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Oh dear. BoE in their blog have a different idea to you, from their official blog: http://bankunderground.co.uk/2015/06/30/banks-are-not-intermediaries-of-loan

Oh dear. BoE in their blog have a different idea to you, from their official blog: http://bankunderground.co.uk/2015/06/30/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters/ http://bankunderground.co.uk/2015/06/30/banks-are-not-interm... > In the simple ILF model, bank loans represent the intermediation of real savings, or loanable funds, between non-bank savers and non-bank borrowers. Lending starts with banks collecting deposits of real resources from one agent, and ends with the lending of those resources to another agent. In the real world, however, banks never intermediate real loanable funds, > Rather, the key function of banks is the provision of financing, meaning the creation of new monetary purchasing power through loans ... The bank therefore creates its own funding, deposits, through lending. It does so through a pure bookkeeping transaction that involves no real resources Read the whole thing. Digest it and don't get caught just trying to win an argument with a guy on the internet. We are now through 2 layers of falsehoods. Layer 1: there is a fixed amount of money Layer 2: reserves and money multipliers From the end of the article: > To summarize, banks are not intermediaries of real loanable funds, they do not collect new deposits from non-bank savers. Instead they provide financing, they create new deposits for their borrowers. This involves the expansion or contraction of gross bookkeeping positions on bank balance sheets, rather than the channelling of real resources through banks.

stephengillie 11y ago
It's very frustrating to discover that everything you've learned in college was either very wrong or completely wrong. This is why I tell people that parties and social time are so much more important than classes, for which I get called an idiot. I've almost never had a bank loan. Banks have traditionally refused to lend to me. Thus we can't have me start with the FMC model; I've always lived in the ILF model. If banks aren't reliant for central banks or others for their money, then why are there not more banks? Why don't we see poor people just set up their own bank, loan money to each other, then use that money to go and buy food and shelter? If banks create money, then where do Bitcoin come from, and why are they valued? What happens if everyone stops using other currencies and use Bitcoin instead? And how does the world of Finance plan to stop this?
- branchless 11y ago
  What? You want the plebs at the front of the queue? You need a banking license. Go set up your own bank that is not an intermediary but instead issues dollars. I bet the cops come to see you faster than if you were murdering a person on the hour every hour. Speak to others about bitcoin. It doesn't interest me, it's not "state" money. The state can guarantee it can pay you back by squeezing citizens. Bitcoin can't do this. For more info go see my other link or just google. It's all out there if you look, and I'm not talking zerohedge conspiracy lunacy as demonstrated by my url to the BoE's own blog.
  - stephengillie 11y ago
    > Go set up your own bank that is not an intermediary but instead issues dollars. Wait, wait, wait. There are different types of banks? How many different types? Let's start again, talking about all of these types. How do they interact? Got any good links?
roblev 11y ago
A lot of the confusion comes from the fact that there are two sorts of money that are in circulation: base money and bank money. This blog post is only talking about bank money, and does not reference base money. Base money (dollar bills, Euro notes, pound notes etc.) is controlled entirely by the central bank and base money can be created and destroyed by the central bank, whenever they like. Think of it as like digging some more gold or creating some more bitcoins. Bank money is created by people either depositing base money with a bank, or indeed by a bank issuing a loan as described in the blog post. A deposit can be seen as a loan to the bank: all deposits are loans, all loans are deposits when looked at from the other PoV. Anyway, bank money has similar characteristics to base money - it can be used by purchase goods, it stores value etc. I can buy a book with base money, by handing the merchant a few dollar bills. Or I can buy the book with bank money, by handing my bank card to the merchant and after some settlement magic my bank will stop owing me some money and will instead owe it to the merchant. The IOU is the bank money, it is a claim on base money that was previously deposited. Base money and bank money act similarly from my PoV, they are both denominated in dollars (or Euros or pounds or...) and they are normally interchangeable at a 1:1 rate. Sometimes they are not.. e.g. if my bank was nearly going bankrupt with no deposit insurance, I might be happy to get my base money back at 80 cents on the dollar from my bank money. Bank money has credit risk of the bank, base money has no counterparty risk. Banks do need to have reserves of base money relative to the amount of bank money they are allowed to create; this is called Capital Adequacy and is a primary restraint on bank money creation. A bank has a limited amount of capital (its own real base money that is not owed to anyone else) and it cannot easily create more capital. If a bank is lending out too much to borrowers, then its Capital Adequacy Ratio will get out of line and it will have to stop lending.
- branchless 11y ago
  Base money is 3% of all money. Go ahead pull the lot out. It won't matter. Only parking meters that can't take cards will feel it. Reserves are unconstrained as banks lend to each other after creating credit via deposits from borrowers. If two banks create 400k and then each borrower buys land with this 400k and the seller then deposits the fresh "money" with one another's bank they have 400k credit. Demand is pulled forward and the credit will be destroyed only when it is paid down. Money supply since the end of the gold standard (I'm not a goldbug) has rocketed. What constrained the near vertical rise? Nothing.

stephengillie 11y ago

It's very frustrating to discover that everything you've learned in college was either very wrong or completely wrong. This is why I tell people that parties and social time are so much more important than classes, for which I get called an idiot. I've almost never had a bank loan. Banks have traditionally refused to lend to me. Thus we can't have me start with the FMC model; I've always lived in the ILF model. If banks aren't reliant for central banks or others for their money, then why are there not more banks? Why don't we see poor people just set up their own bank, loan money to each other, then use that money to go and buy food and shelter? If banks create money, then where do Bitcoin come from, and why are they valued? What happens if everyone stops using other currencies and use Bitcoin instead? And how does the world of Finance plan to stop this?

branchless 11y ago
What? You want the plebs at the front of the queue? You need a banking license. Go set up your own bank that is not an intermediary but instead issues dollars. I bet the cops come to see you faster than if you were murdering a person on the hour every hour. Speak to others about bitcoin. It doesn't interest me, it's not "state" money. The state can guarantee it can pay you back by squeezing citizens. Bitcoin can't do this. For more info go see my other link or just google. It's all out there if you look, and I'm not talking zerohedge conspiracy lunacy as demonstrated by my url to the BoE's own blog.
- stephengillie 11y ago
  > Go set up your own bank that is not an intermediary but instead issues dollars. Wait, wait, wait. There are different types of banks? How many different types? Let's start again, talking about all of these types. How do they interact? Got any good links?

roblev 11y ago

A lot of the confusion comes from the fact that there are two sorts of money that are in circulation: base money and bank money. This blog post is only talking about bank money, and does not reference base money. Base money (dollar bills, Euro notes, pound notes etc.) is controlled entirely by the central bank and base money can be created and destroyed by the central bank, whenever they like. Think of it as like digging some more gold or creating some more bitcoins. Bank money is created by people either depositing base money with a bank, or indeed by a bank issuing a loan as described in the blog post. A deposit can be seen as a loan to the bank: all deposits are loans, all loans are deposits when looked at from the other PoV. Anyway, bank money has similar characteristics to base money - it can be used by purchase goods, it stores value etc. I can buy a book with base money, by handing the merchant a few dollar bills. Or I can buy the book with bank money, by handing my bank card to the merchant and after some settlement magic my bank will stop owing me some money and will instead owe it to the merchant. The IOU is the bank money, it is a claim on base money that was previously deposited. Base money and bank money act similarly from my PoV, they are both denominated in dollars (or Euros or pounds or...) and they are normally interchangeable at a 1:1 rate. Sometimes they are not.. e.g. if my bank was nearly going bankrupt with no deposit insurance, I might be happy to get my base money back at 80 cents on the dollar from my bank money. Bank money has credit risk of the bank, base money has no counterparty risk. Banks do need to have reserves of base money relative to the amount of bank money they are allowed to create; this is called Capital Adequacy and is a primary restraint on bank money creation. A bank has a limited amount of capital (its own real base money that is not owed to anyone else) and it cannot easily create more capital. If a bank is lending out too much to borrowers, then its Capital Adequacy Ratio will get out of line and it will have to stop lending.

branchless 11y ago
Base money is 3% of all money. Go ahead pull the lot out. It won't matter. Only parking meters that can't take cards will feel it. Reserves are unconstrained as banks lend to each other after creating credit via deposits from borrowers. If two banks create 400k and then each borrower buys land with this 400k and the seller then deposits the fresh "money" with one another's bank they have 400k credit. Demand is pulled forward and the credit will be destroyed only when it is paid down. Money supply since the end of the gold standard (I'm not a goldbug) has rocketed. What constrained the near vertical rise? Nothing.