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> If accounting balanced to 0 means no money is created Accounting does balance to zero. Debt and money are added, and they sum to zero. Proof: Let bank start

> If accounting balanced to 0 means no money is created Accounting does balance to zero. Debt and money are added, and they sum to zero. Proof: Let bank start at 0 (or pick any value). Bank receives X dollars from entity A. Now bank has X dollars in reserves and owes entity A exactly X dollars, so net position of bank is zero (X dollars in reserves - X dollars owed = 0). A started with X, gave it to the bank, and the bank owes A X. So A has the same starting position. Bank lends 0.9X = Y to B. Now B has Y, but owes Y, so B net position is 0. Bank lent Y, but is owed Y, so net change here is 0. This happens every step. It's most certainly every single time a net 0 transaction. If you care to continue to claim it's not net 0, please clearly demonstrate as I just did how it is not net 0. >Ok, may be not quite 10X. It's 1+.9+.81+.72+... which ends up about 9.4X. No, in the limit it is exactly 10X. Proof: Let S = 1+0.9 + 0.9^2 + 0.9^3 + .... Then 0.9S = 0.9 + 0.9^2 + 0.9^3 + ...., Subtract (S-0.9S) and all terms cancel except the first 1, so (S-0.9S) = S/10 = 1, so S = 10. >The debt among friends example doesn't create money because it's the same $10 passing from friend to friend while the IOU issued is not very liquid. It's exactly the same thing. The bank lending is no different from any entity lending. The bank does not print up new money each time - it's the same money as you put it. Bank IOUs are completely liquid either. All 10X money cannot be withdrawn at the same time - one is lent from someone else's assets, and this is only possible as long as everybody does not try to withdraw their assets at once. This is why there is a certain reserve needed - it allows normal withdrawals and deposits, which are around that fraction (10%) of needed assets. If everybody in the 10X wanted to withdraw their money, there would not be enough money. All the banks would need to call in all loans, and that is chaos. It simply is money that sits in zero sum on balance sheets. Ever wonder why there is a reserve? This is why. It's the expected amount of cash needed to let people with savings in the bank do day to day transactions. Bank runs used to happen (and still could) when reserves get too low, because all that 10X is not money that can be pulled out at once. The Fed provides a buffer against bank runs because it can provide liquidity as needed. But the money multiplier is not some magic source of money any more than lending money from friend to friend is. It's exactly the same process.

ww520 11y ago
Accounting does balance to zero. That doesn't negate the fact that money has been created in the system. Let me pose the question again. Your statement is since accounting balanced to 0, no money has been created. In that case, FOMC's account balance is also net zero when buying treasury or selling treasury. Therefore FOMC doesn't create or destroy money. So what is the purpose of FOMC again? Edit: Instead of arguing with me, look up Money creation by the commercial banks in the wiki https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
- ChrisLomont 11y ago
  >Your statement is since accounting balanced to 0, no money has been created No. Nowhere have I written "no money". You have written it a few times. I have stated that the money is balanced by a matching debt. You also keep mixing fractional reserve and central bank purchases. These are entirely different things. And FOMC is also zero sum - the dollars they inject are backed by debts they hold. >look up Money creation by the commercial banks in the wiki https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation Yes, I am quite aware of this, even having been involved in many discussions and papers on exogenous vs endogenous money. If you want to really blow your mind search those terms and read academic papers on them. What you seem to not understand is that the money is offset by matching debt. Your link states this in the first paragraph: "A central bank may introduce new money into the economy (termed "expansionary monetary policy", or "money printing" by detractors) by purchasing financial assets or lending money to financial institutions" The Fed traditionally purchases debt to put more current into play. As more dollars are in the economy, the Fed carries more debt, the same as any bank when it loans out deposits. The difference is the Fed can purchase as much as it wants, but the sum is still zero. Look: the fed has a balance sheet. Here are many snapshots of it [1]. It sums to zero. Take the last one from March, 2016 [2]. Look at page 6, Table 1. There is a line titled "Federal Reserve Notes in circulation". It is 1385B. There are other assets and debts. They are summed. The sum is zero. Next - this has zero to do with fractional reserve, since you could have either without the other. We (and most of the world) had fractional reserve before we had a central bank. So yes, there is more money. There is also matching debt. This is what I have stated since the beginning. You don't seem willing to note that the debt matches the money in every case, whether it's Joe loaning Bob, it's a bank and fractional reserve, or it's a central bank purchasing assets. The central bank has unlimited reserves, is the issuer of currency, and can take on unlimited debt. If it helps you think clearly, assume the central bank has 20 quadrillion dollars. They decide to add X dollars to the economy, so they buy X in assets. Now they have 20Q - X in cash, X in assets, we have -X in assets, X in cash. Where the economy increases is when the people buy goods (say Treasuries), and their value in dollars goes up through market pricing, then they get sold to the Fed. The Fed didn't add the value, market pricing did. The Fed simply traded some of it's (unlimited) reserves for assets. This is also why the Fed traditionally purchases at open market prices - it helps them match inflation since the market, not the Fed, decides prices. So - are you still claiming all these stages are not zero sum? If so, please detail which step is not zero sum. [1] https://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm https://www.federalreserve.gov/monetarypolicy/quarterly-bala... [2] https://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201603.pdf https://www.federalreserve.gov/monetarypolicy/files/quarterl...

ww520 11y ago

Accounting does balance to zero. That doesn't negate the fact that money has been created in the system. Let me pose the question again. Your statement is since accounting balanced to 0, no money has been created. In that case, FOMC's account balance is also net zero when buying treasury or selling treasury. Therefore FOMC doesn't create or destroy money. So what is the purpose of FOMC again? Edit: Instead of arguing with me, look up Money creation by the commercial banks in the wiki https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation

ChrisLomont 11y ago
>Your statement is since accounting balanced to 0, no money has been created No. Nowhere have I written "no money". You have written it a few times. I have stated that the money is balanced by a matching debt. You also keep mixing fractional reserve and central bank purchases. These are entirely different things. And FOMC is also zero sum - the dollars they inject are backed by debts they hold. >look up Money creation by the commercial banks in the wiki https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation Yes, I am quite aware of this, even having been involved in many discussions and papers on exogenous vs endogenous money. If you want to really blow your mind search those terms and read academic papers on them. What you seem to not understand is that the money is offset by matching debt. Your link states this in the first paragraph: "A central bank may introduce new money into the economy (termed "expansionary monetary policy", or "money printing" by detractors) by purchasing financial assets or lending money to financial institutions" The Fed traditionally purchases debt to put more current into play. As more dollars are in the economy, the Fed carries more debt, the same as any bank when it loans out deposits. The difference is the Fed can purchase as much as it wants, but the sum is still zero. Look: the fed has a balance sheet. Here are many snapshots of it [1]. It sums to zero. Take the last one from March, 2016 [2]. Look at page 6, Table 1. There is a line titled "Federal Reserve Notes in circulation". It is 1385B. There are other assets and debts. They are summed. The sum is zero. Next - this has zero to do with fractional reserve, since you could have either without the other. We (and most of the world) had fractional reserve before we had a central bank. So yes, there is more money. There is also matching debt. This is what I have stated since the beginning. You don't seem willing to note that the debt matches the money in every case, whether it's Joe loaning Bob, it's a bank and fractional reserve, or it's a central bank purchasing assets. The central bank has unlimited reserves, is the issuer of currency, and can take on unlimited debt. If it helps you think clearly, assume the central bank has 20 quadrillion dollars. They decide to add X dollars to the economy, so they buy X in assets. Now they have 20Q - X in cash, X in assets, we have -X in assets, X in cash. Where the economy increases is when the people buy goods (say Treasuries), and their value in dollars goes up through market pricing, then they get sold to the Fed. The Fed didn't add the value, market pricing did. The Fed simply traded some of it's (unlimited) reserves for assets. This is also why the Fed traditionally purchases at open market prices - it helps them match inflation since the market, not the Fed, decides prices. So - are you still claiming all these stages are not zero sum? If so, please detail which step is not zero sum. [1] https://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm https://www.federalreserve.gov/monetarypolicy/quarterly-bala... [2] https://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201603.pdf https://www.federalreserve.gov/monetarypolicy/files/quarterl...