Sabri wrote: > Money is debt and at the same time credit, since debt and credit are > the same thing: in other words, if you are the lender, what you give > is credit, and if you are the borrower, what you give is debt, a > promise to make future payments.
That's true of bank money (bank deposit balances) which are counted as part of M1 and M2 (at least in the US -- I don't know other countries' monetary norms). But it's not true of commodity money (bank gold reserves and gold coins in circulation under the gold standard) and fiat money under our current system. The "monetary base" is an asset for those who hold it, but it's not really a debt to anyone (though it may be counted that way by accountants). Base money has its value (as a means of payment and as an asset) because it is scarce. With a commodity money, that scarcity is natural in origin (it's difficult to rustle up a lot of cowrie shells under the wampum system). With fiat money, that scarcity relies on the power of the state (and its agencies such as the Federal Reserve). When that power goes away, as during a civil conflict or after losing a war, the printing presses roll and fiat money loses its scarcity value, so that hyperinflation roars. > One is "asset", the other is > "liability", yet credit=debt. When banks borrow, they give their debt > to lenders and get their credit. They can then give a portion of that > credit to a borrower and get their debt. Then the borrower gives that > credit some other bank and get the banks debt. And it can go on like > this forever. This is how money is created. Every financial > transaction creates a debtor and a creditor, so every financial > transaction creates money. How fast money is created depends on what > portion of the credit you get can be given to a borrower or, > alternatively, on what portion of the credit you received must be kept > in your reserves. If there are no reserve requirements, money can grow > indefinitely. So, it is very difficult to know what the total amount > of money in the whole world is in these days, since reserve > requirements were miniscule... If we're talking about the US dollar money supply, then M1's size would be limited by -- and thus close to -- the US monetary base divided by the required reserve ratio. Of course, it does depend on your definition of the money supply. M2 is much more elastic. -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
