double post
Yes, this is pretty importaint I think. I haven’t given them my money, so they can’t take my money and lend it out to someone else under any circumstance.
Credit cards are a promise they will do whatever they can to issue credit on demand up to the limit. How or where they get the cash when you ask for it is not as relevant as in the case when you have given a bank your money up front. The information could be a bit more clear then present credit cards, but it not at all as bad as present demand deposit account.
I don’t think I would rely soly on a credit card for cash for reserves, but a credit card combined with the possibility to borrow from family does suffice just fine at this point in my life at least. When I finish my studies and buy like a house and a car my need for reserve cash will rise significantly obviously and I will most likley have some amount of demand deposit reserve along with a credit card.
Hmmm… you sound hesitant. If your aggregation principle is so obvious, then why wouldn’t it work in this context too? 
If the sharing of loanable balances allows a card company to dispense with 100% reserves, then would the sharing of drawable balances not also allow a bank to dispense with 100% reserves?
If everyone wants their “emergency” cash at the same time (perhaps it’s the same emergency?), then can they still rely on their credit card?
I’m not denying that CCs reduce the need for cash under conditions today. But I feel that is because they are implemented by way of a fractional reserve, and are practically as reliable as today’s bank deposits.
What’s also interesting is that credit cards today probably DO increase the money supply indirectly - because they reduce the demand for CURRENCY, which increases banks’ share of the monetary base, which in turn facilitates money creation.
I’m not hesitant. It’s just that it’s impossible to say one way or the other without knowing the risk etc. Each customer would have to take any number of risk factors into account. But this whole line of reasoning completely misses the point.
That’s definitely true. Same goes for debit cards.
As another example, should telephone cards be included in the money supply? Or Hong Kong’s “Octopus Cards”? Using these payment cards, you give a Merchant $x for one of these cards “charged up with cash”… the merchant goes and spends that $x - so it’s definitely still floating around - and you’ve got $x worth of cash to spend sitting on your card. In this case, makers of things like the Octopus Card are essentially making money just like banks do.
Such payment cards would not have to be denominated in terms of the currency used to add credit to these either - they could be charged up with something like “Airpoints” or AT&T “units of time” that, if managed correctly, could be independent of and thus immune to the inflationary problems of the economies in which such cards were used… so they’d be handy things indeed in places like Zimbabwe, and actually pretty handy in the USA or Europe, for that matter. Maybe people would rather have their funds stored on petrol cards than in savings accounts?
You have a point that the promises of credit card companies would be less reliable under a non-fractional reserve system.
Still there is a huge difference between my money and a promise from someone to lend me money.
My credit card today have no charges. If I don’t use it is perfectly free. I would use this card and lower my other liquid assets somewhat even if they could just give me the full credit 50% of the time. Cause it is free and I need reserve cash for non essential purchases too, like the concert i just found out about or a sale out somewhere.
I study so I work infrequently. When I have time I call my job and ask to do a few hours and they pay me in the end of the following month … that is when the credit card bill is due for purchases I make that day too.
This way I can keep less liquid reserves on hand and if the purchase doesn’t go thru well then I can just wait but normally it would. I only need to keep liquid reserves to pay rent and buy food, for any other thing I want money for I would just take the chance.
I do think credit card issuers would be able to keep very good availability of fund even in a non-fractional reserve system. There would still be plenty of short term loans moving about between savings and loans banks and such they could use. Obviously I would not rely on it for the funds I would need in any kind of larger economic or other disaster.
But I think a large part of the need for reserve cash also comes from just having some money to buy that new TV that happens to be on sale today. For all such uses the credit cards would suffice.
i dont see why cc balances wouldnt be part of a money supply.
if money was accounted for in ome type of savings account, what have you, and then mede its way into a revolving type of loan account, the credit card, one aspect of money supply would go down - the savings account portion and then the money supply aspect could include a revovling credit account of money that would increase.
with the various ways that credit is generated via account reclassifications and shifting reserve ratios i dont know how the credit card is accounted for.
is that how it would work?
btw insurance should have the exact same effects as credit cards.
No one in there right mind belives that any insurance company can fill claims from all there clients at the same time.
Yet they rely on health and home insurance to greatly reduce there need to keep reserve cash. Much more so then any credit card in fact.
Moneyness is not a binary property. More like a continuum. Some thing are more liquid than others. I can buy almost anything domestically with cash, but from abroad only bank liabilities. So the answer depends on what kind analysis do you want to use the concept.
Can’t find ‘moneyness’ on the dictionary. AHH, wait. It’'s a term made up and used by money cranks…
Why do you think there is M1, M2, M3, MZM?
In an honest money system, no. A line of credit is just that, a line for borrowing the savings of others (at interest, of course). Since all credit is backed by real savings in an honest money system (free banking), a 1:1 reduction in my cash reserves in proportion to my credit line represents no net reduction in the demand for money. That is, if I prefer to maintain $10,000 cash reserves, then get a credit line for $5,000 then go on to spend $5,000 out of my checking account, I have not affected the overall demand for money since the $5,000 credit line must be backed by real savings which the creditor has on hand to loan to me (otherwise, he could not promise a loan on demand).
In our fiat monetary system, credit expansion is the means whereby the money supply is increased. So, credit card spending may represent a real increase in the money supply. How much of an increase depends on how low the reserve ratio of the borrowing bank is. For example, if Bank A holds 20% reserves, then a $1m loan from Bank B to Bank A will result in an $800k increase in the money supply as Bank A loans out the $1m down to its $200k reserve ratio. The money which consumer credit card companies loan exists within the context of the fractional reserve system so that an expenditure by Person A on his or her credit card acts as a “sink” for the credit expansion of the fractional reserve system. That is, if consumers spend $1T with their credit cards, the banking system has a $1T hole into which they can exhaust expansionary credit and increase the money supply. Without that outlet, they would either have to cease expanding the money supply at the same rate or reduce the interest rate for other forms of borrowing (e.g. mortgages) to maintain the same rate of growth of the money supply.
To summarize: In an honest money system, consumer credit would never represent an increase in the money supply. In the fiat money system, the aggregate of consumer credit spending can be seen as just another sink for credit expansion. This results in an increase in the money supply. But even in the fiat system, the credit line itself is not inflationary.
Clayton -