I could also get testy and enquire why we are considering this when reserves
for this purpose are a thing of the past here in NZ and, I believe, mostly
elsewhere.
In actual fact, if a bank goes "broke", government usually feels it necessary
to step in and save the depositor's assets, as happened years ago here, resulting
in public major ownership of the Bank of NZ. (Since disposed of.)
I keep referring unashamedly to our Royal Commission, because of the veracity
of evidence taken under oath. They concluded that the only check on lending by
banks was the need to cover transfer of (assets) when money one created was
deposited at another. Had there been only one bank, there would have been NO
limit.
John R.
>From: Jessop Sutton <sutton@kingsley.co.za> >Reply-To:
socialcredit@elistas.com >To: socialcredit@elistas.com >Subject: Re:
[socialcredit] Re: Reply to Trevor Crosbie -- and back to Bill. >Date: Sun, 1 May
2005 23:51:55 +0200 > >Okay, Bill, I got it wrong about you having said it -- my
memory let me down. >I apologise. > >However, in you response to me, are you not
overlooking that it is not the >legal reserve that is the basis of credit
extension by the banks but the >EXCESS RESERVES as in this paragraph from the
extract? > >(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. > >Put it this way, irrespective of whether the system is good
or bad, and of >whether you repudiate it, that is the way it works in South
Africa, as best I >understand it. Thus, without clients' deposits with the
banking system, no >credit extension is possible. > >[The legal reserve in South
Africa at present is nothing like the 20% of the >example -- it is (or was on
26th May 2003 when I last got the information >from the Reserve bank) only 2.5%
with an effective actual of 1.6% because >banks are allowed to exclude certain
liabilities from the base amount. But >the principle remains the
same.] > >The constant assertion by some that 'the banks do not lend out MY
deposit' is >really quite ludicrous because it is obvious to all (or should be)
that for >the banks to do that would make absolutley no sense at all -- I would
not >need a bank to do that, all I would need is a go-between to lend my money to
>a borrower if I could not find a borrower myself. Of course it's not 'my
>money' that is going out, neither is it necessarily cash at all, but an
>uderlying reserve of cash is a necessary part of the transaction (until such
>time as we all carry smartcards) because if I transfer $100 into your account
>you have every right to draw it out in cash (notes) at your bank, and the
>notes won't have my imprimatur on them. > >Bill, I have no problem with "The
general theorem, as enunciated by Douglas in >his third book is: Loans create
deposits; the repayment of loans cancel >deposits." This is self-evident. If I
have nothing in my account and it is >then credited from somewhere, no matter
from where, then I have a >deposit in my account (and I will owe the bank that
amount -- plus interest). > >Jessop. >========================= > >On Saturday 30
Apr 2005 5:52 pm, William B. Ryan wrote: > > 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 > >
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