New greek finance minister.
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02-02-2015, 10:11 AM
RE: New greek finance minister.
(02-02-2015 09:58 AM)Bucky Ball Wrote:  
(02-02-2015 09:53 AM)earmuffs Wrote:  No it's not. Certainly not clearly.
They don't create money, they have to have money to lend it. If the money they lent than gets put back into the banking system than they can lend it again, but the point is that someone has to put that money into the bank (or the bank can spend its profit). It doesn't create money, it spends what it has. The money it relends is balanced because someone somewhere has negative that amount of money (in the form of debt).

But it's NEW DEBT, based on the leveraged funds brought about by the fact that reserve requirements are not 100 %, and they can lend MORE than they actually have on their own ballance sheet.

No it balances out on their balance sheet. They can't lend more than they have.
$100 into the system could be lent out as $90 which could be put into the system and so there is now $190 into the system. $100 of that is actual money, $90 is debt. It's balanced, it's not $90 being created out of thin air because someone owes that $90. The bank had to have had that initial $100 put into the system in order to lend $90.

If banks could just lend whatever they felt like they would just lend a trillion dollars to their board members at 1% interest. And they would be immune to collapse, which they're not.
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02-02-2015, 10:26 AM
RE: New greek finance minister.
(02-02-2015 09:53 AM)earmuffs Wrote:  
(02-02-2015 09:38 AM)cjlr Wrote:  All money is created from thin air - it's a social construct!
(but I agree that "from thin air" is a really stupid way to characterise it)

But you also earlier stated that banks don't create money at all, which is clearly false.

No it's not. Certainly not clearly.
They don't create money, they have to have money to lend it. If the money they lent than gets put back into the banking system than they can lend it again, but the point is that someone has to put that money into the bank (or the bank can spend its profit). It doesn't create money, it spends what it has. The money it relends is balanced because someone somewhere has negative that amount of money (in the form of debt).

Trivial counterpoint: real-world money supplies increase. Period. Fact. Deal with it. And since surely you would acknowledge this, one is left wondering how you account for it...

If only a fraction of a deposit need be held in reserve, the total amount in "circulation" increases. This is really simple math, muffs. Let's say I deposit a hundred dollars to bank A. Bank A lends 90 to bank B, who lends 80 of it to a fourth party. How much money is there now? Answer: more than 100.

The money itself doesn't care whose asset or liability it is, which is where you're getting caught up. The loan I "spend" is money the bank has already "spent". One could be tediously pedantic and insist this is somehow semantically distinct from "creation", but to do so would be to reject decades of traditional economic terminology for no reason.

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02-02-2015, 10:56 AM (This post was last modified: 02-02-2015 04:34 PM by Bucky Ball.)
RE: New greek finance minister.
(02-02-2015 10:11 AM)earmuffs Wrote:  
(02-02-2015 09:58 AM)Bucky Ball Wrote:  But it's NEW DEBT, based on the leveraged funds brought about by the fact that reserve requirements are not 100 %, and they can lend MORE than they actually have on their own ballance sheet.

No it balances out on their balance sheet. They can't lend more than they have.
$100 into the system could be lent out as $90 which could be put into the system and so there is now $190 into the system. $100 of that is actual money, $90 is debt. It's balanced, it's not $90 being created out of thin air because someone owes that $90. The bank had to have had that initial $100 put into the system in order to lend $90.

If banks could just lend whatever they felt like they would just lend a trillion dollars to their board members at 1% interest. And they would be immune to collapse, which they're not.

Then the banking system is NOT the same where you live. They DO lend out more than they have, and it's one of the Central Bank's responsibilities to determine the reserve requirements. You have it exactly backwards. They have somewhere between 0-100 % on their ballance sheets, and lend out MORE than 100 % of what they actually have. That tool (one of the Central Bank's tools in Monetary Policy, ie Reserve Requirements setting authority) is one of a Central Banks most important tools.
http://en.wikipedia.org/wiki/Reserve_requirement
And BTW, deposits and receivables, (money lent out) are both ASSETS. They do not "ballance" on a ballance sheet. they are on the same side of a ledger.)

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02-02-2015, 06:28 PM
RE: New greek finance minister.
(02-02-2015 10:26 AM)cjlr Wrote:  
(02-02-2015 09:53 AM)earmuffs Wrote:  No it's not. Certainly not clearly.
They don't create money, they have to have money to lend it. If the money they lent than gets put back into the banking system than they can lend it again, but the point is that someone has to put that money into the bank (or the bank can spend its profit). It doesn't create money, it spends what it has. The money it relends is balanced because someone somewhere has negative that amount of money (in the form of debt).

Trivial counterpoint: real-world money supplies increase. Period. Fact. Deal with it. And since surely you would acknowledge this, one is left wondering how you account for it...

If only a fraction of a deposit need be held in reserve, the total amount in "circulation" increases. This is really simple math, muffs. Let's say I deposit a hundred dollars to bank A. Bank A lends 90 to bank B, who lends 80 of it to a fourth party. How much money is there now? Answer: more than 100.

The money itself doesn't care whose asset or liability it is, which is where you're getting caught up. The loan I "spend" is money the bank has already "spent".

I'm not saying there isn't more money in the system. I am saying that that money is not new money created out of thin air, it is countered (in the sense of balancing ones books) by someone owing that money.

Money increases because governments can create as much money as they damn well please (out of thin air). This money created by governmental central banks is than put into the system via various means, buying government bonds, quantitative easing etc.. all that shit.
Yes more money is put into the system when banks are required to hold less in reserve, but that money is not the same as the central bank creating money because the bank must a) have money to lend money and b) it's countered by someone oweing that money to the bank when the bank lends it out.

Quote:One could be tediously pedantic and insist this is somehow semantically distinct from "creation", but to do so would be to reject decades of traditional economic terminology for no reason.

One could and one will because to say the banks (actual banks) create money out of thin air is wrong. Yes they add more money into the system but it is money that is already in the system and it is based around debt so it balances out, meaning the the amount of money created out of thin air by the bank is zero.
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02-02-2015, 06:40 PM (This post was last modified: 03-02-2015 05:07 AM by Bucky Ball.)
RE: New greek finance minister.
(02-02-2015 06:28 PM)earmuffs Wrote:  but that money is not the same as the central bank creating money because the bank must a) have money to lend money and b) it's countered by someone oweing that money to the bank when the bank lends it out.

Future debt is not counted as a negative (constrictive) to TODAY'S money supply. They both (the examples above) increase the money supply today.
http://en.wikipedia.org/wiki/Money_suply
The supply of money is the money in circulation TODAY + demand deposits. Bookkeeping entries about future debt due have no impact on the money supply today.

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03-02-2015, 12:19 AM
RE: New greek finance minister.
I get what Muffs is saying, I don't get what you jokers are saying. Based on argument from ignorance, I vote for Muffs.

Anyway. Muffs. Where does money come from if not created by banks then? Is it created by central reserve bank? This is one thing that has always confused me.

I understood that the deal was:
I put money in bank.
Bank pays me interest for the privilege of having my money and investing it for their profit.
Now, the interest has to come from somewhere - my understanding was that the banks would invest in funds and based on the performance of the fund would be able to afford to pay everyone the interest.

Interest rates are set by some central body for each country - the reserve bank.

I can see the point that if banks can create money from thin air then why not just give everyone a billion dollars and be done with it? So it can't be that simple.

Does it work like this?
1. Reserve bank creates money, the money that reserve bank creates has a socially agreed upon value per unit - ultimately translating into resources such as gold etc.
2. Reserve bank loans money to commercial banks.
3. Commercial banks loan money to people and companies.
4. People and companies pay for the privilege of having a loan by paying interest.
5. People who store their money at the bank are paid for doing so by the bank paying them interest, and the bank meantime uses their money to invest or loan to other people.

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(06-02-2014 03:47 PM)Momsurroundedbyboys Wrote:  And I'm giving myself a conclusion again from all the facepalming.
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03-02-2015, 12:33 AM
RE: New greek finance minister.
Quote:If yes, I hardly know anything about economics myself,

Sometimes I wonder how much economists know. This is not a knock on economists. They have their theories and models like any other academic science but the application of those theories and models to real people and the real world usually loses much in translation.

Anyone who thinks he can solve all problems under the banner of an "ism" is a putz. Humans are far too complicated for that.

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03-02-2015, 04:45 AM
RE: New greek finance minister.
Quote:If only a fraction of a deposit need be held in reserve, the total amount in "circulation" increases. This is really simple math, muffs. Let's say I deposit a hundred dollars to bank A. Bank A lends 90 to bank B, who lends 80 of it to a fourth party. How much money is there now? Answer: more than 100.

Further. Yes there is more than $100 but the person that borrowed $80 owes $80, the person that borrowed $90 owes $90 etc.. It's important to recognize that debt is created because there's a huge difference between borrowing, thus creating debt, and creating money out of thin air. I'm saying debt is created, you're saying money out of thin air is created. It's very different and it's important because if Person C defaults/declares bankruptcy, that effects Person B which than effects Person A etc.. If money is simply just created out of thin air Person A is not effected because if Person C declares bankruptcy than Person B just loses the money they created out of thin air.

ie: Person A puts $100 into the Bank.
The Bank lends $90 to Person B.
Person B starts a business which fails and declares bankruptcy. The court rules that their debt is to be written off.
The Bank than still owes Person A $100, but they are now down $90. What happens if Person A wants their money? The Bank only has $10. The Bank collapses, and Person A is $90 out of pocket.

In the real world the bank losing money on loans isn't a big deal because it hardly ever happens and their profit and reserves are more than enough to make up for the shortfalls and so we don't notice it because the bank absorbs the loses.

My point is that you need to distinguish between creating debt and creating money out of thin air, it's not a trivial manner, the consequences change drastically.

Quote:Future debt is not counted as a negative (constrictive) to TODAY'S money supply. They both (the examples above) increase the money supply today.


It also increases debt...

Quote:Anyway. Muffs. Where does money come from if not created by banks then? Is it created by central reserve bank? This is one thing that has always confused me.

Yes. The reserve bank is the only institute that can create money from thin air. That is, it can lend however much money [to the government] it wants, at whatever interest rate, and not have that money backed up by assets. Banks must have money in order to lend it. They get money when you put your money in the bank and from their profits.
(Counterfeit money is also another way to create money from thin air by the way).

What you have to remember is that money is simply a system that represents value.
You can't really increase it, you increase what it represents, wealth. And the only way to do that is to physically add something to the market place in the form of goods or services.

ie: Person A borrows $100 from the bank. They are -$110 (we'll say $10 interest).
They than take this $100 and open a gold mine. They than mine up $200 worth of gold. They than sell this on the market. They pay the bank $110 to repay the debt. The bank is up $10 for services rendered. People in the market place exchange money for gold from Person A. They are down $200 collectively however they are up $200 worth of gold. Person A is than up $90 and $100 wealth has been "created" because the gold added to the market increases the example worlds overall wealth. The amount of money is the same but the overall wealth has increased.

Prior:
Bank: $-100
Person A: $100
People: $200

After:
Bank: $110
Person A: $90
People: $200 worth of gold but $-200 money.

This is how wealth increases. This is how we're better off today than our great grandparents, because more shit is being shoved into the market place and so everyone's wealth is going up.

HOWEVER, this also shows the issue of our system. We must always be growing economically in order to meet lending interest rates.

The above example is a sort of "every day" transaction how things work. Small scale. However on a macro scale the interest rate charged by the bank is an issue.

ie: In this world there are 3 people and a Bank.
Person A puts $100 in the Bank.
Bank lends $45 to Person B and $45 Person C at 10% interest. And keeps $10 by law in reserve.

The $90 is backed by Person A's $100 that Person A put into the bank. (thus no new money was created, thus cjlr, Bucky and Bemore are wrong).

Both Person B and Person C must pay the bank $49.50 each. $99 total.

The $9 represents services rendered by the bank. However the issue is that there is only $90 in circulation. Ultimately either Person B OR Person C will pay off their debt but there's no way both can pay off their debt. No matter how much wealth, ie: gold, they produce there is only ever a limited amount of money and never enough to cover bank interest rates. (think macro-macro scale)

This is where the reserve bank comes in. It lends the government money created out of thin air in order to make up the lack of money in the market place to cover bank interest rates. The government can also borrow from overseas in order to bring overseas money into the local economy. Basically it wants to put money into the economy so that bank interest rates can be covered. If a government stopped all borrowing than eventually (or rather quickly, I'm not actually sure) people are not going to be able to meet loan obligations, simply because there's not enough money in the system (or not enough in the hands of those that need it), and there's gonna be problems. Like, bring a nation or two to its knees problems.

This is also why we have recessions because it just gets to a point where it's unsustainable and something gives way. A whole lot of "losers" are created literally overnight and a small number of "winners" get richer.

The system is pretty fucked up however it is the best one, and most realistic, we have given our (we're all a bunch of greedy fucks who will never simple "get along") circumstances.

Quote:I understood that the deal was:
I put money in bank.
Bank pays me interest for the privilege of having my money and investing it for their profit.
Now, the interest has to come from somewhere - my understanding was that the banks would invest in funds and based on the performance of the fund would be able to afford to pay everyone the interest.

You put your money in the bank. They than take your money, minus the legal reserve amount they have to hold, and loan it out to people in the form of mortgages, personal loans etc.. etc.. They charge these people high interest rates and pay you low interest rates. ie: Mortgage rates here are around 6%, my savings account gets 2% interest.
That 4% difference is what the bank gets. They than spend that on business costs and the rest is profit.


The reserve bank sets interest rates to counter inflation (primary goal) and manipulate the lending/borrowing market. If they lower interest rates they can stimulate business and create jobs because borrowing money is cheaper. However interest you get on your money in the bank goes down.
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03-02-2015, 04:56 AM
RE: New greek finance minister.
A lot of what I learned about money creation, like I Have previously mentioned was from a group called 'positive money'

They have a 'banking 101' video course, that is about an hour long, that shows how the banking system works. The link to my other thread which contains the videos is.....

http://Www.thethinkingatheist.com/forum/...ong-please

Positive money are the only group to have managed to get the subject of money creation spoken about in the UK parliament for 140 years.

The highlights of that debate are here..




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I am the wind, in the fields in which I roar. I am the water, in which I drown.
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03-02-2015, 05:19 AM
RE: New greek finance minister.
While I haven't watched the video, watching PM's questions in Brit parliament leaves me rather sceptical that they can shed light on any goddamned thing Tongue

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(06-02-2014 03:47 PM)Momsurroundedbyboys Wrote:  And I'm giving myself a conclusion again from all the facepalming.
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