Money as debt (please watch x 100)

[jon galt]

Every "loan" from the banking system starts as a promise to pay. They monetize these promises.

but the bank can still back the loan. like if every one withdrew their deposits the bank would run out of liquid cash before being able to pay them all but would still have enough investments and assets, ie property to back the depositors. it is probably easier to view banking as wealth lending as opposed to money. or even though the governments bailed out the banks, they exchanged the money for shares in the banks. the banks make profit also what is reinvested in the business either in shares in other companies (even other banks hypothetically), property or foreign currencies and even gold (which is pretty clever, the more banks increase their stocks of gold, the less in circulation and the higher the price rises)

[mpe_solution]

From: Mark-Lee of the Giles family

20 April 2011

Dear Bank of England,

We have been reviewing the http://www.whatdotheyknow.com/ and a
request by Ms Karen Lucas, 22 February 2011,
http://www.whatdotheyknow.com/request/in...

This has brought much debate in our online forums @
http://www.endtheboe.ning.com/
http://www.endtheecb.ning.com/
http://www.endthefedusa.ning.com/

In this case we have seen varied responses and have sort
independent advise from a gentlemen by the name of Mike Montagne —
founder, PEOPLE For Mathematically Perfected Economy™,
author/engineer of mathematically perfected economy™ (1979) who has
kindly advised that the worlds economies are finite and that
regulation in the UK by the FSA & MPC can only temper an inherently
terminal process.

So our questions are as follows:

1) What lawful consideration do you claim the BoE gives up when it
creates money ?

2) How then does the bank (or does the bank) claim there is a debt
to the bank ?

3) What is the claim to interest then, when the bank can do no more
than absorb the costs of merely publishing evidence of our
promissory obligations *to each other* ?

4) How is it possible even to maintain a vital circulation without
accumulating inevitably terminal sums of debt ?

Please we do not require evasive in answering to *whether* money is
subject to interest in any regular conduit by which either the
government or the people can "borrow" "money" into circulation. Of
course currently we know well that there's no way we can acquire
"money" from "the bank" but by "borrowing" it (even as in the
beginning or its creation, it never existed before), and that of
course, "the borrowing" is currently subject to "interest."
Furthermore then, If the BoE claims (without demonstrating *how*)
that interest is charged to fight "inflation" (by which it means
*either* circulatory inflation, or [more likely,] *price
inflation*). But of course, if staving circulatory inflation were
the issue, it would just limit the amount of additional borrowing
(above what would only *maintain* the vital circulation).

On the other hand, if it were actually meaning to eradicate *the
additional costs* imposed upon "the economy" by *price
inflation*... then instead of imposing interest, they would
eradicate interest, because in multiplying the sum of
artificial/falsified indebtedness to the BoE, "interest" therefore
*is the cause* of price inflation, because in driving up the costs
of servicing debt, these costs, imposed upon industry, force
industry to raise its prices, merely to maintain vital margins of
solubility.

Please if you could answer the above four [4] questions ONLY points
by point.

Yours faithfully,
Mark-Lee of the Giles family

See the link for proof of the Bank of England's evasion of the questions. If they gave up lawful consideration, obviously they would show proof of it!

http://www.whatdotheyknow.com/reques...ncoming-169370

[aulus agerius]

Originally Posted by mpe_solution

See the link for proof of the Bank of England's evasion of the questions. If they gave up lawful consideration, obviously they would show proof of it!

http://www.whatdotheyknow.com/reques...ncoming-169370

Are you presenting this as proof that money is "loan into existence"? Because that appears to be a fact assumed in the the making of the FOI request.

As the What Do They Know mod points out, this is not the proper use of an FOI request. You are trying to engage in a debate with the Bank of England and ask them to present arguments. An FOI request is a request for documents or information which they already hold, not an excuse to make the Bank of England arguing against your own theories.

[mpe_solution]

Originally Posted by aulus agerius

Are you presenting this as proof that money is "loan into existence"? Because that appears to be a fact assumed in the the making of the FOI request.

As the What Do They Know mod points out, this is not the proper use of an FOI request. You are trying to engage in a debate with the Bank of England and ask them to present arguments. An FOI request is a request for documents or information which they already hold, not an excuse to make the Bank of England arguing against your own theories.

There is no debate. Either they can show proof of lawful consideration or they can't. Up to now they can't.

[aulus agerius]

Originally Posted by mpe_solution

There is no debate. Either they can show proof of lawful consideration or they can't. Up to now they can't.

It is unclear in what context you think they need to show "lawful consideration" or what you think "lawful consideration" is. In light of that it is totally unsurprising that the Bank of England haven't replied to your satisfaction. You are asking them (apparently) about the application of the doctrine of consideration (though it is unclear to what situation involving the Bank of England you think it applies). You are prompting them to argue against your assertion that there is no consideration.

Perhaps we should start at the beginning. Consideration is a principle of contract law. What contract do you think you (or someone else) has with the Bank of England?

[mpe_solution]

Just for the record this is the banks response to the four questions.

1. Money performs various functions that are of benefit to its users: it acts as a store of value, as a medium of exchange and as a common unit of account.

2./3. Assuming (based on the themes you raise in the paragraphs that follow your questions) that these two questions relate to the Bank of England's implementation of monetary policy, please see the explanation on our website at
http://www.bankofenqland.co.uk/marke...tarypolicv.htm and
www.bankofengland.co.uk/rnonetarvpolicv/how.htm

4. The effectiveness of money's functions, including as a medium of exchange, is maintained by the Bank of England carrying out its responsibilities for monetary and financial stability.

They're pretending to loan something they didn't have, and which certainly doesn't comprise a debt to the BoE, because they never gave up any consideration commensurable with the debt they therefore have falsified to the BoE.

[aulus agerius]

Originally Posted by mpe_solution

Just for the record this is the banks response to the four questions.

and...?

They're pretending to loan something they didn't have,

Where are they pretending that? The reply does not say that BOE "loans money into existence" that's your assumption. Which you still haven't proven.

and which certainly doesn't comprise a debt to the BoE,

When have you ever borrowed money from BoE? Does the BoE even lend money to individuals?

because they never gave up any consideration commensurable with the debt they therefore have falsified to the BoE.

Once again, what is the contract that you think has no consideration?
Why do think that consideration must be "commensurable"?

You know, I assumed that MPE, given its name, would turn out to actually involve some mathematics. Possibly even some economics. But it seems that these are the same old freeman/sovereign myths about banking I've heard before, with the same evidence: none.

[mpe_solution]

Ok aulus, how is money created?

[jon galt]

Basically the BOE has to buy financial assets, ie shares, to print more money, this is directly related to production/ industry growth, that said i suppose share prices could be based on bank profits from loans ie interest, it not interest/debt creating the money but economic growth. The wealth of a country is related to what it exports / imports. a loan is paid back by future earnings. if the borrower defalts the bank will make a lose (unless they sell the debt). a country that created money out of thin air, as you describe, would find no other countries are willing to accept its currency. Fe Scottish notes are not legal tender,ie not sterling even in Scotland, they are basically ious that the bank of england promises to redeem for sterling, if the BOE was not willing to accept them, it would have no value. The same as any currency must have value out side its own countries banks.

[jon galt]

Here a question, if banks just print money that is valuless and not backed by assets why the need for the bailouts, why not just print more. Obviously this would devalue the currency.

[aulus agerius]

Originally Posted by mpe_solution

Ok aulus, how is money created?

Simple: the central bank prints money. The central bank spends money (e.g. by buying assets). The money printed is now in circulation.
The claim that "banks create money by lending" seems to originate from confusion between the economic and the legalistic view of money:

Say that the central bank sets reserve requirements at 20%. It prints $100 and deposits that $100 at a commercial bank. The commercial bank keeps $20 because it has to - because that is the reserve requirement. The commercial bank lends $80 to another bank. Now, if you think of money in a legalistic way - as cash that you can spend immediately - there is still only $100: the first commercial bank has $20 and the second bank has $80. The first commercial bank has an obligation to repay the central bank $100 on demand, which in a legalistic view is not "money" it is a contractual obligation.

Mainstream economists look at this differently. They think that all $100 of the original deposit is still money and the $80 of the loan is also money. They regarded the $20 actually kept in reserve by the commercial bank as part of the $100 deposit. So, from the economists' point of view, the central bank has created $180, by printing $100 and setting the reserve rate at 20%. On this view, the process of deposit, reserve and lending creates additional money, but relies on the assumption that a when you deposit money in a bank you still 'own' that money. This, I suppose, is useful in economic theory because in practice people act as though demand deposits are their money, rather than a debt owed them by the bank. Unless there is a run on the bank the difference in economic terms is largely unimportant.

You will also notice that, even if you follow the economic theory, the creation of money is still controlled and initiated by the central bank - by the amount of money printed and the reserve rate.

Now, how about that proof of money being loaned into existence?

[mpe_solution]

Originally Posted by jon galt

Basically the BOE has to buy financial assets, ie shares, to print more money, this is directly related to production/ industry growth, that said i suppose share prices could be based on bank profits from loans ie interest, it not interest/debt creating the money but economic growth. The wealth of a country is related to what it exports / imports. a loan is paid back by future earnings. if the borrower defalts the bank will make a lose (unless they sell the debt). a country that created money out of thin air, as you describe, would find no other countries are willing to accept its currency. Fe Scottish notes are not legal tender,ie not sterling even in Scotland, they are basically ious that the bank of england promises to redeem for sterling, if the BOE was not willing to accept them, it would have no value. The same as any currency must have value out side its own countries banks.

When did I say they are creating money out of thin air?

[jon galt]

Originally Posted by mpe_solution

When did I say they are creating money out of thin air?

sorry my mistake, i thought that was implied by money being created by the agreement to pay.

[mpe_solution]

Originally Posted by aulus agerius

Simple: the central bank prints money. The central bank spends money (e.g. by buying assets). The money printed is now in circulation.
The claim that "banks create money by lending" seems to originate from confusion between the economic and the legalistic view of money:

Say that the central bank sets reserve requirements at 20%. It prints $100 and deposits that $100 at a commercial bank. The commercial bank keeps $20 because it has to - because that is the reserve requirement. The commercial bank lends $80 to another bank. Now, if you think of money in a legalistic way - as cash that you can spend immediately - there is still only $100: the first commercial bank has $20 and the second bank has $80. The first commercial bank has an obligation to repay the central bank $100 on demand, which in a legalistic view is not "money" it is a contractual obligation.

Mainstream economists look at this differently. They think that all $100 of the original deposit is still money and the $80 of the loan is also money. They regarded the $20 actually kept in reserve by the commercial bank as part of the $100 deposit. So, from the economists' point of view, the central bank has created $180, by printing $100 and setting the reserve rate at 20%. On this view, the process of deposit, reserve and lending creates additional money, but relies on the assumption that a when you deposit money in a bank you still 'own' that money. This, I suppose, is useful in economic theory because in practice people act as though demand deposits are their money, rather than a debt owed them by the bank. Unless there is a run on the bank the difference in economic terms is largely unimportant.

You will also notice that, even if you follow the economic theory, the creation of money is still controlled and initiated by the central bank - by the amount of money printed and the reserve rate.

Now, how about that proof of money being loaned into existence?

So are you saying the BofE creates money to buy assets?
What lawful consideration do they give up for the assets?
Usually these assets are govt bonds, right? So they give up no consideration and falsify the debts to themselves.

[mpe_solution]

Originally Posted by jon galt

sorry my mistake, i thought that was implied by money being created by the agreement to pay.

When money is created as a promise to pay and is backed by underlying property, it isn't out of thin air. There is something backing it.

[jon galt]

Originally Posted by mpe_solution

So are you saying the BofE creates money to buy assets?
What lawful consideration do they give up for the assets?
Usually these assets are govt bonds, right? So they give up no consideration and falsify the debts to themselves.

by buying assets it creates money.

When money is created as a promise to pay and is backed by underlying property, it isn't out of thin air. There is something backing it.

the bank all ready has the asset then, ie can repossess the property the promise to pay has created nothing, ie a promise with out the asset would not get the loan. if this really was how banks make money they would be giving loans to every one regardless if they could pay or not

[mpe_solution]

Originally Posted by jon galt

by buying assets it creates money.



the bank all ready has the asset then, ie can repossess the property the promise to pay has created nothing, ie a promise with out the asset would not get the loan. if this really was how banks make money they would be giving loans to every one regardless if they could pay or not

Yes the bank launders the asset to themselves. Well, isn't that what happened with the housing/mortgage crises?

[aulus agerius]

Originally Posted by mpe_solution

So are you saying the BofE creates money to buy assets?
What lawful consideration do they give up for the assets?
Usually these assets are govt bonds, right? So they give up no consideration and falsify the debts to themselves.

Once again, why this concern about consideration? These are transactions between the central bank and the government or commercial banks, which do not concern you. You are not a party. You have no privity of contract and therefore no standing to complain about the lack of consideration you seem to think exists.

What you think "lawful consideration" is? The bank prints money, the bank spends the money. The consideration is the money that the bank just printed. You might complain that it can't have value if the bank has just printed it, but that is irrelevant. The printed money is clearly consideration: its money, accepted throughout the country and quite a few places abroad as a medium of exchange.

Still not clear how all this related to proof that money is "loaned into existence" or that your MPE theory?

Yes the bank launders the asset to themselves. Well, isn't that what happened with the housing/mortgage crises?

Not remotely.

The sub-prime crisis involve securitization and had little to do with the central bank (save that the central banks failed to supervise the private banks properly). Securitization is works like this: A (and many others) gets a mortgage loan from B. B sells A's promise to repay and the security over the mortgage property to C. C is a company which buys loads of these mortgages. C sells a right to various slices of the repayments from the mortgages to investors (Ds). These slices aren't the right to repayments on an individual mortgage, but slices of the whole pool of mortgages. Further, not all slices are equal. You imagine a cake divided into tiers. Ds who by slices of the top tier get to eat first: they are the last to loose money if mortgages in the pool default. Ds who have silces of the bottom tier are the first to loose out: when mortgages default they're the first to loose out.
That mortgage-cake is called a CDO. Now, all the Ds think that the top tier of the cake is great and the lower tiers are rubbish: so they pay more for the top tiers and less for the lower ones. Companies like C, which makes these mortgage-cakes, they know this. Some has a brilliant idea: they take the cheap slices from the lower tiers of a bunch of mortgage cakes and turn them into a new mortgage-cake. Now they call sell the top tiers of this new mortgage-cake to Ds - which increases their profits: some of those bottom tier slices have magically been turned into top tier slices.

The sub-prime crisis ocurred when more mortgages than people expected started to default. Ds started to find out that some of the cake they had bought was really bottom tier cake and suddenly mortgage cake started to look like a bad investment. Its value dropped. Because no one was really sure how much or what kind of mortgage cake each bank or investor had bought, everyone got worried that everyone else was going to be in financial trouble. The banks stopped lending money to one another because each thought the others might not pay it back... and that's the start of a financial crisis.

That is the simple explanation of the high finance end of this story.

The other end is the explanation of why more mortgages defaulted than were predicted. It started with B, the one who first lent out the money to A, who decided who to lend to and on what terms and at what rate of interest. In the past, B would have just lent money to A and earned a living off A's repayments. Therefore B was terribly keen on only lending money to people who would pay it back. Under the securitization model, B makes money selling mortgages to C. B doesn't really care if those mortgages are paid back or not, so long as C will buy them. So B lends as much to as many people as B can, within the limits of what C is willing to buy. Because C is interested in huge pools of mortgages, C doesn't mind having some defaults, so long as the interest rates on other mortgages make up for this.

The practical result of this influences on people like B was that, starting in about 2000, more and more "alternative" mortgages were made. Mortgages with variable rates of interest. Mortgages with teaser rates. Mortgages made without proof of the borrowers' income.

Damnit I want cake now.

[mpe_solution]

Aulus, any British citizen that pays taxes to cover the interest on the debt is a party. The government represents the people so any fraud committed against the government is also against the people.

I can give you MPE theory but if you feel believe that the current system is just, what's the point in giving you an alternative to solve problems you don't even realize exist?

[aulus agerius]

Originally Posted by mpe_solution

Aulus, any British citizen that pays taxes to cover the interest on the debt is a party. The government represents the people so any fraud committed against the government is also against the people.

So, no answers on the consideration question then.
Taxes are not a matter of contract. You are not a party to any of the asset purchasing involved in money creation by the central bank, any more than you are a party to home office purchases of stationary.
I don't think that you understand the requirement for consideration in contracts or the the role that consideration plays in contract law. I'm mystified about why you raised it, given that your theory is supposed to be about economics.

I can give you MPE theory but if you feel believe that the current system is just, what's the point in giving you an alternative to solve problems you don't even realize exist?

Do I believe in the current system? I believe that it exists. Do I believe that it's perfect. Of course not (see above explanation of the sub-prime crisis - in system functioning properly that would not have happened).

Really what you've said so far hasn't been very convincing, particularly your attempts to criticise the present system by reference to a legal doctrine you appear not to understand. The MPE theory as you presented it upthread has a number of flaws, which I pointed out.

On balance it's hard to see how MPE is an improvement, since it seems to involve a good deal more state intervention in everyday transactions than the present system and a substantial curtailment of the availability of consumer credit.