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Liabilities

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So if I understand “money” correctly, my credit is someone else’ liability. Inside money is created when someone goes to a bank and gets a loan, so do that mean in total all the banks have all the liabilities?

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Posted by (Questions: 26, Responses: 32)
Posted on 07/19/2017 3:50 PM
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When a bank makes a new loan there are FOUR new accounting entries:

1) The bank has an asset (the loan)
2) The bank has a liability (the deposit created by the loan)
3) The borrower has an asset (the deposit)
4) The borrower has a liability (the loan)

https://www.pragcap.com/the-basics-of-banking/

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 07/19/2017 10:07 PM
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No ,not all the liabilities, credit card companies for one also create short term liabilities.

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Posted by (Questions: 22, Responses: 333)
Answered on 07/20/2017 7:29 AM
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A credit card company is a transaction processing company that partners with a bank. If you look at your credit cards you’ll notice that they always have a bank name on them. The card company is processing the payments and the bank is providing the credit. So no, a credit card company is not necessarily the entity creating the actual credit except in the case of American Express which is actually a bank.

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 07/20/2017 1:03 PM
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So is that the same for car loans, or really any loan, there’s a bank somewhere behind it?

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Posted by (Questions: 26, Responses: 32)
Answered on 07/20/2017 4:46 PM
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Yeah, most of the financing you would get would be from a bank or an entity that has a financial arm operating as a bank. Auto loans, student loans, credit cards, mortgage, etc.

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 07/20/2017 5:19 PM
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So banks create all the “money” in the system, but total money is not total value? Like if I have a house with no mortgage, there’s no money, but the value of the house still exists. And the next person who buys it then takes out a loan to pay me

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Posted by (Questions: 26, Responses: 32)
Answered on 07/20/2017 6:23 PM
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The value of the money is the goods and services that the borrower has undertaken to sell to deposit holders, the house is the collateral, some loans have no collateral , collateral is not a fundemental feature of credit creation.

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Posted by (Questions: 22, Responses: 333)
Answered on 07/21/2017 5:07 AM
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Thinking of things in terms of “money” or not money is troublesome. It’s better to just call everything an asset and a liability. Moneyness refers to the degree to which an asset can be used as a medium of exchange. So don’t think of things as “money” or not money. Everything can potentially have some degree of moneyness. Even your toilet paper.

Now, when we take all the assets and subtract all the liabilities you have a residual which is the sum of all non-financial assets (things like cars and rocks don’t have a corresponding liability so they’re pure assets) and the market value of our financial assets. This comprises our net worth. Net worth is the value that the market places on all of the assets that we have used money to create value with. You can say that net worth is the most important figure in our financial picture because it represents the output of our various monetary production.

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 07/21/2017 1:54 PM
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I think you are misrepresenting money there. Money does not represent contemporary tangeble assets. It represents the obligation of the borrower to provide such in the future. The credibility of this obligation is overseen by bank loan officers.

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Posted by (Questions: 22, Responses: 333)
Answered on 07/21/2017 3:09 PM
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Dinero, money is just a medium of exchange. Anything can serve as a medium of exchange including tangible assets. This isn’t a misrepesentation. It is a statement of fact. Many people can and do use gold and such things as money.

You write some pretty good answers here at times. But others are a bit sloppy or just wrong (like the credit card comment above). I'd appreciate it if you just defer to me when I step in and answer a question as opposed to creating confusion.

Thanks.

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 07/21/2017 3:40 PM
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Very good answers by Roche. However, he once said elsewhere that even cryptocurrencies have a corresponding liability, but that is not right. Cryptos don’t “go” anywhere but stay on the public blockchain permanently… only the ownership of the coin changes. So they’re like tangible pure assets without liabilities but are not tangible. That’s new. There’s no liability created when converting electricity into a cryptocoin via a proof-of-work algorithm or just willy nilly as a token, but I wonder if you can’t but trace the electricity, the hardware, the software, etc. all the way back to bank credit originally.

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Posted by (Questions: 35, Responses: 592)
Answered on 08/02/2017 6:25 PM
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Bitcoin is not what’s being distributed to people. You are exchanging Bitcoin for cash. The Bitcoin markets are liable for making sure this exchange is possible upon demand. This means that they must shore up liquidity on demand. They are liable for ensuring that your Bitcoin is liquid.

Bitcoin is like gold that is mined and traded within the mine. Bitcoin market makers are responsible for ensuring that there is enough liquidity to meet demand. In this sense, Bitcoin is the liability of the market maker because they must match the liquidity needs of the cash sellers (Bitcoin buyers) with the demand from sellers.

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Cullen Roche Posted by (Questions: 10, Responses: 1771)
Answered on 08/02/2017 6:37 PM
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I’m not sure what you mean by “Bitcoin is not what’s being distributed to people.” or what it even refers to.

But, that’s a strange definition of liability. If you hold Bitcoin at an exchange — which means you’ve actually transferred ownership of your Bitcoin to the exchange’s wallet so they now own your Bitcoin (!!!) — then I can see how that is a pseudo-liability for business purposes but its not like there’s any real liability & asset being generated as with a bank loan. It was an asset transfer even though everyone plays along and pretends they still own and control “their” Bitcoin. Or more technically, you have a wallet at the exchange but you don’t have access to the secret key and thus don’t own or control the wallet. It is only by the grace of the exchange.

But you don’t have to hold your Bitcoin at an exchange; it’s rather risky and not even necessary unless you’re into trading other cryptocurrencies. Converting Bitcoin into fiat doesn’t require using an exchange either, just a money transmitter (the weakest link to the political economy in my view). A money transmitter would definitely have to keep up their liquidity and do any hedging by using an exchange and/or crony peeps just like a bookie.

There are no specialists or market makers in Bitcoin other than self-imposed. This isn’t like a regulated exchange, remember. The order book on an exchange is full of regular buyers and sellers. If they pull away or nonexistent, liquidity dries up. However, some if not all money transmitters will act as a counterparty for customer exchanges to other cryptocurrencies or fiat. I don’t know if any exchanges do that except in cases of hacking-theft where they will lose reputation if they don’t make their customers whole. Not many have opted to do that.

Needless to say, exchanges are not a trustless system like Bitcoin itself is.

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Posted by (Questions: 35, Responses: 592)
Answered on 08/02/2017 8:51 PM