Debt Money vs. Government Issue Trade Offs

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There are at least three major approaches to money issuances:

1. A private debt money system has many down sides. Money issued as debt creates a legal obligation to repay, usually with interest. Just as money is created when a private bank issues a loan, it is extinguished when the loan is repaid, creating an inherent source of economic instability and the basis of an insidious extortion racket. If banks stop lending, due either to their own insolvency or to a management decision, the money supply dries up and the economy crashes -- placing enormous pressure on government to step in with a tax payer bailout. It is an insidious extortion racket in which the bankers responsible keep the profits and taxpayers bear the losses.

A debt money system
 also risks the division of society between debtors who must pay a portion of every dollar they make as interest--a condition sometimes referred to as debt slavery--and creditors who receive the interest as a continuing income stream. Where money is created only by private banks It also means that government deficits are financed by growing public debt financed by borrowing money issued at interest by private banks for private profit. 

The ability of banks to create money is not necessarily harmful if a number of conditions are met:

  • Newly created money is directed to productive investments that increase real wealth and sustainable productive capacity.
  • The money creation/allocation system is decentralized and diversified in both public and private hands with no money creation monopoly.
  • Overall money supply management is a transparent public function.
  • Interest charges are fair, continuously recycled into the productive economy, and the benefits are equitably shared as a social credit dividend.
  • Government has the means to issue its own credit as needed to finance capital investments and provide counter-cyclical economic stimulus.

2. A system of government issuance not only allows government to expand the money supply by increasing spending, but also to shrink it through tax increases as circumstances require. It also allows government to finance its deficits directly, by making the same accounting entries used by the banks from whom the government otherwise borrows the money at interest to cover its debts. This system gives enormous power to government and creates significant temptation for government to engage in inflationary overspending. It is a more rational system, however, than the current system in which private bankers inflate the money supply to finance speculation for purely private gain and collect interest from government for money that the government could just as well create for itself by making the same accounting entry the private banks make. Transparency and political accountability can constrain the risk of abuse, which is unlikely to be greater than in the current system.

3. A system of multiple private or official complementary currencies reduces monopoly control and is in that respect more democratic, but creates enormous complications in terms of comparative value and bookkeeping, and also an invitation to counterfeiting and speculation. There are enormous benefits to a single official currency.