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Why Can't the Government Create Money?

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Original post by Polymath0
It is, but it doesn't have to be. Why is it that you have no comprehension issues in recognising that physical cash and coin can be created and issued by the state in the absence of debt, but find it difficult conceptually to include electronically created money within that category?

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Both coin and cash and electronic money are transferable third party debt.

Coin and cash = government debt
private bank account = private bank debt
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There is no contradiction. I was correct in my suspicion that you haven't even begun to properly understand how the current monetary system is designed. You truly have no idea about the extent of your cluelessness.

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Of course there is a contradiction. You can't repeat the same sentence, but the second time negate the verb, and then claim it isn't self contradictory..


The answer to your question can be found in your question. The loan is the money. The money is the loan. If you cannot understand this you will not understand the remaining summary.

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I do understand that, in fact in my last post I explained it to you. Its implication is that loan creation IS money creation. The loan IS the money, so creating a loan and creating money is the same thing.You appear to forget this as soon as you have typed it however, because further down you claim that loan creation and money creation are separate, which is clearly nonsensical..



In the new monetary design I advocate, the private banks would no longer have the power to create the loan.
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So when I asked if private banks would not longer be able to make loans and you said "private sector loan making would function as per usual."
you were mistaken? Have you changed your mind about this? Or are you just confused? Because once again, you have directly contradicted yourself..


Instead, the government would create the money which would be used by banks to provide loans, i.e. the loan would be brought about by existing savings.

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This is nonsense. How can the bank loan money that the government has created? As you said above, the money IS the loan. Whoever makes the loan, creates the money.
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The money used for on-lending by private banks would first be created by the government for public spending / investment, and the growth that ensues from such investments would be channeled to the banks in the form of savings to be lent to the private sector.

Hopefully you can now understand exactly how the government would be in control of money creation and not loan making: the two functions would be entirely separated, not concentrated simultaneously in the banking system.


You continue to contradict yourself. If the money is the loan, the money creation and loan making are one and the same activity. They can NEVER be separated, by definition.
Original post by cole-slaw

Coin and cash = government debt
private bank account = private bank debt


How can cash and coin constitute government debt when, as you concur, the government can create it?

The government has an account at the Bank of England which it uses to transfer borrowed, i.e. debt, money electronically to the public sector, so the distinction you've made does not hold up to scrutiny.
Ideally, I would prefer to see evidence for the veracity of this equation but I already sense that it isn't based on reality to begin with. Feel free to prove otherwise.


So when I asked if private banks would not longer be able to make loans and you said "private sector loan making would function as per usual."
you were mistaken? Have you changed your mind about this? Or are you just confused? Because once again, you have directly contradicted yourself..


Where is the contradiction? The banks would provide the loan, not create the loan. The difference ought to be clear to comprehend.


This is nonsense. How can the bank loan money that the government has created? As you said above, the money IS the loan. Whoever makes the loan, creates the money.


I never stated that debt and money are de facto joined together naturally. This is a by-product of the current system.
In the current system money is created in the process of lending by the banks.
in the debt-free system money is created and issued separately by the government and subsequently used by the banks for lending.
The process of money creation can thus be separated from debt unlike in the current system.

This lies at the heart of your confusion. You can't understand the most basic explanation because you deliberately choose not to learn how it works in practice. It's either due to outright dogmatism, arrogance or intellectual laziness; or a mix of all.
" I am a free thinker"

--

No you're not. We're born in to cultures and culturally conditioned from the moment we are born.
Those who employ reason as their guiding lantern have liberated their minds.
The government is already creating money through the private commercial banks you're talking about. It delays them having to pay off their debt.
Original post by Cato the Elder
The government is already creating money through the private commercial banks you're talking about. It delays them having to pay off their debt.


No, it doesn't. The private banks create the money supply, not the government. I have provided evidence that this is the case. Where is your counter evidence?

How does this surmised procedure of money creation delay public debt repayment? You can't just say such things without elaboration, otherwise your contribution is useless.
>lvl of BASIC economics knowledge OP possesses in terms of bond strength



@ubisoft
@Imperion


Original post by Anonynmous
>lvl of BASIC economics knowledge OP possesses in terms of bond strength



@ubisoft
@Imperion




lmfaoooooooo :rofl:

dat ***** Adam Smith reincarnated
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That would weaken the currency. Think of it like this, we both have 2 bars of gold, you represent that good by giving 200 counters, I represent mine with 20 counters, therefore my counters are worth 10x more than yours, although that was almost how it used to work it's more complex but with the same concept. Then you have the whole currency mechanism and inflation etc. You can't just print money, well you can but the value of money is what matters so the government is better of making the Pound stronger rather than printing more money and making the £10000 someone has in their bank/pension worth less to nothing when it could be worth more, not by numbers but by value.
Original post by Anonynmous
>lvl of BASIC economics knowledge OP possesses in terms of bond strength



@ubisoft
@Imperion




BRUTAL!! :rofl: PRSOM bruh xDD
Original post by zayn008
That would weaken the currency. Think of it like this, we both have 2 bars of gold, you represent that good by giving 200 counters, I represent mine with 20 counters, therefore my counters are worth 10x more than yours, although that was almost how it used to work it's more complex but with the same concept. Then you have the whole currency mechanism and inflation etc. You can't just print money, well you can but the value of money is what matters so the government is better of making the Pound stronger rather than printing more money and making the £10000 someone has in their bank/pension worth less to nothing when it could be worth more, not by numbers but by value.


I have dealt with the inflation argument ad nauseam.

I urge you to read my past relevant posts, but basically the common objection that an increase in the money supply automatically leads to inflation assumes a world in which there can only be fixed, or inelastic goods which do not respond to an increase in money. The fact that the assumption is flawed renders the argument meaningless to begin with. In reality, the government would increase the money supply for investment, an increase in the supply of goods and services, in the same way a private bank lends money to borrowers when collateral is present in the form of a business plan. When an increase of money increases the supply of goods and services, prices remain the same.

Why is the inflation objection never brought up concerning money creation by private banks but only in relation to government?
This is an excellent article dealing with an objection that uses the common caricatured examples of hyperinflation in Zimbabwe and Weimar Republic as an argument against
government money creation, even though such comparisons are completely misplaced and inaccurate.

http://positivemoney.org/2015/12/hyperinflation-how-the-wrong-lessons-were-learned-from-weimar-and-zimbabwe-a-history-of-pqe-part-2-of-8/

[Part 2]
(edited 8 years ago)
A lot of interesting debate here but i'm still not sold that fiat money and debt is a bad thing. So long as the correct risk premium is issued then it seems perfectly sustainable to continue our rampant debt creation.

Now if your arguing that we don't have sufficient risk premiums i'd agree but that's another argument.
Original post by Rakas21
A lot of interesting debate here but i'm still not sold that fiat money and debt is a bad thing. So long as the correct risk premium is issued then it seems perfectly sustainable to continue our rampant debt creation.

Now if your arguing that we don't have sufficient risk premiums i'd agree but that's another argument.


I haven't argued that fiat money should be replaced.

In an IMF paper, The Chicago Plan Revisited, the authors cite the following benefits of state creation of money.

(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs.
(3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

However, I would include two further benefits.

(5) An abolition of inefficient taxes.
(6) The ability for the state to provide for the general welfare and development of the nation without artificial restraint occasioned by a systemically faulty monetary design.
(edited 8 years ago)
Original post by Rakas21
A lot of interesting debate here but i'm still not sold that fiat money and debt is a bad thing. So long as the correct risk premium is issued then it seems perfectly sustainable to continue our rampant debt creation.

Now if your arguing that we don't have sufficient risk premiums i'd agree but that's another argument.


With all due respect to OP, he has no education in economics and quite clearly doesn't know what he's talking about. So I would ignore pretty much anything he says.

The banks expand the money supply through the act of lending - so to talk of lending money that has been "previously created by the government" is a complete nonsense. You can't create the same money twice.
Original post by cole-slaw

The banks expand the money supply through the act of lending - so to talk of lending money that has been "previously created by the government" is a complete nonsense. You can't create the same money twice.


I agree. It's nonsense because it wouldn't work like that, and you haven't been paying attention.

The money would be created once by government solely. It is government created money that banks would use subsequently to lend to the private sector from savings accounts of customers who choose to invest their money.

The government creates the money. The bank lends existing money.
Original post by Polymath0
I agree. It's nonsense because it wouldn't work like that, and you haven't been paying attention.

The money would be created once by government solely. It is government created money that banks would use subsequently to lend to the private sector from savings accounts of customers who choose to invest their money.

The government creates the money. The bank lends existing money.


You can't lend someone else's money you dope.

If I lend you my mates money, its not me lending you money, is it. Its him. Similarly, If the bank lends you the government's money, its not them lending you money, its the government.


So either you are saying the government will do all the lending, and the private banks will be reduced to an advisory role, or you are saying the banks will lend the money themselves and in doing some continue to "create" new money as they do currently.
How many times can I explain this. LENDING money and CREATING money ARE THE SAME THING.

Every time a bank makes a loan of £100, they add £100 of new money into the money supply. This is the only way in which money is created.

talking about "where did that money come from" is moronic. It didn't come from anywhere. It was created from scratch at the moment it was credited to the loanee's account.
Original post by cole-slaw

If I lend you my mates money, its not me lending you money, is it. Its him. Similarly, If the bank lends you the government's money, its not them lending you money, its the government.


Now you're just being an obtuse literalist, coleslaw.

In the same way that you can act as a financial intermediary between your friend, as a lender, and I, as a borrower, the bank would act as an intermediary between savers who choose to invest a portion of their savings and those who wish to borrow those savings.

The primary difference here is that the bulk of savings that are invested in a bank to be on-lent would originate entirely from the creation of money by government.
Original post by Polymath0
Now you're just being an obtuse literalist, coleslaw.

In the same way that you can act as a financial intermediary between your friend, as a lender, and I, as a borrower, the bank would act as an intermediary between savers who choose to invest a portion of their savings and those who wish to borrow those savings.

The primary difference here is that the bulk of savings that are invested in a bank to be on-lent would originate entirely from the creation of money by government.


You still don't understand this most fundamental principle, do you? How do you think the private banks currently create money if not by creating loans?

I really suggest you take that monetary economics course I recommended to you. You would only have to watch a handful of lectures to get a far better understanding of how things actually work in reality.

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