Deficit Owls | Every Financial Asset Is Somebody's Liability, Including "Money" @deficitowls5296 | Uploaded February 2017 | Updated October 2024, 5 hours ago.
Professor L. Randall Wray discussing the nature of money with Steve Grumbine of Real Progressives. Wray explains that all financial assets are somebody's liability. One person's IOU is always somebody else's asset, their wealth. This means that financial assets equal financial liabilities for the world as a whole, and on the consolidated "world balance sheet," all these financial claims would cancel out and you'd only be left with real wealth (cars, homes, factory equipment, etc).
These IOUs are transferable. If I hold Johnny's IOU, I can sell it to Jimmy, by trading him Johnny's IOU for, say, a sandwich, if Jimmy is willing to accept Johnny's IOU. Some IOUs are widely accepted, while some are not.
What determines if an IOU will be accepted? First, what does the IOU promise? Is it something that people want? If the IOU promises gold and people want gold, then this will increase acceptability. If you promise to accept your IOU back in payment, and people know they will need to make payments to you, then this will increase the acceptability of your IOUs. And second, how credible is this promise? If I promise to convert my IOUs into gold on demand but it's widely known that I have no gold, then these IOUs won't be very widely accepted.
The things we call "money," (such as currency, bank deposits, and central bank reserves) are no different. They are somebody's IOU, either the government, or your bank, or whatever. And there are promises associated with those IOUs. In the case of government money, the government promises to accept its IOUs back to settle payments to the government, like for taxes. In the case of bank money, the bank promises to accept its IOUs back to settle payments to the bank, and also promises to convert on demand into government money.
So we can see here why government money (government IOUs) are widely accepted. Because the government imposes a tax obligation on many of its citizens, and threatens a penalty for non-payment, this means that many citizens will need to make payments to the government. And the government only accepts its own IOUs for these payments. This ensures that government money will be widely accepted.
See the whole interview here: youtube.com/watch?v=-7StbLkjBQk
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Professor L. Randall Wray discussing the nature of money with Steve Grumbine of Real Progressives. Wray explains that all financial assets are somebody's liability. One person's IOU is always somebody else's asset, their wealth. This means that financial assets equal financial liabilities for the world as a whole, and on the consolidated "world balance sheet," all these financial claims would cancel out and you'd only be left with real wealth (cars, homes, factory equipment, etc).
These IOUs are transferable. If I hold Johnny's IOU, I can sell it to Jimmy, by trading him Johnny's IOU for, say, a sandwich, if Jimmy is willing to accept Johnny's IOU. Some IOUs are widely accepted, while some are not.
What determines if an IOU will be accepted? First, what does the IOU promise? Is it something that people want? If the IOU promises gold and people want gold, then this will increase acceptability. If you promise to accept your IOU back in payment, and people know they will need to make payments to you, then this will increase the acceptability of your IOUs. And second, how credible is this promise? If I promise to convert my IOUs into gold on demand but it's widely known that I have no gold, then these IOUs won't be very widely accepted.
The things we call "money," (such as currency, bank deposits, and central bank reserves) are no different. They are somebody's IOU, either the government, or your bank, or whatever. And there are promises associated with those IOUs. In the case of government money, the government promises to accept its IOUs back to settle payments to the government, like for taxes. In the case of bank money, the bank promises to accept its IOUs back to settle payments to the bank, and also promises to convert on demand into government money.
So we can see here why government money (government IOUs) are widely accepted. Because the government imposes a tax obligation on many of its citizens, and threatens a penalty for non-payment, this means that many citizens will need to make payments to the government. And the government only accepts its own IOUs for these payments. This ensures that government money will be widely accepted.
See the whole interview here: youtube.com/watch?v=-7StbLkjBQk
See what else Real Progressives is up to here: facebook.com/RealProgressive
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
And follow our sister page, Modern Money Memes:
facebook.com/ModernMoneyMeme
twitter.com/ModernMoneyMeme
