Does any serious banker or economist disagree that (as you put in a nutshell)
"loans create deposits and repayments cancel them"? (Apology for slight
abridgement.)
I know of nobody from any background who disputed this before our NZ 1950's
Royal Commission. They included central and commercial bank sources, Treasury
and private submissions, and this was the undisputed finding of that body, "On
the Treasury definition" of money, which coincides with presently accepted M1.
John R.
>From: "William B. Ryan" <w_b_ryan@yahoo.com> >Reply-To:
socialcredit@elistas.com >To: ownership@cog.kent.edu,
austrianschoolofeconomics@yahoogroups.com, socialcredit@elistas.com,
robert-a@clear.net.nz, ami@taconic.net, mscroll@xtra.co.nz,
martin@freenet.edmonton.ab.ca >CC: donzbeth@ihug.co.nz >Subject: [socialcredit]
Re: Reply to Trevor Crosbie -- and further to Don. >Date: Sat, 30 Apr 2005
08:52:26 -0700 (PDT) > >No, Jessop, the extract from the textbook does NOT
>convey my thoughts. The extract is the standard >"money multiplier" model,
which I specifically >repudiate. > >The necessity of reserves is to cover deposit
>transfers to other banks. The concept is actuarial, >based on statistical
projections into the future. A >single monopoly bank (in a closed system) with
many
>branches would have no need for reserves whatsoever. >So we see the requirement for reserves diminish, as >banks amalgamate. > >The general theorem, as enunciated by Douglas in his >third book (I know of no-one who stated it earlier) >is: Loans create deposits; the repayment of loans >cancel deposits. > >In a system where most transactions are conducted >through the transfer of bank deposits from transactor >to transactor, the theorem becomes critical to any >sound analysis. > >The theorem is accepted in exactly those same words, >though not attributed to Douglas, by the school of >economics called "Post Keynesian," founded by >Professor Paul Davidson, editor of "The Journal of >Post Keynesian Economics." >- > > > >--- Jessop Sutton <sutton@kingsley.co.za> wrote: > > > Hi Don, > > You wrote:
> > > Hello Jessop; When I read your reply to Trevor, > > asserting that because > > > banks could not lend anything unless they had > > deposits, > > > I had to read it twice to make sure I was not > > misreading it. On assuming > > > that you have been taking the opportunity to read > > some of the internet > > > discussion on this subject, it is astonishing that > > you are still apparently > > > believing the 300 year old mythology about > > > banks lending deposits. > > =============================== > > > > I really don't know why you have a problem with > > this, Don, because it is quite > > simple to fathom out. Bill Ryan gave a very clear > > explanation of the process > > on this list a while back and no one contradicted > > him so I
assume athat all > > agreed with it. Unfortunately I can't find Bill's > >
e-mail in my archives at > > the moment but it was very similar to the following
> > example copied out > > of a basic macro-economics textbook:- > > > > "The
purpose of the cash reserve requirement was to > > ensure that banks would > >
not be guilty of extravagant credit creation. Since > > the cash reserves remain
> > in the central bank without bearing interest, a > > sound balance is created
> > between the LIQUIDITY MOTIVE on the one hand and the > > PROFIT MOTIVE (by >
> lending money) on the other. > > > > On the basis of the following example, we
shall > > endeavour to show how the cash > > reserve requirements imposed by the
central bank > > affect the level of demand > >
deposits: > > > > (i) Suppose Mr X deposits R1000 with Bank A. Bank > > A's cash
reserves increase > > by R1000 and in exchange it creates a demand deposit > > to
the amount of R1000 > > in favour of Mr X. As we have seen, this does not > >
increase the money > > supply.** > > ** [Note: The basic money supply is Cash +
Demand > > Deposits. Movements from one > > to the other do not affect the money
supply.] > > > > (ii) Suppose further that the LEGAL RESERVE RATIO > > that banks
have to maintain > > with the central bank against their demand deposits > > is
equal to 20 percent. > > The additional R1000 in D's [demand deposits] > >
created in favour of Mr X > > therefore requires a cash reserve of R200 which has
> > to lie interest free in > > the central bank.
This leaves the Bank A with R800 > > in cash reserves which can > > go out on
loan. These reserves may be regarded as > > EXCESS RESERVES, i.e., > > reserves
in addition to those it has to or wants to > > maintain. > > > > (iii) Without in
any way exceeding the reserve > > ration (20% or 1/5) which has > > to be
maintained, Bank A can now grant R800 to MR Y > > in the form of overdraft > >
facilities. > > > > (iv) The next step is that Mr Y makes use of his > >
overdraft facilities. Suppose > > he writes a cheque for R800 in favour of Mr Z,
who > > deposits it with his own > > bank, Bank B. > > > > (v) The original cash
deposit of R1000 has now > > increased to R1800 in demand > > deposits. (R1000 in
favour of Mr X and R800 in > > favour of Mr Z at Bank B.)
The > > money creation process by banks has begun. > > > > (vi) If the process
is stopped here the extent of > > credit creation would not > > have been so
great. The deposit of R800 however > > increases Bank B's cash > > reserves. As
in the case of Bank A, Bank B is now in > > possession of excess > > reserves. If
the same reserve requirement applies to > > Bank B, it means that > > 20% of the
additional reserves (20% of R800 = R160) > > will be retained and the > >
remaining R640 will go out on loan, for instance to > > Mr W. > > > > (vii) The
process begun by Mr X's deposit of R1000 > > continues in this way until > > it
has worked itself out. > > > > > > If this series is followed through to its
ultimate > > conclusion, the total > > increase in
demand deposits will be equal to > > R5000.... " > > > > [Extract from Basic
Macro-Economics, by L.J. Fourie > > and F. van den Bogaerde, > > published by
J.L. van Schaik (Pty) Ltd.] > > ========== > > > > That seems most logical to me.
It all starts with > > client's deposits of money > > in bank accounts. > > > >
Incidentally, I am not a bookkeeper but I imagine > > that my deposit to my > >
account is a liability in the bank's books because > > it is money owed to me by
> > the bank? Correct me if I'm wrong. > > > > Jessop. > > P.S. I see Tim has
also given an excellent > > explanation. > > ======================== > > > > On
Thursday 28 Apr 2005 1:54 pm, donzbeth@ihug.co.nz > > wrote: > > > Hello Jessop;
When I read your reply to
Trevor, > > asserting that because > > > banks could not lend anything unless
they had > > deposits, > > > I had to read it twice to make sure I was not > >
misreading it. On assuming > > > that you have been taking the opportunity to
read > > some of the internet > > > discussion on this subject, it is astonishing
that > > you are still apparently > > > believing the 300 year old mythology
about > > > banks lending deposits. > > > > > > As a starting point, not only the
textbooks, but > > even the banks own > > > published reports classify the
so-called > > "Deposits" as Liabilities, because > > > that is precisely what
they are. Can you or > > anyone else lend your > > > "Liabilities"?..... Even if
deposits were > > lendable, > >
> when you are told that a deposit has been lent to > > someone else, but > > > still remains to the credit of the original > > depositor, meaning that > > > the same thing is concurrently in TWO Places at > > the same time, do > > > you not accept that you would have to be dreaming > > to accept that > > > statement as fact ? > > > > > > But there is no question that when a bank loan (or > > one of their purchase > > > checks) goes into a current account the total > > national M1 > > > Money Supply obviously increases by the amount of > > the loan. If > > > you still have a hang up about accepting that bank > > propaganda is > > > fiction, then look at the U.K. statistics, like > > N.Z., at the present time. > > > Government issued
money at the time is given as 3% > > > of the M1 Money Supply, with the other
97% > > accepted as interest bearing > > > debt to the privately owned commercial
banks. > > Believing > > > the delusion about deposits being "real" money, > >
you would have > > > to argue that each Pound (GBP) would have to be > > lent and
then re-lent > > > again thirty-two (32) times to build up 96% of the > > M1
Total. Now even with > > > a bit of conjuring you may be able to mentally > >
digest the possibility of a > > > Pound being in two places concurrently, but > >
really, you aren't expecting us > > > to accept that > > > you still believe in
"deposit lending" rather than > > "creating credit" in the > > > present
situation, are you Jessop ? > > > >
> > If still confused, check "Credit" in the Encyc. > > Britannica , or any of the > > > Monetary Commission Reports from the one chaired > > by Macmillan around 1933 > > > in U.K. , to a similar exercise in Canada , > > > and then 1955 in N.Z., or most of the post WW2 > > university text books. > > >=== message truncated === > > >__________________________________________________ >Do You Yahoo!? >Tired of spam? Yahoo! Mail has the best spam protection around >http://mail.yahoo.com >--------------------------------------------------------------------- >You're subscribed to this list with the email johngrawson@hotmail.com >To unsubscribe, send a message to >socialcredit-unsubscribe@elistas.com >For more information, visit http://www.eListas.com/list/socialcredit
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