5 ms·
The article makes a much more interesting point, which is that now that money is mostly electronic it is an incredible tool for control by governments, particul
by QuesnayJr 7y ago
The article makes a much more interesting point, which is that now that money is mostly electronic it is an incredible tool for control by governments, particularly the US government. The US government can squeeze Iran now, for example, because it controls SWIFT. It's a very down-to-earth point.
Your point is something much vaguer, and not really true. Commodity money, like Spanish pieces-of-eight, has an intrinsic value. Commodity-backed and fiat money are debts of the government, but for you they are assets. If you held a US gold certificate, the government owed you gold. With fiat money, the government basically doesn't owe you anything, but it's still a debt for the government and an asset for you in accounting terms. Before electronic money, the government had very little control over what purposes that money was put to, so it wasn't much of a power.
- littlestymaar 7y ago> With fiat money, the government basically doesn't owe you anything, but it's still a debt for the government and an asset for you in accounting terms. You don't understand how money works. “Money is created by the government” is a myth. In western countries (and most of the world, including China!), money is created by private banks and the money on your bank account is a debt from some guy somewhere (likely a mortgage, a student loan or some corporate debt).
- QuesnayJr 7y agoThere are multiple definitions of money. You are using what the Fed calls the "M2" definition. I have in mind the "monetary base" definition. Why are bank accounts denominated in units of currency? It's because demand deposits are an extremely close substitutes of actual currency. Anyway, they work the same way. Money in the bank is an asset to you, and a liability to the bank.
- littlestymaar 7y ago> I have in mind the "monetary base" definition. This is incompatible with your previous statement: > it's still a debt for the government and an asset for you in accounting terms. You don't own a single dollar of reserve money as an asset. And the monetary base is a tiny fraction of money. The vast majority of which is debt.
- QuesnayJr 7y agoCash is base money. The Fed lists it as a liability on its balance sheet.
- littlestymaar 7y agoAnd cash is a tiny fraction of the money supply. (There is not a single bank in the US that could withstand a bank run, there's just not enough bank notes in circulation).
- sifar 7y agoUnder fractional banking, almost all money is created via debt. Government issues debt which is bought up buy banks which allows the government to issue new money including cash. It is purely created from thin air. The asset I put in bank as deposits are too derived via this mechanism. It is an asset to the bank because they have lent it to the government. Part of it is a liability to them because i have lent it to them to further loan it out in multiples which become their assets ..... infinite recursion. It is turtles all the way.
- spiralx 7y ago> Under fractional banking, almost all money is created via debt. Government issues debt which is bought up buy banks which allows the government to issue new money including cash. It is purely created from thin air. Except fractional reserve banking isn't an accurate model of how money works today. Money is created by bank loans, not deposits - a bank with zero deposits could still lend money.
- sifar 7y agoAgreed, still it needs some base reserve to not run afoul of regulation - the initial capitalization based on which it could lend out that first loan. Even for a central bank, the government has to capitalize it first with some amount to kickstart the process so that it can borrow more from it.