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oh, don't get me wrong - I have no objection to credit and am willing to accept it was/is more prevalent than commodity money.

However, I just question the order of events. It seems to me that the unit of account is most easy to understand if it already has a perceived value.

People laughed (still do) about Bitcoin being just worthless 1s and 0s, but the fact that people give them value, makes them useful. I suppose this is something between a commodity and a credit money - not useful as a commodity, but not a promissory notes either.

Tbh, I don't care what people think money is or isn't - it should be left for people to figure out (read: the market). It is only when people are forced to use one type, that it matters at all.

Which is more likely- a scenario in which early man cooperated on the basis of mutual trust and common self interest or one in which all such cooperation did not exist until the invention of money? To me it's far more likely that credit- in the form of a future obligation to return a favor granted in the present- would evolve first and only later would money be required as societies grew larger and more complex- or perhaps it was the innovation of money that allowed them to become larger and more complex?

Even quite young children seem to grasp the idea of reciprocity and have a highly developed sense of what is and is not 'fair'.

Perhaps one way to define money is as a technology via which the obligations of the individual to respect the claims on him made by others can be encapsulated and thus made portable.

So we might say that just as Oil is the energy of sunlight embedded in organic matter, a metal coin represents the energy of social obligation embedded in non organic matter.

After all what does money actually do?- well what it does is mobilize the labor of human beings or- allow the acquisition of objects that have been created by mobilizing the labor of human beings or- allow the long term storage of claims on the labor of human beings.

So we can define money as a means of storing the labor of human beings until such time as we wish to make a claim on that labor- so like credit- money has a temporal quality in that I can expend my labor today, get paid for that labor today but not spend that 'labor value' until tomorrow- I have in effect stored the energy I expended today in order to deploy it tomorrow.

To be wealthy then is to have a large claim on the energy of your fellow human beings- which explains why money is useless to a man alone on a desert island- there is no one around whose energy he can purchase ,nor any artefacts created by that energy he can purchase which renders his coins useless.

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- the original observation is trivial; the last person on earth with a pile of gold can't buy anything, so money is not gold itself, it exists only between entities (be those people or ones we make up with laws)

- re: scarcity, money is necessarily scarce or there is no competition for it, and hence it has no value. The idea that if we just redesigned the money supply so it was never scarce is ludicrous since the value of that "money" would be zero.

- the problem with current credit money lies in its supply; if it is not scarce, no competitive price revelation can be at work, just as a game of monopoly breaks down the moment the person playing Banker stops merely being an administrator and starts relaxing the rules of supply (which they often will for social reasons or in order to keep someone else in the game)

Price is about information revelation, this is also why your insurance premiums go up after an accident. Every repayment on a debt reveals more information about the borrower, unless of course the borrower is just freely borrowing more at 0% and not having to compete. A loan is, and should be, a bet, provided it comes at cost to the creditor.

Currency on the other hand is just about standardisation; convertability between different credit agreements allows for efficiency and competition, and this is the point where the properties of different standard units acting in this role to avoid fraud becomes important (ie is it really gold or just the more cheaply available pyrites?)

Two different loans made to two different indivdiuals have different real values to the creditor, based on unrevealed information - whether it will be paid back in future. The moment these assets are denominated in currency, they become indistinguishable, and start being used for exchange elsewhere, and implicit in that exchange is the notion that the current estimation of value is accurate. So the value of debt is a function of time and uncertainty. If we allow those currency units to be brought into existence by the act of issuing (badly priced) credit, they lose their meaning, which is what is happening today.

We therefore must:

- Know the total quantity of currency, but not strictly limit it (rather manipulate it according to social needs)

- Separate the issuance of credit from the creation of currency - force banks to hold accurately valued units of any credit they extend prior to it's issuance (ie a level playing field with you and I), in order to force the process to reveal information by ensuring there is a cost to any competing creditors. Thats not to say they can't borrow, but only if that borrowing is through the same comeptitive information-revealing process.

But we won't be doing any of that. Have long since let go of this old rope. Short termism, plunder, manipulation, greed; there are too many incentives for those in power to not level the playing field. Control over money by the general population will only ever be won back via the guillotine.

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http://www.marketwatch.com/story/how-this-debt-addicted-world-could-go-the-way-of-the-mayans-2015-04-27/print

Paying a high price for too many elites and their ‘frivolous cravings’

MW-DK442_mayan__20150424191053_ZH.jpg?uuGetty Images

Nowadays many countries’ social and political structure relies on debt-driven consumption and increasing levels of entitlements.

Blame the policy makers. To drive economic growth, boost living standards, and manage growing inequality, policy makers have used debt and monetary tools to create economic activity. This has resulted in excessive borrowing and imbalances in global trade and capital.

Governments played a part, too, allowing the buildup of social entitlements to win or maintain office. Private companies also encouraged the growth of employee benefits to avoid immediate pressure on wages as well as boost current earnings and share prices.

But such expensive commitments were rarely fully funded.

Rather than deal with the fundamental issues, policy makers substituted public spending, financed by government debt or central banks, to boost demand. Strong growth and higher inflation, they hoped or believed, would correct the problems.

Barron's Buzz: Who's optimistic now? (2:57)

This week's Barron's features the result of a survey of money managers and a look at Amazon's cloud services. Barron's Jack Hough discusses. Photo: Getty Images

The current state of affairs echoes Archaeologist Arthur Demarest’s observation about the Mayan civilization: “Society had evolved too many elites, all demanding exotic baubles…all needed quetzal feathers, jade, obsidian, fine chert, and animal furs. Nobility is expensive, non-productive and parasitic, siphoning away too much of society’s energy to satisfy its frivolous cravings.”

Seven years into this crisis, the level of debt in major economies has increased. Global imbalances have decreased, but primarily as a result of slower economic growth. Countries such as China and Germany are reluctant to inflate their domestic economies, moving away from their export-driven model. Major borrowers, such as the U.S., refuse to reduce spending and bring their public finances into order. Enthusiasm for fundamental financial reform has dissipated, driven by concern that lower credit growth will decrease economic growth.

Policy makers refused to acknowledge that available fiscal and monetary policy tools cannot address the underlying problems. They repeatedly use complex jargon, obscure mathematics and tired ideologies to disguise their failures and limitations. Perhaps, as the writer G. K. Chesterton suggested: “It isn’t that they can’t see the solution. It is that they can’t see the problem.”

The policies, now centered around debt monetization entailing zero interest-rates and quantitative easing (QE), have potentially destructive side effects.

Punishing frugality and thrift, and rewarding borrowing, profligacy, excess, and waste.

The resultant loss of purchasing power effectively represents a tax on holders of money and sovereign debt. It redistributes real resources from savers to borrowers and the issuer of the currency, resulting in diminution of wealth over time.

Debt monetization also creates moral hazards. Low rates and easy availability of credit reduces market discipline. Borrowers face less pressure to cut back on their debts. Low borrowing costs allow unproductive investment to be maintained. It reduces incentives for governments to bring public finances under control.

Ultimately, the policies being used to manage the debt crisis punish frugality and thrift, and reward borrowing, profligacy, excess, and waste.

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http://blogs.reuters.com/edward-hadas/2015/06/10/central-banks-can-save-the-world/

Central banks made a hash of things in the 2000s. But their failures – the credit bubble and the 2007 financial crash – have too many precedents.

There was the unexpectedly high inflation in the 1960s and 1970s. And two generations earlier, central bank activity and inactivity bore much of the responsibility for the boom of the 1920s, the great bust of the 1930s and quite possibly the United States’ fall back into recession in 1937.

Something has been fundamentally wrong with monetary policy. The central banks’ weakness is especially glaring when set against the ability of most parts of the economy to get over their serious problems. For example air and water pollution, widely considered existential threats, have been tamed thanks to the advance of technology, the widening of corporate agendas, and the dynamic efforts of governments and lobby groups.

..

First, central bankers should recognise that price stability is at least as valuable for financial assets as for consumer goods. Raging stock markets encourage greed more than investment. They invite subsequent crashes and recessions. House price bubbles distort the behaviour of both buyers and builders. Sharp moves in commodities wreak havoc on producers and users alike. Unsteady interest rates can eventually lead to unsteady economic activity.

..

But there is a problem, even if the successors of Janet Yellen at the U.S. Federal Reserve and Mario Draghi at the European Central Bank firmly believe they should push financial markets around. The current toolkit is nowhere near powerful enough. Policy interest rates are a blunt instrument –interest rates that are high enough to slow down financial markets will also crush economies. But the current techniques of financial regulation are not very ambitious.

The toolkit is the subject of the second revolution. Central bankers should take more control over money creation. The process is too important to be entrusted almost entirely to banks.

That is the current practice – bank loans create cash deposits. It often works reasonably well, but bankers in greedy mode create too much money, burdening the economy with leverage while fuelling speculation and inflation of asset or goods prices. In their fearful mode, bankers withdraw credit and deposits, starving the economy of useful funds.

Central banks need to get a grip, with the help of money-issuing governments. Most new money should be created directly by fiat, not by lending. Regulation of banks should be intensive, actively guided by economic principles. Loans should be limited to productive activities. Lending based on the value of land should be treated as radioactive. Lending which pushes up the value of land or any other financial asset should be taboo.

Well we can all trust the worlds central banks...

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Mutual exchange of goods or services in very small settlements might have worked, but would have been off limited use once villages of more than a couple of hundred emerged. At this time, individual trades emerged, mostly productive in some way. Fisherman, boot maker, crop grower, herdsman, although many would have done elements of all.

In small communities, a tally stick would be fine for bilateral debts and perhaps even mutually acceptable. However, trade flourished in the iron age, which we can see through archiologiocal finds and the surprising amount that people travelled, revealed in bone records. A need for a single transportable medium of exchange would have quickly arisen.

In primitive societies, grain would fit the bill for most transactions. Salt was another option, and more transportable. Coins developed later but were popular to their durability and transportability.

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Mutual exchange of goods or services in very small settlements might have worked, but would have been off limited use once villages of more than a couple of hundred emerged. At this time, individual trades emerged, mostly productive in some way. Fisherman, boot maker, crop grower, herdsman, although many would have done elements of all.

In small communities, a tally stick would be fine for bilateral debts and perhaps even mutually acceptable. However, trade flourished in the iron age, which we can see through archiologiocal finds and the surprising amount that people travelled, revealed in bone records. A need for a single transportable medium of exchange would have quickly arisen.

In primitive societies, grain would fit the bill for most transactions. Salt was another option, and more transportable. Coins developed later but were popular to their durability and transportability.

or maybe people were civilised back then, each member valued for his contribution and supplied his brother as needed or as the elders decided.

Primitive tribes even recently traded with women and animals.

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http://russia-insider.com/en/politics/they-just-follow-washingtons-recommendations/ri8389

It is the refinancing rate…

Refinancing of what? That is the main question. The rate is the benchmark for the Central Bank to provide short-term loans to commercial banks for repo transactions. These are transactions for the purchase of securities included in the Lombard list of the Central Bank with the obligation to repurchase at the same price plus the key rate. These loans are generally issued for a few days to a week. Banks need them to cover a liquidity deficit – a temporary shortage of cash to meet current obligations. These loans are not directed at the real sector of the economy where the production cycle lasts from several months to several years. The economy needs long affordable loans. Whereas the Central Bank provides short expensive money as the lender of last resort to cover short-term imbalances of supply and demand in the financial market.

Nevertheless, the whole credit system is based on the key rate.

Because that is how our banking sector is set up. Let’s start with the fact that it is a monopoly – three state-controlled banks account for more than 70% of its assets. However the state in no way manages these banks – it only rescues them time and again from crises, pumping them full of budget money and relieving their bosses of their responsibility for the efficacy of their work. Nobody gives them any kind of assignments and the senior management of these banks behaves as if these organizations belong to them. They set arbitrary interest rates and don’t concern themselves with solutions to the problems of economic development.

Indeed no-one even sets them such tasks. They exist for themselves, using unlimited access to that very system of refinancing. They take money from the Central Bank at the key rate, add their margin and offer it to borrowers. Because of their monopoly position, other banks are guided by them in their interest rate policy. This highlights the role of the key rate. The Central Bank prints money and throws it into circulation at the key rate. It thereby determines the minimum price in the money supply. After all it doesn’t cost them anything. And it can make the offer at any percentage rate. When it is necessary to stimulate business growth, the monetary authorities reduce this percentage rate.

There have been cases when the central banks of some countries offered loans at a negative interest rate – that is they rewarded commercial banks for their willingness to take money and bear the risks of its loan to businesses. Now the main issuers of international currencies, the US Federal Reserve, the European Central Bank and the Bank of England provide loans at a negative real interest rate, considered as the nominal rate minus inflation. With this they stimulate economic growth and reduce the risk of banks defaulting (bankruptcy) when they experience problems with the repayment of loans from their borrowers. When the economy is overheating – that is, it is operating at the limit of its capabilities and a further increase in business activities involves the risk of inflation – the monetary authorities raise the refinancing rate. With this they increase the efficiency requirement for loans.

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http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx

Contents of Quarterly Bulletin 2014 Q1


Each article is available as a separate pdf file; click on the appropriate title to access the relevant file. Alternatively you may download the complete issue.


Topical articles
pdf16.gifMoney in the modern economy: an introduction (538KB)
By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This article provides an introduction to what money is today. Money today is a type of IOU, but one that is special because everyone in the economy trusts that it will be accepted by other people in exchange for goods and services. There are three main types of money: currency, bank deposits and central bank reserves. Each represents an IOU from one sector of the economy to another. Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves.

pdf16.gifMoney creation in the modern economy (112KB)
By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

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the money is the means of exchange in my book.

in the case of camels for wives, both are money at the moment of exchange, the fulfilment of each party to the other.

All contracts are a barter.

money is simply a commodity that everybody wants, some even worship it. With a £1 note, you can buy many things in many places, a camel, not so many places.

so the problem arises from the issuance of what is called "money" at a certain point.

that,in effect, is what is being monopolised.

you could just as easily use monopoly money to fulfil an exchange of goods of the parties involve are agreed that is a suitable method.

could be popular, most people have a monopoly board at home, so waiting for someone to print something with the queens head and some pretty patterns on is merely window dressing, not important.

come to think of it, monopoly money is already global,so no more fees for changing dollars to euros etc.

now what REALLY IS money...money is labour,resources or innovation.

resources,because they are needed to produce finished goods

labour,because that's what makes finished goods

innovation, because that what's makes finished goods cheaper,more reliable and more accessible to everyone else.

Edited by oracle
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so the problem arises from the issuance of what is called "money" at a certain point.

that,in effect, is what is being monopolised.

you could just as easily use monopoly money to fulfil an exchange of goods of the parties involve are agreed that is a suitable method.

could be popular, most people have a monopoly board at home, so waiting for someone to print something with the queens head and some pretty patterns on is merely window dressing, not important.

come to think of it, monopoly money is already global,so no more fees for changing dollars to euros etc.

Im game. To think people bother buying and selling property to earn a living, when all they have to do is pass Go and the bank will give you money...The BANK???. Why?...I think there is a flaw in the game somewhere.

Edited by Bloo Loo
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It is the language of human resource.

Credit is the false creation of human resource.

credit is not necessarily bad,as long as it is used properly.

if you want to get credit to replace your 20 year old 25mpg banger with a bit more modern 45mpg slightly less banger,you will take the initial hit but recoupe the outlay over a period of time...so that is good credit.

take same credit to replace 20 year old 25mpg banger with a more modern 25mpg conveyance with some flashy bits to impress the neighbours and make them jealous.....does not serve a tangible use,so therefore bad credit( unless you are in sales and use that as a tool to attract future customers who like shiny stuff)

or in business terms,i need to get £10m for a new assembly line for my bangers.

bank says..ok,what do i get out of it??

owner says, I can cut the assembly cost of each banger by 10%,and I can produce 20% more that i originally did.

I will sell the product on the market with a 5% mark down on the present price, but in return I anticipate around 20% sales growth.

that is a fairly solid business case for granting such a loan.

Edited by oracle
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Notches on a tally stick or a tablet served as a unit of account. A handshake or an oath a store of value i.e. reputation.

. Keynes has been largely re-written.

keynes also advocates storage of a percentage of gdp in surplus years....a lesson that seems to have been forgotten by modern day keynseyans.

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. Control over money by the general population will only ever be won back via the guillotine.

I've just said that monopoly money is already gone viral.....it does not have to compete with start-ups like bitcoin because it has already gained market penetration....and it is such a "hidden in plain sight" tool that nobody sees it!

all that needs to change is the mindset of what constitutes money.

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I still don't get what billions and trillions of money is. I understand that a few million has a meaning but not the vast sums that governments and markets bandy around.

Back to my basic and simplistic understanding. Money to an individual represents what his labour is worth, what goods he can consume with it, what consumption he can forgo to provide for future consumption.

So, to provide for future consumption he saves money in a bank. Are the billions and trillions the total sum of unconsumed labour? Then what is the bank credit created from the fractional reserve? It was never past labour to be spent by the individual in the future. It never existed.

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https://www.bullionstar.com/blogs/koos-jansen/the-concept-of-money-and-the-money-illusion/

The Concept Of Money And The Money Illusion

Awareness about the concept of money is making a comeback. Gone are the decades in which the global citizenry was fooled to leave this subject to economists, governments and banks – a setup that has proven to end in disaster. The crisis in 2008 has spawned debate about what money is, where it comes from and where it should come from. These developments inspired me to write a post on the concept of money and the money illusion. (All examples in this post are simplified.)

The Concept Of Money

Money is a collective human invention

First, let us have a look at the fundamentals of money. How did Money evolve? Thousand and thousands of years ago before any trade occurred homo sapiens use to be self-sufficient; families or small communities grew that their own crops, fished the seas, raised cattle and made their own tools.

When barter emerged the necessity to be self-sufficient ceased to exist. A farmer that grew tomatoes and carrots could exchange some of his production output for bananas or oranges if he wished to do so. There was no necessity for the farmer to grow all crops he wished to consume, when there was an option to trade.

Farmers participating in a barter economy were incentivized to specialize in production, because they could escalate their wealth (gain more goods) by producing fewer crops on a greater scale. Through trade increased productivity (efficiency of production) could be converted into wealth, as the more efficient commodities were produced, the higher the exchange value of the labor put in to produce them. Consequently, barter economized production among its participants.

From Matt Ridley.

By exchanging, human beings discovered ‘the division of labor’, the specialization of efforts and talents for mutual gain… Exchange is to cultural evolution as sex is to biological evolution.

Direct exchange (barter) was a severely limited form of trade because it relied on the mutual coincidence of demand. An orange farmer in demand for potatoes had to find a potato farmer in demand for oranges in order to trade. If he could find a potato farmer in demand for oranges and agree on the exchange rate (price) a transaction occurred. But, often there was no mutual coincidence of demand. When all potato farmers were not in demand for oranges the orange farmer could not exchange his product for potatoes. In this case there was no trade, no one could escalate his or her wealth.

This is how money came into existence: the orange farmer decided to exchange his product for a highly marketable commodity. A bag of salt, for example, could be preserved longer than oranges and was divisible in small parts. He could offer it to a potato farmer, who in turn could store the salt for future trade or consumption. If no potato farmer was in demand for oranges, surely one was to accept salt in exchange. Eventually, the orange farmer succeeded via salt to indirectly exchange his product for potatoes. The medium used for indirect exchange is referred to as money.

In the early stages of indirect exchange there were several forms of money. When economies developed the best marketable commodity surfaced as the sole medium of exchange. A single type of money has the advantage that the value of all goods and services in an economy can be measured in one unit, all prices are denominated in one currency - whereas in barter the exchange rate of every commodity is denominated in an array of other commodities. One set of prices makes trade more efficient, transparent and liquid. Often precious metals, like gold or silver, were used as money as precious metals are scarce (great amounts of value can be transported in small weights), indestructible (gold doesn’t tarnish or corrode) and divisible (gold can be split or merged).

The only trouble is if you read the start of this thread, barter didn't come first it was credit. However the barter myth is clearly too strong to resist.

Edited by interestrateripoff
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  • 433 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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