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Message 1153
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| Subject: | Re: [socialcredit] money and credit creation -- reply to Vic | | Date: | Saturday, April 30, 2005 17:52:40 (+0200) | | From: | Jessop Sutton <sutton @...........za>
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| In reply to: | Message 1127 (written by Vic Bridger) |
On Friday 29 Apr 2005 6:44 am, Vic Bridger wrote:
> I am sorry Jessop but you have got it completely back the front. Loans do
> not dome from depositors deposits. It would be illegal for a bank to lend
> out depositors money. Have you ever heard of anyone having their deposits
> reduced because the bank has lent some of it out? Deposits come from loans.
> I have attached an article written a few years ago by one of original
> thinkers and who does think laterally. This little story may assist you
> (and possibly others)
> Vic Bridger
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No Vic, I am not wrong. A little bit of original thought will tell you that
what I posted earlier today in reply to Don is the right explanation.
The Sancho Panza piece -- do you not think it is somewhat naive? I think it is
abit puerile myself, but it will catch the attention of a gullible public.
This, and others like it such as The Money Myth Exploded, are patently
written by people who set out to prove what they already believe, and it's
not hard to find the flaw in their parables. These are food for any who also
are set to be assured about what they already believe. The stories are not
really difficult to fault by any thoughtful person.
Vic, I don't know what you really believe about cash (bank notes), but it is
simply a representation of value that already exists; it is a means of
transporting 'credit' from one point to another, if you like. Moving cash in
and out of bank accounts does not affect the market liquidity, it only
changes the composition of that resource. Aditional cash (notes) are only
brought into the system by the Reserve Bank as and when required to support
the needs of commerce in the country -- the increase in activity comes first,
then additional supplies of notes are brought in to play. (Bill Ryan once
argued convincingly on this list that money creation is a result of total
economic activity.) Control over the extension of credit by mopping up market
liquidity at times and releasing it again when required is a useful means by
which the monetary authority can regulate the process of money creation. Tim
Knight puts it very nicely as:-
"Originally, with gold-plus-debt finance, many saw the fractional reserve
system as a 'multiplier' or 'catalyst' in increasing the 'money supply' each
time the gold came back in and went out again. In fact, it never was. It
was always a prudential limiting factor, limiting the total of owed-wealth
assets a bank was allowed to administer to a multiple of gold deposits
actually held. More recently, with debt-only finance, the fractional reserve
system is a prudential administrative limiting factor; limiting the total of
owed-wealth assets a bank was allowed to administer to a multiple of equity.
In all cases, the fractional reserve system is intended to ensure that if
some of the bank's owed-wealth assets go belly-up, it is the shareholders who
suffer rather than the depositors." The fractional reserve system, of course,
requires that there be cash deposited with the Reseve Bank.
Jessop.
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