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

Wed Mar 2 16:56:21 CET 2011

as for the euro zone,
it seems that article 123 of the Lisbon treaty ( follower of 104 of
Maastricht treaty )
seems , if I remember and understand properly,
to forbid the European Central Bank to directly buy bonds from european
states.
( although it did end up doing so lately in the case of Greece ? )

Hence the european central bank only sells its currency ( created out of
thin air ? )
to commercial banks ?

And european states become dependent on "control" by "the global financial
market" to buy their Bonds - as approach to borrow money ?

Hence european states at the mercy of the financial markets ? ( and
potential speculation )

In both US Dollar and Eurozone currency , I feel there are a number of
questions regarding who really has influence on the system, to who it is
accountable, and if there is any ( democratic ? ) Sovereignty left ?
http://en.wikipedia.org/wiki/Sovereignty

On Wed, Mar 2, 2011 at 4:47 PM, Dante-Gabryell Monson <
dante.monson at gmail.com> wrote:

> Hi Roberto,
>
> thanks for your reply.
> it makes me thinking.
>
> I ask myself, what is
> *"the interest-free currency issued
> by governments or their central banks"*
> that you mention at the end of your message.
>
> What is this government interest free currency in the current ( central
> bank dollar ) system ?
> Is it government bonds ? if so, does the government not buy bonds back by
> paying interest ?
>
> Also, are it "their" central banks, or are central banks ( in europe and
> the US ) non-governmental institutions ( controlled by / accountable to ...
> ... ? )
> In the states, it seems to be "semi-private" ( which apparently means "not
> owned" by the US government - answer I find after googling it )
>
> I do have the feeling that it may have been the case in the past, when the
> Treasury had control on creating / feeding money into the system through
> public spending ( without interest ? ), and then taking it out through taxes
> ? "Greenbacks" / "Demand Notes" - for history, see :
> http://en.wikipedia.org/wiki/United_States_Note
>
> Yet, in the case of the US central bank dollar,
> it seems to be backed by Treasury Bonds, when the Fed buys bonds with money
> it creates out of thin air, using tax payers money to guarantee its own
> monetary creation ?
> And requiring commercial banks to have a certain percentage of this type of
> money as guarantee for the credit they issue ?
>
> On Wed, Mar 2, 2011 at 5:36 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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