Energy minister will hold summit over peak oil

MacG · Post by **MacG** » 31 Mar 2010, 14:43

Blue Peter wrote:
fifthcolumn wrote:
Blue Peter wrote: I don't believe that that is correct. If it were, we wouldn't have had the crisis we have had.
No, even though Jim is a commie, he has it correct.
If Jim had it correct - that we could just magic money into existence - then we wouldn't have had the crisis because as soon as it looked like there might be a loss somewhere, they would have just magiced up a bit more money.

People can't do that, so we had a crisis,

Peter.

Well, please provide a better explanation then. What is money? How is money created? How is money put into circulation?

You can not just refer to banks "borrowing" money they lend out - then they have to borrow them from someone. Who do they borrow from? How did THAT entity get hold of the money in the first place?

You seem to be victim of the very mass delusion that make the current money system work in the first place.

Blue Peter · Post by **Blue Peter** » 31 Mar 2010, 15:18

MacG wrote:
Blue Peter wrote:
fifthcolumn wrote: No, even though Jim is a commie, he has it correct.
If Jim had it correct - that we could just magic money into existence - then we wouldn't have had the crisis because as soon as it looked like there might be a loss somewhere, they would have just magiced up a bit more money.

People can't do that, so we had a crisis,

Peter.
Well, please provide a better explanation then. What is money? How is money created? How is money put into circulation?

Try this wikipedia page: Wiki

You can not just refer to banks "borrowing" money they lend out - then they have to borrow them from someone. Who do they borrow from? How did THAT entity get hold of the money in the first place?

They borrow from someone else and so on. The first entity is the issuer of money, normally the central bank.

You seem to be victim of the very mass delusion that make the current money system work in the first place.

You will have to be more precise about what the delusion is exactly,

Peter.

Post by **kenneal - lagger** » 31 Mar 2010, 16:57

Blue Peter wrote:......They borrow from someone else and so on. The first entity is the issuer of money, normally the central bank. ......

Peter.

WRONG!! Look at "Money as Debt" on YouTube or "The Crash Course" I referred to above, Peter.

Blue Peter · Post by **Blue Peter** » 31 Mar 2010, 17:02

kenneal wrote:
Blue Peter wrote:......They borrow from someone else and so on. The first entity is the issuer of money, normally the central bank. ......

Peter.
WRONG!! Look at "Money as Debt" on YouTube or "The Crash Course" I referred to above, Peter.

Surely think about it. If people could just create money willy-nilly, then why would the banks ever get in trouble?

Just look at the fractional reserve tables in the wiki article linked - for every amount loaned out, there is a preceding amount deposited. You can't just magic money from nowhere (unless you're a central bank),

Peter.

Post by **kenneal - lagger** » 31 Mar 2010, 17:22

From the Wiki page, Peter

This theory is disputed by some schools of heterodox economics, termed endogenous money, which instead argue that money is created endogenously by demand for credit and by commercial bank-initiated lending, rather than exogenously by central bank lending.

Look at the sources I quoted and they will explain the actuality.

If money creation was only a multiplier of Central Bank issuing we would not have had the huge credit bubble because central banks have only just started quantitative easing, i.e. printing money, to ease the crisis in lending.

Post by **kenneal - lagger** » 31 Mar 2010, 17:30

Thinking about it, if the banks were packaging up bundles of debt and selling it on as a financial instrument, the money they received for those instruments would have been booked as an asset and would have enabled even more lending to dodgy customers.

fifthcolumn · Post by **fifthcolumn** » 31 Mar 2010, 18:26

Blue Peter wrote: You can't just magic money from nowhere (unless you're a central bank),

erm.. Getting closer. Just read the highlighted bit again.
Next... some joined up thinking...

Ask yourself this: Is it possible that banks are able to get funds from somewhere else other than deposits?

Hint: Some entity that can lend money that has been magicked out of nowhere?

Blue Peter · Post by **Blue Peter** » 01 Apr 2010, 10:16

Having thought about this over night, I think that it is worth clarifying what I am saying to make sure we are not miscommunicating.

I am reacting to sunny Jim’s statement:

Especially as I understand that they didn't lend me anyone else's money. The creation of my mortgage was a scam. They wrote my mortgage into existence. It doesn't represent anyone's capital from which they are making money or anything.

I take this to mean that the bank magiced the money into existence, “just like that”.

I take issue with this on the basis that a bank has a balance sheet:

Assets = Capital + Liabilities

Where assets are loans made by the bank to other people and liabilities are borrowings by the bank from other people.

My contention is that at the end of the day, a bank’s balance sheet balances, so it cannot “magic” money into existence. If it makes a loan (increases its assets), it has to borrow to increase its liabilities.

So, assuming that I have understand Jim’s statement correctly, I would ask people who agree with it, whether they believe that a bank’s balance sheet balances. And, particularly, if when a bank makes a loan (increase their assets), whether it then needs to increase its liabilities (borrow) to make sure that it still does balance.

I would also say that this “model” explains what has happened in the financial crisis. The assets that the banks hold (the loans that they have made) have gone bad, so that they are worth less than they were. The liabilities remain as before. Thus, from the equation, to maintain the equality, the bank’s capital is reduced. And in fact, it has reduced so far that it will no longer support the amount of lending that has gone on (under capital adequacy rules, the ratio of lending to capital is subject to limits) or even that the capital has been wiped out and the bank is bankrupt.

I don’t see why any of this would happen under the magic money model, since presumably assets could always be boosted by magicing up some more money.

Anyway, do bank balance sheets balance? Yes or no? And, if they do, does not this mean that as assets increase, so must liabilities?

Peter.

Post by **kenneal - lagger** » 02 Apr 2010, 01:03

When money is deposited the bank can then loan out about ten times that amount. That's magiccing up money.

ziggy12345 · Post by **ziggy12345** » 02 Apr 2010, 07:39

This thread is way off topic

PaulS · Post by **PaulS** » 02 Apr 2010, 10:45

Peter, I think you are missing a big chunk of the explanation. I recommend the short film called Money as Debt. Bear with it. It starts very simply, but the most interesting part is the end.

Watch it here: http://video.google.com/videoplay?docid ... 2583451279
or you can also download the whole video for later viewing.

2 As and a B · Post by **2 As and a B** » 02 Apr 2010, 11:20

"Money as Debt" will indeed explain all, but I don't know what you mean about the end being the most interesting as it goes into an unsubstantiated conspiracy theory there.

Fractional reserve banking, from Wikipedia:

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.[1][2] Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from deposit accounts. This practice is universal in modern banking, and can be contrasted with full-reserve banking which is no longer generally practised.

By its nature, the practice of fractional reserve banking expands money supply (cash and demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators, and by the excess reserves kept by commercial banks.

Central banks generally mandate reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves. This both limits the amount of money creation that occurs in the commercial banking system, and ensures that banks have enough ready cash to meet normal demand for withdrawals. Problems can arise, however, when a large number of depositors seek withdrawal of their deposits; this can cause a bank run or, when problems are extreme and widespread, a systemic crisis. To mitigate these problems, central banks (or other government institutions) generally regulate and oversee commercial banks, act as lender of last resort to commercial banks, and also insure the deposits of the commercial banks' customers.

Full article

JohnB · Post by **JohnB** » 02 Apr 2010, 11:26

ziggy12345 wrote:This thread is way off topic

That's one of the endearing qualities of PowerSwitch

biffvernon · Post by **biffvernon** » 03 Apr 2010, 23:40

Here's a pretty perceptive article from Chris Nelder
http://www.energyandcapital.com/article ... enial/1111

Andy Hunt · Post by **Andy Hunt** » 04 Apr 2010, 09:19

biffvernon wrote:Here's a pretty perceptive article from Chris Nelder
http://www.energyandcapital.com/article ... enial/1111

A neat 'summing up'!