Re: Ever wondered how the banks went bust? (Fractional Banking - Money Reform Party)


"Chris Blunt" <mail@xxxxxxxxxx> wrote in message
news:2dnqf4t907csvmq5frm1jtqbkhgpuropsg@xxxxxxxxxx
You really haven't understood the concept. The idea that non existant
money is "created" simply by the same money being used several times by
several different people or banks as deposits and loans, is just
rubbish.
The "commercial bank money" referred to in the article is just multiple
counting by recounting the same money being deposited/lent several
times.

It's not rubbish, and it is the reason why M4 money is much higher than
M0
money. M0 money is notes and coins, M4 is notes and coins plus bank
account balances. You've got lots of people saying they have money
deposited in the bank. It is the same bank note deposited several times
over, and it is offset by people who have borrowed this bank note from
the
bank.

Yes, so M4 is just the result of multiple counting of the same money. If I
get a loan of £100 from Barclays and pay it into my savings account at
Barclays, there is no difference my or Barclays net assets, but M4 goes up
by £100.

Doesn't your £100 deposit then allow Barclays to lend out £80 of that
to someone else, thereby increasing their assets by that amount?

Of course not! They'll then have £80 less in their coffers and £80 more as
loan
assets. Net asset change zero.

I worded the question badly. What I mean to say was wouldn't the £100
deposit allow them to "create" another £80 under the
fractional-reserve system and lend that out to someone else. They then
still have all of the original £100 in their coffers, plus the new
loan asset of £80.

You really have misunderstood the whole concept. Only central banks can create
money ("printing" it).

Banks lend out depositors' money. They only seem to create money (in terms of
M4) when you include all bank deposits as money, without subtracting bank loans.
If all banks could really create money then we'd have the same level of
inflation as Zimbabwe.

The "fractional reserve" system is simply telling the banks that they can lend
out most of their deposits but not all, some they have to keep back as reserve
to cover bad debts and deposit withdrawals.

--
Andy


.

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