Sunday, December 26, 2021

A Mechanical Exercise Tracking the Creation and Lifespan of Fiat Money

Here's a little mechanical exercise that tracks the creation and lifespan of fiat money. We use coins to identify paper or electronic financial instruments and the backs of used envelopes to represent sectors which own financial wealth. This exercise should be comforting for those who believe that money might have a physical reality but may seem unrealistic to those who think of money as being purely virtual.

Our stock of coins should include at least three different denominations. We need four envelopes to represent three financial sectors of an economy and a virtual storehouse.

I used quarters, dimes and pennies. Quarters were used as government bonds, dimes as mortgage-backed securities, and pennies as fiat money. 

Friday, November 5, 2021

Framing the Economy Around a Banking-Money-Access Nexus

Modern Monetary Theory (MMT) has always bothered me in the caviler way it treats inflation. It recognizes the problem but assumes that it is easily managed. Here I present supporting empirical evidence that inflation is feature of the method used to create fiat money.

To find empirical evidence in a working economy, you first need a working definition of money, a source for creating money, a reason for expecting money to be used in the general economy, and then a theoretical link between money and prices. We will build a framework that will (hopefully) accomplish this.

Our framework will describe a system capable of including a nexus found between banks, money, and incremental access into the general economy. In the interest of brevity, we won't spend much time on definitions, depending instead upon the common knowledge of how all of us conduct business to provide most of terminology and associated relationships.

We try to keep it simple.

Thursday, October 7, 2021

Private Banks in a Real Fiat Money World

Let's cut to the chase here. When any bank makes a loan, it is granting unequal access to the monetary machinery that defines an economy. Unequal access because one bank depositor must first earn money to put on account while the borrowing depositor only needs to have a consenting decision.

Sadly, the title of this post comes close to being a canard. In fact, the whole discussion about two very different bank actions, whether banks create money or use money owned by others, comes close to being a canard.

That said, how in the world did I come to this perspective shifting conclusion? It was after I wrote the following material discussing private banks in the world of real fiat money.