|
Post by oliver on Sept 19, 2017 6:49:14 GMT
I assume by 'assets on their balance sheet' you mean something like proprietary trading / active balance sheet expansion as above. Because apart from that, LETS obviously do have assets on the balance sheets. Namely the loans to the debtors. Careful, Oliver! The IOTs are a liability without simultaneously being an asset to anyone (yes, Nick Rowe's "red money" is back!). I only mentioned one relationship, namely that of debtors to the LETS system via their loans which are assets to the LETS and thus appear on the LHS of the LETS BS, similar to say accounts receivable.
Really, JP? That was the point I was trying to make.
|
|
|
Post by oliver on Sept 19, 2017 7:02:37 GMT
I see a firm's balance sheet as a type of allocation key. In the case of LETS, there is only one hierarchy, namely all mambers of the LETS, which is congruent on both sides of the balance sheet. So the left side depicts that which is owed by some members to every member. And the right side depicts that which is owed to some members by every member. Hence a very simple BS.
As soon as you add hierarchies of employees, stockholders, bondholders and other stakeholders, things get more complex which is reflected both in the activities and the BS of the respective (financial) firm.
|
|
|
Post by JP (admin) on Sept 19, 2017 14:02:19 GMT
Edit: I assume by 'assets on their balance sheet' you mean something like proprietary trading / active balance sheet expansion as above. Because apart from that, LETS obviously do have assets on the balance sheets. Namely the loans to the debtors. No, they don't have assets on their balance sheet. LETS only track loans that debtors in the system have received from creditors.
|
|
|
Post by oliver on Sept 19, 2017 14:19:48 GMT
Edit: I assume by 'assets on their balance sheet' you mean something like proprietary trading / active balance sheet expansion as above. Because apart from that, LETS obviously do have assets on the balance sheets. Namely the loans to the debtors. No, they don't have assets on their balance sheet. LETS only track loans that debtors in the system have received from creditors. I have to add at this point that I'm not familiar with LETS. But if it's true what you say, are you sure they have balance sheets at all? I.e. are they registered as corporations? Because if so, I say their closing accounts had better balance, unless your claim is that they're completely empty on both sides? Antti? (He's the accountant around here).
|
|
|
Post by oliver on Sept 19, 2017 18:05:48 GMT
Getting back to your point about whether the departure of a debtor to the system can be equated with a decline in supply vs. demand (which is indeed what I said in my post a couple of pages backt) before I bury it:
While the observation may not apply to each and every case and is purely hypothetical on that individual level, there is one constraint of the lifetime budget balance which Antti himself introduced that makes it statistically true at the aggregate level. Any debtor will have to supply more than he consumes during the course of his ordinary life for that constraint to hold. And that more is quantifiable, namely to the tune of his current net position vs. the system. Vice versa for creditors, of course. So the departure of a debtor decreases supply by that amount during that statistical time vs. the counterfactual.
Now the buts: Is the lifetime budget balance a necessary constraint? It seems pretty far from reality on the ground. Not that I'm sure about what to replace it with. The fact that banks are businesses may have something to do with it? And secondly, if lone debts are indeed written down, as in my cases 1 & 2, which is the norm, the law even, for any corporation such as a bank, does this not solve the problem one way or another?
Edit: furthermore, there is an assumption of full employment hidden in the equation, too. So in the end, an increase of demand vs. supply may actually not increase prices at all but rather lead to a better utilization of existing capacities. So, option 3 (or 4, rather) may actually be the better policy option.
|
|
|
Post by Antti Jokinen on Sept 19, 2017 19:36:30 GMT
No, they don't have assets on their balance sheet. LETS only track loans that debtors in the system have received from creditors. JP, what loans? Now you sound like a mainstream economist, who explains that a bank is keeping track of loans of coconuts from creditors to debtors. "Give and take" is closer to reality than "lend and borrow" -- don't you agree? Oliver, I thought we had had this discussion already. An IOT ("I owe them") is just like Nick's 'red money', and I agree with Nick that it's no one's asset. One gets rid of it by selling goods. There's no particular holder of that IOT who could call it his/its asset. It seems you agree, and that you only call it an asset in the sense that it's some kind of common asset, an asset to all members. That's sounds true enough. But I wouldn't call it an asset, because that word (in financial context) usually means that we can point to a specific owner of the asset. In this case, the One Bank would probably be considered the owner of the said asset. Which it isn't. Which is probably JP's point?
|
|
|
Post by JP (admin) on Sept 20, 2017 3:32:31 GMT
No, they don't have assets on their balance sheet. LETS only track loans that debtors in the system have received from creditors. I have to add at this point that I'm not familiar with LETS. But if it's true what you say, are you sure they have balance sheets at all? I.e. are they registered as corporations? Because if so, I say their closing accounts had better balance, unless your claim is that they're completely empty on both sides? Antti? (He's the accountant around here). Sorry, what I meant to say is that the LETS operator does not have anything on their balance sheet. They only monitor and track credits and debits. The LETS itself, the entire system of creditors and debtors, has assets and liabilities. (Note, I'm describing real world LETS which pop up from time to time.) Is a central banker like a LETS operator? If so, why does a LETS operator have such a sparse balance sheet whereas a central banker has a huge balance sheet?
|
|
|
Post by Antti Jokinen on Sept 20, 2017 6:47:13 GMT
Is a central banker like a LETS operator? If so, why does a LETS operator have such a sparse balance sheet whereas a central banker has a huge balance sheet? Good questions. Both do double-entry bookkeeping. If we take all the account balances from their (general) ledgers and place credit balances on the RHS of a vertical line and debit balances on the LHS of the same line, then we get something that resembles a balance sheet. We have created a report (balance sheet, too, is a report). In the LETS report we could name the LHS as liabilities (of members) and the RHS assets, or claims (of members). In the central bank report we are used to call the LHS assets (of the bank) and RHS liabilities (of the bank). If the central bank was like the LETS operator, then we could expect people to protest and say that the credit balances aren't really liabilities of the central bank -- that they are just called that due to some silly "accounting convention". They might also say that the debit balances on the LHS, what we could call 'overdrafts', are "liabilities to the accountholders but assets to no one" (see here and here). Does this ring any bells?
|
|
|
Post by oliver on Sept 20, 2017 11:04:48 GMT
Oliver, I thought we had had this discussion already. An IOT ("I owe them") is just like Nick's 'red money', and I agree with Nick that it's no one's asset. One gets rid of it by selling goods. There's no particular holder of that IOT who could call it his/its asset. It seems you agree, and that you only call it an asset in the sense that it's some kind of common asset, an asset to all members. That's sounds true enough. But I wouldn't call it an asset, because that word (in financial context) usually means that we can point to a specific owner of the asset. In this case, the One Bank would probably be considered the owner of the said asset. Which it isn't. Which is probably JP's point? You know I'm allergic to red money . And, regardless of the precise financial meaning of the term asset, there is more truth in saying it is an asset to some undefined group of people, or everyone, than to no one, I'd say.
|
|
|
Post by oliver on Sept 20, 2017 11:13:00 GMT
I have to add at this point that I'm not familiar with LETS. But if it's true what you say, are you sure they have balance sheets at all? I.e. are they registered as corporations? Because if so, I say their closing accounts had better balance, unless your claim is that they're completely empty on both sides? Antti? (He's the accountant around here). Sorry, what I meant to say is that the LETS operator does not have anything on their balance sheet. They only monitor and track credits and debits. The LETS itself, the entire system of creditors and debtors, has assets and liabilities. (Note, I'm describing real world LETS which pop up from time to time.) Is a central banker like a LETS operator? If so, why does a LETS operator have such a sparse balance sheet whereas a central banker has a huge balance sheet? OK, I thought as much. This seems to be symptomatic our whole discussion here. I think the burden of proof is on you, though, to prove that all the things the operators do with their companies' balance sheets represents the essence of money or whether it is 'merely' a managerial add-on (not saying it's not important). The real question is, why do LETS systems not systematically implode a day after inception? How can they exist? And is it not precisely this quality that all types of banks, whether LETS, commercial or central share and which lends their activity the quality we like to call money?
|
|
|
Post by JP (admin) on Sept 20, 2017 12:54:58 GMT
The real question is, why do LETS systems not systematically implode a day after inception? How can they exist? Real LETS are quite fragile and tend to decay and disappear. The problem LETS run into is that members, especially debtors, leave the system without making good on their debts, and large creditors will often not spend their balances. The traditional system works well, so there are few incentives to join a LETS. The only long-standing LETS I'm aware of is Switzerland's WIR.
|
|
|
Post by JP (admin) on Sept 20, 2017 13:07:32 GMT
Both do double-entry bookkeeping. If we take all the account balances from their (general) ledgers and place credit balances on the RHS of a vertical line and debit balances on the LHS of the same line, then we get something that resembles a balance sheet. We have created a report (balance sheet, too, is a report). In the LETS report we could name the LHS as liabilities (of members) and the RHS assets, or claims (of members). In the central bank report we are used to call the LHS assets (of the bank) and RHS liabilities (of the bank). If the central bank was like the LETS operator, then we could expect people to protest and say that the credit balances aren't really liabilities of the central bank -- that they are just called that due to some silly "accounting convention". They might also say that the debit balances on the LHS, what we could call 'overdrafts', are "liabilities to the accountholders but assets to no one" (see here and here). Does this ring any bells? Ok, that makes sense to me. Another question. The conventional view (i.e. IOU, not TOM) is that central banks have assets and liabilities, and they conduct monetary policy by altering quantities in each column, either purchasing assets with new reserves or selling the assets they already own in order to cancel reserves. Or adjusting the rate they pay on balances. I can't even begin to understand how monetary policy works in the system you describe. Since an abstract unit of account (skilo) is used, monetary policy is basically impotent. But ignoring that, how does monetary policy work in a LETS/One Bank world? What is being bought and sold?
|
|
|
Post by Antti Jokinen on Sept 20, 2017 16:35:39 GMT
JP, I've been there earlier. It took some brain gymnastics to manage to see all that from a new angle (and more than once did I question my mental health).
I think it's best not to talk about 'selling' and 'buying' in this context. Instead, we might want to talk about debts being taken off and onto the LETS ledger, i.e. changes of bookkeeper.
What might complicate this is that the LETS operators might not realize that they are actually LETS operators (yes, I refer now to actual central bankers), and so they might do some stuff that would make less sense to them had they understood that they are operating a LETS(-like) system. Well, that's quite bold a statement -- I think most of the stuff they do (~monetary policy) is warranted.
I'll get back to you later with a more detailed answer.
|
|
|
Post by Antti Jokinen on Sept 20, 2017 19:09:18 GMT
You know I'm allergic to red money . And, regardless of the precise financial meaning of the term asset, there is more truth in saying it is an asset to some undefined group of people, or everyone, than to no one, I'd say. Oliver, what if I put it like this: An IOT is not an asset to anyone. The IOTs are what makes the TOMs assets to their holders; or at least what makes the TOMs retain their relatively stable value (compare to hyperinflation where public IOTs are considered "empty promises"). One problem with calling an IOT 'an asset' is that we cannot point to any holder of the asset. Also, if we think of a hypothetical wind-up of the system (something I've earlier argued is expected to never happen), then the TOM-holders would be those who receive goods from the IOT-issuers, and it becomes evident that the TOMs were assets to their holders in this particular situation because they entitled their holders to receive goods from the ones who had incurred liabilities -- the IOT-issuers. No one else benefited from the IOTs in this scenario, and so it would be double-counting to say that the TOMs and the IOTs were assets (the former to their holders and the latter to all members/the system). Still not convinced?
|
|
|
Post by oliver on Sept 20, 2017 19:47:30 GMT
The real question is, why do LETS systems not systematically implode a day after inception? How can they exist? Real LETS are quite fragile and tend to decay and disappear. The problem LETS run into is that members, especially debtors, leave the system without making good on their debts, and large creditors will often not spend their balances. The traditional system works well, so there are few incentives to join a LETS. The only long-standing LETS I'm aware of is Switzerland's WIR. Fair enough. Living in Switzerland, I can't claim that I feel any compulsion to get my hands on WIRs. I know they're quite common in the construction business, probably because small construction firms are often not considered credit worthy by banks. But as long as I have a modern, managed, state backed currency as an alternative, that's definitely what I'll choose. I'm quite satisfied with the observation that WIR is a possible alternative, though. Because that tells me that WIR is the same in kind as the CHF even if it is very different in degree (of trustworthiness). The only problem may be that WIR obviously references the CHF as the UoA. So its existence alone does not prove that something like the WIR could exist without the CHF. I'm trying to think of another example to make that point. But I sense that all we have is circumstantial evidence.
|
|