If that were done, I see little reason to care about the "fairness" of the system; the banks pretty much end up looking like private utilities. On the other hand, a central bank has no source of funding unless government gives it tax receipts. Which precisely illustrates the difference between liabilities & money. "It is my understanding that U.S. tax forms expressly state that the tax due must NOT be submitted in cash (currency). This lack of acceptance by banks drove all those other tokens out of use very rapidly. Bank credit money is not simply a form of debt. New money enters the economy through the indebtedness of borrowers, thus not only obligating the public to the money-issuing private banks but also creating an endless and self-escalating debt that can never be repaid. The film offers amazingly elementary facts about the creation of money in the United States, narrated by a soothing voice, which could make for a bland presentation, yet the film's message is anything but vapid. Make an assumption that individuals and banks can not lend to themselves but allow government the privilege of lending to itself. If you read the first page of 'Money is not a cigarette', use of the term 'money' consistently, in precisely the way you suggest. I would call that debt free money, myself. "You can't put a price tag on the authority to collect taxes. My grandfather bought savings bonds. Consider my substantive point: Why do you think people buy corporate bonds? I am probably going to jump between "liabilities" and "debt" solely based on "literary" considerations. I will explain this in an article that will be published tomorrow. Money as Debt. This type of Demand Note was due within a 24 hour period and drove many citizens into bankruptcy. That helps me out a lot and I know where to look to learn more now. " Bank credit money is also created when the central bank purchases securities from the non-bank private sector, and when the central bank spends into the real economy. Moreover, I am just amazed how much I have learned in just 47 minutes. As a result, I am not too convinced of the utility of a common sense definition here. Other entities can be forced to exchange not-money property to settle debt but that is a far different circumstance from any potential forced settlement of a government debt obligation.This would be in agreement with your position, but here is the problem: There is no link between money and debt in the sense of repayment ability. Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple graphic terms what money is and how it is created. If they are replaced, individual notes are redeemed. If you consolidate all sectors, yes you will wipe out all debts, and you would only be left with real assets. We can look at a variety of instruments - bank deposits, coins, tokens, Treasury bills, and then decide that some of them have the property of being "money". so there is still a total of 100 REAL dollars. See my "Disclaimer" page for my privacy policy as well as advertising affiliate information. ;), The "rich people" statement is something I disagree with.I have been slowly writing articles on the Canadian pension system. Money as debt If money is created by banks issuing loans with interest, does this mean all debt can never be repaid requiring a continually growing ponzi-scheme like structure of debtors? And this ability to cash in is not an afterthought. Money good, debt bad. Specifically, Griffin criticizes Grignon's proposal for "interest-free banking" and fiat, albeit government-created as opposed to central bank-created, currency.[15]. How could there be that much money to lend? ", the two "principles" you identify are NOT mutually exclusive. Stated another way, if money is created when government borrows from a bank, the money created will persist until government finally does pay down the debt.I close this comment pointing to the distinction between government borrowing from a bank it owns (a central bank) and borrowing from a private bank. But primarily the MMT line on banking is that the liability side is the wrong place to control the banks and that it should be regulated on the asset side. I prefer not to blur "debt"and "liabilities". We can run simulations of how debt interest payments will affect income flows, based on various scenarios. This is both an analytical challenge - to define the distinct properties accurately - and an empirical challenge - to identify distinct phenomena in the economy corresponding to this distinction. [10] The film claims that this ever-increasing gravitation of money to banks is capable of impoverishing any nation. stories that were once popular. I agree that money could be thought of as a "negotiable tax credit"; but that still makes it some form of a liability of the government. What I meant is that vault cash is correlated to currency held by the public. Awesome Inc. theme. Beyond that the central bank should just run overdrafts to cover the liabilities that banks require. It is now ready for distribution. @ Neil WilsonAndrew Jackson repaid nearly all of the debt of the U. S. That was pretty disastrous for the economy, eh? I think that's what QE is about.As far as I can tell, QE is the ONLY form of the fed issuing dollars that is not created as a loan. Other units in society are not allowed to do this in perpetuity.A federal government with zero net worth is one that holds non-financial and financial assets equal to the level of its issued liabilities. It's only in a crisis that people wish that they more "government money.". Les grands sont gardés secrets par l’incrédulité du public. The author may discuss strategies which are wildly inappropriate for retail investors. I don't know.I think positive money advocates raise important questions, but they go WAY too far with their ideas. Proponents assert that the essential nature of money is credit (debt), at least in eras where money is not backed by a commodity such as gold. Thus bank credit money and other investments in banks are bank liabilities which are legal evidence of debt.The federal government can run a negative net worth in perpetuity without any adverse consequences for society or for individuals in society. However, there appear to be implications for the discussion of government debt, where there are presumably operational differences between the two views. to provide currency on demand and to transfer credit money on demand), it is simply fallacious to use the words "liability", "credit" and "debt" as if they are synonymous. He goes to his local bank and deposits it in a new checking account. 1. In both cases, there is a change in a deposit or payable account. "Eric,MMT shows there is a simple solution. The fed issues dollars but the treasury issues its own form of dollars as bonds.I would consider treasury dollars to be a form of debt for the treasury department, as they commit to redeem bonds for federal reserve dollars. The case of token money in the Canadian colonies. —Norm Franz, Money and Wealth in the New Millennium We are nearing the end of the debt-as-currency era. Please see my latest article; a gold coin is actually best thought of as a package: an IOU, along with collateral (the physical gold). Using a four sector model of the United States economy (Treasury, Fed, Aggregate Banks, Aggregate Nonbanks) then monetary gold would appear as an asset on the books of each sector with no matching liabilities. The only reason to care about government debt levels is if we want to see how they affect the rest of the economy. 1. Money As Debt is a fast-paced and highly entertaining animated feature by artist & videographer, Paul Grignon. Taxes help enforce the value of the dollar, even though the actual value is provided by people and businesses offering services.Tax enforces dollar value, private services provide dollar value, public services support dollar value.If we dig deeper, there are actually two forms of the dollar. It is used to cancel out an asset - taxed receivable.I do like using "liability" (or "financial liability") instead of "debt", but they are essentially the same thing. As a result, we still have to do our credit analysis of private borrowers (unless you think they are "too big to fail"). I liked the article. If reserves and T-Bills were the same, Greece wouldn't have a problem (it can issue T-Bills). "[13], On his personal website, Paul Grignon said there were two main criticisms of the documentary, provided counter arguments, but conceded that his presentation of fractional-reserve banking may have been "misleading" and "in the revised edition will be replaced with less contentious information. (People resort to barter when the previous monetary regime collapses.) However, the deposit is a liability of the bank. Money as Debt has been the pillar to my understanding of what has happened to our money system and, largely, why the world is where it is today, at least on a financial level. I'm looking forward to tomorrow's post.The RATIO of bank debt to government debt may become important when the money generated by bank lending approaches the amount generated by government debt. I did not want to get into the tax angle of the debate, but you could pay at least some government taxes/fees with currency, and so currency can also be thought of as negotiable tax credits, which are another type of government liability. Although people may offer summary explanations of what they think money is, in practice, there are hidden assumptions about what drives the acceptability of money. Additionally, saying that "Debts are used to provide cashflows" does not eliminate "physical cash" (currency notes) from being considered debt; physical cash can be classified as a perpetual zero-coupon debt in bearer form. This video describes how basic banking system works and answers the … Such a claim is therefore contingent, it is not a perpetual claim. Therefore they should really be discounting future profit flows.Whether the banks make a profit out of the payment system is the same argument about whether any outsourced operator makes a profit out of running an outsourced operation. Furthermore, the issuer is expected to redeem the coin at face value.If you "net out" the liability, all you are left with is a pile of metal, which has certain physical characteristics (weight, purity). Yes, the Great Depression was created by the Fed, which contracted the money supply just as Member banks called in a new type of loan called Margin loans from depositors. is a burden on future generations who have to repay it, and that rational people will save money in order to repay the debt on the eventual day of reckoning. Pictures of a Ukrainian Dream — Pepe Escobar, Australian labour market struggling with significant sectoral disparities, OTPP Acquires Brazilian Electricity Firm Evoltz from TPG, Some lessons in how to combat the Tory propaganda machine. By contrast, money is used to pay for things [emphasis mine - BR], and its value resides in a network externality – it … New money enters the economy through the indebtedness of borrowers, thus not only obligating the public to the money-issuing private banks but also creating an endless and self-escalating debt that is to eventually outgrow all other forms of wealth generation. Past performance is not a predicton of future performance (which should make some bond bulls fairly nervous). Many things do indeed have the property of moneyness/liquidity - it is best thought of as a spectrum. That way we're less likely to suffer from gov't administrative delays when we submit our huge debt loads for erasure.Gotta run , I've got a big credit line to max out.....Marko. It can be publicly or privately issued, although in modern times we generally think of it as being government issued. When comparing debt and money, we are making a similar two criteria comparison.If we agree that a bank loan can increase the money supply, then money must trace back to a identifiable loan. This seldom happens. (This is my interpretation of what MMT authorities (Wray, Mitchell) have written. Perhaps dollars can permanently enter circulation when someone defaults. But such models are pretty much unworkable; people have a hard time forecasting where bond yields will be one year ahead (for proof, look at everyone's annual forecasts released in December), never mind 10 years. Thus banks create credit money whenever they spend into the real economy (i.e. Not sure why I dragged M1 in there.3. Hi, Ralph!You even have economists who think that debt must ultimately be repaid, that therefore government debt (US, Japanese, Australian, etc.) I worked as a fixed income analyst. 3., underlines liquidity creation as one of the main functions of banks. Use the analogy of ice and water. This blog contains general discussions of economic and financial market trends for a general audience. In some countries, old notes are withdrawn from circulation, and so they have to be returned. This will expose Debt as you’ve never understood it before. ", An extremely brief summary of the analysis within my eReport. And correct me if I am wrong, but is it not true to say that changes in M1 are determined to an overwhelming extent by those changes in retail deposits which are unassociated with currency movements?3. Instead, central banks can loan money to government which is effectively one entity lending to itself. If necessary, I can be precise, but that usually is in the context of writing about specific instruments that are showing up in financial or economic statements, or time series. Please note that I use Google Analytics, which tracks user data; you will need to look at their documentation to see what they do about privacy. (I think Warren Mosler has pretty much said the same thing.) It is also not a right, that I am aware of - or care about - for any other currency which I (or anyone else) uses. "There's an explicit fact: Greece can issue debt but not money. Whether it is actually good or bad in any particular instance is another question.There is also the question of whether government debt is a subsidy to rich people. Instability could be created by bank lending (which can increase prices) with the expectation of debt repayment. Within mainstream economic models, the poorly defined "money" variable has an interest rate of 0%, like currency. Now, the holders of debt specifically do so to receive income and repayment of principal.Like Wray, the lengths you need to go to to render dollar bills 'debts' proves the point, which is crystal clear: money is completely different to debt. But treasury bonds are not "U.S. Government" debt, because both fed and treasury operate under the authority of congress. — Marshall McLuhan, “gourou” des médias "[14] The film has also been criticized by other heterodox economic and libertarian thinkers, such as G. Edward Griffin's Freedom Force International. 2. But as noted above, I argue that QE essentially accomplishes nothing, and that relies on the fact that interest-paying reserves are equivalent to TBills. Since there was no chance of an involuntary default by Japan anyway, it does not matter whether the net-debt-to-GDP ratio is 41% or 126% of GDP. If we follow statement #2, balances at the central bank are technically defined as liabilities, that is to say, debt. Banks can lend evidence of debt without notifying the owners-of-the-evidence that loans have been made. The United States had roughly zero net worth prior to the early 1980s and has recorded a negative and growing net worth since then by reducing progressive taxes and borrowing to cover the deficit. How Come The New York Times Is Endorsing Joan Robinson? So government bonds are not just for rich people, they are what 70% of Canadians should be using to fund their retirement. Monetary gold is a form of collateral for money that is issued against it, and so what we are left with is collateral, and not "money". Inter-bank transactions are typically net settled by transferring government money, but the banking system does not require that much for settlement purposes. Essential viewing on money and the banking system. (I cannot think of any liabilities that are not owned by anyone - although legal loss provisions seem possible - but they could exist and meet the rules of double-entry accounting, even if they do not fit within GAAP. No warranties are made with regards to the correctness of data or analysis, and some data may be under copyright protection of the original data provider. Le reportage Money as Debt en anglais sur la chaîne Youtube de Paul Grignon. That is, the stock of base money just grows and grows in terms of dollars.The impact would be particularly serious if those numpty politicians got the idea that base money was a debt that had to be repaid: they’d start campaigning for a budget surplus in order to pay down the debt and all that nonsense. Institutional investors routinely finance securities positions with repurchase ("repo") transactions. If technology were stable, making it purely public would not be too risky. [4][5][6] Subsequent Money as Debt videos include Money as Debt II Promises Unleashed (2009)[7] and Money as Debt III: Evolution Beyond Money (2011). in order to accommodate their many costs). A debt-money system: The Money Myth Exploded. However, since the systems continuously evolve, dumping some of the risk on the private sector does make sense.However, I can see a justification for the revival of a "postal banking system." Debt No 3: thin air money actually consists of an entirely artificial debt owed by the bank to the customer. Whereas for Wray and MMT folks, it is taken for granted that there is always a tight link between the quantity of government-supplied money and the level of activity (tho the mechanisms for this vary) so the problem that debt-free money is supposed to solve simply doesn't arise. A big problem.We can solve this over-counting problem. By any reasonable definition, a deposit at any bank (including the central bank) is a liability of that bank. The argument at present is that is best done in a distributed fashion by banks. There is a small technical difference, in that the central bank is now paying interest, but that just reduces the dividends that the central bank would have paid the Treasury. 1. With regards to the payment system, the guts of the system is a form of public/private partnership. There are tons of "debt" instruments that have been disguised as practically everything else. When the CB does QE it purchases financial assets for its balance sheet. Who does that anymore? Their tone seems to be banking is evil, whereas I feel banking is legitimate, but perhaps creates ineffective behaviors in the aggregate.Are we being too tight with our money? The status of currency held by banks is different from currency held by the general public. (Or if they are lucky enough to have a defined benefit pension, what the pension fund should be buying. Idescribe it as colourful entertainment with an educational twist. With over $20 trillion in Federal debt, the interest paid on that debt in fiscal year 2018 is estimated to be $310 billion. I studied economics for 6 years, saw your video, investigated, and was appalled at the extent that this game of banking and politics has taken. Thus, the money of the US is based on debt. The job of a bank is to lend new money, not operate as a Pawn Shop. The Magic Money Tree is back, this time promoted by Zoe Williams in the Guardian. As an Amazon Associate I earn from qualifying purchases. In the Canadian colonies (pre-Confederation), privately-issued tokens were the main form of currency used (since the Colonial authorities ignored colonist demands for tokens). I am on my tablet right now, so I don't have an easy way of posting a link. Money is positioned bank debt. Money as Debt. Money As Debt is a fast-paced and highly entertaining animated feature by artist & videographer, Paul Grignon. there is a total of presumed money in the system of: the loans were made sequencially as were the deposits which confuses things. A more accurate version would be something like "we cannot treat the default risk of a (modern) central government as being like the default risk of a household. (Should be under the category "money".). In other words, just a special case within the spectrum of debt instruments. (c) Copyright 2013-2016 Brian Romanchuk. I have some older articles here (drafts from my book) which I think cover these topics. Gold is the currency of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves. When depositors prefer to earn some interest or take risk in equity then banks convert transaction accounts to savings deposits, time deposits, other debt instruments, or paid-in equity at banks. Only little people repay debt. So there's less immediate technical challenge in managing the supply of treasury bonds against inflation risks. Government debt can be considered as much more stable, perhaps never to be retired.Both sources of money can increase economic activity if the annual volume of loans increases . Credit theories of money, also called debt theories of money, are monetary economic theories concerning the relationship between credit and money. Government honors those credits against taxes, it doesn't have to provide anything in return. )I have no problems with the banking system "creating money"; the only catch is that the banks are tightly regulated. And why do they hold dollar bills? Essentially you have created a parallel currency usable only in Greece.And of course since taxation destroys money it would eliminate the bond reducing the stock of outstanding bonds.No doubt there are rules against this in the EMU, but then there are other rules and countries have got away with stuff. So when the government injects money into the economy and at the same time issues debt in the same amount, that is generally viewed as a bad thing. Here are my thoughts:Dollars are not a debt, they are a credit against tax debts. Money as Debt The “Money as Debt” was created by Paul Grignon in 2006. Part one explains the workings of the modern money system by explores the foundations of fractional-reserve banking. "Et dimitte nobis debita nostra sicut et nos dimittimus debitoribus nostris." There are so many television shows, books, and magazines devoted to teaching people about getting out of debt.While debt … Brian - Thanks for the comment. So no interbank market. Do their assets cover there liabilities? Debt is an amount of money borrowed by one party from another. The problem with statement #1 is that it is a more of a sound bite than a statement of fact. That's just an argument against outsourcing of public services. (Those other issuers have had the last laugh; those non-bank tokens are now exceedingly rare and valued by collectors...) There was no central bank in those days (the Bank of England was the closest thing), so it is not directly comparable, but it does show that the ability to cash currency in at the bank does matter.I must admit that I am unsure what you and Wray started arguing about; I just jumped on a few points that were related to the other article on QE. "There is quite a bit about banking in MMT. I can pay for security purchases in my retirement account by selling a Treasury bill. They probably should be knocked out of the securities market business (other than the trading of Treasury bills/notes for liquidity management), and we should return to the multi-pillar financial structure we had before the 1980s. Before WWII, the monetary base was created by the Fed discounting bank loans. Does ownership an instrument give someone a claim in bankruptcy proceedings? Also, if the US government guarantees a private loan or makes a direct loan, and there is a default loss, then the government either collects taxes to offset the loss, or records a debit (decrease) of its net worth. And you do that by declaring that you will accept any Greek bond as settlement of Greek government taxes and charges at face value.That immediately puts a floor underneath the Greek debt market and ensures that there is always a demand for the stuff - in both the primary and secondary markets. If money is evidence of debt , it remains a physical object that can be used to support transactions. A non-bank private sector entity cannot make such a claim – because it is not permitted to hold an account with the central bank.2. (How do we know whether a holder of a $20 bill owes taxes?)2. Thanks! Part 2 "Strikes me there is SOME SORT of impact in that a debt is widely taken to be something that must ultimately be repaid"In the big world of debt, debt is rarely repaid. If the interest rate is zero, it does not matter whether the government liability is a settlement balance or a Treasury bill. Money as Debt is a 2006 animated documentary film by Canadian artist and filmmaker Paul Grignon about the monetary systems practised through modern banking. They are conceptually different. Maybe the idea of money as being evidence of debt will work for you. The banks got tired of these dubious tokens, issued their own, and only accepted other tokens on the basis of their metal content only. So those debts are used as "money", and the volume of repo transactions may or may not be comparable to the amount of dollar bills that changes hands. Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal, there is no human relation between master and slave. :) Doing so avoids subsidizing rich people and avoids the bad connotation of government debt. The private banking system is layered on top of government money ("net financial assets"), but there is little policy can do about that private money. Within MMT, the various "founders" have written about banking, but they do not necessarily agree with eachother. I see no connection between the replacement of banknotes and the incentive to exchange currency reserves for creditary reserves.3. "Very simply, Lonergan has made his own definitions of "money" and "debt," and argues that "money" is not "debt" by his definition." Regardez MONEY AS DEBT 3_3 - shura91000 sur Dailymotion. Brian Romanchuk's commentary and books on bond market economics. If I understand correctly, the fed creates money by issuing loans to banks.I get confused trying to trace the origins of the modern money supply because legacy aspects of currency operations are different from modern practices. The Connection Between Debt and Money under Fractional-Reserve Banking. (Since the Treasury owns the central bank, the bond holdings of the central bank net out, and all we are left with are the increased settlement balances at the central bank.). Monetary gold is similar to a non-financial asset since it has no liability attached. However, "money" almost invariably seems to be a form of debt instrument, at least in properly functioning modern economies. Are all circulating fed dollars matched by loans? But what about statement #1? He goes to his local bank and deposits it in a new checking account. In the past, privately created bank credit existed only in the form of private banknotes, which people had the choice to refuse.....In the present, privately created bank credit is legally convertible to government issued "fiat" currency.....legal tender laws declare that citizens must accept this fiat money as payment for debt or else the courts will not enforce the obligation. In other words, the stock of currency is rolled over, much like bonds and bills - other forms of debt...3. Yes, but the banks readily accept the bills because they can exchange them for reserves. I have had enough contact with financial engineering to always think about instruments in terms of their economic role, and not how some accountant thinks they should be classified. In fact, that is pretty much what government's did for banks after the Financial Crisis.However, such bailouts seem to be politically unpopular. Brian says “A ten dollar bill is a perpetual claim on $10 in reserves (balances at the central bank … “. (I believe that there was a "taxes drive money" component to the debate, and I wanted to strip it out of the discussion here. If gold is also serving as the unit of account and means of payment, then monetary gold represents money without any matching debt. But the scheme we have now is based on the assumption that the middle class are on their own to generate their retirement income. a short animated documentary film by Canadian artist and filmmaker Paul Grignon about the monetary systems practiced through modern banking I plan on discussing one tangential example tomorrow. Then, the bank lends $900 of this money to Sally, who uses it for her business. Repayment ability is simply not part of the distinction between money and debt.But here is an important point: If money is debt in a different form (like ice is water in a different form), then failure to repay government debt results in money that does not disappear.
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