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What I would like to know John H is the situation
if the banks loose their charters and become finance companies, ie a autonomous
entity in the public sector created the community credit and fractional reserve
banking is no more.
What is the normal status of savings/deposits where
the public 'lend' if one likes to them. They would need to put those funds
to work in the market to create assets greater than their
liabilities.
Also what is the issue regards 'reserves' or some
other form of security.
Peter H
------ Original Message -----
Sent: Monday, June 18, 2007 6:46 PM
Subject: [socialcredit] Re: Are bank
deposits loans?
- Re: Are bank deposits loans?
- Credit money created by a bank and deposited in a borrower's demand
account might represent a loan to the borrower (although it does not need to
be). It is hardly a loan to the bank, which would be a nonsense - since
banks do not lend to themselves. Neither is money (check, cash or credit
transfer) deposited in a customer's bank account a loan to the bank, for the
reasons I have given previously.
- When money is truly loaned from one entity to the other, that money may
be used in whatever way the second entity wishes, including on-lending. The
only constraint on the arrangement is the agreement of the second entity to
repay the sum loaned within a prescribed time-frame (or on demand) -- with
or without the payment of interest.
- This is never the financial arrangement which operates in regard to
deposits in banks. Banks do not on-lend anything which is part of the money
supply, nor do they ever lend out reserves to the public. They are
prohibited from doing either of these things. Reserves always remain within
the banking system, and are transferred between banks whenever credit
transfers occur between different bank accounts. In other words, reserves
tag along after deposits (of public money), but never form part of those
deposits. The reserve transfers occur essentially between the reserve
accounts of the commercial banks with the central bank.
- Moreover banks are always able to provide payment of money to a
depositor in the form of a check or by credit transfer. The only repayment
problem arises (under a fractional reserve system) if there is a run on the
bank and depositors all demand repayment in cash within a short space of
time. That potential problem is peculiar to a fractional reserve system. I
cannot think of circumstances where it would ever arise within a 100 per
cent reserve banking system.
- -- John Hermann
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