How the banks create money

[psionl0]

No. If a bank givens you cash you do not get to keep that money in your account. If they given you cash when you take out a loan the money never makes it to your account and no new demand deposit is created, therefor no new money is created.

Do the maths. If no money is added to a "demand deposit account" then how is the total of all the deposit accounts changed? And yet in spite of this the borrower has cash that he didn't have before.

Before the loan: money in transaction accounts + 0$ cash.
After the loan: same money in transaction accounts + SOME cash.

How is that a zero sum gain?

(Maybe you disagree with the federal reserve's classifying cash as part of the M1 money supply or you think that bank reserves are part of the M1 money supply).

 

[lomiller]

Do the maths. If no money is added to a "demand deposit account" then how is the total of all the deposit accounts changed? And yet in spite of this the borrower has cash that he didn't have before.

and the bank has a lower reserve then it did before

 

[lomiller]

(Maybe you disagree with the federal reserve's classifying cash as part of the M1 money supply or you think that bank reserves are part of the M1 money supply).

No, as I said what I'm disagreeing with are the claims you are trying to attribute to others. You really need to read and understand what the Fed is saying and not just invent your own version of it.

Before the loan: money in transaction accounts + 0$ cash.
After the loan: same money in transaction accounts + SOME cash.

LOL if you get a $500 loan, and take the money in cash why is your bank changing your checking account. I strongly suggest you find a new bank if they are.

 

[psionl0]

and the bank has a lower reserve then it did before

Are you classifying bank reserves as part of the M1 money supply?

 

[psionl0]

Before the loan: money in transaction accounts + 0$ cash.
After the loan: same money in transaction accounts + SOME cash.

LOL if you get a $500 loan, and take the money in cash why is your bank changing(????) your checking account. I strongly suggest you find a new bank if they are.

You really need to read and understand what I am saying and not just invent your own version of it.

 

[lomiller]

Are you classifying bank reserves as part of the M1 money supply?

M1 money includes currency...

 

[psionl0]

M1 money includes currency...

...in the pockets and purses of the public. (You should read more than half a sentence at a time).
Page 2 of MMM also states that "Deposits of the U.S. Treasury, depository institutions, foreign banks and official institutions, as well as vault cash in depository institutions are excluded.

The only way your arguments can work is if you count bank reserves as M1 money (therefore depositing cash into a bank account would increase the transaction account balance and the bank reserve at the same time). However, as shown above, bank reserves are specifically excluded.

The reason is quite simple. Cash reserves in a bank are an asset for the bank but its customers transaction accounts are a liability for the bank. You can't add an asset and a liability together to get a money total. It would be like saying that a business with $1M in assets and $2M in liabilities is worth $3M (when in fact it is insolvent).

 

[lomiller]

The reason is quite simple. Cash reserves in a bank are an asset for the bank but its customers transaction accounts are a liability for the bank. You can't add an asset and a liability together to get a money total. It would be like saying that a business with $1M in assets and $2M in liabilities is worth $3M (when in fact it is insolvent).

As per most of your posts you start off by saying something accurate, then going off the rails. We are not trying to calculate the worth of the bank in this exercise we are trying to track money creation. Bank deposits are money because they are assets to the depositor, the fact that they are liabilities to the bank is irrelevant at this stage.

 

[psionl0]

Bank reserves are NOT part of M1 money - therefore your argument fails.

 

[lomiller]

Bank reserves are NOT part of M1 money - therefore your argument fails.

the only difference counting bank reserves as part of the M1 money supply makes is whether a 10% reserve creates 10X or 11X multiplier for the reserve.

How can this possibly support your contention from post that when a bank loans you money in cash you also get to have the money in your checking account as well?

 

[psionl0]

The total money in the transaction accounts remains the same but the borrower also has the cash (also part of M1) so the total supply of M1 money goes up.

After the loan: same money in transaction accounts + SOME cash.

How can this possibly support your contention from post that when a bank loans you money in cash you also get to have the money in your checking account as well?

You really need to read and understand what I am saying and not just invent your own version of it.

Q.E.D.

 

[lomiller]

Ok, lets backtrack. Here is what you disagreed with:

When a bank lends money in cash no new M1 money is created until that money gets deposited in an account someplace.


What you seem to be suggesting is that you think new money is created in this case because the currency the bank has isn’t counted as money so when they turn over cash to someone new money is created. It should be pretty obvious that this isn’t new money being created because the currency was already created by the Fed and simply wasn’t being circulated because it’s part of the Banks reserves.

Now, I may well be mistaken about how banks manage their reserves but my understanding is that vault cash is not the sum total off all the cash in the banks possession, that would seem to be overly difficult to manage. If the bank isn’t immediately dipping into their vaults to pay out your $500 loan then your point is moot to begin with, but even if they do it doesn’t change anything as they still have to manage their reserve ratio so any increase in M1 money from pulling cash out of their reserves is (more then) offset by reduction in what they can lend.

 

[psionl0]

What you seem to be suggesting is that you think new money is created in this case because the currency the bank has isn’t counted as money so when they turn over cash to someone new money is created.

That seems to be a more reasonable interpretation of my position.

My interpretation of MMM is that M1 money is money that is in circulation. That is, money that is able to be spent by a member of the public (notes and coins held by a member of the public or in a person's bank account). Money that is stored in a bank's vault (or its electronic equivalent) which forms part of the banks' reserves is NOT in circulation and won't be until the bank makes some of it available to a member of the public in some way (either as cash or in a bank account).

If you like, money can be said to exist on the banking side or the public side. Money on the public side is money that is in circulation (M1 money). Money on the banking side is not. When money is transferred from the banking side to the public side (new loans etc), more money is put into circulation (effectively creating new M1 money). When money is transferred from the public side to the banking side (loans repaid etc) then it is withdrawn from circulation (M1 money destroyed).

Money that is deposited into or withdrawn from a bank account by a member of the public does not result in a transfer of money from one side to the other so it doesn't change the amount of M1 money.

If this is a moot point to you then that is OK. At least we know where we disagree.

 

[lomiller]

That seems to be a more reasonable interpretation of my position.

Well good, but keep in mind I had to guess what you were trying to say. you really need to communicate you position a lot better.

 

[webb5]

The banks are robbing us blind. Most people including members in this forum believe banks can only lend out money from deposits received. Those who know how fractional reserve banking works, know that this is not true.
see link below.
http://en.wikipedia.org/wiki/Fractional-reserve_banking#How_it_works

It is obvious from many comments on this forum that many do not want to under stand Social Credit or how it can be used to remove debt. It does not matter what factual information I put here because these people will ignor it as it does not fit into their views.

1500 years ago, every body knew the earth was the centre of the universe. 500 years ago every body knew the earth was flat. Every body on this forum knows there is nothing wrong with the banking system. Who knows what you will Know tommorrow.

The story below written by Louis Even is one of the best artcles written in exposing how the private banks really create money out of nothing. I guarrentee that most of you will understand the truth after reading this.


http://www.michaeljournal.org/myth.htm

Edited by jhunter1163: 

Edited for Rule 4. Do not post lengthy blocks of text fron other sites. Links are OK.

 

[psionl0]

We all know how the banks create money webb5. MMM describes it in detail with tables and graphs and everything.

The flaw in your example is that the island is a closed economy meaning that the interest the banker collected would have been spent back into the island. Effectively, the islanders were giving 8% of their produce to the banker so the banker didn't have to do any other work. It was an unnecessary system but not ruinous as long as the islanders could service this debt.

The "social credit" system that you describe is simply LETS under a different name. The islanders could have also created their own money simply by writing IOUs (for x hours of labour) which they would redeem when they had a product to sell (or by doing the promised labour). In the mean time, these IOUs would circulate among the island just like any other money.

 

[Blue Mountain]

1500 years ago, every body knew the earth was the centre of the universe. 500 years ago every body knew the earth was flat. Every body on this forum knows there is nothing wrong with the banking system. Who knows what you will Know tommorrow.

1 sentence, two facts, and two errors.

• "Everybody knew the Earth was flat" is a myth. The ancient Greeks figured out it was a sphere, and in approximately 240 BC Eratosthenes estimated its circumference (he was pretty close, too!)
• The Earth did not lose begin to lose its assumed place at the centre of the universe until Copernicus formulated the heliocentric theory some time before 1514. That's 500 years ago, not 1500.

If your knowledge of the banking system is as accurate as your knowledge of the history of astronomy, it's not difficult to figure out why you're in the minority here.

 

[webb5]

We all know how the banks create money webb5. MMM describes it in detail with tables and graphs and everything.

You wouldn't think so from the comments made in this forum.

The flaw in your example is that the island is a closed economy meaning that the interest the banker collected would have been spent back into the island. Effectively, the islanders were giving 8% of their produce to the banker so the banker didn't have to do any other work. It was an unnecessary system but not ruinous as long as the islanders could service this debt.

The flaw in this story is that there is only five people and a banker. The story would have more impact if there were a hundred or more people. The banker would charge bank fees to cover all his expenses and charge interest on top. The money supply will dwindle as he is removing money from circulation. He could use this money to build himself a great empire or he could simply keep removing this money from circulation to ensnare the islanders with further spiral debt.

He can also reduce the money supply by printing less money causing a recession or depression as the islanders will not have enough money to pay their interest obligations and run the economey at the same time. This of course leads to bankbruptcies and real wealth changing hands to the banker.



The "social credit" system that you describe is simply LETS under a different name. The islanders could have also created their own money simply by writing IOUs (for x hours of labour) which they would redeem when they had a product to sell (or by doing the promised labour). In the mean time, these IOUs would circulate among the island just like any other money.

I agree

 

[webb5]

1 sentence, two facts, and two errors.

• "Everybody knew the Earth was flat" is a myth. The ancient Greeks figured out it was a sphere, and in approximately 240 BC Eratosthenes estimated its circumference (he was pretty close, too!)
• The Earth did not lose begin to lose its assumed place at the centre of the universe until Copernicus formulated the heliocentric theory some time before 1514. That's 500 years ago, not 1500.
  
  This is true, but I am talking about the majority of the population here. Vitamin C was found to cure scurvey by one man at least 150 years before it was accepted as a cure. What I am saying here is that it takes a great deal of time before some things are accepted by the general population.
  

If your knowledge of the banking system is as accurate as your knowledge of the history of astronomy, it's not difficult to figure out why you're in the minority here.

I am in the minority here because of people like you. It's easy to follow current oppinion, wheather it's true or not

 

[Blue Mountain]

This is true, but I am talking about the majority of the population here. Vitamin C was found to cure scurvey by one man at least 150 years before it was accepted as a cure. What I am saying here is that it takes a great deal of time before some things are accepted by the general population.

LOL! Another "fact", another cavalcade of fuzzy thinking and error.

First, that which we know as vitamin C was discovered only after a 25 year process that started in 1907 and ended in 1932. John Woodall didn't know about "vitamin C" in 1617.

Second, you completely failed to provide a reference for the the 150 year gap. It's possibly the time between the publication of Woodall's The Surgeon's Mate in 1617 and the widespread adoption of limes by the Royal Navy in 1795. It ignores the fact that just because someone mentioned something in a larger work, it doesn't follow that the people who needed to know the information actually got it.

Not until 1747, when James Lind conducted one of the very first scientific controlled trials, did it become obvious that lemons and limes were effective in controlling scurvy aboard ships. Even this work was hampered because the navy first attempted to use only the juice from limes, not realizing that boiling them to extract the juice and then storing it in copper kettles destroyed the vitamin C. Thus they wrongly concluded that lemons and limes were not effective against scurvy.

I am in the minority here because of people like you. It's easy to follow current oppinion, wheather it's true or not

Presenting arguments in bold coloured text is a sure sign of a crank.

The approach you show here is an all too familiar one to us: grand pronouncements that turn out to be incorrect because you haven't bothered to do the research necessary to back up your claims. Two successive failures of simple facts in one conversation, and you expect us to take you seriously when you talk about something complex like banking?