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The actual economic value provided by a bank as a credit intermediary is to guarantee the credit of a trade buyer (who presents the bank's IOU to the seller instead of his own) or to guarantee the credit of a borrower, where the other side of the transaction which the bank intermediates is a depositor.

Banks support this implicit guarantee with a base of proprietary capital at levels set by the Bank of International Settlements (BIS) in Basel.

I outlined the process here

I would argue that it is only the profit element of the banking service which is worthless, and in fact this - like all profit - is by definition inflationary.

das monde:

Ok, where are public banks?

Good question. Public banks won't happen, because the entire financial system is based upon the absolute necessity of creation of credit by private banks and the absolute impossibility of doing anything else.

That is because everyone knows (like they knew property prices can only go up ) that public credit creation is inflationary - whereas private credit creation, with an additional burden of managerial fatcat costs, and dividends to rentier shareholders - is not.

das monde:

If we are just crediting workers for building a road, what do we exchange?

We give workers our Treasury IOU in return for their Labour. They may then exchange that IOU with whoever will accept it, and the reason that everyone will accept it, is that we - the Treasury - will accept our IOUs back from workers and businesses alike in payment of taxes.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Oct 14th, 2010 at 08:57:15 AM EST
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