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Debates Forum

Debates Forum

  1. Standard member finnegan
    GENS UNA SUMUS
    17 Aug '17 23:01 / 2 edits
    When any bank issues a loan, it creates two entries in a ledger. The bank hands over cash in exchange for some type of asset, usually just a promise to pay. So if you ask the bank where its money has gone, it can say that all is well, the cash is not theirs at the moment but instead there is an asset worth just as much. Now add together the two values [ the value of cash loaned out and the value of the loan agreement] and you get - zero, nothing.

    Follow this process slowly.

    Start with nothing in the bank - no money, no asset.

    Then introduce an asset such as a loan agreement or a mortgage, which has a positive money value, but take away the money loaned out to the customer, an equal sum, leaving a combined value of nothing.

    Now let's repay the loan: and terminate the loan agreement or mortgage. We are left with - you guessed it, nothing.

    What has happened is that the bank has created money out of thin air to match the value of your loan application and that money has vanished back into thin air when you repaid the loan. This is why any textbook on corporate finance will tell you that the amount of money available to invest in your business ideas is infinite. What is in short supply is credible business ideas.

    Now apply this same process to government spending. When the government invests in productive projects such as a new hospital or road, then in principle the amount of money available is infinite, for the same reason as any bank loan. The money is not your money or someone else's money. The government creates it.

    The issue is only to decide if the government's ideas for investment are good ones or bad ones. Exactly the same as for bank loans.

    So what do taxes pay for? They enter the ledger and vanish into thin air, just the same as loan repayments to a bank. In the meanwhile taxes do a lot of useful things and some not useful things but they do not provide the money for government to invest. The government uses its own money to do that.

    What happens if the government invests money in bad ideas? Or invests too much money in good ideas? Well, the economy has a finite capacity to use money productively. When it is very active there is no capacity to take on new projects so the money will not be useful, it will be a nuisance and cause inflation. When the economy is not active, as in a recession, then the government can put a lot more money into the economy, because the economy has the capacity to do useful stuff with it. There is no problem of inflation. Getting these judgements right does require care.

    But the wealthy already know about this. When we give them too much money, insane amounts of money, they have no idea how to spend it, so they pay higher and higher prices for prestige goods like yachts, houses and cars, simply spending too much in exchange for not very much really, in order to show off how rich they really are. Or they invest in so called Asset Bubbles - which get more and more expensive until the bubble bursts and the money is gone in a puff of smoke. Some rich idiots gets poor, but we help them to get rich again. The idea that giving more money to the rich will create jobs or anything else useful is a myth and the evidence shows it is not true.

    That is not the end of the story but it is the end of my post.
  2. Subscriber joe shmo
    Strange Egg
    18 Aug '17 00:20 / 8 edits
    Originally posted by @finnegan
    When any bank issues a loan, it creates two entries in a ledger. The bank hands over cash in exchange for some type of asset, usually just a promise to pay. So if you ask the bank where its money has gone, it can say that all is well, the cash is not theirs at the moment but instead there is an asset worth just as much. Now add together the two values [ th ...[text shortened]... vidence shows it is not true.

    That is not the end of the story but it is the end of my post.
    I think it works more like this:

    Money "M" is lended to the Bank from Stock Holders( People). The buyer "B" request to buy asset "A" from the seller "S". The Bank purchases "A" from "S" with money "M" which it borrowed from the lenders. "B" then pays the Bank ( over a time period) the quantity M*( 1+i ) "the value of the loan agreement" for assuming the risk of extended repayment. The net value added in the transaction is not zero ( and better not be or the investors are going to be quite displeased).

    M(1+i) - M = M*i

    That quantity M*i is then shared among the lenders ( the people), bank owners and bank employees.

    I quit reading the remainder of your post directly after this absolute nonsense you tried to pass off as fact:

    "When any bank issues a loan, it creates two entries in a ledger. The bank hands over cash in exchange for some type of asset, usually just a promise to pay. So if you ask the bank where its money has gone, it can say that all is well, the cash is not theirs at the moment but instead there is an asset worth just as much. Now add together the two values [ the value of cash loaned out and the value of the loan agreement] and you get - zero, nothing. "

    Then again, the thread is appropriately titled....so....
  3. Subscriber FreakyKBH
    Acquired Taste...
    18 Aug '17 00:32
    Originally posted by @joe-shmo
    "When any bank issues a loan, it creates two entries in a ledger. The bank hands over cash in exchange for some type of asset, usually just a promise to pay. So if you ask the bank where its money has gone, it can say that all is well, the cash is not theirs at the moment but instead there is an asset worth just as much. Now add together the two values [ t ...[text shortened]... k employees.

    I quit reading the remainder of your post directly after this absolute nonsense.
    You may want to look into the creation and establishment of such financial arms as The Bank of England, the several national banks endorsed by the US during national crisis, i.e., payday loans, and, the ultimate arbiters of nothing for something, The Federal Reserve.

    Even a cursory view is enough to weaken hearty souls.
  4. Subscriber AThousandYoung
    It's only business
    18 Aug '17 05:51
    Originally posted by @freakykbh
    You may want to look into the creation and establishment of such financial arms as The Bank of England, the several national banks endorsed by the US during national crisis, i.e., payday loans, and, the ultimate arbiters of nothing for something, The Federal Reserve.

    Even a cursory view is enough to weaken hearty souls.
    The Bank of England made that nation into a superpower. No Bank of England, no Royal Navy.
  5. 18 Aug '17 10:20
    Economics for idiots?

    This must be where those in the US government learn that debt equals prosperity to the tune of $20 trillion plus!

    Good stuff, thanks Fin!
  6. Standard member finnegan
    GENS UNA SUMUS
    18 Aug '17 17:26 / 4 edits
    Originally posted by @joe-shmo
    I think it works more like this:
    Money "M" is lended to the Bank from Stock Holders( People). The buyer "B" request to buy asset "A" from the seller "S". The Bank purchases "A" from "S" with money "M" which it borrowed from the lenders. "B" then pays the Bank ( over a time period) the quantity M*( 1+i ) "the value of the loan agreement" for assuming th ...[text shortened]... ment] and you get - zero, nothing. "

    Then again, the thread is appropriately titled....so....
    Money "M" is lended to the Bank from Stock Holders( People).

    First illusion. The shareholders provide the working capital to operate the bank, not the funds for lending. Otherwise, their capacity to lend would be limited to the value of their shareholder capital [and if they loaned out the shareholder capital they would have no working capital for operations - think about all those marbled halls and sturdy buildings].

    The buyer "B" request to buy asset "A" from the seller "S". The Bank purchases "A" from "S" with money "M" which it borrowed from the lenders.

    False. The central bank permits the lender to issue new money to the value of the loan. In so far as money is created, that is done by the central bank. Most new money is electronic rather than printed.

    "B" then pays the Bank ( over a time period) the quantity M*( 1+i ) "the value of the loan agreement" for assuming the risk of extended repayment. The net value added in the transaction is not zero ( and better not be or the investors are going to be quite displeased).

    Quite correct. However, for my purposes that is not relevant. The way lenders and central banks use interest is a whole topic in its own right. You are wrong about risk - see below.

    M(1+i) - M = M*i

    Classical economics lives by producing such banal, tautologous yet awfully impressive formulae.

    That quantity M*i is then shared among the lenders ( the people), bank owners and bank employees.

    Yes the banks are on a winner here, since they pass the risk to the government via the central bank.
  7. Standard member finnegan
    GENS UNA SUMUS
    19 Aug '17 10:22
    Originally posted by @freakykbh
    You may want to look into the creation and establishment of such financial arms as The Bank of England, the several national banks endorsed by the US during national crisis, i.e., payday loans, and, the ultimate arbiters of nothing for something, The Federal Reserve.

    Even a cursory view is enough to weaken hearty souls.
    You want to enquire how modern capitalism would function without access to ... well, to capital.

    You want to investigate the economic effect of excessive savings or excessive borrowing generally in the economy, without the irrelevant obsession about public and private sector activity.

    It was not public sector spending or government debt that crashed the financial system in 2008. It was private debt secured against entirely speculative assets. You can argue about regulation, but it is the need for competent regulation of private borrowing that is the relevant debate.
  8. Subscriber Wajoma
    Die Cheeseburger
    19 Aug '17 11:22
    Originally posted by @finnegan
    You want to enquire how modern capitalism would function without access to ... well, to capital.

    You want to investigate the economic effect of excessive savings or excessive borrowing generally in the economy, without the irrelevant obsession about public and private sector activity.

    It was not public sector spending or government debt that crashe ...[text shortened]... n, but it is the need for competent regulation of private borrowing that is the relevant debate.
    Banks can only lend money withing the bounds of goobermint regulation. It's the regulation which shapes the boom bust cycle.
  9. Standard member apathist
    looking for loot
    19 Aug '17 11:23
    Originally posted by @finnegan...
    Follow this process slowly.

    Start with nothing in the bank - no money, no asset.

    Then introduce an asset such as a loan agreement or a mortgage, which has a positive money value, but take away the money loaned out to the customer, an equal sum, leaving a combined value of nothing. ...
    My bolding.
  10. 19 Aug '17 11:51 / 1 edit
    Originally posted by @finnegan
    When any bank issues a loan, it creates two entries in a ledger. The bank hands over cash in exchange for some type of asset, usually just a promise to pay. So if you ask the bank where its money has gone, it can say that all is well, the cash is not theirs at the moment but instead there is an asset worth just as much. Now add together the two values [ th ...[text shortened]... vidence shows it is not true.

    That is not the end of the story but it is the end of my post.
    The bank will have a cash account, an interest accrued on the loan account and a debtors account. All of these accounts will have double entries within the banks own accounts. The person receiving the lone will also likewise have similar entries in their accounts if in fact they keep accounts.

    I don't think that you get nothing, the bank will receive interest on its loan and the value of the money back. Depending on what the loan was for it may also accrue value, if for example its property and property values rise. If its a family car it will immediately begin to depreciate in value and the lone will lose all value eventually for the consumer or keep a very small residual value if the car is traded in for another vehicle.
  11. Standard member finnegan
    GENS UNA SUMUS
    19 Aug '17 12:02
    Originally posted by @wajoma
    Banks can only lend money withing the bounds of goobermint regulation. It's the regulation which shapes the boom bust cycle.
    Quite right, Government regulation is essential to manage the inherent instabilities in capitalism. The market does not and cannot do it.
  12. Subscriber divegeester
    Nice suit...
    19 Aug '17 12:20 / 1 edit
    Originally posted by @finnegan
    Now add together the two values [ the value of cash loaned out and the value of the loan agreement] and you get - zero, nothing.
    Yep, definitely for idiots...
  13. Standard member finnegan
    GENS UNA SUMUS
    19 Aug '17 14:01 / 2 edits
    Originally posted by @divegeester
    Yep, definitely for idiots...
    The phrase applies very nicely to Classical Economics, as illustrated in this quote from 2014, which I have posted before. It mentions a multinational manifesto from economics students in uproar over the poor quality of the economics teaching in even the leading universities, where neoliberal ideology reigns at the expense of any proper academic standards whatsoever.

    http://www.theguardian.com/commentisfree/2014/may/09/university-economics-teaching-lobotomy-non-mainstream

    "The problem is summed up by one of the manifesto's coordinators, Faheem Rokadiya, at the University of Glasgow: "Whenever I sit an economics exam, I have to turn myself into a robot." But he and his fellow reformers aren't seeking to skimp on algebra, or calling for a bonfire of the works of the Chicago school. They simply object to the notion that there is one true way to do economics, especially after that apparently scientific method has been found so badly wanting."

    "Students point out that they are trained to digest economic theory and regurgitate it in exams, but never to question the assumptions that underpin it. This isn't an education: it's a nine-grand lobotomy..."

    "Nine grand" refers to the £9,000 standard fees now charged for a degree in an English university. But since that's £9k a year it is really a £27,000 lobotomy, without looking at costs beyond the basic fees - nearly the same again. That's economics for you.
  14. Subscriber FreakyKBH
    Acquired Taste...
    19 Aug '17 14:50
    Originally posted by @athousandyoung
    The Bank of England made that nation into a superpower. No Bank of England, no Royal Navy.
    Ends not only do not justify the means--- which, in the case of the BoE, was a complete fraud from the beginning--- but the ends to which the fiat currency is coming, what it is handmaiden to, even if many years in that demonic, hellish system, proves the point to overflowing.
  15. Subscriber FreakyKBH
    Acquired Taste...
    19 Aug '17 15:10
    Originally posted by @finnegan
    You want to enquire how modern capitalism would function without access to ... well, to capital.

    You want to investigate the economic effect of excessive savings or excessive borrowing generally in the economy, without the irrelevant obsession about public and private sector activity.

    It was not public sector spending or government debt that crashe ...[text shortened]... n, but it is the need for competent regulation of private borrowing that is the relevant debate.
    Or, better: whether a usury debt-slash-so-called-monetary system is anything but criminal.
    Criminal in establishment and in its affects.
    Essentially, we're all slaves.