Thread by @clintballinger

IN DEMOCRACIES, the non-government has its government impose a liability on the non-government and then extend credit for that liability in exchange for goods and services. 1/n

The credits are used by the non-government to extinguish the imposed liability. The system this creates is useful for the non-government, and thus its ongoing existence is maintained by ongoing imposed liabilities. 2/n

Currency issuing states spend by crediting accounts and tax by debiting accounts. If they credit more than they debit, then there is a remainder of credits held by non-government. Credits spent by gov = Debits from non-gov + Credits saved by non-gov. 3/

Any institution can be be appointed to credit/debit & record these for the state. It makes no difference which. Any such institution is an agent of the state. A single agent can easily credit/debit/record everything needed. For clarity this should be done by a single agent. 4/

Government spending leaves non-government recipients w larger (or new) bank-credit accounts (asset), banks w a matching increase in govrnmnt credits (asset) & an equal promise to settle for the customer for that amount (liability), & the govrnmnt w a matching liability entry. 5/

The liability entry for the government is unlike any other; not like a household, business, nor personal liability. Why?... 6/

...Because sovereign states, uniquely, impose the very liability that the public's credits are good for, as well as creating the credits.
Outstanding “liability-credits” technically are a state "liability" but only for what the issuer itself imposes, in the amount it decides. 7/

Re: bank accounts. The word “deposit” suggests that something is actually “held.” Yet bank accounts are merely accounting statements of a bank’s liability to a customer. They're not a bailment where a customer’s financial assets are held. 8/

Banks can create or increase bank-credit accounts on their own, without receiving government spending. By creating loans, which in turn create deposits. They do not rely on obtaining "loanable funds;" they do not hold or lend-on deposits. 9/

Crucially, this means increasing the government credits banks hold (in exchange for other financial assets, e.g.,"QE") does not increase their lending to the public; they lend based on demand & creditworthiness. 10/

Bank lending creates a new or larger bank-credit account (asset to the customer, liability to the bank) and promissory note (liability to the customer, asset to the bank). 11/

Banks obtain vault cash (asset) by having their government credits debited. Bank customers can withdraw cash from a bank. This decreases bank/increases customer's cash holding, i.e., physical notes of government credits (asset) & reduces their bank-credit by the same amount. 12/

This is irrelevant regarding gov credits held by non-gov.
The bank-credit operations mentioned before, both from gov spending & bank loans, are the basis for the monetary system. 13/

BANK ACCOUNT holders who acquire large bank-credit accounts often prefer to directly save government credits with the government. For this to occur system-wide, the government must debit less than it credits. 14/

This leaves the non-government with saved government credits (asset) available for extinguishing future government taxes (future debits), and the government with a liability against future credits (for its own imposed liability, so an utterly unique "liability"). 15/

In current systems, the gov only allows direct saving of gov credits above in accounts labeled as public loans/gov promissory notes. Spending=taxed credits+saved credits by necessity, and a common assumption is that any outstanding credits after taxes must have been borrowed. 16/

For historical yet now obsolete reasons many believe that for a currency-issuing state to credit more than it debits, it must somehow borrow. However, this is not possible...17/

If the government creates a negotiable promissory note for government-credits for the non-government (credit for the non-government) in exchange for equal government credits from the non-government (debit for the non-government), nothing's changed. Might as well direct spend 18/

Nevertheless, current systems do have the pointless transaction above, & again for obsolete reasons (& newly invented ones, addressed below) they pay savers to hold the "promissory note" (despite it being just another version of gov credits). 19/

The accounting= that the non-government holds same amount of government credits as if directly saved credits, but w the gov voluntarily paying savers.
With direct spending, if the public wants its government to pay savers, it still can, although there is no reason to do so. 20/

(The payments are vestigial from when pre- currency-issuing states offered interest on promissory notes for loans from other currency systems).
Also w direct spend, if the public wants it's gov to intervene in interest rates, it can. This is likely net-harmful. 21/

Interest rate fetish: Dogma that rates are the useful levers for the economy. Evidence is that they have perverse effects (relative to intention).
There are more direct & effective means to actually achieve what interest rates are imagined to achieve. 22/

THE UPSHOT: There is an overwhelming yet incorrect belief that somehow the number the government records for the non-government's savings of credits is a problem. This greatly (above almost all else) affects how the public's representatives act. 23/

This fear results in failure to organize potential public projects that would mobilize idle resources & raise overall wellbeing. Not doing so= a permanent reduction in wellbeing now.... 24/

...& in the future (foregone investment now in education, pure research, health, benefits from infrastructure on the economy now...all are irretrievably lost). 25/

The state can credit accounts for goods and services up to the real limits of the economy without decreasing the value of the credits. 26/

The needless complexity that arises from the vestigial existence of 2 spending-related government-agents/practice of creating promissory notes is vastly compounded still further by beliefs that lead to even more superfluous/harmful actions... 27/

These include unexamined assumptions that government securities transactions & changing the interest rates on saved government credit units are useful actions. 28/

..when in fact there are perverse effects from short-term interest rate intervention, irrelevance of yield curve management if no securities, QE illogical because "loanable funds" belief false...29/

MORE HARMFUL even than perverse effects, these additional actions make the system so incredibly complex there is almost no agreement even by “experts” on the most basic dynamics of the resulting system...30/

..and they dupe the media/public/pols/economists into believing "serious people" are doing useful things.
There is little hope for the general public & its representatives to use the existing system in an optimum way. 31/

Educating the public on how the current system could be better used "as is" is a difficult task. It may prove easier to take the final rational steps in the long evolution of currency systems,... 32/

...making the true underlying accounting transparent & understandable by the public & its representatives. 33/

A single agent can credit and debit, and record savings; this would make obvious the lack of need for—& harm done by—the Rube Goldberg additions & "monetary policy" practices that only serve to obscure from the public the true organizational power of its monetary system. 34/fin

its^ gov (autocorrect can be annoying)

32/34 to 34/end

https://twitter.com/clintballinger/status/1423115082880462849?s=19