Hi Roberto,<div><br></div><div>thanks for your reply.</div><div>it makes me thinking.</div><div><br></div><div>I ask myself, what is</div><div><meta http-equiv="content-type" content="text/html; charset=utf-8"><span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px; "><i>"the interest-free currency issued<br>
by governments or their central banks"</i></span></div><div><span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px; ">that you mention at the end of your message.</span></div>
<div><span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px; "><br></span></div><div><span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px; ">What is this government interest free currency in the current ( central bank dollar ) system ?</span></div>
<div><span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px; ">Is it government bonds ? if so, does the government not buy bonds back by paying interest ?�</span></div>
<div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;"><br></span></font></div><div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;">Also, are it "their" central banks, or are central banks ( in europe and the US ) non-governmental institutions ( controlled by / accountable to ... ... ? )</span></font></div>
<div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;">In the states, it seems to be "semi-private" ( which apparently means "not owned" by the US government - answer I find after googling it )</span></font></div>
<div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;"><br></span></font></div><div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;">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 :�</span></font></div>
<div><font class="Apple-style-span" face="arial, sans-serif"><span class="Apple-style-span" style="border-collapse: collapse;"><meta http-equiv="content-type" content="text/html; charset=utf-8"><a href="http://en.wikipedia.org/wiki/United_States_Note">http://en.wikipedia.org/wiki/United_States_Note</a></span></font></div>
<div><font class="Apple-style-span" face="arial, sans-serif"><br></font></div><div><font class="Apple-style-span" face="arial, sans-serif">Yet, in the case of the US central bank dollar,</font></div><div><font class="Apple-style-span" face="arial, sans-serif">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 ?</font></div>
<div><font class="Apple-style-span" face="arial, sans-serif">And requiring commercial banks to have a certain percentage of this type of money as guarantee for the credit they issue ?</font></div><div><br><div class="gmail_quote">
On Wed, Mar 2, 2011 at 5:36 AM, Roberto Verzola <span dir="ltr"><<a href="mailto:rverzola@gn.apc.org">rverzola@gn.apc.org</a>></span> wrote:<br><blockquote class="gmail_quote" style="margin:0 0 0 .8ex;border-left:1px #ccc solid;padding-left:1ex;">
I'm trying to understand what Chris Cook is saying below...<br>
<br>
There are at least two meanings of credit in finance: credit as debt,<br>
and credit as in debit/credit, left/right columns in accounting.<br>
<br>
He seems to mean the former, except that he asserts that a credit<br>
instrument is not debt, so apparently not.<br>
<br>
If he means the second, accounting people always say that debit/credit<br>
don't mean anything except left/right, which doesn't make sense in the<br>
context below.<br>
<br>
Would he mean some other thing then?<br>
<br>
He seems to distinguish between the "interest-free currency" created by<br>
the banks (meaning, I suppose, that the banks do not pay any interest<br>
for this currency) and the debt created when this currency is loaned out<br>
(for which the banks *earn* interest. At one point, he says banks "spend<br>
these interest-free currentcy into existence". I could be wrong, but I<br>
understand it differently:<br>
<br>
Banks *cannot* spend the debt-money they create, as far as I know. The<br>
currency they create has no independent existence *except* as a loan to<br>
borrowers, and the banks can only spend the interest earnings from these<br>
loans. So creation occurs *only* at the instant the interest-bearing<br>
debt is created. As soon as the principal is paid, the currency created<br>
from it is extinguished. Its interest earnings go to the bank; that's<br>
what they can spend.<br>
<br>
This makes debt-money different from the interest-free currency issued<br>
by governments or their central banks, which have independent existence<br>
outside a debt relationship.<br>
<br>
At least that's how I understand it. I'd be glad to be clarified about this.<br>
<br>
Roberto<br>
<div class="im"><br>
Dante-Gabryell Monson wrote:<br>
> This message from Chris Cook is interesting to me...<br>
><br>
> It initially makes me feel there are "different vectors",<br>
> used as tools,<br>
> which may have accounting equivalents,<br>
> and can spark confusion as to what is what ?<br>
><br>
> excerpt :<br>
><br>
> /*" The currency is not the debt, but a credit instrument identical to<br>
> those issued by government. "*/<br>
><br>
> plus ci dessous...<br>
><br>
> ---------- Forwarded message ----------<br>
> From: *Chris*<br>
> Date: Sat, Feb 26, 2011 at 3:05 PM<br>
> Subject: [gang8] ....of Public Credit<br>
</div><div><div></div><div class="h5">> To: <a href="mailto:gang8@yahoogroups.com">gang8@yahoogroups.com</a> <mailto:<a href="mailto:gang8@yahoogroups.com">gang8@yahoogroups.com</a>><br>
><br>
><br>
><br>
><br>
> Dear Gang<br>
><br>
> I made the following response to someone in a forum on 'Public<br>
> Banking' who was repeating the fallacy that money is debt.<br>
><br>
> It covers quite a bit of ground, actually, and I'd be interested to<br>
> see if the Gang can pick holes in it<br>
><br>
> Best Regards<br>
><br>
> Chris Cook<br>
><br>
> >><br>
> I'm afraid you share a fundamental misconception in relation to the<br>
> money created by banks, which is in fact a credit instrument, not a<br>
> debt instrument.<br>
><br>
> When private banks create credit they create a virtual IOU as an<br>
> accounting object. This interest-free IOU is a 'look-alike' of the<br>
> interest-free IOU issued by Central Banks, and is routinely exchanged<br>
> for such notes and coin in private hands when they are 'deposited' in<br>
> the banks. It is currency created as an object or thing to which<br>
> account owners have title.<br>
><br>
> When a private bank lends this currency into existence it is creating<br>
> BOTH the currency AND the interest-bearing loan relationship with the<br>
> borrower under a debt contract. The currency is not the debt, but a<br>
> credit instrument identical to those issued by government.<br>
><br>
> The debt is created in exchange for the use over time of the currency.<br>
> When a private bank spends currency into existence it creates virtual<br>
> credit instruments, and 'deposits' these into the accounts of<br>
> suppliers, staff, management or shareholders by crediting them with an<br>
> entitlement to these virtual assets.<br>
><br>
> These credit instruments/IOUs are accepted by governments in payment<br>
> of taxes, and that is what gives them their value. There is<br>
> functionally no difference between an invoice issued by a private<br>
> business for private services rendered, and a tax demand issued for<br>
> government services rendered.<br>
><br>
> Likewise, the issue by government of an undated IOU redeemable against<br>
> taxes is functionally equivalent to the issue by a private business of<br>
> an undated IOU redeemable against goods and services. eg Air Miles,<br>
> Store Loyalty points, or the well known DeliDollars.<br>
><br>
> Government IOUs differ from private ones in that they are made<br>
> universally acceptable against debts by 'legal tender' laws aka by<br>
> government fiat.<br>
><br>
> So in a nutshell, governments do not create debt when they 'print<br>
> money' and spend it. Government IOUs are in fact credit instruments<br>
> analogous to a form of undated non interest-bearing redeemable<br>
> preference share.<br>
><br>
> Of course, these credit instruments must be issued and spent sensibly,<br>
> and not in relation to existing assets, where they will cause<br>
> inflation as the private banks demonstrated by creating the property<br>
> bubble.<br>
><br>
> In my view public credit need not be inflationary if used to<br>
> facilitate the circulation of goods and services and the creation of<br>
> new productive assets, such as affordable housing; renewable energy<br>
> and energy saving projects; infrastructure such as transport, schools<br>
> and hospitals, and of course on training and education of the<br>
> population to enable them to create these assets.<br>
><br>
> Such public credit creation should be professionally managed by<br>
> service providers with a stake in the outcome, and accountably<br>
> overseen by a Monetary Authority (as in Hong Kong, where there is no<br>
> Central Bank). Once productive assets are created with public credit,<br>
> they may then be refinanced by private investment in long term credit<br>
> based upon their productive value (eg rental flows and energy flows).<br>
><br>
> In this way pension investment will enable the public credit used to<br>
> create new assets to be retired and recycled. Likewise, the newly<br>
> productive workforce will pay taxes, which again will retire and<br>
> recycle the public credit which made the workforce productive.<br>
><br>
> >><br>
><br>
> __._,_.___<br>
> Reply to sender<br>
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