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Re: Ellen Brown's article on money

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  • AMI
    ... Dear Michael, I continue to be fascinated by your attachment to Ellen. I can t understand it. Even just the title of the piece demonstrates a pretty high
    Message 1 of 15 , Oct 29, 2010
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    Michael Hudson wrote:
    Ellen is getting a big following. What do you think of this?
        Michael
    
    From: Ellen Brown <>
    Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
    To: "Ellen Brown" >
    Date: Thursday, 28 October, 2010, 20:24
    Hi, here is my latest article, posted by Yes! Magazine --
    
    "Time for a New Theory of Money"
    http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money
    
    
    
      
    Dear Michael,
    I continue to be fascinated by your attachment to Ellen. I can't understand it. Even just the title of the piece demonstrates a pretty high level of ignorance. Why anyone who has read Jamie Walton's review of Ellen's book (attached) would pay any attention to her views on money, is beyond my understanding. Perhaps you can explain that? What do the Gang8 people think?
    Best,
    Stephen
    Ami
  • G W Gardiner
    I found Moini s paper and attach it. Looks pretty boring. Geoff From: Michael Hudson Sent: Friday, October 29, 2010 4:05 PM To: GANG8 ; stephen zarlenga
    Message 2 of 15 , Nov 1, 2010
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    I found Moini's paper and attach it. Looks pretty boring.
     
    Geoff

    Sent: Friday, October 29, 2010 4:05 PM
    Subject: [gang8] Ellen Brown's article on money

     

    Ellen is getting a big following. What do you think of this?
    Michael

    From: Ellen Brown <>
    Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
    To: "Ellen Brown" >
    Date: Thursday, 28 October, 2010, 20:24
    Hi, here is my latest article, posted by Yes! Magazine --

    "Time for a New Theory of Money"
    http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money

  • Gunnar Tomasson
    Michael and Geoffrey. Ellen Brown s final paragraph - We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit
    Message 3 of 15 , Nov 1, 2010
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      Michael and Geoffrey.

       

      Ellen Brown’s final paragraph –

      We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.

      – invites the technical question Dirk and I addressed in our recent paper:

       

      What is the source of profits?

       

      Can there be net profits for “the community” without matching debt creation?

       

      Gunnar

       

       

       

      From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of G W Gardiner
      Sent: Monday, November 01, 2010 3:44 PM
      To: gang8@yahoogroups.com
      Subject: Re: [gang8] Ellen Brown's article on money

       

       

      Michael.

       

      It is her best article. Ellen seems to have taken notice of my patient explanations. I have written at length to her recently and she has seen the latest papers

       

      Mostafa Moini, whom she quotes, wrote his article Toward a General Theory of Credit and Money in 2001, 8 years after I published Towards True Monetarism which not only has a similar title but a similar theme. Ellen may assume I got my ideas from him as she has not seen TTM. I cannot access Moini's paper. He has died, by the way.

       

      Incidentally Martin Wolf recently made a telling remark: 'Money is a promise you can trust.'

       

      Geoffrey

       

      Sent: Friday, October 29, 2010 4:05 PM

      Subject: [gang8] Ellen Brown's article on money

       

       

      Ellen is getting a big following. What do you think of this?
      Michael

      From: Ellen Brown <>
      Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
      To: "Ellen Brown" >
      Date: Thursday, 28 October, 2010, 20:24
      Hi, here is my latest article, posted by Yes! Magazine --

      "Time for a New Theory of Money"
      http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money

    • G W Gardiner
      Definitely not!!! Geoff From: Gunnar Tomasson Sent: Monday, November 01, 2010 8:26 PM To: gang8@yahoogroups.com Subject: RE: [gang8] Ellen Brown s article on
      Message 4 of 15 , Nov 18, 2010
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        Definitely not!!!
         
        Geoff
         
        Sent: Monday, November 01, 2010 8:26 PM
        Subject: RE: [gang8] Ellen Brown's article on money
         
         

        Michael and Geoffrey.

        Ellen Brown’s final paragraph –

        We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.

        – invites the technical question Dirk and I addressed in our recent paper:

        What is the source of profits?

        Can there be net profits for “the community” without matching debt creation?

        Gunnar

        From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of G W Gardiner
        Sent: Monday, November 01, 2010 3:44 PM
        To: gang8@yahoogroups.com
        Subject: Re: [gang8] Ellen Brown's article on money

         

        Michael.

        It is her best article. Ellen seems to have taken notice of my patient explanations. I have written at length to her recently and she has seen the latest papers

        Mostafa Moini, whom she quotes, wrote his article Toward a General Theory of Credit and Money in 2001, 8 years after I published Towards True Monetarism which not only has a similar title but a similar theme. Ellen may assume I got my ideas from him as she has not seen TTM. I cannot access Moini's paper. He has died, by the way.

        Incidentally Martin Wolf recently made a telling remark: 'Money is a promise you can trust.'

        Geoffrey

        Sent: Friday, October 29, 2010 4:05 PM

        Subject: [gang8] Ellen Brown's article on money

         

        Ellen is getting a big following. What do you think of this?
        Michael

        From: Ellen Brown <>
        Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
        To: "Ellen Brown" >
        Date: Thursday, 28 October, 2010, 20:24
        Hi, here is my latest article, posted by Yes! Magazine --

        "Time for a New Theory of Money"
        http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money

      • Michael Hudson
        Well Gunnar, the best example is China. Here’s a complaint from the Wall Street Journal about this topic. It looks like its banks are in a much better
        Message 5 of 15 , Nov 18, 2010
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          Re: [gang8] Ellen Brown's article on money Well Gunnar, the best example is China. Here’s a complaint from the Wall Street Journal about this topic. It looks like its banks are in a much better position — and so is its industry.
              What do you guys think?
          (I’m ATTACHING a formatted version. Below is copy and paste)
          Michael

          China STATE CAPITALISM
          JASON DEAN, ANDREW BROWNE And SHAI OSTER, “China's 'State Capitalism' Sparks a Global Backlash,” Wall Street Journal, NOVEMBER 16, 2010.
          BEIJING—Since the end of the Cold War, the world's powers have generally agreed on the wisdom of letting market competition—more than government planning—shape economic outcomes. China's national economic strategy is disrupting that consensus, and a look at the ascent of solar-energy magnate Zhu Gongshan explains why.
                       A shortage of polycrystalline silicon—the main raw material for solar panels—was threatening China's burgeoning solar-energy industry in 2007. Polysilicon prices soared, hitting $450 a kilogram in 2008, up tenfold in a year. Foreign companies dominated production and were passing those high costs onto China.
                       Beijing's response was swift: development of domestic polysilicon supplies was declared a national priority. Money poured in to manufacturers from state-owned companies and banks; local governments expedited approvals for new plants.
                       In the West, polysilicon plants take years to build, requiring lengthy approvals. Mr. Zhu, an entrepreneur who raised $1 billion for a plant, started production within 15 months. In just a few years, he created one of the world's biggest polysilicon makers, GCL-Poly Energy Holding Ltd. China's sovereign-wealth fund bought 20% of GCL-Poly for $710 million. Today, China makes about a quarter of the world's polysilicon and controls roughly half the global market for finished solar-power equipment.
                       Western anger with China has focused on Beijing's cheap-currency policy; President Obama blasted the practice at the G-20 summit in Seoul last weekend. Mr. Zhu's sprint to the top points to a deeper issue: China's national economic strategy is detailed and multifaceted, and it is challenging the U.S. and other powers on a number of fronts.
                       Central to China's approach are policies that champion state-owned firms and other so-called national champions, seek aggressively to obtain advanced technology, and manage its exchange rate to benefit exporters. It leverages state control of the financial system to channel low-cost capital to domestic industries—and to resource-rich foreign nations whose oil and minerals China needs to maintain rapid growth.
                       China's policies are partly a product of its unique status: a developing country that is also a rising superpower. Its leaders don't assume the market is preeminent. Rather, they see state power as essential to maintaining stability and growth, and thereby ensuring continued Communist Party rule.
                       It's a model with a track record of getting things done, especially at a time when public faith in the efficacy of markets and the competence of politicians is shaken in much of the West. Already the world's biggest exporter, China is on track to pass Japan this year as the second-biggest economy.
                       Charlene Barshefsky, who as U.S. trade representative under President Bill Clinton helped negotiate China's 2001 entry into the World Trade Organization, says the rise of powerful state-led economies like China and Russia is undermining the established post-World War II trading system. When these economies decide that "entire new industries should be created by the government," says Ms. Barshefsky, it tilts the playing field against the private sector.
                       Western critics say China's practices are a form of mercantilism aimed at piling up wealth by manipulating trade. They point to China's $2.6 trillion in foreign-exchange reserves. The U.S. and the European Union have lodged a series of WTO cases and other trade actions targeting Beijing's policies, and hammer China's refusal to let its currency appreciate more quickly, which they argue fuels global economic imbalances.
                       Top executives at foreign companies have started griping publicly. In July, Peter Löscher, Siemens AG chief executive, and Jürgen Hambrecht, chairman of chemical company BASF SE, in a public meeting between German industrialists and China's premier, raised concerns about efforts to compel foreign companies to transfer valuable intellectual property in order to gain market access.
                       Some observers think Beijing's vision is rooted in a desire to avenge China's "century of humiliation" that started with the 19th-century opium wars. Such critics believe that China's focus on "indigenous innovation"—nurturing home-grown technologies—entails appropriating others' technology. China's high-speed trains, for instance, are based on technology introduced to China by German, French and Japanese makers.
                       "The Chinese have shown that if they have the ability to kill your model and take your profits, they will," says Ian Bremmer, president of New York-based consultancy Eurasia Group. His book, "The End of the Free Market," argues that a rising tide of "state capitalism" led by China threatens to erode the competitive edge of the U.S.
                       So far, though, multinationals aren't staying away, because China remains a vital source of growth for companies whose domestic markets are saturated.
                       China's strategy echoes the policies Japan employed in its economic rise—policies that also rankled the U.S. But China's sheer scale—its population is 10 times Japan's—makes it a more formidable threat. Also, its willingness in recent decades to open some industries to foreign firms makes its market far more important for global business than Japan's ever was, giving Beijing much greater leverage.
                       Chinese leaders have begun to acknowledge the backlash. At the World Economic Forum in Tianjin in September, Premier Wen Jiabao said that the recent debate about China among foreign investors "is not all due to misunderstanding by foreign companies. It's also because our policies were not clear enough." "China is committed to creating an open and fair environment for foreign-invested enterprises," Mr. Wen said.
                       The state has always played a big role in China's economy, but for most of the reform era that started in the late 1970s, it retreated as state-owned collective farms were dismantled and inefficient state industrial enterprises closed. Accession to the WTO in 2001 represented a big bet by the leadership on liberalizing markets further. The gamble paid off, with growth rocketing much of the past decade.
                       But the state is again ascendant. Many analysts say the pace of liberalization has slowed, and point to vast swaths of industry still controlled by state companies and tightly restricted for foreigners. The government owns almost all major banks in China, its three major oil companies, its three telecom carriers and its major media firms.
                       According to China's Ministry of Finance, assets of all state enterprises in 2008 totaled about $6 trillion, equal to 133% of annual economic output that year. By comparison, total assets of the agency that controls government enterprises in France, whose dirigiste policies give it one of the biggest state sectors among major Western economies, were €539 billion ($686 billion) in 2008, about 28% of the size of France's economy.
                       The government's increased involvement in sectors from coal mining to the Internet has spawned the phrase guojin mintui, or "the state advances, the private sector retreats," among market proponents in China. A January report by the Organization for Economic Cooperation and Development said China's economy had the least competition of 29 surveyed, including Russia's. Prominent Chinese economist Qian Yingyi has said he worries over what appears to be "a reversal of market-oriented reforms in the last couple of years."
                       The state's huge role in the economy gives it enormous sway to pursue its policy goals, which are often laid out in voluminous five-year (sometimes 15-year) plans. These relics of the Mao-era command economy are central to the corporate fortunes of Western giants like Caterpillar Inc. and Boeing Co. that rely on the country's market. China is now one of the biggest sources of revenue growth for Caterpillar, and is the biggest buyer of commercial jets outside the U.S., according to Boeing.
                       Huawei has long had its overseas expansion supported by China Development Bank, which in 2004 extended a five-year, $10 billion credit line and routinely lends money to foreign buyers to finance their purchases of Huawei products.
                       One of Beijing's most important goals: wean China off expensive foreign technology. It is a process that began with the "open door" economic policies launched by Deng Xiaoping in 1978 that brought in waves of foreign technology firms. Companies such as Microsoft Corp. and Motorola Inc. set up R&D facilities and helped train a generation of Chinese scientists, engineers and managers.
                       That process is now in overdrive. In 2006, China's leadership unveiled the "National Medium- and Long-Term Plan for the Development of Science and Technology," a blueprint for turning China into a tech powerhouse by 2020. The plan calls for nearly doubling the share of gross domestic product devoted to research and development, to 2.5% from 1.3% in 2005.
                       One area of hot pursuit: green technology. China's "Torch" program fast-tracks industries, attracting entrepreneurs with offers of cheap land for factories, export tax breaks and even a free apartment for three years. Take the case of Deng Xunming, a China-born U.S. citizen who is a pioneer of America's solar industry and whose innovations light up the first solar-powered billboard on New York's Times Square. His company, Xunlight Corp., has been nurtured by U.S. financial aid and embraced by politicians eager for the U.S. to win the race to develop new energy technologies. Xunlight has pulled in more than $50 million in state and federal grants, loans and tax credits, partly aimed at bringing needed jobs to Toledo, Ohio, where the company is based.
                       But two years ago, Mr. Deng, who left China in 1985 to study at the University of Chicago, set up a Xunlight unit on a giant industrial estate near Shanghai. The company now also makes its thin-film solar panels there and employs 100 workers. The panels are exported back to the U.S. Mr. Deng says he is trying to keep the Chinese operation "low key." It isn't mentioned on Xunlight's website, and Mr. Deng declined to comment on the China factory in an interview. "China will be a good market for the future," he said. "But right now, the bigger market is in Europe. We're putting our attention on the Europe and U.S. market. But meanwhile we're developing efforts for the China market," which could eventually be bigger, he said.
                       While the state seeks new technology, it also uses control of banking to feed cheap credit to industries it wants to foster. The government sets interest rates for China's bank depositors low relative to rates of growth and inflation. That means Chinese households, through the banks, effectively subsidize the state's industrial darlings.
                       Privately held telecommunications equipment maker Huawei Techologies Co. has long had its overseas expansion supported by China Development Bank, which in 2004 extended a five-year, $10 billion credit line and routinely lends money to foreign buyers to finance their purchases of Huawei products. Revenue has risen more than 200% in the past five years, and it has become one of the top three telecommunications companies, along with Nokia Siemens Networks and Telefon AB LM Ericsson.
                       Sprint Nextel Corp. recently excluded Huawei and fellow Chinese telecom company ZTE Corp. from a contract worth billions of dollars, prompted by U.S. fears that the companies have ties to China's military. The Sprint decision was a setback for Huawei in the one major market it has had difficulty penetrating, the U.S., and shows how mounting concerns over China's policies are starting to exact a cost.
                       Huawei has also faced complaints in Europe that Chinese government backing gives it an unfair advantage. Both Huawei and ZTE have said their equipment poses no threat to U.S. security, and deny benefiting unfairly from government support.
                       For China, the biggest risks may be internal. Some attempts to generate high-tech breakthroughs by fiat have fizzled. A drive to produce a home-grown microprocessor took years to replicate features of those from Intel Corp. and Advanced Micro Devices Inc., whose products had continued to evolve. A Chinese-developed mobile phone technology has yet to gather significant momentum abroad, despite the government forcing China's largest phone company to adopt it.

          Longer term, China faces a host of challenges that threaten growth. They include a population that is aging quickly because the one-child policy limited births in recent decades, and environmental damage resulting from the country's breakneck pace of industrialization.
                       For now, that pace has the West on guard. "Our competition has gotten tougher during a period for the U.S. of profound economic weakness that magnifies any perceived threat," says Ms. Barshefsky, the former U.S. trade representative. There is a "significant and profound—almost theological—question about the rules as they exist."




          On 11/18/10 6:13 AM, "G W Gardiner" <geoffrey.gardiner@...> wrote:


           
           
             

          Definitely not!!!
           
          Geoff

          From: Gunnar Tomasson <mailto:gunnar.tomasson@...>  
          Sent: Monday, November 01, 2010 8:26 PM
          To: gang8@yahoogroups.com
          Subject: RE: [gang8] Ellen Brown's article on money
           
            
          Michael and Geoffrey.
          Ellen Brown’s final paragraph –
          We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.
          – invites the technical question Dirk and I addressed in our recent paper:
          What is the source of profits?
          Can there be net profits for “the community” without matching debt creation?
          Gunnar

          From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of G W Gardiner
          Sent: Monday, November 01, 2010 3:44 PM
          To: gang8@yahoogroups.com
          Subject: Re: [gang8] Ellen Brown's article on money
            

          Michael.

          It is her best article. Ellen seems to have taken notice of my patient explanations. I have written at length to her recently and she has seen the latest papers

          Mostafa Moini, whom she quotes, wrote his article Toward a General Theory of Credit and Money in 2001, 8 years after I published Towards True Monetarism which not only has a similar title but a similar theme. Ellen may assume I got my ideas from him as she has not seen TTM. I cannot access Moini's paper. He has died, by the way.

          Incidentally Martin Wolf recently made a telling remark: 'Money is a promise you can trust.'

          Geoffrey

          From: Michael Hudson <mailto:michael.hudson@...>  

          Sent: Friday, October 29, 2010 4:05 PM

          To: GANG8 <mailto:gang8@yahoogroups.com>  ; stephen zarlenga <mailto:ami@...>  

          Subject: [gang8] Ellen Brown's article on money

            

          Ellen is getting a big following. What do you think of this?
          Michael

          From: Ellen Brown <>
          Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
          To: "Ellen Brown" >
          Date: Thursday, 28 October, 2010, 20:24
          Hi, here is my latest article, posted by Yes! Magazine --

          "Time for a New Theory of Money"
          http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money

           
             


        • Dirk Bezemer
          Agreed, of course. But does posing that question do justice to Ellen Brown as she now writes? She is not claiming that there exists debt-free credit. What she
          Message 6 of 15 , Nov 18, 2010
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            Agreed, of course. But does posing that question do justice to Ellen
            Brown as she now writes?

            She is not claiming that there exists debt-free credit. What she is
            advancing- though not expressed clearly, and mixed up with unnecessary
            things like "when the bank is owned by the community"- is that the
            Fruits from credit money creation need to 'return to the community'.
            This amounts to ensuring there is no net debt buildup in the community
            (supposedly, this is the nonfinancial part of the economy?)

            That indeed is a recipe for financial stability, though how this takes shape institutionally is still another matter (nationalization? regulation? small banks? co-ops? ...).

            Dirk



            G W Gardiner wrote:
            > Definitely not!!!
            >
            > Geoff
            >
            > From: Gunnar Tomasson
            > Sent: Monday, November 01, 2010 8:26 PM
            > To: gang8@yahoogroups.com
            > Subject: RE: [gang8] Ellen Brown's article on money
            >
            >
            >
            > Michael and Geoffrey.
            >
            >
            > Ellen Brown’s final paragraph –
            >
            > We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.
            >
            > – invites the technical question Dirk and I addressed in our recent paper:
            >
            >
            > What is the source of profits?
            >
            >
            > Can there be net profits for “the community” without matching debt creation?
            >
            >
            > Gunnar
            >
            >
            >
            >
            > From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of G W Gardiner
            > Sent: Monday, November 01, 2010 3:44 PM
            > To: gang8@yahoogroups.com
            > Subject: Re: [gang8] Ellen Brown's article on money
            >
            >
            >
            >
            > Michael.
            >
            >
            > It is her best article. Ellen seems to have taken notice of my patient explanations. I have written at length to her recently and she has seen the latest papers
            >
            >
            > Mostafa Moini, whom she quotes, wrote his article Toward a General Theory of Credit and Money in 2001, 8 years after I published Towards True Monetarism which not only has a similar title but a similar theme. Ellen may assume I got my ideas from him as she has not seen TTM. I cannot access Moini's paper. He has died, by the way.
            >
            >
            > Incidentally Martin Wolf recently made a telling remark: 'Money is a promise you can trust.'
            >
            >
            > Geoffrey
            >
            >
            > From: Michael Hudson
            >
            > Sent: Friday, October 29, 2010 4:05 PM
            >
            > To: GANG8 ; stephen zarlenga
            >
            > Subject: [gang8] Ellen Brown's article on money
            >
            >
            >
            >
            > Ellen is getting a big following. What do you think of this?
            > Michael
            >
            > From: Ellen Brown <>
            > Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
            > To: "Ellen Brown" >
            > Date: Thursday, 28 October, 2010, 20:24
            > Hi, here is my latest article, posted by Yes! Magazine --
            >
            > "Time for a New Theory of Money"
            > http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money
            >
            >
            >
            >
          • Michael Hudson
            Perhaps we could organize a conference or volume on this. Any suggestions? Michael ... Re: [gang8] Ellen Brown s article on money Perhaps we could organize a
            Message 7 of 15 , Nov 18, 2010
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              Re: [gang8] Ellen Brown's article on money Perhaps we could organize a conference or volume on this. Any suggestions?
                  Michael


              On 11/18/10 7:48 AM, "Dirk Bezemer" <d.j.bezemer@...> wrote:


               
               
                 

              Agreed, of course. But does posing that question do justice to Ellen
              Brown as she now writes?

              She is not claiming that there exists debt-free credit. What she is
              advancing- though not expressed clearly, and mixed up with unnecessary
              things like "when the bank is owned by the community"- is that the
              Fruits from credit money creation need to 'return to the community'.
              This amounts to ensuring there is no net debt buildup in the community
              (supposedly, this is the nonfinancial part of the economy?)

              That indeed is a recipe for financial stability, though how this takes shape institutionally is still another matter (nationalization? regulation? small banks? co-ops? ...).

              Dirk

              G W Gardiner wrote:
              > Definitely not!!!
              >
              > Geoff
              >
              > From: Gunnar Tomasson
              > Sent: Monday, November 01, 2010 8:26 PM
              > To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  
              > Subject: RE: [gang8] Ellen Brown's article on money
              >
              >   
              >
              > Michael and Geoffrey.
              >
              >
              > Ellen Brown’s final paragraph –
              >
              > We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.
              >
              > – invites the technical question Dirk and I addressed in our recent paper:
              >
              >
              > What is the source of profits?
              >
              >
              > Can there be net profits for “the community” without matching debt creation?
              >
              >
              > Gunnar
              >
              >
              >
              >
              > From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com> ] On Behalf Of G W Gardiner
              > Sent: Monday, November 01, 2010 3:44 PM
              > To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
              > Subject: Re: [gang8] Ellen Brown's article on money
              >
              >
              >   
              >
              > Michael.
              >
              >
              > It is her best article. Ellen seems to have taken notice of my patient explanations. I have written at length to her recently and she has seen the latest papers
              >
              >
              > Mostafa Moini, whom she quotes, wrote his article Toward a General Theory of Credit and Money in 2001, 8 years after I published Towards True Monetarism which not only has a similar title but a similar theme. Ellen may assume I got my ideas from him as she has not seen TTM. I cannot access Moini's paper. He has died, by the way.
              >
              >
              > Incidentally Martin Wolf recently made a telling remark: 'Money is a promise you can trust.'
              >
              >
              > Geoffrey
              >
              >
              > From: Michael Hudson
              >
              > Sent: Friday, October 29, 2010 4:05 PM
              >
              > To: GANG8 ; stephen zarlenga
              >
              > Subject: [gang8] Ellen Brown's article on money
              >
              >
              >   
              >
              > Ellen is getting a big following. What do you think of this?
              > Michael
              >
              > From: Ellen Brown <>
              > Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
              > To: "Ellen Brown" >
              > Date: Thursday, 28 October, 2010, 20:24
              > Hi, here is my latest article, posted by Yes! Magazine --
              >
              > "Time for a New Theory of Money"
              > http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money
              >
              >
              >
              >   

               
                 


            • Dirk Bezemer
              I ve been to four conferences over the last months and shouldering a heavy teaching load this year plus ongoing research... so for now I should now take on new
              Message 8 of 15 , Nov 18, 2010
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                I've been to four conferences over the last months and shouldering a
                heavy teaching load this year plus ongoing research... so for now I
                should now take on new things.

                Dirk

                Michael Hudson wrote:
                > Perhaps we could organize a conference or volume on this. Any suggestions?
                > Michael
                >
                >
                > On 11/18/10 7:48 AM, "Dirk Bezemer" <d.j.bezemer@...> wrote:
                >
                >
                >>
                >>
                >>
                >>
                >>
                >> Agreed, of course. But does posing that question do justice to Ellen
                >> Brown as she now writes?
                >>
                >> She is not claiming that there exists debt-free credit. What she is
                >> advancing- though not expressed clearly, and mixed up with unnecessary
                >> things like "when the bank is owned by the community"- is that the
                >> Fruits from credit money creation need to 'return to the community'.
                >> This amounts to ensuring there is no net debt buildup in the community
                >> (supposedly, this is the nonfinancial part of the economy?)
                >>
                >> That indeed is a recipe for financial stability, though how this takes shape
                >> institutionally is still another matter (nationalization? regulation? small
                >> banks? co-ops? ...).
                >>
                >> Dirk
                >>
                >> G W Gardiner wrote:
                >>
                >>>> Definitely not!!!
                >>>>
                >>>> Geoff
                >>>>
                >>>> From: Gunnar Tomasson
                >>>> Sent: Monday, November 01, 2010 8:26 PM
                >>>> To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                >>>> Subject: RE: [gang8] Ellen Brown's article on money
                >>>>
                >>>>
                >>>>
                >>>> Michael and Geoffrey.
                >>>>
                >>>>
                >>>> Ellen Brown¹s final paragraph ­
                >>>>
                >>>> We have emerged from the financial crisis with new clarity: Money today is
                >>>>
                >>> simply credit. When the credit is advanced by a bank, when the bank is owned
                >>> by the community, and when the profits return to the community, the result
                >>> can be a functional, efficient, and sustainable system of finance.
                >>>
                >>>> ­ invites the technical question Dirk and I addressed in our recent paper:
                >>>>
                >>>>
                >>>> What is the source of profits?
                >>>>
                >>>>
                >>>> Can there be net profits for ³the community² without matching debt
                >>>>
                >>> creation?
                >>>
                >>>> Gunnar
                >>>>
                >>>>
                >>>>
                >>>>
                >>>> From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                >>>>
                >>> [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com> ] On Behalf Of
                >>> G W Gardiner
                >>>
                >>>> Sent: Monday, November 01, 2010 3:44 PM
                >>>> To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                >>>> Subject: Re: [gang8] Ellen Brown's article on money
                >>>>
                >>>>
                >>>>
                >>>>
                >>>> Michael.
                >>>>
                >>>>
                >>>> It is her best article. Ellen seems to have taken notice of my patient
                >>>>
                >>> explanations. I have written at length to her recently and she has seen the
                >>> latest papers
                >>>
                >>>> Mostafa Moini, whom she quotes, wrote his article Toward a General Theory
                >>>>
                >>> of Credit and Money in 2001, 8 years after I published Towards True
                >>> Monetarism which not only has a similar title but a similar theme. Ellen may
                >>> assume I got my ideas from him as she has not seen TTM. I cannot access
                >>> Moini's paper. He has died, by the way.
                >>>
                >>>> Incidentally Martin Wolf recently made a telling remark: 'Money is a
                >>>>
                >>> promise you can trust.'
                >>>
                >>>> Geoffrey
                >>>>
                >>>>
                >>>> From: Michael Hudson
                >>>>
                >>>> Sent: Friday, October 29, 2010 4:05 PM
                >>>>
                >>>> To: GANG8 ; stephen zarlenga
                >>>>
                >>>> Subject: [gang8] Ellen Brown's article on money
                >>>>
                >>>>
                >>>>
                >>>>
                >>>> Ellen is getting a big following. What do you think of this?
                >>>> Michael
                >>>>
                >>>> From: Ellen Brown <>
                >>>> Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
                >>>> To: "Ellen Brown" >
                >>>> Date: Thursday, 28 October, 2010, 20:24
                >>>> Hi, here is my latest article, posted by Yes! Magazine --
                >>>>
                >>>> "Time for a New Theory of Money"
                >>>> http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money
                >>>>
                >>>>
                >>>>
                >>>>
                >>>>
                >>
                >>
                >>
                >>
                >>
                >
                >
                >
              • Richard Werner
                Gang, I thought we had settled this issue a while ago. Below some old mails about this. Regards, Richard ... From: Richard
                Message 9 of 15 , Nov 18, 2010
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                  Gang,

                   

                  I thought we had settled this issue a while ago. Below some old mails about this.

                   

                  Regards,

                  Richard

                   

                   

                   

                   

                  ----- Original Message -----

                  From: Richard Werner

                  To: gang8@yahoogroups. com

                  Sent: Tuesday, May 12, 2009 11:01 AM

                  Subject: RE: [gang8] debt-free money does not exist

                   

                  Dear Gunnar,

                  Absolutely. However a tax receipt is not a liability to the government. It is evidence that tax payers’ liabilities have been paid.

                  Geoffrey is wondering about whether central bank money should be booked as gov’t liability. In my view this would be an accounting fiction that serves to misguide, just like the accounting fiction to record note issuance as a liability of the central bank. The central bank has no actual liability worth speaking of from note issuance. If one did not record it as liability, one would see that the balance sheet of a central bank is not like that of a corporation (it does not need to balance, for one), and that would help in making matters more transparent concerning the important topic of credit creation.

                  Regards,

                  Richard


                  From: gang8@yahoogroups. com [mailto: gang8@yahoogroups. com ] On Behalf Of Gunnar Tómasson
                  Sent: 11 May 2009 23:27
                  To: gang8@yahoogroups. com
                  Subject: RE: [gang8] debt-free money does not exist




                  Dear Richard,

                  Convertible to gold at one time, convertible to tax receipt today.

                  Gunnar

                  size=3 width="100%" align=center tabIndex=-1>

                  From: gang8@yahoogroups. com [mailto: gang8@yahoogroups. com ] On Behalf Of Dr. Richard Werner
                  Sent: 11. maí 2009 16:13
                  To: gang8@yahoogroups. com
                  Subject: RE: [gang8] debt-free money does not exist





                  Dear Geoffrey,

                  It’s not a liability to anyone, least of all the government. It was a liability when they were convertible to gold…

                  Regards,

                  Richard


                  From: gang8@yahoogroups. com [mailto: gang8@yahoogroups. com ] On Behalf Of Geoffrey Gardiner
                  Sent: Sunday, May 10, 2009 2:57 PM
                  To: gang8@yahoogroups. com
                  Subject: Re: [gang8] debt-free money does not exist






                  Are the liabilities of the Issue Department of the Bank of England treated as part of National Debt? I would include them.

                  The issue of banknotes has a limit, the demand for them, a very practical limit.

                  At the moment the Bank of England uses the proceeds of the note issue to lend to banks at usurious rates of interest, the instrument being reverse repos. The high rates of interest are possible because the banks are deliberately kept short of liquidity by the actions of the DMO. It is a clever stealth tax on banks. 

                  Geoff

                  ----- Original Message -----

                  From: Dr. Richard Werner

                  To: gang8@yahoogroups. com ; 'Greg Davies' ; 'Eric Encina'

                  Sent: Saturday, April 11, 2009 12:59 AM

                  Subject: RE: [gang8] debt-free money does not exist

                  Dear Friends,

                  There may be talk at cross purposes.

                  Could it be that the social reformers are calling for - what I have also
                  called for - namely money that does not build up national debt, i.e.
                  government currency, such as the greenback etc., which is one way to ensure
                  that government/national debt does not grow as quickly as it does in our
                  system of private money creation (and a larger need for the government to
                  incur debt).

                  To call this 'debt free money' is imprecise, but may serve a PR purpose.

                  Regards,
                  Richard

                  -----Original Message-----
                  From: gang8@yahoogroups. com [mailto:gang8@yahoogroups. com] On Behalf Of Dirk
                  Bezemer
                  Sent: Thursday, April 09, 2009 12:35 PM
                  To: Greg Davies; Eric Encina; gang8@yahoogroups. com
                  Subject: [gang8] debt-free money does not exist

                  dear Greg and Encina,

                  The Social Credit idea has been discussed at length at the Gang8 so it
                  would be unwise to replicate that. Please look in the archive for the
                  exchange of arguments.

                  Still - the basic argument, to me, is that money historically arose from
                  creditor-debtor relations, and that money is one form of debt. So
                  creating debt-free money is something like creating dry water. It cannot
                  be done. "Debt-ness" is a basic attribute of money just like wetness is
                  of water. Put another way: since money is claim on goods, it represent
                  claimant-claimee relations, or what is the same: creditor-debtor
                  relations. money= credit=debt.

                  This logic is really watertight. Still I understand the desire to create
                  debt-free money because all financial-system problems are in essence
                  debt problems. At first sight doing away with debt seems a solution. But
                  that is a baby-with-the- bathwater solution. It also does away with
                  money, which is a really useful invention! Better to manage debt-money
                  wisely. If water makes you wet, better to manage waterflows than to
                  spent your energy inventing dry water.

                  This is my logical and historical reason to believe that debt free money
                  creation is an impossibility.

                  best wishes,

                  Dirk

                  PS - here's an excerpt from a paper explaining this it some length.

                  2. All Money is Credit

                  Why are credit booms and busts so important to our economy?
                  Surprisingly, the answer to this question is centrally concerned with
                  accounting and auditing issues. This profound relation between core
                  accounting concepts and our very financial system (and therefore our
                  economy) may be usefully introduced from a historical vantage point. In
                  this section we briefly delve into the archeology of money - a field
                  that yields insights surprisingly relevant, as will be shown in the
                  remainder of the paper, to today's financial system and the state it is in.
                  A central conclusion in this field, corroborated by recent findings
                  (reported in e.g. Hudson and Van de Mieroop, 2002), is that all money is
                  credit. This proposition goes against a widely held belief, based on
                  textbook economics, that money historically emerged when some token
                  (e.g. shells or silver lumps) came to be used as a convenient unit of
                  account to replace the cruder barter trade; and that the use of credit
                  and debt was an optional extra, predicated on the prior existence of
                  money and conceptually quite separate from it. This convenient
                  pedagogical narrative has been taught since times immemorial - at least
                  since Aristotle, as Ingham (2004) recounts - but if assessed as actual
                  financial history, it is found to be devoid of historical or
                  ethnographic evidence to support it. There are reasons (some of them
                  reviewed by Wray, 1998) why it is nonetheless a popular and persistent
                  fable, but these are beyond the scope of the present paper.
                  Instead we consider recent evidence from the 'archeology of money' which
                  comprises research in archeology, anthropology and numismatics - see
                  e.g. Wray (1998, 2004), Ingham (2004), and Hudson and Van de Mieroop
                  (2002), building on early seminal contributions by Knapp ([1905] 1924)
                  and Mitchell Innes (1913, 1914) - in favour of the credit origin of
                  money. A major argument for this position is logical. It is that
                  specialization of labour - which characterized societies as early as the
                  Mesolithic age - must have implied credit relations. Specialization of
                  labour and the attendant exchange of goods (e.g. between hunters,
                  toolmakers and gatherers) requires a social mechanism to bridge the time
                  between delivery of the various goods. A hunter needs bow and arrow from
                  the toolmaker before he can hunt and deliver meat in return. In the
                  meantime, the hunter is a debtor as he owes the toolmaker, who is a
                  creditor. In societies also involving farmers, bakers, and so on, the
                  web of debtor-creditor relations quickly becomes complex. Such relations
                  would therefore have been recorded in some way. This is not just another
                  pedagogical narrative, or speculation on how things might have been.
                  Archeologists have found notched bones from Stone Age hunter-gatherer
                  societies, where the notches have been interpreted by scholars as
                  evidence of quite elaborate accounting systems (Gardiner, 2004).
                  Also highly developed ancient civilizations had credit-money, typically
                  linked to a centralized temple-state administration system. For
                  instance, from the temple ruins of the ancient Babylonian and Sumerian
                  civilisations (from 3,000 to 2,000 BC) have been recovered thousands of
                  clay tablets (called shubati, meaning 'received') which are receipts for
                  grain deliveries to the temple (in payment of taxes to the temple-state
                  elite). They record the sender's and receiver's names, the quantity, and
                  the date. In striking analogy to modern double-entry accounting methods,
                  many of these tablets were sealed in cases inscribed with the same
                  information. These tax receipts are the oldest IOUs we know of, and like
                  bills of exchange used in later times, these cases and their contents
                  were 'signed and sealed documents and passed from hand to hand' (Innes,
                  1914:35). When the debt described on the case was cleared, it was
                  broken. Archeologists have however recovered many such cases intact,
                  indicating that, just like the outstanding stock of money in our
                  economic system, their primary use had become to facilitate
                  transactions, not to settle debt. They were tradable and functioned as
                  means of payment, their value determined by the authorities by setting
                  tax levels. In short, these IOUs were money, long before coins were
                  introduced to Babylonia and Persia by Alexander the Great in 331 BC
                  ( Hudson , 2004).
                  So it was in Europe , where since the earliest times accounting tokens of
                  creditor-debtor relations were used as money, i.e. to settle
                  transactions of goods and services. In many ancient and mediaeval
                  European societies, the form this took was the square wooden stick with
                  notches, or tally (Wray 1998:41). It was created when a buyer became a
                  debtor to a seller. Both their names, with the date, were written on
                  opposite sides of the stick. Then the stick was split down the middle
                  but stopped about an inch from the base. Thus there were two smaller
                  sticks with equal numbers of notches, one (called the 'stock' and
                  retained by the creditor) longer than the other (the 'stub', held by the
                  debtor). Stock and stub could always be matched to ensure they has not
                  been tampered with, and to ascertain the debt to be paid. Again, it is
                  obvious that tallies, like Sumerian shubatis, were a form of
                  double-entry bookkeeping. And they likewise circulated as means of
                  payment. Innes (1913) recounts how well-known mediaeval fairs such as
                  St. Giles in Winchester or Champagne and Brie in France were primarily
                  clearing houses, were merchants came to clear their tally stocks and
                  stubs. If wooden tallies were used also in ancient times, they have not
                  been preserved. There is other evidence, however, that tallies in one
                  form or another were widespread throughout ancient and prehistoric
                  Europe . For instance, copper pieces purposely broken like jigsaw puzzle
                  pieces in analogy to stock and stub have been found in Italy , dating
                  from between 1000 and 2000 BC (Wray 1998). Again, there is no evidence
                  for the use of coins until centuries later. The conclusion is that
                  credit cannot have evolved from token money, because credit
                  chronologically preceded it. Historically, tax debts and trade debts
                  were monetized as debt tokens became transferrable and circulated as
                  medium of payment, ultimately in the form of coins, notes and electronic
                  bits.
                  In contemporary society, banks have replaced Babylonian temples and
                  medieval European merchant as the institutions authorized to issue
                  money. But they still essentially do what was always done and money
                  still is a category of credit. As they grant loans, banks create new
                  credit tokens (now electronic bits) in the form of bank deposits or
                  'liquid liabilities' , which are transferable and widely accepted as
                  means of payment. 'Banks actually create money when they lend it' (FRBD,
                  2009). "What they do when they make loans is to accept promissory notes
                  in exchange for credits to the borrowers' transaction accounts. Loans
                  (assets) and deposits (liabilities) both rise by the amount of the loan"
                  (FRBC, 1992:3,6). This continuing reality of money emanating from the
                  credit creation process is also borne out by modern econometric
                  research. Caporale and Howells (2001) use UK data to show with
                  statistical causality tests in the context of a Vector Auto Regression
                  framework that loans precede and 'cause' deposits. Banks extend loans,
                  which give rise to bank deposits that are generally accepted as 'money'.

                  3. Credit Is Not All Money

                  While money is a category of credit linked to transactions in goods and
                  services, there are other categories also. Once debt tokens are
                  'monetized' - that is: circulate without direct link to a specific
                  transaction between two parties - it is possibly to create debt tokens
                  without the accompanying transactions in goods and services. Since the
                  growth of such liabilities is functionally separate from transactions of
                  goods and services in the real economy, this debt may take on its own
                  dynamic, growing out of proportion with the economy's ability to service
                  debt.
                  Historically, the canonical example of this development is the second
                  half of the 17th century when London 's goldsmith-bankers formed a system
                  of banking through mutual debt acceptance and interbanker clearing,
                  where promissory notes came to be used as paper money (e.g., Quinn
                  1997). But similar developments had occurred also in ancient societies
                  which already used monetized trade and tax debts as means of payments.
                  These economies therefore typically had in place social mechanisms to
                  periodically clear the debt overhead, such as 'clean slate' or 'jubilee'
                  debt cancellations in ancient Babylonian and Israelite societies,
                  respectively (for details, see Hudson and Van de Mieroop 2002).
                  Again, what was true in ancient societies is in essence still true in
                  ours (except for jubilees and clean slates). Only a minority share of
                  newly created 'tally sticks' (bank lending) is devoted to creating bank
                  deposits supporting transactions of goods and services. Most lending is
                  in support of financial investment, that is: the creation of, and trade
                  in, financial assets and instruments. Assets are not generally accepted
                  means of payment for goods and services, and so are not 'money'.
                  Therefore all money is bank credit, but not all bank credit is money -
                  most goes into financial investments.
                  The difference matters directly to our understanding of how banks have
                  performed in their role of 'social accountants' , especially with respect
                  to the buildup of debt. The central principle in double-entry
                  bookkeeping - familiar to any fledgling student of accounting - is that
                  assets must equal liabilities. Each act of bank lending creates a
                  liability to some customer (a debt payable to the bank) and the
                  accompanying asset (the bank deposit, which is money). But the way in
                  which credit is used determines whether, on a society-wide level, there
                  will be net debt growth. If the loan is used for a self-amortizing
                  investment in fixed capital formation, this creates value-added in the
                  form of products and services that typically allows the debt to be paid
                  off. If, on the contrary, the loan is 'invested' in the financial
                  markets, this will push up the price of financial assets and creates
                  asset wealth for the owners. The assets may be traded many times by
                  'investors' who each took out a loan or drained liquidity from the real
                  sector in order to finance the purchase, and each time the asset may
                  increase in value - but the debt and/or drain from the real sector grows
                  in parallel. It can only be repaid by withdrawing from the financial
                  markets or from the real sector at least the liquidity equal to that
                  created by the total of the loans. This settles the debt, but also
                  deflates the price of the financial assets to at most their original value.
                  This brief narrative in essence is the story of an asset boom followed
                  by a debt deflation - the experience of industrialized countries since
                  the early 1980s. The two uses of credit broadly reflect, respectively,
                  real-sector investment typical of commercial banking on one hand, and
                  financial investment as done by, for instance, merchant banks and
                  securities traders on the other. The important point is that in terms of
                  liquidity growth, financial investment by itself is a zero-sum game.
                  Financial markets can only grow sustainably by absorbing liquidity
                  created in the real sector, which is based on self-amortizing loans.
                  Alternatively, they can grow unsustainably by simultaneously diverting
                  liquidity from the real sector and increasing indebtedness. This is
                  unsustainable as it must, with axiomatic certainty, at some point end.
                  Still, such (ultimately) unsustainable debt growth may be kept going
                  over decades by expanding the stock of financial assets and instruments
                  relative to the size of the economy. This has indeed been the general
                  trend in industrialized countries, especially since the 1980s, as we
                  explore in detail below for the case of the US . But there are two ways
                  in which these trends may be obscured.
                  First, what is clear on the macro level may not be obvious on the micro
                  level. In an asset price boom any single individual can borrow, purchase
                  assets, and sell them to pay off the debt with a profit left. No
                  personal debt remains, and the good news spreads. However, there is a
                  micro-macro paradox (or 'fallacy of composition' ) as on the macro,
                  society-wide level, there must be a growth in indebtedness of the
                  economy for assets to be traded at rising prices. This indebtedness
                  takes the form of both rising commitments for the real sector to finance
                  asset transaction out of wages and profit, and rising actual debt
                  levels. Despite appearances on the micro level, asset price booms are
                  accompanied by rising debt and by a slowdown in real-sector nominal
                  growth even as 'net worth' and income from assets may rise. We
                  illustrate this empirically below in a contemporary setting, but the
                  principle was noted long ago. John Stuart Mill (1848, ch 4 book 1)
                  already wrote that "[a]ll funds from which the possessor derives an
                  income, .. are to him equivalent to capital. But to transfer hastily and
                  inconsiderately to the general point of view, propositions which are
                  true of the individual, has been a source of innumerable errors in
                  political economy. In the present instance, that which is virtually
                  capital to the individual, is or is not capital to the nation, according
                  as the fund . has or has not been dissipated by somebody else". Funds
                  not used ("dissipated" ) in the real economy create income to their
                  owner, but not to the economy.
                  Second, it may be objected that because of the well-known macroeconomic
                  accounting equality "I = S" (where investment I must equal savings S)
                  there cannot be a net debt build-up. It will always be matched by
                  savings. But that is to misinterpret 'investment' as exclusively fixed
                  capital formation, while in reality most of it is financial-market
                  investment. Taking this into account does not undermine "I=S", but
                  modifies its interpretation. Real-sector investment (denoted IR) and
                  financial investments (denoted IF) make up total investment (denoted I)
                  so that I = IR + IF = S. With (as will be shown below) IF being vastly
                  greater than IR and debt growth equal to IF, it is obvious that a
                  society can grow into debt by directing its bank credit flows, and
                  thereby its savings, away from tangible capital formation and towards
                  financial market investment.

                  Davies wrote:

                  >> Dear Eric V. Encina, Filipino Monetary
                  Reformer,
                  >> DEBT FREE MONEY CREATION does not exist. The economy has always been
                  >>
                  >
                  debt- (and credit-) based. You are pursuing an >impossibility.
                  But you
                  > are right that debt tends to be a problem. Monetary reform should focus
                  > on wisely managing debt. Attached a piece >that proposes this. best
                  > wishes, Dirk Bezemer
                  >
                  >
                  >
                  > *Please elaborate, either through logical arguments or explicit
                  > references to the literature, why debt free money
                  creation is an
                  > impossibility. Your answer, as it stands, is
                  wholly unsatisfactory.
                  >
                  >
                  >
                  > Regards,
                  >
                  >
                  >
                  > Greg Davies
                  >
                  >
                  class=SpellE>Pietermaritzburg , South Africa
                  >
                  >
                  >

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                • Michael Hudson
                  Don¹t worry, Dirk. This would take until next summer or autumn. It¹s a big topic. I suggest a meeting in Riga, Talinn, or Milwaukee or London. But Iceland
                  Message 10 of 15 , Nov 18, 2010
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                    Re: [gang8] Ellen Brown's article on money Don’t worry, Dirk. This would take until next summer or autumn. It’s a big topic. I suggest a meeting in Riga, Talinn, or Milwaukee or London.
                        But Iceland might be nice too! The post-Soviet economies now may think of creating banking systems that got “the best” of Soviet banking — China style — where the community got the interest, as you and Gunnar recognize is important.
                        Michael


                    On 11/18/10 8:43 AM, "Dirk Bezemer" <d.j.bezemer@...> wrote:


                     
                     
                       

                    I've been to four conferences over the last months and shouldering a
                    heavy teaching load this year plus ongoing research... so for now I
                    should now take on new things.

                    Dirk

                    Michael Hudson wrote:
                    > Perhaps we could organize a conference or volume on this. Any suggestions?
                    >     Michael
                    >
                    >
                    > On 11/18/10 7:48 AM, "Dirk Bezemer" <d.j.bezemer@... <mailto:d.j.bezemer%40rug.nl> > wrote:
                    >
                    >   
                    >>  
                    >>  
                    >>  
                    >>    
                    >>
                    >> Agreed, of course. But does posing that question do justice to Ellen
                    >> Brown as she now writes?
                    >>
                    >> She is not claiming that there exists debt-free credit. What she is
                    >> advancing- though not expressed clearly, and mixed up with unnecessary
                    >> things like "when the bank is owned by the community"- is that the
                    >> Fruits from credit money creation need to 'return to the community'.
                    >> This amounts to ensuring there is no net debt buildup in the community
                    >> (supposedly, this is the nonfinancial part of the economy?)
                    >>
                    >> That indeed is a recipe for financial stability, though how this takes shape
                    >> institutionally is still another matter (nationalization? regulation? small
                    >> banks? co-ops? ...).
                    >>
                    >> Dirk
                    >>
                    >> G W Gardiner wrote:
                    >>     
                    >>>> Definitely not!!!
                    >>>>
                    >>>> Geoff
                    >>>>
                    >>>> From: Gunnar Tomasson
                    >>>> Sent: Monday, November 01, 2010 8:26 PM
                    >>>> To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  <mailto:gang8%40yahoogroups.com>
                    >>>> Subject: RE: [gang8] Ellen Brown's article on money
                    >>>>
                    >>>>   
                    >>>>
                    >>>> Michael and Geoffrey.
                    >>>>
                    >>>>
                    >>>> Ellen Brown’s final paragraph –
                    >>>>
                    >>>> We have emerged from the financial crisis with new clarity: Money today is
                    >>>>         
                    >>> simply credit. When the credit is advanced by a bank, when the bank is owned
                    >>> by the community, and when the profits return to the community, the result
                    >>> can be a functional, efficient, and sustainable system of finance.
                    >>>       
                    >>>> – invites the technical question Dirk and I addressed in our recent paper:
                    >>>>
                    >>>>
                    >>>> What is the source of profits?
                    >>>>
                    >>>>
                    >>>> Can there be net profits for “the community” without matching debt
                    >>>>         
                    >>> creation?
                    >>>       
                    >>>> Gunnar
                    >>>>
                    >>>>
                    >>>>
                    >>>>
                    >>>> From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  <mailto:gang8%40yahoogroups.com>
                    >>>>         
                    >>> [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  <mailto:gang8%40yahoogroups.com> ] On Behalf Of
                    >>> G W Gardiner
                    >>>       
                    >>>> Sent: Monday, November 01, 2010 3:44 PM
                    >>>> To: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  <mailto:gang8%40yahoogroups.com>
                    >>>> Subject: Re: [gang8] Ellen Brown's article on money
                    >>>>
                    >>>>
                    >>>>   
                    >>>>
                    >>>> Michael.
                    >>>>
                    >>>>
                    >>>> It is her best article. Ellen seems to have taken notice of my patient
                    >>>>         
                    >>> explanations. I have written at length to her recently and she has seen the
                    >>> latest papers
                    >>>       
                    >>>> Mostafa Moini, whom she quotes, wrote his article Toward a General Theory
                    >>>>         
                    >>> of Credit and Money in 2001, 8 years after I published Towards True
                    >>> Monetarism which not only has a similar title but a similar theme. Ellen may
                    >>> assume I got my ideas from him as she has not seen TTM. I cannot access
                    >>> Moini's paper. He has died, by the way.
                    >>>       
                    >>>> Incidentally Martin Wolf recently made a telling remark: 'Money is a
                    >>>>         
                    >>> promise you can trust.'
                    >>>       
                    >>>> Geoffrey
                    >>>>
                    >>>>
                    >>>> From: Michael Hudson
                    >>>>
                    >>>> Sent: Friday, October 29, 2010 4:05 PM
                    >>>>
                    >>>> To: GANG8 ; stephen zarlenga
                    >>>>
                    >>>> Subject: [gang8] Ellen Brown's article on money
                    >>>>
                    >>>>
                    >>>>   
                    >>>>
                    >>>> Ellen is getting a big following. What do you think of this?
                    >>>> Michael
                    >>>>
                    >>>> From: Ellen Brown <>
                    >>>> Subject: posted on Yes! Mag -- "Time for a New Theory of Money"
                    >>>> To: "Ellen Brown" >
                    >>>> Date: Thursday, 28 October, 2010, 20:24
                    >>>> Hi, here is my latest article, posted by Yes! Magazine --
                    >>>>
                    >>>> "Time for a New Theory of Money"
                    >>>> http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money
                    >>>>
                    >>>>
                    >>>>
                    >>>>   
                    >>>>         
                    >>  
                    >>    
                    >>
                    >>
                    >>     
                    >
                    >
                    >   

                     
                       


                  • Michael Hudson
                    The issue at this point, Richard, is how the community can benefit from interest overhead, rather than leaving this in the hands of commercial banks.
                    Message 11 of 15 , Nov 18, 2010
                    View Source
                    • 0 Attachment
                      Re: [gang8] Ellen Brown's article on money The issue at this point, Richard, is how the community can benefit from interest overhead, rather than leaving this in the hands of commercial banks. Gradually, this interest would provide the main budgetary revenue, along with other economic rent income.
                          Michael


                      On 11/18/10 10:40 AM, "Richard Werner" <werner@...> wrote:


                       
                       
                         

                      Gang,
                       
                      I thought we had settled this issue a while ago. Below some old mails about this.
                       
                      Regards,
                      Richard


                       
                       
                       
                      ----- Original Message -----
                      From: Richard Werner <mailto:werner@...>  
                      To: gang8@yahoogroups.com <mailto:gang8@yahoogroups.com>
                      Sent: Tuesday, May 12, 2009 11:01 AM
                      Subject: RE: [gang8] debt-free money does not exist

                      Dear Gunnar,
                      Absolutely. However a tax receipt is not a liability to the government. It is evidence that tax payers’ liabilities have been paid.
                      Geoffrey is wondering about whether central bank money should be booked as gov’t liability. In my view this would be an accounting fiction that serves to misguide, just like the accounting fiction to record note issuance as a liability of the central bank. The central bank has no actual liability worth speaking of from note issuance. If one did not record it as liability, one would see that the balance sheet of a central bank is not like that of a corporation (it does not need to balance, for one), and that would help in making matters more transparent concerning the important topic of credit creation.
                      Regards,
                      Richard



                      From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Gunnar Tómasson
                      Sent: 11 May 2009 23:27
                      To: gang8@yahoogroups.com
                      Subject: RE: [gang8] debt-free money does not exist




                      Dear Richard,
                      Convertible to gold at one time, convertible to tax receipt today.
                      Gunnar


                      size=3 width="100%" align=center tabIndex=-1>

                      From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Dr. Richard Werner
                      Sent: 11. maí 2009 16:13
                      To: gang8@yahoogroups.com
                      Subject: RE: [gang8] debt-free money does not exist





                      Dear Geoffrey,
                      It’s not a liability to anyone, least of all the government. It was a liability when they were convertible to gold…
                      Regards,
                      Richard



                      From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Geoffrey Gardiner
                      Sent: Sunday, May 10, 2009 2:57 PM
                      To: gang8@yahoogroups.com
                      Subject: Re: [gang8] debt-free money does not exist






                      Are the liabilities of the Issue Department of the Bank of England treated as part of National Debt? I would include them.
                      The issue of banknotes has a limit, the demand for them, a very practical limit.
                      At the moment the Bank of England uses the proceeds of the note issue to lend to banks at usurious rates of interest, the instrument being reverse repos. The high rates of interest are possible because the banks are deliberately kept short of liquidity by the actions of the DMO. It is a clever stealth tax on banks.
                      Geoff
                      ----- Original Message -----
                      From: Dr. Richard Werner <mailto:werner@...>  
                      To: gang8@yahoogroups.com <mailto:gang8@yahoogroups.com> ; 'Greg Davies' <mailto:gdavies@...>  ; 'Eric Encina' <mailto:ericencina@...>
                      Sent: Saturday, April 11, 2009 12:59 AM
                      Subject: RE: [gang8] debt-free money does not exist
                      Dear Friends,

                      There may be talk at cross purposes.

                      Could it be that the social reformers are calling for - what I have also
                      called for - namely money that does not build up national debt, i.e.
                      government currency, such as the greenback etc., which is one way to ensure
                      that government/national debt does not grow as quickly as it does in our
                      system of private money creation (and a larger need for the government to
                      incur debt).

                      To call this 'debt free money' is imprecise, but may serve a PR purpose.

                      Regards,
                      Richard

                      -----Original Message-----
                      From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com> ] On Behalf Of Dirk
                      Bezemer
                      Sent: Thursday, April 09, 2009 12:35 PM
                      To: Greg Davies; Eric Encina; gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                      Subject: [gang8] debt-free money does not exist

                      dear Greg and Encina,

                      The Social Credit idea has been discussed at length at the Gang8 so it
                      would be unwise to replicate that. Please look in the archive for the
                      exchange of arguments.

                      Still - the basic argument, to me, is that money historically arose from
                      creditor-debtor relations, and that money is one form of debt. So
                      creating debt-free money is something like creating dry water. It cannot
                      be done. "Debt-ness" is a basic attribute of money just like wetness is
                      of water. Put another way: since money is claim on goods, it represent
                      claimant-claimee relations, or what is the same: creditor-debtor
                      relations. money= credit=debt.

                      This logic is really watertight. Still I understand the desire to create
                      debt-free money because all financial-system problems are in essence
                      debt problems. At first sight doing away with debt seems a solution. But
                      that is a baby-with-the-bathwater solution. It also does away with
                      money, which is a really useful invention! Better to manage debt-money
                      wisely. If water makes you wet, better to manage waterflows than to
                      spent your energy inventing dry water.

                      This is my logical and historical reason to believe that debt free money
                      creation is an impossibility.

                      best wishes,

                      Dirk

                      PS - here's an excerpt from a paper explaining this it some length.

                      2. All Money is Credit

                      Why are credit booms and busts so important to our economy?
                      Surprisingly, the answer to this question is centrally concerned with
                      accounting and auditing issues. This profound relation between core
                      accounting concepts and our very financial system (and therefore our
                      economy) may be usefully introduced from a historical vantage point. In
                      this section we briefly delve into the archeology of money - a field
                      that yields insights surprisingly relevant, as will be shown in the
                      remainder of the paper, to today's financial system and the state it is in.
                      A central conclusion in this field, corroborated by recent findings
                      (reported in e.g. Hudson and Van de Mieroop, 2002), is that all money is
                      credit. This proposition goes against a widely held belief, based on
                      textbook economics, that money historically emerged when some token
                      (e.g. shells or silver lumps) came to be used as a convenient unit of
                      account to replace the cruder barter trade; and that the use of credit
                      and debt was an optional extra, predicated on the prior existence of
                      money and conceptually quite separate from it. This convenient
                      pedagogical narrative has been taught since times immemorial - at least
                      since Aristotle, as Ingham (2004) recounts - but if assessed as actual
                      financial history, it is found to be devoid of historical or
                      ethnographic evidence to support it. There are reasons (some of them
                      reviewed by Wray, 1998) why it is nonetheless a popular and persistent
                      fable, but these are beyond the scope of the present paper.
                      Instead we consider recent evidence from the 'archeology of money' which
                      comprises research in archeology, anthropology and numismatics - see
                      e.g. Wray (1998, 2004), Ingham (2004), and Hudson and Van de Mieroop
                      (2002), building on early seminal contributions by Knapp ([1905] 1924)
                      and Mitchell Innes (1913, 1914) - in favour of the credit origin of
                      money. A major argument for this position is logical. It is that
                      specialization of labour - which characterized societies as early as the
                      Mesolithic age - must have implied credit relations. Specialization of
                      labour and the attendant exchange of goods (e.g. between hunters,
                      toolmakers and gatherers) requires a social mechanism to bridge the time
                      between delivery of the various goods. A hunter needs bow and arrow from
                      the toolmaker before he can hunt and deliver meat in return. In the
                      meantime, the hunter is a debtor as he owes the toolmaker, who is a
                      creditor. In societies also involving farmers, bakers, and so on, the
                      web of debtor-creditor relations quickly becomes complex. Such relations
                      would therefore have been recorded in some way. This is not just another
                      pedagogical narrative, or speculation on how things might have been.
                      Archeologists have found notched bones from Stone Age hunter-gatherer
                      societies, where the notches have been interpreted by scholars as
                      evidence of quite elaborate accounting systems (Gardiner, 2004).
                      Also highly developed ancient civilizations had credit-money, typically
                      linked to a centralized temple-state administration system. For
                      instance, from the temple ruins of the ancient Babylonian and Sumerian
                      civilisations (from 3,000 to 2,000 BC) have been recovered thousands of
                      clay tablets (called shubati, meaning 'received') which are receipts for
                      grain deliveries to the temple (in payment of taxes to the temple-state
                      elite). They record the sender's and receiver's names, the quantity, and
                      the date. In striking analogy to modern double-entry accounting methods,
                      many of these tablets were sealed in cases inscribed with the same
                      information. These tax receipts are the oldest IOUs we know of, and like
                      bills of exchange used in later times, these cases and their contents
                      were 'signed and sealed documents and passed from hand to hand' (Innes,
                      1914:35). When the debt described on the case was cleared, it was
                      broken. Archeologists have however recovered many such cases intact,
                      indicating that, just like the outstanding stock of money in our
                      economic system, their primary use had become to facilitate
                      transactions, not to settle debt. They were tradable and functioned as
                      means of payment, their value determined by the authorities by setting
                      tax levels. In short, these IOUs were money, long before coins were
                      introduced to Babylonia and Persia by Alexander the Great in 331 BC
                      (Hudson, 2004).
                      So it was in Europe, where since the earliest times accounting tokens of
                      creditor-debtor relations were used as money, i.e. to settle
                      transactions of goods and services. In many ancient and mediaeval
                      European societies, the form this took was the square wooden stick with
                      notches, or tally (Wray 1998:41). It was created when a buyer became a
                      debtor to a seller. Both their names, with the date, were written on
                      opposite sides of the stick. Then the stick was split down the middle
                      but stopped about an inch from the base. Thus there were two smaller
                      sticks with equal numbers of notches, one (called the 'stock' and
                      retained by the creditor) longer than the other (the 'stub', held by the
                      debtor). Stock and stub could always be matched to ensure they has not
                      been tampered with, and to ascertain the debt to be paid. Again, it is
                      obvious that tallies, like Sumerian shubatis, were a form of
                      double-entry bookkeeping. And they likewise circulated as means of
                      payment. Innes (1913) recounts how well-known mediaeval fairs such as
                      St. Giles in Winchester or Champagne and Brie in France were primarily
                      clearing houses, were merchants came to clear their tally stocks and
                      stubs. If wooden tallies were used also in ancient times, they have not
                      been preserved. There is other evidence, however, that tallies in one
                      form or another were widespread throughout ancient and prehistoric
                      Europe. For instance, copper pieces purposely broken like jigsaw puzzle
                      pieces in analogy to stock and stub have been found in Italy, dating
                      from between 1000 and 2000 BC (Wray 1998). Again, there is no evidence
                      for the use of coins until centuries later. The conclusion is that
                      credit cannot have evolved from token money, because credit
                      chronologically preceded it. Historically, tax debts and trade debts
                      were monetized as debt tokens became transferrable and circulated as
                      medium of payment, ultimately in the form of coins, notes and electronic
                      bits.
                      In contemporary society, banks have replaced Babylonian temples and
                      medieval European merchant as the institutions authorized to issue
                      money. But they still essentially do what was always done and money
                      still is a category of credit. As they grant loans, banks create new
                      credit tokens (now electronic bits) in the form of bank deposits or
                      'liquid liabilities', which are transferable and widely accepted as
                      means of payment. 'Banks actually create money when they lend it' (FRBD,
                      2009). "What they do when they make loans is to accept promissory notes
                      in exchange for credits to the borrowers' transaction accounts. Loans
                      (assets) and deposits (liabilities) both rise by the amount of the loan"
                      (FRBC, 1992:3,6). This continuing reality of money emanating from the
                      credit creation process is also borne out by modern econometric
                      research. Caporale and Howells (2001) use UK data to show with
                      statistical causality tests in the context of a Vector Auto Regression
                      framework that loans precede and 'cause' deposits. Banks extend loans,
                      which give rise to bank deposits that are generally accepted as 'money'.

                      3. Credit Is Not All Money

                      While money is a category of credit linked to transactions in goods and
                      services, there are other categories also. Once debt tokens are
                      'monetized' - that is: circulate without direct link to a specific
                      transaction between two parties - it is possibly to create debt tokens
                      without the accompanying transactions in goods and services. Since the
                      growth of such liabilities is functionally separate from transactions of
                      goods and services in the real economy, this debt may take on its own
                      dynamic, growing out of proportion with the economy's ability to service
                      debt.
                      Historically, the canonical example of this development is the second
                      half of the 17th century when London's goldsmith-bankers formed a system
                      of banking through mutual debt acceptance and interbanker clearing,
                      where promissory notes came to be used as paper money (e.g., Quinn
                      1997). But similar developments had occurred also in ancient societies
                      which already used monetized trade and tax debts as means of payments.
                      These economies therefore typically had in place social mechanisms to
                      periodically clear the debt overhead, such as 'clean slate' or 'jubilee'
                      debt cancellations in ancient Babylonian and Israelite societies,
                      respectively (for details, see Hudson and Van de Mieroop 2002).
                      Again, what was true in ancient societies is in essence still true in
                      ours (except for jubilees and clean slates). Only a minority share of
                      newly created 'tally sticks' (bank lending) is devoted to creating bank
                      deposits supporting transactions of goods and services. Most lending is
                      in support of financial investment, that is: the creation of, and trade
                      in, financial assets and instruments. Assets are not generally accepted
                      means of payment for goods and services, and so are not 'money'.
                      Therefore all money is bank credit, but not all bank credit is money -
                      most goes into financial investments.
                      The difference matters directly to our understanding of how banks have
                      performed in their role of 'social accountants', especially with respect
                      to the buildup of debt. The central principle in double-entry
                      bookkeeping - familiar to any fledgling student of accounting - is that
                      assets must equal liabilities. Each act of bank lending creates a
                      liability to some customer (a debt payable to the bank) and the
                      accompanying asset (the bank deposit, which is money). But the way in
                      which credit is used determines whether, on a society-wide level, there
                      will be net debt growth. If the loan is used for a self-amortizing
                      investment in fixed capital formation, this creates value-added in the
                      form of products and services that typically allows the debt to be paid
                      off. If, on the contrary, the loan is 'invested' in the financial
                      markets, this will push up the price of financial assets and creates
                      asset wealth for the owners. The assets may be traded many times by
                      'investors' who each took out a loan or drained liquidity from the real
                      sector in order to finance the purchase, and each time the asset may
                      increase in value - but the debt and/or drain from the real sector grows
                      in parallel. It can only be repaid by withdrawing from the financial
                      markets or from the real sector at least the liquidity equal to that
                      created by the total of the loans. This settles the debt, but also
                      deflates the price of the financial assets to at most their original value.
                      This brief narrative in essence is the story of an asset boom followed
                      by a debt deflation - the experience of industrialized countries since
                      the early 1980s. The two uses of credit broadly reflect, respectively,
                      real-sector investment typical of commercial banking on one hand, and
                      financial investment as done by, for instance, merchant banks and
                      securities traders on the other. The important point is that in terms of
                      liquidity growth, financial investment by itself is a zero-sum game.
                      Financial markets can only grow sustainably by absorbing liquidity
                      created in the real sector, which is based on self-amortizing loans.
                      Alternatively, they can grow unsustainably by simultaneously diverting
                      liquidity from the real sector and increasing indebtedness. This is
                      unsustainable as it must, with axiomatic certainty, at some point end.
                      Still, such (ultimately) unsustainable debt growth may be kept going
                      over decades by expanding the stock of financial assets and instruments
                      relative to the size of the economy. This has indeed been the general
                      trend in industrialized countries, especially since the 1980s, as we
                      explore in detail below for the case of the US. But there are two ways
                      in which these trends may be obscured.
                      First, what is clear on the macro level may not be obvious on the micro
                      level. In an asset price boom any single individual can borrow, purchase
                      assets, and sell them to pay off the debt with a profit left. No
                      personal debt remains, and the good news spreads. However, there is a
                      micro-macro paradox (or 'fallacy of composition') as on the macro,
                      society-wide level, there must be a growth in indebtedness of the
                      economy for assets to be traded at rising prices. This indebtedness
                      takes the form of both rising commitments for the real sector to finance
                      asset transaction out of wages and profit, and rising actual debt
                      levels. Despite appearances on the micro level, asset price booms are
                      accompanied by rising debt and by a slowdown in real-sector nominal
                      growth even as 'net worth' and income from assets may rise. We
                      illustrate this empirically below in a contemporary setting, but the
                      principle was noted long ago. John Stuart Mill (1848, ch 4 book 1)
                      already wrote that "[a]ll funds from which the possessor derives an
                      income, .. are to him equivalent to capital. But to transfer hastily and
                      inconsiderately to the general point of view, propositions which are
                      true of the individual, has been a source of innumerable errors in
                      political economy. In the present instance, that which is virtually
                      capital to the individual, is or is not capital to the nation, according
                      as the fund . has or has not been dissipated by somebody else". Funds
                      not used ("dissipated") in the real economy create income to their
                      owner, but not to the economy.
                      Second, it may be objected that because of the well-known macroeconomic
                      accounting equality "I = S" (where investment I must equal savings S)
                      there cannot be a net debt build-up. It will always be matched by
                      savings. But that is to misinterpret 'investment' as exclusively fixed
                      capital formation, while in reality most of it is financial-market
                      investment. Taking this into account does not undermine "I=S", but
                      modifies its interpretation. Real-sector investment (denoted IR) and
                      financial investments (denoted IF) make up total investment (denoted I)
                      so that I = IR + IF = S. With (as will be shown below) IF being vastly
                      greater than IR and debt growth equal to IF, it is obvious that a
                      society can grow into debt by directing its bank credit flows, and
                      thereby its savings, away from tangible capital formation and towards
                      financial market investment.

                      Davies wrote:
                      >> Dear Eric V. Encina, Filipino Monetary Reformer,
                      >> DEBT FREE MONEY CREATION does not exist. The economy has always been
                      >>
                      > debt- (and credit-) based. You are pursuing an >impossibility. But you
                      > are right that debt tends to be a problem. Monetary reform should focus
                      > on wisely managing debt. Attached a piece >that proposes this. best
                      > wishes, Dirk Bezemer
                      >
                      >
                      >
                      > *Please elaborate, either through logical arguments or explicit
                      > references to the literature, why debt free money creation is an
                      > impossibility. Your answer, as it stands, is wholly unsatisfactory.
                      >
                      >
                      >
                      > Regards,
                      >
                      >
                      >
                      > Greg Davies
                      >
                      > Pietermaritzburg, South Africa
                      >
                      >
                      >

                      ------------------------------------

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                    • Dr. Richard Werner
                      The community benefits by owning the banks. _____ From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Michael Hudson Sent: 18 November 2010
                      Message 12 of 15 , Nov 18, 2010
                      View Source
                      • 0 Attachment

                        The community benefits by owning the banks.

                         


                        From: gang8@yahoogroups.com [mailto: gang8@yahoogroups.com ] On Behalf Of Michael Hudson
                        Sent: 18 November 2010 16:59
                        To: gang8@yahoogroups.com
                        Subject: Re: [gang8] Ellen Brown's article on money

                         

                         

                        The issue at this point, Richard, is how the community can benefit from interest overhead, rather than leaving this in the hands of commercial banks. Gradually, this interest would provide the main budgetary revenue, along with other economic rent income.
                            Michael


                        On 11/18/10 10:40 AM, "Richard Werner" < werner@... > wrote:


                         
                         
                           

                        Gang,
                         
                        I thought we had settled this issue a while ago. Below some old mails about this.
                         
                        Regards,
                        Richard


                         
                         
                         
                        ----- Original Message -----
                        From: Richard Werner <mailto:werner@...>  
                        To: gang8@yahoogroups.com <mailto:gang8@yahoogroups.com>
                        Sent: Tuesday, May 12, 2009 11:01 AM
                        Subject: RE: [gang8] debt-free money does not exist

                        Dear Gunnar,
                        Absolutely. However a tax receipt is not a liability to the government. It is evidence that tax payers’ liabilities have been paid.
                        Geoffrey is wondering about whether central bank money should be booked as gov’t liability. In my view this would be an accounting fiction that serves to misguide, just like the accounting fiction to record note issuance as a liability of the central bank. The central bank has no actual liability worth speaking of from note issuance. If one did not record it as liability, one would see that the balance sheet of a central bank is not like that of a corporation (it does not need to balance, for one), and that would help in making matters more transparent concerning the important topic of credit creation.
                        Regards,
                        Richard



                        From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Gunnar Tómasson
                        Sent: 11 May 2009 23:27
                        To: gang8@yahoogroups.com
                        Subject: RE: [gang8] debt-free money does not exist




                        Dear Richard,
                        Convertible to gold at one time, convertible to tax receipt today.
                        Gunnar


                        size=3 width="100%" align=center tabIndex=-1>

                        From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Dr. Richard Werner
                        Sent: 11. maí 2009 16:13
                        To: gang8@yahoogroups.com
                        Subject: RE: [gang8] debt-free money does not exist





                        Dear Geoffrey,
                        It’s not a liability to anyone, least of all the government. It was a liability when they were convertible to gold…
                        Regards,
                        Richard



                        From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com] On Behalf Of Geoffrey Gardiner
                        Sent: Sunday, May 10, 2009 2:57 PM
                        To: gang8@yahoogroups.com
                        Subject: Re: [gang8] debt-free money does not exist






                        Are the liabilities of the Issue Department of the Bank of England treated as part of National Debt? I would include them.
                        The issue of banknotes has a limit, the demand for them, a very practical limit.
                        At the moment the Bank of England uses the proceeds of the note issue to lend to banks at usurious rates of interest, the instrument being reverse repos. The high rates of interest are possible because the banks are deliberately kept short of liquidity by the actions of the DMO. It is a clever stealth tax on banks.
                        Geoff
                        ----- Original Message -----
                        From: Dr. Richard Werner <mailto:werner@...>  
                        To: gang8@yahoogroups.com <mailto:gang8@yahoogroups.com> ; 'Greg Davies' <mailto:gdavies@...>  ; 'Eric Encina' <mailto:ericencina@...>
                        Sent: Saturday, April 11, 2009 12:59 AM
                        Subject: RE: [gang8] debt-free money does not exist
                        Dear Friends,

                        There may be talk at cross purposes.

                        Could it be that the social reformers are calling for - what I have also
                        called for - namely money that does not build up national debt, i.e.
                        government currency, such as the greenback etc., which is one way to ensure
                        that government/national debt does not grow as quickly as it does in our
                        system of private money creation (and a larger need for the government to
                        incur debt).

                        To call this 'debt free money' is imprecise, but may serve a PR purpose.

                        Regards,
                        Richard

                        -----Original Message-----
                        From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com> ] On Behalf Of Dirk
                        Bezemer
                        Sent: Thursday, April 09, 2009 12:35 PM
                        To: Greg Davies; Eric Encina; gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                        Subject: [gang8] debt-free money does not exist

                        dear Greg and Encina,

                        The Social Credit idea has been discussed at length at the Gang8 so it
                        would be unwise to replicate that. Please look in the archive for the
                        exchange of arguments.

                        Still - the basic argument, to me, is that money historically arose from
                        creditor-debtor relations, and that money is one form of debt. So
                        creating debt-free money is something like creating dry water. It cannot
                        be done. "Debt-ness" is a basic attribute of money just like wetness is
                        of water. Put another way: since money is claim on goods, it represent
                        claimant-claimee relations, or what is the same: creditor-debtor
                        relations. money= credit=debt.

                        This logic is really watertight. Still I understand the desire to create
                        debt-free money because all financial-system problems are in essence
                        debt problems. At first sight doing away with debt seems a solution. But
                        that is a baby-with-the-bathwater solution. It also does away with
                        money, which is a really useful invention! Better to manage debt-money
                        wisely. If water makes you wet, better to manage waterflows than to
                        spent your energy inventing dry water.

                        This is my logical and historical reason to believe that debt free money
                        creation is an impossibility.

                        best wishes,

                        Dirk

                        PS - here's an excerpt from a paper explaining this it some length.

                        2. All Money is Credit

                        Why are credit booms and busts so important to our economy?
                        Surprisingly, the answer to this question is centrally concerned with
                        accounting and auditing issues. This profound relation between core
                        accounting concepts and our very financial system (and therefore our
                        economy) may be usefully introduced from a historical vantage point. In
                        this section we briefly delve into the archeology of money - a field
                        that yields insights surprisingly relevant, as will be shown in the
                        remainder of the paper, to today's financial system and the state it is in.
                        A central conclusion in this field, corroborated by recent findings
                        (reported in e.g. Hudson and Van de Mieroop, 2002), is that all money is
                        credit. This proposition goes against a widely held belief, based on
                        textbook economics, that money historically emerged when some token
                        (e.g. shells or silver lumps) came to be used as a convenient unit of
                        account to replace the cruder barter trade; and that the use of credit
                        and debt was an optional extra, predicated on the prior existence of
                        money and conceptually quite separate from it. This convenient
                        pedagogical narrative has been taught since times immemorial - at least
                        since Aristotle, as Ingham (2004) recounts - but if assessed as actual
                        financial history, it is found to be devoid of historical or
                        ethnographic evidence to support it. There are reasons (some of them
                        reviewed by Wray, 1998) why it is nonetheless a popular and persistent
                        fable, but these are beyond the scope of the present paper.
                        Instead we consider recent evidence from the 'archeology of money' which
                        comprises research in archeology, anthropology and numismatics - see
                        e.g. Wray (1998, 2004), Ingham (2004), and Hudson and Van de Mieroop
                        (2002), building on early seminal contributions by Knapp ([1905] 1924)
                        and Mitchell Innes (1913, 1914) - in favour of the credit origin of
                        money. A major argument for this position is logical. It is that
                        specialization of labour - which characterized societies as early as the
                        Mesolithic age - must have implied credit relations. Specialization of
                        labour and the attendant exchange of goods (e.g. between hunters,
                        toolmakers and gatherers) requires a social mechanism to bridge the time
                        between delivery of the various goods. A hunter needs bow and arrow from
                        the toolmaker before he can hunt and deliver meat in return. In the
                        meantime, the hunter is a debtor as he owes the toolmaker, who is a
                        creditor. In societies also involving farmers, bakers, and so on, the
                        web of debtor-creditor relations quickly becomes complex. Such relations
                        would therefore have been recorded in some way. This is not just another
                        pedagogical narrative, or speculation on how things might have been.
                        Archeologists have found notched bones from Stone Age hunter-gatherer
                        societies, where the notches have been interpreted by scholars as
                        evidence of quite elaborate accounting systems (Gardiner, 2004).
                        Also highly developed ancient civilizations had credit-money, typically
                        linked to a centralized temple-state administration system. For
                        instance, from the temple ruins of the ancient Babylonian and Sumerian
                        civilisations (from 3,000 to 2,000 BC) have been recovered thousands of
                        clay tablets (called shubati, meaning 'received') which are receipts for
                        grain deliveries to the temple (in payment of taxes to the temple-state
                        elite). They record the sender's and receiver's names, the quantity, and
                        the date. In striking analogy to modern double-entry accounting methods,
                        many of these tablets were sealed in cases inscribed with the same
                        information. These tax receipts are the oldest IOUs we know of, and like
                        bills of exchange used in later times, these cases and their contents
                        were 'signed and sealed documents and passed from hand to hand' (Innes,
                        1914:35). When the debt described on the case was cleared, it was
                        broken. Archeologists have however recovered many such cases intact,
                        indicating that, just like the outstanding stock of money in our
                        economic system, their primary use had become to facilitate
                        transactions, not to settle debt. They were tradable and functioned as
                        means of payment, their value determined by the authorities by setting
                        tax levels. In short, these IOUs were money, long before coins were
                        introduced to Babylonia and Persia by Alexander the Great in 331 BC
                        ( Hudson , 2004).
                        So it was in Europe , where since the earliest times accounting tokens of
                        creditor-debtor relations were used as money, i.e. to settle
                        transactions of goods and services. In many ancient and mediaeval
                        European societies, the form this took was the square wooden stick with
                        notches, or tally (Wray 1998:41). It was created when a buyer became a
                        debtor to a seller. Both their names, with the date, were written on
                        opposite sides of the stick. Then the stick was split down the middle
                        but stopped about an inch from the base. Thus there were two smaller
                        sticks with equal numbers of notches, one (called the 'stock' and
                        retained by the creditor) longer than the other (the 'stub', held by the
                        debtor). Stock and stub could always be matched to ensure they has not
                        been tampered with, and to ascertain the debt to be paid. Again, it is
                        obvious that tallies, like Sumerian shubatis, were a form of
                        double-entry bookkeeping. And they likewise circulated as means of
                        payment. Innes (1913) recounts how well-known mediaeval fairs such as
                        St. Giles in Winchester or Champagne and Brie in France were primarily
                        clearing houses, were merchants came to clear their tally stocks and
                        stubs. If wooden tallies were used also in ancient times, they have not
                        been preserved. There is other evidence, however, that tallies in one
                        form or another were widespread throughout ancient and prehistoric
                        Europe . For instance, copper pieces purposely broken like jigsaw puzzle
                        pieces in analogy to stock and stub have been found in Italy , dating
                        from between 1000 and 2000 BC (Wray 1998). Again, there is no evidence
                        for the use of coins until centuries later. The conclusion is that
                        credit cannot have evolved from token money, because credit
                        chronologically preceded it. Historically, tax debts and trade debts
                        were monetized as debt tokens became transferrable and circulated as
                        medium of payment, ultimately in the form of coins, notes and electronic
                        bits.
                        In contemporary society, banks have replaced Babylonian temples and
                        medieval European merchant as the institutions authorized to issue
                        money. But they still essentially do what was always done and money
                        still is a category of credit. As they grant loans, banks create new
                        credit tokens (now electronic bits) in the form of bank deposits or
                        'liquid liabilities', which are transferable and widely accepted as
                        means of payment. 'Banks actually create money when they lend it' (FRBD,
                        2009). "What they do when they make loans is to accept promissory notes
                        in exchange for credits to the borrowers' transaction accounts. Loans
                        (assets) and deposits (liabilities) both rise by the amount of the loan"
                        (FRBC, 1992:3,6). This continuing reality of money emanating from the
                        credit creation process is also borne out by modern econometric
                        research. Caporale and Howells (2001) use UK data to show with
                        statistical causality tests in the context of a Vector Auto Regression
                        framework that loans precede and 'cause' deposits. Banks extend loans,
                        which give rise to bank deposits that are generally accepted as 'money'.

                        3. Credit Is Not All Money

                        While money is a category of credit linked to transactions in goods and
                        services, there are other categories also. Once debt tokens are
                        'monetized' - that is: circulate without direct link to a specific
                        transaction between two parties - it is possibly to create debt tokens
                        without the accompanying transactions in goods and services. Since the
                        growth of such liabilities is functionally separate from transactions of
                        goods and services in the real economy, this debt may take on its own
                        dynamic, growing out of proportion with the economy's ability to service
                        debt.
                        Historically, the canonical example of this development is the second
                        half of the 17th century when London 's goldsmith-bankers formed a system
                        of banking through mutual debt acceptance and interbanker clearing,
                        where promissory notes came to be used as paper money (e.g., Quinn
                        1997). But similar developments had occurred also in ancient societies
                        which already used monetized trade and tax debts as means of payments.
                        These economies therefore typically had in place social mechanisms to
                        periodically clear the debt overhead, such as 'clean slate' or 'jubilee'
                        debt cancellations in ancient Babylonian and Israelite societies,
                        respectively (for details, see Hudson and Van de Mieroop 2002).
                        Again, what was true in ancient societies is in essence still true in
                        ours (except for jubilees and clean slates). Only a minority share of
                        newly created 'tally sticks' (bank lending) is devoted to creating bank
                        deposits supporting transactions of goods and services. Most lending is
                        in support of financial investment, that is: the creation of, and trade
                        in, financial assets and instruments. Assets are not generally accepted
                        means of payment for goods and services, and so are not 'money'.
                        Therefore all money is bank credit, but not all bank credit is money -
                        most goes into financial investments.
                        The difference matters directly to our understanding of how banks have
                        performed in their role of 'social accountants', especially with respect
                        to the buildup of debt. The central principle in double-entry
                        bookkeeping - familiar to any fledgling student of accounting - is that
                        assets must equal liabilities. Each act of bank lending creates a
                        liability to some customer (a debt payable to the bank) and the
                        accompanying asset (the bank deposit, which is money). But the way in
                        which credit is used determines whether, on a society-wide level, there
                        will be net debt growth. If the loan is used for a self-amortizing
                        investment in fixed capital formation, this creates value-added in the
                        form of products and services that typically allows the debt to be paid
                        off. If, on the contrary, the loan is 'invested' in the financial
                        markets, this will push up the price of financial assets and creates
                        asset wealth for the owners. The assets may be traded many times by
                        'investors' who each took out a loan or drained liquidity from the real
                        sector in order to finance the purchase, and each time the asset may
                        increase in value - but the debt and/or drain from the real sector grows
                        in parallel. It can only be repaid by withdrawing from the financial
                        markets or from the real sector at least the liquidity equal to that
                        created by the total of the loans. This settles the debt, but also
                        deflates the price of the financial assets to at most their original value.
                        This brief narrative in essence is the story of an asset boom followed
                        by a debt deflation - the experience of industrialized countries since
                        the early 1980s. The two uses of credit broadly reflect, respectively,
                        real-sector investment typical of commercial banking on one hand, and
                        financial investment as done by, for instance, merchant banks and
                        securities traders on the other. The important point is that in terms of
                        liquidity growth, financial investment by itself is a zero-sum game.
                        Financial markets can only grow sustainably by absorbing liquidity
                        created in the real sector, which is based on self-amortizing loans.
                        Alternatively, they can grow unsustainably by simultaneously diverting
                        liquidity from the real sector and increasing indebtedness. This is
                        unsustainable as it must, with axiomatic certainty, at some point end.
                        Still, such (ultimately) unsustainable debt growth may be kept going
                        over decades by expanding the stock of financial assets and instruments
                        relative to the size of the economy. This has indeed been the general
                        trend in industrialized countries, especially since the 1980s, as we
                        explore in detail below for the case of the US . But there are two ways
                        in which these trends may be obscured.
                        First, what is clear on the macro level may not be obvious on the micro
                        level. In an asset price boom any single individual can borrow, purchase
                        assets, and sell them to pay off the debt with a profit left. No
                        personal debt remains, and the good news spreads. However, there is a
                        micro-macro paradox (or 'fallacy of composition') as on the macro,
                        society-wide level, there must be a growth in indebtedness of the
                        economy for assets to be traded at rising prices. This indebtedness
                        takes the form of both rising commitments for the real sector to finance
                        asset transaction out of wages and profit, and rising actual debt
                        levels. Despite appearances on the micro level, asset price booms are
                        accompanied by rising debt and by a slowdown in real-sector nominal
                        growth even as 'net worth' and income from assets may rise. We
                        illustrate this empirically below in a contemporary setting, but the
                        principle was noted long ago. John Stuart Mill (1848, ch 4 book 1)
                        already wrote that "[a]ll funds from which the possessor derives an
                        income, .. are to him equivalent to capital. But to transfer hastily and
                        inconsiderately to the general point of view, propositions which are
                        true of the individual, has been a source of innumerable errors in
                        political economy. In the present instance, that which is virtually
                        capital to the individual, is or is not capital to the nation, according
                        as the fund . has or has not been dissipated by somebody else". Funds
                        not used ("dissipated") in the real economy create income to their
                        owner, but not to the economy.
                        Second, it may be objected that because of the well-known macroeconomic
                        accounting equality "I = S" (where investment I must equal savings S)
                        there cannot be a net debt build-up. It will always be matched by
                        savings. But that is to misinterpret 'investment' as exclusively fixed
                        capital formation, while in reality most of it is financial-market
                        investment. Taking this into account does not undermine "I=S", but
                        modifies its interpretation. Real-sector investment (denoted IR) and
                        financial investments (denoted IF) make up total investment (denoted I)
                        so that I = IR + IF = S. With (as will be shown below) IF being vastly
                        greater than IR and debt growth equal to IF, it is obvious that a
                        society can grow into debt by directing its bank credit flows, and
                        thereby its savings, away from tangible capital formation and towards
                        financial market investment.

                        Davies wrote:
                        >> Dear Eric V. Encina, Filipino Monetary Reformer,
                        >> DEBT FREE MONEY CREATION does not exist. The economy has always been
                        >>
                        > debt- (and credit-) based. You are pursuing an >impossibility. But you
                        > are right that debt tends to be a problem. Monetary reform should focus
                        > on wisely managing debt. Attached a piece >that proposes this. best
                        > wishes, Dirk Bezemer
                        >
                        >
                        >
                        > *Please elaborate, either through logical arguments or explicit
                        > references to the literature, why debt free money creation is an
                        > impossibility. Your answer, as it stands, is wholly unsatisfactory.
                        >
                        >
                        >
                        > Regards,
                        >
                        >
                        >
                        > Greg Davies
                        >
                        > Pietermaritzburg , South Africa
                        >
                        >
                        >

                        ------------------------------------

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                      • G W Gardiner
                        Assuming they run them properly! British banks were under semi-state control from 1917 to 1939, and under total state control during the war. There were state
                        Message 13 of 15 , Dec 10, 2010
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                          Assuming they run them properly!
                           
                          British banks were under semi-state control from 1917 to 1939, and under total state control during the war. There were  state led attempts in the 1930s to get the banks to provide capital for industry and consumer finance but they were were pathetic. I am thinking of course of FFI, ICFC and UDT. And those organisations probably owed more to the personality of Montague Norman than to government officials. He may have had encouragement from Neville Chamberlain who was unusual for a Chancellor of the Exchequer in being a businessman. Unfortunately the expert on that era, Michael Moore, died in July so he is no longer around to do the research..
                           
                          In the 1950s commercial banks were encouraged to do ‘White Paper lending’, effectively that meant buy Gilts. My lazier colleagues were only too willing to oblige. Fortunately one was energetic and in 1966 introduced the credit card, to the extreme annoyance of the Treasury.
                           
                          The important thing is to have many banks, so an innovator can do the rounds until he finds someone who will back him. The best example of that I know was C. O. Stanley in 1929.
                           
                          An example of state folly was in the 1960s when the credit creation machine was focussed – by Harold Macmillan – totally on building houses when we should have been refurbishing the industrial infrastructure.
                           
                          Private banks often do things badly. State banks do nothing. ‘When in doubt, do something. There is a 50 per cent chance you will be right. Do nothing and there is a 100 per cent chance you will be wrong.’ The quote is from a man who was badly injured at the Second Battle of Alamein because his tank squadron commander was indecisive and the tanks sat around doing nothing while the German 88s took aim. He had a fabulous memory and could list at great length a huge number of examples of state investment that ended in tears, Brabazon being his favourite. I remember vividly his face when he read the headline about what became the Concorde project. Sadly he died in 1964 and never saw his prophecy come true.
                           
                          Geoff
                           
                           
                          Sent: Thursday, November 18, 2010 9:38 PM
                          Subject: RE: [gang8] Ellen Brown's article on money
                           
                           

                          The community benefits by owning the banks.


                          From: gang8@yahoogroups.com [mailto: gang8@yahoogroups.com ] On Behalf Of Michael Hudson
                          Sent: 18 November 2010 16:59
                          To: gang8@yahoogroups.com
                          Subject: Re: [gang8] Ellen Brown's article on money

                           

                          The issue at this point, Richard, is how the community can benefit from interest overhead, rather than leaving this in the hands of commercial banks. Gradually, this interest would provide the main budgetary revenue, along with other economic rent income.
                              Michael


                          On 11/18/10 10:40 AM, "Richard Werner" < werner@... > wrote:


                           
                           
                            

                          Gang,
                           
                          I thought we had settled this issue a while ago. Below some old mails about this.
                           
                          Regards,
                          Richard


                           
                           
                           
                          ----- Original Message -----
                          From: Richard Werner mailto:werner@... 
                          To: gang8@yahoogroups.com mailto:gang8@yahoogroups.com
                          Sent: Tuesday, May 12, 2009 11:01 AM
                          Subject: RE: [gang8] debt-free money does not exist

                          Dear Gunnar,
                          Absolutely. However a tax receipt is not a liability to the government. It is evidence that tax payers’ liabilities have been paid.
                          Geoffrey is wondering about whether central bank money should be booked as gov’t liability. In my view this would be an accounting fiction that serves to misguide, just like the accounting fiction to record note issuance as a liability of the central bank. The central bank has no actual liability worth speaking of from note issuance. If one did not record it as liability, one would see that the balance sheet of a central bank is not like that of a corporation (it does not need to balance, for one), and that would help in making matters more transparent concerning the important topic of credit creation.
                          Regards,
                          Richard



                          From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com%5d On Behalf Of Gunnar Tómasson
                          Sent: 11 May 2009 23:27
                          To: gang8@yahoogroups.com
                          Subject: RE: [gang8] debt-free money does not exist




                          Dear Richard,
                          Convertible to gold at one time, convertible to tax receipt today.
                          Gunnar


                          size=3 width="100%" align=center tabIndex=-1>

                          From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com%5d On Behalf Of Dr. Richard Werner
                          Sent: 11. maí 2009 16:13
                          To: gang8@yahoogroups.com
                          Subject: RE: [gang8] debt-free money does not exist





                          Dear Geoffrey,
                          It’s not a liability to anyone, least of all the government. It was a liability when they were convertible to gold…
                          Regards,
                          Richard



                          From: gang8@yahoogroups.com [mailto:gang8@yahoogroups.com%5d On Behalf Of Geoffrey Gardiner
                          Sent: Sunday, May 10, 2009 2:57 PM
                          To: gang8@yahoogroups.com
                          Subject: Re: [gang8] debt-free money does not exist






                          Are the liabilities of the Issue Department of the Bank of England treated as part of National Debt? I would include them.
                          The issue of banknotes has a limit, the demand for them, a very practical limit.
                          At the moment the Bank of England uses the proceeds of the note issue to lend to banks at usurious rates of interest, the instrument being reverse repos. The high rates of interest are possible because the banks are deliberately kept short of liquidity by the actions of the DMO. It is a clever stealth tax on banks.
                          Geoff
                          ----- Original Message -----
                          From: Dr. Richard Werner mailto:werner@... 
                          To: gang8@yahoogroups.com mailto:gang8@yahoogroups.com ; 'Greg Davies' mailto:gdavies@...  ; 'Eric Encina' mailto:ericencina@...
                          Sent: Saturday, April 11, 2009 12:59 AM
                          Subject: RE: [gang8] debt-free money does not exist
                          Dear Friends,

                          There may be talk at cross purposes.

                          Could it be that the social reformers are calling for - what I have also
                          called for - namely money that does not build up national debt, i.e.
                          government currency, such as the greenback etc., which is one way to ensure
                          that government/national debt does not grow as quickly as it does in our
                          system of private money creation (and a larger need for the government to
                          incur debt).

                          To call this 'debt free money' is imprecise, but may serve a PR purpose.

                          Regards,
                          Richard

                          -----Original Message-----
                          From: gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>  [mailto:gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com> ] On Behalf Of Dirk
                          Bezemer
                          Sent: Thursday, April 09, 2009 12:35 PM
                          To: Greg Davies; Eric Encina; gang8@yahoogroups.com <mailto:gang8%40yahoogroups.com>
                          Subject: [gang8] debt-free money does not exist

                          dear Greg and Encina,

                          The Social Credit idea has been discussed at length at the Gang8 so it
                          would be unwise to replicate that. Please look in the archive for the
                          exchange of arguments.

                          Still - the basic argument, to me, is that money historically arose from
                          creditor-debtor relations, and that money is one form of debt. So
                          creating debt-free money is something like creating dry water. It cannot
                          be done. "Debt-ness" is a basic attribute of money just like wetness is
                          of water. Put another way: since money is claim on goods, it represent
                          claimant-claimee relations, or what is the same: creditor-debtor
                          relations. money= credit=debt.

                          This logic is really watertight. Still I understand the desire to create
                          debt-free money because all financial-system problems are in essence
                          debt problems. At first sight doing away with debt seems a solution. But
                          that is a baby-with-the-bathwater solution. It also does away with
                          money, which is a really useful invention! Better to manage debt-money
                          wisely. If water makes you wet, better to manage waterflows than to
                          spent your energy inventing dry water.

                          This is my logical and historical reason to believe that debt free money
                          creation is an impossibility.

                          best wishes,

                          Dirk

                          PS - here's an excerpt from a paper explaining this it some length.

                          2. All Money is Credit

                          Why are credit booms and busts so important to our economy?
                          Surprisingly, the answer to this question is centrally concerned with
                          accounting and auditing issues. This profound relation between core
                          accounting concepts and our very financial system (and therefore our
                          economy) may be usefully introduced from a historical vantage point. In
                          this section we briefly delve into the archeology of money - a field
                          that yields insights surprisingly relevant, as will be shown in the
                          remainder of the paper, to today's financial system and the state it is in.
                          A central conclusion in this field, corroborated by recent findings
                          (reported in e.g. Hudson and Van de Mieroop, 2002), is that all money is
                          credit. This proposition goes against a widely held belief, based on
                          textbook economics, that money historically emerged when some token
                          (e.g. shells or silver lumps) came to be used as a convenient unit of
                          account to replace the cruder barter trade; and that the use of credit
                          and debt was an optional extra, predicated on the prior existence of
                          money and conceptually quite separate from it. This convenient
                          pedagogical narrative has been taught since times immemorial - at least
                          since Aristotle, as Ingham (2004) recounts - but if assessed as actual
                          financial history, it is found to be devoid of historical or
                          ethnographic evidence to support it. There are reasons (some of them
                          reviewed by Wray, 1998) why it is nonetheless a popular and persistent
                          fable, but these are beyond the scope of the present paper.
                          Instead we consider recent evidence from the 'archeology of money' which
                          comprises research in archeology, anthropology and numismatics - see
                          e.g. Wray (1998, 2004), Ingham (2004), and Hudson and Van de Mieroop
                          (2002), building on early seminal contributions by Knapp ([1905] 1924)
                          and Mitchell Innes (1913, 1914) - in favour of the credit origin of
                          money. A major argument for this position is logical. It is that
                          specialization of labour - which characterized societies as early as the
                          Mesolithic age - must have implied credit relations. Specialization of
                          labour and the attendant exchange of goods (e.g. between hunters,
                          toolmakers and gatherers) requires a social mechanism to bridge the time
                          between delivery of the various goods. A hunter needs bow and arrow from
                          the toolmaker before he can hunt and deliver meat in return. In the
                          meantime, the hunter is a debtor as he owes the toolmaker, who is a
                          creditor. In societies also involving farmers, bakers, and so on, the
                          web of debtor-creditor relations quickly becomes complex. Such relations
                          would therefore have been recorded in some way. This is not just another
                          pedagogical narrative, or speculation on how things might have been.
                          Archeologists have found notched bones from Stone Age hunter-gatherer
                          societies, where the notches have been interpreted by scholars as
                          evidence of quite elaborate accounting systems (Gardiner, 2004).
                          Also highly developed ancient civilizations had credit-money, typically
                          linked to a centralized temple-state administration system. For
                          instance, from the temple ruins of the ancient Babylonian and Sumerian
                          civilisations (from 3,000 to 2,000 BC) have been recovered thousands of
                          clay tablets (called shubati, meaning 'received') which are receipts for
                          grain deliveries to the temple (in payment of taxes to the temple-state
                          elite). They record the sender's and receiver's names, the quantity, and
                          the date. In striking analogy to modern double-entry accounting methods,
                          many of these tablets were sealed in cases inscribed with the same
                          information. These tax receipts are the oldest IOUs we know of, and like
                          bills of exchange used in later times, these cases and their contents
                          were 'signed and sealed documents and passed from hand to hand' (Innes,
                          1914:35). When the debt described on the case was cleared, it was
                          broken. Archeologists have however recovered many such cases intact,
                          indicating that, just like the outstanding stock of money in our
                          economic system, their primary use had become to facilitate
                          transactions, not to settle debt. They were tradable and functioned as
                          means of payment, their value determined by the authorities by setting
                          tax levels. In short, these IOUs were money, long before coins were
                          introduced to Babylonia and Persia by Alexander the Great in 331 BC
                          ( Hudson , 2004).
                          So it was in Europe , where since the earliest times accounting tokens of
                          creditor-debtor relations were used as money, i.e. to settle
                          transactions of goods and services. In many ancient and mediaeval
                          European societies, the form this took was the square wooden stick with
                          notches, or tally (Wray 1998:41). It was created when a buyer became a
                          debtor to a seller. Both their names, with the date, were written on
                          opposite sides of the stick. Then the stick was split down the middle
                          but stopped about an inch from the base. Thus there were two smaller
                          sticks with equal numbers of notches, one (called the 'stock' and
                          retained by the creditor) longer than the other (the 'stub', held by the
                          debtor). Stock and stub could always be matched to ensure they has not
                          been tampered with, and to ascertain the debt to be paid. Again, it is
                          obvious that tallies, like Sumerian shubatis, were a form of
                          double-entry bookkeeping. And they likewise circulated as means of
                          payment. Innes (1913) recounts how well-known mediaeval fairs such as
                          St. Giles in Winchester or Champagne and Brie in France were primarily
                          clearing houses, were merchants came to clear their tally stocks and
                          stubs. If wooden tallies were used also in ancient times, they have not
                          been preserved. There is other evidence, however, that tallies in one
                          form or another were widespread throughout ancient and prehistoric
                          Europe . For instance, copper pieces purposely broken like jigsaw puzzle
                          pieces in analogy to stock and stub have been found in Italy , dating
                          from between 1000 and 2000 BC (Wray 1998). Again, there is no evidence
                          for the use of coins until centuries later. The conclusion is that
                          credit cannot have evolved from token money, because credit
                          chronologically preceded it. Historically, tax debts and trade debts
                          were monetized as debt tokens became transferrable and circulated as
                          medium of payment, ultimately in the form of coins, notes and electronic
                          bits.
                          In contemporary society, banks have replaced Babylonian temples and
                          medieval European merchant as the institutions authorized to issue
                          money. But they still essentially do what was always done and money
                          still is a category of credit. As they grant loans, banks create new
                          credit tokens (now electronic bits) in the form of bank deposits or
                          'liquid liabilities', which are transferable and widely accepted as
                          means of payment. 'Banks actually create money when they lend it' (FRBD,
                          2009). "What they do when they make loans is to accept promissory notes
                          in exchange for credits to the borrowers' transaction accounts. Loans
                          (assets) and deposits (liabilities) both rise by the amount of the loan"
                          (FRBC, 1992:3,6). This continuing reality of money emanating from the
                          credit creation process is also borne out by modern econometric
                          research. Caporale and Howells (2001) use UK data to show with
                          statistical causality tests in the context of a Vector Auto Regression
                          framework that loans precede and 'cause' deposits. Banks extend loans,
                          which give rise to bank deposits that are generally accepted as 'money'.

                          3. Credit Is Not All Money

                          While money is a category of credit linked to transactions in goods and
                          services, there are other categories also. Once debt tokens are
                          'monetized' - that is: circulate without direct link to a specific
                          transaction between two parties - it is possibly to create debt tokens
                          without the accompanying transactions in goods and services. Since the
                          growth of such liabilities is functionally separate from transactions of
                          goods and services in the real economy, this debt may take on its own
                          dynamic, growing out of proportion with the economy's ability to service
                          debt.
                          Historically, the canonical example of this development is the second
                          half of the 17th century when London 's goldsmith-bankers formed a system
                          of banking through mutual debt acceptance and interbanker clearing,
                          where promissory notes came to be used as paper money (e.g., Quinn
                          1997). But similar developments had occurred also in ancient societies
                          which already used monetized trade and tax debts as means of payments.
                          These economies therefore typically had in place social mechanisms to
                          periodically clear the debt overhead, such as 'clean slate' or 'jubilee'
                          debt cancellations in ancient Babylonian and Israelite societies,
                          respectively (for details, see Hudson and Van de Mieroop 2002).
                          Again, what was true in ancient societies is in essence still true in
                          ours (except for jubilees and clean slates). Only a minority share of
                          newly created 'tally sticks' (bank lending) is devoted to creating bank
                          deposits supporting transactions of goods and services. Most lending is
                          in support of financial investment, that is: the creation of, and trade
                          in, financial assets and instruments. Assets are not generally accepted
                          means of payment for goods and services, and so are not 'money'.
                          Therefore all money is bank credit, but not all bank credit is money -
                          most goes into financial investments.
                          The difference matters directly to our understanding of how banks have
                          performed in their role of 'social accountants', especially with respect
                          to the buildup of debt. The central principle in double-entry
                          bookkeeping - familiar to any fledgling student of accounting - is that
                          assets must equal liabilities. Each act of bank lending creates a
                          liability to some customer (a debt payable to the bank) and the
                          accompanying asset (the bank deposit, which is money). But the way in
                          which credit is used determines whether, on a society-wide level, there
                          will be net debt growth. If the loan is used for a self-amortizing
                          investment in fixed capital formation, this creates value-added in the
                          form of products and services that typically allows the debt to be paid
                          off. If, on the contrary, the loan is 'invested' in the financial
                          markets, this will push up the price of financial assets and creates
                          asset wealth for the owners. The assets may be traded many times by
                          'investors' who each took out a loan or drained liquidity from the real
                          sector in order to finance the purchase, and each time the asset may
                          increase in value - but the debt and/or drain from the real sector grows
                          in parallel. It can only be repaid by withdrawing from the financial
                          markets or from the real sector at least the liquidity equal to that
                          created by the total of the loans. This settles the debt, but also
                          deflates the price of the financial assets to at most their original value.
                          This brief narrative in essence is the story of an asset boom followed
                          by a debt deflation - the experience of industrialized countries since
                          the early 1980s. The two uses of credit broadly reflect, respectively,
                          real-sector investment typical of commercial banking on one hand, and
                          financial investment as done by, for instance, merchant banks and
                          securities traders on the other. The important point is that in terms of
                          liquidity growth, financial investment by itself is a zero-sum game.
                          Financial markets can only grow sustainably by absorbing liquidity
                          created in the real sector, which is based on self-amortizing loans.
                          Alternatively, they can grow unsustainably by simultaneously diverting
                          liquidity from the real sector and increasing indebtedness. This is
                          unsustainable as it must, with axiomatic certainty, at some point end.
                          Still, such (ultimately) unsustainable debt growth may be kept going
                          over decades by expanding the stock of financial assets and instruments
                          relative to the size of the economy. This has indeed been the general
                          trend in industrialized countries, especially since the 1980s, as we
                          explore in detail below for the case of the US . But there are two ways
                          in which these trends may be obscured.
                          First, what is clear on the macro level may not be obvious on the micro
                          level. In an asset price boom any single individual can borrow, purchase
                          assets, and sell them to pay off the debt with a profit left. No
                          personal debt remains, and the good news spreads. However, there is a
                          micro-macro paradox (or 'fallacy of composition') as on the macro,
                          society-wide level, there must be a growth in indebtedness of the
                          economy for assets to be traded at rising prices. This indebtedness
                          takes the form of both rising commitments for the real sector to finance
                          asset transaction out of wages and profit, and rising actual debt
                          levels. Despite appearances on the micro level, asset price booms are
                          accompanied by rising debt and by a slowdown in real-sector nominal
                          growth even as 'net worth' and income from assets may rise. We
                          illustrate this empirically below in a contemporary setting, but the
                          principle was noted long ago. John Stuart Mill (1848, ch 4 book 1)
                          already wrote that "[a]ll funds from which the possessor derives an
                          income, .. are to him equivalent to capital. But to transfer hastily and
                          inconsiderately to the general point of view, propositions which are
                          true of the individual, has been a source of innumerable errors in
                          political economy. In the present instance, that which is virtually
                          capital to the individual, is or is not capital to the nation, according
                          as the fund . has or has not been dissipated by somebody else". Funds
                          not used ("dissipated") in the real economy create income to their
                          owner, but not to the economy.
                          Second, it may be objected that because of the well-known macroeconomic
                          accounting equality "I = S" (where investment I must equal savings S)
                          there cannot be a net debt build-up. It will always be matched by
                          savings. But that is to misinterpret 'investment' as exclusively fixed
                          capital formation, while in reality most of it is financial-market
                          investment. Taking this into account does not undermine "I=S", but
                          modifies its interpretation. Real-sector investment (denoted IR) and
                          financial investments (denoted IF) make up total investment (denoted I)
                          so that I = IR + IF = S. With (as will be shown below) IF being vastly
                          greater than IR and debt growth equal to IF, it is obvious that a
                          society can grow into debt by directing its bank credit flows, and
                          thereby its savings, away from tangible capital formation and towards
                          financial market investment.

                          Davies wrote:
                          >> Dear Eric V. Encina, Filipino Monetary Reformer,
                          >> DEBT FREE MONEY CREATION does not exist. The economy has always been
                          >>
                          > debt- (and credit-) based. You are pursuing an >impossibility. But you
                          > are right that debt tends to be a problem. Monetary reform should focus
                          > on wisely managing debt. Attached a piece >that proposes this. best
                          > wishes, Dirk Bezemer
                          >
                          >
                          >
                          > *Please elaborate, either through logical arguments or explicit
                          > references to the literature, why debt free money creation is an
                          > impossibility. Your answer, as it stands, is wholly unsatisfactory.
                          >
                          >
                          >
                          > Regards,
                          >
                          >
                          >
                          > Greg Davies
                          >
                          > Pietermaritzburg , South Africa
                          >
                          >
                          >

                          ------------------------------------

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