Reverse Side Promissory Note: Fill & Download for Free

That's pretty archaic these days. Before Cheques people used Bills of Exchange. Like earlier cheques they could be endorsed on the reverse side and given to someone else to cash. Effectively they were promissory notes and when their term fell due then whoever jad received them or the latest person to be endorsed could claim the cash.The bill would then go back to the issuer.So if you had one of these things it was a bit like having a cheque but one you had to wait with. Not exactly a trade receivable but not exactly cash either. So they were in a separate account in receivables which these days most people will not need to use.

Today, economist and Nobel laureate, Paul Krugman, wrote in the New York Times, that Bitcoin is taking us back 300 years in monetary evolution. As a result, he predicts all sorts of bad things.A significant basis for Mr. Krugman's argument is that the US dollar has value because men with guns say it does.Is Bitcoin erasing 300 years of monetary evolution?Running with the metaphor that fundamental change to an economic mechanism represents ‘evolution’, a more accurate statement is that Bitcoin is not erasing or reversing evolution—Rather, it is the evolution of money. Of course, with plant and animal species, evolution is a gradual process based on natural selection and adaptation. With Bitcoin, change is coming up in the rear view mirror at lightning speed.The Evolution of MoneyWhen a medium of exchange is portable, fungible, divisible, unforgeable and widely accepted, it becomes money. For at least six millennia, barter was gradually replaced by various mediums of exchange.Obsidian —» Cowry shells —» Gold —» Promissory notes (backed by a Bank, employer or wealthy industry) —» Fiat (national currency)But what backs these forms of money? What gives them value?The first 3 currencies above were accepted as money on 5 continents. They were backed by their scarcity and unique characteristic properties (Aristotle called this intrinsic value). But even gold cannot serve as a widely used currency today. Although it is portable and scarce, it is not easily tested or subdivided in the field; it is risky to transport and difficult to track; and it is not suited to instant electronic settlement. But what about Fiat money. What backs it?What Backs National Currencies?Fiat has been backed by various different things throughout history. They are all compromised attempts to establish confidence and trust. They are compromised, because they fall short of one or more facets of trust.In the list below, monetary backings in Bold are what Mr. Krugman calls “men with guns”. That is, he claims that government demands give value to the dollar:Value tied to gold —» Promise of redemption —» Legal tender (public must accept it for all debts) —» settlement of taxes —» The “good faith and credit” of workersUnfortunately, the transition away from a semi-trustworthy basis and the constant temptation of kings, dictators and politicians to print money based on credit (or nothing at all—as in the case of our fractional reserve system), has created a house of cards that few people believe is sustainable.Bitcoin changes all this.Finally, a crowd-sourced trust basis was invented (or discovered). It is unhackable, un-inflatable, unforgeable and immutable. Most important, it allows a government to be decoupled from its own monetary policy and supply. This is a remarkably good thing for businesses, consumers, creditors, trading partners—and especially for governments.And Bitcoin is backed by something better than guns, gold or promises. It is provably scarce, capped in supply, completely fair, and built on a massive, crowd-sourced network of bookkeepers and auditors. It is the first currency—and quite probably the last—built on genius math and indisputable trust.Despite the gross misunderstandings and misconceptions of early pundits, it does not interfere with a government’s ability to tax, to spend or to enforce tax collection—and it does not facilitate crime.Bitcoin is new, but the goal of distributing trust is not as radical as you might think. It addresses a problem that economists and mathematicians have pondered since Aristotle and the ancient Greeks…BackgroundEver since the transition from real gold to government notes, bank notes and bank ledgers—economists have wondered if value can arise from a public trust that is durable, distributed and stateless. Until 2009, the answer seemed to be that this was impossible because of the double-spend problem.But 9 years ago, something changed; and the change is dramatic. It will take an additional decade for most people to understand and appreciate this change…In the first paragraph, I cite Mr. Krugman’s statement that the US Dollar has value because of “men with guns” (a reference to the fact that its use is legally compelled for payment of any debt and for government taxes). But this is not what gives it value. The dollar, the Euro, a Picasso painting and a fresh serving of hot french fries all derive their value from supply and demand. Bitcoin is no different. The trick is to generate viral demand and spawn a ubiquitous infrastructure needed to achieve a robust two-sided network.In the white paper that introduced both the blockchain and Bitcoin (the first blockchain application), Satoshi taught us that a widespread and easily accessed communications network (a ubiquitous internte & smartphones) allows value to be based on a different type of trust. Instead of trust in a government, a bank, or testing the chemistry of a precious metal, value can arise from trust in a formula that is ubiquitous, redundant and constantly monitored and vetted.All of these things have a value based on demand and the available supply. But with Bitcoin, a medium of exchange (and additionally the store and transfer of value), can be achieved by math, distributed trust and a pure, two-sided network.So, is Bitcoin taking us backward in time, utility, safety and governance? I have never been awarded a Nobel Prize—but it seems pretty clear to me that Bitcoin is taking us forward.Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.

Recessions are usually (if not always) caused by bad private sector debt that cascades into other economic problems, and ultimately a reluctance by businesses to invest in a receding economy.The large majority of our money, the stuff that fills our bank accounts, is the result of bank-created loans. You take out a loan for $1000, and the bank marks up your account by $1000, while it holds your promissory note on its asset side. M1 has just increased by $1000. (Banks don’t lend out pre-existing money.) You now have an asset worth $1000, and the bank has a liability for $1000 (your account balance); you also have a liability worth $1200 (your debt to the bank, with $200 interest), and the bank has a (soft) asset worth $1200 (your promissory note).When you write your check for $1000, and payee deposits it into his account, payee’s bank marks up his account by $1000, and your bank marks your account down by $1000; in settlement, the Fed (the settlement agent) transfers $1000 in reserves from your bank’s reserve account at the Fed to payee’s bank’s reserve account.The net result of all of this is that lending bank has exchanged $1000 in hard assets (reserves) for $1200 in soft assets (your promissory note). IF you repay your loan in full, your bank will end up with $1200 in reserves, a profit of $200 in hard assets, and the M1 money created by the loan will be extinguished, as is the promissory note.But if you fail to repay your loan, lending bank will, of course, take a loss. Let’s say you repaid $300 of your $1200 debt, then defaulted. Your bank has already disbursed $1000 in reserves, and they received $300 in reserves from your partial payment, so there is a real loss of $700 (not $900) in hard assets for your bank, plus $200 of equity (assets - liabilities for your bank). Your remaining liability of $900 is also extinguished as uncollectable. So M1 has gone down by $700, plus $200 in bank equity is also lost. (Don’t ask me why bank equity isn’t counted as part of M1, but it isn’t.)Payee, of course, has done nothing wrong. He gets to keep his money, and his bank is not affected.We essentially ride on a wave of open bank loans. When you take out a loan for $1000 to buy something, somebody else earns that $1000, and our collective income increases by $1000, plus any secondary spending effects. When a business borrows to invest in increased production, again, somebody earns that money, and our collective income increases. When fewer loans are created, there is less income (or less income growth, depending on the severity of the downturn).Government-created money, on the other hand, exists until it is taxed away. That is why it is considered a hard asset. If you are a monetarily sovereign government, like the U.S., U.K., Canada, Japan, etc., your debt cannot (operationally) fail. The only risk of default on debt in one’s own currency comes from a (stupid) political choice to default. As in failing to raise the debt ceiling when needed.Prior to 2007–2008, we had a real estate bubble. Prices of homes were going up for years, and buyers were taking out mortgages with the assumption (or hope) that prices would continue to rise. The hot market led to a high demand (from Wall Street) for MBSs, which led to banks lowering their standards for mortgage loans. When a higher-than-normal amount of defaults caused the real estate market to collapse, home prices fell, and more loan defaults resulted. People lost jobs, more defaults, etc. This was the cascade. All of those defaults led to real losses for banks, and more importantly, for people and businesses. And in bad economic times, businesses, seeing the opportunity for profits disappearing, cut back on investment - which cuts back on jobs and income as well.So the answer to your question is, bank-created money disappears from their ledgers. Banks lose equity, and lending slows. The wave of money decreases. Our bank account balances are safe, only because the government has guaranteed them (via FDIC) - but our account balances are bank liabilities, and banks must keep [assets - liabilities] positive. When things got really bad, the Fed backstopped the banks by buying up a bunch of their toxic assets (MBSs, largely) in exchange for rock-solid reserves.Banks, of course, aren’t the only ones that suffer. People lose jobs because of the decreased flow of money. People lose their homes. Businesses fail. All of that can be blamed on a cascade of failing private sector debt.Reversals come when businesses again feel safe enough to increase investment. When home prices have bottomed out, there is less risk in a mortgage loan, so both people and banks are more likely to take the chance. And most importantly, the government should (deficit) spend more during recessions, as they are able to do so, simply by creating more of their own money.