Re: State Theory of Money

*Anarcissie* wrote:
On May 11, 5:01 pm, w_b_r...@xxxxxxxxx wrote:

"Money (dollars in bank accounts of the Treasury)
is CREATED when the government spends money
into existence."
------------------------------------------
-------------------------------------------

Money is created when any transactor deficit spends
with bank credit. The theorem is that loans create
deposits; the repayment of loans cancel deposits.
This theorem is very significant in an economy
where most transactions are conducted by the
transfer of bank deposits.

This is true whether the transactors are private or
governmental institutions or individuals.

If you'll look at the diagram archived athttp://www.geocities.com/new_economics/conrad-borrowing-2005.gif
from my good friend, Bud Conrad, you'll see that
the largest amount of bank credit is represented by
consumer debt, the second largest is federal
government debt, the third largest is business debt,
and the smallest is state and local government debt.

The theory that you outline is very close to the State
Theory of Money concept that has recently been
revived by the multi-millionaire Warren Mosler.
The term was originated by the German economist
Georg Friedrich Knapp, a favorite of the Nazi's,
who experimentally tested the theory at
Theresienstadt, in prototype of their plans to control
conquered peoples and races.

In point of fact, the Fed holds only a relatively
small percentage of federal government securities.
The large majority are held by domestic and foreign
commercial banking institutions.
-

On May 10, 1:14 pm, "The Trucker" <mik...@xxxxxxxxxxx> wrote:

For years I have been trying to explain this stuff in a
way that even the minimally aware can understand
it. Perhaps the best way to look at it is to (in you
mind) coalesce the Fed and the Treasury into a
single harmonious group. That is the reality
anyway. These two institutions work hand in hand
to do the job of government finance and monetary
control.

Money (dollars in bank accounts of the Treasury) is
CREATED when the government spends money
into existence. The Treasury accounts in the central
bank (spelled Fed) are NEVER overdrawn or
insufficient.

The problem then becomes the control of all this
money that has been created and thrown into the
helicopter blades of government to come to rest we
know not where. If the money is allowed to slosh
around in the economy for too long then the amount
of actual dollars will grow too large and the value of
the dollars will erode. That is why we have taxes
and the sales of various types of "interest" bearing
mattresses called government bonds. What else will
the rich people who already have all the money they
could ever use do with this extra money but to put it
into bonds?

That is what keeps dollars scarce and keeps them
worth something; this sale of bonds and this
taxation. If interest rates on the bonds are very low
and there is inadequate tax revenue then the amount
of real live spendable money increases and the
currency is devalued. That is what has been
happening since 2000. And if short term rates are
kept low and government borrows on the sort term
(lots of 6 month bonds) then both money and bonds
continue to lose value. Over time this _SHOULD_
attend to trade imbalances.

The time of reckoning is put off by the current bond
holders. If they refuse to buy more bonds at low
interest rates then the value of the bonds they
already own at low interest rates will deteriorate
even more than that value has currently
deteriorated. You must always remember that the
only thing you can get for a bond is money. And if
the value of the money has eroded then so too has
the value of the bond.

I keep using the word "value" and it is time to
address what it means. Value is measured in one's
control of labor and natural resources. Money buys
both land and resources. As these prices rise we are
actually witnessing the decline of the value of the
dollar. The apparent stock market rise is also a part
of that.


It seems obvious that there is a lot of inflation
taking place, while the government's institutions
and spokesmen pretend that there is not. However,
the inflation has not been evenly distributed --
most of it has occurred in the stock market, real
estate, and collectibles. We might call these the
upper realm of the economy. The money hasn't
yet flowed to the lower realm, where people
labor for cash and spend it on commodities.

In thinking about the denouement of this
obviously unstable situation, I am wondering
to what extent contemporary money is real. For
the moment I am considering commodities and
claims on commodities to be real. But what I
am wondering is whether a large part of the
current monetary gas keeping the inflation of
the stock and real estate markets going could
just disappear overnight.


Money in our present systems represents prior production, claims on future production, and exchange price of land. Dollars can move between these three categories. Dollars representing a stack of cut firewood can be spent to buy land. Money from the sale of land can be used to buy cut firewood. Money that represents not the sale of land but the asset value of land can be used to buy asphalt shingles (home equity loan).

A general inflation of land prices (real estate bubble) need not affect prices of goods and services. Conversely, the dollars in assets that don't represent prior labor could in theory be deleted without affecting at all the value of existing goods. For example, a high tax on land rent would have the indirect effect of virtually destroying the selling price of land.

Bankers get rich on real estate bubbles. Unlike landlords, bankers don't need to first buy land in order to collect the rent. Because they know that nearly all the dollars they lend for buying land go back into purchasing land, Bankers can lend money that does not represent prior production. They in essence create money by lending for land. The mortgage payments are made by workers' production. This is the "real" money that bankers and their shareholders spend.

Mark M.
.

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