How money is created

[bush_cheney2004]

...Even if they just said redeemable in dollars - which the Federal Reserve notes say since they they abandoned specifying gold or silver - dollars meant the specified weight in gold or silver.

Silver certficates were redeemable for equal denomination in silver coins, which actually rose above $1.00 as a precious metal. This stopped in 1968. I still have several of these in a collection, and they are legal tender.

[M.Dancer]

Get out. Of course they are.

mmmmm....maybe not.

The first image is a gold certificate...not really a bank note...

The gold certificate was used from 1882 to 1933 in the United States as a form of paper currency. Each certificate gave its holder title to its corresponding amount of gold coin. Therefore, this type of paper currency was intended to represent actual gold coinage. In 1933 the practice of redeeming these notes for gold coins was ended by the U.S. government and until 1964 it was actually illegal to possess these notes. (In 1964 these restrictions were lifted, primarily to allow collectors to own examples legally; however the issue technically converted to standard 'legal tender' with no connection to gold.) When U.S. paper money was modernized (made smaller, with fewer variations or "types", as with current paper money) in 1928, gold certificates ceased to be issued.

http://en.wikipedia.org/wiki/Gold_certificate

The second one, the silver certificate, is new to me...

http://en.wikipedia.org/wiki/Silver_Certificate

[bush_cheney2004]

The second one, the silver certificate, is new to me...

http://en.wikipedia.org/wiki/Silver_Certificate

Well, I think the important thing about this wonderful discussion of American money is that things have been much more dynamic in the past compared to today. Monetary policy has come to the fore and there are few Micky Mouse games with certificates of any kind.

[maple_leafs182]

All you have to know is the US dollar is going to going to collapse soon, maybe in a few years.

The Fed controls the dollar, they are doing it on purpose, in front of billions.

Can you guys really not see what is going on.

That is why the Tea parties want to End the Fed.

[Pliny]

mmmmm....maybe not.

The first image is a gold certificate...not really a bank note...

Certificate, Bank note, IOU, It was currency issued by the US Treasury. It said it was paper currency and that is the fact. I would not call it paper money. That is the singular point of this discussion that the deposits were the money and the banknotes or certificates, dollar bills, whatever were simply a currency redeemable by the issuing bank. Today the currency is mistaken as the "money" and not redeemable for anything.

Yes FDR suspended the ownership of gold by American citizens. It also removed from circulation all gold certificates. That left silver specie and silver certificates the only currency. Silver was the only redeemable money.

[M.Dancer]

Today the currency is mistaken as the "money" and not redeemable for anything.

It is redeemable for goods and services in the US and everywhere else. You can even by US postage stamps.

[Pliny]

Silver certficates were redeemable for equal denomination in silver coins, which actually rose above $1.00 as a precious metal. This stopped in 1968. I still have several of these in a collection, and they are legal tender.

Correct. The silver certificates were not printed after 1963 and those still in circulation were not honoured after 1968.

They are indeed considered a legal tender; the same as today's currency, and like today's currency, are not redeemable for money at any bank.

[Pliny]

Careful with your words. Sloppiness in terminology is what allowed our once sound money to turn into tokens

It is redeemable for goods and services in the US and everywhere else. You can even by US postage stamps.

It is not redeemable because it is what it is - a "piece of paper" not representing anything redeemable. When paper currency represents, and is redeemed for money it is cancelled and not re-issued. Once redeemed it is a paid "bill". The "money" that was in deposit is no longer in deposit.

It is exchangeable for goods and services by fiat. By government decree, you must accept it as a legal tender. It used to be a legal tender because it was promised to be redeemable by the issuing bank or the very authoritative US Treasury for "money". As good as gold! It is now not a legal tender just "legal tender" (whatever that means) and must be accepted in trade.

Just food for thought. If the Central Bank creates the "money" and loans it to the government or to the banks which must be repaid and that "money" is also a claim on production, i.e. goods and services, then because it is a loan, doesn't the Central bank hold the ultimate claim to all production excepting that beyond the loan that is created? It is odd but the Canadian Governments debt is about the same as the annual GDP. It used to be for the US as well I haven't checked lately but I think perhaps the debt has now exceeded the annual GDP in the States.

Edited April 7, 2010 by Pliny

[August1991]

By government decree, you must accept it as a legal tender.

Cash is not accepted because a law requires it; people accept it because they believe they can use it to buy what they want. I suppose at the limit, the federal government would always accept cash as payment for taxes.

Incidentally, I draw a distinction (which this thread does not) between cash (issued by the Bank of Canada) and other types of money (such as a personal cheque).

----

IMV, everyone particapting in this thread would gain by reading an extremely short but striking essay entitled "The Island of Stone Money" (safe pdf file) written by Milton Friedman in 1991. It is non-technical and easy to read. (It also contains a delightful quote from a paper written by an anthropologist in 1910.)

If you want further food for thought about money, you should also read Paul Krugman's Baby-Sitting Co-op piece in Slate of 1998.

Edited April 7, 2010 by August1991

[Pliny]

Cash is not accepted because a law requires it; people accept it because they believe they can use it to buy what they want. I suppose at the limit, the federal government would always accept cash as payment for taxes.

Why would it be called a "fiat" currency. It is decreed to be the legal currency of a nation. WE certainly have not arrived at the point where we are refusing it.

I wonder what they are doing in Zimbabwe?

Incidentally, I draw a distinction (which this thread does not) between cash (issued by the Bank of Canada) and other types of money (such as a personal cheque).

A personal cheque is a form of currency. It is redeemable for the fiat currency.

It is funny that people will take a cheque and know that until it clears they have not been paid yet. That is a currency. You accept fiat currency and think you have been paid, end of transaction. Really you only accepted the fiat currency so you could purchase something else. Until you have purchased something else and the person is willing and agrees to take your fiat currency you haven't been paid yet. All you have is a piece of paper or an electronic entry on your bank account, at which point they have totally gotten rid of money and only have a record of a numeric value of transactions. Oleg will be very happy that money has disappeared.

IMV, everyone particapting in this thread would gain by reading an extremely short but striking essay entitled "The Island of Stone Money" (safe pdf file) written by Milton Friedman in 1991. It is non-technical and easy to read. (It also contains a delightful quote from a paper written by an anthropologist in 1910.)

Some issues I have agreed with Friedman on but money is not one.

If you want further food for thought about money, you should also read Paul Krugman's Baby-Sitting Co-op piece in Slate of 1998.

I have never agreed with anything Krugman says.

Edited April 7, 2010 by Pliny

[August1991]

Some issues I have agreed with Friedman on but money is not one.

___

I have never agreed with anything Krugman says.

Huh? Both Friedman and Krugman were Nobel Prize winners. You ignore these brief, simple-to-read articles at your peril.

Moreover, both articles concern money. Sexy.

Friedman. Krugman.

Short and sweet. My advice? Read both - but read Friedman first, and get the gold thing.

Edited April 7, 2010 by August1991

[Pliny]

Huh? Both Friedman and Krugman were Nobel Prize winners. You ignore these brief, simple-to-read articles at your peril.

Moreover, both articles concern money. Sexy.

Friedman. Krugman.

Short and sweet. My advice? Read both - but read Friedman first, and get the gold thing.

Barack Obama was also a Nobel Prize winner.

I like Friedman but he is a monetarist, there are two things missing in his story and one is, any commercial value for the stones of Yap. Certainly, gold sitting in a vault seems as ridiculous as large wheels of limestone sitting in someone's yard. But if money were a commodity as gold is it would hold some real value.

The other thing that is missing is that specie in the "money" of both systems is missing.

The specie in our system of money disappeared from circulation. The "money" actually disappeared into the vaults of the central banks.

so Friedman starts from the point where "money" has already been determined to be pointless and is removed from society and becomes a mere record of transactions. Then he asks what the purpose of gold sitting in vaults is.

Krugman, I shake my head at Krugman.

His babysitting co-op is supposed to illustrate how not enough money in society is a real economic problem. His answer - inflate the "money" supply and create a central bank that can create credit at will. The true socialist economist.

So as a critic of Krugman, I find it very difficult to understand how he feels money determines value when in truth value is in the production and money simply a measure of that value. There will always be a shortage of money. If one somohow manages to control and manipulate the supply too much of it makes it valueless and not enough will make it more valuable. Simple supply and demand.

The amount of the production in a society is what it is. It's value varies with the supply and demand only. Currency if in great supply will mean it's value will be less. If it is in short supply it's value is more. Thus the concept of too little scrip chasing too much product is not valid - The purchasing power of the scrip, if it is in short supply just increases.

Both Friedman and Krugman believe the money supply should be used to manipulate the macro-economy in order to control prices and keep them stable. Say's law of supply and demand is ignored on the production side because all production in a society is not tied together and each contribution to production has only a micro-economic effect on the economy. To debase and degrade the money supply and then attempt to stabilize the unsettling macroeconomic effects of that through total control of the money supply and other monetary and fiscal policy, however well-intentioned, adds to the pavement on the road to hell.

One needs only look at the singular works of Friedman and Krugman that earned them their Nobel prizes to understand why they were honoured. It was their contribution heralding the proper governance of the people. We listen to them at our peril, along with Barack Obama.

Edited April 7, 2010 by Pliny

[M.Dancer]

Here is a book, a novel, a work of fantasy fiction, which in my opinion, is a good primer on money...

http://en.wikipedia.org/wiki/Making_Money

[Wayne McQ.]

Is there a full moon out tonight or do we feel secure with a couple of hundred feet of tin foil wrapped around our heads?

Why are the nut bar conspiracy theorists coming out of the wood work here?

I read a very interesting book written by former Liberal Paul Hellyer called; "The Evil Empire." This book outlines how money is created out of nothing but air. At one time banks had to keep a reserve of the money they had on deposit but that was done away with and now the money you borrow from bank for mortgages, cars and other commodities is basically just virtual money that in reality does not even exist. Banks can loan out whatever they want in the form of loans and they do not have to have that money on deposit in order to do that, and they charge you interest on money they do not possess to loan out. Paul states that if everyone demanded the cash that is supposedly held by their banks on deposit in savings, chequing, and investment accounts, the bank would have to lock their doors because they do not have the money to cover those deposits, as they have loaned that money out multiple time over, and the government has allowed them to do this. When you apply for a car loan for instance, the bank will either make an electronic transfer to the dealership or give you a bank draft sating an amount of the purchase. In both cases real money is not exchanged, instead it is virtual money and on that virtual money the bank charges you interest on money they don't really possess. The book is a real eye-opener about our banking system, and it is scary how much control corporations have over all of our lives.

[M.Dancer]

I read a very interesting book written by former Liberal Paul Hellyer called; "The Evil Empire."

While I am sure Paul Hellyer has his lucid momemnts...the thing about Hellyer is he is a certifiable kook.

Virtual money is right up there..with...

"The United States military are preparing weapons which could be used against the aliens, and they could get us into an intergalactic war without us ever having any warning...The Bush Administration has finally agreed to let the military build a forward base on the moon, which will put them in a better position to keep track of the goings and comings of the visitors from space, and to shoot at them, if they so decide.

"I would like to see what (alien) technology there might be that could eliminate the burning of fossil fuels within a generation...that could be a way to save our planet...We need to persuade governments to come clean on what they know. Some of us suspect they know quite a lot, and it might be enough to save our planet if applied quickly enough."[8]

[Bonam]

While I am sure Paul Hellyer has his lucid momemnts...the thing about Hellyer is he is a certifiable kook.

Virtual money is right up there..with...

"The United States military are preparing weapons which could be used against the aliens, and they could get us into an intergalactic war without us ever having any warning...The Bush Administration has finally agreed to let the military build a forward base on the moon, which will put them in a better position to keep track of the goings and comings of the visitors from space, and to shoot at them, if they so decide.

"I would like to see what (alien) technology there might be that could eliminate the burning of fossil fuels within a generation...that could be a way to save our planet...We need to persuade governments to come clean on what they know. Some of us suspect they know quite a lot, and it might be enough to save our planet if applied quickly enough."[8]

Someone was watching too much SG-1.

[M.Dancer]

Someone was watching too much SG-1.

What's scarier? He was minister of defense....the man responsible for the biggest blow to Canadian service moral since Hong Kong and dieppe

This was the most notable period in Hellyer's career. As Minister of Defence, he oversaw the controversial integration and unification of the Royal Canadian Navy, Canadian Army, the and the Royal Canadian Air Force into a single organization, the Canadian Forces.

[Pliny]

Virtual money is right up there..with...

Not quite that far up there.

Electronic entries on bank accounts could be called "virtual money".

From the perspective of a bank all it is doing is making entries on accounts of credits and debits. With debit cards and computer transactions we are seeing less and less cash (currency) being used. Soon cash may be gone entirely. That would certainly suit the government who could track all transactions as they found necessary.

Of course an underground economy would develop not dissimilar to the underground economy of the now defunct USSR. I like the sound of that..."the now defunct USSR".

I think the currency here should be tinfoil. It's rare here but not that rare. I nominate Dancer Chief of Internal tinfoil affairs. He seems to have a nose for it.

Edited April 8, 2010 by Pliny

[Allen]

Really people? Somehow this came to a discussion on what the governments are doing about an alien attack. Seriously? WTF?

I know there are a few people here who can see the monitary system we use is corrupt. I don't think we need to convince people of this as it will become apparent in the future. Many people just cannot accept that this needs to change. One day they will not only want it to change but will even fight for that change. The question is what needs to change and how. I already stated what I found to be a better system. Probaly missed by most reading this as there is a lot of off topic discussions on this forum.

I think money should be created through labour and then at the point of sale, be returned to the "bank". At the cost of the labour involved to turning this into a finished good or service. This would create a circulatory system. I know this would raise a lot of questions and there are answers. We already have business down to a mathimatical science using accounting. I just think it's time we use what he have already learned and make things better for humanity.

[Michael Hardner]

I know there are a few people here who can see the monitary system we use is corrupt. I don't think we need to convince people of this as it will become apparent in the future. Many people just cannot accept that this needs to change. One day they will not only want it to change but will even fight for that change. The question is what needs to change and how. I already stated what I found to be a better system. Probaly missed by most reading this as there is a lot of off topic discussions on this forum.

If you don't need to convince people then why are you here on a discussion board ?

How does it need to change ? I'm still trying to understand this idea that 'all money is created through debt' - whether it's true, and whether it's important. The more I look at it, it seems that the 'created money' that is spoken of disappears again once it is paid back.

It sounds like we're talking about the amount of money in circulation, which comes not just from loans but from other sources. I haven't been successful at getting an answer yet, although I'm learning from this thread.

I think money should be created through labour and then at the point of sale, be returned to the "bank". At the cost of the labour involved to turning this into a finished good or service. This would create a circulatory system. I know this would raise a lot of questions and there are answers. We already have business down to a mathimatical science using accounting. I just think it's time we use what he have already learned and make things better for humanity.

Why don't you give a concrete example of how it would work - from the point of view of an opportunity waiting to be realized, through to the realization of that opportunity. Then we can examine this case and see how things change.

[bjre]

GDP is 1.3 Trillion collars, man that is a lot of collars, I wouldn't even know what to do with that many collars.

All you need to know is that central banks can manipulate economies by controlling the amount of money in circulation and by setting interests rates. They by extension can control countries. Not very complex, pretty simple.

Royal bank and others increased the interest rates recently.

Is that controlled by control bank?

Why increase it?

Who controls the central bank?

Had this decision asked the any opinion from the people if central bank made the decision?

[Pliny]

I'm still trying to understand this idea that 'all money is created through debt' - whether it's true, and whether it's important.

I don't think it is created "through" debt. It is a debt instrument today because what were called "money substitutes" in the past, e.g. bank notes, dollar bills, certificates of deposit, etc., have become considered to be the actual deposit of "money". Money substitutes were always a claim on money itself and in that respect were an "IOU" or "Bill", essentially a debt to be paid upon presentation at the bank.

Can you conceive of "money" as it exists today as a claim on goods and services?

If you can see that, then it should be clear that it is precisely the same thing as an IOU which you can use to claim whatever goods and services you desire that satisfy the value stated on the IOU. In and of itself, it is a piece of paper stating a claim that must be satisfied.

The more I look at it, it seems that the 'created money' that is spoken of disappears again once it is paid back.

If I understand your statement the "created money", once it's debt is satisfied, ceases to exist. This was true in the past if the "money" (not a debt) is a "money substitute" (a debt). The "money substitute" disappears upon it's redemption for the money. Today, the money substitutes have become the money, so they do not disappear, the same as you would expect money not to disappear. They are just entered as a credit on the debtors account.

[M.Dancer]

Royal bank and others increased the interest rates recently.

Is that controlled by control bank?

Each bank decides their own rates

Why increase it?

Demand. More people wanting loans, the price rises

Who controls the central bank?

Bank of Canada? The Governors of the Bank who are appointed by the Government.

http://www.bankofcanada.ca/en/about/are.html

Had this decision asked the any opinion from the people if central bank made the decision?

What?

Edited April 8, 2010 by M.Dancer

[Pliny]

Really people? Somehow this came to a discussion on what the governments are doing about an alien attack. Seriously? WTF?

An understanding of what has happened to money inevitably leads to consideration of a grand conspiracy. An understanding of economic history and of human desire dispels the myth of a grand conspiracy hidden from the general public. The grand conspiracy is only a grand experiment on how to manage and sustain a civilization.

I think money should be created through labour and then at the point of sale, be returned to the "bank".

From the perspective of labour what is created is wealth in the form of the production of goods and services. Further, from this perspective, money is simply a tool or device that facilitates the trading of the production.

At the cost of the labour involved to turning this into a finished good or service. This would create a circulatory system.

I think you are basically saying that there should be the same amount of money in circulation as the value of goods and services produced. It is not really a possiblity because value is a personal consideration, and as well, supply and demand will affect value. Do we just create and destroy money when someone values a good above or below what another would value it? Or is the price determined by the cost of production and personal need entirely disregarded?

I know this would raise a lot of questions and there are answers. We already have business down to a mathimatical science using accounting. I just think it's time we use what he have already learned and make things better for humanity.

I believe that because business is considered a mathematical science using accounting we are in big trouble. It is why the left can complain that profit is the sole motivation of the capitalist. It is how quality and service is degraded. And it is how the government can exact their pound of flesh from the economy.

Yes. We should use what we have learned. What history shows us about economics is that when the governing entity debases the people's money, for short term or personal benefit, turning it into paper and controlling it results in impoverishment of the populace and eventual collapse and/or revolution within that society.

The now defunct USSR is the latest example and unless the above lesson is heeded more examples will follow.

[Pliny]

Each bank decides their own rates

That must be qualified by the fact that they base it upon the central bank rate. Competition plays somewhat of a role but Canada is basically a banking cartel so competition is by no means fierce. Credit Unions and Trust Companies provide most of the competition for our banks, I believe.