Re: General Theory Seminar--Moore (reply to Mosler)

[Warren Mosler <mosler@xxxxxxxx>]

mike sproul wrote:

> Warren:
>
> > Tsy secs are an 'account' at the Federal Reserve Bank as are reserves
> > (clearing balances).  The difference is that Tsy secs offer an interest rate
> > and have a
> > maturity.  This is functionally the same as a commercial bank offering
> > checking accounts and savings account.  Note that as it 'offsets operating
> > factors'
> > the Fed is offering interest bearing accounts (tsy secs) as an alternative
> > to non interest bearing deposits (reserves).
>
> >The word "functionally" is a great peacemaker here, since to an accountant a T-security is not the same thing as money at all. Treasury securities are an ASSET to the fed and (fed-issued) money is its LIABILITY.

Yes, if you have both tsy secs and bank cd's in your portfolio, your accountant will call both of them assets.
And both are also accounted for as liabilities of the issuer on the issuer's books.  And both issuers
are called 'banks.'

> If we view money as being backed,

What does 'backed' mean with a floating exchange rate/ non convertible currency?
Doesn't 'backing' imply convertibility at 'fixed terms' by the issuer?

> then money issued by the fed has value because of the backing (t-securities, gold, etc.) held by the fed.

Gold?  Yes, there is gold, but there is no conversion feature to the $US.   And let's look closely at
the 'money.'  Reserves and Tsy secs are accounts at the Federal reserve bank.  Checking accounts
and certificates of deposit are accounts at commercial banks.   As a point of logic, being able to exchange one account for another account has value only if at least one of those accounts has further value?

But I suppose we are too far apart on this issue to really connect. Just to clarify my original assertion: Money issued by the fed has value because of the backing held by the fed.

This would be true if there was legal convertibility at the fed- that is, backed by something with intrinsic value.

Derivative money issued by private banks  (and individuals) has value because of the backing (mortgages, cash, etc.) held by those banks.

Or federal deposit insurance.  But again, only if there is some further value to the unit of account.

This at least agrees with your statement that the quantity of (base plus derivative) money does not affect its value.
Not exactly my statement.

> > The issuer of the currency (government) is the single supplier of that which
> > it demands for payment of taxes and other debts to the government.  Single
> > suppliers are 'price setters.'
> >
> > >
> Are you actually saying that money has value because the government
> accepts it for taxes?

Yes.  With a floating exchange rate this is the case.

Best,

Warren


> Or was this just a careless statement?



>
>

>
> Best,
>
> Mike Sproul

--
Warren Mosler
Director of Economic Analysis
III Finance

http://www.warrenmosler.com