Money Creation In The Modern Economy ( Friendly Reminder )

Discussion in 'Political Talk, Alternative World Theories' started by michael94, Mar 17, 2020.

  1. michael94

    michael94 Member

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    Source: https://www.bankofengland.co.uk/-/m...hash=9A8788FD44A62D8BB927123544205CE476E01654

    • This article explains how the majority of money in the modern economy is created by commercial banks making loans.
    • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
    • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.
    • In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
    • The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
    • Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Prudential regulation also acts as a constraint on banks’ activities in order to maintain the resilience of the financial system. And the households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance

    Conclusion
     
  2. OP
    michael94

    michael94 Member

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    Interest on Capital is 100% criminal. As the Bank of England has explained above, this "Capital" is not real.
     
  3. dfspcc20

    dfspcc20 Member

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  4. methylenewhite

    methylenewhite Member

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    Sounds leftist
     
  5. OP
    michael94

    michael94 Member

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    All political parties and their leaders in the Western World are complicit. If you can find me one that campaigns on the abolishment of interest on "money", I will gladly support them.
     
  6. OP
    michael94

    michael94 Member

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  7. LeeLemonoil

    LeeLemonoil Member

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    Why not go and get a portion of it? It’s not too difficult
     
  8. OP
    michael94

    michael94 Member

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    You are funny Lee. The point of this post ( and others I have made ) is that what we call "Capital" from private banks is almost entirely fictitious. I have never claimed that one can just walk into a bank and they will print out some Bank Bucks for you, nor that they dont care what happens to their "credit" out of thin air. Of course, they want to loan to those who are likely to slave away diligently to pay back the principal ( with interest ). But they dont mind seizing assets either, trading numbers on a screen for farm land is a great deal for them. As is crying to the taxpayers for a bailout in the case of widespread defaults.
     
  9. LeeLemonoil

    LeeLemonoil Member

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    Thanks. All very true. But I alluded to the stock markets. We can multiply our funds there too with thin-air money. Banks let me leverage modest sums with certificates and and send substantially larger sums back to my account if I didn’t mess up.
    Thin air money then buys me assets to. Nice stuff. Doesn’t feel like cheating either.
     
  10. OP
    michael94

    michael94 Member

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    "Within the present frame of split-circuit reserve banking, credit extension and money creation is bank-led. The initiative of money creation is with the banks, not with the central banks as is most often assumed.

    It must be taken literally that central banks re-finance the banks, re-actively, upon or after the facts the banks have created beforehand.

    Central banks do not pre-finance the system by setting reserve positions first. The causation runs in the opposite direction. Central banks accommodate the banks' defining demand for central bank money (reserves and cash).

    This element was introduced into monetary economics by the accommodationist strand of post-Keynesianism.[5]

    Through their pro-active lead in primary credit creation (bankmoney creation), banks determine the entire money supply, including the accommodating creation of reserves and cash by the central banks. Bankmoney is not the result of some sort of multiplication of central bank money. Quite to the contrary, the stock of central bank money is a follow-up quantity, a kind of sub-set of the stock of bankmoney."


    Federal Reserve = Tail
    Private Banks = Head
     
  11. tankasnowgod

    tankasnowgod Member

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    The bolded parts are really the key, and happens when customers "default," and the biggest banks can make these things happen. Most loans have language in them that they can be called in at any time for any reason.

    Like you said, key in some numbers on a screen, and 7-15 years later, end up with a house, or farmland, or office space, or what have you.
     
  12. OP
    michael94

    michael94 Member

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    Banks still have potential for losses in their schemes, because they have a liability to pay out the loans they make. However there is an important thing working in their favor: the Bank's liability to pay stays "constant" ( your loan ) while the debt owed to them grows exponentially ( compound interest ). That, and when bubbles pop they are able to socialize their losses to a certain degree. Crashes also create panic where things sell for pennies on the dollar.

    Over time what happens is more real assets and means of production ends up in their hands, and citizens become renters in their own land.
     
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