Banking and money

[johnhemming2]

You also disagree with PositiveMoney,

That may be true.

the Financial Times and the Bank of England.

I don't know about the FT, but I have quoted from Bank of England documents in support of my explanation as to how the payments system operates.

Payments between banks (on behalf of customers - not just on the bank's own general fund) go mainly through book entries in the settlement accounts. This requires interbank liquidity, or narrow money.

There are different definitions of money. They mean different things. You should not conflate them.

[UndercoverElephant]

You also disagree with PositiveMoney,

That may be true.

the Financial Times and the Bank of England.

I don't know about the FT, but I have quoted from Bank of England documents in support of my explanation as to how the payments system operates.

Payments between banks (on behalf of customers - not just on the bank's own general fund) go mainly through book entries in the settlement accounts. This requires interbank liquidity, or narrow money.

There are different definitions of money. They mean different things. You should not conflate them.

The bank still creates the money, and you still haven't acknowledged that this is the case.

[johnhemming2]

The bank still creates the money, and you still haven't acknowledged that this is the case.

I have. In a posting at 3.12pm I said:

I agree a mortgage with RBS for 150K. They debit a loan account and credit a deposit account. For what its worth this creates a broad money deposit account. (M3, M4 that sort of thing).

This creates broad money, but does not create narrow money. Unless the bank has sufficient liquidity the broad money is substantially useless as it cannot be paid to another bank.

Having a deposit in a bust bank is not much use.

[Catweazle]

I've been through this process with countless people. What I am telling them is so outrageous that they simply cannot believe it is true, but true it is. Private banks have the power to create money out of nowhere and lend it to people who then have to pay it back with interest.

This makes sense. Money is a token for wealth (real products) but the homebuyer has not actually produced that wealth yet, so the money does not exist. So, the bank creates money to represent the wealth the homebuyer will make over the next 25 years.

The bank is a writer of IOU's and the more it writes the more it takes for itself.

Why didn't I think of that ?

[johnhemming2]

The bank is a writer of IOU's and the more it writes the more it takes for itself

Only the scottish and northern irish banks actually print bank notes. Book entries (ie deposit accounts) are not IOUs.

The amount that the Scottish and Northern Irish banks print is strictly controlled by the bank of England as part of M0.

http://www.acbi.org.uk/media/sni_notes_ ... _copy1.pdf

[biffvernon]

Meanwhile I've had an opportunity to read Yanis Varoufakis The Global Minotaur.

What does he say about fossil fuel depletion and the further development of automation (two issues that create really big challenges for the global economy).

I agree with you that these are two issues that create really big challenges for the global economy. Read the book; you may be surprised by how much you agree with Varoufakis.

And with Paul Mason, whose article in the Guardian is discussed here: http://www.powerswitch.org.uk/forum/vie ... hp?t=25702

[Catweazle]

The bank is a writer of IOU's and the more it writes the more it takes for itself

Only the scottish banks actually print bank notes. Book entries (ie despoit accounts) are not IOUs.

The amount that the Scottish banks print is strictly controlled by the bank of England as part of M0.

I would argue that money is an IOU - it represents real tangible wealth. By creating money on the homebuyers behalf the bank has "written IOU's".

No ?

[johnhemming2]

And with Paul Mason, whose article in the Guardian is discussed here: http://www.powerswitch.org.uk/forum/vie ... hp?t=25702

I had noted that Paul Mason had noticed the issue of automation. This remains a massive issue for participation within society.

He doesn't seem to look at resource depletion, however.

[johnhemming2]

I would argue that money is an IOU - it represents real tangible wealth. By creating money on the homebuyers behalf the bank has "written IOU's".

No ?

No. A bank note is tangible (meaning you can touch it).

The deposit account is not much use unless you can use it to pay someone.

[UndercoverElephant]

The bank is a writer of IOU's and the more it writes the more it takes for itself.

Yes, basically. The more money the banks create as loans, the more money they rake in as interest. It is therefore in the interests of banks to loan as much money as possible, driving up property prices, which benefits the banks and already-wealthy property owners at the expense of anybody who doesn't own property and is forced to choose between taking out a huge mortgage or renting for the rest of their lives.

But there is absolutely no reason it has to work this way. There is no reason the government couldn't be responsible for creating all money, and deciding who it should be loaned to, and on what terms, or at the very least charging banks interest to borrow it from the government instead of allowing the banks to create it. In fact, there is no reason why private retail banks should exist at all, and plenty of reasons why they shouldn't.

[Catweazle]

I would argue that money is an IOU - it represents real tangible wealth. By creating money on the homebuyers behalf the bank has "written IOU's".

No ?

No. A bank note is tangible (meaning you can touch it).

The deposit account is not much use unless you can use it to pay someone.

I didn't mention "bank note", I refer to "money". Not that there's much difference, a £10 note isn't actually worth £10, it represents something that is worth £10 - perhaps some cabbages.

I suggested that by creating the money for homebuyer to buy his house from homeseller, based on the idea that homebuyer will work to create the required wealth over the next 25 years, the bank was simply writing a big IOU and taking a % for the service.

[johnhemming2]

But there is absolutely no reason it has to work this way. There is no reason the government couldn't be responsible for creating all money, and deciding who it should be loaned to, and on what terms, or at the very least charging banks interest to borrow it from the government instead of allowing the banks to create it. In fact, there is no reason why private retail banks should exist at all, and plenty of reasons why they shouldn't.

Clause 4 of the Labour Party constitution talked about nationalising the banks.

It was removed a number of years ago. With all of the criticism of politicians I do get surprised when people believe that giving more power to politicians is a good thing.

https://en.wikipedia.org/wiki/Clause_IV

[johnhemming2]

I suggested that by creating the money for homebuyer to buy his house from homeseller, based on the idea that homebuyer will work to create the required wealth over the next 25 years, the bank was simply writing a big IOU and taking a % for the service.

The bank does not create the liquidity. It may create broad money, but the narrow money to execute the transaction (complete) has to be found from somewhere else.

[biffvernon]

I had noted that Paul Mason had noticed the issue of automation. This remains a massive issue for participation within society.

He doesn't seem to look at resource depletion, however.

I guess you can't fit everything into one article.

Automation, was the major theme of David Fleming's (he of TEQs) work in the 1970s and 80s and the basis of his PhD thesis. It's about time it got more attention.

[Catweazle]

The bank does not create the liquidity. It may create broad money, but the narrow money to execute the transaction (complete) has to be found from somewhere else.

Thanks for clearing that up