Campaign for debt free money, stable house prices, pension still worth something...

princeofpounds

I don’t agree with your analysis. When a bank makes a loan, it creates new money and simultaneously creates a liability on its books. I think this is without connection to reserve and have posted a graph in evidence; Generali thinks it is and I would welcome any evidence in support of this outside the Accounting 101 textbook, which in hindsight has got it wrong.

Well unfortunately you are wrong in your interpretation.

When a bank makes a loan, it does so on the basis of its available deposits. They don't magic up money to lend out.

What does happen, as I pointed out in the very simple example above, is that the loan enters the economy it eventually (and often quite quickly) becomes a deposit elsewhere in the banking system. Sometimes at the same bank.

There is no magic 'creation' of a liability by the bank. The only magic is taking a deposit, which is basically borrowing from a customer. This is by definition a liability that gets created. Nothing odd or conspiratorial.

The only time a bank gets close to magicking up money is when they give a loan to a customer, who then uses it to buy something from another customer who just happens to be with the same bank. That 'new' deposit can then be lent out (minus the required reserves).

But this is a process that is in no way in the control of the bank. It is a totally natural, almost tautological process in that every loan extended must by definition be someone else's liability.

I don't know which part of generali's posts you reference, but I suspect that you are misunderstanding generali's communication of an important concept. Most people think lending growth is a function of available deposits, a mere dependent variable, but because of the relationship above deposit growth is in fact a very direct function of lending. (I use the language of causation reluctantly as in my opinion it is more of a tautological than causative relationship). Just my guess, would be nice to have Generali clarify and/or the relevant passage highlighted.

Something you really should understand is that I really do know what I am talking about on this topic. I deal with this stuff day in and day out.

Got to dash for a moment, will reply to the rest later

princeofpounds

So the argument of social usefulness falls down if the majority of what the banks do is print electronic money, rather than any activity that generates wealth.

That's not what banks do. Banks give out loans and take deposits.

This enables the transformation of capital, from small amounts into large amounts, from short term money to long term money. From those with a surplus who want a return, to those with a deficit who need the capital to monetise return opportunities.

Money supply growth is a natural consequence of this, but lending your mate a tenner down the pub is exactly the same thing. Credit is a form of money.

Because these loans and liabilities are just numbers in a computer,

if enough people want to take out real cash or transfer their debt to another bank, then when the bank goes through the clearing process and settles up with other banks using Central Bank Reserves and can’t meet its payments or borrow to cover them, it will indeed go bust and people with these IOU deposits in their computer system will indeed lose money. When banks settle up between themselves, they want real money from the BoE not the fresh air computer numbers they generate themselves.

They are not just numbers in a computer. They are legal and monetary obligations.

I don't even know where to start wit this passage. It betrays such a confused idea of anything from the interbank market all the way through to central bank financing operation.

There is no such thing as 'BoE money' and 'bank money' (except in scotland perhaps, but there the bank money is fully backed with the proper stuff so it is 'good as').

if enough people want to take out real cash or transfer their debt to another bank, then when the bank goes through the clearing process and settles up with other banks using Central Bank Reserves and can’t meet its payments or borrow to cover them, it will indeed go bust and people with these IOU deposits in their computer system will indeed lose money

I don't think you even have a clear idea in your own head about all the multiple concepts jumbled up in this passage, so how you can expect anyone to reply to it is beyond me.

It would take ages to explain the differences beween interbank lending and clearing, insolvency and bankruptcy, where 'IOUs' sit in the M1/M2/M3/M4 hierarchy of monetary instruments, central bank reserves (of various types) and funding.

But ultimately, you seem to have the basic miconception that money creation goes like this:

bank wants to make loan -> bank prints money -> bank lends money

when the much more mundane reality is this

bank wants to make loan -> bank attracts a deposit -> banks loans out deposit -> loan is spent -> spent money becomes a new deposit.

GeorgeHowell

CLAPTON wrote: »

so government is rubbish and private enterprise even worse?

Not quite. All large organisations can descend into rubbish if not tightly managed. It can be too easy for self-serving, incompetent people to become influential if they are good at furthering their own careers. The key distinction is that government is supposed to look after the interest of those they represent on a holistic basis. So such failings are more outrageous and more damaging in the public sector than in the private.

Mike4DebtFreeMoney

Masomnia wrote: »

I think the petition would probably go down better in the Discussion Time section of the forum.

Yes, it's unfortunate, isn't it? I saw one estimate of 100M people pushed into poverty by the financial collapse. A cause with masive social implications concerning debt, price of a roof over your head, equality in society, banks no longer too big to fail, and who benefits from new money; broad agreement on the descriptions of how money works with some argument on the technicalities; and no-one connecting their debt with the private companies profiting from it, at least not enough to put their name to 'Hey, we've had enough!'.

Mike4DebtFreeMoney

Consider your previous post carefully:

princeofpounds wrote: »

A granny walks into a bank, and deposits 100 of her savings.
A builder walks into the bank. He asks for a loan for 90, to build a house. The bank loans him 90; they have to keep 10 back...

So Granny deposited five crisp BoE issued £20 notes. Real money. The bank loaned out 90, but how? The notes went into the vault, the computer balance went up by £100, and the bank agreed a loan of £90 to the builder. The bank typed £90 into his account and the computer registered £90 as a liability against the bank. That was the exact moment the bank created new money out of fresh air. Total money in existence: £100 in its vault, plus £90 in the computer account of the builder. Maybe it does not seem that way to you because the bank balance sheet remained unchanged: £90 given out to the builder was balanced by £90 liability of the bank *in the computer*; but it’s true nonetheless: a Granny deposited £100 and now there is £100 + £90 in existence. The bank created new money by typing numbers into a computer, that’s all they had to do.


The £100 in the vault has a £90 liability against it, so on paper the bank retained £10. But then the £90 returns from the bricks merchant. Now the bank balance is £100 again, £10 reserves + £90 deposit. Yet the builder has spent £90: of what? Fresh air numbers created in his account by the bank. It was an IOU from the bank, new money created from nothing.


Here is how the Bank of England describes it:
“​Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money”.
http://www.bankofengland.co.uk/publications/Pages/news/2014/051.aspx#

Where this should annoy people enough to sign a petition, but doesn’t seem to, is that after the bank created their mortgage money out of thin air through the effort of typing numbers into a computer for several minutes, they then got to charge tens of thousands of pounds interest on it for many years. Exactly the process you describe is exactly the process I think must change.

BillJones

Mike4DebtFreeMoney wrote: »

Yes, it's unfortunate, isn't it? I saw one estimate of 100M people pushed into poverty by the financial collapse..

It's a meaningless number.

One if the myriad ways it's meaningless is that poverty is generally described as an income relative to the median, but on a country by country basis. Double the wage of everyone in Chad, and increase the middle quintile earning in the UK, leaving all else unchanged, and you've just increased the poverty figures.

Rob everyone in the bottom few percent blind, and give me the money, and the figure for people living in poverty is unchanged.

Then there's the fact that for a few years pre-crash we (as a society) were living it up on personal or state debt. Stopping !!!!ing our grand children's inheritance up against the wall, and paying back some of the debt is of course less euphoric than letting the party run on, but describing a normalization as pushing people "into poverty" is simply wrong.

Masomnia

So you'd rather have a situation where Granny gets no interest on her savings, and the builder can't borrow money as easily (fewer houses)?

CLAPTON

GeorgeHowell wrote: »

Not quite. All large organisations can descend into rubbish if not tightly managed. It can be too easy for self-serving, incompetent people to become influential if they are good at furthering their own careers. The key distinction is that government is supposed to look after the interest of those they represent on a holistic basis. So such failings are more outrageous and more damaging in the public sector than in the private.

well, I can honestly say that it's never crossed my mind that government looked after the country on a holistic basis.

neither did I ever consider we had such clever people in government that use their brilliance for the common good rather than advance the the advantages of their own family situations.

and that the poorly paid public sector should suffer more outrage than the well paid private sector, does seem a little against natural justice too.

but then why should we be fair?

Mike4DebtFreeMoney

Masomnia wrote: »

So you'd rather have a situation where Granny gets no interest on her savings, and the builder can't borrow money as easily (fewer houses)?

Yes. Private companies inflating the money supply is not a necessary condition of economic growth. For most of the time both the British Empire and the Industrial Revolution occurred without this. The only reason Granny needs interest today is that private companies figured out how to game the system and now Granny needs interest to stay in touch with the rate at which said private companies are inflating the money supply for their own gain.

The builder is not affected. He can borrow less, houses cost less to build, and people buy them for less. Everything works as it should unless you are a bank expecting the returns from seniourage/printing money for free.

Masomnia

Mike4DebtFreeMoney wrote: »

Yes. Private companies inflating the money supply is not a necessary condition of economic growth. For most of the time both the British Empire and the Industrial Revolution occurred without this. The only reason Granny needs interest today is that private companies figured out how to game the system and now Granny needs interest to stay in touch with the rate at which said private companies are inflating the money supply for their own gain.

The builder is not affected. He can borrow less, houses cost less to build, and people buy them for less. Everything works as it should unless you are a bank expecting the returns from seniourage/printing money for free.

You'd rather everybody be poorer, so that banks can't make a profit? Of course there would be less growth if there is less access to lending, isn't that obvious?

And besides, what if Granny has a pot of money but needs income? She either has to invest the money in bonds, which might not suitable if the price is volatile and the yields not guaranteed; or she has to find the builder and lend him the money herself (leaving her open to all sorts of risk).

Fractional reserve banking has been going on for centuries.