| Subject: | Re: [socialcredit] 10 can't pay 11 fallacy, again | | Date: | Monday, July 9, 2007 03:41:04 (+0000) | | From: | John G Rawson <johngrawson @.......com>
|
Greetings John.
If you are going to use ratios like "12.5 times" you need to state which
country you are referring to. In NZ, for example, there is no reserve ratio
required, and theoretically no limit on bank lending other that obtaining willing
borrowers and the risk of asset transfers if the lending on one bank outstrips
the rest.
Regards. John R.
From: John Hermann <hermann@picknowl.com.au>
Reply-To:
socialcredit@elistas.com
To: socialcredit@elistas.com
Subject: Re:
[socialcredit] 10 can't pay 11 fallacy, again
Date: Mon, 09 Jul 2007 11:17:04
+0930
At 09:02 PM 8/07/2007, Per Almgren wrote:
And what happens if the bank doesn't completely use the interest for payments
of expenses? It may prefer to increase its liquidity (cash money) so it stays
compatible with the increasing amounts on different accounts. In that case the
borrowers are forced to borrow more to fill the difference, or they will
experience a society with a shrinking economy!
The remainder of bank income
which is not directed to honoring its costs and expenses (interest paid to
depositors, dividends, taxes, overheads, salaries, etc) is known as retained
earnings. This usually small fraction of income (i.e., usually no more than 2 per
cent) is not spent back into the economy, but adds to the bank's capital base.
Two per cent or less might not seem like much of an increase, however it should
be
remembered that (under the Basle 1 accord) there is a minimal capital adequacy
requirement of 8 per cent of regulatory capital to risk-weighted assets. This
means that in principle any increase in bank capital can translate into an
increase in the bank's ability to create new credit money equal to 12.5 times
that capital increase (dependent on the willingness of the bank to lend and the
public's willingness to borrow, but when economic times are good neither of these
are a problem).
-- John Hermann
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