Thursday, 14 October 2010

If money is considered to be anything that can pay taxes then banks print money

As a consequence of the deposit guarantee, bank liabilities are supported by the State and, by extension, the taxpayer. No other business has the advantage of their liabilities being sponsored in this way by the State. It means that, in spite of risky business practices, banks can continue to stay in business even when they might otherwise be considered insolvent.

State liabilities can, of course, be used to settle a tax debt which makes it more difficult for the rest of the population to pay their taxes, as they are not able to issue State liabilities and must use their cash savings. Being able to issue State liabilities means that we have an advantage over those that do not have this ability, taxes are not a problem and people will pay (cash) to be given the State liabilities. So, the bank deposits can easily be converted, sold, if the need arises, into 'real' cash.

The Government will accept, not only cash, but also bank deposits (and perhaps also Treasuries, and even perhaps the promise of State services, such as healthcare or a pension) to settle a tax debt.

If the credit of a business is guaranteed, there is no (at least certainly, less) reason to execute good business practices, it will always be possible to make an income by selling your credit, if it can settle taxes. Bank credit will always have value if it can be used to settle tax debts. Bank credit is State credit which has financial value due to it being a suitable form of payment to settle a tax debt.

In general terms, money is (defined to be) the most commonly circulating medium of account, specifically in fiat economies we see that it will be the medium decreed by the State to have special value, hence a fiat currency. So, (in most economies) money is anything which can be used (is acceptable to the Government) to settle a tax debt and hence includes all State liabilities, we can assume, not only cash notes and coins.

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