Saturday, July 04, 2015

An Official Visit to Niceland

Two months ago I posted an explanation of money called "A Visit to Niceland" in which I described money as a form of IOU between people who are too polite to notice that they'll never actually be redeemed. I was going to revisit Niceland to make the connection between this network of IOUs and our actual monetary system, but I've found it to be unnecessary.

Last night I came across a couple of quarterly bulletins from the Bank of England explaining money in almost precisely the same way as I did. The difference is that rather than being a metaphor for the monetary system, they simply state outright that money is an IOU.

There are two publications, and I'm providing the links to the PDFs here, accompanied by videos thoughtfully produced by the Bank of England. Now, although the Bank of England is more forthcoming with this information than the Federal Reserve, the actual structure of these two banking systems is practically identical.

The first is "Money in the modern economy: an introduction" [PDF]. Make sure you click on and read the PDF, because it's far more informational than the video:

The second is called "Money Creation in the Modern Economy" [PDF]. Again, the PDF is vastly more informative than the video.

Now, here's a video explaining the way that Quantitative Easing works (in case you find the PDF to be tl;dr):

You'll note that there is an inflation rate. Prices rise because they're intended to. And here's a reminder of how inflation works, in case you have some fantasy that supply and demand are now out of the picture.

Now, all of the above is basically a re-statement, from official channels, of everything I said in "A Visit to Niceland". I post it both for the additional information, but as background for what I really want to say, which is continued in the my next post.

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