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But all loans "create money from nothing" in that sense.

jstanley 8y ago
No they don't. If I have £5 and lend it to you, we haven't created any new money. You have £5 now but I don't have it any more. If a bank just writes £5 in your bank account, they've created that £5. There is no corresponding £5 that has been removed from somewhere else, unlike when you or I extend a loan.
- OscarCunningham 8y ago
  >If a bank just writes £5 in your bank account, they've created that £5. There is no corresponding £5 that has been removed from somewhere else, unlike when you or I extend a loan. If they loan me £5, but I leave the £5 in my account, then it counts as loan, but it also counts as a deposit. So their loans can never exceed their deposits.
  - kgwgk 8y ago
    The proposal is to prevent money in current accounts from being lent. If you had £5 in your current account, this money would be effectively yours. However, if you had £5 in your savings account, you would be effectively lending the money to the bank who would in turn extend a loan to another client.
  - jstanley 8y ago
    I still don't think you get it. Nobody is saying their books don't balance. We're saying the money they lend to you is conjured out of thin air. I wouldn't be able to give you £5 that I don't have just because I also write myself a note saying you owe me £5. For me to lend it to you, it would have to come from somewhere. With banks that's not the case.
peterclary 8y ago
No. If I lend you money, I have a correspondingly smaller amount of money. Nothing is created from nothing. On the other hand, banks are allowed to lend more money than they actually have. Remember that a lot of money exists purely as numbers in a bank ledger. When the bank gives you a loan, they make a note in one place that you owe them X and then they simply increase the number associated with your bank account. When people withdraw money from the bank, they are given notes from the branch’s own stock of notes. If the notes get low or run out then they are restocked from the central bank.
- edanm 8y ago
  > If I lend you money, I have a correspondingly smaller amount of money. Nothing is created from nothing. In the simple case, yes. But let's say I run a bar, and decided to open a tab for customers so they don't have to pay right away. I'm effectively loaning them money (extending them credit), so I've effectively created "money from nothing" in the same sense, though on a much smaller scale, of course.
  - deleted 8y ago
    [deleted]
  - monort 8y ago
    The difference is that your credit money cannot be mixed with regular money. They are mixed in the case of fractional reserve.
    - deleted 8y ago
      [deleted]
- derriz 8y ago
  Banks do not lend more money than they actually have at all. Banking is a simple business - you raise money by taking deposits, issuing bonds, borrowing from other banks, etc. then you keep a reserve (say 10%) and lend out the rest. That's why it's called "fractional reserve banking" because they must reserve a fraction of the money they have raised. The idea that banks "create money out of nothing" is an analogy not reality - two people swapping IOUs for a million dollars haven't created 2 million dollars.
  - alasdair_ 8y ago
    >The idea that banks "create money out of nothing" is an analogy not reality - two people swapping IOUs for a million dollars haven't created 2 million dollars. The two million dollars gets created at a different stage, either through a government bailout, quantitative easing, or other (generally) inflationary methods but it absolutely does get created "out of nothing" at some point in the cycle. (There is also the FDIC which, while technically insured by the banks, in practical terms is backed by an implicit government guarantee that the funds will be there even if all the FDIC banks fail.)

No they don't. If I have £5 and lend it to you, we haven't created any new money. You have £5 now but I don't have it any more. If a bank just writes £5 in your bank account, they've created that £5. There is no corresponding £5 that has been removed from somewhere else, unlike when you or I extend a loan.

OscarCunningham 8y ago
>If a bank just writes £5 in your bank account, they've created that £5. There is no corresponding £5 that has been removed from somewhere else, unlike when you or I extend a loan. If they loan me £5, but I leave the £5 in my account, then it counts as loan, but it also counts as a deposit. So their loans can never exceed their deposits.
- kgwgk 8y ago
  The proposal is to prevent money in current accounts from being lent. If you had £5 in your current account, this money would be effectively yours. However, if you had £5 in your savings account, you would be effectively lending the money to the bank who would in turn extend a loan to another client.
- jstanley 8y ago
  I still don't think you get it. Nobody is saying their books don't balance. We're saying the money they lend to you is conjured out of thin air. I wouldn't be able to give you £5 that I don't have just because I also write myself a note saying you owe me £5. For me to lend it to you, it would have to come from somewhere. With banks that's not the case.

peterclary 8y ago

No. If I lend you money, I have a correspondingly smaller amount of money. Nothing is created from nothing. On the other hand, banks are allowed to lend more money than they actually have. Remember that a lot of money exists purely as numbers in a bank ledger. When the bank gives you a loan, they make a note in one place that you owe them X and then they simply increase the number associated with your bank account. When people withdraw money from the bank, they are given notes from the branch’s own stock of notes. If the notes get low or run out then they are restocked from the central bank.

edanm 8y ago
> If I lend you money, I have a correspondingly smaller amount of money. Nothing is created from nothing. In the simple case, yes. But let's say I run a bar, and decided to open a tab for customers so they don't have to pay right away. I'm effectively loaning them money (extending them credit), so I've effectively created "money from nothing" in the same sense, though on a much smaller scale, of course.
- deleted 8y ago
  [deleted]
- monort 8y ago
  The difference is that your credit money cannot be mixed with regular money. They are mixed in the case of fractional reserve.
  - deleted 8y ago
    [deleted]
derriz 8y ago
Banks do not lend more money than they actually have at all. Banking is a simple business - you raise money by taking deposits, issuing bonds, borrowing from other banks, etc. then you keep a reserve (say 10%) and lend out the rest. That's why it's called "fractional reserve banking" because they must reserve a fraction of the money they have raised. The idea that banks "create money out of nothing" is an analogy not reality - two people swapping IOUs for a million dollars haven't created 2 million dollars.
- alasdair_ 8y ago
  >The idea that banks "create money out of nothing" is an analogy not reality - two people swapping IOUs for a million dollars haven't created 2 million dollars. The two million dollars gets created at a different stage, either through a government bailout, quantitative easing, or other (generally) inflationary methods but it absolutely does get created "out of nothing" at some point in the cycle. (There is also the FDIC which, while technically insured by the banks, in practical terms is backed by an implicit government guarantee that the funds will be there even if all the FDIC banks fail.)