Talk:Monetization/Archives/2012

Serious misconceptions about monetized debt

This article makes it seem like the Fed monetizes debt every time it makes an open market purchase. Strictly speaking this is not true. Monetization of the debt only occurs when the Fed holds T-bonds to maturity. Otherwise the debt is sold back to the private sector or foreign countries and is no longer an asset on the Fed's portfolio. Although the Fed buys short term t-bills which have short TTMs, it is not clear that the Fed monetizes debt to any appreciable extent. One can use seigniorage to estimate how much of the debt has been monetized because the Fed has to turn over all revenues after expenses to the treasury. In the US seigniorage has typically been less than 3% of all government spending, and in 2011 was less than 0.5% of total GDP.

This article needs a serious overhaul. It leaves way too many questions about monetization.

(130.74.123.143 (talk) 18:22, 4 September 2012 (UTC))

What is un-monetized debt?

Isn't monetized debt simply debt? Is there such a thing as a government debt that is un-monetized? 99.163.50.5 (talk) 22:32, 3 May 2008 (UTC)

In Russia

I have removed the section below as being too specific to one country, although I think there is a sense of the word usage here which could be inserted. Dear IP numbered editor: the usage in Russian is actually a specific usage of one of the meanings of the term in economics, referring to exactly what was attempted with the Russian reform (no opinion on the effectiveness of the reform). It is a long standing theory of economists that it is more efficient to (for example) provide someone with the monetary equivalent of, say, a litre of milk rather than a litre of milk in real form. Those who get more utility from milk than money will buy milk; those who get more value out of something else will not buy milk. (One of the underlying criticisms is that the program above would amount to a subsidisation of milk producers).

The 2005 Russian reform was therefore a textbook case of replacing non-monetary benefits with their (supposedly) monetary equivalents, in that some pensioners (for example) would prefer e.g. public transport and others something else and that overall efficiency would be improved.--Gregalton (talk) 20:27, 13 August 2008 (UTC)

The word monetization (монетизация) was also used for a Russian reform of 2005, fully titled ``monetization of preferences.

Before this reform there were a large system of preferences: free/reduced price of travels on local transport, free supply of drugs, free health resort treatment, etc. for diverse categories: military personnel, disabled persons of various degree, and separately, persons disabled due to WWII, Chernobyl disaster liquidators, inhabitants of Leningard under the siege, former political prisoners, and just for all pensioners (women 55+, men 60+). This system was a legacy of Soviet union, but heavily extended by populist laws of central and regional authorities during 90s.

By the law 122-ФЗ of 22 August 2004 this system was transformed into cash payments by various schemes:

• abolition of preference, compensated by raising of wage (e.g. free use of local transport for military personnel) or pension (e.g. different preferences for Chernobyl liquidators)
• for three most important preferences (free local transport, 50%-price suburban rail transport, free supply of drugs): a choice between this preference and some extra money.

The losses of local transportation companies, railroad company and medicine distributors were covered by government (federal or regional).

The main causes of tension in this scheme were the following:

• technical and bureaucratic problems (e.g. for usage of 50% discount for suburban rail transport a person should present a paper from local State Pension Fund office stating he doesn't choose money compensation);
• separation of all preference-recipients into federal and regional accordingly to the body issuing a preference legislation. The largest group, that is pensioners, was regional. It was the main cause of problems:
  • In poor regions local government had to abolish these preferences with small or zero compensation.
  • Even if these preferences retained, they could apply only to pensioners of this region, so, e.g. Moscow Oblast pensioners can't use Moscow metro and buses freely. (Later these problems will be generally solved by the series of bi-lateral agreements between neighbouring regions.)

The wave of protests emerged in various parts of Russia in the beginning of 2005 as this law started to work. But government measures (raising of compensations, normalisation of bureaucratic mechanisms, etc.) eventually neutralize it.

A long-term effects of monetization were different. Some people take benefits (e.g. in rural areas without any local transport they may receive some extra money), some take losses. Transport companies and railroad has obvious benefits from monetization as they start to receive money when these categories use their services (previously in some regions more than a half of passengers doesn't pay for municipal transport without any compensation to the companies). Effects on medical system are controversial. Doctors and nurses have to use their time to fill in many forms to justify free receipts, thus they have less time for their main tasks. This situation can become better as automatization of document flow in this area will grown.

Different kinds of monetization

This may need to be split into sections, or even different articles, like "monetization of debt", "monetization of web sites", "monetization of water", etc. These are all quite different concepts.

Monetization of debt is a complex subject in economics, finance, and politics, probably worth its own article. --John Nagle (talk) 06:02, 17 May 2009 (UTC)

Definition

The article currently states: "Monetization is the process of converting or establishing something into legal tender." What is the source for this definition? It doesn't look right to me. Perhaps a more precise statement would be: "Monetization is the process of converting or establishing something into currency or a currency equivalent. (?) The terms "legal tender" and "currency" are not necessarily synonymous (although, of course, in the real world the tender of the legal currency of a nation such as that of the United States in payment of an antecedent debt may be treated as legal tender). We may need to look for some sourcing for a precise definition of the term "monetization." Famspear (talk) 18:34, 18 May 2009 (UTC)

Agreed. This is a poor article on an important subject. It needs expert attention. Especially since many of the world's countries are currently trying to figure out how to monetize the debt created to bail out the banking mess. --John Nagle (talk) 19:21, 18 May 2009 (UTC)

1974 Canada

Can anyone out there find some WP:RS that explain this sequence of events, or is this impossible, given the control of media that certain forces have had for several generations now? If so, could someone add a bit of a write-up of this information into the article--possibly written in general terms--not necessarily from just the Canadian perspective?

Non-monetized (non-debt) currency was injected into the Canadian economy by the Bank of Canada after it was nationalized in 1934. The debt owed to Canadian bond holders amounted to about CDN$37 billion up until 1974. The entire financing of World War 2 happened using this scheme. As well, the Canadian health care system was put into place, as well as many other nice social programs. During those years, there were virtually no homeless people in the streets of cities, the value of the Canadian dollar was near par with the US dollar especially leading up to the end of the Vietnam War, and there was only a modest rate of inflation with a family car costing the same as it did in the USA.

Under the Prime Minister of Canada at that time, R.H. Pierre E. Trudeau, and his finance minister, R.H. Jean Chretien, the Canadian government, at the behest of the International Monetary Fund (IMF), and World Bank began to monetize its debts. The Bank of Canada halted its monetary injection into the Canadian economy through government spending. After a few years the principle and accumulated interest have ballooned in size to many hundreds of billions of dollars. Monies not injected nor borrowed at interest had to be recovered by increased taxes on the incomes of the citizenry.

By the yearly parliamentary reports of finance minister, R.H. Jim Flaherty, as of 2006 figures, without borrowing any further principle amount, every year Canada spends about CDN$33.8 billion of tax payer monies to service the accumulating debt on what was originally only CDN$37 billion dollars, with the balance of the remaining hundreds of billions of dollars being rapidly accumulating compounding interest charges.

This figure may have reached CDN$1 Trillion due to the recent borrowing of billions for the Canadian share of the bailout of North American auto makers, the 2008-2009 stimulus package to curb the economic downturn, and the funding of the Canadian Afghanistan war efforts. Over several years, Canadian tax payers have paid over CDN$200 billion to private bankers and received no advantage over the situation that happened during the years the Bank of Canada had injected such spending into the Canadian economy.

It can be correctly argued that Canada has suffered both ordinary inflation, a wildly increasing debt load, increased taxation levels, and a huge decrease in budgetary spending for all areas of endeavor. Compounded on top of this are the impact of privatization of government services, the US-Canada-Mexico free trade agreement-induced closures of manufacturing plants whose operations have moved off-shore to lower wage nations (Far East countries), thereby insuring that Canada, like the USA, suffers from trade deficits with these lower wage nations, and so reduces the Canadian standard of living through permanent job losses and higher tax burden. In addition, because the private banks that operate in Canada now completely control the creation of credit and money, they can cause a credit crunch, boom, or bust at will.

This Video Explains the research conducted by a retired high school teacher who investigated into why it was his students were becoming disenfranchised and becoming hooked on illegal drugs, and found instead why the employment situation and prosperity in general had declined in recent years. The video sequence has a page displayed from the yearly finance minister's report to parliament that shows the budgetary breakdown and interest service payments of CDN$33.x billion per year for many years.

Oldspammer (talk) 04:14, 13 May 2010 (UTC)

Can anyone find an RS that that sequence of events is accurate? I cannot. — Arthur Rubin (talk) 07:47, 23 May 2010 (UTC)

Article needs overhaul

Can someone who knows give a concrete defenition of what Monetization is? The article seems to offer three or four different definitions. Pehaps this article needs to be split into three or four different articles? e.g. monetization (economics), monetization (finance), monetization (public finance). LK (talk) 13:01, 18 April 2011 (UTC)

Deleted Section

The following was deleted from the article by Arthur Rubin with the comment "not related to the subject of the article"

Monetizing the debt can be used as a component of quantitative easing strategies, which involve the creation of new currency by the central bank, which may be used to purchase government debt, or can be used in other ways.

However, there can be an insidious effect. As noted macroeconomist Nouriel Roubini noted:

“ When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme. Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to increase tax revenues, or cut spending, or monetize the debt--or most likely do some combination of all three. ”

It can be seen that the example of QE used to monetize debt is related and the government can "monetize the debt" is also related to the subject. Hence I am reinstating the section. — Preceding unsigned comment added by Caparn (talk • contribs) 16:37, June 9, 2011

It's about quantitative easing, not monetization. — Arthur Rubin (talk) 16:49, 9 June 2011 (UTC)

At least Roubini's comment is about QE. I'm taking it out again. If you can work in how monetization can be a method of QE, without the further commentary, go ahead. — Arthur Rubin (talk) 16:52, 9 June 2011 (UTC)