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Oh dear oh dear. Private banks create money. If only it were state lead.
by branchless 10y ago
Oh dear oh dear. Private banks create money. If only it were state lead.
- RobertoG 10y agoSure, but there is money and there is money. Banks create an asset in their balance, but they create a liability at the same time. Only governments spending create net financial assets in the economy (that is not the same that real assets, of course). https://fernandonogueiracosta.files.wordpress.com/2011/08/cullen-roche-mmt-understanding-the-modern-monetary-system.pdf https://fernandonogueiracosta.files.wordpress.com/2011/08/cu... (If it's too long, see 'vertical transactions')
- andyspicer 10y agoDon't cryptocurrencies break that model? They are financial assets in the economy that are not created or presently controlled by governments.
- RobertoG 10y agoIt depends on your definition of money. From my point of view, cryptocurrencies are financial assets but not money. They are not an IOU (https://en.wikipedia.org/wiki/IOU https://en.wikipedia.org/wiki/IOU). Government money is a IOU because you are promised that it (and only it) will be accepted as a payment by the state. Anyway, state money can never be totally replaced at least that the government accept payment taxes in the new currency. And why people would start using other currency if they have to get the official currency for taxes payment?
- branchless 10y agoAgreed. Acceptance for tax payment is what imbues money with value.
- RobertoG 10y agoI read your comments and I think you are missing only a few pieces of the puzzle. I recommend you to investigate Modern Monetary Theory. It's what made me fill the holes in my understanding (the bigger holes, at least).
- branchless 10y agoI'm familiar with MMT and my understanding is that sites like positive money push this perspective, that banks create money: http://positivemoney.org/how-money-works/how-banks-create-money/ http://positivemoney.org/how-money-works/how-banks-create-mo...
- branchless 10y agoWill read this but not sure I'll agree. Banks create money and it is fungible with state tax payment money http://www.bankofengland.co.uk/research/Pages/workingpapers/2015/wp529.aspx http://www.bankofengland.co.uk/research/Pages/workingpapers/...
- RobertoG 10y agoIt's a different kind of money, because in a case debt is created and in the other no (even if we use the fiction that it is): https://pediaview.com/openpedia/Modern_Monetary_Theory#Vertical_transactions https://pediaview.com/openpedia/Modern_Monetary_Theory#Verti... http://www.nakedcapitalism.com/2015/01/bill-mitchell-demystifying-modern-monetary-theory.html http://www.nakedcapitalism.com/2015/01/bill-mitchell-demysti... (thanks for the link)
- branchless 10y agoI'm going to read these too. I think nakedcapitalism is such a great blog. I agree one is created as debt which will be destroyed ultimately on repayment. However this is the nub - they create 100 and demand back 110 at a later date, therefore more must be lent in the interim to avoid a deflationary collapse.