Money as Debt – Basic layman’s question..

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  • Wed, Mar 20, 2013 - 05:26pm

    #11

    Jim H

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    Is the monetary system itself in debt?

No, all that debt is owed by somebody, some business, some local government, or the US itself (that little $16B + debt we owe as a nation).  And we owe it all to banks… or to the FED itself (now that they have embarked on unbridled balance sheet growth).

Debt is the way new money is created.  The debt that is left behind, as a marker for that money supply growth, is owed by all of us to the banks.  You may have no personal debt… and more power to you if that is the case.. .but you and yours have a share in the $16B + national debt, whether you like it or not, and indeed this is one of the more perverse outcomes lately (the socialization of much of the banker bailout costs).  

Let's make a simple chart;   

Money System                   How is New Money Created

US Dollar                           Debt created in the banking system creates new (digital) dollars .

———————————————————————————————————————-

Gold and Silver coin           New money can be created as new Silver and Gold is mined.

———————————————————————————————————————–

Bitcoins                             New Bitcoins are mined, or earned, as owners of specialized computers

                                         put their computing power to task in supporting the Bitcoin network function.

—————————————————————————————————————————-

MMT idea                          Dollars are created as needed by Gov't to fund Gov't spending.. and this layer

                                        of money creation functions over the existing debt-based system.  New sovereign

                                        debt is not created in this imaginary world.

 

 

 

 

 

 

 

 

  • Wed, Mar 20, 2013 - 05:52pm

    #12
    RoseHip

    RoseHip

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    Usury based money is debt

I would argue that usury based money is debt. Just saying Money is Debt leaves out the modifier before money that gives money it's conscious orientation within our world. Change the modifier and money will change along with it. 

When there is no standard of value, different humans want different things. When money is exchangeable for anything, then all people want the same thing: money.

As socrates put it "There is only one right currency for which we ought to exchange all these other things – intelligence."

Charles Eisenstein writes in his book Sacred Economics:

Money is homogeneous making quality not important only quantity, because money is convertable into all other things, it infects them with the same feature, turning them into commodities-objects that, as long as they meet certain criteria, are seen as identical. In the commodity world, things are equal to the money that can replace them, Their "value" an abstraction. I feel a distancing, a letdown, the the phrase, "You can always buy another one." Can you see how this promotes a detachment from the physical world in which each person, place, and thing is special, unique? No wonder to this day we treat the physical world so cavalierly. No wonder, after two thousand years' immersion in the mentality of money, we have become so used to the replaceability of all things that we behave as if we could, if we wrecked the planet, simply buy a new one.

Just as money homogenizes the things it touches, so also does it homogenize and depersonalize its users: "it facilitates the kind of commercial exchange that is disembedded from all other relations."

Almost any time someone gets an exciting creative idea, the thought, "How can we make money from this?" follows close behind. When profit becomes the aim, and not a mere side effect, of artistic creation, the creation ceases to be art, and we become sellouts.

Rose

 

 

  • Wed, Mar 20, 2013 - 07:55pm

    #13

    Jim H

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    Usury

Is usually a term used to mean money loaned at excessive or abusive interest rates, such as this;

  Here are Western Sky's current rates. Please be aware that not all applicants will qualify for every loan product or the lowest interest rate for a particular loan product. Some applicants will not qualify for any of the products. Western Sky reserves the right to change the rates and loan products listed below without notice.

What state do you live in?    

Loan Product Borrower Proceeds Loan Fee APR Number of Payments Payment Amount
$10,000 $9,925 $75 89.68% 84 $743.49
$5,075 $5,000 $75 116.73% 84 $486.58
$2,600 $2,525 $75 139.22% 47 $294.46
$1,500 $1,000 $500 234.25% 24 $198.19
$850 $500 $350 342.86% 12 $150.72

Link:  http://www.westernsky.com/General/Rates.aspx

Note that these rates are only possible because the loans stem from "outside" the US.. on an American Indian reservation.  

Rose,  I do resonate with some of Eisenstein's thinking.. but how would you translate this into the system of money we use?  Assuming that we still want money, since it is quite utilitarian to have some form of it.. what would it be?  What is a better form of money from the standpoint of your thinking?  For me, some kind of post-money world is just too idealist.      

  • Wed, Mar 20, 2013 - 09:50pm

    #14
    RoseHip

    RoseHip

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    The million dollar question

Interesting question Jim H. Here is my best, should be better thought out, dream.

In the spirit of permaculture farming techniques Instead of answering only one very difficult question why don't we try to come up with a solution that answers many.

First I would suggest putting an emphasis on bio-regions letting those regions figure out the best way to govern and coalesce, getting rid of state and country boundaries, which don't seem to offer any advantages, thus putting an emphasis on building indiginous cultures creating community and spirituality. Next I would foreclose on all government corporations and traditional corporations as well, freeing resources such as gold and silver to be used by the local bio-regions for backing up wealth and commerce. Each person on earth would have the same amount of gold/silver held in their name in the trust of the bio-region that they claim. (all men are created equal) Finally all debts would become credits and all credits debts, everything all at once simply changes from a negative to a positive and vice versa. Now you would find yourself re-organized within society with new rules and motivations. The bill from the utility group becomes a check in the mail. Each person or group would pay to work because the motivational force backing this system has changed, the most wealthy person or group would have close to or zero money in their bank accounts making more room to acquire services and goods that are needed, immediately. This would effectively at least in my view eliminate traditional greed and the need for wall street or other similar wasted uses of humanities energy. In today's terms there is no specific amount of money that creates satiety and that leads to "I can never have enough money", or greed. So building satiety into the new money system is of great importance.

Why would anyone do work they have to pay for? To understand this you have to first agree to think from the perspective of interdependence and not from independence. That utility group that is paying all its customers to use its services is going to need its employees (haven't thought of a better word to use yet) to fund those payments, and do the work. Lastly all jobs would have a built in intrinsic value system and the greater the good you are providing to all life the more you would GET to pay to do that work and the lower your bank account goes. Now global warming becomes an opportunity for massive job creation, lots of work to do. The food industry would be motivated to serve nutritional healing foods. The education system would be motivated to truly educate.

Kind of like a collaborative race to better the world and the space you hold putting money motivated thru humanities gifts as the motivational force for doing good and creating beauty. Hopefully this isn't too idealist for you, because I always have been a bit of a dreamer.

Rose

 

  • Wed, Mar 20, 2013 - 10:18pm

    #15

    Travlin

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    Try this Redwoods

[quote=redwoods]
if I have savings of £1000 in the bank and I do not owe anybody anything (except next months rent and bills etc) and I am not in any debt, how is my money 'debt'?
[/quote]

Redwoods

All money is backed by debt.  Your $1,000 deposit allows the bank to lend up to $900 to other people.  (Sorry, no pound sign on my keyboard.)  They can legally say the full amount is still in your account.  This mechanism of “fractional reserve banking” pretends the money is in both places at the same time.  In practice it works well unless too many people want their deposits back at the same time.  That’s called a bank run and is a bankers worst nightmare.  If they have to pay out over 10% of deposits they are broke and are closed by regulators. 

Your money was originally created by someone else’s debt.

The concept is simple once you understand it.  Your money is not debt, it is backed by debt.

Travlin

  • Wed, Mar 20, 2013 - 10:46pm

    #16
    redwoods

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    Thanks for that and all the

Thanks for that and all the other answers..I asked Paul Grignon (money as debt author) the same question, he was kind enough to respond thus…

"For one thing your bank balance is what the bank owes you in legal tender if you demand it. Thus a "deposit" is actually a DEBT of the bank to you.

The second thing is… where did the £1000 come from in the first place? It was created when someone else took out a loan, ie. a DEBT of £1000 from a bank. So the SAME £1000 is simultaneously owed by your bank to you and by some borrower to his/her bank.

P money in existence < 2P total debt of this money.
If all money is in the same predicament how is the borrower to pay off his/her debt of £1000 if you don't spend it so the borrower can earn it? Isn't that simple and obvious?
Apparently not to economists, who continue to ignore that money is created as debt in the first place and teach us that savings created "stability". "

  • Thu, Mar 21, 2013 - 12:04am

    #17

    Jim H

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    Grignon quote

Very cool Redwood!  Paul's video played an important role in my own awakening process.  Indeed.. this debt based money system is inherently non-stable unless it is allowed a good old, deflationary, mal-investment crushing creative destruction every once in a while.     

  • Thu, Mar 21, 2013 - 12:29am

    #18

    Jim H

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    Rose

First off, I have to commend you on the title of your post.. delicious in its irony.  

First I would suggest putting an emphasis on bio-regions letting those regions figure out the best way to govern and coalesce, getting rid of state and country boundaries, which don't seem to offer any advantages, thus putting an emphasis on building indiginous cultures creating community and spirituality.

Although I know you probably don't subscribe to any moniker that includes the word, "capitalism"… this part sounds to me fundamentally like anarcho capitalism… relocalizing most certainly must happen. 

What I don't understand about the rest of the world you paint is this;  How do the industries we "work" at, including things like power generation (clean coal with carbon sequestration, of course) continue to function since you have essentially blown up the existing corporate structures, and atomized the wealth away from the corporations and out to the people.  I realize that things like power plants, etc, could operate on models other than corporate, i.e. cooperatives… but still.. how does trade happen in this system?  Since we have a relocalized world from an organizational standpoint, but still have to live with in many cases very distant sources of raw materials… how does trade work in this world?  Certain metals only come from Africa… certain rare earths used in magnets only from China (or what was China).  I don't think you can "spread the wealth" for every raw material.. and if you did.. then nobody would have enough Neodymium in one place to do anything with.   

My dreams are much less ambitious than yours Rose… I only wish that the money system was one that did not allow a select few to operate and exploit it.   

  • Thu, Mar 21, 2013 - 06:12pm

    #19

    darbikrash

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    Yet another installment of

Yet another installment of the Austrian/Objectivist/Libertarian argument of returning to a gold standard vs. everyone else. There is no shortage of superficially attractive arguments for a gold standard, so I find it useless to re-litigate these tired concepts.

 

The facts are that the gold standard was rejected by virtually every country immediately after the Great Depression, and there is strong historical evidence that the faster a given country rejected the gold standard, the faster they recovered from the effects of the depression, directly attributed to increased monetary supply. There is no country today currently on the gold standard. None, nor is there any (realistic) possibility of returning to the gold standard for some very good reasons.

 

To expand on Rosehips’ excellent points in a direction not recognized by the Austrian school is that the social relations of our society are no longer governed by individual relations, rather, by commodity relations.

 

Expanding from the description of money as backed by debt creation (which is certainly true) it is generally accepted that debt based money is a “claim on future labor”. This is an important attribute which deserves greater examination.

 

I shall make the point that the monetary system is inexorably tied to the means of production, specifically, the way in which labor is utilized.

 

Agrarian cultures connected specifically and uniquely to individual labor (as opposed to social labor) have monetary systems tied to this means of production. The same with feudal economies, and to the point- most certainly so do capitalist economies.

 

Economic systems based on capitalist commodity production have, and always will have, monetary systems, currency and banking structures sympathetic to the means of production. Period. Full stop.

 

The tail does not wag the dog, as intellectually appealing as this may seem.

 

To illustrate this we can separate the subject of labor into two generalized categories, 1.) Individual labor, and 2.) Social labor.

 

Individual labor is labor which you use to provide for yourself. This can best be described as self sufficiency, e.g. growing your own crops for sustenance, sewing your own clothes, in general providing for yourself, your family and your immediate community.  If this sounds at all familiar- it should, these principles are the backbone of the PP community, resilience and self sufficiency.

 

However, the principle and embodiment of individual labor is decidedly anti-capitalist.

 

It is important to note that producing something yourself and selling the surplus in the free market is not capitalism- an important distinction often overlooked.

 

A societal bias to predominantly individual labor has profound effects on the monetary system and means of distributing this money. Agrarian (farming) cultures have a very different system of money, they can for example, realistically engage in barter, which does not require money at all, something not possible in a purely capitalist economy. For example, turn of the (20th) century general stores provided credit accounts for farm customers that required goods they could not produce themselves in periods between harvests, with no banks required. Large purchases for land and farm equipment were handled by banks, (or often equipment suppliers) but these were community banks and loans were based on personal relations (not commodity relations) in a very different paradigm. The role, importance, and supply requirements of money were profoundly different then they are today. Nostalgic attempts to return to the halcyon days of rural existence cannot be achieved by modifications to the monetary system, this was dictated by the allocation of labor and the means of production.

 

Social Labor, with its associated monetary system is what we have today. The difference is hugely significant. Today, virtually no one creates their own sustenance as a result of their individual labor. Almost no one.

 

Rather, we are in a wage labor system. A system wherein we sell our individual labor to someone else, in return for wages, which we use to buy the commodities that we require for sustenance. In such a system, there is no other way to access these commodities, and of course money is the conduit and common value denominator that is used to buy these essential commodities. This means money has a very different role in society.

 

Barter is largely an impossibility, as you have to face the double coincidence of needs without having a reproducible commodity to trade for (other than your own labor). In fact, the entire monetary system is impacted by this profound change brought about by wage labor. Further, although off point, it must be said that this exchange of labor is also by its very definition exploitative.

 

Another attribute of wage labor very much on point is that fact that its value is determined socially, hence the moniker social labor. This means that labor value is contextual as determined by the greater society.

 

In plain English this means that if you spend your day making mud pies, your labor has virtually no value, and if it has no value than you cannot survive. The reason it has no value is not because you did not work hard, it is because no one in the community has any need or desire for mud pies, so they won’t pay you a penny for them. If however, you expend the same labor to produce a commodity that can be converted to value, someone will pay you for your labor. The amount and extent for which they will pay is socially determined, e.g. the laws of free market exchange and supply/demand apply here. If lots of people do the same thing you do, then your labor value declines, if few do, than your labor value increases. In addition, labor redistributes itself to chase the higher value activities, and shifts away from lower value activities. This can and does complicate the need for everyone to exchange labor (of now fluctuating and socially determined value) to access critical to life commodities.

 

What does this have to do with money?

 

The monetary system is designed to be sympathetic to this use profile. The consumer credit system, the banking system, the wage labor system, and the means by which new money is injected into the economy for business efforts is built specifically to accommodate these needs- and none other.

 

You will never change the monetary system nor modify it any meaningful way in a manner that is not profoundly sympathetic to the generalized and mainstream  means of economic production.

 

  • Thu, Mar 21, 2013 - 08:36pm

    #20
    redwoods

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    RoseHip wrote:I would argue

[quote=RoseHip]

I would argue that usury based money is debt. Just saying Money is Debt leaves out the modifier before money that gives money it's conscious orientation within our world. Change the modifier and money will change along with it. 

[/quote]

 

how do you mean the modifier before money ?

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