Representational Monetary Identity

[mirelo]

I make a deposit of U$ 1.000,00. Then, my (so to speak) bank loans one of your debtors (if any) the U$ 900,00 in excess reserves created by my deposit. Finally, that guy pays you his debt with a bank transfer of the borrowed U$ 900,00. Now imagine a voice telling you that the U$ 900,00 you just received in payment are just an illusion. Is that voice really yours?

Um? the illusion is that you have $1000 available to you in your demand deposit bank account, not that I didn't receive $900.  

Unsurprisingly, I would choose to think precisely the opposite. Then, we would sort it out with a little fight. We are about to see something similar in a global scale.

[hazek]

I make a deposit of U$ 1.000,00. Then, my (so to speak) bank loans one of your debtors (if any) the U$ 900,00 in excess reserves created by my deposit. Finally, that guy pays you his debt with a bank transfer of the borrowed U$ 900,00. Now imagine a voice telling you that the U$ 900,00 you just received in payment are just an illusion. Is that voice really yours?

Um? the illusion is that you have $1000 available to you in your demand deposit bank account, not that I didn't receive $900.  

Unsurprisingly, I would choose to think precisely the opposite. Then, we would sort it out with a little fight. We are about to see something similar in a global scale.

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

[mirelo]

Think of money as an accounting system. What is an asset on my balance sheet, could be a liability on someone else's, or an asset of a company thats owns my company. Does the asset exist 1, 2 or 3 times? Is it the same? Its a meaningless discussion. Money is fungible, and its just accounting of debt.

For money to account for debt, it must exist independently of the debt it accounts for. Otherwise, what you have is just debt accounting for itself, which is (now truly) meaningless.

[mirelo]

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

The point is that you regard loaned money to be just an illusion.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

[hazek]

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

The point is that you regard loaned money to be just an illusion.

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

[mirelo]

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

The point is that you regard loaned money to be just an illusion.

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion?

[solex]

In a bitcoin system the central bank would not be able to print bitcoin and would have to source it, from tax revenues perhaps. This is the inflexible part of the BTC monetary base.

There is no central bank.  That's the point, decentralization.  In that aspect, Bitcoin is inflexible I suppose but that is by design.

Oh. Absolutely. I was thinking of the existing CBs struggling on in a bitcoin economy.

The irony is that CBs would wind up killing FRB because they would not want to backstop retail banks with real, hard-earned money! So they would raise reserve ratios from 10% to 100% so that banks could only lend out 1BTC for each 1BTC of capital. This is the inflexible ideal for banking.

[Puppet]

For money to account for debt, it must exist independently of the debt it accounts for. Otherwise, what you have is just debt accounting for itself, which is (now truly) meaningless.

No its not meaningless, its precisely what money is; a tradeable representation of debt, aka IOU. Money without debt is what has no meaning, and in our system, it cant even exist. Money doesnt represent anything other than someone else's debt.

[hazek]

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

The point is that you regard loaned money to be just an illusion.

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion?

YES. Because 90% of it was loaned out so you cannot have $1000 anymore. You only "have" $1000 because the bank is willing to take from some other depositor and give it to you.

[mirelo]

How does it matter what you choose to think when the bank lent out your money and now can't pay you back?

The point is that you regard loaned money to be just an illusion.

No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this.

However, my example shows that:

• While the system is working, neither loaned nor originally deposited money are illusions.
• When the system stops working, both loaned and originally deposited money are illusions.

What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist.

Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion?

YES. Because 90% of it was loaned out so you cannot have $1000 anymore. You only "have" $1000 because the bank is willing to take from some other depositor and give it to you.

My U$ 1.000,00 can rather belong to the bank's excess reserves. Or, I can succeed in withdrawing them if I am quicker than you and benefit from the bank's 10% reserves. And even if there are no excess reserves and I am not quick enough so the bank cannot give me my money, my U$ 1.000,00 still belong to me since it was the bank that loaned them, not me: I am not responsible for what my bank does, am I? The point is that the money created by loans must be money just as much as the money originally deposited (and in practice indistinguishable from it), otherwise the system cannot work. If you say deposit money is an illusion, then you are saying that loaned money is an illusion, and conversely.

[hazek]

My U$ 1.000,00 can rather belong to the bank's excess reserves. Or, I can succeed in withdrawing them if I am quicker than you and benefit from the bank's 10% reserves. And even if there are no excess reserves and I am not quicker enough so the bank cannot give me my money, my U$ 1.000,00 still belong to me since it was the bank that loaned them, not me: I am not responsible for what my bank does, am I? The point is that the money created by loans must be money just as much as the money originally deposited (and in practice indistinguishable from it), otherwise the system cannot work. If you say deposit money is an illusion, then you are saying that loaned money is an illusion, and conversely.

Are you high?

If the bank loans out your money, even though they owe you that money, you thinking you have access to that money is an illusion, no matter how you slice it, period. The $1000 you deposited are not with the bank anymore and have moved into someone else's pocket (the borrower). What you actually have with the bank is an IOU for $1000 that you hold and the bank is a counterparty to.

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.


And these are the facts, no matter what you think depositing $1000 into a demand deposit account entitles you to.

I am not responsible for what my bank does, am I?

Under the current system with the FDIC and FED you have the illusion of no responsibility because you are protected by them and can count on always getting your IOU repaid which is the huge problem banking has today. But that doesn't mean you aren't actually holding an IOU when depositing into a demand deposit account and that you aren't personally responsible to pick a bank that will prudently loan out your money and keep a prudent reserve ratio. You are, read your contract with the bank, it tells you are when they tell you that under certain circumstances you wont get your money on demand.

[mirelo]

No its not meaningless, its precisely what money is; a tradeable representation of debt, aka IOU. Money without debt is what has no meaning, and in our system, it cant even exist. Money doesnt represent anything other than someone else's debt.

Without money, I cannot owe you anything: the object of debt is exchange value, of which the only expression is money. That is why money cannot itself be debt, except as a result of some confusion, which is precisely what happens in today's monetary system.

[mirelo]

If the bank loans out your money, even though they owe you that money, you thinking you have access to that money is an illusion, no matter how you slice it, period.

I went to my bank yesterday and made a withdrawal of almost all my balance. Was that an illusion, period?

(Of course I know the bank is loaning my money and eventually I will be unable to withdraw it. However, this has not happened so far.)

The $1000 you deposited are not with the bank anymore and have moved into someone else's pocket (the borrower). What you actually have with the bank is an IOU for $1000 that you hold and the bank is a counterparty to.

If the bank loaned my money, then it forgot to subtract any such loan from my balance. If my money has indeed "moved into someone else's pocket," then the bank, for not letting me know about it by subtracting the moved money from my account balance, is defrauding me---which you said not long ago it is not doing, remember?

So it is not true all I have is an IOU. What I have is an IOU that I must take as money (since this is what my account balance is telling me).

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.

It is not my choice to treat this IOU as money: it is the only money around. If I don't treat it as money, then I will have no money to pay for things (at least while Bitcoin does not go mainstream).

And these are the facts, no matter what you think depositing $1000 into a demand deposit account entitles you to.

What you are failing to understand is that even if I am eventually unable to withdraw my money, I am still entitled to do so, which is precisely why fractional-reserve banking is a flawed monetary system.

I am not responsible for what my bank does, am I?

Under the current system with the FDIC and FED you have the illusion of no responsibility because you are protected by them and can count on always getting your IOU repaid which is the huge problem banking has today. But that doesn't mean you aren't actually holding an IOU when depositing into a demand deposit account and that you aren't personally responsible to pick a bank that will prudently loan out your money and keep a prudent reserve ratio. You are, read your contract with the bank, it tells you are when they tell you that under certain circumstances you wont get your money on demand.

One thing is my responsibility for the monetary system society adopts. In this sense, I have the responsibility to fight for a better monetary system, for me and for all. However, in the current monetary system I am not responsible for my bank's loans. This is not a matter of considering myself responsible or not: this is a formal contract between me and my bank. Whatever that contract says, my money remains mine and I can always withdraw it.

[hazek]

If the bank loans out your money, even though they owe you that money, you thinking you have access to that money is an illusion, no matter how you slice it, period.

I went to my bank yesterday and made a withdrawal of almost all my balance. Was that an illusion, period?

I explained it to you that if every demand deposit account holder went and did the same the bank couldn't repay all of their IOUs and would go bust unless bailed out.

If you can't face facts I'm simply going to stop wasting my time explaining them to you.

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.

It is not my choice to treat this IOU as money: it is the only money around. If I don't treat it as money, then I will have no money to pay for things (at least while Bitcoin does not go mainstream).

False. You can use cash + a savings account.

What you are failing to understand is that even if I am eventually unable to withdraw my money, I am still entitled to do so

Says who? Certainly not your contract with the bank. Have you read the fine print?

[mirelo]

I explained it to you that if every demand deposit account holder went and did the same the bank couldn't repay all of their IOUs and would go bust unless bailed out.

If you can't face facts I'm simply going to stop wasting my time explaining them to you.

Then stop wasting your time explaning me something I already know.

Now you treat this IOU as if it's actual money because in the current system it behaves just like actual money, but it's not. It's debt and an illusion that in a market regulated strictly by consumption i.e. in a free market would not survive.

It is not my choice to treat this IOU as money: it is the only money around. If I don't treat it as money, then I will have no money to pay for things (at least while Bitcoin does not go mainstream).

False. You can use cash + a savings account.

Don't you know that almost all of our society's money is debt? Since you are so fond of the facts, I expected you to know this one. In our society, debt and money are the same. So far, there is no escape from that, which is precisely what Bitcoin is all about.

What you are failing to understand is that even if I am eventually unable to withdraw my money, I am still entitled to do so

Says who? Certainly not your contract with the bank. Have you read the fine print?

No one reads the fine print. This is another fact I expected you to know---the banks certainly know it.

[Puppet]

Without money, I cannot owe you anything: the object of debt is exchange value, of which the only expression is money. That is why money cannot itself be debt, except as a result of some confusion, which is precisely what happens in today's monetary system.

Money is a tradable representation of debt. You have a car, I want to have it. We could barter if I had something you wanted, say a diamond, but as it happens, I dont. So I write you a IOU to give you something in return for the car at a later date. That IOU is money, and it represents nothing else then the debt created when you gave me your car. It seizes to exist the moment I repay my debt. For instance when some time later I give you a diamond  for the car. You hand me back the IOU and I shred it. Paying for something with money is just an exchange of debt.

Now you may not know or trust me or my credit worthiness, so in practice we will use a bank we both trust to issue the IOU. I apply for a loan, bank creates the IOU (money) based on my pledge to repay it, I trade that IOU for your car. Then later you trade that IOU back to me  for the diamond, I give it to the bank to repay my loan and the IOU no longer exists. Its exactly the same principle.

[mirelo]

Money is a tradable representation of debt. You have a car, I want to have it. We could barter if I had something you wanted, say a diamond, but as it happens, I dont. So I write you a IOU to give you something in return for the car at a later date.

What would be that something you will give me "at a later date"? That something is the money. Otherwise, you would have to have a different "tradable representation of debt" for each transaction, each one referencing the particular commodities involved in its represented transaction.

Money is not an IOU: it is what IOU.

[Puppet]

Money is a tradable representation of debt. You have a car, I want to have it. We could barter if I had something you wanted, say a diamond, but as it happens, I dont. So I write you a IOU to give you something in return for the car at a later date.

What would be that something you will give me "at a later date"? That something is the money.

No, the money is what I give you instantly, if Im lacking something of actual value you want to barter for the car. In my example you wanted a diamond ring for the car, that is what you will get at a later date, by trading my IOU (money) either with me or someone else for a diamond. Nobody actually wants money, we want what we can buy with the money, ie, collect the debt it represents. If the money doesnt represent a debt, its quite worthless.

Otherwise, you would have to have a different "tradable representation of debt" for each transaction, each one referencing the particular commodities involved in its represented transaction.

We just agree on a value denominated in something abstract, that used to be gold and now we call it dollar or euro, thereby making debt fungible and the IOUs more versatile than a "good for a x carat diamond" or "good for 10 ounces of gold" note. But fundamentally its still the exact same thing and its definitely a IOU.

Money is not an IOU: it is what IOU.

IOU
n
a written promise or reminder to pay a debt

In the above example, the debt is what i owe you for the car. The money you get serves as proof of what you are owed by the issuer of the IOU, be it me or a bank. The money itself has no value, other than the debt it represents.

[mirelo]

No, the money is what I give you instantly, if Im lacking something of actual value you want to barter for the car. In my example you wanted a diamond ring for the car, that is what you will get at a later date, by trading my IOU (money) either with me or someone else for a diamond.

So the money for us must represent a diamond. However, a certain amount of money does not represent a diamond: it represents the exchange value not only of this diamond, but of anything having the same exchange value. If money meant "I owe you a diamond," then it could not buy anything other than a diamond, which means it could not buy anything---since by definition money does not care what it buys, provided it has the same exchange value it has.

Nobody actually wants money, we want what we can buy with the money, ie, collect the debt it represents. If the money doesnt represent a debt, its quite worthless.

We want money because we want to be able to buy things, mostly not yet knowing which ones. Money does not represent what we want to buy: it rather represents its exchange value.

No amount of money makes any decision about what we can buy with it: that is precisely the point of money: the capacity to represent exchange value, giving us absolute freedom about its concrete form.

If I have U$ 100,00 and a pair of shoes worth U$ 200,00 and you have U$ 200,00 and a knife worth U$ 100,00, I can give you my pair of shoes while you give me U$ 100,00 and your knife. In the end, we still own U$ 300,00 each, both in monetary and commodity form, and nobody owes anybody anything.

We just agree on a value denominated in something abstract, that used to be gold and now we call it dollar or euro...

Here you are close to defining money, except for the word "abstract": money is a generic exchange value denominated in something concrete.

In the above example, the debt is what i owe you for the car. The money you get serves as proof of what you are owed by the issuer of the IOU, be it me or a bank. The money itself has no value, other than the debt it represents.

A monetary debt consists in owing not an object, but rather its exchange value. If I owe you U$ 100,00, I can pay you with anything worth U$ 100,00 (although I suspect you will prefer money so you don't have to sell whatever I give you to get what you want). So any monetary debt requires an independent representation of exchange value. If a monetary debt were itself the owed exchange value, then it would become an infinite regression of the form: someone owes the circumstance of someone owing the circumstance of someone owing the circumstance... to someone else.

[Puppet]

Mirelo, you really dont understand. Money today is almost universally credit money, its created based on debt, its literally created out of thin air by banks based on your or my pledge to repay it later and money therefore represents a debt itself.  This is true for your bank account which is created by the bank, its true for notes which are created by the central bank, usually based on government bonds (ie debt). Our money  used to represent a debt by the issuer expressed in gold, which made it easier to understand (the money was redeemable for a fixed amount of gold, and therefore a 'good for gold' note, which really is just a tradeable  debt certificate). Now its value is no longer pegged against gold or anything, but it still works the exact same way.

If I have U$ 100,00 and a pair of shoes worth U$ 200,00 and you have U$ 200,00 and a knife worth U$ 100,00, I can give you my pair of shoes while you give me U$ 100,00 and your knife. In the end, we still own U$ 300,00 each, both in monetary and commodity form, and nobody owes anybody anything.

What you completely miss is that these banknotes already are a tradeable form of someone else's debt. We exchange debt all the time and since its fungible, we have no idea who's debt it represents, but money is debt of and by itself.  your "monetary debt" is therefore a bit of an oxymoron, and btw, you can not redeem such debt or any debt by giving me anything of value. You have that backwards. Im not forced to accept any goods as payment of any kind of debt, I am however forced (by law) to accept fiat money to redeem any sort of debt. That money however, is nothing else than a bank or government sanctioned debt of someone else. Fundamentally, our money works no different than if you wrote "good for $100" on a cheque book, or on a piece of toilet paper,  and used that is if it was $100. The only difference is that we use trusted institutions called banks to verify creditworthiness, and guarantee the debt.