JavaScriptDonkey wrote:kenneal - lagger wrote:
Now then, JSD, you might as well agree that you now see the truth of Money as Debt. From that last post it's plain to see that you're faltering!
But there is a problem with the concept.
If you believe that retail banks can produce magic money by lending out more than they have ever had assets to cover then you are suggesting that the cost of the loans to the bank is effectively zero.
If the loan money isn't money that the bank owe to somebody else already then it will have no affect on their real liabilities if you don't repay them.
Let's start bank1 with £100 and immediately loan out a mortgage for £900, rubbing our hands with glee as the interest rolls in. We can add the value of the mortgage as an asset and hopefully attract more investment.
If the debtor defaults we get to keep their house. If we can't recover the full loan value from the sale (as with the sub-prime mortgage collapse) then not to worry as we can simply write off the bad debt as a tax adjustment and sell a new loan to someone else based on the £100 we still have.
Lack of liquidity is what causes banking collapses and it is liquidity that the increased FRB reserves are designed to enhance.
Having waded through
Grignon's weasel words where he counters this very criticism it looks as though he has decided that what he describes in his film just relates to physical cash reserves rather than asset reserves.
I have no idea how much folding cash a bank has to keep in its vaults to satisfy demand or the law but I know that the figure is going to be a small fraction of its operating reserves held in bonds and other assets.
Ok
Let's take this one step at a time in order to establish precisely which bit you take specific issue with and when:
1) Do you accept that central banks create base money for our economy either by buying it in from outside the system via the issuance of government bonds or, if they wish, by directly creating it from scratch with mechanisms such as QE.
2) Do you accept that the banks who take out loans of base money from the CB can then lend out a proportion of it to other banks and/or non-banks customers based on their fractional reserve requirements?
3) Do you accept that either:
non-bank customers are either going to deposit the money they have borrowed into a bank or are they going to spend the money such that the recipient (or some recipient at some point down the chain of transactions) is going to deposit the money into a bank, thus allowing the recipient banks to declare that loaned money that has been deposited with them on their books as a part of their assets and thus increase their fractional reserve?
or
other banks who have directly borrowed the money from the first bank in the chain are going to be able to declare their loaned money as an asset on their books and thus increase their fractional reserves?
4) Do you accept that in either or both instances of (3), the increased fractional reserves of the banks having received previously loaned money means that they can now lend more money out than was the case prior to their receipt of it?
5) Do you accept that all of the above processes will, unless there is a direct regulatory intervention, continue until all capacity to wring a return out of deposits received (within the fractional reserve requirements) is exhausted. In other words, until infinity is approached?
It's not good enough to whitter something along the lines of "but it doesn't make sense, so it can't be right". You need to be specific in your assertion that what has been put to you is incorrect, otherwise it begins to look like you are obfuscating.
