Chartalist & Circuitist analyses of money - Page 5

The banking sector definitely creates net financial assets. Its always creating assets. The assets of the banking sector are continually growing.

Perhaps people who say otherwise are getting confused between the individual bank and the banking sector as a whole. But the banks tend to act as a single cartelised entity in any case. One person once tried to tell me that the banks did not create money out of thin air. The furiously angry argument was that if this were the case, they would violate double-entry accounting. And since double-entry accounting was not violated, hence the banks could not create money out of thin air.

But double-entry book-keeping is NEVER violated. Samantha and Tabitha wiggle their nose and a new apartment building springs up at the beach. Double entry book-keeping is not violated. Bin Laden and the CIA blow that apartment building up. Double entry book-keeping remains un-violated. Under no circumstances is double-entry book-keeping violated. So that argument doesn't even begin to count.

have you not followed what we have said about net financial assets? no one denied that banks are creating assets. the point is simply that when a banks creates an asset there is a $ for $ liability also created. that means that in the private sector as a whole netting out liabilities and assets on all private sector balance sheets net financial assets can not be created or for that matter destroyed in the private sector. a government deficit however can create net financial assets and a government surplus can destroy net financial assets. this is just a fact of stock flow consistent accounting. frankly if you don't accept our accounting (something steve keen says he doesn't disagree with) their isn't much else we can talk about.

Thats no point at all. Since as I said, under double entry accounting when there is an asset created there is always a liability created. And as I said also, you must be getting confused between the individual bank and the banking industry. And as I also said, you have to look at the banking industry as if it were one cartelised whole to understand what is going on.

There can be no doubt that the banking industry gets the new asset free and clear for all practical purposes. Since the bankers wind up owing each-other money at interest. But the interest of each to each cancels. Therefore giving them a free new asset for practical purposes.

Where do you think all these profits are coming from in a nation with a savings rate close to zero? If they just profited from a cut of the interest, in a country with such a feeble savings rate, they would barely scrape by.

To illustrate what is going on we need to go beyond the usual money creation situation involving four legal entities and three separate transactions. That is to say: Person A borrows from bank X. Person A spends those borrowings on goods from person B. Person B deposits earnings in bank Y. New money is created.

This is not enough to see how the bankers are getting an asset free and clear. We need two parallel loans going out of a million dollars each with the above series of events. Two parallel transactions mirroring each-other.

What happens as the upshot, is we have two individuals each owing the banks one million dollars each. Thats a new asset as far as the entire banking "cartel" is concerned. And the banks owing each-other one million dollars each also. This is not any sort of liability when viewed from the position of the exploitative "cartel" taken as an whole.

The banks charge each-other interest on the million dollars each owes each-other. This interest cancels. Effectively giving the banking industry two million in new assets for free. So there is no netting this business out. They get two millions of assets off the community. The two millions of assets costs them nothing at all. Because its just the banks lending money to each-other.

Back when I was in the financial portfolio of corporate finance in a bank, the system they had was called the "Global Limits System." They've changed the name since, but it really doesn't matter. They will probably keep changing the names of everything, since they thrive on obscurantism.

But I'd get the computer printout of all the financial institutions that owed us money. Well we owed them money too. We owed them virtually the same amount of money as they owed us. The same amount of money at the same interest rate for the most part.

We charged them interest.

They charged us interest.

For practical purposes then, all this money creation had been for free, looking at the reality of it from an whole of industry perspective.

Its just an unforgivable racket. And its got to stop.

well i think its obvious i was talking about the private sector as a whole since i repeatedly said... the private sector as a whole. this is not the banking thread and we are not arguing over whether the system is good or bad just what the system actually is. you acknowledge that a liability is also created but then you seem to discount it and include that a "free" asset has been created. you also seem to confuse interest (wish is a part of the flow) with the assets and liabilities on private agent's and institution's balance sheets (stocks). this thread is also a discussion between two (allegedly) opposing theories. your theory of money creation seems inconsistent with both.

If I owe myself money thats no liability to me. From the point of view of the industry taken in its entirety, no new liability is created. They get the asset free and clear. They don't pay any interest on it, since the interest cancels. From the point of view of an individual bank it looks like they have created a new asset, and a liability at the same time. But since the liabilities created are with banks owing each-other money that hardly matters from a practical standpoint.

except that i"m talking about the private sector as a whole not the banking sector as a whole. the banks may generate profit and wealth for themselves (which they do) but that wealth comes from somewhere whether its the government or the non banking private sector.

Right. Its fundamentally a counterfeiting racket, and they extort the wealth from the rest of society. In so doing they misallocate resources, and arm-twist people into debt. They form a united front against policy that could ever bring debt levels down first, then monetary inflation levels down later.

again i don't disagree with you but this thread is more about the dispassionate accounting of the system. the fact is that banks do not create net financial assets even if on net they gain assets FOR THEMSELVES.

They do create net financial assets. As previously discussed.

sigh this is going nowhere.