Currency Contortion Conundrum

[spaceman]

More LOLZ

What then is 'the system as a whole' that created the money?

I agree with you on this. Bad bit of writing by Encyclopaedia Britannica Online Edition IMHO....... not that I'm the greatest proofreader in the world.

Surely if the banks didn't create the money and the banks are the system then the system also didn't create any money ....... can't have it both ways ..... maybe there is some secret part of the system that the people from Encyclopaedia Britannica Online Edition know about but we mere mortals don't?????

Cheers
Spaceman

[Perry]

Go back and read it more carefully. The article
did not say
the banks didn't create the money

the article said
no individual bank created money

Maybe there is some secret part of the system
that the people from Encyclopaedia Britannica
Online Edition know about but we mere
mortals don't?

Despite that you've slightly misquoted the
Encyclopaedia Britannica folks, you may be
partly right. I suspect that most mere mortals
don't.

As in 'get it;' or 'the system.'

[spaceman]

???????

The Fractional Reserve banking System created it.
Bank, banks it matters not, it depends where the deposits are put doesn't it.
One bank, two banks, my balance sheets presented earlier are a metaphor for "the system as a whole". What happens once the Money Multiplier is applied by one, two or one hundred banks.

You are not getting off this one Spaceman, That's what we have been saying all along.

ummmmmmm ...... sorry this one has me perplexed.

What am I not getting off of???? ....it's not my quote if that's what you mean ..... I just copied it from Perrys earlier post and highlighted a portion of it.

Not sure what you're on about with this whole Money Multiplier bit either .... Isn't it just simple maths??? If the banks only need to keep a portion and return the rest into circulation, then of course the money supply has been expanded by the banks reintroducing the money back into circulation ..... they just haven't created any money.

I've tried to stick to the topic of banks creating money and Perry quoted a piece from Encyclopaedia Britannica Online Edition .... which quite clearly states that banks don't create money.

WIN for me ........... Though I understand some people will remain unconvinced, I think this is because they can't get a grasp of the very simple basics and effectively are trying to run before they can walk.

Cheers
Spaceman

[Perry]

At the start the CD player vendor owes Spaceman $100.
At the end, Spaceman's mate owes him $100.
No change in debt.
No change in $ bills.
What got created?

Another failed example. Ignore it. Seems like it's
a continuous movie and not possible to just look
at one scene and have it make stand-alone sense,
out of the continuous movie context.

Let's see if we can worry the statement:

Although no individual bank created money, the
system as a whole did. This multiple expansion process
lies at the heart of the modern monetary system.

. . . and get something edifying out of that.

Even if that results in the Encyclopaedia Britannica
folks issuing a retraction, along with a credit to our
intrepid Spaceman.

[spaceman]

Where did you go to school???

Go back and read it more carefully. The article
did not say
the banks didn't create the money

the article said
no individual bank created money


Despite that you've slightly misquoted the
Encyclopaedia Britannica folks, you may be
partly right. I suspect that most mere mortals
don't.

As in 'get it;' or 'the system.'

I didn't misquote anything .... I highlighted a portion of something you quoted.

the banks didn't create the money = no individual bank created money

At least where I went to school it did.

Still would like to know at what point in your previous example you think the bank created money ...... and why you don't think I created money by loaning my mate some ........ Because to me this smacks of trying to have your cake and eat it too.

Cheers
Spaceman

[Perry]

I've tried to stick to the topic of banks creating money and Perry quoted a piece from Encyclopaedia Britannica Online Edition .... which quite clearly states that banks don't create money.

WIN for me ........... Though I understand some people will remain unconvinced, I think this is because they can't get a grasp of the very simple basics and effectively are trying to run before they can walk.

I presume you posted that before reading my comment
that you have misquoted the Encyclopaedia Britannica,
as in:

quite clearly states that banks don't create money.

No WIN for you disqualified for misquoting the reference.

[Perry]

I didn't misquote anything .... I highlighted a portion of something you quoted.

the banks didn't create the money = no individual bank created money

Please read it carefully and fully:

Although no individual bank created money, the
system as a whole did.

I put it to you that for reasons of economy of speech
and space, the phrase was reflexive and did not repeat
the word bank or any similar form of it. By that, I mean
it might be fairly re-stated thus:

Although no individual bank created money, the
banking system as a whole did.

Please write to the nice folk at Encyclopaedia Britannica
and tell them they have it wrong, if that's what you still
think is the case. Do let us know what they say. We'll wait.

[outspoken]

Ignore the spacecadet.

The final nail in the coffin:

Banks have a bias towards residential property due to a number of factors, including a complicated issue called capital adequacy.

In simple terms this is the minimum capital requirements for banks, which is 8 per cent at present. Thus if a bank has $100 million of loans it has to have at least $8 million of capital.

However banks are allowed to have lower capital requirements if their loans are less risky and residential mortgages are considered to be lower risk than business loans. Banks have considerable flexibility to assess their own capital requirement and the ANZ National Bank's requirements, based on its latest general disclosure statement, are as follows:

For every $100 million of business loans the bank's minimum capital requirement is $5.06 million.
For every $100 million of housing loans its minimum requirement is $1.91 million.

http://www.milfordasset.com/newsmodule/view/id/219/src/@random49c96286d24d4/

Now run off and play soldiers spacecookies, you're not allowed to think for yourself remember.....no wonder why!

[Steve Netwriter]

I am afraid I have to throw a large spanner into the works.
I think the idea that a deposit is made first, and THEN a loan is made is incorrect. It's a nice simple way of looking at it, but....
I believe the loan is made first (real creation of currency), and later deposits are made.

Please refer to Steve Keen's great article:

Steve Keen’s DebtWatch No 31 February 2009: “The Roving Cavaliers of Credit”
Published in January 31st, 2009

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

I also think the fractional reserve ratios often cited are incorrect for our "modern" banking age. 10% is a bit of a joke these days

Please refer to:

Yes, Virginia, There Are No Reserve Requirements (PART 2/2)

http://towneforcongress.com/economy/yes-virginia-there-are-no-reserve-requirements-part-22-1

I'd really like to hear from someone who has the time to read the FINE print of their current accounts

[Steve Netwriter]

I have to make just one more post.....

Because this will be post 1000

[outspoken]

Good articles Steve, I've read the first one before.

The premise is still the same: Money is created by both Central and Commercial banks, the latter creating it's own stock in trade.

[Perry]

I am afraid I have to throw a large spanner into the works.
I think the idea that a deposit is made first, and THEN a loan
is made is incorrect. It's a nice simple way of looking at it, but....
I believe the loan is made first (real creation of currency), and
later deposits are made.

Do you actually mean "real creation of currency" or real
creation of money? I do agree that it's a simplistic way
of looking at it - but that's an illustration made in an
effort to aid comprehension, as I see it.

[Perry]

Ahem . . .

I don't see this discussion as one of or for the
determination of a winner or a loser. It is for
the furtherance of people's knowledge and
understanding. With luck, that will 'empower'
posters to be better PIs, have greater financial
acumen and related benefits.

With widely differing and strongly held views,
combined with the inherent esoteric nature of
the topic, some frustration is and has been seen.

For edifying reasons, I ask for greater civility
in the debate. Ad hominem remarks, sarcasm
and name-calling is not the stuff of PT and has
no place in reasoned debate.

Please.

[Steve Netwriter]

Do you actually mean "real creation of currency" or real
creation of money? I do agree that it's a simplistic way
of looking at it - but that's an illustration made in an
effort to aid comprehension, as I see it.

Perry,
I use "currency" because, for example, the RBNZ talks about the NZ currency, and I use "money" for things with an inherent value.
IMO for a discussion like this it's a minor point.

It would be convenient to those who wish to obfuscate, for the masses to spend their time arguing over terms rather than discussing the important issues.

IMO one of the important issues is this.
Most people consider their bank account balance as a measure of how much money they have in their account. Summing all the balances gives a total wealth that everyone thinks they have. ie after years of society working, that is the result.
But, in fact, the bank has less than 10% of that, and probably a good bit less than 10% of that.
So has society really got that wealth they worked for?
It seems to me that it only works if a small % of people want to use that claimed wealth.

This differs from people who have a load of firewood stored, all of whom can use it without discovering that only some of the wood is real wood.

[tricky]

I haven't seen a good, clear, simple example of the claim "banks create money out of fresh air".
Spaceman seems to have shot down all the examples so far.
There seems to be some confusion in the term money and what each person means by that.
Perhaps there is some common ground but people can't see it/don't realise it.
Anyway, good call, Perry - let's stay civilised.
And keep posting.