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

BillJones

Masomnia wrote: »

Fractional reserve banking has been going on for centuries.

Don't confuse him with facts...

purch

Masomnia wrote: »

Fractional reserve banking has been going on for centuries.

Yes but the OP only found out about the "scandal" the other day :eek:

princeofpounds

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.

Sigh.

Using this logic, HSBC has $1.2 trillion of 'real' depositors' cash, sitting in a really, really, really big vault. I'd love to see this magic vault :j

Notes and coins are a total red herring. It's only one type of money, largely used for physical transactional purposes. It's as irrelevant as saying that there can only be as many Man U supporters as there are Man U football shirts in existence.

Of course they don't keep those 'real' notes. It either gets given back out to customers (normally), or it gets taken back to the BoE and credited against the bank's own account (and then destroyed or recycled).

Have a quick lesson on M0 and M1 money:

http://www.investopedia.com/terms/m/m0.asp

http://www.investopedia.com/terms/m/m1.asp

It's all still money, all totally fungible. Interestingly given the fact that we all use debit cards these days you could theoretically get rid of the physical cash altogether, it really doesn't mean very much.

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.

I never said the bank balance sheet was unchanged. It does change. A liability has been taken on and an asset is held. What the bank balance sheet ALWAYS does is BALANCE. That is definitional.

http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system

The bank did not 'just type money into a computer', they had to attract the deposit.

The £100 in the vault has a £90 liability against it, so on paper the bank retained £10.

There isn't necessarily £100 in the vault at the end of the process. As I explained above, it's a total red herring.

You can see how silly your reasoning is if you realise that the builder might need to have the money in cash. So he withdraws it. The bank still owns the asset of his loan. But the cash is all gone from the vault.

Or, think about the situation where the granny pays via a bank transfer. No cash in the vault. But then the builder needs cash. Strangely, the builder is still able to access cash from the ATM. But the bank doesn't 'print' it, they have to buy it from the central bank. The bank cannot just spend the notes that the granny deposited, because if they do the builder will not be able to withdraw his cash, and the bank would default in the time it takes for the builder to walk from the loan desk to the cashpoint.

http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html


Or, if you accept your premise for a moment, if the bank can just 'create' the money without constraint, why does it ever bother attracting more than one deposit? Just loan out the £100 to builder 1. There is still £100 in the vault, so lend it to builder 2. Then number 3.... you get the idea. Strangely, banks do need to attract deposits and other forms of funding, because they cannot loan out more than they attract.

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/publi...2014/051.aspx#

I've said many times that bank lending is a source of money creation. That part is not in dispute. My point is that this is a totally natural and inevitable consequence of making loans when the bank is not required to hold 100% of the deposit in inaccessible reserves (e.g. cash in a vault or BoE account).

Of course a deposit is created in the builder's bank account.
You really think that when you get a car loan the bank gives you 40k in a briefcase to walk out of the door?

The builder has an asset - the monetary value of the loan - which is balanced by his liability to the bank to repay the loan, which is an asset owned by the bank, which is balanced by the bank's liability to the depositor.

This money is still tied to the depositors' money, whether it is in note form or deposit account form, or if the money is taken out in cash then it is just recorded as a loan on the asset side of the balance sheet, and there is no liquid money available.

Generali

purch wrote: »

Yes but the OP only found out about the "scandal" the other day :eek:

:shocked::shocked::shocked:

antrobus

Mike4DebtFreeMoney wrote: »

....For most of the time both the British Empire and the Industrial Revolution occurred without this. ....

I think you'll find that the availability of credit in general, and bank credit in particular, was a significant driver of both the British Empire and the Industrial Revolution.

Mike4DebtFreeMoney wrote: »

..... Everything works as it should unless you are a bank expecting the returns from seniourage/printing money for free.

Banks do not get any return from seigniorage; HMG does. Banks do not directly get any return from expansion of the money supply.

antrobus

princeofpounds wrote: »

Sigh....

Double sigh.

princeofpounds wrote: »

....I've said many times that bank lending is a source of money creation.

A slight correction. Lending is a source of money creation. If a bank lends money it creates money, if any other institution-with-a-different-name-that-carries-out-the-same-function lends money it creates money.

princeofpounds

True. I start out trying to write very accurately but when it gets to the 'where do I even start?!' reponses I get tired

As I mention in post 53:

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.

Mike4DebtFreeMoney

antrobus wrote: »

I think you'll find that the availability of credit in general, and bank credit in particular, was a significant driver of both the British Empire and the Industrial Revolution.

A bit selective with your quotes Antrobus. Here’s what I actually said:

Mike4DebtFreeMoney wrote: »

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.

I’m all for commercial banks providing credit, in fact it’s what I think they should be doing. I think they should charge interest on it: but only on democratically sanctioned BoE money. Handing over the ability to create money, and then to charge interest on it, to profit seeking enterprises gave us the asset inflation in property that exists today.

And you are splitting hairs with this too, but I think you know that.

antrobus wrote: »

Banks do not get any return from seigniorage; HMG does. Banks do not directly get any return from expansion of the money supply.

“Seigniorage is the revenue earned from the issue of money”.
http://www.bankofcanada.ca/wp-content/uploads/2010/11/seigniorage.pdf
HMG does not directly benefit from commercial banks creating money. Commercial banks do not directly gain from the action of creating electronic money but they make a bucket load afterwards. There is an estimated £190M paid in interest to banks to rent this money from them. Typing £100,000 into a computer and then charging mortgage interest on it for 25 years is benefitting from the power to create money.

antrobus

Mike4DebtFreeMoney wrote: »

A bit selective with your quotes Antrobus. Here’s what I actually said:

What you said was that the British Empire and the Industrial Revolution occured without private companies inflating the money supply.

Since the British Empire and the Industrial Revolution occurred on the back of private companies which inflated the money supply by providing credit, your statement was inaccurate.

Mike4DebtFreeMoney wrote: »

...I’m all for commercial banks providing credit, in fact it’s what I think they should be doing. I think they should charge interest on it: but only on democratically sanctioned BoE money.

Well that's exactly the way things work now. The good old British pound sterling is democratically sanctioned by the BoE.

Mike4DebtFreeMoney wrote: »

....Handing over the ability to create money, and then to charge interest on it, to profit seeking enterprises gave us the asset inflation in property that exists today.

And you are splitting hairs with this too, but I think you know that.

Oh, if only it were a case of "splitting hairs"!:) It's far more fundamental than that, you simply don't appear to grasp the point that the "ability to create money" is the same as the "ability to grant credit". You can't have one without the other.

Mike4DebtFreeMoney wrote: »

..
“Seigniorage is the revenue earned from the issue of money”.
http://www.bankofcanada.ca/wp-content/uploads/2010/11/seigniorage.pdf

Yes, and that source goes on to explain that "In Canada today, seigniorage can be calculated as the difference between the interest the Bank of Canada earns on a portfolio of Government of Canada securities—in which it invests the total value of all bank notes in circulation—and the cost of issuing, distributing, and replacing those notes."

Funnily enough, it works exactly the same way here in the UK, the Bank of England issue department invests the total value of all bank notes in circulation, earns interest on it, and hands the total (less expenses) over to the Treasury. That's seigniorage, and the profit thereon accrues to the government and not the banks.

At least, that's what your cited source states. Do you have any reason to doubt what it says?

Mike4DebtFreeMoney wrote: »

...HMG does not directly benefit from commercial banks creating money. ...

Has anyone suggested that they do?

Mike4DebtFreeMoney wrote: »

.....Commercial banks do not directly gain from the action of creating electronic money

Yes, that's what I said.

Mike4DebtFreeMoney wrote: »

.....but they make a bucket load afterwards....

I'm not seeing that much evidence these days of banks making a "bucket load". Quite a few of them seem to be making losses, now that you come to mention it.

Mike4DebtFreeMoney wrote: »

... There is an estimated £190M paid in interest in banks to rent this money from them....

Do you mean "£190M" per day? That might be in the right ball park at least. Of course, it's rather disingenuous to quote the amount of interest that banks charge on loans without also quoting the amount of interest that banks pay on their deposits.

Mike4DebtFreeMoney wrote: »

... Typing £100,000 into a computer and then charging mortgage interest on it for 25 years is benefitting from the power to create money.

It's all very well typing £100,000 into a computer and then charging mortgage interest on it for 25 years, but you have to remember that at the same time the bank is typing another matching £100,000 into a computer and paying interest on it for 25 years.

Mike4DebtFreeMoney

Yes, after I wrote that I thought you’d be picky about it given that the BoE wasn’t nationalised until 1946. That part of my statement was incorrect, but I admit when I get it wrong. The important point is that pre- and post- nationalisation it was established through Parliamentary Act to act as the Bank for the Government under specific rules in support of society and democratic aims, unlike private banks let loose to create property bubbles and a global financial crash.

antrobus wrote: »

"ability to create money" is the same as the "ability to grant credit". You can't have one without the other.

You were not thinking when you typed that. It’s demonstrated to be incorrect by the example of lending a tenner to a friend down the pub: credit without creating money. The latter is how people think banks work; and the aim of my petition is that this is how they would work. The difference today is that through the money creation trick a bank can loan a tenner and yet the money they loaned is still on their books.

Even though you don’t say you agree, what you say confirms my assertions and my petition:

You, I and the Bank of Canada agree that the public benefits from Seniourage undertaken by the BoE. You and I agree that the banks make a bucket load of cash on the money they create and that it is a very big bucket. You and I agree that new money is created from loans, but you prefer the term credit. You and I agree that this is done by typing numbers into a computer. You and I agree that BoE created money is sanctioned and that Stirling is backed by the taxpayer: we disagree on terminology: candyfloss credit from private companies is not sanctioned by Parliament, it’s just not specifically illegal (yet).

Most people would think that banks are making a bucket load, even if you don’t:
http://www.belfasttelegraph.co.uk/news/local-national/uk/barclays-bonus-pool-up-to-24bn-29997131.html

That a bank is paying 0.05% interest on the liability IOUs it types into customers’ savings account is irrelevant. I pay Council tax, so what? I don’t get to print money from nothing. Neither should private banks.

http://epetitions.direct.gov.uk/petitions/64050
If you haven’t signed an e-petition before, then you have to provide your name, address, and an email. That information does not get published but it is used to verify you as a UK resident. This is what elevates e-petitions above blogs and forums and into an arena that can get Government attention.