The Myth of Money as the Mere Concept of an IOU

[mirelo]

A representation of debt is an object representing "I owe (money to) you": an IOU.

Money can itself be an IOU. For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner. Then:

1. To the borrower, an IOU becomes the loaner's money.

2. To the loaner, the borrower's money becomes an IOU.

This way, whether loaner and borrower are aware of that or not, their money has become an IOU. Thus, if I am the borrower and you are the loaner, this IOU is an object representing "I owe you" that money. So even as an IOU, our money remains what IOU.

Then, "I owe you" an... IOU: as long as we mistake debt for money, I owe you... the circumstance that I owe you... the circumstance that I owe you...

[Adrian-x]

Not only does everyone learn this at school , they also intuitively understand it and conduct their lives accordingly. Never questioning and assuming just the opposite that IOU's are in fact representative of a commodity and and/or time value, forgetting the IOU's loosely regresses back, are in fact a promissory note for an IOU of a common commodity utilised as a medium of exchange.  

If you think that is crazy you should try fractional reserve banking with wheat.

[johnyj]

IOU is a trick to mislead people, after several times of IOU, people don't know the original ownership, what should belongs to them now belongs to banks 

[mirelo]

IOU is a trick to mislead people, after several times of IOU, people don't know the original ownership, what should belongs to them now belongs to banks 

Unfortunately, the trick is not the IOU itself. It is not even its mistaking for money. The trick is using this confusion between debt and money to control other people.

[grue]

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

[johnyj]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

[johnyj]

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

Just like FRB, IOU is checkbook money, not real money, it is just an accounting term, same money can be counted multiple times, thus create a illusion of lots of money, when in reality the real money is much less

[mirelo]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

[johnyj]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

[mirelo]

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

[mirelo]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

[johnyj]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

[mirelo]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise (IOU) from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

This was before central banks issuing almost all reserves as a public debt. Now even when you withdraw your money it remains a promise.

No, central banks create base money (real money), which is backed by nothing, and then they use this money to buy bonds and MBS

Neither central nor commercial banks issue money "backed by nothing." What "backs" the money central banks and commercial banks issue is respectively public and private debt: the money central banks issue is a loan to public entities just like the money commercial banks issue is a loan to private entities.

It is easier to understand things from ownership point of view, otherwise you will get lost in lots of IOUs

If I have a house, then I'm able to issue some money equavalent to house's value. Notice that I need to have the ownership of the house, and then I can use that house as mortgage and issue some money

But central bank is very different, they do not have the ownership of the government bonds at the first place, but they still issue the money that is backed by those government bonds. How is that possible? Because they claim the ownership of those money when they created them. Only central bank can claim the ownership of money without any valuable thing exchange for those money, and central banks are privately owned, so issentially they claim the ownership of everything in the country by printing money

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

[johnyj]

Banks - whether central or commercial - issue money by loaning it. The acts of loaning and issuing that money are the same. Conversely, when the borrower repays the loan (which governments around the world no longer even dream of doing) the money vanishes.

Commercial banks do not have the right to create money, they can only borrow money from central bank. Central bank is the lender of the last resort, they can't borrow from anyone else, they must create money

http://en.wikipedia.org/wiki/Money_creation

[Adrian-x]

The trick is using this confusion between debt and money to control other people.

How exactly does confusion between the definition of "money" and "debt" lead to control? Most people know that the bank is loaning money out to others. Also, upon withdraw of the money, the "IOU" becomes money again. I don't see the issue here.

The confusion between debt and money turns money into a self-inflating debt principal because, for being debt, it becomes its own interest. Paying the interest on such a debt requires more money, hence more debt. This creates inflation, which makes it increasingly difficult for people to pay the interest on their debt due to the decreasing unit-value of money. So they go deeper into debt, becoming slaves of whoever controls money (debt) issuance.

Bang on.

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

[mirelo]

I was going to tell a story to illustrate the problem, in addition debt is a promise today to provide a commodity and/or time value in the future. Their is a risk you can defalt and not fulfill the promise. Now if you use that promise as money to pay for other economic activity, the others giving up real commodities and/or time value, and accepting thate promise as payment in the future are in fact giving up value today in exchange for the ability money provides as a store of value for the future but what they actually are saving/getting is not the store of value they created but a risky promise someone somewhere else made with a potential possibility of defalt.

It is much worse than that: inflated debt in this case is identical to inflated exchange value, so what you are getting here is a partially false monetary value. You may be lucky and get your promise, but many will not.

[grue]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

[mirelo]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

[johnyj]

What happened in a loan process is complex. The moment you put your money into a bank, you lose the ownership of those money, you only get a promise from the bank that they will pay you when you withdraw. You regain the ownership only after your withdraw

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Deposit_Insurance_Fund

[grue]

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If all the people go to bank and withdraw their money, there will be a bank run. Just like FRB, FDIC is another level of insurance to calm down depositors. If all the banks facing withdraw pressure at the same time, even FDIC can not payout that much money. FDIC only have $100 billion at hand to insure about $10 trillion deposits

But what I argued was that IOU "all intents and purposes it's just as good as real money". Yes, there's a tiny risk of catastrophic failure if the bank fails and the deposit insurance fails, but people accept that risk in exchange for convenience and security of their money, compared to stashing them under their mattresses. People not are misinformed about what happens to their money when they are making a deposit, so I'm really having trouble seeing the issue here.

Also,

For example, when a commercial bank loans money deposited with it, this bank does not withdraw that money from the borrowed account. So the loaned money must belong to both its borrower and its loaner

No, that's not true. In this case, the bank has a IOU to the depositor, and the lender has a IOU to the bank. The money belongs to one person only: the lender. The bank has a fraction of the deposits in cash for customer withdraws, hence why the bank can also fulfill the depositor's withdraw request at any time (to an extent).

What exactly is wrong with losing ownership of the money? Deposit insurance covers in case of a bank failure. It's technically a IOU, but the possibility of not being able to withdraw their is slim. What you're arguing over is semantics. Yes, the money deposited in a bank is an IOU, but for all intents and purposes it's just as good as real money.

If you cannot see anything wrong with losing ownership of your money, then why don't you give it all to me?

Because:

• you don't have deposit insurance
• you can't give me my money at moment's notice
• i don't know or trust you
• you are not bound by any government regulation or audits