critique of loon theories around banking/money creation/the federal reserve

[love detective]

yes but i'd probably get banned if i posted the pictures of them

 

[yield]

"Banks create money out of nothing" - Guardian

and if they can create cash out of thin air why is it possible for bank's to even make losses in the first place

why do they have to go to the state for money when they can just conjure it up

how can a bank run out of something it can create from nothing out of thin air

why do interbank & wholesale lending markets exist if bank's can just create the money they need out of nothing

why can a bank get into a position where it cannot settle its liabilities when those liabilities are just invented in the first place, they don't really exist apparently

why would the state lend a bank £30bn in emergency funding so that it could meet its liabilities/obligations when those liabilities apparently aren't real and were just invented

why do bank's bother lending in the first place if they can just magic the money out of nothing - surely be much easier to just magic your money out of thin air than going to all that trouble of lending & borrowing

and finally, if according to jazz the accounting entries are the reality - this surely means that it is impossible for a bank's financial statements to not reflect reality. Why then are hundreds of millions of pounds spent each year by banks auditing their financial statements to ensure they reflect reality. Why do bank's continually have to retrospectively restate their accounts to correct them. If they are reality then surely it would be impossible for a bank's financial statements to not reflect reality, because they are reality - so there can be no disconnect according to Jazz. So even if a dog was made chief accountant in a bank and hammered all manner of nonsense into its ledger with its mucky paws, the accounts wouldn't be wrong, because the accounts are reality

and so on and so on......

It doesn't get much clearer than that.

 

[ViolentPanda]

Here's one of Dumenil and Levy

Same link as Kliman one.

 

[butchersapron]

Oops, try this one.

 

[8ball]

"Banks create money out of nothing" - Guardian
It doesn't get much clearer than that.

Jazzz, it might be useful if you address those points. I'm no economist but some of them look sort of plausible.

 

[ViolentPanda]

Oops, try this one.

Danke!

 

[Jazzz]

Jazzz, it might be useful if you address those points. I'm no economist but some of them look sort of plausible.

I've addressed them several times in the threads mentioned. But if you want to pick one or two I'll do it. But the thing is, this stuff takes getting your head around, it is both disturbingly simple and fantastically weird at the same time.

love-detective doesn't understand money. Rather than have a repeat of those threads, I'll just invite love-detective to say what he exactly thinks happens to the accounting entries when a bank makes a loan.

 

[Blagsta]

He's answered that several times jazzz. The lack of understanding here is yours.

 

[TruXta]

I've addressed them several times in the threads mentioned. But if you want to pick one or two I'll do it. But the thing is, this stuff takes getting your head around, it is both disturbingly simple and fantastically weird at the same time.

love-detective doesn't understand money. Rather than have a repeat of those threads, I'll just invite love-detective to say what he exactly thinks happens to the accounting entries when a bank makes a loan.

He's done that tens if not hundreds of times, and you've yet to even try to reply to his overly patient explanations. Fuck off for a bit and have a think eh.

 

[ItWillNeverWork]

I've addressed them several times in the threads mentioned. But if you want to pick one or two I'll do it. But the thing is, this stuff takes getting your head around, it is both disturbingly simple and fantastically weird at the same time.

love-detective doesn't understand money. Rather than have a repeat of those threads, I'll just invite love-detective to say what he exactly thinks happens to the accounting entries when a bank makes a loan.

Answer, one by one, the seven questions asked by love detective in yield's post above.

 

[Jazzz]

He's done that tens if not hundreds of times, and you've yet to even try to reply to his overly patient explanations. Fuck off for a bit and have a think eh.

no he hasn't. link please

 

[TruXta]

no he hasn't. link please

He's already posted a bunch of links on the previous page. All of those posts of his you can find there aren't necessarily aimed at you, but they all demolish your position. But you just jog on.

 

[Blagsta]

no he hasn't. link please

He's just linked to lots of threads.

 

[Jazzz]

He's already posted a bunch of links on the previous page. All of those posts of his you can find there aren't necessarily aimed at you, but they all demolish your position. But you just jog on.

no they don't. love-detective doesn't understand how money is created. I've spent countless posts answering him, and I've just realised that he never committed himself to the (very simple) task of explaining what happens to the accounting entries when a bank makes a loan. So I am inviting him to do that.

The invitation is there for anyone else who thinks that love-detective has explained it, so if you think he's explained it, go ahead.

It's very simple.

I'm all ears.

 

[Blagsta]

He has done jazzz. Plenty of times. Spiney did it also on this very thread.

 

[Jazzz]

He has done jazzz. Plenty of times. Spiney did it also on this very thread.

spiney continued my example of just normal people passing a tenner around.It had nothing to do with fractional-reserve banking. I responded to him in some detail.

what I am looking for is a description of the bank's assets and liabilities pre-and post loan and where the money is, the actual nuts and bolts. There's not much to it.

 

[love detective]

no they don't. love-detective doesn't understand how money is created. I've spent countless posts answering him, and I've just realised that he never committed himself to the (very simple) task of explaining what happens to the accounting entries when a bank makes a loan. So I am inviting him to do that.

The invitation is there for anyone else who thinks that love-detective has explained it, so if you think he's explained it, go ahead.

It's very simple.

I'm all ears.

Idiot and Fool

In the above linked posts I did exactly what you claim I've never done, in the first one as a direct response to you asking the very thing you've asked above, which you now deny has even happened - this is exactly why I don't bother wasting any more time on loons like you Jazz

 

[sihhi]

Idiot and Fool

In the above linked posts I did exactly what you claim I've never done, in the first one as a direct response to you asking the very thing you've asked above, which you now deny has even happened - this is exactly why I don't bother wasting any more time on loons like you Jazz

I like how that thread itself has a post with half a dozen threads:

The bulk of this thread (from about post 8 onwards) focussed on it - including dispelling the myth (for the hundredth time) that fractional reserve lending is creating money out of thin air

Also this, this, this, this and this are also examples of where it's been discussed in depth before

Those who cite Henry Ford as wisdom on banking simply wish to evade serious labour theory of value analysis - 'how come some have money in the first place?'.

 

[love detective]

yep it's a point i've made numerous times over the years - you never hear Jazz and his ilk say a thing against the exploitation of labour by capital or the social relations upon which capitalist society reproduces itself - not at all problematic for them funnily enough

 

[frogwoman]

you could do a lot worse than watching the series of videos spiney posted jazzz

 

[littlebabyjesus]

Those who cite Henry Ford as wisdom on banking simply wish to evade serious labour theory of value analysis - 'how come some have money in the first place?'.

The money system certainly promotes the interests of those who have money in the first place, but yes, it is no good considering just banking in isolation - that doesn't address the underlying pattern of ownership, which needs to be tackled if meaningful change is to occur.

 

[Jazzz]

Idiot and Fool

In the above linked posts I did exactly what you claim I've never done, in the first one as a direct response to you asking the very thing you've asked above, which you now deny has even happened - this is exactly why I don't bother wasting any more time on loons like you Jazz

Oh yes, this is post which I let pass.

Once the borrower actually wants to use this money however (to buy something, pay someone etc..) - the bank has to be able to fund this and if they can't, regardless of the digits of a 100 in the deposit account of the potential borrower, the borrower can't get at the money (in reality though, the bank will have funded the loan position at the point of creating the internal accounting entry to ensure it's covered, however this funding of the loan is a completely different & separate thing to the internal accounting entry being discussed).

this (along with the rest of your explanation) is waffle. What we need is just the numbers. Assets, liabilities, cash. What do you mean, by way of accounting descriptions, by 'fund the loan position'?

for instance, are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its demand liabilities?

This is the crucial point and without an understanding of it you do not understand fractional reserve banking.

Do you need help with it?

 

[frogwoman]

The money system certainly promotes the interests of those who have money in the first place, but yes, it is no good considering just banking in isolation - that doesn't address the underlying pattern of ownership, which needs to be tackled if meaningful change is to occur.

henry ford was the owner of the ford motor corporation ffs, he wasn't interested in ending the exploitation of labour by capital at all, quite the opposite in fact

 

[littlebabyjesus]

henry ford was the owner of the ford motor corporation ffs, he wasn't interested in ending the exploitation of labour by capital at all, quite the opposite in fact

Yes, of course.

 

[love detective]

Oh yes, this is post which I let pass.



this (along with the rest of your explanation) is waffle. What we need is just the numbers. Assets, liabilities, cash. What do you mean, by way of accounting descriptions, by 'fund the loan position'?

for instance, are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its liabilities?

Do you need help with it?

If you can't understand the answer to the question you asked (or more correctly you are now making diversions after being caught out once again) then you probably shouldn't be having this discussion at all. Everything I talked about in that post is more than clear to anyone who understands basic accounting principles

I've just noticed though that you have disengenously only quoted one small paragraph of the post I referred you to and then lamented the fact that it doesn't refer to assets, liabilities or cash - the post in full is below and refers to all of these things, idiot:-

Had a quick skim through that lecture, and got to say I think it's horribly/poorly explained in terms of the bit that you refer to above. He seems to be conflating the internal accounting transactions that a bank will make in relation to the loan account being formally set up (but not drawn on) with the actual flow/movement of money that happens in reality when the loan is drawn upon (which is ironic as he's always going on about the importance of the flow over the static). These are two very different things, with only the later actually relating to the flow & movement of money between two parties.

What he is referring to above (and not sure why he puts that much focus on it as it's not really the relevant part) is the 'internal' accounting transaction that happens prior to any loan physically being paid out to the borrower. He's technically right in what he says, but this doesn't actually explain the flows that happen once the loan is actually drawn upon/used.

So what he's saying is that when the loan is approved, the bank creates an internal accounting entry which creates an asset (representing the money owed to the bank by the borrower) and a liability (representing the money of the loan which has not yet been drawn on by the borrower, i.e. it's effectively on deposit at the bank by the borrower). So at this point in time, nothing has happened in terms of flows of money between the two parties, nor has their overall debtor & creditor relationship changed. All we have is an equal and opposite asset and a liability for the same amount between two parties that cancel out to zero. So the borrower's net position with the bank (and the bank's net position with the borrower) hasn't changed one bit. Previously he had a net position of zero with the bank, now he has an asset of 100 representing money the bank 'owes' to him (i.e. his deposit account) and a liability of 100 representing the money he owes to the bank. Overall representing a net zero relationship between the two parties. No money has flowed and the debtor & creditor relationship between the two parties remain exactly the same as they were prior to this accounting entry that Keen focuses on.

Once the borrower actually wants to use this money however (to buy something, pay someone etc..) - the bank has to be able to fund this and if they can't, regardless of the digits of a 100 in the deposit account of the potential borrower, the borrower can't get at the money (in reality though, the bank will have funded the loan position at the point of creating the internal accounting entry to ensure it's covered, however this funding of the loan is a completely different & separate thing to the internal accounting entry being discussed). So only at the point in time when the borrower draws on the loan does the original position of a net zero change, to then reflect a net liability on the part of the borrower to the bank of a 100 and a net asset on the part of the bank from the borrower of a 100. So it's at this stage that actually reflects a flow/movement of money - resulting in the creation of net debtor and creditor relationship between the bank and the borrower.

I've probably confused things even more now - so to strip it down a bit to more meaningful stuff:-

If you asked me to lend you a tenner on the phone and I said yes - this point in time is the equivalent of the internal accounting entry that Keen is talking about. i.e. it creates a (contingent) obligation between two parties but doesn't involve anything actually happening (in terms of flows of money). If the next day you come round my place to physically get the tenner, I need to have a tenner to give you. And regardless of whatever internal accounting entries I may have made the previous night, if I can't get my hands on a tenner to give you, then no amount of focus on the internal accounting entries in my ledger is going to magic the tenner into existence to pass on to you.

I only skipped through the lecture, so I may have missed out on something where he explains this more clearly, but that slide in and off itself is a very confusing thing to focus on. It places the focus on the wrong thing/part of the loan creation process - as it appears to focus on the formal accounting entries at one point in time, rather than the external activities required by the bank in order to honour the accounting entries previously created. It's technically correct in terms of the narrow accounting entries and one particular point in the process, but in terms of explaining the totality and capturing the actual flows that are required - I think it's pretty poor.

Also I can see how anyone taking this at face value could come away with the impression that commercial bank's can 'create money' from a few taps on their keyboard. I don't think Keen means to give this impression however as I doubt this is what he believes, but his method of exposition there is pretty poor and can result in people completely misunderstanding what he is trying to get across

 

[Jazzz]

Oh yes, this is post which I let pass.



this (along with the rest of your explanation) is waffle. What we need is just the numbers. Assets, liabilities, cash. What do you mean, by way of accounting descriptions, by 'fund the loan position'?

for instance, are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its demand liabilities?

This is the crucial point and without an understanding of it you do not understand fractional reserve banking.

Do you need help with it?

I am repeating the post.

You've just C&P a load of waffle.

What I am looking for is balance-sheet type stuff for a fractional-reserve bank.

And the answer to this question:

"are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its demand liabilities?"

 

[littlebabyjesus]

The bank does need to fund its loan, though, Jazz. Whether through pre-existing deposits or through a swift accounting procedure that can take the deposit created by the loan and use that to fund it. Banks have to balance their books. As soon as they can't they're fucked. You would agree with that, no?

 

[Blagsta]

spiney continued my example of just normal people passing a tenner around.It had nothing to do with fractional-reserve banking. I responded to him in some detail.

what I am looking for is a description of the bank's assets and liabilities pre-and post loan and where the money is, the actual nuts and bolts. There's not much to it.

You gave a reply which showed that you had not understood anything at all. You don't seem to understand accounting, you don't understand what interbank lending is, you don't understand what happened to Northern Rock and you contradict yourself with your CRASHINGBANK nonsense. If banks just create the money with accounting entries, then they wouldn't crash.

 

[love detective]

I am repeating the post.

You've just C&P a load of waffle.

What I am looking for is balance-sheet type stuff for a fractional-reserve bank.

And the answer to this question:

"are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its demand liabilities?"

you don't even know what a cash reserve is you loon

you've been caught out already just now claiming something that wasn't true, and now when presented with an exact response to your original question, you willfully ignore it all to avoid any constructive engagement and go off on some other weird tangent - if you think that is how you get debate/discussion then you're fucked in the head. You've been proven wrong and caught out time and time again on this narrow topic, and not to mention your even more odious anti-semitic shite, so don't think for a second you're getting much more of my time you weird loon

 

[Blagsta]

Oh yes, this is post which I let pass.



this (along with the rest of your explanation) is waffle. What we need is just the numbers. Assets, liabilities, cash. What do you mean, by way of accounting descriptions, by 'fund the loan position'?

for instance, are you saying that the bank needs cash reserves equal to the value of the loan being made, or that the bank needs cash reserves equal to all its demand liabilities?

This is the crucial point and without an understanding of it you do not understand fractional reserve banking.

Do you need help with it?

Yes, you don't understand accounting. Get your head round what assets and liabilities are.