free spirit
more tea vicar?
also, where the fuck did it all go?Where did this money come from???
and how much of it ended up in bankers wage packets and bonusses one way or another?
"Banks create money out of nothing" - Guardian
- Thread starter Jazzz
- Start date
and how much of it ended up in bankers wage packets and bonusses one way or another?
Reminds me of the animated debates I had with a banker mate over beers in the late 1990's, before I knew much about all this.
When he said there was nothing to worry about and that banking was "an honourable profession" I didn't realise he was being facetious.
When he said there was nothing to worry about and that banking was "an honourable profession" I didn't realise he was being facetious.
two sheds
Least noticed poster 2007
and fines for fixing the market in some way or another.
free spirit
more tea vicar?
well at least that's the money flowing back to the government... I assume.
love detective I have very carefully engaged with you, you have hardly responded properly to anything I've said, what you have resorted to is hand-waving, ad hominems and more spamming of your own past posts which is not helpful.
However we have at least got down to the nuts of what you do not understand.
What on earth do you think the 'money in your account' is, if not an accounting entry?
I asked you previously what exactly you meant by "fund the loan position at the point of loan creation". Of course, you couldn't explain. You are clinging on to the notion that there is some hard, tangible thing, "money" which flows around settling debts, when in fact all the money is - ever since we have had fractional reserve banking - is simply expressions of debt that we shuffle around. And the most common way for this to be created is simply by ledger entry.
Accounting entries are money
Have a look at your bank statement. You have the name/number of your account, a balance which was carried over from the last time, then a series of entries which represent money flows, then two columns "debit" and "credit" with the totals in. At the bottom is the total and that is "the money in your account".
Now compare this with the standard form of double entry bookkeeping, "T" accounts. (you guys can google it) "T" accounts have - you guessed it - debits on the left, credits on the right. And if they are on computer the running total is calculated automatically.
Your bank account represents part of the books of the bank! It's all bookkeeping. What you might think is 'your' bank account is actually part of the bank's books, it is their liability account.
So what happens when you transfer money from your account into someone else's?
(same bank) Your account is debited, and the recipient is credited. So the bank has less liability to you, and a greater liability to the other guy.
If the other guy's bank account is different, changes happen to four accounts. Your account is debited, the other guy's is credited. Then similarly, the Bank of England's liability account to your bank is debited, and the other guy's bank has their bank of England account credited.
No magic 'money' passes down the telephone lines. This is all the money is. Bookkeeping entries.
It's all bookkeeping!!
"The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent." John Kenneth Galbraith (1908- ) former professor of economics at Harvard
BigTom
Well-Known Member
No, it goes to the regulatory body (fsa?) which is fully funded by banks anyway so the banks just pay less in regulatory fees, ie the fines from "bad" banks mean the "good" banks pay less, except probably every bank gets fined at some point or anther
butchersapron
Bring back hanging
Note carefully where this quote as used above is from (knowing as we do that JKG died years ago).
This might make your head frazzle a bit - but anyone can create money - the tricky bit is getting other people to accept it and maintaining confidence in you. When you write an IOU, promissory note - you are creating the money. In actual fact, when you take out a bank loan - YOU create the money with the loan contract! You are creating a "promissory note" (promise to pay).Jazzz - do you mean that if I add a couple of hundred quid into my accounting Excel spreadsheet, that I'll have created some money? If so, EXCELLENT. That's where I've been going wrong
Let me give a parallel which matches fractional reserve banking. Suppose you are running a poker game for some very wealthy company. At the start of the game, 9 of the players give you £5000 in cash, which you exchange for chips. Except that the 10th guy is an expert at poker, but hasn't got any cash. He asks you to secretely lend him the £5000 in chips and you will split his winnings. You consider him a sure bet, so you do it. So at the table, you have £50000 in chips, but you only have £45,000 actually there. You have 'created' £5000 with your loan! The other players don't know this. And luckily, the guy does indeed win, finishing with £15000 in chips, so at the end of the game, you exchange £35000 for the chips of the 9 opponents, this leaves your expert with chips totalling £15000 - effectively you 'destroy' chips totalling £5000, and exchange the others for £10000, he keeps £5000 and you keep £5000. Nice job!
So you have the power to create money. But in order for it to really work, you can't just simply create it. You create it and also destroy it, pocketing the interest or other benefits that you can get whilst your illusion is alive.
This is pretty much exactly what fractional reserve banking is. We are playing the poker game of commerce, the banks are lending us the chips. At interest! They are very good at this game. We are renting our means of exchange.
What's the point here?
love detective
there's no love too small
you are so confused with this i really don't know where to start
although unsurprisingly you've tripped yourself up in the above post and contradicted everything you've said previously
you previously said a bank can loan out the same deposit 30 times without it having to circulate anywhere ele or back to it - i.e. they can just do it from tapping away on a keyboard with nothing else having to happen to achieve that, no dependencies from or on anything else, no need for any other party to have to fund that flow of money to the other party
so, give me the other side of the accounting entry (i.e. the credit/liability entry from the perspective of the bank) that is done in relation to the thirty credits in the borrowers' account (i.e. a debit/asset from the perspective of the bank) when those thirty loans are supposedly made? and tell me what that entry represents in terms of the bank's external relationship with the counterparty to that entry
there's only one thing it can represent which is the liability the bank has taken on (or the equivalent reduction in assets in relation to cash deposits held) to be able to fund the loan to the customer in the first place - this is what is meant by the bank having to 'fund the loan position at the point of loan creation'
(you tried to get away with clouding the issue above in relation to the transfer of money between two people, which in fact shows that even for payments, the entry of money into someone's account has to be matched by the funding of it from another account - negating your previous claim that bank's can just produce money out of nowhere and without having to rely on it circulating to do so, yet your example above is grounded completely in the dependence of circulation in order for that to happen - thoroughly confused picture you're trying to painr here)
In other words, you're talking shite about bank's being the independent actor in all of this
bank's can't just magic that loan into existence, to be able to extend the loan they need to fund it, and no amount of internal accounting entries can magic that funding into existence - the accounting entry can reflect the funding that is in place, but it does not create it - which is exactly why when the likes of northern rock ran into trouble, they couldn't just continue to fund their mortgage book by tapping away on their keyboard - their funding froze up because no one wanted to lend/deposit to them, which meant in turn they were unable to continue to fund the long term lending it had previously committed to. In your world view of how things work, northern rock would never have had a problem, because they are supposedly the independent actor who can just magic money out of nowhere by raising accounting entries independent of what is going on around them
fool
Compare with:
Here's how it works. The Treasury Department prints up a stack of Treasury bonds. It "sells" these bonds to the banks. The banks "sell" the bonds to the Federal Reserve. The Federal Reserve creates the money it uses to buy the debt, and secures it on the bond printed by the Treasury. The money received by the Treasury Department via the banks is magic'd into existence.
Love Detective, you really are talking the most arrant nonsense.
Everyone else might find Martenson useful.
love detective
there's no love too small
the discussion is about whether commercial banks can create money and do so as the independent actor, not central banks
please try and follow the discussion so if you decide to interject, you can do so with something relevant to it
please try and follow the discussion so if you decide to interject, you can do so with something relevant to it
They can effectively lend out a CASH deposit 30 times - this is the cash that they actually have. Not the deposits that people have in their accounts, which are simply bookkeeping entries reflecting the bank's liability to the customer (not assets of the bank).
The loan IS the liability! You described this yourself earlier. I remind you, money is an expression of debt that we shuffle around.
Say the £1000 loan is credited to a customer's account. The loan is made by crediting that (liability) account £1000, and debited another asset account (loan acc, let's say) £1000. As interest is charged, that increases (debits) the asset account and I would guess credits an income account. If the loan is being paid back from the customer's bank account, then the repayments are debits from the customer's account, and credits to the loan account. The benefit to the bank is not the nonsense money it has created, but the Bank of England money - cash or reserves - that it must get for the interest to be repaid (or physical stuff if it reposseses).
NOTHING HAPPENS WITH CASH RESERVE ACCOUNTS (either Bank of England, or with the actual physical cash) WHEN A BANK MAKES A LOAN. You still seem to be under the impression that cash is somehow 'earmarked' to cover the loan. That the loan comes from somewhere other than a computer keyboard. That would be full reserve banking! I don't know what is in your mind as to what the difference between full reserve and fractional reserve banking is.
The point was - the accounting entries are money. This is how most of the money exists and circulates. 97% of it.
On the contrary, as I already pointed out - it is precisely because the hard cash is not there that "bank's" are vulnerable whenever confidence in their magic dissolves.
"Banks lend by creating credit. They create the means of payment out of nothing."
Ralph M. Hawtrey, former Secretary of Treasury, England.
"The banks do create money. They have been doing it for a long time, but they didn't quite realise it, and they did not admit it. Very few did. You will find it in all sorts of documents, financial textbooks, etc. But in the intervening years, and we must all be perfectly frank about these things, there has been a development of thought, until today I doubt very much whether you would get many prominent bankers to attempt to deny that banks create credit."
H. W. White, Chairman of the Associated Banks of New Zealand, to the New Zealand Monetary Commission, 1955.
Ralph M. Hawtrey, former Secretary of Treasury, England.
"The banks do create money. They have been doing it for a long time, but they didn't quite realise it, and they did not admit it. Very few did. You will find it in all sorts of documents, financial textbooks, etc. But in the intervening years, and we must all be perfectly frank about these things, there has been a development of thought, until today I doubt very much whether you would get many prominent bankers to attempt to deny that banks create credit."
H. W. White, Chairman of the Associated Banks of New Zealand, to the New Zealand Monetary Commission, 1955.
The discussion is about whether central banks create money out of nothing. I know this with certainty because that is the title of the thread, and the OP refers to the actions of the central bank. You appear to be arguing they cannot, in which view you are mistaken.
Blagsta
Minimum cage, maximum cage
love detective completely hasn't grasped it - that the money in his account is simply an accounting entry. As if when we make bank transfers pound coins travel along the phone lines
Will do a proper post when I have the moment.
I knew you wouldn't disappoint.
cesare
shady's dreams ♥
Jazzz, no. It doesn't make "my head frazzle a bit". My dad taught us how to play
Monopoly when I was a nipper and said I should learn it cos it's real life
Life's too short to spend too much time working out the minutiae of why a person chose whatever piece in the board game.
butchersapron
Bring back hanging
Detective falcon strikes again.Falcon said:
Exactly.
An alternative metaphor would be the emperor's new clothes. Love Detective and his ilk spend massive amount of time and effort analyzing and predicting the behavior of forces that have the singular drawback of not fucking existing.
Yep. As I said before, Love Detective's thinking is mired in the nineteenth century, which makes his politics worse than useless. He is unable to understand the need for an ethics of representation, for he does not even grasp the fact that money is pure representation.
The situation is comparable to the pre-Ptolomaic astronomers who, lacking the recognition that the earth was not the point around which the observable universe rotated, were compelled to invent increasingly bizarre hypotheses to account for what they saw.
I think that Love Detective and company just cannot accept that neoclassical economics is total bullshit. They can accept that it is wrong, or that it is in need of reform etc., but they cannot accept that it is nonsense.
And to be fair, it is quite a counter-intuitive proposition to accept--seemingly clever people on the news bang on about it and appear to know that they're talking about etc. The idea that such people are making far less sense that magicians simply blows their minds.
love detective
there's no love too small
Christ you are a muppet - you're constantly contradicting your previous statements. Of course you can lend out money that you actually have! This is the same as funding a loan prior to its actual extension, i.e. you can lend out money that you have already secured. That in itself is of course a banality though. Your claim was that if a bank got a deposit of £100 they could lend out this thirty times without having to get the money from anywhere - yet when asked how they do that, you simply state they have got the money to lend it out! So what you've done above is confirm that what you said was possible earlier is not actually possible. I ask again though, that money that they 'actually have' where does that come from? what is the accounting entry and flows that arise when that money comes into them? we know one side of it which is a debit entry representing the money they have as an asset - but what is the other side of that? anything you say here will obviously be a credit entry (in the eyes of the bank) and in turn that has to represent a liability with an external party (customer, interbank lender or central bank). That in turn shows that a bank has to be able to fund any loans it makes. It can't just magic the money up out of anywhere, it relies on whoever the external party is that that credit/liability entry represents a liability to
You're showing how little grasp you have on this here - the loan from the point of view of the bank is an asset, not a liability you muppet. In the bank's books the loan is something due back to them, so it's a debit entry in their ledger which represents an asset. Now i'm asking you again, what is the other side of that entry - what is the credit entry? (which form the point of view of the bank is a liability). As i said above, anything you say here will be a credit entry (in the eyes of the bank) and that has to represent a liability with an external party (customer, interbank lender or central bank). That in turn shows that a bank has to be able to fund any loans it makes. Which in turn makes a mockery of your claim that the bank can just magic the money into existence.
Even your previous example (which was correct by the way) of what happens when someone pays money from their account to another account, shows that the bank is not the independent, money creating, entity in all this. In that its the party which wishes to pay money from their account to someone else that instigates the flows & accounting entries that the bank then makes. This is what I meant earlier when I said the accounting entries are a reflection of something happening, they are the effect not the cause. But you are either unable or unwilling to aknowledge this (even though your examples actually prove it) because it pulls the rug away from your nonsense that commercial banks just create money out of nothing. When in fact they can only play a part in credit creation if all the other dependecies and requirements are in place - which makes them the dependent, not independent actor
wrong - what you describe above is the internal accounting entry, at the point of doing this, the bank has to be in a position to fund the withdrawl of that money from the loan account. which can only be done by ensuring they already have existing money in their own liquid accounts or ensuring they can fund the soon to be drawn loan by funding it though customer deposits, interbank lending, etc.. all of which, from the eyes of the bank would entail an entry which would be DR Bank Cr Liability (with the liability being the bank's liability to whoever they funded the position from)
No, you continually misunderstand this, it's not about cash being earmarked to cover the loan, it's about money being earmarked to cover the loan. If they don't do that, the loan doesn't get made. I can't put it any simpler than that. You've even proved this above in two of your examples without even realising i (i.e. to move money from one person's account to another requires the agreement and involvement of the person with the money in their account in the first place, and to loan out £100 thirty times requires, in your own words, 'cash that they actually have' (although I wouldn't refer to that as cash but money, but i know what you meant)
your continually mixing this up - this is not a discussion about the form of money - the fact that only 3% of money circulates in the form of cash is completely irrelevant to the discussion we're having. All the time i've been talking about money, not cash, and in fact the only person who has mentioned cash, when they should have said money, was you - just above.
It's not clear to me how to make this any simpler. You are constructing an elaborate confection that purports to explain what happens to money after it has been created (which may or may not be accurate - it is irrelevant) while ignoring how it is created in the first place. And we know how it is created, because the people who create it have told us. It is simply created out of nothing.
love detective
there's no love too small
The very first post on this thread contains the quote from the guardian article which was the basis of this thread - here it is in full
Everything in that refers not to central banks, but to commercial banks - you can see that surely can't you?
And immediately below your post above, Jazz has also confirmed that the thread is about commercial banks, not central banks
I have argued countless times elsewhere that although central banks can create money effectively out of nothing, commercial banks cannot - they only play a mediating role in the circulation and expansion of credit money, however not as an independent actor but a dependent one. Central banks can create money out of nothing but they cannot make it circulate, commercial banks can play a part in the circulation of money but they cannot independently create it. Jazz's assertions on this thread is that they can, but they can't.
love detective
there's no love too small
It's entirely relevant, I asked Jazz how a bank could lend out a deposit more than thirty times without having that deposit circulate out and back to it again (i.e. how can a bank take part in circulating something that isn't circulating)
He answered they use the money they 'actually have' to lend it out
I asked him to explain where it 'actually came from' - so in contrast to what you claim above, I'm not asking for someone to explain what happens after its been created, i'm asking him to explain how it was 'created' in the first place, that money he refers to as 'actually having' i'm asking for the story of how it got there and what are the accounting entries he claims is enough to magic that money into existence, not where it went after it got there
It's clear you don't understand enough about this to follow the discussion (as has been seen with your comments about central banks earlier)
More than that: it is nothing.
The people who create wealth are the working people who turn up day by day and get stuff done
There is without a doubt a need for management and even overseers of that management
What there isn't a need for is the idea that erm .. fuck I can't remember
We need a revolution .. tanks on the street
Come on you sappy leaderless fuckers .. your bosses have shit their pants
<buys lottery ticket>
There is without a doubt a need for management and even overseers of that management
What there isn't a need for is the idea that erm .. fuck I can't remember
We need a revolution .. tanks on the street
Come on you sappy leaderless fuckers .. your bosses have shit their pants
<buys lottery ticket>
The OP points out that only 3% of "money" is represented by the activities of commercial banks. So to assert that my interest in the other 97% is somehow evidence of my lack of understanding of the subject is rather disingenuous. However, I can understand how, from your perspective, it appears that I don't understand. You are fixating on the circulation process, while studiously ignoring the fact that the "thing" being circulated is "nothing". Since I haven't engaged in the fiction that there is anything of value being circulated, it appears to you as though I don't understand the circulation mechanism whereas, in fact, I am simply uninterested in it.
Meanwhile, I'm not explaining what happens after it's been created. I'm explaining how it is created. It is created from nothing in the other 97% of the system, and is nothing.
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