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Base Money and Fiduciary Money
DeFi is a cursed global game of cooties from men with no integrity.
In my last article, I examined the Real Bills Doctrine and how it does not work unless newly created purchasing media is subordinated to a hard secure commodity like gold or bitcoin.
Standing alone the RBD links one nominal variable, the money stock, with another nominal variable, the dollar volume of the money stock. In doing so RBD fails to distinguish nominal output from real output creating a spiraling loop of inflation or deflation. This phenomenon is manifest in The Crypto World.
Also addressed is the myth of a fiat 100% Reserve Standard which is really just a commodity warehousing operation. With gold, it requires a vault and other expenses. With bitcoin, it requires private keys, “Not your keys, not your bitcoin.”
To better illustrate, Matthew Mezinskis outlined that there are really only two kinds of money: base money and fiduciary money. All fiduciary money is fractional reserve money. Fiduciary media is the definition of banking.
But while this description is helpful, it does not distinguish sound base money from unsound base money. Nor does it distinguish sound fiduciary money from unsound fiduciary money.
