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The fundamental problem is not money but property rights. The deficit basis of money is important all right, but is ancillary to the principal problem, which is the completely unsustainable imbalance in ownership of productive assets - particularly land - which form the basis of the creation of money.

There's nothing new about this. The combination of compounding debt and private property in land has for thousands of years led to unsustainable concentrations of wealth. It is this imbalance of wealth that underpins the dearth of purchasing power and hence the lack of demand.

Contrary to Wolfstone above, all money is NOT debt, but credit, and while it is true that a great deal of this came about as claims over debt (interest-bearing loans), much of it came about when banks pay staff; management; suppliers; shareholder dividends; and buy productive assets.

This spending by banks creates demand deposits in the hands of the recipient in exactly the same way as the credit created as an interest-bearing loan.

If a private bank can spend money on productive people and assets in this way then there is no reason at all why a public bank should not do the same as an agent for the Treasury.

The bottom line is that printing money/QE solves nothing - it simply exchanges one asset for another. The only solution to our current plight is systemic fiscal reform, and by this I do not mean the Voodoo economics we are getting in spades, but rather the taxation of unearned income from privileged property rights, coupled with massive fiscal stimulus through spending on productive assets.

ie professionally managed spending on/investment in affordable housing; renewable energy and energy saving projects; a new generation of infrastructure, and above all in the training and education of domestic workforces capable of delivering these.

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

by ChrisCook (cojockathotmaildotcom) on Wed Oct 13th, 2010 at 07:57:28 PM EST
If a private bank can spend money on productive people and assets in this way then there is no reason at all why a public bank should not do the same as an agent for the Treasury.

Except that public entities have cooties.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed Oct 13th, 2010 at 08:20:20 PM EST
[ Parent ]
and the private ones don't... oh wait.

seems like the game will be:

let's all inflate, as gently and imperceptibly as we can, together, and maybe it won't hurt too bad. we'll be together, right?

big of them, to include us in the big society, when they have incurred titanic losses. sharing is good, folks.

they can't look the future they are creating in the eye, so it's 'how can we spin this harder till it's black as snow?'

the debt cantilever is tilting the building, do not adjust your sets...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Oct 14th, 2010 at 03:54:10 AM EST
[ Parent ]
all money is NOT debt, but credit, and while it is true that a great deal of this came about as claims over debt (interest-bearing loans), much of it came about when banks pay staff; management; suppliers; shareholder dividends; and buy productive assets.

How much are banks away from counterfeiting the money with their (seemingly liberal) crediting as any "payment"? If they are even buying productive assets by crediting out of thin air, who wants to be a counterfeiter then? Don't they have to offer any assets for all of that? Or if everything is all right, couldn't we then stimulate bank crediting enough to produce enough demand in the way Baker suggests?!

If a private bank can spend money on productive people and assets in this way then there is no reason at all why a public bank should not do the same as an agent for the Treasury.

Ok, where are public banks?

The bottom line is that printing money/QE solves nothing - it simply exchanges one asset for another.

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

by das monde on Thu Oct 14th, 2010 at 06:18:36 AM EST
[ Parent ]
das monde:
How much are banks away from counterfeiting the money with their (seemingly liberal) crediting as any "payment"?
As Galbraith said, the process by which banks create money is so simple that the mind is repelled...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Thu Oct 14th, 2010 at 06:45:42 AM EST
[ Parent ]
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
[ Parent ]
ChrisCook:
I would argue that it is only the profit element of the banking service which is worthless
Not only that, it is the root of bad practice.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Thu Oct 14th, 2010 at 09:04:27 AM EST
[ Parent ]
The profit motive = Greed

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Oct 14th, 2010 at 09:22:42 AM EST
[ Parent ]
<gecko>Greed is good</gecko>

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Thu Oct 14th, 2010 at 09:26:07 AM EST
[ Parent ]
The bottom line is that printing money/QE solves nothing - it simply exchanges one asset for another. The only solution to our current plight is systemic fiscal reform, and by this I do not mean the Voodoo economics we are getting in spades, but rather the taxation of unearned income from privileged property rights, coupled with massive fiscal stimulus through spending on productive assets.

ie professionally managed spending on/investment in affordable housing; renewable energy and energy saving projects; a new generation of infrastructure, and above all in the training and education of domestic workforces capable of delivering these.

Bingo! And it matters more on what money is spent than on how much money is spent, though both matter. Money spent "saving the banks" is actually preventing recovery to the exclusion of spending money on projects that would help a recovery. But a true recovery will not come until and unless the banking sector is reformed.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 14th, 2010 at 12:05:25 PM EST
[ Parent ]

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