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You are mixing money with cash. Cash is money created directly by the government but, when the government pay their providers in their accounts they don't use

You are mixing money with cash. Cash is money created directly by the government but, when the government pay their providers in their accounts they don't use cash; they (or I should say 'we') just increment a number in a computer and that money is equally valid that cash because it's equally valid to pay taxes. It's money so real as any coin or bank note.

ThrustVectoring 11y ago
The "can you pay taxes with this" is a really important point. It's why the US dollar is valuable - if you want to do business in the US, you have to pay taxes, and the US government only accepts dollars.
- chii 11y ago
  If you do business with US dollars, you automatically have the thing you need to pay taxes. But what if you bartered instead? Does it count? Does the IRS know, since you won't have paper trail records of payment.
  - ThrustVectoring 11y ago
    It counts. You might get away with it, but if the IRS knows they will send people with guns to arrest you. Re: automatically having the thing you need to pay taxes - this is exactly why you can go to the grocery store and buy stuff with US dollars.
Retric 11y ago
Cash and electronic cash are interchangeable. Banks can literally just exchange them. Picture Bank A with 10 million$ on hand. Now, Bank A tells Bank B, I want to transfer 200 million to account XYZ. What stops this from working? Well bank A and B are both talking to the Fed and the Fed says bank A does not have 200 million. The same thing stops Bank A from just ordering 20 million in cash. PS: Don't forget there are still plenty of small banks. If owning a bank let you create unlimited cash from thin air people would do so.
- RobertoG 11y ago
  "Cash and electronic cash are interchangeable." Not all the "electronic cash" is created equal. Money is an IOU, so, the important thing is: who is backing that IOU? If you ask a credit for 200 millions and the bank think that it's a good business they will credit your account with the money, but it's important to realize that this money comes from nowhere. The bank just created this money, not the government, and it's an IOU backed by the bank. So this IOU is not the same that the money the government use to pay providers (that is really a IOU from the government). The bank is creating money and it has to meet legals requirements for doing this, for instance, getting, a posteriory, enough reserves (this is why is called a fractional system). If you want to move your 200 millions to other bank, what would happen is the two banks would try to balance, at the end of the day, the movement of money in both directions. Maybe somebody is moving 200 millions from the other bank too. In the case there is not a balance, the one in the negative has to borrow from the other banks. When banks lost trust in each other we have situations as we have seen in the last crisis. Seriously, anyone interested in those things should check MMT.
  - Retric 11y ago
    "creating money" is not really it. Banks are only required to keep a percentage of there deposits on hand. So, if a bank has 10 million in deposits and the reserve is 10% then they can only send 9 million to another bank end of story. The really important thing is that 9 million is not an IOU. It's deducted from the banks account at the FED. The IOU is to the banks depositors. Now, Bank B, who got 9 million could then lend out 90% of that. But, with X money the entire banking system can only 'make' 10X assuming 10% reserve requirements. It's a little more complex because the reserve requirements can change, and the FED does not require the entire reserve in cash. But, the important point is banks can only make a finite amount of IOU's. PS: Now a sudden shock of failed banks can suddenly force the FED to make cash to cover FDIC. But, the FDIC has enough money to cover normal bank failures.
    - RobertoG 11y ago
      Seriously, banks don't lend reserves: http://www.economonitor.com/lrwray/2013/08/15/banks-dont-lend-reserves-who-knew-mmt-thats-who/ http://www.economonitor.com/lrwray/2013/08/15/banks-dont-len... http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d97ffea3594 http://www.forbes.com/sites/francescoppola/2014/01/21/banks-... It's a fascinating subject when you start to dig in it.

ThrustVectoring 11y ago

The "can you pay taxes with this" is a really important point. It's why the US dollar is valuable - if you want to do business in the US, you have to pay taxes, and the US government only accepts dollars.

chii 11y ago
If you do business with US dollars, you automatically have the thing you need to pay taxes. But what if you bartered instead? Does it count? Does the IRS know, since you won't have paper trail records of payment.
- ThrustVectoring 11y ago
  It counts. You might get away with it, but if the IRS knows they will send people with guns to arrest you. Re: automatically having the thing you need to pay taxes - this is exactly why you can go to the grocery store and buy stuff with US dollars.

Retric 11y ago

Cash and electronic cash are interchangeable. Banks can literally just exchange them. Picture Bank A with 10 million$ on hand. Now, Bank A tells Bank B, I want to transfer 200 million to account XYZ. What stops this from working? Well bank A and B are both talking to the Fed and the Fed says bank A does not have 200 million. The same thing stops Bank A from just ordering 20 million in cash. PS: Don't forget there are still plenty of small banks. If owning a bank let you create unlimited cash from thin air people would do so.

RobertoG 11y ago
"Cash and electronic cash are interchangeable." Not all the "electronic cash" is created equal. Money is an IOU, so, the important thing is: who is backing that IOU? If you ask a credit for 200 millions and the bank think that it's a good business they will credit your account with the money, but it's important to realize that this money comes from nowhere. The bank just created this money, not the government, and it's an IOU backed by the bank. So this IOU is not the same that the money the government use to pay providers (that is really a IOU from the government). The bank is creating money and it has to meet legals requirements for doing this, for instance, getting, a posteriory, enough reserves (this is why is called a fractional system). If you want to move your 200 millions to other bank, what would happen is the two banks would try to balance, at the end of the day, the movement of money in both directions. Maybe somebody is moving 200 millions from the other bank too. In the case there is not a balance, the one in the negative has to borrow from the other banks. When banks lost trust in each other we have situations as we have seen in the last crisis. Seriously, anyone interested in those things should check MMT.
- Retric 11y ago
  "creating money" is not really it. Banks are only required to keep a percentage of there deposits on hand. So, if a bank has 10 million in deposits and the reserve is 10% then they can only send 9 million to another bank end of story. The really important thing is that 9 million is not an IOU. It's deducted from the banks account at the FED. The IOU is to the banks depositors. Now, Bank B, who got 9 million could then lend out 90% of that. But, with X money the entire banking system can only 'make' 10X assuming 10% reserve requirements. It's a little more complex because the reserve requirements can change, and the FED does not require the entire reserve in cash. But, the important point is banks can only make a finite amount of IOU's. PS: Now a sudden shock of failed banks can suddenly force the FED to make cash to cover FDIC. But, the FDIC has enough money to cover normal bank failures.
  - RobertoG 11y ago
    Seriously, banks don't lend reserves: http://www.economonitor.com/lrwray/2013/08/15/banks-dont-lend-reserves-who-knew-mmt-thats-who/ http://www.economonitor.com/lrwray/2013/08/15/banks-dont-len... http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d97ffea3594 http://www.forbes.com/sites/francescoppola/2014/01/21/banks-... It's a fascinating subject when you start to dig in it.