"Banks create money out of nothing" - Guardian

[phildwyer]

lovedetective, you have not discussed the topic many times with me. You are hanging onto the idea that only cash (or M0 money let's say) is the actual money. You have not yet grasped that the accounting entries are money. This is obviously the case, because only a small fraction of the money supply is considered to be cash, the vast majority being bank-created accounting entries.

Exactly. Love Detective's thinking remains stuck in the C19th.

Anyway, it's not so much that money is created out of nothing--it's that money is nothing.

Nothing material, at any rate. Everyone today except LD and his dwindling ilk accepts that money is a sign. The only dispute is about what kind of a sign it is.

 

[Fruitloop]

According to David Graeber, it always was nothing.

 

[ViolentPanda]

There will always be a fringe. The important things are to keep perspective. These groups (in this country) only seem significant when compared to the size of lefty groups. It's still in sub 1% territory.

In your world there seem to be separate political groups who never intermingle, combine or form that hoariest of political unions, the "united front", because that's the only way you can state the insignificance of the right with such certainty.

History, of course, shows us that the right are far more willing to make common cause when necessary than the left. It also shows us that but for frequent bouts of "shooting self in foot" disease, the far right would be in a much better position than currently. As it is, their presence has meant at least a decade of rightward "trimming" by the three mainstream political parties.

 

[camouflage]

On a more serious note, the post below from that Austrian thread was a response to a similiar claim to jazz's that the creation of accounting entries was synonymous with the creation of money

I agree with what you said in the Austran thread ld, but I think Jazzz is also right in terms of the world of finance. There's a disconnect between the reality (what you're saying) and the fiction of finance that numbers in a ledger are themselves valuable. Eventually the reality catches up with the fiction and the bubble formed between the two finally bursts. Numbers written to a ledger of sub-prime mortgages for instance catching up with low-income mortgage holders defaulting under the stress of rises in their variable costs (like energy maybe) or whatever. Hope you see what I mean.

 

[love detective]

I agree with what you said in the Austran thread ld, but I think Jazzz is also right in terms of the world of finance. There's a disconnect between the reality (what you're saying) and the fiction of finance that numbers in a ledger are themselves valuable. Eventually the reality catches up with the fiction and the bubble formed between the two finally bursts. Numbers written to a ledger of sub-prime mortgages for instance catching up with low-income mortgage holders defaulting under the stress of rises in their variable costs (like energy maybe) or whatever. Hope you see what I mean.

I see what you are getting at yes, but you give Jazz too much credit (lol) in locating his demented ramblings and poorly understood analysis within the context of the real disconnect that needs to be analysed/understood/critiqued/smashed

The disconnect you refer to is between money & value and to be understood properly needs to be located within a wider analysis of capitalism, wage labour, commodity production and value - that is the root of any crisis under capitalism. Any critique of finance capital needs to be rooted in that and not this sensationalist money crap that Jazz and all the money first freaks come out with (i.e. they woud think that abolishing money yet retaining wage-labour and capitalist social relations would solve the problems that wage-labour and capitalist social relations cause). Jazz can't even analyse & understand the phenomenal form in and off itself, let alone the underlying essence that gives rise to it. In fact, he takes the phenomenal form as if it was the essence, arse about tit.

For Jazz, the problem lies in money in and off itself - he sees no problem in the underlying capitalist social relations that are the source and essence of all the problems that ultimately manifest themselves within the sphere of circulation and the world of finance capital

Also just to add, numbers written into a ledger in relation to sub prime mortgages are not just numbers in and off themeselves, they are a representation of the (warped) reality that actually happened. They represent real flows of money in relation to credit creation, they represent real things were done with that money, and represent real expectations of future repayment of that money. There is of course a disconnect between the sustainability of those things an fuckwitted d reality, but those things were not just numbers in a ledger. This is where Jazz shows extreme muppetry and a chronic misunderstanding of things. Accounting entries don't create anything in and off themselves, they are a reflection of something that has happened elsewhere (no matter how ludicrious that thing may be). They are the effect not the cause of something happening elsewhere. That he thinks they are the cause shows just how little grasp he has on the topic, which is why his comment about 'lending out' an accounting entry very succinctly revealed how his understanding of all this is

 

[cesare]

If Button buys your veg with his cash, it doesn't matter if you pay me back the double entry accounting entries or not

 

[love detective]

is half a double entry accounting entry the same value equivalent as a one sided accounting entry

and can we use both in europe or do they use something else?

and what's the exchange rate between a US GAAP accounting entry and an IFRS accounting entry?

are UK GAAP accounting entries freely convertible or are there exchange controls

 

[Blagsta]

I agree with what you said in the Austran thread ld, but I think Jazzz is also right in terms of the world of finance. There's a disconnect between the reality (what you're saying) and the fiction of finance that numbers in a ledger are themselves valuable. Eventually the reality catches up with the fiction and the bubble formed between the two finally bursts. Numbers written to a ledger of sub-prime mortgages for instance catching up with low-income mortgage holders defaulting under the stress of rises in their variable costs (like energy maybe) or whatever. Hope you see what I mean.

Yes, Marx called this fictitious capital.

 

[camouflage]

Yes, Marx called this fictitious capital.

Marx, yes. I treid to read Capital and the experience sucked all the joy of an interest in economics out of me for three whole months, I'm only just now starting to take an interest again.

Marx sucks.

 

[Blagsta]

Marx, yes. I treid to read Capital and the experience sucked all the joy of an interest in economics out of me for three whole months, I'm only just now starting to take an interest again.

Marx sucks.

Hard to read, yes. Very useful though. No, I haven't read it all, too busy at the moment. David Harvey's guide, although meant to be read in conjunction with Capital, can give you a good overview without.

 

[camouflage]

Hard to read, yes. Very useful though. No, I haven't read it all, too busy at the moment. David Harvey's guide, although meant to be read in conjunction with Capital, can give you a good overview without.

Yup, I have David Harvey's podcasts as well, didn't help, still felt depressed. Marx was really bad at putting his ideas across in my opnion, I don't beleive the concepts he was trying to communicate are as byzantine and complex as his writing style makes them sound. No wonder people that have attempted to power through his works over the last centuary have come out with all sorts of funny ideas. More heat than light in my humble opinion, though I suppose there is the possibility that it was simply beyond me. Perhaps if I spoke German and could read the original version... a very sensible language German, or so I'm led to beleive. Anyway all that's for another thread.

 

[Blagsta]

Yup, I have David Harvey's podcasts as well, didn't help, still felt depressed. Marx was really bad at putting his ideas across in my opnion, I don't beleive the concepts he was trying to communicate are as byzantine and complex as his writing style makes them sound. No wonder people that have attempted to power through his works over the last centuary have come out with all sorts of funny ideas. More heat than light in my humble opinion, though I suppose there is the possibility that it was simply beyond me. But all that's for another thread.

I'm wondering what you disagree with in his works?

 

[camouflage]

I'm wondering what you disagree with in his works?

I honestly couldn't tell you, it was chapter two I think where things went pear-shaped, I couldn't make any sense of what he was trying to say to know whether I agreed with it or not. The earlier chapter I think I did get on with and did not disagree with his thinking. According to Harvey the chapter I gave up on is where most people do, part of the problem iirc is he tries to write clearly but then mingles his definitions, he seems to have like five seperate uses of the word 'value', not helpful if you're also trying to talk like someone coding a script. I might have another go at it though.

 

[Blagsta]

Yeah, that's a confusing chapter, all the stuff about relative and equivalent value and shoes, linen etc.

What he's basically saying (I think) is that when 2 things are in a relationship with each other in terms of exchange value, you can view the relationship from the point of view of either item.

 

[camouflage]

Yeah, that's a confusing chapter, all the stuff about relative and equivalent value and shoes, linen etc.

What he's basically saying (I think) is that when 2 things are in a relationship with each other in terms of exchange value, you can view the relationship from the point of view of either item.

Yeah I got that, made sense. At that point it was a bit like saying it's equally valid to ask what time does the platform arrive at the train (and actually it is equaly valid, this can measure that and that can measure this) so yeah i got the idea there. Maybe it was chapter 3 that lost me... I dunno it's all a blank now, a bit like a traumatic incident the mind refuses to properly recall.

 

[ViolentPanda]

cesare and love detective = obvious international bankers.

 

[Falcon]

Until the dependence of the financial system on the matter/energy system is understood, it is very easy to get lured into all sorts of mental monkey traps on the subject of money. Conversely, once you do, it becomes relatively straightforward to see what is going to happen next.

The only location of wealth is in the matter/energy system. "Stuff", in other words. (The economic world that is supposed to exist on the basis of everyone selling photocopy insurance policies to each other falls over the minute your fridge empties.)

1. Money serves as a proxy for wealth. It is not wealth.
2. The quantity of money must be proportional to the quantity of wealth, or the value of money declines.
3. The quantity of wealth is proportional to the quantity of available energy. (Try making anything of value without it)
4. So the quantity of money must at all times be proportional to the quantity of available energy. (Some people find a cup of tea, a chocolate hobnob, and a general think about the implications of this is quite useful before proceeding. A second hobnob is sometimes required to grasp the significance of "available" i.e. net, not gross, and in practice, not in theory).
5. The current form of the financial system (debt based/interest bearing) is arbitrary.
6. For the entire duration of the current, arbitrary form of the current financial system, the quantity of energy available to us has been expanding (most recently, due to the temporary availability of fossil energy stores).
7. The current, arbitrary form of the financial system has adapted to and is now contingent upon expansion of the matter/energy system.
8. Under expanding conditions, banks have become accustomed to issuing money in anticipation of future matter/energy system expansion.
9. Money created in this way (as distinct from money created in the course of the actual expansion of the matter/energy system) does not exist until the expansion it is predicated on takes place.
10. This is the sense in which banks can be said to have "created money out of nothing".
11. The quantity of money generated in anticipation of growth which has not yet occurred, and which therefore has no relationship with "wealth", and therefore does not exist, is now very large indeed.
12. Anyone who has participated in "equity withdrawal" from the value of their home, predicated on some notional, higher future resale value from which the loan is repaid, has directly encountered this practice. The loan must be paid, irrespective of the future value of your home (See 2). If the value of your house contracts, or even does not increase as much as expected, you can be insolvent - lose financial integrity. The system can lose financial integrity - collapse - precisely the way the premature withdrawer of equity can.
13. Under contraction of the matter/energy system, money must be retired in order to preserve the correspondence between unretired money and wealth (in technical terms, one-off capital creation entails ongoing maintenance energy costs which become unserviceable at the margin).
14. The current, arbitrary form of the financial system (debt/interest based) does not support the operation of money retirement.
15. The matter/energy system is now in the early stages of contraction, having gone beyond the point where accelerating energy depletion can be offet by new energy capacity addition.
16. The financial system is therefore - having been rigged to implode - on the verge of implosion due to the overhang of money with no value, and inability to retire unsupportable money.

Every conventional account of money creation overlooks this fundamental dependence on matter/energy expansion. The strength of protest at this account of money is more or less in proportion to the degree to which the expansion of the matter/energy system is overlooked.

 

[phildwyer]

Money serves as a proxy for wealth. It is not wealth.

In other words, money is a symbol of wealth. Postmodern capitalism, like postmodernist philosophy and linguistics, is predicated upon the autonomous power of representation.

 

[phildwyer]

Also just to add, numbers written into a ledger in relation to sub prime mortgages are not just numbers in and off themeselves, they are a representation of the (warped) reality that actually happened. They represent real flows of money in relation to credit creation, they represent real things were done with that money, and represent real expectations of future repayment of that money.

"Real expectations" eh?

 

[Jazzz]

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.

 

[Falcon]

love detective completely hasn't grasped it

Love Detective stands in relation to the physical basis of money in much the same way as a fish stands in relation to the water in which it swims - immersed in it, dependent on it, and completely oblivious to it. To be fair to him, it is a very powerful illusion because the physical system and the abstract financial system that is the emergent property of it have been in exponential growth for so long that it becomes easy to confuse the two.

 

[love detective]

lol @ you two

 

[Falcon]

lol @ you two

Well, quite. Since there isn't a single aspect of your argument that doesn't depend on theory that was arrived at under conditions of energy expansion, and therefore is indeterminate (at best) under conditions of energy contraction, "lol" is about as good as it's going to get.

 

[love detective]

stick to fitting solar panels

that you find common cause with nutters like Jazz says everything that needs to be said

 

[Falcon]

Oh dear. Ad hominem attack and affirming the consequent? You must be out of ideas.

 

[love detective]

feel free to actually respond to or critique anything i've said - sidling up to Jazz's demented ramblings in generic form doesn't really do much to encourage debate with you

 

[free spirit]

stick to fitting solar panels

oi. That's me, not Falcon (AFAIK)

 

[Falcon]

feel free to actually respond to or critique anything i've said

You seem rather preoccupied with what others have said, for which I can't really accept any responsibility. How about you address what I have said? Rather than persisting in ad hominem, how about you tell me which aspect of what I said you feel does not directly respond to or critique anything you've said? For example, I believe that the statement that your arguments only apply under conditions of energy expansion constitutes a rather direct critique of what you've said, don't you think?

 

[Dr Jon]

I'm reminded of this:

which kind of puts the present situation in perspective.

Where did this money come from???

 

[two sheds]

I'm reminded of this:

which kind of puts the present situation in perspective.

Where did this money come from???

jesus