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Trevor Crosbie quoted Thomas Greco as
writing:
When a bank provides you with a $100,000 mortgage,
it creates only the principal, which you spend and which then circulates in the
economy.
Tim Knight now writes:
Surely:
- When a buyer buys some owned-wealth (e.g. some
property) from a seller:
- The seller conceedes ownership of the
owned-wealth, and debits the buyer (in a receivables account).
- The buyer acquires ownership of the owned-wealth, and credits the seller
(in a payables account).
- When a mortgage bank establishes a mortgage
account:
- The mortgage bank debits the buyer, and credits the seller (or the seller's
bank).
- The buyer debits the seller (in the payables
account - thereby reducing the balance to zero), and credits the mortgage
bank.
- The seller debits the mortgage bank, and credits
the buyer (in the receivables account - thereby reducing the balance to
zero).
- When the buyer makes a repayment:
- The mortgage bank debits the buyer's bank, and
credits the buyer.
- The buyer's bank debits the buyer and credits
the mortgage bank.
- The buyer debits the mortgage bank, and credits the buyer's bank.
Each of the three transactions above is a
self-contained story. In each:
- No party becomes richer or poorer.
- No wealth is created or destroyed.
- There is nothing to
'circulate'.
- Indeed, 'circulation' is an inappropriate
expression to use in relation to book-keeping, which is all the second and
third transactions are.
What have I missed out?
What's the problem?
Best
Wishes
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Thomas Greco and M
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