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All money is essentially debt. It might be a failure of imagination from my part, but I can't see what you would replace it with except a system just like eit b

All money is essentially debt. It might be a failure of imagination from my part, but I can't see what you would replace it with except a system just like eit but not quite it.

rjf72 7y ago
He's referring to something in specific that many people do not consider. Most of our money is not printed, but created by fractional reserve systems through debt. Banks in general are only required to hold 10% of their deposits on hand. The rest can be lent/invested. If there's a run on the bank they rely on a central bank to give them money to cover it. Most people know this stuff, but consider this: - Bob deposits $100 of 'real' money at a bank. - Joe takes out a loan of $90 and uses it to buy something from Jane. - Jane deposits $90 at the bank. - Mike takes out a loan of $81 ... And this process recurses on downward with a smaller and smaller share each time. But the mathematical result of this is that $100 of "real" deposits ends up creating $1000 of debt. And that's before interest which, for long term loans, can be multiplicative. So $100 of "real" money may end up creating thousands of dollars of debt. We've created a system where banks end up, quite rapidly, being owed literally more money than exists. Great time to be a banker for sure. This is why the Fed and other financial entities are so obsessed with inflation. Inflation makes everything more expensive in the present, but it also reduces the cost of loans from the past. Imagine I take out a loan for $1000 and somehow the next day we see 100% inflation. Well now my loan can be paid back with only $500 of 'value' as measured from the time I took out the loan. If inflation is higher than the interest rate on my loan, I actually earn money by not repaying it. By contrast, deflation makes older loans more expensive. And of course there is also the investment outlook. Inflation is a penalty on wealth. If there's 2% inflation per year, my billion dollar piggy bank becomes worth ~$20 million less each year. So I'm incentivized to invest actively. By contrast with deflation I can sit on my money and become relatively richer by the day. But this also puts us on a roller coaster. Old debt is only paid off with new debt which will only be paid off with new debt which ... And the money definitely does trickle downward, but at the same time it gushes upward. And the ride keeps going faster, and growing bigger. Not hard to imagine a different system as ours is grossly counter intuitive. Of course different doesn't mean better so, as a recurring theme in human history, we're only like to change once things go boom.
- captn3m0 7y ago
  Thanks a lot. Can you recommend a book if I’d like to read more on this explained similarly.
  - chimi 7y ago
    This is one of the first things you'll learn studying Macroeconomics. Any introductory book on that topic will teach you about the concept. In general, you can look for information pertaining to "How banks create money," which refers to your $100 deposit turning into $1000 after it completes the ownership ladder. If you're still in college and have the opportunity to take some electives, I highly recommend Micro and Macroecon.
  - maneesh 7y ago
    A great book on the creation of the fed and fractional reserve is The Creature From Jekyll Island
    - captn3m0 7y ago
      I almost bought this, but the author looks very shady: >G. Edward Griffin (born November 7, 1931) is an American author, filmmaker, and conspiracy theorist. Griffin's writings promote a number of views and conspiracy theories regarding various of his political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community.[2][3][4] He is the author of The Creature from Jekyll Island (1994), which promotes false theories about the motives behind the creation of the Federal Reserve System.[2][5] He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory.[2] He also believes that the biblical Noah's Ark is located at the Durupınar site in Turkey. https://en.wikipedia.org/wiki/G._Edward_Griffin https://en.wikipedia.org/wiki/G._Edward_Griffin
- crdoconnor 7y ago
  The flip side of money being created by creating loans is that it is extinguished when those loans are paid back. Taxes also effectively perform the same function - destroying money (consider what would happen if all current tax money were burned and all government spending were printed - economically no different). This side of the equation doesn't get a commensurate level of attention.
pjkundert 7y ago
That's a great question! When you create money through "taking a loan" against property, the bank creates deposits equal to the "loan", secured by your assets. These assets are attached by the bank (a lein), valued by an appraiser and insured against loss (at your expense). The bank creates these deposits ex nihilo; the only one in this equation that has any wealth is you, and the bank is at little to no risk. Imagine, instead, a scenario where all of this takes place; you have wealth, you insure it against all perils (loss due to destruction or theft, including title insurance against fraud, etc.), at your expense. You get it appraised, and then money springs into being. Exactly like today. Except with no bank, and no "interest" being charged. The same limiting function is used, as by the banks; the amount of money allowed to be brought into existence for a certain amount of wealth is some percentage (say, for example, 75%, or whatever). Except, this factor is dynamic; it is adjusted automatically as inflation or deflation occurs, dynamically issuing and withdrawing "credit" (the amount of money credited to your account due to the pledged wealth). The value of the units of currency can thus be established at an absolutely fixed valuation (say, relative to a basket of widely traded commodities; steel, kWh electricity, pork bellies, OJ, barrels of WTI crude, etc.). If someone needs to "borrow", in excess of the money they have created based on their wealth, they can do so on the private market; not based on some fanciful central-bank controlled interest rate, but at market rates from others with excess wealth/credit, at their own individual risk-adjusted market rate. Anyway, that's a quick summary of one potential alternative. Same highly dynamic money supply, most of the same "moving parts", but no central-bank interest stream is required to create the stock and flow of credit underlying the economy.

All money is essentially debt. It might be a failure of imagination from my part, but I can't see what you would replace it with except a system just like eit but not quite it.

rjf72 7y ago

He's referring to something in specific that many people do not consider. Most of our money is not printed, but created by fractional reserve systems through debt. Banks in general are only required to hold 10% of their deposits on hand. The rest can be lent/invested. If there's a run on the bank they rely on a central bank to give them money to cover it. Most people know this stuff, but consider this: - Bob deposits $100 of 'real' money at a bank. - Joe takes out a loan of $90 and uses it to buy something from Jane. - Jane deposits $90 at the bank. - Mike takes out a loan of $81 ... And this process recurses on downward with a smaller and smaller share each time. But the mathematical result of this is that $100 of "real" deposits ends up creating $1000 of debt. And that's before interest which, for long term loans, can be multiplicative. So $100 of "real" money may end up creating thousands of dollars of debt. We've created a system where banks end up, quite rapidly, being owed literally more money than exists. Great time to be a banker for sure. This is why the Fed and other financial entities are so obsessed with inflation. Inflation makes everything more expensive in the present, but it also reduces the cost of loans from the past. Imagine I take out a loan for $1000 and somehow the next day we see 100% inflation. Well now my loan can be paid back with only $500 of 'value' as measured from the time I took out the loan. If inflation is higher than the interest rate on my loan, I actually earn money by not repaying it. By contrast, deflation makes older loans more expensive. And of course there is also the investment outlook. Inflation is a penalty on wealth. If there's 2% inflation per year, my billion dollar piggy bank becomes worth ~$20 million less each year. So I'm incentivized to invest actively. By contrast with deflation I can sit on my money and become relatively richer by the day. But this also puts us on a roller coaster. Old debt is only paid off with new debt which will only be paid off with new debt which ... And the money definitely does trickle downward, but at the same time it gushes upward. And the ride keeps going faster, and growing bigger. Not hard to imagine a different system as ours is grossly counter intuitive. Of course different doesn't mean better so, as a recurring theme in human history, we're only like to change once things go boom.

captn3m0 7y ago
Thanks a lot. Can you recommend a book if I’d like to read more on this explained similarly.
- chimi 7y ago
  This is one of the first things you'll learn studying Macroeconomics. Any introductory book on that topic will teach you about the concept. In general, you can look for information pertaining to "How banks create money," which refers to your $100 deposit turning into $1000 after it completes the ownership ladder. If you're still in college and have the opportunity to take some electives, I highly recommend Micro and Macroecon.
- maneesh 7y ago
  A great book on the creation of the fed and fractional reserve is The Creature From Jekyll Island
  - captn3m0 7y ago
    I almost bought this, but the author looks very shady: >G. Edward Griffin (born November 7, 1931) is an American author, filmmaker, and conspiracy theorist. Griffin's writings promote a number of views and conspiracy theories regarding various of his political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community.[2][3][4] He is the author of The Creature from Jekyll Island (1994), which promotes false theories about the motives behind the creation of the Federal Reserve System.[2][5] He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory.[2] He also believes that the biblical Noah's Ark is located at the Durupınar site in Turkey. https://en.wikipedia.org/wiki/G._Edward_Griffin https://en.wikipedia.org/wiki/G._Edward_Griffin
crdoconnor 7y ago
The flip side of money being created by creating loans is that it is extinguished when those loans are paid back. Taxes also effectively perform the same function - destroying money (consider what would happen if all current tax money were burned and all government spending were printed - economically no different). This side of the equation doesn't get a commensurate level of attention.

pjkundert 7y ago

That's a great question! When you create money through "taking a loan" against property, the bank creates deposits equal to the "loan", secured by your assets. These assets are attached by the bank (a lein), valued by an appraiser and insured against loss (at your expense). The bank creates these deposits ex nihilo; the only one in this equation that has any wealth is you, and the bank is at little to no risk. Imagine, instead, a scenario where all of this takes place; you have wealth, you insure it against all perils (loss due to destruction or theft, including title insurance against fraud, etc.), at your expense. You get it appraised, and then money springs into being. Exactly like today. Except with no bank, and no "interest" being charged. The same limiting function is used, as by the banks; the amount of money allowed to be brought into existence for a certain amount of wealth is some percentage (say, for example, 75%, or whatever). Except, this factor is dynamic; it is adjusted automatically as inflation or deflation occurs, dynamically issuing and withdrawing "credit" (the amount of money credited to your account due to the pledged wealth). The value of the units of currency can thus be established at an absolutely fixed valuation (say, relative to a basket of widely traded commodities; steel, kWh electricity, pork bellies, OJ, barrels of WTI crude, etc.). If someone needs to "borrow", in excess of the money they have created based on their wealth, they can do so on the private market; not based on some fanciful central-bank controlled interest rate, but at market rates from others with excess wealth/credit, at their own individual risk-adjusted market rate. Anyway, that's a quick summary of one potential alternative. Same highly dynamic money supply, most of the same "moving parts", but no central-bank interest stream is required to create the stock and flow of credit underlying the economy.