(John Rawson wrote:- ) Joe, just one caution on bank lending.
In this country, and possibly in Jeff's, banks make no credit entry in the
borrower's account and the new money doesn't show up as a deposit until
transferred to another account in credit. And of course, if the other account is
overdrawn by more than the deposit, it simply reduces the recipient's overdraft
without showing up as a deposit at all. The money has a very brief life, the
time involving the transfer from one bank to another. It is cancelled out of
existence when it meets an equivalent OD.
I just make this point to try to head off a long discussion based on slightly
different methods in different economies.
Incidentally, where does your bank show your debt? In a totally different
(Joe replies:- ) I don’t have a Bank balance sheet at hand to see how
it’s actually stated, but I would imagine your debt (the bank ‘loan’) would be
shown as a type of “Account Receivable” on the books of the bank, and is
classified as an ‘Asset’. Same as any other business would classify its
‘accounts receivable’ as part of its ‘Assets’. Your ‘Promissory Note’ is the
physical description of that ‘asset’, just like your ‘tractor’ might be the
physical description of an ‘asset’ in your books with a ‘money’ figure attached
to it. Just like you with your tractor, the Bank or anyone else holding a
“promissory note’ (generally held along with some attached collateral ‘security’,
like a ‘mortgage’), can ‘sell’ that asset.
The bank’s ‘Loans’ are always considered to be its “Assets”, the
corresponding ‘Deposits’ to those ‘Loans’, (and any ‘customer’ deposits, too) are
its ‘Liabilities’. As someone once said, “a bank can’t lend it ‘liabilities’
“, and it doesn’t. Whether the Bank collects on its ‘accounts receivable’
(from you), or not, it’s still on the hook for whatever you’ve transferred out of
your account as an ‘account payable’ (to others) so long as your account has a
positive balance sufficient enough to cover that amount. .