Perhaps we've simply been talking past each other. I've been trying to point out that just like the "elites" who own the banks you rant about that print money, so too can any average joe.
At first your responses denied that anything remotely like money was created by private IOUs. You denied that money was created when the example was an Island without a legal currency. Thats why I could not understand your obtuseness. You kept claiming no money was created, and specifically said that reciprical IOUs issued on my island (which lacked legal tender laws) cancelled out and didn't amount to money.
I was never trying to claim that private IOUs in the USA are legal tender, or that they are anywhere remotely as useful in the USA.
In the town I live in, I can't take gold or silver nuggets, gold or silver bars, or even gold or silver coins, or private IOUs, or even foreign currency from any other country to 99+% of places of commerce and use them for payment. In fact, I don't think my local bank even does foreign currency conversion, and I don't think they will exchange gold or silver coins, let along try and deal with gold or silver bars. But I can use all of the above to pay ANYTHING including my mortgage by a two step process because all of the above can function as money due to a market existing for them. The two step process involves finding someone who will do the currency conversion from the starting currency (Euros, Krugerands, gold bars, private IOUs) into the locally accepted legal tender.
My interest in the subject is focused on the effect that private issuance of money through debt has, if the effect becomes widespread. I think it is inflationary, just like too much issuance of legal tender, because the IOUs are pegged to the legal tender, i.e. they are written for a specific amount of the legal tender. I'm contrasting that with what might happen if a large supply of gold is discovered. If the legal tender is pegged to gold, i.e. the price of gold is fixed, then a new large supply of gold would be inflationary (do you agree?) If on the otherhand the legal tender is not pegged to gold, then a new large supply of gold will simply decrease the value of gold, and should not result in inflation (do you agree?)
But what is the case if a large amount of private IOUs are minted? Since the IOUs are pegged to the legal tender in general, I think it will be inflationary. But that will depend somewhat on the velocity of the IOUs in their 2'ndary market perhaps. If the velocity is zero, i.e. only the original recipient holds the note, can it still be inflationary. I'd think so, simply because if lots of people start buying RE, by simply writing IOUs, it does drive up demand for housing which will drive up prices. One could get an RE bubble fueled partly or largely by speculation funded from private debt. In fact, this happened somewhat during the bubble and I've observed it first hand. A relative of mine (quite well off) sold his home near the peak of the RE bubble, to someone "moving up" whose cheaper home was not selling, by swapping the cheaper home (i.e. buying it) plus carrying some increment of the price difference (IOU of buyer to seller). The relative is still stuck with the other house, and the price has now fallen! Anyway, I'm pretty sure during the bubble that quite a few transactions were fueled in part by these private debt games. What fraction I don't know, but it did fuel inflation in housing. Even when the note velocity is low. If note velocity is higher because the 2'ndary market gets more active, than the inflationary effect should be higher(I think??)
Anyway, I think we have beaten this to death, and seem focused on different aspects of what money is. |
