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The intellectual resources of

Gang 8

includes some first class brains, including Professor Michael Hudson, often quoted here; an ex IMF economist, Gunnar Tomasson; Dr Richard Werner, an economist with particular understanding of Japan; and IMHO the guy who knows more about banking than anyone - the formidable Geoffrey Gardiner.

This exchange is salutary.


Arno: One could also ask a question regarding inflationary effects of (government) printing that much fresh money..


Geoffrey: No, this comment is silly. The credit creation (new) is to compensate for the money being destroyed by bad debts. The manoeuvre is not pro-inflationary but anti-deflationary.

My highlights, and indeed what I have been saying for some time.

...shades of Captain Mainwaring and Corporal Pike of

Dad's Army

in the exchange....

I agree with much of Gang 8's "Creditary Economics" analysis, but I question their assumption that Money actually is Credit.

In my view, while it is possible to monetise credit - and indeed the monetisation of interest bearing debt is at the heart of our problems - credit is, rather, only a necessary part of a monetary system.

In particular, Gang 8 assumes that "Equity" - in the form of shares in a Joint Stock limited Liability Corporation - may also be defined as "Credit" because in accounting terms it is on the same (Credit) side of the balance sheet.

My view of this assumption is that Equity and Debt are qualitatively different, since Equity is not time limited - ie does not incorporate an obligation to repay - and Debt/Credit is.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:03:48 AM EST
[ Parent ]
ChrisCook:
Geoffrey: No, this comment is silly. The credit creation (new) is to compensate for the money being destroyed by bad debts. The manoeuvre is not pro-inflationary but anti-deflationary.

This is based on the bizarre steam-economy view that money is a quasi-physical substance which can be created and destroyed, and that conservation laws apply.

Money is tangible (well - quasi-tangible) confidence and faith. Printing more money actually destroys confidence. So does giving credit to people who can't repay loans - by definition.

Although there's a lot of accounting to sort through, nothing much is going to improve until toxic relationships are flushed through the system and replaced with trustworthy relationships which are plausible and convincing.

A financial culture baseed on ripping off everyone in sight with no thought of future consequences is even more corrosive than inflation is.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Sep 18th, 2008 at 05:44:04 AM EST
[ Parent ]
Excellent point. The cost is not an inflationary impact of money created to make up for fictitious assets, the cost is the ongoing systemic risk of restoring rather than winding back an over-exposed position for the financial sector of the US economy.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Sep 18th, 2008 at 07:26:31 AM EST
[ Parent ]

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