Shadow Banking and Money Creation

This blog is called Greenbacks for a reason. 

This blog is about what money is.  What kind of entity is this thing called money?  That is my question.  What money does is another matter.  I view what money does as a function of what it is.  Maybe that differs from the reality that created what money is today?

It is clearly a chicken and egg question.  Which came first?  The difference in application of that riddle to what money is may be found in not which of two things came first, in other words which is the subject of the relationship and which is the object.  The money question is which came first the thing called money, what it is as an object or the action that created it?

Actions are a function of need.  There was a need for a thing called money to facilitate trade.

This sounds like circular thinking like a dog chasing its tail.  Getting nowhere except in amusing circles but it is not the dog that is laughing but the spectator. 

The spectator is the banking system.  The object of its amusement, much to its bottom line of money, is us.   We are the users of money.  Money in our primary perception is more related to its action, what it does, rather than what it is.  Its singing, dancing, talking action personal created by the man behind the curtain.  As long as the curtain hides the true nature of the creation of the object which we perceive as most important in is function the bankers amusement and profit is eternal.

That is what I think.

I also think that the situation is changing.

The Information Age is changing our view of things.  The Information Age started with human consciousness, whenever that was.  It has evolved as we learned to stand upright.  Exponential growth of information, our ability to generate it and manage it is a revolution.  The follow on to the Industrial Revolution.  So we gave the revolution a name, not so much because it is new but its magnitude has grown to huge proportions that drive what we do with it.

The Information Age is a product of our ability to reduce Information to its lowest granular level.  That level is binary, computer machine based to physically store and process electronically at the lowest representational level conceptual abstractions that are equally reduced from thought processes to the same one to one lowest granular level where there is an exact one to one relationship to a segment of electronically differentiated ones and zeros that relate to the lowest granular level of conceptual intelligence.  That is where our any of our thought concepts can be can be abstractly processed.  A lowest physical/conceptual level analogous to what exists our brain that can be used to build upon and express through functional processing all those expressions that we as humans are capable of creating and expressing.

It all starts at the that lowest granular level where there is a functional relationship between two things.  The Computational Trinity that I have explored several times in this blog.

My credo is that the need for a yet to be created thing to "do some thing" comes first.  The need comes first.  Where does that need come from?  It simply springs forth from our minds.  I don't go any deeper than that.  It is a creation thing and the creation of some thing from nothing in our minds is a mystery.  Just like money is created from nothing.  While the nature of the genesis of money at an initial creation point of time be a mystery like the creation of the physical universe we can in hindsight discover explanations and meaning.  More discovery and meaning as we develop better tools.

Discovery and development of better tools can look back in time to origins.  They can also be better tools upon which to build better structures.  Better structures that are both physical and conceptual, independently or with mixtures of inter-related relationships. 

All of this so far is simply me getting my mental conceptual ducks in a row to think about shadow banking.  Shadow banking as a perverted development of the macro money system that should serve us all that has been created to serve a few at the expense of almost all of us.  Talking 1% here if there is any doubt. 

How to attack that. 

Simple Plan:  It is exactly the same plan at the base of our Information Age except a few steps up the conceptual ladder from the binary level where two granular electronic entities..... (One being presence the other being absence which are physical states of being, or is absence of a thing purely conceptual?) 

The Shadow Banking System creates money out of nothing just like the Established Banking System.  The difference between the two is that one is regulated by government, more or less, and the other is regulated less, far less.  System Regulation is a system bug to both not a feature.

I see Shadow Banking as the sub-optimized evolution of the banking system.  Sub-optimized on the production of benefit, profit in terms of money, to the operators of the monetary system, not the general beneficiaries.

As a side line here:  Yves Smith at Naked Capitalism has done an outstanding job of throwing light on the murky operations of private equity general and limited partnerships.  My gratitude to her express in a donation.  It is a situation that is an excellent example of sub-optimizing to benefit the operators and hiding it all behind a curtain intentionally by a few that also take advantage of the willful ignorance or incompetence of those being the victims of sub-optimized benefit to the general partners.  Its a representation example of the general Banking System relationship which is not Enterprise and Customer in a mutually beneficial trade relationship but Enterprise and Victim in an extractive relationship.

Back to Shadow Banking.

Banking in general comes out of the shadows and Shadow Banking emerges from the shadows first when the thing called Money is identified as a discrete entity at the lowest possible granular level. 

That identification of the instance of the Object Class called Money at the lowest granular level is the soul foundation of the structure of the monetary system I propose.  It puts and end to all the shadows in the Banking System.

The Shadow sector of the Banking System is the easiest to attack.  The attack tool works as well on the established Banking System that is only relatively less shadowed.

At the most discrete granular level "things" are created only once.  Discrete level being the magnitude of one whether it is the Universe at the super macro level of totality or the super micro level of its smallest discrete unit of composition.  How far either end extends remains a mystery but that mystery is always a function of the state of the art in the metrics of identification, measurement and extension of the entire structure from a starting point somewhere in the middle when the first human defined itself as human by having an abstract concept of being. 

The level smallest discrete unit of any system is relative to nature of the system.  Our language only has a limited number of representational characters and sounds.  That is all it needed until we parsed them smaller and smaller down to the digital level.  Before that spoken and written language was always sufficient to build higher levels of conceptual expression to do the job of communication.  Technological parsing to lower levels enables us to express more faster to communicate with a wider number.  It also extends our conceptual structures as it enables us to stand on the shoulders of past giants and extend the legacy with better Information Age tools. 

Better information structures and their related knowledge enhance good legacy systems.  They also improve poorly structured legacy systems with better ones or simply destroy the inherently bad legacy systems and consign them to the dust bin of history.

The Information Age sword cuts on legacy systems but has a bias to improve but destroys by attacking and leaving behind bad components or entire systems.

The Shadow Banking System should be eliminated like a cancer on the Established Banking System.  The Established Banking System, or simply the one and only Banking System needs to be improved by restructuring. 

Both objectives are accomplished by the same tool and capabilities we have created in the Information Age:  Reduction of the unit of system structure to the lowest granular discrete instance of a class building block.  What is that?

A digital discretely identified unit of monetary value of positive money free from functional dependence for its creation on a debt counterpart.  The relationship of Positive Money.... (as the class to which all instance of money at the discrete unit level belong)....to debt is an application function of one of the vast multitude of things money can be applied to.  Once money is created at the discrete unit level it is persistent over time.  More may be created.  Existing units may be held in circulatory suspense for system control and maintenance.

When the foundation of the monetary system has been established by the prior paragraph then all monetary transactions are recorded in a block chain system recording changes in ownership of money.  Money as an aggregate class object as well as discrete instances of a class exists as a single record against which transactions in change of ownership in an variable number of registered accounts are recorded.  Only registered financial entities may have accounts and transact with money through their account .  All human being citizens of the USA have the constitutional right to be a financial entity entitled to an financial account.  (Provisions for foreigners that are interesting to explore).  All other financial entities are either public or private businesses registered by Banking system account to conduct money transactions among any and all other account holders.  (Provisions for foreign business entities that are also interesting to explore.

There are no shadows when the universe of positive money is discretely identified at the granular level and equally identified and totaled at the aggregate level.  There are no shadows when all users of the monetary system are conclusively identified by account registration as individual human beings or other than human financial entities.  There are no shadows in a block chain system that records and validates all monetary transactions in accounts recorded as changes of ownership of discretely identified units of money.

Money and the Account are two separate and related records of the Monetary System.

The Money Record establishes what money is.

The Account Record establishes what money does as well as what Account Entity owns what units of money in the Money Record.  Changes of ownership are recorded in the Account Record Block Chain.

Total value of all money in the Money Record = Total claim to ownership of all money in the Money Record by all accounts in the Account Record.  That is the new balance sheet for Positive Money Accounting.  Monetary Debt accounting and debit/credit matters are contractual agreements between and among any financial entities registered in the Accounting System.  A structured Debt Accounting sub-system of the Positive Money System handles contractual debt agreement where block chain management methodology is applied to contracts.

Systems and procedures are established to convert present debt structure systems in the Banking System and is Shadow Financial sub-system to the Debt Sub-System of the Monetary System in conjunction is conversion of a Debt Based Monetary System to a Positive Money Based Monetary System.

No more Shadow Banking System.