[P2P-F] "The currency is not the debt"

Wed Mar 2 06:01:36 CET 2011

let's ask the man himself!

Chris, see below,

Michel

for context, see below, http://p2pfoundation.net/Category:OpenCapital

Roberto, I could create a similar section to host your material on abundance
research?

Michel

On Wed, Mar 2, 2011 at 11:36 AM, Roberto Verzola <rverzola at gn.apc.org>wrote:

> I'm trying to understand what Chris Cook is saying below...
>
> There are at least two meanings of credit in finance: credit as debt,
> and credit as in debit/credit, left/right columns in accounting.
>
> He seems to mean the former, except that he asserts that a credit
> instrument is not debt, so apparently not.
>
> If he means the second, accounting people always say that debit/credit
> don't mean anything except left/right, which doesn't make sense in the
> context below.
>
> Would he mean some other thing then?
>
> He seems to distinguish between the "interest-free currency" created by
> the banks (meaning, I suppose, that the banks do not pay any interest
> for this currency) and the debt created when this currency is loaned out
> (for which the banks *earn* interest. At one point, he says banks "spend
> these interest-free currentcy into existence". I could be wrong, but I
> understand it differently:
>
> Banks *cannot* spend the debt-money they create, as far as I know. The
> currency they create has no independent existence *except* as a loan to
> borrowers, and the banks can only spend the interest earnings from these
> loans. So creation occurs *only* at the instant the interest-bearing
> debt is created. As soon as the principal is paid, the currency created
> from it is extinguished. Its interest earnings go to the bank; that's
> what they can spend.
>
> This makes debt-money different from the interest-free currency issued
> by governments or their central banks, which have independent existence
> outside a debt relationship.
>
> At least that's how I understand it. I'd be glad to be clarified about
> this.
>
> Roberto
>
> Dante-Gabryell Monson wrote:
> > This message from Chris Cook is interesting to me...
> >
> > It initially makes me feel there are "different vectors",
> > used as tools,
> > which may have accounting equivalents,
> > and can spark confusion as to what is what ?
> >
> > excerpt :
> >
> > /*" The currency is not the debt, but a credit instrument identical to
> > those issued by government. "*/
> >
> > plus ci dessous...
> >
> > ---------- Forwarded message ----------
> > From: *Chris*
> > Date: Sat, Feb 26, 2011 at 3:05 PM
> > Subject: [gang8] ....of Public Credit
> > To: gang8 at yahoogroups.com <mailto:gang8 at yahoogroups.com>
> >
> >
> >
> >
> > Dear Gang
> >
> > I made the following response to someone in a forum on 'Public
> > Banking' who was repeating the fallacy that money is debt.
> >
> > It covers quite a bit of ground, actually, and I'd be interested to
> > see if the Gang can pick holes in it
> >
> > Best Regards
> >
> > Chris Cook
> >
> > >>
> > I'm afraid you share a fundamental misconception in relation to the
> > money created by banks, which is in fact a credit instrument, not a
> > debt instrument.
> >
> > When private banks create credit they create a virtual IOU as an
> > accounting object. This interest-free IOU is a 'look-alike' of the
> > interest-free IOU issued by Central Banks, and is routinely exchanged
> > for such notes and coin in private hands when they are 'deposited' in
> > the banks. It is currency created as an object or thing to which
> > account owners have title.
> >
> > When a private bank lends this currency into existence it is creating
> > BOTH the currency AND the interest-bearing loan relationship with the
> > borrower under a debt contract. The currency is not the debt, but a
> > credit instrument identical to those issued by government.
> >
> > The debt is created in exchange for the use over time of the currency.
> > When a private bank spends currency into existence it creates virtual
> > credit instruments, and 'deposits' these into the accounts of
> > suppliers, staff, management or shareholders by crediting them with an
> > entitlement to these virtual assets.
> >
> > These credit instruments/IOUs are accepted by governments in payment
> > of taxes, and that is what gives them their value. There is
> > functionally no difference between an invoice issued by a private
> > business for private services rendered, and a tax demand issued for
> > government services rendered.
> >
> > Likewise, the issue by government of an undated IOU redeemable against
> > taxes is functionally equivalent to the issue by a private business of
> > an undated IOU redeemable against goods and services. eg Air Miles,
> > Store Loyalty points, or the well known DeliDollars.
> >
> > Government IOUs differ from private ones in that they are made
> > universally acceptable against debts by 'legal tender' laws aka by
> > government fiat.
> >
> > So in a nutshell, governments do not create debt when they 'print
> > money' and spend it. Government IOUs are in fact credit instruments
> > analogous to a form of undated non interest-bearing redeemable
> > preference share.
> >
> > Of course, these credit instruments must be issued and spent sensibly,
> > and not in relation to existing assets, where they will cause
> > inflation as the private banks demonstrated by creating the property
> > bubble.
> >
> > In my view public credit need not be inflationary if used to
> > facilitate the circulation of goods and services and the creation of
> > new productive assets, such as affordable housing; renewable energy
> > and energy saving projects; infrastructure such as transport, schools
> > and hospitals, and of course on training and education of the
> > population to enable them to create these assets.
> >
> > Such public credit creation should be professionally managed by
> > service providers with a stake in the outcome, and accountably
> > overseen by a Monetary Authority (as in Hong Kong, where there is no
> > Central Bank). Once productive assets are created with public credit,
> > they may then be refinanced by private investment in long term credit
> > based upon their productive value (eg rental flows and energy flows).
> >
> > In this way pension investment will enable the public credit used to
> > create new assets to be retired and recycled. Likewise, the newly
> > productive workforce will pay taxes, which again will retire and
> > recycle the public credit which made the workforce productive.
> >
> > >>
> >
> > __._,_.___
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