People vs The Banks

[vtsnowedin]

[Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet and that the net consequence of this is that the same money gets re-lent out several times (in the example I have provided, based on the given fractional reserve ratio, three times. However, this will vary in real life depending on the fractional reserve ratio used) and that if anyone tried this stunt in any other walk of life, they would get sent to jail for double-accounting fraud?

Your question is structured as a trap in the tradition of Senator Joseph McCarthy of the 1950s and as such is not worthy of an answer.

[Little John]

[Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet and that the net consequence of this is that the same money gets re-lent out several times (in the example I have provided, based on the given fractional reserve ratio, three times. However, this will vary in real life depending on the fractional reserve ratio used) and that if anyone tried this stunt in any other walk of life, they would get sent to jail for double-accounting fraud?

Your question is structured as a trap in the tradition of Senator Joseph McCarthy of the 1950s and as such is not worthy of an answer.

Bullshit.

Okay, I'll break it down.

Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet. If you do, then you should be able to provide an alternative explanation for those numbers.

Do you deny that the net consequence of the above is that the same money gets re-lent out several times (in the example I have provided, based on the given fractional reserve ratio, three times. However, this will vary in real life depending on the fractional reserve ratio used). If you do, then you should be able to provide an alternative explanation for those numbers.

Do you deny that the above process is effectively a double-accounting fraud? If you do, then you should be able to provide an alternative explanation for why £1000 pushed out into the banking system from a CB becomes £3000 in circulation plus £1000 in bank deposits.

Enough with the avoidance of answering the questions.

[clv101]

[Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet and that the net consequence of this is that the same money gets re-lent out several times (in the example I have provided, based on the given fractional reserve ratio, three times. However, this will vary in real life depending on the fractional reserve ratio used) and that if anyone tried this stunt in any other walk of life, they would get sent to jail for double-accounting fraud?

Your question is structured as a trap in the tradition of Senator Joseph McCarthy of the 1950s and as such is not worthy of an answer.

It seems perfectly straightforward to me, of course this is how it works. I don't see your reluctance to agree vtsnowedin?

[Blue Peter]

I think that you need to be careful. You seem to want money to be something "the same money lent out", “double-accounting fraud” etc. Think of it as a set of promises. The bank promises to pay back an amount to the depositor. It then lends out the same amount to someone else, who in turn promises to pay back. Etc. Banking is/was keeping firm tabs on all these promises and on their reliability. There is no (necessary) fraud in making more than one promise.

To look at this from the opposite point of view, there are/were strict rules on accounting. Every time someone lends, this creates an obligation to pay back which is mirrored in the accounts where debits and credits must balance. The extra £3000 can be unwound and disappear as debts are repaid (as pointed out by JSD). So, though there is no immutable thing that is money, there are rules about how it can be used, and if you disobey those you will go to prison (except in our too big to jail culture).


Peter.

[Little John]

I think that you need to be careful. You seem to want money to be something "the same money lent out", “double-accounting fraud” etc. Think of it as a set of promises. The bank promises to pay back an amount to the depositor. It then lends out the same amount to someone else, who in turn promises to pay back. Etc. Banking is/was keeping firm tabs on all these promises and on their reliability. There is no (necessary) fraud in making more than one promise.

To look at this from the opposite point of view, there are/were strict rules on accounting. Every time someone lends, this creates an obligation to pay back which is mirrored in the accounts where debits and credits must balance. The extra £3000 can be unwound and disappear as debts are repaid (as pointed out by JSD). So, though there is no immutable thing that is money, there are rules about how it can be used, and if you disobey those you will go to prison (except in our too big to jail culture).


Peter.

Money may merely be an accounting system for promises. However, what that those promises can be exchanged for really are things that have real value in the real world. Thus, money is a proxy for things. As it stands, the banking system is fraudulently double-accounting those promises and, as a consequence, is fraudulently laying claim to real assets in the real world with them.

[Blue Peter]

"As it stands" are you saying that this is true at the moment, when a lot of fraud has gone on (as most people agree, apart from the regulators)? or as a necessary consequence of banking? which I don't see as true,


Peter.

[vtsnowedin]

[Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet and that the net consequence of this is that the same money gets re-lent out several times (in the example I have provided, based on the given fractional reserve ratio, three times. However, this will vary in real life depending on the fractional reserve ratio used) and that if anyone tried this stunt in any other walk of life, they would get sent to jail for double-accounting fraud?

Your question is structured as a trap in the tradition of Senator Joseph McCarthy of the 1950s and as such is not worthy of an answer.

It seems perfectly straightforward to me, of course this is how it works. I don't see your reluctance to agree vtsnowedin?

I don't understand why you don't see the fallacy in the questions structure.
A given lender could add a deposit on his balance sheet money lent by an other banker but only if (And the question does not specified that) the loaned money was in fact deposited in his bank. Then we must be alarmed that money circulates faster then loans mature so "The same money" is lent out more then once in the same year and then it is inserted as part of the question that this is fraud and a jail-able offense ( without any support to that argument) .
It is akin to the old question. Answer yes or no ,have you stopped beating your wife? No matter which way you answer the poser will jump on it and say " so you admit that you beat your wife or if you answered no than you admit that you are still beating your wife.
Can you imagine a system where when money was lent out the bills were serial numbered and recorded and the bank had to wait for all of them to return plus interest before any of them could be re lent out to other customers? That is the stupidity they are asking for.

[JavaScriptDonkey]

due to the interest that has been added to the loans.

I say again interest charge requires growth or inflation to satisfy but that is entirely separate to the question of FRB. No quibble at all from me that interest requires growth or inflation in order to pay off debt.

That being the case, where the **** do you think the £3000 in circulation came from?

There is no £3000 in circulation. You've counted the same money more than once.

Imagine a sealed room with 3 people. One person has 9 beans. He keeps 3 and gives the next person the other 6 who in turn keeps 3 and hands the last 3 to last person. There are still only 9 beans in the room but if we count them your way we have 15.

No matter, since we have the table above for everyone to see and so all of the above can be confirmed by anyone who chooses to add the columns up.

Just because it's in a column does not mean that simple summation will arrive at the right answer. You have made an error in understanding what the data in table represents.

Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet

Of course you can use money that you borrow as capital for investment but YOU ALSO STILL OWE THE MONEY YOU BORROWED.

In your world if I buy £10 of rice in Tescos then after the transaction there is somehow £30. The £10 that I spent, the £10 in their hand and the value of the £10 of rice.

[clv101]

due to the interest that has been added to the loans.

I say again interest charge requires growth or inflation to satisfy but that is entirely separate to the question of FRB. No quibble at all from me that interest requires growth or inflation in order to pay off debt.

I don't follow your bit in bold. Where does the new money (for growth or inflation) come from if not from loans/debt in accordance with fractional reserve banking?

[JavaScriptDonkey]

due to the interest that has been added to the loans.

I say again interest charge requires growth or inflation to satisfy but that is entirely separate to the question of FRB. No quibble at all from me that interest requires growth or inflation in order to pay off debt.

I don't follow your bit in bold. Where does the new money (for growth or inflation) come from if not from loans/debt in accordance with fractional reserve banking?

That is a very worthy but different question. When money is lent at interest we lock ourselves in to an endless cycle of growth/inflation that requires the issuance of new money. How we justify this new money to ourselves is another debate.

[Totally_Baffled]

This is what is on Wikipedia under fractional reserve banking, your sealed room with 100 beans becomes 500 beans under the FRB system (with a 20% reserve rate)

Although no new money was physically created in addition to the initial $100 deposit, new commercial bank money is created through loans. The 2 boxes marked in red show the location of the original $100 deposit throughout the entire process. The total reserves plus the last deposit (or last loan, whichever is last) will always equal the original amount, which in this case is $100. As this process continues, more commercial bank money is created. The amounts in each step decrease towards a limit. If a graph is made showing the accumulation of deposits, one can see that the graph is curved and approaches a limit. This limit is the maximum amount of money that can be created with a given reserve rate. When the reserve rate is 20%, as in the example above, the maximum amount of total deposits that can be created is $500 and the maximum increase in the money supply is $400.

Here is the same 100 beans (or dollars) with different reserve rates.

Is this wrong? If it is, where does new money come from?

By the way your example of beans (and each person retaining 3 beans means that the reserve requirement is increasing per person eg the first retains 3 out of 9 which is 33% the next retains 3 out of 6 which is 50% etc which isnt what happens under FRB)

[Little John]

due to the interest that has been added to the loans.

I say again interest charge requires growth or inflation to satisfy but that is entirely separate to the question of FRB. No quibble at all from me that interest requires growth or inflation in order to pay off debt.

That being the case, where the **** do you think the £3000 in circulation came from?

The is no £3000 in circulation. You've counted the same money more than once.

Imagine a sealed room with 3 people. One person has 9 beans. He keeps 3 and gives the next person the other 6 who in turn keeps 3 and hands the last 3 to last person. There are still only 9 beans in the room but if we count them your way we have 15.

No matter, since we have the table above for everyone to see and so all of the above can be confirmed by anyone who chooses to add the columns up.

Just because it's in a column does not mean that simple summation will arrive at the right answer. You have made an error in understanding what the data in table represents.

Do you deny that a given lender can add on to the deposit-side of its balance sheet, the debt-side of another lender's balance sheet

Of course you can use money that you borrow as capital for investment but YOU ALSO STILL OWE THE MONEY YOU BORROWED.

In your world if I buy £10 of rice in Tescos then after the transaction there is somehow £30. The £10 that I spent, the £10 in their hand and the value of the £10 of rice.

No, that is quite specifically not what i am arguing.

In that table, there is:

£1000 at the beginning

80% of it is lent out and 20% is held on account

The 80% that is lent out gets spent into the economy and eventually ends up in some retailer's bank account or gets deposited directly into a bank by the initial borrower. either way, it ends back in the banking system

As soon as the £800 has made its way back to the banking system, it is counted as a deposit and so the whole process starts on that deposit. Only this time, 80% of £800 is lent out and 20% of £800 is retained on account.

The whole process continues until all returns are wrung out of the money. In other words, until infinity is approached.

Once the whole process is exhausted, if you add up all of the money on account in the banking system you will find that it equals the initial £1000 that entered the system at the beginning. However, there also exists, now, another £4000 that has been lent out into the economy and is in use in that economy. Of course, this £4000 will itself come back to the banking system and will be acted upon in exactly the same manner as the initial £1000. However, this credit-money re-entering the banking system really does cancel itself out and so the credit supply cannot be increased any further without new money being injected into the system (in other words, from a CB, or from money being directly borrowed from overseas banks by domestic banks). Whichever way you cut it, £1000 (money on account) subtracted from £4000 (money lent into the economy) = an increase to the money supply of £3000. Even if you discount the money on account (because it is not circulating and therefore not in use in the economy), the money supply has still increased by £2000. Doubled, in other words.

None of the lent into existence credit has any physical reality. It can't of course, since it never really existed in the first place. In the old days, it would have been made physical in the form of cheques. Today, though, even that physical fabrication is unnecessary since it need only exist as numbers in a bank's database.

If you believe I have made a mathematical error on that table, then point it out. I can tell you now I have checked the calculations on the table several times and there are no errors. You keep stating there is an error in the table and yet you continually fail to specify it.

Point it out.

[Little John]

This is what is on Wikipedia under fractional reserve banking, your sealed room with 100 beans becomes 500 beans under the FRB system (with a 20% reserve rate)

Although no new money was physically created in addition to the initial $100 deposit, new commercial bank money is created through loans. The 2 boxes marked in red show the location of the original $100 deposit throughout the entire process. The total reserves plus the last deposit (or last loan, whichever is last) will always equal the original amount, which in this case is $100. As this process continues, more commercial bank money is created. The amounts in each step decrease towards a limit. If a graph is made showing the accumulation of deposits, one can see that the graph is curved and approaches a limit. This limit is the maximum amount of money that can be created with a given reserve rate. When the reserve rate is 20%, as in the example above, the maximum amount of total deposits that can be created is $500 and the maximum increase in the money supply is $400.

Here is the same 100 beans (or dollars) with different reserve rates.

Is this wrong? If it is, where does new money come from?

By the way your example of beans (and each person retaining 3 beans means that the reserve requirement is increasing per person eg the first retains 3 out of 9 which is 33% the next retains 3 out of 6 which is 50% etc which isnt what happens under FRB)

That graph precisely mirrors the principle outlined out in my table

[Totally_Baffled]

That graph precisely mirrors the principle outlined out in my table

Yup checked in excel myself before posting.

Just thought a visual might help

[Little John]

That graph precisely mirrors the principle outlined out in my table

Yup checked in excel myself before posting.

Just thought a visual might help

Cheers TB. It's a big help.

In my table (based on a fractional reserve of 20%) £1000 becomes £5000 in total (deposits plus money in circulation)

in the wiki example (based on a fractional reserve of 20%) £100 becomes £500 in total (deposits plus money in circulation)

Except, of course, 4/5 of it in both examples does not really exist except as lent into existence credit masquerading as money. Or, to put it another way, legally sanctioned multiple accounting fraud.

But, of course, it gets worse because there is even more money implied in the system in the form of projected returns of interest on the loans which requires that more money is pumped in to the start of the system to fill the hole. This will only cause the problem to increase because all additional money pumped in to the system will have the same process of multiple accounting fraud applied to it as well.