Samstag, 21. April 2012

Money As Debt

What is "cash” and where does it come from? Cash can be the familiar paper stuff, or it can be credit at the national central bank which banks use to settle accounts between banks. “Credit cash” at the central bank is always convertible to “paper cash” upon demand.

So, where does cash come from? Is it just printed by the government as we are shown on TV?

NO. Cash is created out of thin air by the central bank of the country (which is often privately owned). The central bank can just have it printed for the cost of printing, by the government or privately. The central bank then uses this cash it creates out of thin air to buy interest-bearing public debt in the form of government bonds.

Government debt is perpetual and thus interest paid on it is perpetual. Therefore a good definition of cash might be: evidence of public debt on which taxpayers will be paying interest forever.

So what is credit? Everything else that isn’t cash.

Take for example your bank account. Your bank account tells you how much cash the bank OWES you if you demand it. It isn’t cash itself. All those numbers in bank accounts are just “promises to pay cash”, nothing more than IOUs created by banks. However, we typically think of these bank IOUs, or “checkbook money” as “money”.


Friedrich hat gesagt…

Es muß noch nicht einmal mehr gedruckt werden. Eine kleine Eingabe im computer reicht. Oder glaubt hier jemand die 1 Billion die die EZB locker gemacht hat, wurde tatsächlich "gedruckt"?

Johanna hat gesagt…

Eine sehr interessant Darstellung, bezüglich "debt":

Es ist ein Fehler bei diesem Gadget aufgetreten.
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