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I'm sorry I used the word 'fractional'. It's a bit of a red herring here. The making of loans does not require a reserve of any sort theoretically. It just req

I'm sorry I used the word 'fractional'. It's a bit of a red herring here. The making of loans does not require a reserve of any sort theoretically. It just requires trust in the institution loaning more of these imaginary dollars/points/beanie babies on a spreadsheet or in a database somewhere. It's just a promise. It was traditionally handled through a backing of some fractional reserve and is still guaranteed in a lot of places by a promise of holding so much reserve of the currency. The reserve fraction varies. I believe retail banks are more bound by risk and regulatory requirements than by their reserve in making loans. Modern monetary theory is scares the hell out of me. It seems to give way too much power to too few people. I like instead the idea of encouraging banks to loan to certain industries specifically. This has worked for all these 'miracle' economies like Japan/Korea/China.

neilwilson 5y ago
MMT is a description of how money actually works. Ultimately we all create money all the time because it is just a promise by of something in the future. . The difference is that government can force you to obtain a particular promise via the taxing powers we give it at election time. No trust required. Banks then leverage that. For a dollar to be called a dollar there has to be a transitive clearance link to the entity that owns it. Otherwise it is just a liability of the bank in question - like a share or bond
dalbasal 5y ago
So... Re:mmt. Modern monetary theory seems to enjoy spooking people. Not sure that's a good thing. However... You can and should separate between "how X works" and "what should we do." Mmt has the best description of how fiat money works. A lot of this is at odds with existing institutional structure in both the US & EU. In any case, there is no contradiction between MMT and being conservative, anti-centralisation or any other value system. It is just a description of how bank money works. The powers still exist, they're just non-explicit currently. EU members can, in effect, print euros. As we saw in the Greek crisis, the ECB's actual role/power is making euros exchangeable for euros, regardless of country. This is very different to how these instructions were conceived, because they didn't understand the money system of their own time. Similarly, the US Fed-treasury complex doesn't represent where power and control actually are. The whole discourse becomes jumbled.
- TacticalCoder 5y ago
  > EU members can, in effect, print euros. As we saw in the Greek crisis, ... What do you mean? Greece half-jokingly threatened printing shitload of actual physical euros to pay back their public debt and the EU prevented them to do so. Greece defaulted. If EU members really could print, why did Greece default?
  - dalbasal 5y ago
    I mean that when Greece says "I will put €x in your bank account", they can. They don't need to get those euros from somewhere else. They can just make them appear in your bank. That's why they can run deficits without running out of money. This is basically "where euros come from." They're spent into an economy by governments. The ECB keeps track of how much each government spends, less taxes collected. The diff becomes "national debt." Money owed to the ECB. The ECB decides interest rates, but this is basically just accounting. Greece will never have a persistent surplus, where ECB loans are paid down. Neither will other member states. So, interest "payments" just determine how fast the national debt grows. The ECB threatened to stop backing the Greek banking system, which basically would have turned euros in Greek banks into a divergent currency.
    - cogogo 5y ago
      > I mean that when Greece says "I will put €x in your bank account", they can. They don't need to get those euros from somewhere else. They can just make them appear in your bank. That's why they can run deficits without running out of money. The Greek government cannot create EUR by fiat. Only the ECB has that power. Any EUR that they could place into an individual entity's account would need to come from tax receipts or some kind of loan (Gov Bonds, loan from IMF etc.). Developed economies run deficits by issuing government bonds and selling them to the open market. If for whatever irrational reason there were infinite market appetite for Greek bonds there never would have been a debt crisis - they could have kept on raising money in the market and running a deficit. > This is basically "where euros come from." They're spent into an economy by governments. The ECB keeps track of how much each government spends, less taxes collected. The diff becomes "national debt." Money owed to the ECB. National debt for developed countries is mostly money raised by issuing government bonds in the international bond market. The ECB does not loan member states money directly. In extreme cases like the European Debt Crisis[0] they buy sovereign bonds in the open market (effectively a loan). Money is created by the ECB's interactions with the banking system [1], not government spending. > The ECB decides interest rates, but this is basically just accounting. Greece will never have a persistent surplus, where ECB loans are paid down. Neither will other member states. So, interest "payments" just determine how fast the national debt grows. The interest rate the Greek government pays on its debt is not determined by the ECB. It determined by the open market when they issue bonds. The interest rates the ECB sets [2] directly affect the banking system and not government borrowing rates. [0] https://en.wikipedia.org/wiki/European_debt_crisis https://en.wikipedia.org/wiki/European_debt_crisis [1] https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/what_is_money.en.html https://www.ecb.europa.eu/ecb/educational/explainers/tell-me... [2] https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
User23 5y ago
The major fiat currencies use a proof of violence system to establish value. Specifically, engaging in economic activity incurs fiat denominated tax liabilities, even if that activity doesn’t use the fiat. The currency issuing and taxing authority has offered proof that it will use whatever violence is necessary to enforce those tax liabilities. This creates a more or less inelastic demand for fiat and thus gives it value.

neilwilson 5y ago

MMT is a description of how money actually works. Ultimately we all create money all the time because it is just a promise by of something in the future. . The difference is that government can force you to obtain a particular promise via the taxing powers we give it at election time. No trust required. Banks then leverage that. For a dollar to be called a dollar there has to be a transitive clearance link to the entity that owns it. Otherwise it is just a liability of the bank in question - like a share or bond

dalbasal 5y ago

So... Re:mmt. Modern monetary theory seems to enjoy spooking people. Not sure that's a good thing. However... You can and should separate between "how X works" and "what should we do." Mmt has the best description of how fiat money works. A lot of this is at odds with existing institutional structure in both the US & EU. In any case, there is no contradiction between MMT and being conservative, anti-centralisation or any other value system. It is just a description of how bank money works. The powers still exist, they're just non-explicit currently. EU members can, in effect, print euros. As we saw in the Greek crisis, the ECB's actual role/power is making euros exchangeable for euros, regardless of country. This is very different to how these instructions were conceived, because they didn't understand the money system of their own time. Similarly, the US Fed-treasury complex doesn't represent where power and control actually are. The whole discourse becomes jumbled.

TacticalCoder 5y ago
> EU members can, in effect, print euros. As we saw in the Greek crisis, ... What do you mean? Greece half-jokingly threatened printing shitload of actual physical euros to pay back their public debt and the EU prevented them to do so. Greece defaulted. If EU members really could print, why did Greece default?
- dalbasal 5y ago
  I mean that when Greece says "I will put €x in your bank account", they can. They don't need to get those euros from somewhere else. They can just make them appear in your bank. That's why they can run deficits without running out of money. This is basically "where euros come from." They're spent into an economy by governments. The ECB keeps track of how much each government spends, less taxes collected. The diff becomes "national debt." Money owed to the ECB. The ECB decides interest rates, but this is basically just accounting. Greece will never have a persistent surplus, where ECB loans are paid down. Neither will other member states. So, interest "payments" just determine how fast the national debt grows. The ECB threatened to stop backing the Greek banking system, which basically would have turned euros in Greek banks into a divergent currency.
  - cogogo 5y ago
    > I mean that when Greece says "I will put €x in your bank account", they can. They don't need to get those euros from somewhere else. They can just make them appear in your bank. That's why they can run deficits without running out of money. The Greek government cannot create EUR by fiat. Only the ECB has that power. Any EUR that they could place into an individual entity's account would need to come from tax receipts or some kind of loan (Gov Bonds, loan from IMF etc.). Developed economies run deficits by issuing government bonds and selling them to the open market. If for whatever irrational reason there were infinite market appetite for Greek bonds there never would have been a debt crisis - they could have kept on raising money in the market and running a deficit. > This is basically "where euros come from." They're spent into an economy by governments. The ECB keeps track of how much each government spends, less taxes collected. The diff becomes "national debt." Money owed to the ECB. National debt for developed countries is mostly money raised by issuing government bonds in the international bond market. The ECB does not loan member states money directly. In extreme cases like the European Debt Crisis[0] they buy sovereign bonds in the open market (effectively a loan). Money is created by the ECB's interactions with the banking system [1], not government spending. > The ECB decides interest rates, but this is basically just accounting. Greece will never have a persistent surplus, where ECB loans are paid down. Neither will other member states. So, interest "payments" just determine how fast the national debt grows. The interest rate the Greek government pays on its debt is not determined by the ECB. It determined by the open market when they issue bonds. The interest rates the ECB sets [2] directly affect the banking system and not government borrowing rates. [0] https://en.wikipedia.org/wiki/European_debt_crisis https://en.wikipedia.org/wiki/European_debt_crisis [1] https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/what_is_money.en.html https://www.ecb.europa.eu/ecb/educational/explainers/tell-me... [2] https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...

User23 5y ago

The major fiat currencies use a proof of violence system to establish value. Specifically, engaging in economic activity incurs fiat denominated tax liabilities, even if that activity doesn’t use the fiat. The currency issuing and taxing authority has offered proof that it will use whatever violence is necessary to enforce those tax liabilities. This creates a more or less inelastic demand for fiat and thus gives it value.