Re: Inflation and Deflation

From: Bill Ryan (william_b_ryan_at_hotmail.com)
Date: 06/22/04 

Date: 21 Jun 2004 20:33:21 -0700

[Hummel] Your theory is right on target.
There are actually two types of money: (1)
base money issued by the central bank, and
(2) credit money issued by private banks. 

--
[reply] No, it's all bank credit, so in the 
main there is only one type of money.  The 
difference is the central bank is the 
central bank in the banking system.  The 
conceptual "bank" is the banking system as a 
whole.  The operative theorem is that loans 
create deposits and the repayment of loans 
cancel deposits.  The purchases of 
securities by banks - including the central 
bank - are the functional equivalent to 
loans.
-->
[Hummel] All payments to and from the 
government involve the transfer of base 
money.
--
[reply] Patently false.  Mr. Hummel has been 
paying too much attention to Warren Mosler's 
crank theory.
--> 
[Hummel] Base money is a credit against 
future taxes.
--
[reply] It is not, if by "base money" he 
means Federal Reserve Bank credit. 
Warren Mosler's "state" theory is a 
resurrection of 1930s fascist economics. 
It's just that he is too poorly read to 
realize he thinks he invented something new.  
His highly paid "economist" sycophants 
wont tell him.  They just take his money 
and stroke his ego; they put him down as 
"co-author" of "papers" in "academic 
journals."  
Federal Reserve Bank credit plus commercial 
bank credit in the fungible money supply is 
interchangeably acceptable in payment of 
taxes or anything else.  Federal Reserve 
Bank credit is indistinguishable from 
commercial bank credit in the checks (or 
electronic transfers) tendered in the 
payment of taxes. 
-->
[Hummel] Without the enforcement of taxes, 
base money could not retain its value.
--
[reply] Bank credit has value because you 
can spend it to buy things, pay bills, or 
pay taxes, etc.  Bank credit is the fungible 
combination of Federal Reserve Bank credit 
plus commercial bank credit.
-->
[Hummel] Neither custom nor legal tender 
status are sufficient because they guarantee 
nothing about real value.
--
[reply] Mere assertion without historical 
basis.  
-->
[Hummel] When one writes a check to buy 
something, he is authorizing his bank to 
debit his account and transfer that amount 
to the bank of the seller who then receives 
a new credit in his account.
--
[reply] Conceptually, the "bank" is the 
banking system as a whole acting in concert.
Our self-styled "expert" Mr. Hummel has here 
inserted the fallacious assumption that 
payment by check merely transfers pre-
existing deposits from one account to 
another.  If logic or facts get in the way, 
define them out of existence!
In the creditary economy checks are not 
written in the aggregate against pre-
existing deposits but lines of credit, which 
include pre-existing deposits.  Hence, the 
level of deposits will increase or decrease 
with lending and borrowing.
-->
[Hummel] Credit money exists only as 
deposits in private banks.
--
[reply] A false assumption in the form of a 
definition making it a subtle but pernicious 
fallacy.  Mr. Hummel is truly "Mr. 
Definition" who argues "by definition" 
incessantly.
Credit money in the form of deposits are 
deposits in banks, including the central 
bank.  Federal Reserve Notes are Federal 
Reserve credit you can hold in your hand.
--> 
[Hummel] Credit money retains value because 
banks are required to convert credit money 
into base money on demand, even though the 
conversion seldom occurs.
--
[reply] In a central banking system, 
commercial bank depositors have the right 
within certain limits to have their deposits 
redeemed in central bank credit.
-->

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