when state owned banks lend funds that they don't expect to enforce collection and repayment is likely to be ignored, then the private sector has the funds, assets, and the liabilities are functionally not there. In that case state lending does, functionally, create net financial assets. anon Reply: October 8th, 2010 at 7:35 am That particular paper has been examined and discredited multiple times on this blog and others. The author shows he knows nothing about Chartalism by attempting to frame Europe in that context. Bill Mitchell has devoted numerous blogs to pointing out the fundamental error of doing so. Chartalism is a description of money under a single sovereign currency issuer. There is no such single sovereign for the Euro zone -- there is no supranational fiscal authority that corresponds to the ECB. That is the fundamental problem with the EZ monetary and fiscal system. Mosler has also written about it and proposed the fix of the ECB assuming in part such a fiscal authority role by crediting national bank accounts at the ECB on a pro-rata basis. The actual fix so far has been a sort of supranational insurance fund whereby the EZ as a whole backs the fiscal survival of its weaker members through ECB direct market intervention plus a separate rescue fund. But these sorts of fixes are necessary because Europe has been set up under a single monetary authority along with national deficit constraints that effectively usurp the true Chartalist potential of national governments. never