Energy minister will hold summit over peak oil

[Bandidoz]

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,

My understanding of this is that they *can* magic money into existence, but it devalues the currency, so puts the country in a poorer position in the world markets, so would try to avoid doing it.

Ask yourself this question, is there more Sterling in circulation now than there was 50 years ago?

[Blue Peter]

"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.



Full article

Now I'm "confused". You quote "Money as Debt" approvingly, which I take, from the continual calls to it here, means that you don't believe that:

Assets = Capital + Liabilities

for a bank.

Yet, you then quote wikipedia which explains that in fractional reserve banking, you take a fraction of a deposit (= loan, or liability) and then lend it out (= asset).

So, am I wrong about "Money as Debt" being against the above equation?


Peter.

Edit: For quotes.

[Blue Peter]

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

No, according to fractional reserve banking, they lend out a fraction of the amount deposited. The amount usually used in examples is 90%. I.e. I deposit £100 in a bank, the bank then lends out £90,


Peter.

[Blue Peter]

My understanding of this is that they *can* magic money into existence, but it devalues the currency, so puts the country in a poorer position in the world markets, so would try to avoid doing it.

By printing extra money, cf. Quantitative easing.

Ask yourself this question, is there more Sterling in circulation now than there was 50 years ago?

There is a lot more money in circulation, because the economy is a lot bigger than 50 years ago (ignoring inflation). One of a central bank's jobs is to manage the money supply so that there is enough money for the economy to run smoothly - i.e. more money must be supplied as the economy grows.

Clearly, since money is a human invention, this requires more money to be created. However, I assume that nobody is arguing over the fact that humans have to create human things and can't just find them lying around in the world?


Peter.

Edit: For quotes.

[emordnilap]

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

No, according to fractional reserve banking, they lend out a fraction of the amount deposited. The amount usually used in examples is 90%. I.e. I deposit £100 in a bank, the bank then lends out £90,


Peter.

So then there's £190 in 'existence'. Then the £90 gets deposited in another bank and £81 is loaned out. There's now £271 in 'existence'. And so on.

[Blue Peter]

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

No, according to fractional reserve banking, they lend out a fraction of the amount deposited. The amount usually used in examples is 90%. I.e. I deposit £100 in a bank, the bank then lends out £90,


Peter.

So then there's £190 in 'existence'. Then the £90 gets deposited in another bank and £81 is loaned out. There's now £271 in 'existence'. And so on.

Indeed. But the point is that each loaning out is matched by a loaning in. Banks can't magically create money; they have to balance their assets and liabilities. They can only loan out what already has been loaned to them,


Peter.

[MacG]

No, according to fractional reserve banking, they lend out a fraction of the amount deposited. The amount usually used in examples is 90%. I.e. I deposit £100 in a bank, the bank then lends out £90,


Peter.

So then there's £190 in 'existence'. Then the £90 gets deposited in another bank and £81 is loaned out. There's now £271 in 'existence'. And so on.

Indeed. But the point is that each loaning out is matched by a loaning in. Banks can't magically create money; they have to balance their assets and liabilities. They can only loan out what already has been loaned to them,


Peter.

Wrong. They book the value of the collateral for the loan. You provide collateral and a promise to repay with interest, and the bank create money out of thin air and give you that money in exchange for the collateral and the promise to pay.

Dont listen s much to MrBill over at po.com - he is just a clerk who try to impress on people.

[UndercoverElephant]

Banks can't magically create money; they have to balance their assets and liabilities. They can only loan out what already has been loaned to them,

Peter.

You'd think so, wouldn't you? Unfortunately this is not true. Banks really do "magically create money." When you go to a bank and borrow £100,000 to buy a house all that the bank does is put £100,000 into your account. It doesn't come from anywhere. Nobody loaned them the money. They just invent it out of thin air, and then charge you interest on it.

Unbelievable, isn't it? All these people had to do was make sure they did not lend stupid amounts of (invented) money to people who had no hope of paying it back in the event of a house price crash, and they could not even manage to get this right. Quite frankly, I think they should be lined up against a wall and shot.

http://video.google.co.uk/videoplay?doc ... 3790090544#

[Blue Peter]

Wrong. They book the value of the collateral for the loan. You provide collateral and a promise to repay with interest, and the bank create money out of thin air and give you that money in exchange for the collateral and the promise to pay.

Dont listen s much to MrBill over at po.com - he is just a clerk who try to impress on people.

The collateral for a loan is the security for the loan. Banks do (should) keep a close eye on its value, and they may ask you to increase it if it falls below a certain level. E.g. you take out a mortage with a LTV of 85% on a buy-to-let property. If the value of the house falls, the bank may have something in the contract (a margin call) which allows them to ask you to restore the LTV to 85%, which you can only do by reducing the value of the loan.

However, the collateral is not what goes on the balance sheet, since it is not what the bank will get paid back if everything goes fine. You can also have unsecured loans, of course.

And, again, the bank's balance sheet must balance so the bank will need to have a corresponding borrowing to go with the loan.

Again, on the magic-money theory, why does the inter-bank lending market exist? What would be the point of a bank borrowing from another bank if it could just magic up a bit more money whenever it liked?


Peter.

[Cabrone]

Banks can't magically create money; they have to balance their assets and liabilities. They can only loan out what already has been loaned to them,

Peter.

You'd think so, wouldn't you? Unfortunately this is not true. Banks really do "magically create money." When you go to a bank and borrow £100,000 to buy a house all that the bank does is put £100,000 into your account. It doesn't come from anywhere. Nobody loaned them the money. They just invent it out of thin air, and then charge you interest on it.

Unbelievable, isn't it? All these people had to do was make sure they did not lend stupid amounts of (invented) money to people who had no hope of paying it back in the event of a house price crash, and they could not even manage to get this right. Quite frankly, I think they should be lined up against a wall and shot.

http://video.google.co.uk/videoplay?doc ... 3790090544#

I see it as effectively a tax on the workers (but the workers haven't clued on to this particular scam).

The bankers are like middle men who for some historical reason have been granted the right to 'create' money and then charge the customer for it.

I've always wondered why the government couldn't run the money supply instead and charge 0% interest on it.

Why is society paying bankers so much for nothing?

[Blue Peter]

Banks can't magically create money; they have to balance their assets and liabilities. They can only loan out what already has been loaned to them,

Peter.

You'd think so, wouldn't you? Unfortunately this is not true. Banks really do "magically create money." When you go to a bank and borrow £100,000 to buy a house all that the bank does is put £100,000 into your account. It doesn't come from anywhere. Nobody loaned them the money. They just invent it out of thin air, and then charge you interest on it.

So, you don't think that a bank's balance sheet balances?

Unbelievable, isn't it? All these people had to do was make sure they did not lend stupid amounts of (invented) money to people who had no hope of paying it back in the event of a house price crash, and they could not even manage to get this right. Quite frankly, I think they should be lined up against a wall and shot.

Why would it matter? They could just magic up some more, couldn't they? One wonders why we've had this financial crisis at all,


Peter.

[Blue Peter]

Why is society paying bankers so much for nothing?

What do bankers do? Well, at least plain vanilla banking, involves them gathering up the meagre savings of lots and lots of people (which would otherwise sit around in jam jars, doing nothing) and then finding good, viable prospects and lending them this money to start/further their businesses.

The bank (or its owners) take the risk that the good, viable prospect actually works out and the loan is repaid in full, with interest.

It makes its money on the spread (difference) between the interest rate it pays its depositors and the interest rate it charges its good prospects.

Some of this money would go on buildings, infrastructure and staff; others would cover bad loans. And then some would go to the providers of the bank's capital.

Traditionally, a bank would get to know its community rather well, so that they'd know whether Bob's Brilliant Blag was actually a go-er or likely to fall apart after a year because he was actually an alcoholic. If they didn't, there might be too many bad loans, the bank's capital would disappear, and their would be a run on the bank.


I don't know what a magic money bank does,


Peter.

[emordnilap]

I see it as effectively a tax on the workers (but the workers haven't clued on to this particular scam).

The bankers are like middle men who for some historical reason have been granted the right to 'create' money and then charge the customer for it.

I've always wondered why the government couldn't run the money supply instead and charge 0% interest on it.

Why is society paying bankers so much for nothing?

Yes, that's my view.

A more left-leaning government in Ireland might (they wouldn't be allowed to) nationalise banking entirely - they're only a few steps away.

Providing you had people in power you could trust (hah!), it would be an excellent solution. Maybe not 0% interest but simply enough not to run at a loss, which is the way all natural monopolies should be run.

Of course, some people would see a nationalised banking system as some kind of infringement of liberty. Feck 'em.

[Cabrone]

Why is society paying bankers so much for nothing?

What do bankers do? Well, at least plain vanilla banking, involves them gathering up the meagre savings of lots and lots of people (which would otherwise sit around in jam jars, doing nothing) and then finding good, viable prospects and lending them this money to start/further their businesses.

The bank (or its owners) take the risk that the good, viable prospect actually works out and the loan is repaid in full, with interest.

It makes its money on the spread (difference) between the interest rate it pays its depositors and the interest rate it charges its good prospects.

Some of this money would go on buildings, infrastructure and staff; others would cover bad loans. And then some would go to the providers of the bank's capital.

Traditionally, a bank would get to know its community rather well, so that they'd know whether Bob's Brilliant Blag was actually a go-er or likely to fall apart after a year because he was actually an alcoholic. If they didn't, there might be too many bad loans, the bank's capital would disappear, and their would be a run on the bank.


I don't know what a magic money bank does,Peter.

Yes but why couldn't the government do the same thing at a fraction of the cost?

Why do I have to pay for the large salaries\bonuses\profits\shareholders that the banks need to pay?

Secondly banks are not democratically accountable and probably couldn't care less how hard they squeeze the public.

At least politicians can be booted out every so often and so (you would think) would be careful on how they ran the money supply.

The gov't would have to charge an amount to perform all the admin + checks before handing over the money and maybe a small amount of interest (something like 1%) to cover for bad debts but that should be it.

If they really screwed up by lending to too many dodgy borrowers then they might need to raise money via gilts or taxation (or just temporarily increasing the % rate) but the thought of a massive political hammering should (in theory) be enough to make sure that their credit checks were rigorous.

I've been paying £000's in interest on my house for the last 12 years (and have many more to go).

It seems a lot to charge me for a few admin checks that the bank performed back in the summer of 1998......

[Blue Peter]

Yes but why couldn't the government do the same thing at a fraction of the cost?

Banking could be seen as a public utility and a state bank set up. However, in the past few years, most utilities have been sold off. It's not clear to me that it would be necessarily cheaper.

Why do I have to pay for the large salaries\bonuses\profits\shareholders that the banks need to pay?

I think that those go to people who do rather different things than the plain vanilla banking which I have described. I doubt that they are merited, but it's a different argument, I believe.

Secondly banks are not democratically accountable and probably couldn't care less how hard they squeeze the public.

At least politicians can be booted out every so often and so (you would think) would be careful on how they ran the money supply.

Could you have sacked your local electricity board manager?

The gov't would have to charge an amount to perform all the admin + checks before handing over the money and maybe a small amount of interest (something like 1%) to cover for bad debts but that should be it.

They would need to employ people to do the checks, manage accounts; they would have to buy/renty buildings. Was the old electricty board significantly cheaper than the current lot?

If they really screwed up by lending to too many dodgy borrowers then they might need to raise money via gilts or taxation (or just temporarily increasing the % rate) but the thought of a massive political hammering should (in theory) be enough to make sure that their credit checks were rigorous.

Again, compare the previous nationalized utilities. And, in general, you can't get 'owt for nowt.

I've been paying £000's in interest on my house for the last 12 years (and have many more to go).

It seems a lot to charge me for a few admin checks that the bank performed back in the summer of 1998......

A small amount will be for admin checks etc. Most of it is the amount they have to pay to borrow the money, plus run the bank and pay dividends,


Peter.