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View Diary: China Cuts US Credit Rating. Obama Cuts Hawaii Vacation Short. (171 comments)

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  •  Ann - platinum coins are still fiat (4+ / 0-)
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    sandblaster, jayden, jabney, Larsstephens

    The coin may coin may cost $1000 to mint, and be worth $1T. This is very close to the Seigniorage earned on Federal Reserve Notes. The law enabling the platinum proof coins very explicitly states that the value of the coin will be determined by the secretary - not by the value of the metals. Consequently, this is pure fiat.

    •  It would be backed by our (2+ / 0-)
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      jabney, ozsea1

      various taxes and levies. So not pure fiat; nor in the way a Banker creating credit instruments can be called "fiat."

      The Internet is just the tail of the Corporate Media dog.

      by Jim P on Wed Dec 26, 2012 at 08:44:55 AM PST

      [ Parent ]

      •  No, it is backed by the "full faith and credit" of (2+ / 0-)
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        FG, SherriG

        the United States. The coin most definitely would NOT be backed by taxes and levies. That's not how the monetary system works at all. Taxes and levies extinguish money on the federal balance sheet. Think about it, the dollar is an IOU from the government. When one gets back their own IOU, the transaction has come full circle. The IOU is extinguished and you tear it up, burn it, whatever. Same on the government balance sheet.

        Bank created money is credit money, not fiat money. It is backed by the assets or the perceived creditworthiness of a borrower. With government issued money, the asset is spent into the private sector and thus separated from the liability which is retained by the government sector. Thus deficit spending adds net financial assets to the private sector and budget surpluses push the private sector into deficit.

        •  Bank created money is created by (1+ / 0-)
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          bankers saying "here is money for you, on loan." Fiat: A decree; an arbitrary order.

          Theoretically, there's a reserve, from deposits, to back that, but in practice it's been much less than the law requires. Bernanke, just last year, was floating the idea that there not be any reserve requirements at all. Which reveals how serious Banksters are about having reserves.

          The reserve itself is a device to ease the creation of money, and to reassure depositors that they will get their money when the go to the bank.

          Even if Banks keep 4% of your deposits as reserve (they don't), they still are liable for 100% to the depositors.

          So there's $100 dollars owed the depositor; plus there's $96 which isn't the banks given as a loan. (That loan gets deposited, and then 96% of that is lent; that gets deposited, and 96% of that gets lent, and so on...)

          There's only the $100. The rest is all spendable, and created because the banker says it exists, and proves it by issuing a credit instrument.

          Fiat money.

          The distinction between "fiat" and "credit" money is one without any practical meaning in the real world. Though economists might indulge in pointless distinctions, as is their habit and training. (Can't have a "science" without lots of technical terms can we?)

          And the full faith and credit of the US is, in fact, substantiated by revenue streams. If all taxes and levies were abolished in the US, leaving no surety, neither the proposed US Treasury Coin nor Federal Reserve Notes would be taken seriously, or as payment, by anyone on earth any more than the money in a Monopoly game set.

          The Internet is just the tail of the Corporate Media dog.

          by Jim P on Wed Dec 26, 2012 at 09:46:53 AM PST

          [ Parent ]

          •  Reserves are essential for clearing and payments- (1+ / 0-)
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            Canada has no reserve requirement because reserves are not the basis of lending, it is bank capitalization that matters. The "money" created by banks is not real in that credit money and the real assets that back it are confined to the private sector. It cannot be used to discharge obligations to the government. Only the net financial assets of the private sector (real money) can do that. The reason is the the government spends by increasing reserves and taxes by removing reserves. In monetary parlance these are vertical transactions whereas as bank lending and credit money constitute horizontal transactions. It is only base money that can move vertically.

            US Banks are only constrained by their capital requirements, not by reserve requirements. Reserves are made up after the fact, and they are essentially guaranteed by the fed as the lender of last resort. Since the fed will currently loan reserves for 50bp and pays 25bp on existing reserves, banks know exactly what their cost of funds and their cost of funds storage are. They never have to see if there are loanable funds available - that concept is a myth.

            You are correct that the elimination of taxes would make the money useless. That is one of the primary tenets of MMT, that taxes drive the value money. However, your impression of the reserve system is quite distorted from the system's actual implementation.

            •  Never said "reserves are the basis" (2+ / 0-)
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              Raggedy Ann, ozsea1

              The Deposits are.

              The reserves are there to reassure the public that they can withdraw their money on demand. That's about public relations.

              The Bankers lend from their own profits, and from their deposits. Mainly the deposits.

              Just in the past two weeks, Europe has moved to supervise all banks (or at least the biggest ones) and part of that supervision is to make certain they are holding sufficient reserves. Why, if it's not an issue?

              Banks are also highly leveraged—most of them have liabilities that are at least 10 times their bank capital, so even small losses can wipe out the bank's capital. Furthermore, the use of leverage is achieved by using other people's money—deposits, loans, and stockholders' equity—which creates the moral hazard inherent in risking other people's money for one's own profit.
              Like I say, economists have invented all sorts of nits and nuances to justify the existing practices (and the illusion economics is a science), but in the real world bankers control the economy, and economy controls politics, and politics is about how, and in what conditions, people live.

              In the current situation, the banks' actions have resulted in a Depression which extends through most of the world, and nobody is seeing improvement, nor will they, as long as we let Central Banks drive everything.

              And their main tool for driving things is declaring money to exist through issuing debt-instruments. That is, fiat money.

              The Internet is just the tail of the Corporate Media dog.

              by Jim P on Wed Dec 26, 2012 at 10:29:45 AM PST

              [ Parent ]

              •  Thank you, Jim P. (1+ / 0-)
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                You got it right and with the correct words.  I appreciate your clarification.  I was just trying to bring up the fact we are on fiat money and didn't know the people here would attribute it to Ron Paul. Good grief!

                being mindful and keepin' it real

                by Raggedy Ann on Wed Dec 26, 2012 at 11:30:38 AM PST

                [ Parent ]

              •  If (1+ / 0-)
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                The reserves are there to reassure the public that they can withdraw their money on demand. That's about public relations.
                Then why have the FDIC and how does Canada, for example, get by on zero reserves? Are Canadians are so civilized that they refrain from bank runs in the absence of reserves, or do they perceive things differently?
                The Bankers lend from their own profits, and from their deposits. Mainly the deposits.
                That's not correct; they lend by double-entry bookkeeping, by entering a loan and a deposit simultaneously on their books. The Fed will make up the reserve requirement later if the bank doesn't bring it about through other transactions. Banks can average over a 14day window. They are only constrained by risk weighted capital. Simple explanation here

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