<Drumbeat: October 2, 2009 The Oil Drum Drumbeat: October 3, 2009>

151 comments on What's Ahead in the Next Six Months?

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RobinPC on October 2, 2009 - 6:30pm Permalink | Subthread | Parent | Comments top

But beware of the false equation of money=debt. It is easily shown that money and debt can never be the same thing. A debt necessarily entails a contract between debtor and creditor. Money by contrast is (a) a medium of exchange (with no contract involved) and/or (b) an asset in your hand/account (again with no debtor party required).

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bicycle dave on October 2, 2009 - 11:02pm Permalink | Subthread | Parent | Comments top

Hi Robin,

Did you read the book "Web of Debt" and, if so, do you think the author is correct? You seem to be reflecting that author's thinking.

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RobinPC on October 3, 2009 - 5:50am Permalink | Subthread | Parent | Comments top

No, I read very few books etc, because I am mentally disabled by dental mercury and reading/writing/remembering take a lot of time/effort and I can usually think of the same or better ideas myself in the same time. This then comes across as conceit because I don't list reams of others relating to those ideas!

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Nate Hagens on October 3, 2009 - 12:22pm Permalink | Subthread | Parent | Comments top

Money IS debt with exception of actual currency certificates - which are a small fraction of the money supply - the broader M3 (and beyond measures) of money, and how they are created, are all debt. (meaning they require a return).

It depends on definitions. One way to look at it is that money (cash, demand deposits, CDs etc) are all claims on future labor, and that future physical labor is not going to be subsidized by fossil fuel labor at rate it has been, so this 'claim' is going to be more unforgiving.

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RobinPC on October 4, 2009 - 12:31am Permalink | Subthread | Parent | Comments top

Money IS debt

Really Nate? I explained above why it is (at least apparently) logically impossible for money to be the same as debt, and all you have done here is resort to a capitalised "IS" in supposed disproof. How about putting some explanation in justification of that "IS" there? How about we start by asking of when some central bank prints some money, who is the resulting debtor and who is the resulting creditor?

Or here's another test-example. Suppose our stone-age village decides to introduce money. The boss stamps out 100 coins (officially valued at a pound of grain each) for each villager and hands them out. Everyone now has money, but no contracts of debt/credit are thereby generated. Therefore the introduction of money did not require the introduction of debt?

It may indeed be the case that the currently-prevailing method of "money creation" entails creation of an equal debt, but that is another matter entirely.

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step back on October 4, 2009 - 5:11am Permalink | Subthread | Parent | Comments top

Money is a PROMISE (made to everybody by a nobody)

RPC,

I don't want to repeat my take on it as spelled out just below (here).

When a Government prints money, be it at the fiat edict your Stone-age village chief or that of our Oil-age commander in chief, the Government is in essence making a "promise" to the people.

The promise is this: Take it on the basis of your full faith (and over extended credit) in this government that this stuff ("money") has value in the general society. You can take this stuff to any merchant or service provider, offer it as legal tender, and you will receive the value you seek.

Of course the story gets more "interesting" when the PROMISE that Government made cannot be fulfilled, say due to an unexpected arrival of Peak Oil. Who ya gonna sue? (For reneging on the Promise?) Who ya gonna call?

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RobinPC on October 4, 2009 - 9:56am Permalink | Subthread | Parent | Comments top

Step--I don't dispute that money is a promise. It's even written idiotically on the uk banknotes: "I promise to pay the bearer the sum of [...] pounds"! (as in "I promise not to recognise bs when I see it").
Rather I was questioning the notion that Money IS debt, which you haven't addressed there.

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Nate Hagens on October 4, 2009 - 12:04pm Permalink | Subthread | Parent | Comments top

I obviously meant 'our current monetary system' not money in general.

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step back on October 5, 2009 - 3:46am Permalink | Subthread | Parent | Comments top

Contracts are usually in the form of promises and these can create money.

Example: "I promise to pay you $X in one year if you do Y for me right now (or in recognition of you having done Y for me)."
Such contracts can be used to secure immediate loans from a bank. So the contract or promise can quickly become money. Indebtedness becomes money.

IOU's are also a form of promise or contract.
"I promise to pay the bearer of this IOU note $X on date Y."

So yes, money can be created by creating indebtedness based on deeds of the past.
Money can also be created without existence of a deed in the past for which someone is indebted.
Example: "If my nephew Joshua, now age 15, finishes medical school by age 30, I his rich uncle will owe him $1M for his reaching this goal." Nothing has been done yet. But Joshua can probably secure a school loan based on this promise of future performance and his uncle's good name (Uncle Sam).

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GreenPlease on October 5, 2009 - 4:17pm Permalink | Subthread | Parent | Comments top

The money represents a contract between two parties and is therefore representative of debt. In your example the money represents a debt of one pound of grain from whomever holds the grain to whomever holds a coin.

Modern physical money (think dollar bill) is a call on a debt "This Note Is Legal Tender For All Debts Public and Private" the fact that the dollar exists entails that a corresponding amount of debt exists somewhere in the economy. NONE of our current money has any equity value beyond this call on debt.

If you begin to think about this you realize why so many people live "paycheck to paycheck". It is impossible for the population as a whole to accumulate a net surplus of savings because those savings represent someone else's debt!!!! In theory, if all debts were paid off, our money supply would shrink to zero which, according to modern finance, would mean that our current productive capacity had shrunk to zero. It's the quintessential problem with our present monetary regime: it is completely and utterly disconnected from reality.

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151 comments on What's Ahead in the Next Six Months?

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