Sunday, 17 August 2014

Positive Money is all at sea.






Yes but an equal amount is owed by banks to depositors and bondholders. So on balance banks are not creditors. On balance the population does not owe them anything. In contrast, the REAL DEBT is owed by those who borrow from banks to those who deposit money in banks or who lend to banks.
All quite simple.


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3 comments:

  1. POK17 August 2014 at 10:16

    If its all quite simple I'm afraid I don't get it.

    Here's my fuzzy explanation. People who borrow money owe that to a bank. The banks en mass notionally have assets equivalent to what they are owed which they in turn owe to depositors. But lending for the purchase of assets combined with their ability to create money can lead to a bidding up of asset prices and hence both the size of loans and size of deposits.

    Its in this context that I see the positive money claim.

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    Replies
    1. Ralph Musgrave17 August 2014 at 23:49

      “But lending for the purchase of assets combined with their ability to create money can lead to a bidding up of asset prices and hence both the size of loans and size of deposits.” My answer to that is that banks cannot expand the amount they lend without willing savers. For an explanation as to why, see under the heading “Long Term Loans” in my post entitled “Private banks don’t exacerbate debts”.

      http://ralphanomics.blogspot.co.uk/2014/08/private-banks-dont-exacerbate-debts.html

      The above was actually nicely illustrated (far as I can see) in the US in the run up to the crunch 5 or so years ago where there was a big increase in lending for property, but relatively little increase in bank lending. Reason was that the bulk of the extra lending came from collateralised mortgages: lending by non bank entities to other non bank entities (households). Though of course those mortgages were INITIALLY ORGANISED by banks. In contrast, in the UK, there WAS A SIGNIFICANT increase in bank lending because (far as I can see) collateralisation was not so popular.

      The above point also answers your reference to money. I.e. if lenders in some country decide to lend an extra $Xbn to house buyers, the house price inflating effect will be the same, seems to me, regardless of whether the loan constitutes money (which it might well do if it went through a bank), or whether it was done “collateralised” style, in which case there’d be no money supply increase at all.

      Delete
  2. POK18 August 2014 at 02:49

    Thanks for the reply Ralph. appreciated, I'm going to have to think about this some more. Cheers.




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