Frylock:
But, as you went on to say, not in the lay sense of liability I was making use of when I typed the word “owe.” I took LinusK to be referring to actual, you-must-pay-this debts when he mentioned his “IOUs.” My understanding (which seems to be confirmed by what you said after the abovequoted) is that what the fed does to increase the amount of money in reserve accounts is not the drawing up of an IOU in this sense.
Exactly right. The debt terminology for central bank money is completely misleading.
If you look at the Fed’s books, it will say that the bank reserves are all liabilities. But what sort? A fictional sort. These “liabilities” put them under no obligation whatever. They can’t be redeemed for precious metals, as in the past. They’re never rolled over. They don’t pay interest, unless the Fed willingly decides to do so in order to reduce bank lending by slowing monetary velocity.
Just for reference, there’s a thread from 2011 with the same OP, and here’s part of one of my posts from that thread.
MMT stands for a few basic propositions.
Savings (or monetary savings) = debt.
Money is always the liability of a bank; either a commercial bank (bank deposits) or the central bank/government (Federal reserves, currency).
“All money is debt” is only true in a fictional accounting sense. In practical terms, it’s complete fantasy.
The monetary base (central bank money) is not debt in any legitimate sense. It shows up as “liabilities” of the central bank only because we’ve been dealing with double-entries in our financial books for so long, we have no other established way of doing things. But there is literally no obligation present for the central bank. Their currency “liabilities” need never be paid back, at any time, for any reason. Those accounting-based liabilities can exist in perpetuity, because the central bank has no legal obligations after issuing the money. No court is going to enforce payment on an obligation that does not exist. To call that kind of money a form of debt is to get so caught up in the accounting definitions that you lose all track of reality.
That was two years ago.