History tells us you cannot trust either the private banks or the government with money creation. That’s why we need a third constitutionally arms length institution with unimpeachably beneficial mandated monetary distribution policies like a universal dividend and a substantial discount to the “retail product” of every business model that is reciprocally rebated back to participating businesses. This institution could also serve as a truly objective and balanced central bank whose overweening mandate was increasing economic prosperity and freedom for all agents with a bias toward increased traditional production with less actual resource usage. That way it could be a true lender of last resort instead of being the hand maiden of the too big to fail banks.
FC: “No, it created the deposit out of an asset; a loan.”
Me: “No, it created the deposit out of an asset; a loan.”
The fraud by The Banks in this case is that the “asset’s” value is essentially 0 dollars/pounds/etc.
Which of course means that in reality they are creating money out of the nothingness of 0 value.
FC: I am wondering if we are getting too hung up on liabilities and not looking closely enough at what happens on the asset side of the balance sheet. When banks lend, or purchase existing assets, the balance sheet is grossed up. In the case of lending, both the liability and the associated asset are newly created. In the case of asset purchases, only the liability side is newly created: the balance sheet is still grossed up, but there is an equivalent reduction in the seller’s asset base, so the net change in assets is zero: this is more obvious if you account for an asset purchase as quadruple entry accounting rather than double entry. When banks pay staff from earnings, no asset is either created or purchased: there is no change in the size of the balance sheet, only in its composition – hence paying staff is really a change in the distribution of money, even though it appears to result in money creation. I hope this makes sense.
Me: What is needed is to take the cost accounting datums of any going concern and compare their totals with the payments to individuals simultaneously produced. As incomes paid is only a subset of total costs paid by any firm in any period of time it can be determined that the rate of flow of total costs inherently exceeds the rate of flow of total individual incomes required to liquidate those costs. And that means the only way to equilibrate the system is to distribute a costless gift to the individual.
I’m certainly not opposed to deciphering the truth, however rather than slogging along defining/nit picking about the exact definitions and processes of the problem (Debt Deflation/the monopoly paradigms of Finance/the fact that A will not pay for A + B when B is more than 0 combined with the truth that Austrian economists mistake for a solution, namely that: “There ain’t no free lunch.” The fact is that statement is actually a succinct description of the ACTUAL problem)
So the free and costless monetary Gift is both the individual and systemic solution. And crafting policies that are aware of and reflect the ongoing process reality of the temporal universe (Starting, Changing and Stopping) and that saturate the economy with the new monetary paradigm of Gifting instead of the old paradigm of Debt ONLY…are the forthright and intelligent route to freedom instead of fiddling while western civilization disintegrates until a rhyming war occurs with modern weaponry after which the Banks will be pleased to lend the relatively few survivors the money to re-build.
U: Thanks for this! It helped me to connect the dots between commercial banks and the central bank, as well as to the government sector itself.
The next port of call would be the international sector: how does this money creation story develop in an open economy? How should countries behave when they hold a powerful currency (USD and its “exorbitant privilege”) versus a weaker one? Or when they are part of a monetary union?
Me: Basically all economies need to resolve their deepest problem which is that the rate of flow of total costs and so total prices exceeds the rate of flow of total individual incomes simultaneously produced. The way to do that is implement the policies of a universal dividend and a price deflationary discount to prices….and then let “animal spirits” guide their development.
For undeveloped economies they might need to implement tariffs etc. exactly like every other developed economy did. It is also more complicated than this politically, culturally etc. of course, but history is history and when the primary problem of a system is resolved all manner of attending irrational problems tend to dissipate. So it is with human neurotic behavior, so it is with human systems.
For countries in a monetary union the decision is first should they join or stay depending upon the awareness of their leaders regarding the 5000 year old dominance of the business model of Finance and of the above policies. Frankly, I favor the concept of subsidiarity over republicanism because ethically self sufficiency trumps power, and its always problematic exiting a political agreement as Britain has discovered. (Despite this, Brexit is the correct move because the EU cannot and will not survive.)