My Response to Randy Wray and Yves Smith of NakedCapitalism.com

My response to “Debt-Free Money” – A Non-Sequitur in Search of a Policy on Naked Capitalism. For some reason, it would not post on NC so I’m posting it here:

Let’s look at the coat check girl analogy for a second:

What happens if you give the coat check girl your coat and she hands you a ticket. But, instead of owing you back only your coat when you redeem the ticket, the coat check girl has to not only give you your coat but also part of another coat. Maybe a button, maybe a sleeve, maybe another whole coat. The only way it would be practical for the coat check girl to do her job would be to somehow procure other pieces of coats or whole coats to satisfy the redemption of the ticket. She may decide to steal pieces from the other coats that have been checked in or borrow pieces from a local tailor. But one thing is for certain … she will always run a “coat deficit.”

So maybe “debt-free money” isn’t an accurate term … how about “interest-free”? Because our system runs pretty much like the system that employs the coat check girl in my example, not the one in yours. All financial transactions involve a credit and debit. But not all involve interest payments. What if, when I redeemed my coat, the coat check girl didn’t have my portion of the other coat? Well, I might have an agreement in place that states that, for every month that she doesn’t return to me the additional part of coat that she owes, she is liable for another piece of coat. In other words, now her coat debt is compounding. Starting to see how this plays out?

The problem isn’t that our money has debt attached to it, the problem is that it has interest debt attached to it. Creating a money that doesn’t require interest debts to be passed along is what “debt-free” money is about.

“Debt-free” money only has to not preclude the motivation for profit. Otherwise, it makes a lot more sense than expecting a “coat+” whenever you redeem your coat check ticket.

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