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. I have seen arguments that currency should be considered a form of equity, and not a liability; I am agnostic on that question. I will explain this in an article that will be published tomorrow. This website also incorporates links that are part of the Amazon affiliate program (which includes the images of book covers); you will need to consult their websites to see what tracking information they use. Idescribe it as colourful entertainment with an educational twist. In other words what banks can lend for should be proscribed and everything else become illegal and unenforceable. 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. (I use "credit" in a slightly different manner.) Money is a new form of slavery and is only distinguishable from the old slavery simply by the fact that it is impersonal--that there is no human relation between master and slave. )(In practice, everyone here is just plowing their money into housing, which will not end well.). IMO, the main problem with money as debt is not about denotation, but about connotation. How could there be that much money to lend? Instead, central banks can loan money to government which is effectively one entity lending to itself. [3] The film presents Grignon's view of the process of money creation by banks and its historical background, and warns of his belief in its subsequent unsustainability. "There is quite a bit about banking in MMT. The Canadian government tells people not to mail cash in, but if you went in person to their offices, you might be able to pay that way. 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. But I question how much treasury spending without QE can improve domestic economic health.Without QE, fed issued dollars are created as debt. Where does all this money come from? The Connection Between Debt and Money under Fractional-Reserve Banking. Hi, Ralph!You even have economists who think that debt must ultimately be repaid, that therefore government debt (US, Japanese, Australian, etc.) Within MMT, the various "founders" have written about banking, but they do not necessarily agree with eachother. Not sure why I dragged M1 in there.3. After the 1980s debt restructurings were completed the 1990s saw a new global increase in money, credit, and debt begin again, which again produced a prosperity that led to debt … In a previous article, we walked through a scenario in which a teenager, Billy, finds $1,000 in currency. )3) Yes, deposits can be created in many ways, so deposit creation does not imply an increase in non-bank debt. Ask yourself this: what function does debt serve, and what function does money serve?The more interesting question is why are (some) economists so determined to make two things which are obviously different, apparently equivalent? Using the bank to leverage my investments, I can leverage my money. Brian, As you know the primary distinction between a non-financial asset (actual house) and a financial asset (mortgage instrument) is that the non-financial asset can have economic value stated in dollars without a matching liability due from another party, while the financial asset always has a matching liability. 2006,Economics - 47 min34 Comments. (The reason presumably is that another URL handles comments, and so the user session needs to be preserved when redirected to that site. 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. In other words, the interest cost for the government is almost exactly the same, regardless of QE. John Cochrane did an analysis along those lines, within the DSGE framework. “…even if you decide that the monetary base is not "government debt," that choice has exactly zero operational impact on the analysis of government finance..”. How this would work depends upon where you are; in Canada, with only a few major banks, it is not that hard to arm-twist them to provide such services, and so a postal bank does not need to be set up. Each loan of evidence of debt results in a new bank deposit which may be transferred. 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? "Debt-free money: A brief reply to Randall Wray", please see the eReport for further details, Tom Elliott reports on the analysis of economist Masazumi Wakatabe of Waseda University. "It is my understanding that U.S. tax forms expressly state that the tax due must NOT be submitted in cash (currency). Subsequent Money as Debt videos include Money as Debt II Promises Unleashed (2009) and Money as Debt III: Evolution Beyond Money (2011). 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. Money is positioned bank debt. 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. The bank then exchanges those bills for reserves. Let's pretend there is no QE. The status of currency held by banks is different from currency held by the general public. The Fed creates money out of thin air and loans it to the US Treasury in the form of interest bearing debt instruments. ", the two "principles" you identify are NOT mutually exclusive. Within mainstream economic models, the poorly defined "money" variable has an interest rate of 0%, like currency. The gold reserve system is fated to failure during a panic. This is the documentary ”Money as Debt” and explains how money works. I think what really divides them is their different views on the autonomy of the private financial system rather the semantic question of money vs debt. Such a claim can be made by commercial banks but not by others who hold currency. I have some older articles here (drafts from my book) which I think cover these topics. Le reportage Money as Debt en anglais sur la chaîne Youtube de Paul Grignon. 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 . (Admittedly not corporates, but some investors hold Treasurys so that they can use them for financing...)I agree that we can define "money" as something held in order for supporting transactions, and that is how people think of it. The debate so far has been entirely semantic, and therefore does not really have a "right" or "wrong" answer. Brian said: " .. 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. Regardez MONEY AS DEBT 3_3 - shura91000 sur Dailymotion. As a result, I cannot object too strenuously against the idea that central governmental liabilities are quite different from private sector debt. We do not adjust an entity's financial statements based on the status of the holders of its instruments, mainly because we have no way of making that adjustment. The author may discuss strategies which are wildly inappropriate for retail investors. All entities within an economy have a well-defined balance sheet, with Assets, Liabilities, and Equity. )Hyman Minsky wrote about these operations and their history, and I also talk about them in my book. This type of Demand Note was due within a 24 hour period and drove many citizens into bankruptcy. "Very simply, Lonergan has made his own definitions of "money" and "debt," and argues that "money" is not "debt" by his definition." I think the terms "assets" and "liabilities" are more neutral and accurate, as many financial assets are representations of contractual relationships, whereas "debt" connotes either a moral dimension, or power imbalance where the creditor has power to enforce the debt. See my "Disclaimer" page for my privacy policy as well as advertising affiliate information. Debt is an amount of money borrowed by one party from another. The case of token money in the Canadian colonies. "Et dimitte nobis debita nostra sicut et nos dimittimus debitoribus nostris." 5.82. If in doubt, ask them. If gold is also serving as the unit of account and means of payment, then monetary gold represents money without any matching debt. Essentially you just have dates where the interest rate might change. "[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. If you read the first page of 'Money is not a cigarette', use of the term 'money' consistently, in precisely the way you suggest. Money As Debt is a fast-paced and highly entertaining animated feature by artist & videographer, Paul Grignon. Here’s an example from real estate on how the rich use good debt as money to create wealth. I would call that debt free money, myself. It is the connotation of debt as sin that gives it a bad reputation. This is a basic creation of money. 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. I prefer not to blur "debt"and "liabilities". Legacy banking frequently involved using commodity reserves, often gold. Two common strands of thought within these theories are the ide… (How do we know whether a holder of a $20 bill owes taxes?)2. Essential viewing on money and the banking system. With this assumption, all money is evidence of government debt.But we still have a money-debt problem. I think the problem was that this violated various European laws. In some countries, old notes are withdrawn from circulation, and so they have to be returned. However if banks issue deposit liabilities to non-banks, and the non-banks hold deposits as assets to clear payment by transfer of bank liabilities, then bank credit money has properties of both money and debt. 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. Although it's rare, there are people who do have accounts at the Bank of England, and some other central banks. 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. Strikes me there is SOME SORT of impact in that a debt is widely taken to be something that must ultimately be repaid. The US government owns vast tracks of land and other unique assets that have large value not recorded on the books, so government net worth in current flow of funds accounting practice is not comparable to net worth of other units. Brian Romanchuk's commentary and books on bond market economics. The following tables show the bank's balance sheet at various stages in this process: For our purposes in this article,1 the crucial point in the above story is this: when the commercial bank extended a $900 business loan to Sally, it created that money out of thin air. Bank credit money is created in a variety of ways other than by bank lending. A lot of regular people did. Les grands sont gardés secrets par l’incrédulité du public. That dollar will disappear if it is used to pay down a (any) bank loan.You can see that I would support Lonergan's first quote (as printed here). 47min | Documentary, Animation | 2006 (Canada) The monetary systems practiced through modern banking. You can argue for other ways, but at least do it honestly - by presenting the centralisation case in that manner. 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. Powered by. "[3], Cdurable offered "Ce long métrage d'animation, dynamique et divertissant, de l'artiste et vidéographe Paul Grignon, explique les effets magiques mais pervers du système actuel d'argent-dette dans des termes compréhensibles pour tous." If a coin is underweight, and it can be shown that the issuer is the source of the defect, it is the issuer's responsibility to make the holder whole. Vault cash may be partially correlated with M1, however it is not M1 and is never accounted as being part of M1. That dollar in your pocket must be a small fraction of a single bank generated loan made in the past. I think Randall Wray has written about that topic. Debt bad, as Tarzan might say. Sure, we have currency ("dollar bills"), which do not pay interest, but that is now a small part of the monetary base, and the central bank has no control over it. 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. (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. And although I agree that a deposit is a liability of the depository (i.e. It is rolled over. ※動画はこちらからご覧になれます。. You can also see that I would agree with Lonergan's second quote (which you disagreed with). This is a thesis I have previously defended in this journal. The film presents Grignon’s view of the process of money creation by banks and its historical background, and warns of his belief in its subsequent unsustainability’. The same is true for Treasury bills - they are continuously rolled over (as Neil above points out), and compound at the short-term risk free rate as well.If you have a fancier model that takes into account the interest on bonds separately from Treasury bills, then there would be differences; you are replacing a fixed term debt with a rolling debt. This is actually a fairly reasonable stance, but it raises problems, as I discuss at the end of this article. Then, the bank lends $900 of this money to Sally, who uses it for her business. -- The Lord's Prayer. 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). Money As Debt Documentary. 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. He goes to his local bank and deposits it in a new checking account. Here are my thoughts:Dollars are not a debt, they are a credit against tax debts. I plan on discussing one tangential example tomorrow. 3., underlines liquidity creation as one of the main functions of banks. Money as Debt in REA and POA VMBO, March 2017 -5- The main idea of the POA model, representing the same scenario and illustrated in Fig. To be honest, I did not track down the origins of this debate; what caught my eye was the linkage to QE, which showed up in another article on Japan.I may be closer to "mainstream post-Keynesian" thought (whatever that means...), but I do not see MMT ignoring the private banking system. ""Is the United States Treasury solvent? a short animated documentary film by Canadian artist and filmmaker Paul Grignon about the monetary systems practiced through modern banking A documentary that explores why our primitive concept of money as a "single uniform commodity" is the ROOT cause of monetary dysfunction and a major factor in economic and political injustice. If technology were stable, making it purely public would not be too risky. I believe that directly buying bonds is out of fashion (I was one of the few people I knew of who bought bonds when everyone else was day trading Internet stocks in the 1990s), but they are hidden behind a lot of the "income products" out there. Thus, the money of the US is based on debt. Accounts receivable are routinely used to transact business amongst firms. The way money is created by private banks as a debt is well explained in Louis Even's parable, The Money Myth Exploded, in which the economic system is clearly divided into two parts: the producing system and the financial system. 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. In this article, I am interested here in the instrument - the bank deposit - and not why it has been created. The only way changing the definition matters is if interest rates are once again positive. Well Brian, we can have money-be-debt and money-not-be-debt at the same time! Photograph: Alamy ... to speak of the immorality of government debt or of public spending "crowding out" the … 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. 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. There is always an entity that can demand par value for the currency, even if the current holder does not have the right. (Should be under the category "money".). They are not. He has a longer article discussing his definition of money: ". (I remember being surprised by seeing currency notes issued by Scottish banks when I visited there.) Money as Debt II: Promises Unleashed 1h 17min | Documentary , Animation | 2009 (Canada) A documentary that explores the baffling, fraudulent and destructive arithmetic of the monetary system that holds us hostage to a forever growing DEBT and how we might evolve beyond it into a new era. I am on my tablet right now, so I don't have an easy way of posting a link. Banks can lend evidence of debt without notifying the owners-of-the-evidence that loans have been made. Inter-bank transactions are typically net settled by transferring government money, but the banking system does not require that much for settlement purposes. Brian says “A ten dollar bill is a perpetual claim on $10 in reserves (balances at the central bank … “. By contrast, money is used to pay for things [emphasis mine - BR], and its value resides in a network externality – it … Money as Debt. ‘Money as Debt is a 2006 animated documentary film by Canadian filmmaker Paul Grignon about the monetary systems practised through modern banking. What I meant is that vault cash is correlated to currency held by the public. ~ Graham F. Towers, Governor, Bank of Canada, 1934-54 Title 3 "The process by which banks create money is so simple the mind is repelled." In order to support a policy rate of 2%, the central bank has no choice but to raise the rate of interest on (excess) reserves to be 2%. Institutional investors routinely finance securities positions with repurchase ("repo") transactions. Bank deposits can grow quite independently of the monetary base ("government money") and debt. [10] The film claims that this ever-increasing gravitation of money to banks is capable of impoverishing any nation. But banks don't really create money "out of thin air", and there is no such thing as free money. Liquidity is represented as availability of the economic resource Money, and the Loan action transfers it from the Bank to the Customer. The argument at present is that is best done in a distributed fashion by banks. "in which credit money gives the banking system the ability to determine the overall level of activity and to make an unjustified profit from its operation of the payment system, which should be a public good. And why do they hold dollar bills? ....the central government with a free-floating currency cannot be forced to default......... the debt-to-GDP ratio of such governments is essentially a piece of trivia that can be safely ignored. 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. 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. 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. 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. Instability could be created by bank lending (which can increase prices) with the expectation of debt repayment. Instead we ask "Is a bank solvent? Brian - Thanks for the comment. 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. As an Amazon Associate I earn from qualifying purchases. They will compound at the policy interest rate over time, ignoring effects that change the stock of liabilities (surplus/deficit). That's just an argument against outsourcing of public services. :) Doing so avoids subsidizing rich people and avoids the bad connotation of government debt. Digital money is the next technological evolution from the ancient manner of producing base metals of no intrinsic value, and later of paper fiat money. for servicing the withdrawal needs of their retail depositors). 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. 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. This saves the need to pay interest on the national debt, This page was last edited on 27 May 2020, at 04:55. Since my previous job was to analyse government bond markets, I was not in a position to get worried about the moral overtones behind the terminology.As for your question about money creation by the Fed, generally speaking, the monetary base was entirely created by Fed purchases of Treasury securities -- in the modern era. As long as it can sell treasury bonds at a reasonable interest rate, or borrow from the Fed(who weighs inflation risk), it should be fine. 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. 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". money held by enteries in a savings books = 190 bucks money loaned out to be collected = 181 bucks in two loans money held in the bank vault = 19 bucks.
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