critique of loon theories around banking/money creation/the federal reserve
- Thread starter SpineyNorman
- Start date
I can't believe that you have spent a vast amount of time on this!
Really, all you are doing when you say this is expressing the accounting equation
assets = liabilities + equity
in a way I find very strange and back to front - take the example of a sole trader who you gift £10,000 to. So he ends up with £10,000. Would you say that his £10,000 (his 'owner's equity') funded your gift? And would you say that his equity was something he owed?
But really we know we both agree that assets = liabilities + equity. So what you have done is focus to a ridiculous degree on a semantic quibble.
You have no understanding of the difference between full and fractional reserve banking.
You like posting up vast posts of either no real content or very tedious content, which impresses most bystanders with apparent complexity, but not me.
You are not able to provide any proper explanation of how fractional reserve banks 'fund' their loans.
You have the understanding of an accountant. You do not understand the deeper mystery of money creation.
If you were truthful, you would admit to being a bit perplexed by it.
ymu
Niall Ferguson's deep-cover sock-puppet
Hope I haven't missed this point being made amongst the posts I've been skimming to find the good stuff, but I thought the 'Christian' obsession (obsession of some Christians) with teetotalism originated with capitalism and very little else?
The puritan philosophy says that a man is rewarded for his pious life, so shut the fuck up about us being rich, you poor feckless sinners.
Then, at around the turn of the last century IIRC but maybe earlier, Methodism started proselytising via an early form of alcoholics anonymous. "Look, Jesus can perform miracles! He turned beer into furniture and food for my family!".
Licensing hours were all about industrialists wanting the workers not to be hungover by morning. The moralistic stuff is a justification. Abolishing licensing hours has as much to do with the increasing prevalence of shift-work and different demands from the capitalists as it does with basic common sense (why would you want all the very pissed people spilling out onto the street at exactly the same time
)
ymu
Niall Ferguson's deep-cover sock-puppet
love detective If you're posting quotes from other threads, you can hit 'reply' within those other threads and copy/paste from the reply box to get a link included in your quote. Makes it easier for the terminally lazy to find and follow the original argument.
/top tip
/top tip
love detective
there's no love too small
Yes, I spent such a long time on it because you clearly could not comprehend it based on your response to my earlier post
Your initial reaction to it was that it was absurd & incredolous, now that you've been pulled up on it by both myself and LBJ you are making out it's so obvious it doesn't merit discussion.
This is an example of your disingenuous approach to discussion, you made a clear error when you implied what I had written was wrong. Then when I genuinely take the time to explain it you in the hope that you might learn something, you then respond in a way which implies you had never doubted it in the first place. Total and utter intellectual dishonesty.
Again, you don't understand basic accounting
A gift to a company would be recorded in the same way as income is - i.e. the entry would be
Dr Bank £10,000
Cr P&L £10,000
The balance sheet would show an asset of the cash in the bank and the ultimate liability of the accumulated P&L to the owner of the business, i.e. the asset is funded by the liability. The asset of £10,000 cash in the bank of the company only exists because of the company owners equity that supports it. If the company's owner decided to instigate a share buy back or capital return, the £10,000 would be returned to the shareholder and therefore would now no longer be an asset of the company. The asset of the company is funded by the liability.
But really we know we both agree that assets = liabilities + equity. So what you have done is focus to a ridiculous degree on a semantic quibble.
To take it back to the quote you initially responded to - the example of Northern Rock's balance sheet.
You will see that the amount of equity relative to total assets is a tiny percentage. That you chose at that time to engage in a semantic quibble over me correctly classifying equity as a liability of the business, where the equity amount was such a tiny amount shows that this was the only response you were able to make on the post. You avoided the substantive point being made, which is correct, that all assets of that balance sheet were funded by liabilities (notice by the way that even on that balance sheet of Northern Rock above the equity category is included within the wider category of Liabilities).
In the last thread that was specifically on full reserve banking (the IMF paper thread) It was you who was shown up not to understand the system that you supposedly support
You ask for explanations about things you don't understand. When you get them you get into a strop because you either don't understand them or because they pull the rug away from the shaky edifice of your loon theories. If you don't like this happening to you I suggest you don't take part in the debate (or take the time to actually go away and learn some of the basics of this so you are slightly better equipped to take part in a grown up discussion on it)
Unbelievable, you've had countless posts and examples on this - you don't understand it or more correctly you don't like it as it pulls the rug away from your lunacy
hold on, earlier on you were telling us all how simple it is (despite a continued dogmatic avoidance of all questions asked of you on the topic) - now you're saying it's a deep mystery - you're all over the place. And you also seem to have conveniently forgot that the reason this little exchange started was because you were demanding to know accounting entries and making absurd claims about accounting conventions and basically showing a dire understanding of basic accounting principles. I responded to correct your various mistakes and misunderstanding of basic accounting principles on this and you then have the cheek to moan that the discussion has taken on an accountancy focus. You couldn't make it up (but you do).
I'm perplexed by one thing and one thing only by all this - whether you are genuinely a muppet or whether it's something more sinister, i.e. you do actually understand a lot of what I have talked about on these threads, but you know you can't engage with them, nor refute them, so the only course of action you have is to retreat into the nonsense of above
beesonthewhatnow
going deaf for a living
Yeah, the last person you'd expect to understand money is an accountant.
It's almost as silly as an architect specialising in tall buildings knowing how skyscrapers are made.
goldenecitrone
post tenebras lux
Accountants and architects are blinded by facts. The person you really want to listen to is a mentally ill ex-football commentator for the Troof.
Random
Ethnic nalgocrat
Just to recap for my own benefit.
The real-world meaning of Jazz politics is thinking that a cartel of international bankers are the ones pulling the strings and we need to focus our energy on "exposing" them and getting a "better" banking system. The real-world meaning of the analysis as proposed by Love Detective is that we need to see capitalism as a broad system of oppression and exploitation that permeates society and we need total social change.
So I don't really need to know any more in order to know what side I'm on...
The real-world meaning of Jazz politics is thinking that a cartel of international bankers are the ones pulling the strings and we need to focus our energy on "exposing" them and getting a "better" banking system. The real-world meaning of the analysis as proposed by Love Detective is that we need to see capitalism as a broad system of oppression and exploitation that permeates society and we need total social change.
So I don't really need to know any more in order to know what side I'm on...
No, because I told you that this company was not incorporated but was a sole trader. Why did I do that? To make clear that equity is NOT really the same as a liability, although it may be on the same side of the equation. The 'equity' for a sole trader isn't owed to anyone! It's NOT A LIABILITY.
And I'm sorry but saying that assets are 'funded' by liabilities is just plain BIZARRE thinking. This implies that liabilities are a desirable thing for a business to have!
If you apply for 'funding' what do you look for - people you might owe more money to?
When your electricity bill drops through the post, do you say, "hurrah, more funding!"?
Let's suppose you are on the road in the 19th Century. You have your life savings of £1000 in gold coins.
Love-detective's balance sheet:
Assets: £1000
Liabilities: £0
LD's equity: £1000
Please note that you don't owe your equity to anyone.
Suddenly, a bizarre scoundrel appears with a gun.
"I'm going to give you some funding!" he says, meaning he wants you to give him all your money.
Now, a liability exists between you and the scoundrel for the £1000. So your balance sheet is, before you give him the coins,
Assets: £1000
Liabilities: £1000
LD's equity: £0
GREAT!
love detective
there's no love too small
Do many banks operate today as sole traders Jazzz? No of course they don't - I can see though why you are so desperate to swing the discussion to that of an individual sole trader and away from the topic of the thread, an analysis of how bank's work
Unfortunately for you though, everything I have written is 100% correct in relation to not only limited companies but conceptually correct even in relation to sole traders - the notion of owing the equity of your own business to yourself may seem a little odd but it really isn't
And your example is bizarre, as you seem to think that proving that when someone robs you, you have less net worth than before they robbed you proves any kind of point, is wonderfully cute really
That the only retort to my points about the money, credit and banking systems you could come up with was an example of a bizarre scoundrel in the 19th century or the example of a gass bill (while continuing to ignore the questions put to you by me and other on this thread earlier) shows the limits of your ability to engage with the discussion at hand, i.e. fuck all.
I suggest you take some time out to look at the financial accounts of some banks Jazz and familiarise yourself with them - this might lead to a filling in of a few gaps in your current knowledge
Start with a nice simplified balance sheet of Northern Rock in 2007:-
As we can see, total liabilities include the equity of the business, but more importantly and hardly earth shattering news, the balance sheet balances. Every Asset in the asset section is funded by one or more of the liability categories (including equity).
See that Bank of England loan of £28m in 2007, that's when NR had to start relying on state aid to fund their loan/mortgage book when their access to the normal money markets froze up in 2007. That liability to the BOE (representing money borrowed from them) partially funded the loans & advances figures you see in the asset section
See the customer accounts figure of £12bn, that's the level of customer deposits held at the bank by customers at the end of that year. That money (liabilities of the bank representing deposits placed at it by customers) was used partly to fund the loans you see in the asset section. Those liabilities to customers (representing money deposited at the bank by customers) partially funded the loans & advances figures you see in the asset section.
See the mortgage backed securities figure of £43bn, this represents borrowings that NR took on through issuing MBS debt securities. Those liabilities to the purchasers of those mortgage backed securities partially funded the loans & advances figures you see in the asset section.
And so on and so on
This is basic stuff Jazz
I'm going to ask you a question now which I know you cannot and will not answer:-
If you still disagree that those liabilities on NR's balance sheet are in no way whatsoever being used to fund the assets on that balance sheet, answer me this, why do those liabilities exist? what are they for? why would NR agree to take on those liabilities if they were not getting something in return for them (i.e. the ability to fund assets/loans)?
You don't seem to have the clarity of mind to cut through the crap and see this for what it is.
Even if an asset is not directly or immediately funded by a liability, it is always ultimately funded by it. What I mean by that is this:-
You as a sole trader borrow £1,000 from a bank. At that point in time you have an asset in the form of money of £1,000 and a liability in the form of a bank loan to be repaid of £1,000. You use the £1,000 to buy a Piano. Now this direct transaction of buying the Piano has obviously been funded by the £1,000 that was already 'in' your bank account.However the only reason it was there in the first place was because of the initial liability taken on by you in the form of the bank loan to enable the £1,000 to be put 'in' the account. You even gave an example that proves my case earlier on in this thread. The IOU you gave to the coffee shop represented a liability taken on by you to enable you to fund the purchase of the hot chocolate (and before you start, yes liabilities can by used either to fund assets or pay expenses, but as this is supposed to be a thread about how bank's fund their assets, we are focussing on the using of liabilities to fund assets here)
and this:-
No, it doesn't imply that liabilities are a desirable thing for a business to have, it implies that they are a necessary part of a business if it is to do anything. It shows the simple fact that a business cannot just magic an asset out of thin air. That if they want to acquire any asset (financial or tangible) it has to be funded by something. And that funding, whether it be a liability to others or the liability to the owners of the business in the form of equity itself, is the opposite of an Asset. That's why balance sheet's balance.
An asset is the right to a future benefit (or more correctly 'An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise') A liability is a future obligation (or more correctly 'an obligation of an entity arising from past transactions or events') . Banks, just like any other business, trade by taking on obligations (liabilities) in order to gain obligations from others (assets). To the extent that their Assets exceed Liabilities (excluding equity) this then represents the net worth of the business, but this in itself is still funding part of the overall Assets of the company. As as you even say yourself. Liabilities + Equity = Assets. It's basic stuff Jazz
Your attempts to sway this onto a semantic discusion about the differences between equity & liability are quite telling - equity represents a tiny fraction of a bank's balance sheets, so it's pretty irrelevant to our discussion (although important conceptually in other ways). As we can see from NR's balance sheet above, equity is a tiny amount of total assets. Putting equity to aside for the sake of argument, we see that every asset on NR's (and every other company's) balance sheet is funded by a mixture of different liabilities.
And by the way, any update on the seven questions that you promised to answer nearly a week ago now and have yet to even touch. Can't be that tough can they?
Night loon
Unfortunately for you though, everything I have written is 100% correct in relation to not only limited companies but conceptually correct even in relation to sole traders - the notion of owing the equity of your own business to yourself may seem a little odd but it really isn't
And your example is bizarre, as you seem to think that proving that when someone robs you, you have less net worth than before they robbed you proves any kind of point, is wonderfully cute really
That the only retort to my points about the money, credit and banking systems you could come up with was an example of a bizarre scoundrel in the 19th century or the example of a gass bill (while continuing to ignore the questions put to you by me and other on this thread earlier) shows the limits of your ability to engage with the discussion at hand, i.e. fuck all.
I suggest you take some time out to look at the financial accounts of some banks Jazz and familiarise yourself with them - this might lead to a filling in of a few gaps in your current knowledge
Start with a nice simplified balance sheet of Northern Rock in 2007:-
As we can see, total liabilities include the equity of the business, but more importantly and hardly earth shattering news, the balance sheet balances. Every Asset in the asset section is funded by one or more of the liability categories (including equity).
See that Bank of England loan of £28m in 2007, that's when NR had to start relying on state aid to fund their loan/mortgage book when their access to the normal money markets froze up in 2007. That liability to the BOE (representing money borrowed from them) partially funded the loans & advances figures you see in the asset section
See the customer accounts figure of £12bn, that's the level of customer deposits held at the bank by customers at the end of that year. That money (liabilities of the bank representing deposits placed at it by customers) was used partly to fund the loans you see in the asset section. Those liabilities to customers (representing money deposited at the bank by customers) partially funded the loans & advances figures you see in the asset section.
See the mortgage backed securities figure of £43bn, this represents borrowings that NR took on through issuing MBS debt securities. Those liabilities to the purchasers of those mortgage backed securities partially funded the loans & advances figures you see in the asset section.
And so on and so on
This is basic stuff Jazz
I'm going to ask you a question now which I know you cannot and will not answer:-
If you still disagree that those liabilities on NR's balance sheet are in no way whatsoever being used to fund the assets on that balance sheet, answer me this, why do those liabilities exist? what are they for? why would NR agree to take on those liabilities if they were not getting something in return for them (i.e. the ability to fund assets/loans)?
You don't seem to have the clarity of mind to cut through the crap and see this for what it is.
Even if an asset is not directly or immediately funded by a liability, it is always ultimately funded by it. What I mean by that is this:-
You as a sole trader borrow £1,000 from a bank. At that point in time you have an asset in the form of money of £1,000 and a liability in the form of a bank loan to be repaid of £1,000. You use the £1,000 to buy a Piano. Now this direct transaction of buying the Piano has obviously been funded by the £1,000 that was already 'in' your bank account.However the only reason it was there in the first place was because of the initial liability taken on by you in the form of the bank loan to enable the £1,000 to be put 'in' the account. You even gave an example that proves my case earlier on in this thread. The IOU you gave to the coffee shop represented a liability taken on by you to enable you to fund the purchase of the hot chocolate (and before you start, yes liabilities can by used either to fund assets or pay expenses, but as this is supposed to be a thread about how bank's fund their assets, we are focussing on the using of liabilities to fund assets here)
and this:-
Jazz said:
No, it doesn't imply that liabilities are a desirable thing for a business to have, it implies that they are a necessary part of a business if it is to do anything. It shows the simple fact that a business cannot just magic an asset out of thin air. That if they want to acquire any asset (financial or tangible) it has to be funded by something. And that funding, whether it be a liability to others or the liability to the owners of the business in the form of equity itself, is the opposite of an Asset. That's why balance sheet's balance.
An asset is the right to a future benefit (or more correctly 'An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise') A liability is a future obligation (or more correctly 'an obligation of an entity arising from past transactions or events') . Banks, just like any other business, trade by taking on obligations (liabilities) in order to gain obligations from others (assets). To the extent that their Assets exceed Liabilities (excluding equity) this then represents the net worth of the business, but this in itself is still funding part of the overall Assets of the company. As as you even say yourself. Liabilities + Equity = Assets. It's basic stuff Jazz
Your attempts to sway this onto a semantic discusion about the differences between equity & liability are quite telling - equity represents a tiny fraction of a bank's balance sheets, so it's pretty irrelevant to our discussion (although important conceptually in other ways). As we can see from NR's balance sheet above, equity is a tiny amount of total assets. Putting equity to aside for the sake of argument, we see that every asset on NR's (and every other company's) balance sheet is funded by a mixture of different liabilities.
And by the way, any update on the seven questions that you promised to answer nearly a week ago now and have yet to even touch. Can't be that tough can they?
Night loon
God this is tedious.
If you say, "businesses may increase their liabilities in order to acquire assets" I'm with you all the way.
If you say, "assets are funded by liabilities" that is just silly. Assets are assets, liabilities are liabilities.
Your cocaine habit does not 'fund' your cash under the mattress.
The reason balance sheets balance is that they have to: they are there to measure equity, the value of the business, which is the difference of assets and liabilities.
If you say, "businesses may increase their liabilities in order to acquire assets" I'm with you all the way.
If you say, "assets are funded by liabilities" that is just silly. Assets are assets, liabilities are liabilities.
Your cocaine habit does not 'fund' your cash under the mattress.
The reason balance sheets balance is that they have to: they are there to measure equity, the value of the business, which is the difference of assets and liabilities.
equationgirl
Respect my existence or expect my resistance
Why don't you just answer the 7 questions previously asked of you, instead of posting all this crap? For once?God this is tedious.
If you say, "businesses may increase their liabilities in order to acquire assets" I'm with you all the way.
If you say, "assets are funded by liabilities" that is just silly. Assets are assets, liabilities are liabilities.
Your cocaine habit does not 'fund' your cash under the mattress.
The reason balance sheets balance is that they have to: they are there to measure equity, the value of the business, which is the difference of assets and liabilities.
littlebabyjesus
one of Maxwell's demons
You're just putting the same thing in different words now, I think.
So a bank increases its liabilities in order to acquire new assets. It borrows in order to loan. It's no more complicated than that. In order to create a new loan, the bank does need two things - someone to lend to and someone to borrow from. They can effectively create the money needed for both of these things to happen, but they still need those two external actors to facilitate the circulation of that money that creates the obligations within the economy that give the whole thing its meaning.
So a bank increases its liabilities in order to acquire new assets. It borrows in order to loan. It's no more complicated than that. In order to create a new loan, the bank does need two things - someone to lend to and someone to borrow from. They can effectively create the money needed for both of these things to happen, but they still need those two external actors to facilitate the circulation of that money that creates the obligations within the economy that give the whole thing its meaning.
TruXta
tired
I don't think I've ever seen Jazzz quite so flustered 
See Jazzz, the thing is the value-production in the system isn't the money being created and circulated - it's the social work of labour and production. Money is an expression of that, one of many. Money isn't magicked out of nothing, neither is value.
Fuck, why do I ever bother.
See Jazzz, the thing is the value-production in the system isn't the money being created and circulated - it's the social work of labour and production. Money is an expression of that, one of many. Money isn't magicked out of nothing, neither is value.Fuck, why do I ever bother.
littlebabyjesus
one of Maxwell's demons
Jazzz is nearly there I think, when he says that money is a promisory note. It is. But then the thing to consider is: what exactly is a promisory note, and what needs to happen for it to be meaningful?
Wrong, I don't think I've promised to answer your questions LD, sorry. I'd rather have you explain what happens when banks make a loan - where does the money come from, if not thin air? This you really haven't done at all. Actually, don't bother replying, you have ground me down with sheer boredom. Much like freespirit in a previous thread.
Money is indeed magicked out of nothing!
I don't want to get sidetracked onto 'value' as it's subjective
TruXta
tired
Particular manifestations or expressions of value can be subjective. There's however nothing subjective about the labour and time that goes into manufacturing, services, agriculture or what have you. That's one part of where money comes from. You with us so far?
littlebabyjesus
one of Maxwell's demons
Try this one:
What happens to a bank when this situation arises:
Assets > liabilities + cash
?
What happens to a bank when this situation arises:
Assets > liabilities + cash
?
TruXta
tired
Careful with that sort of line, you'll have the Witchfinder General here in a minute, muttering about symbols and witches.
This is actually what happens when you take out a loan:
You create a 'promissory note' (the loan agreement). This is money. You create it out of a piece of paper and pen, with your wet signature. (!)
The bank takes it and puts it in their vault. Their asset.
In exchange, they credit your bank account (which is literally part of the bank's books, a liability account) with the amount of the loan. That is the loan.
Modern Money Mechanics, Federal Reserve Bank of Chicago
littlebabyjesus
one of Maxwell's demons
The value represented by money isn't subjective. For me to buy an apple from you for 50p, we both have to agree to that price of 50p. One side of the transaction alone cannot decide the price - although of course relative power relations can give one side more leverage.
cash is an asset.
littlebabyjesus
one of Maxwell's demons
But for that money to do anything, it has to leave the account. As soon as it does leave the acount, the bank must fund that loss of a liability by replacing it with another liability.
littlebabyjesus
one of Maxwell's demons
Replace the word 'asset' with 'loans made' then if you prefer.
That or its assets are reduced (e.g. hard cash is removed, or credits in it BofE account are reduced).
But the key point (as ever!) is this: just as money (in the form of demand liabilities) leaves one bank to go to another, the same flow is expected, on average, the other way. (And just in case it is really off, then they can call on the interbank lending market).
This is what enables banks to cover £100,000 of loans with just £3000 cash reserves and not get caught out!
littlebabyjesus
one of Maxwell's demons
Yes, and this flow of money around banks is smoothed out by overnight interbank lending, which allows individual banks within the system to balance their books.
You are now essentially agreeing with love detective's position.
You are now essentially agreeing with love detective's position.
equationgirl
Respect my existence or expect my resistance
Yes, you did, on the previous page. Here is your post:
http://www.urban75.net/forums/threa...-federal-reserve.295325/page-41#post-12099272
equationgirl
Respect my existence or expect my resistance
Plus, free spirit gave some excellent explanations of why there was no nanothermite in the other thread. You weren't bored, Jazzz, you were defeated by science and facts. I seem to remember you didn't like to answer the most basic of questions on that thread either...
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