How the banks create money

[psionl0]

Eh? If they don’t really lend deposits at all why must they keep a 10% reserve to satisfy demand for currency, surely they’d always have 100% of depositor money at hand?

I can't believe that after posting for 24 pages or more on this thread that you still don't understand this point.

You really do need drkitten to come back and teach you how to suck eggs.

 

[Sceptic-PK]

Yeah, I can’t believe I haven’t learned anything from all the idiot conspiracy ‘tards in this thread!

I actually figured I knew exactly how it worked (akin to the post I quoted from stevea) but there’s been so much nonsense posted in here repeatedly by everyone that it’s gotten a little confusing. At least I’m man enough to admit it, rather than attaching myself to nonsense because I’m positive I’m right.

 

[psionl0]

So people who quote from MMM are "idiot conspiracy ‘tards"?

 

[tensordyne]

Well yeah, the explanation in MMM seems contrary to many explanations I’ve read over the years.

Well, that is probably just because that is the way banking works and the other sources are stating opinions.

It even contradicts what is stated in MMM earlier in the section, in that anything in excess of 10% can be loaned or invested. So they may lend $9K from the 10K deposit, but then they don’t really lend the money from deposits at all? Eh? If they don’t really lend deposits at all why must they keep a 10% reserve to satisfy demand for currency, surely they’d always have 100% of depositor money at hand?

That is an interesting point, why do they have a fractional reserve requirement when they can just "print money" (after the bank meets the requirement of getting a borrower at least)? The answer is the designers (of fractional reserve banking) wanted to limit the amount of money that can be created from nothing.

If a bank can initially make a loan of L, and the reserve percentage is r (and stays r) then by loaning and reloaning the original amount (to the maximum extent possible, which banks do not necessarily do, but we are being conservative by over-estimating here to get the max money possible created) you get a geometric sum of money.

Total Money = L + L * r + L * r^2 + L * r^3 + ... = L / (1 - r) = T.

The above assumes r < 1, otherwise the sum diverges (brownie points for anyone who tells me what the radius of convergence is for the sum assuming the field r and L belong to is the set of complex numbers!). So from this you should be able to see that the amount of money generated is finite.

What is also interesting is that because of double-entry book-keeping the amount of money T that gets generated also gets destroyed, but because banks have interest (i < 1) on loans the total debt (assuming also the interest stays the same for each loan) is

T * (1 + i)

That means there is T * i left over debt even if all loans are repaid.

Steve Keen has said that banks have circumvented reserve requirements for a long time now too, but that is a different story.

I suspect that our inferences from that portion of MMM are simply incorrect and stevea’s comments are accurate as provided in the important part of post 31 you omitted:

Suspect?!? Btw, which part is being omitted? I would not want to be uncooth or something.

But getting back to things, Suspect!?!? Why do you think stevea's account of things is correct but the MMM is wrong (or that the pretty basic conclusions drawn from it are wrong)? Is it just prejudice, or do you have anything like evidence? I only say this because the previous statements sound pretty prejudiced in favor of thinking banks actually loan out the money they have.

What is the quote from Sherlock Holmes, "How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?" ergo, fractional reserve banks create new money each time a loan is made.

 

[tensordyne]

So people who quote from MMM are "idiot conspiracy ‘tards"?

Ad hominem is always the best policy! You freaking idiots

{ I am joking around here. }

 

[psionl0]

That is an interesting point, why do they have a fractional reserve requirement when they can just "print money" (after the bank meets the requirement of getting a borrower at least)? The answer is the designers (of fractional reserve banking) wanted to limit the amount of money that can be created from nothing.

Actually the reason is much more mundane. Banks need reserves in case a customer makes a cash withdrawal or transfers some of the balance in his account to an account in another bank. The reserve ratio doesn't have to be as high as 10% - that is an artificial minimum set by the government.

I understand that in the 19th century when banking was far less regulated, banks operated with reserves much less than 10% (some on "wafer thin" reserves). It is little wonder that bank runs were the order of the day. All it took was a day of higher than average withdrawals (or the stage coach being robbed ) and the bank would run out of cash. Of course, keeping your gold buried in your backyard was a viable option in those days so people weren't forced to risk their money with the banks.

 

[Sceptic-PK]

So people who quote from MMM are "idiot conspiracy ‘tards"?

People can quote from whatever they like. Whether their inferences from the information provided is accurate or not is what counts. Regardless, Webb hasn’t quoted MMM once in his entire thread.

Actually the reason is much more mundane. Banks need reserves in case a customer makes a cash withdrawal or transfers some of the balance in his account to an account in another bank.

No, they don’t. If banks don’t lend out the money they have on deposit, as stated in the quoted part of MMM, there is no need for a reserve requirement in this context because they always have the money to hand.

The answer is the designers (of fractional reserve banking) wanted to limit the amount of money that can be created from nothing.

Yet there are plenty of countries that have no reserve requirement.

Btw, which part is being omitted? I would not want to be uncooth or something.

I was talking to psionl0.

Suspect?!? But getting back to things, Suspect!?!? Why do you think stevea's account of things is correct but the MMM is wrong (or that the pretty basic conclusions drawn from it are wrong)? Is it just prejudice, or do you have anything like evidence? I only say this because the previous statements sound pretty prejudiced in favor of thinking banks actually loan out the money they have.

I do think banks loan out the money that they have. It says so in MMM, in the sentence prior to yours:

All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested.

I believe this because it explains bank runs/collapses where banks did not have enough reserves to cover demand for withdrawals due to lending to the max. Indeed the only criticism I accept of FRB is that it increases the likelihood of this occurring, even if that risk is reasonably small.

edit: and the reason I trust stevea's posts more than I might others is because I find his posts more credible.

 

[psionl0]

Actually the reason is much more mundane. Banks need reserves in case a customer makes a cash withdrawal or transfers some of the balance in his account to an account in another bank.

No, they don’t. If banks don’t lend out the money they have on deposit, as stated in the quoted part of MMM, there is no need for a reserve requirement in this context because they always have the money to hand.

Are you aware that you have just implied that bank customers don't make cash withdrawals or inter-bank transfers?

Maybe you believe that such transactions don't involve bank reserves.

Either way, the hole you are digging for yourself is getting deeper.

 

[Sceptic-PK]

Are you aware that you have just implied that bank customers don't make cash withdrawals or inter-bank transfers?

I implied nothing of the sort. I pointed out that if all the money that banks lend is created "out of thin air" then there would be no need to ensure a 10% reserve in order for customers to make withdrawals, because the bank would have 100% of its funds available at all times. The 10% reserve ensures adequate funds are available because banks can lend out the other 90%.

Maybe you believe that such transactions don't involve bank reserves.

Either way, the hole you are digging for yourself is getting deeper.

Maybe you should read a little more carefully and stop being an arrogant twat.

 

[psionl0]

I pointed out that if all the money that banks lend is created "out of thin air" then there would be no need to ensure a 10% reserve in order for customers to make withdrawals, because the bank would have 100% of its funds available at all times

OK, since you don't understand words, let's try numbers.

Suppose a bank opens up with $100 in deposits. That means it has $100 in reserves and $100 in liabilities (customers' bank accounts). If that bank were to create $100 out of "thin air" and lend it to a customer by depositing it into his account then the bank would have $100 in reserves and $200 in liabilities.

Question: What percentage of its "funds" does the bank have after making the loan?

Maybe you should read a little more carefully and stop being an arrogant twat.

OK pot. Just bear in mind that I am not going to humour you just because the truth hurts.

peace.
kettle.

 

[tensordyne]

show me the money beef!

People can quote from whatever they like. Whether their inferences from the information provided is accurate or not is what counts. Regardless, Webb hasn’t quoted MMM once in his entire thread.

What is the deal with bringing up Webb. Sorry, I am lazy at reviewing many tons of pages to find the byzantine pathways of conversational thought. As for the MMM and my interpretation being possibly wrong, tell me your interpretation then. Pony up. Show me some quotes from outside sources who say the same things as your position is. I am getting tired of revelatory argumentation.

No, they don’t. If banks don’t lend out the money they have on deposit, as stated in the quoted part of MMM, there is no need for a reserve requirement in this context because they always have the money to hand.

Actually, banks buy fed notes at something like 10 cents for a bill ($1 bill costs the same as $20 bill), if I remember right. They look at it like it is a cost of doing business. Of course, they can not just buy as much as they want from the mint, they can only buy as much as they have in their accounts (they buy in general enough to cover demand from customers and then some for safety).

Yet there are plenty of countries that have no reserve requirement.

Yep, banking lobbyists have been able to make it so that in many countries there are no reserve requirements. I am not expert enough to give too much comment on this, but I have heard similar information stated elsewhere.

I was talking to psionl0.

Well then, far be it from me to interupt a 'private' conversation on a public forum.

I do think banks loan out the money that they have. It says so in MMM, in the sentence prior to yours:

Let me quote then a bigger portion then.

If business is active, the banks with excess reserves will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they recieve as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.

Let me go over this sentence by sentence as given by a roman numeral. Please, please, please, do a similar analysis and not just a tirade response. Talking about specifics is a wonderful antiseptic to getting to the heart of disagreements.

I. This sentence says that if a bank has a reserve of $10,000 it can loan (however that word is construed to mean) up to $9,000, but subject to business being active, or borrowers wanting loans to begin with.

This sentence does not say that banks necessarily loan the money from what they have (read VI. if you want a taste of why they do not actually loan from the money they have). The problem is how "loans" work in FRB. Do they work the same way as me and you would use the word (your position), or does the word mean something else when it comes to FRB? That is the crux of the issue.

II. OK, so loans do not come from deposits as this sentence flatly states. Where do they come from then Sceptic-PK? Please do not say deposits, because this sentence would call you a liar in such a case.

III. Additional money it seems is being created. To create something means it is not taken from something else. If I have $10 and give it to you, I did not create $10 to you, I gave you $10, meaning I am out $10.

I know you think there is something else going on, but why don't we use words (aside from "loan" in terms of FRB, because that is what is in contention in the first place) in the way they are conventionally understood. In such a case, this sentence alone shows the idea of loans being only fanned out to be wrong.

IV. This says if you sign a loan contract the bank then puts the amount of the loan in your account. Is this amount taken from somewhere else? Well, it can not be taken from deposits (one part of which constitutes reserves). So where does it come from then Sceptic-PK?

V. This sentence says that in terms of book-keeping every loan is balanced by assets and liabilities. The end result meaning that once the loan is repayed, the amount of the loan money created is also destroyed.

VI. I love this one - "Reserves are unchanged by loan transactions." If loans do not effect reserves, then where is the money coming from that makes the loan Sceptic-PK?

Reserves are all of the money the bank has that could be loaned, in your sense of the word (the money the bank owns outright + deposits), so if loans do not change the reserves, where is the money coming from Sceptic-PK? Show me the beef! Tell me where the money is coming from. It is not coming from the reserves, that much should be clear.

VII. So loans add to deposits in the banking system as a whole. Your model does not change total deposits as a whole. That is funny, maybe your ideas are wrong?

I believe this because it explains bank runs/collapses where banks did not have enough reserves to cover demand for withdrawals due to lending to the max. Indeed the only criticism I accept of FRB is that it increases the likelihood of this occurring, even if that risk is reasonably small.

Bank runs make it hard for banks to operate because with reserve requirements they have to have money in the books in order to create new money for the loans by the rules of the game. Plus, a bank run means that operating costs can not be covered as easily (depending on the severity of the run).

edit: and the reason I trust stevea's posts more than I might others is because I find his posts more credible.

I think you trust stevea's posts because they agree with your preconcieved notions.

Forget about that for now, just concentrate if you can on the sentences above in roman numerals with your own interpretation.

All the best to you all!

 

[tensordyne]

Oh, found another nice quote in MMM. Page 7 under step 3.

Expansion takes place only if the banks that hold these excess reserves (Stage 1 banks) increase their loans or investments. Loans made by crediting the borrower's account, i.e., by creating additional deposit money.

Plain as day, there it is - banks create money. Unless Sceptic-PK you think 'create' means something other then make something up from nowhere.

 

[Blue Mountain]

OK, since you don't understand words, let's try numbers.

Suppose a bank opens up with $100 in deposits. That means it has $100 in reserves and $100 in liabilities (customers' bank accounts). If that bank were to create $100 out of "thin air" and lend it to a customer by depositing it into his account then the bank would have $100 in reserves and $200 in liabilities. (remainder snipped)

The highlighted part is wrong. On the bank's books, a loan is an asset, not a liability. It's a liability on the books of the customer who took out the loan.

 

[Finsend]

Intermezzo - Lunch!

Topic-Off

Since I don't not understand most of this you guys wrote this might be a very good and serious discussion on a level I cannot grasp - and probably will never

So I just let you guys continue here without me polluting and I thank you all for writing all of this, it is very interesting to me (the things I understand a little) and I hope that you people continue without too much evil ad hominems and stuff like that - although these are quite funny some times I also liked the series of the smileys, geheheheh!

Topic-On

Since you guys seem pretty intelligent and I suppose most CEO's/Bankers/FED-people/etc are as well - HOW COULD THIS* (still) BE SUCH AN ISSUE OF DEBATE?

*This being whether (commercial) Banks create "money" out of "nothing".

Is it a matter of words and/or definitions?

Could Bernanke and some other guys not just say YES or NO - on TV for example - so we all know what's the case?

Some QUOTES HERE - I just found, which seem appropriate to me (I hope they are) and also just for fun and relaxation I cherry/stockpicked them and wiki is probably a source with some kind of (biased) opinion, so no truths here, just some quotes!!

-

"The actual process of money creation takes place in commercial banks. As noted earlier, demand liabilities of commercial banks are money. ... Confidence in these forms of money also seems to be tied in some way to the fact that assets exist on the books of the government and the banks equal to the amount of money outstanding, even though most of the assets themselves are no more than pieces of paper..."

Federal Reserve Bank of Chicago; Nichols, Dorothy M (1961). Modern Money Mechanics; a workbook on deposits, currency and bank reserves.. p. 3. OCLC 510802. The 1992 revision of this booklet is available on wikisource

-

"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 modern banking system manufactures “money” out of nothing; and the process is, perhaps, the most, astounding piece of “sleight of hand” that was ever invented. In fact, it was not invented. It merely “grew”. ... Banks in fact are able to create (and cancel) modern “deposit money”, just as much as they were originally able to create, or call in, their own original forms of private notes. They can, in fact, inflate and deflate, i.e., mint, and un-mint the modern “ledger-entry” currency."

Angas, Major L. L. B. (Lawrence Lee Bazley) (1937). Slump ahead in bonds. Somerset Pub. Co.. pp. 20-21. OCLC 3506072.

-

This next one is a "conspiracy" Quote I guess, geheheh Hmm This name Galbraith does sound a bell with me, somewhere... is that a "famous dude" is he not? I'll just check wiki myself on that one!
Here it goes:

-

"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."

John Kenneth Galbraith, Money: Whence it came, where it went (1975),

-

I found all of these here BTW:

http://en.wikiquote.org/wiki/Banking

Cheers4now you all and KEEP UP the GOOD and polite DISCUSSION(s),
F

PS
I could not find any quotes that states the banks do NOT create money out of "nothing", but I bet there are? When saying "nothing" I am not talking about the reserves here, they are needed we all agree, I guess - maybe multiplying money (which is some creation out of "nothing"? Like JC did with the bread and the fishes) is a better word instead of "creation out of nothing"?) - I bet there must be some quotes that state the opposite of the ones above(by important people et al?)

We need some of those as well, I think. Maybe Sceptic could bring up some of these, to balance things a bit! I am just lazy, I admit it

 

[psionl0]

The highlighted part is wrong. On the bank's books, a loan is an asset, not a liability. It's a liability on the books of the customer who took out the loan.

The highlighted part is correct. Bank accounts are liabilities to the bank because the bank owes the balance in these accounts to its customers.

Strictly speaking, I should have balanced the asset side of the ledger by including the borrower's $100 promissory note. However, promissory notes don't count towards a bank's reserves.

 

[psionl0]

Since I don't not understand most of this you guys wrote this might be a very good and serious discussion on a level I cannot grasp - and probably will never

Don't give up yet Finsend. You are dealing with new concepts which you have never dealt with before. Sometimes it takes a while for a new concept to take hold.

Money and banking are essentially about bookkeeping entries. If you don't have a good grasp of bookkeeping principles then this could make the whole banking business seem overly complicated. You might understand it better if we go back to the origins of FRB.

FRB is believed to has started as early as 1000 years ago. At that time, gold coins were not really "as good as gold". Gold is a soft metal which meant that the coins quickly wore out. To make matters worse, people had a habit of clipping or shaving some gold off each coin. Under such treatment, a gold coin would become unspendable in quick time.

This is where the goldsmiths came in. As a service, they would store your gold for you. They would weigh the gold you handed over and give a receipt for the value of the gold in exchange. It didn't take people long to realize that they didn't have to trudge over to the goldsmiths when they wanted to buy something. They could just pay for it with the receipt they had. Thus, the concept of paper money came into being.

With people using receipts to pay for everything, the goldsmiths soon found that very little of the gold that they were storing ever left the safe. Soon enough, some bright spark came up with the idea of lending out receipts that weren't backed by anything. All they had to do was write a number on a piece of paper and promise to redeem it for gold if requested. Of course, the borrowers preferred to use the paper receipts just like the people who had trusted their gold with the goldsmiths. And if anybody chose to redeem their receipt - the gold was still in the safe for that purpose. (Of course they couldn't redeem everybody's receipts).

This is money creation at its most blatant (almost counterfeiting). With the interest the goldsmiths were collecting from their loans, goldsmithing became a very profitable business indeed.

 

[Finsend]

* Some History here - Goldsmiths *

Hi psionI0,

I won't give up, geheh not yet!


But I thought maybe I am polluting this thread maybe with my dumb*ss low-level mutterings a bit...I can understand if some people want to talk seriously about complex things they could find it annoying if I am gibberishing through all of their conversations, etc.

I like this history part very much. I helps me to visualize things and makes the subject more 'alive' for me, I guess. So thanx for that!

Furthermore I seem to hate bookkeeping and filling in (tax)-forms, so that probably does not help very much... I guess I have to learn some of that, but hopefully not to much

Hmm I see my English drops down even further now, must be a bit tired - just finish this post now:

This is money creation at its most blatant (almost counterfeiting). With the interest the goldsmiths were collecting from their loans, goldsmithing became a very profitable business indeed.

So these goldsmiths could be considered - more or less - as the granddaddies of modern banks - using some kind of paper money already.

And about this lending out of receipts that weren't backed up by anything...

You write: almost counterfeiting
So it was not illegal back then, was it??

As I understand it, it seems indeed like counterfeiting to me - unless of course the King (or whoever was the big boss then) approved of these things.

Laws make things (il)legal, don't they?
Which does not have to mean all laws are good laws, IMO.

Was there a law about reserves back then?
Or did they just make these reserves things official later on?

So I see some strong similarities between these goldsmiths and banks nowadays. And I suppose that some modern banks grew out of these goldsmiths. Some kind of evolution of banking.

I see I ask and write a lot again, so again skip/pick whatever you like - as always! Now I go eat some food

Cheers
F

 

[Blue Mountain]

The highlighted part is correct. Bank accounts are liabilities to the bank because the bank owes the balance in these accounts to its customers.

Sorry, I misread your post.

Strictly speaking, I should have balanced the asset side of the ledger by including the borrower's $100 promissory note. However, promissory notes don't count towards a bank's reserves.

That part I don't know about, but the $100 promissory note is an asset.

 

[tensordyne]

Topic-Off

Since I don't not understand most of this you guys wrote this might be a very good and serious discussion on a level I cannot grasp - and probably will never

So I just let you guys continue here without me polluting and I thank you all for writing all of this, it is very interesting to me (the things I understand a little) and I hope that you people continue without too much evil ad hominems and stuff like that - although these are quite funny some times I also liked the series of the smileys, geheheheh!

Topic-On

Since you guys seem pretty intelligent and I suppose most CEO's/Bankers/FED-people/etc are as well - HOW COULD THIS* (still) BE SUCH AN ISSUE OF DEBATE?

*This being whether (commercial) Banks create "money" out of "nothing".

Is it a matter of words and/or definitions?

Could Bernanke and some other guys not just say YES or NO - on TV for example - so we all know what's the case?

Some QUOTES HERE - I just found, which seem appropriate to me (I hope they are) and also just for fun and relaxation I cherry/stockpicked them and wiki is probably a source with some kind of (biased) opinion, so no truths here, just some quotes!!

-

"The actual process of money creation takes place in commercial banks. As noted earlier, demand liabilities of commercial banks are money. ... Confidence in these forms of money also seems to be tied in some way to the fact that assets exist on the books of the government and the banks equal to the amount of money outstanding, even though most of the assets themselves are no more than pieces of paper..."

Federal Reserve Bank of Chicago; Nichols, Dorothy M (1961). Modern Money Mechanics; a workbook on deposits, currency and bank reserves.. p. 3. OCLC 510802. The 1992 revision of this booklet is available on wikisource

-

"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 modern banking system manufactures “money” out of nothing; and the process is, perhaps, the most, astounding piece of “sleight of hand” that was ever invented. In fact, it was not invented. It merely “grew”. ... Banks in fact are able to create (and cancel) modern “deposit money”, just as much as they were originally able to create, or call in, their own original forms of private notes. They can, in fact, inflate and deflate, i.e., mint, and un-mint the modern “ledger-entry” currency."

Angas, Major L. L. B. (Lawrence Lee Bazley) (1937). Slump ahead in bonds. Somerset Pub. Co.. pp. 20-21. OCLC 3506072.

-

This next one is a "conspiracy" Quote I guess, geheheh Hmm This name Galbraith does sound a bell with me, somewhere... is that a "famous dude" is he not? I'll just check wiki myself on that one!
Here it goes:

-

"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."

John Kenneth Galbraith, Money: Whence it came, where it went (1975),

-

I found all of these here BTW:

http://en.wikiquote.org/wiki/Banking

Cheers4now you all and KEEP UP the GOOD and polite DISCUSSION(s),
F

PS
I could not find any quotes that states the banks do NOT create money out of "nothing", but I bet there are? When saying "nothing" I am not talking about the reserves here, they are needed we all agree, I guess - maybe multiplying money (which is some creation out of "nothing"? Like JC did with the bread and the fishes) is a better word instead of "creation out of nothing"?) - I bet there must be some quotes that state the opposite of the ones above(by important people et al?)

We need some of those as well, I think. Maybe Sceptic could bring up some of these, to balance things a bit! I am just lazy, I admit it

Mon ami, merci pour les guillemets! Il est merveilleux le travail que vous avez. Croyez-moi, vous êtes intelligent. Votre anglais est mieux que notre français, en supposant que vous parlez français.

Tip my hat. Probably a bad translation above, no doubt.

 

[tensordyne]

pony up Sceptic-PK!



I see Sceptic-PK you have not responded as yet to my post. This either means you are thinking about it and coming up with some kind of wonderful reply or you realise you are outgunned and have given up. There is also the possibility you have not seen the previous post calling on you to give specifics. Let me then reproduce my call for your interpretation here.

Let me quote then a bigger portion then.

Quote from MMM in previous post.

Let me go over this sentence by sentence as given by a roman numeral. Please, please, please, do a similar analysis and not just a tirade response. Talking about specifics is a wonderful antiseptic to getting to the heart of disagreements.

I. This sentence says that if a bank has a reserve of $10,000 it can loan (however that word is construed to mean) up to $9,000, but subject to business being active, or borrowers wanting loans to begin with.

This sentence does not say that banks necessarily loan the money from what they have (read VI. if you want a taste of why they do not actually loan from the money they have). The problem is how "loans" work in FRB. Do they work the same way as me and you would use the word (your position), or does the word mean something else when it comes to FRB? That is the crux of the issue.

II. OK, so loans do not come from deposits as this sentence flatly states. Where do they come from then Sceptic-PK? Please do not say deposits, because this sentence would call you a liar in such a case.

III. Additional money it seems is being created. To create something means it is not taken from something else. If I have $10 and give it to you, I did not create $10 to you, I gave you $10, meaning I am out $10.

I know you think there is something else going on, but why don't we use words (aside from "loan" in terms of FRB, because that is what is in contention in the first place) in the way they are conventionally understood. In such a case, this sentence alone shows the idea of loans being only fanned out to be wrong.

IV. This says if you sign a loan contract the bank then puts the amount of the loan in your account. Is this amount taken from somewhere else? Well, it can not be taken from deposits (one part of which constitutes reserves). So where does it come from then Sceptic-PK?

V. This sentence says that in terms of book-keeping every loan is balanced by assets and liabilities. The end result meaning that once the loan is repayed, the amount of the loan money created is also destroyed.

VI. I love this one - "Reserves are unchanged by loan transactions." If loans do not effect reserves, then where is the money coming from that makes the loan Sceptic-PK?

Reserves are all of the money the bank has that could be loaned, in your sense of the word (the money the bank owns outright + deposits), so if loans do not change the reserves, where is the money coming from Sceptic-PK? Show me the beef! Tell me where the money is coming from. It is not coming from the reserves, that much should be clear.

VII. So loans add to deposits in the banking system as a whole. Your model does not change total deposits as a whole. That is funny, maybe your ideas are wrong?

Eagerly awaiting your response.