, but after many years research, I can be sure that it has nothing to do with money creation, it is just a term of accounting (same money recorded on the checkbook multiple times). The money creation I'm talking about is the base money, not checkbook money
Banks indeed create more checkbook money when doing the lending, and those checkbook money will disappear when the loan is paid back. That's the reason they did not really create money, they just created a checkbook entry. If you want to withdraw all of those checkbook money, you will find out that the maximum amount that you can withdraw will never be higher than the amount of base money
According to your definition, 97% of all money circulating in the world today is just "checkbook money": central banks have no bank account from which to withdraw the money they loan to the government: just a (virtual) checkbook. This money becomes in turn the reserves for commercial banks to loan the majority of the world's money into existence. Additionally, only 3% of all money today exists in physical form - and shrinking. The dream of bankers, whether central or commercial, is to make all money digital to eliminate any risk of bank runs. Then, 100% of the world's money would be just "checkbook money." Only the base money is circulating, all the checkbook money can not circulate. Banks loan out the same base money again and again, every time they do it, they keep some checkbook money The monetary base consists in both circulating and reserve money: the part not circulating is called reserves. It is precisely the monetary base that is today 97% checkbook money. For example, a customer deposited $100 to a bank. And then bank loaned out $90 from customer's deposit, after this loan, the customer's deposit should shrink by $90 (they were loaned out, bank A don't have it anymore), but bank A never do that. So on their check book customer's deposit remains unchanged, but in reality it is reduced by $90, so these $90 of checkbook money are just numbers, banks do not have them, and they can't use them either
Again, 97% of the world's money is "just numbers," which we certainly do use every day. As you correctly said, when a commercial bank makes a loan it does not withdraw the corresponding amount from the source account, hence duplicating that money. This is known as the "multiplier effect," by which commercial banks "multiply" the reserves provided by the central bank. Today, bank money is entirely checkbook money as either it consists in or derives from reserves coming from a central bank's checkbook. Your word about dream of bankers is quite interesting, I happened read an article today on local newspaper about a cashless society, I'm going to draw some accounts and see what is the consequence of that. If banks can really avoid bank runs with this approach, people's trust with fiat money will be strengthened, then I suppose that every ambitious guy will try to become FED and start to loan money to the government  The end of physical money is not the end of cash: Bitcoin is digital cash. Banks already made their own money 100% digital. What they want is not make all money digital but rather eliminate any form of money other than theirs. This is what they mean when they talk about money going 100% digital. This would eliminate bank runs for the simple reason that you would never be able to withdraw your money from the banking system: some bank would always have it. Then, banks could finally "multiply" money without worrying about bank runs. If that excites you, well... |
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Sorry, but you are not addressing my point: it is not enough just to declare it is a "false dichotomy" - you have to show precisely why. Here is my point again:
To justify your disagreement, you must show precisely where my reasoning went wrong.
This is a very mechanical and sociopathic view on humans. Probably you've read too much Hoppe or Ayn Rand. Humans are not machines. They also have the capability to share things without involvement of a state. I will respond you despite your offensive tone. My point is precisely the opposite: neither the division of labor nor the resulting need for exchanging the products of labor depend on the state. It is you that are holding the opposite view, despite yourself calling it "sociopathic." That is why it is a false dichotomy, very clearly.
It is not even clear precisely what you are calling a "false dichotomy." Or do you use currency in your own family to trade tit-for-tat?
My uncle bought my old monitor, does that qualify? Similarly, ancient societies consisted of tribes, i.e. extended families. That's why the step to minted coinage is not as straightforward as you believe it to be.
Primitive forms of money are salt, grains, etc, not coins. You are ignoring thousands of years of economic development. Still, they also had "division of labor" to some degree nevertheless.
Money does not originate directly from the division of labor: it originates from the problems posed by direct commodity exchange, which in turn originates from the division of labor. For larger tribes they were some kind of reputation systems in place, if you read anthropologists like Professor (and anarchist) David Graeber, who dispels many myths like Adam Smith's thought experiment (nothing else it was) about the origin of money from barter. Did Mr. Graeber manage to generalize exchange without using money? At larger scale, things surely get more complex, but I mentioned that myself. Even then there are other approaches without requiring a state.
Again, my point is that neither the division of labor nor the resulting exchange of labor products, whether monetary or not, depend on the state. It is you that are holding the opposite view. Again, you should watch the linked documentaries to broaden your horizon, just a little. You have this reductionist view that is too typical for US Libertarians, it already has become a cliché.
If you refer to the idea that money depends on the state - which is usually not a libertarian view - then again: I hold precisely the opposite view (namely, that money does not depend on the state). |
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FRB is usually the first thing people know when it comes money creation, but after many years research, I can be sure that it has nothing to do with money creation, it is just a term of accounting (same money recorded on the checkbook multiple times). The money creation I'm talking about is the base money, not checkbook money
Banks indeed create more checkbook money when doing the lending, and those checkbook money will disappear when the loan is paid back. That's the reason they did not really create money, they just created a checkbook entry. If you want to withdraw all of those checkbook money, you will find out that the maximum amount that you can withdraw will never be higher than the amount of base money
According to your definition, 97% of all money circulating in the world today is just "checkbook money": central banks have no bank account from which to withdraw the money they loan to the government: just a (virtual) checkbook. This money becomes in turn the reserves for commercial banks to loan the majority of the world's money into existence. Additionally, only 3% of all money today exists in physical form - and shrinking. The dream of bankers, whether central or commercial, is to make all money digital to eliminate any risk of bank runs. Then, 100% of the world's money would be just "checkbook money." The term "debt" means a monetary debt when the debtor owes an exchange value, or does not, when the debtor owes a merely concrete object lacking an independent expression of its exchange value. In your example, after destroying someone else's property, if I owe the exchange value of what I destroyed, then this is a monetary debt. Otherwise, if I owe the merely concrete objectivity of something identical to what I destroyed, then this is not a monetary debt. In the context of economics, "debt" usually means a monetary debt.
Have you heard about this: "The debt that can not be paid with money is debt of gratitude"  As I just told you, in the context of economics, today "debt" is usually a synonym for monetary debt. Bonds are an instrument of debt: if the government already had something valuable, then it would have no need of going into debt.
Bond is a promise of payment in the future, of course the government don't have something valuable now, but that promise also has value, thus bonds are traded like any other securities freely on the market The government only sells bonds to the central bank when the market is no longer willing to buy them. This is precisely because the central bank does not require them to be valuable since it can buy them as you put it, "freely." |
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Sorry, but you are not addressing my point: it is not enough just to declare it is a "false dichotomy" - you have to show precisely why. Here is my point again: Once labor gets divided among people, they are no longer individually self-sufficient. Then, as each one owns that one's product, there is the need of exchanging the social product among them. That's where money comes from: it makes that exchange always possible. The alternative is to have the state controlling social production and distributing social product, which is precisely what you don't want.
To justify your disagreement, you must show precisely where my reasoning went wrong. |
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