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Author Topic: Real money vs debt, and the value of bitcoin. (Mitchell-Innes credit theory)  (Read 6786 times)
johnyj
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September 30, 2013, 02:27:23 PM
Last edit: October 01, 2013, 01:06:39 PM by johnyj
 #81


Back to the simple question: Who owns the FED?

Suppose the airway companies form a cartel, which the government enforce by law. Then, who owns that cartel?

I can give you a hint: In china, the government (to be more specifically, the communist party) OWNS the central bank, so most of the large building in china are government buildings, like congressional house, government office building, high speed train station etc... while in western most of the large buildings are banks' office

The FED creates money by loaning it to the government.

If this definition is coming from the FED, then it is no use, since fool would be telling you the truth if they are printing money for themselves

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mirelo
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September 30, 2013, 03:05:53 PM
Last edit: September 30, 2013, 03:20:21 PM by mirelo
 #82


Back to the simple question: Who owns the FED?

Suppose the airway companies form a cartel, which the government enforce by law. Then, who owns that cartel?

I can give you a hint: In china, the government (to be more specifically, the communist party) OWNS the central bank, so most of the large building in china are government buildings, like congressional house, government office building, high speed train station etc... while in western most of the large building are banks' office

As I told you before: if an institution owns another institution, then the latter cannot loan money to the former. The Chinese central bank is a cartel - just like the FED - owned by the members of that cartel (in the case of the FED, banks control its shares, despite not being able to sell them in the market - which is a mechanism to enforce the cartel).

The FED creates money by loaning it to the government.

If this definition is coming from the FED, then it is no use, since fool would be telling you the truth if they are printing money for themselves

They are not just "printing" (digital) money: they are loaning it (to the government) into existence: the government bonds given in exchange for that money represent this debt.
johnyj
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September 30, 2013, 11:20:24 PM
 #83


Back to the simple question: Who owns the FED?

Suppose the airway companies form a cartel, which the government enforce by law. Then, who owns that cartel?

I can give you a hint: In china, the government (to be more specifically, the communist party) OWNS the central bank, so most of the large building in china are government buildings, like congressional house, government office building, high speed train station etc... while in western most of the large building are banks' office

As I told you before: if an institution owns another institution, then the latter cannot loan money to the former.

Good, so you agree that government and FED have totally different ownership

The FED creates money by loaning it to the government.

If this definition is coming from the FED, then it is no use, since fool would be telling you the truth if they are printing money for themselves

They are not just "printing" (digital) money: they are loaning it (to the government) into existence: the government bonds given in exchange for that money represent this debt.

I recommend you forget about the word "loan" for a while, because it will make easy things complicated. The government bonds are like any other product, they can be sold to any entities: Japanese/Chinese government combined together owns more US government bonds than FED. However, any of the other person buy bonds using hard-earned cash while FED buy bonds using printed money, there is no loan process involved at all

Or, if you really like to use the word "loan" to complex the matter, then it will be like this: The average people loan money to US government in exchange for their bonds. But still, they must first work to earn those money and then loan them to US government, while FED do not need to work to earn those money, they just create them out of nothing




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October 01, 2013, 02:50:47 AM
Last edit: October 01, 2013, 03:28:23 AM by mirelo
 #84

Good, so you agree that government and FED have totally different ownership

What I am saying from the beginning (unlike you above, on the Central Bank of China) is that no central bank could belong to the same government to which it loans money. Additionally, as I also said, the FED and the US Government have a partnership, which would likewise not be possible if either owned the other.

The FED creates money by loaning it to the government.

If this definition is coming from the FED, then it is no use, since fool would be telling you the truth if they are printing money for themselves

They are not just "printing" (digital) money: they are loaning it (to the government) into existence: the government bonds given in exchange for that money represent this debt.

I recommend you forget about the word "loan" for a while, because it will make easy things complicated.

Government bonds represent a debt the government has with the bond holder: we cannot forget about that without forgetting about the bond itself (nobody buys a bond for its aesthetic beauty, but rather because it entitles its holder to become a government creditor, then to earn interest on government debt).

Or, if you really like to use the word "loan" to complex the matter, then it will be like this: The average people loan money to US government in exchange for their bonds. But still, they must first work to earn those money and then loan them to US government, while FED do not need to work to earn those money, they just create them out of nothing

Most money people use to buy bonds is already a loan from the central bank to the government. This is precisely because the FED did not have that money before loaning it to the USA, so any additional monetary value resulting from its creation can only originate from that loan itself.
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October 01, 2013, 01:21:19 PM
 #85


Most money people use to buy bonds is already a loan from the central bank to the government. This is precisely because the FED did not have that money before loaning it to the USA, so any additional monetary value resulting from its creation can only originate from that loan itself.

It does not matter what that money originally come from, be it a loan, or robbed from the banks, or lost by someone, or counterfeited, etc... The only important is how did you acquire that money: As long as you get it through work or trading, then from your point of view, it has value, since you paid valuable things in exchange for it. But from central bank's point of view, those money should have no value since they paid nothing valuable in exchange for it, they just declare the ownership of those printed money and start to loan them out to government. This was not the case under a gold standard, where they also have to work/operate business to exchange gold as reserve, then print money based on that reserve


mirelo
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October 01, 2013, 02:58:47 PM
Last edit: October 01, 2013, 04:03:38 PM by mirelo
 #86


Most money people use to buy bonds is already a loan from the central bank to the government. This is precisely because the FED did not have that money before loaning it to the USA, so any additional monetary value resulting from its creation can only originate from that loan itself.

It does not matter what that money originally come from, be it a loan, or robbed from the banks, or lost by someone, or counterfeited, etc... The only important is how did you acquire that money: As long as you get it through work or trading, then from your point of view, it has value, since you paid valuable things in exchange for it.

Money that originates from a loan is worth the corresponding debt, regardless of what we then sell for it or buy with it. Money does not get its value just from our exchanging something for it, but rather must be valuable before we can buy anything with it or sell anything for it (otherwise nobody would want it in exchange for something valuable to begin with). The value of most money we use today comes from an either public or private liability.

But from central bank's point of view, those money should have no value since they paid nothing valuable in exchange for it, they just declare the ownership of those printed money and start to loan them out to government. This was not the case under a gold standard, where they also have to work/operate business to exchange gold as reserve, then print money based on that reserve

Instead of not having any monetary value, the FED's money should not add any such value to the economy because it does not represent additional value in wealth - not because it has not been exchanged for something valuable (as I just told you, money does not get its value just from our exchanging it). Unfortunately, the FED's money does add exchange value to the economy: this exchange value comes from the same act that created its monetary representation - a loan.
johnyj
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October 01, 2013, 06:21:02 PM
 #87


Money does not get its value just from our exchanging something for it, but rather must be valuable before we can buy anything with it or sell anything for it (otherwise nobody would want it in exchange for something valuable to begin with)


Exactly, if the money printed by FED does not have a value before FED buy anything with it, they could not get its value from their exchanging some government bond for it




mirelo
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October 01, 2013, 06:52:13 PM
Last edit: October 01, 2013, 07:13:33 PM by mirelo
 #88


Money does not get its value just from our exchanging something for it, but rather must be valuable before we can buy anything with it or sell anything for it (otherwise nobody would want it in exchange for something valuable to begin with)


Exactly, if the money printed by FED does not have a value before FED buy anything with it, they could not get its value from their exchanging some government bond for it





The FED's money does not exist before buying those bonds: the acts of loaning and creating this money are one and the same, which is why the resulting monetary value is nothing other than that loan itself.

(You keep treating the FED's money as if it were just money while it is rather money mistaken by debt.)
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October 01, 2013, 07:55:50 PM
 #89

Each time the Fed prints a dollar it is producing a paper claim on a dollar worth of future taxes to be paid to the US Treasury by the US taxpayers. The Treasury has sub-contracted the monetizing of its tax income stream to the Fed. The "loaning" in this situation arises because the tax income does not yet exist, so is a Treasury debt to the dollar holder (since 1971 repayable only in printed dollars  Smiley)

mirelo
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October 01, 2013, 08:44:04 PM
Last edit: October 01, 2013, 09:16:29 PM by mirelo
 #90

Each time the Fed prints a dollar it is producing a paper claim on a dollar worth of future taxes to be paid to the US Treasury by the US taxpayers. The Treasury has sub-contracted the monetizing of its tax income stream to the Fed. The "loaning" in this situation arises because the tax income does not yet exist, so is a Treasury debt to the dollar holder (since 1971 repayable only in printed dollars  Smiley)


You forgot to mention the government must repay that dollar bill (to a bond holder) with interest, so the future "tax income stream" must exceed the original dollar bill.

Additionally, the FED does not monetize the government's (already monetary) tax income stream: the FED monetizes the government's debt. Before the FED, although the government could sell bonds in the market and create money, money creation could not be a loan to the government, which hence could not monetize its own debt. As thus, debt monetization (in its public form) was not "subcontracted" to, but rather made possible by, the FED.
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October 02, 2013, 12:18:59 AM
 #91


The FED's money does not exist before buying those bonds: the acts of loaning and creating this money are one and the same, which is why the resulting monetary value is nothing other than that loan itself.

(You keep treating the FED's money as if it were just money while it is rather money mistaken by debt.)

Now I understand where is your way of thinking coming from, it is this "loaning and creating money at the same time". Maybe you also think that without that debt, the money can not be created?

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

Same, you destroyed something valuable, you have a debt to the owner, but you don't necessary need to pay him money, you can work for him to clear your debt. Debt simply means value to be paid in future, it is not necessary to have relation with money

Back to the topic, it does not matter if loaning and creating money happened at the same time or one after another, the result is the same. Have a look at the situation before and after the money creation:

Before:
Government have government bonds. FED has nothing.

(The issuering of government bond is the responsibility of treasury. It has nothing to do with FED. In fact the previous picture indicated that FED only holds 10% of total government bond)

After:
Government have money. FED has bond

So, before and after the money creation, the Government's net worth do not change, they just changed from holding the bond to holding equal value of money. But FED's net worth changed from 0 to the value of those bonds

And at a later time, FED could sell the bonds to get money back (tightening), but then the money they get back will become their asset

So, during this strange money creation process, FED get a boost in net worth without doing anything




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October 02, 2013, 06:09:02 AM
 #92

Okay zarathustra, I'm going to play along.
Lets say there is no military or police to protect people's property, no foreign threat and everyone has a cow, a bull, a pair of chicken and seeds to start off their self sufficient lives.
What happens next.

As soon as some people started to enslave animals and to treat them as a property, they startet to enslave humans and treat them as a property as well. It is the same, and therefore the same problem: Submissive, violent and slavish moral. As long as a majority of the citizens and consumers accept this kind of 'human' being, as long they will have organised violence against themselves and against others.

You made no single mention to money (I guess this is not your subject after all).

As I said already: Money is debt and has never ever been something different. The first debt is the tax and all other money (debt) arises as a derivative of this first debt, the tax.
Never ever any money (debt) came into existence in a free territory beyond the state. Nobody needs money there, because they are not taxed. They are self-sufficient.
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October 02, 2013, 08:02:36 AM
 #93

you could argue though that self-sufficiency doesn't scale.

Or that top-down structures and hierarchies in human history had an evolutionary advantage after all.

People do like exotic goods after all which the kings and rulers indirectly provided when they issued currency which enabled trade along the (ancient) Silk Road.

So, not every invention by kings and rulers was bad. Some satisfied real demand. Money seems to belong into this category. Money is a tool to organize division of labor on a grand scale. Recognizing that fact, Bitcoin may be the first currency not issued by an authority, and the first without force behind it (to the gold bugs: no, gold was never free, was always mined on territory of rulers and thus initially belonged to them).

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mirelo
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October 02, 2013, 11:15:37 AM
 #94


The FED's money does not exist before buying those bonds: the acts of loaning and creating this money are one and the same, which is why the resulting monetary value is nothing other than that loan itself.

(You keep treating the FED's money as if it were just money while it is rather money mistaken by debt.)

Now I understand where is your way of thinking coming from, it is this "loaning and creating money at the same time". Maybe you also think that without that debt, the money can not be created?

Maybe you think the creation of money by the FED is the only form of money creation?

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

My point is that although debt and money are fundamentally different, they are the same in the fractional-reserve and central banking monetary system (please read this thread from the beginning).

Same, you destroyed something valuable, you have a debt to the owner, but you don't necessary need to pay him money, you can work for him to clear your debt. Debt simply means value to be paid in future, it is not necessary to have relation with 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.

Back to the topic, it does not matter if loaning and creating money happened at the same time or one after another, the result is the same. Have a look at the situation before and after the money creation:

Before:
Government have government bonds. FED has nothing.

(The issuering of government bond is the responsibility of treasury. It has nothing to do with FED. In fact the previous picture indicated that FED only holds 10% of total government bond)

After:
Government have money. FED has bond

So, before and after the money creation, the Government's net worth do not change, they just changed from holding the bond to holding equal value of money. But FED's net worth changed from 0 to the value of those bonds

Bonds are an instrument of debt: if the government already had something valuable, then it would have no need of going into debt.

And at a later time, FED could sell the bonds to get money back (tightening), but then the money they get back will become their asset

The money that returns to the FED ceases to exist, just like a loan repaid to a commercial bank.

So, during this strange money creation process, FED get a boost in net worth without doing anything

Both the FED and the government appropriate value in exchange for nothing valuable.
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October 02, 2013, 11:22:57 AM
Last edit: October 02, 2013, 11:51:34 AM by mirelo
 #95

Okay zarathustra, I'm going to play along.
Lets say there is no military or police to protect people's property, no foreign threat and everyone has a cow, a bull, a pair of chicken and seeds to start off their self sufficient lives.
What happens next.

As soon as some people started to enslave animals and to treat them as a property, they startet to enslave humans and treat them as a property as well. It is the same, and therefore the same problem: Submissive, violent and slavish moral. As long as a majority of the citizens and consumers accept this kind of 'human' being, as long they will have organised violence against themselves and against others.

You made no single mention to money (I guess this is not your subject after all).

As I said already: Money is debt and has never ever been something different. The first debt is the tax and all other money (debt) arises as a derivative of this first debt, the tax.
Never ever any money (debt) came into existence in a free territory beyond the state. Nobody needs money there, because they are not taxed. They are self-sufficient.

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.
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October 02, 2013, 12:31:36 PM
 #96

The alternative is to have the state

False dichotomy.

Watch this docu: Living Utopia (The Anarchists & The Spanish Revolution)

Or, for a more modern example of syndicalism, this one: The Mondragon Experiment - Corporate Cooperativism (1980) FULL

I've said it many times, the issue is not about trading ("capitalism") vs sharing ("socialism"). It is about scale. People need to feel in control of their own affairs again, and that works best on a local level (which can also be virtual in the age of the internet).

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October 02, 2013, 12:41:41 PM
 #97

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

Gold doesn't become money, it stays as gold.
Just as silver stays as silver, pearls stay as pearls and rhino horn stay as rhino horns.
They may have value, but they are still commodities.
Otherwise, what is your definition of money, if it isn't 'anything that has value'?

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johnyj
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October 02, 2013, 12:50:20 PM
 #98


The FED's money does not exist before buying those bonds: the acts of loaning and creating this money are one and the same, which is why the resulting monetary value is nothing other than that loan itself.

(You keep treating the FED's money as if it were just money while it is rather money mistaken by debt.)

Now I understand where is your way of thinking coming from, it is this "loaning and creating money at the same time". Maybe you also think that without that debt, the money can not be created?

Maybe you think the creation of money by the FED is the only form of money creation?

My point is that although debt and money are fundamentally different, they are the same in the fractional-reserve and central banking monetary system (please read this thread from the beginning).


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

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"  Wink

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

mirelo
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October 02, 2013, 02:03:57 PM
 #99

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

Gold doesn't become money, it stays as gold.
Just as silver stays as silver, pearls stay as pearls and rhino horn stay as rhino horns.
They may have value, but they are still commodities.
Otherwise, what is your definition of money, if it isn't 'anything that has value'?

Gold becomes money when society decides to use it as money, just like with silver or any other form of money.
murraypaul
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October 02, 2013, 02:08:01 PM
 #100

Debt and money are totally different things, they do not depend on each other. You dig out some gold, that gold becomes money, no debt involved

Gold doesn't become money, it stays as gold.
Just as silver stays as silver, pearls stay as pearls and rhino horn stay as rhino horns.
They may have value, but they are still commodities.
Otherwise, what is your definition of money, if it isn't 'anything that has value'?

Gold becomes money when society decides to use it as money, just like with silver or any other form of money.

Or pearls, or rhino horns, or seashells.
There is nothing magical about gold.
Money, as you said, is whatever society decides to accept as a general medium of barter, and assign to it value greater than its intrinsic, commodity, value.
But everything that has value isn't money, it has to be generally accepted as such by society, or by a particular sub-group.
In prisons, for example, cigarettes might function as money.

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