Not so much.
Banks can't credit funds to anyone's account that they do not have in their own.
If we could create money at will we could have avoided the credit squeeze
Understanding creation of money and credit.
- Thread starter WinstonWolfe
- Start date
Not so much.
Banks can't credit funds to anyone's account that they do not have in their own.
If we could create money at will we could have avoided the credit squeeze
Basel III is crystallizing at the moment. In order to make banks more robust, bank reserves are to be increased. Tier 1 capital will be raised from 2 to 4.5%, and an additional 2.5% of common equity will be required as a capital conversation buffer. This gives a 7% capital requirement.
Their introduction is telling of how long developed nations may take to escape deflation risk - the 4.5% doesn't come in until 2015 and the buffer 2019.
My latest reading is a PhD dissertation by a Qld'er Henry Hilton titled
"Money Creation, Banks, and Macroeconomic Instability" Feb 2008.
Am on P.27 of 240, and it seems to address many of the questions I have about the Australian system.
edit: link to full document.
Their introduction is telling of how long developed nations may take to escape deflation risk - the 4.5% doesn't come in until 2015 and the buffer 2019.
My latest reading is a PhD dissertation by a Qld'er Henry Hilton titled
"Money Creation, Banks, and Macroeconomic Instability" Feb 2008.
Am on P.27 of 240, and it seems to address many of the questions I have about the Australian system.
edit: link to full document.
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Not so much.
Banks can't credit funds to anyone's account that they do not have in their own.
If we could create money at will we could have avoided the credit squeeze
When I have thought through this it would seem that the bank can (if they were stupid) create deposits at will. This of course would send them broke however in time as they are basically giving away their own capital. I guess like anyone you can promise to pay someone in future without having the funds to back it. What they are incapable of doing is creating loan assets without funds to give to these people as who signs up to the bank for a loan if you get nothing for it? This is what they are in business to do; create loan assets and to do this as you say they need funds.
So they can unilaterally create funds in a depositors account assuming the depositor does not draw them down but there is no benefit to the bank in doing this, indeed they are just giving money away. However with borrowers there is a reason they want the loan and this is to buy something and in order to settle on this thing they need funds to do it.
One example someone gave me to show me loans do not always have to be funded is when a person applies for a loan and puts it in a deposit account at the same bank. As I see this transaction the crazy borrower is funding his own loan and this really is not a likely real life scenario but still even in this the borrower funds his own loan not the bank.
Whatever way you look at it to create loan assets the bank need funding whether it be from the seller of an asset, offshore, their own capital, from somewhere they need funding.
For clarity however this is not to say banks through loose lending do not create an increase in Australian M3 due to higher asset sale prices achieved. There is another side to the ledger of borrowers and this is sellers / depositors and of course if banks loose lending sees asset prices rise there is going to be some increase in deposits. It would seem in Australia our increase in deposits has not been enough to fuel the fires of our credit requirements.
So I can see that banks can through various policies create M3 money indirectly, but importantly this does not mean they can do it at will and unilaterally with borrowers only. They still need both depositors and borrowers to do it by increasing funds and lending them out and hoping a lot of the new lending comes back to them as deposits to enable them to do another round etc just like the multiplier effect...
If we could create money at will we could have avoided the credit squeeze
but not ensuing inflation squeeze...
Bump
Here's Mike Malony's take on it.
Part 1 : http://www.youtube.com/watch?v=uzef43gdupk
Part 2 : http://www.youtube.com/watch?v=0Wrrzsrb-wg
Here's Mike Malony's take on it.
Part 1 : http://www.youtube.com/watch?v=uzef43gdupk
Part 2 : http://www.youtube.com/watch?v=0Wrrzsrb-wg
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Not so much.
Banks can't credit funds to anyone's account that they do not have in their own.
If we could create money at will we could have avoided the credit squeeze
So govt borrows $80 Billion to send everybody a check and build million dollar sheds.
Where is this $80 Bill deposited?
Where does it reside so that it can be borrowed?
In which bank does this debit reside so that it's then credited to the taxpayer's account?
The cheques, initially in our personal accounts. When they are spent the money is transferred in retailer's accounts.
Some of the BER money goes into public servant's private accounts and the rest into contractor's accounts and from there into worker's/supplier's accounts.
That's banking.
The question is:
Who had the 80 Bill to lend to the gov?
Who had the 80 Bill to lend to the gov?
Isn't that Billy Blog prose saying the Govt creates the money in the first place via the vertical system?
And isn't the point in that article about lenders + depositers in the horizontal system that they net out, rather than a case of whether it's asset backed or not. Sure, it's asset-backed, but does it matter if it nets out in the system anyway? Of course you have an issue when the funds are siphoned into another currency so it doesn't return to the system - so loans from the banks are essentially 'extinguished' and it doesn't come back to the system to repay the banks or the original creator of currency (ie government), but isn't that why trade deficits are an issue?
And isn't the point in that article about lenders + depositers in the horizontal system that they net out, rather than a case of whether it's asset backed or not. Sure, it's asset-backed, but does it matter if it nets out in the system anyway? Of course you have an issue when the funds are siphoned into another currency so it doesn't return to the system - so loans from the banks are essentially 'extinguished' and it doesn't come back to the system to repay the banks or the original creator of currency (ie government), but isn't that why trade deficits are an issue?
