Yes, that's how I understand it too. But similar things happen when you buy things on credit. If you buy a coffee machine with a credit card then a bank balance will go up somewhere. It doesn't...
Yes, that's how I understand it too. But similar things happen when you buy things on credit. If you buy a coffee machine with a credit card then a bank balance will go up somewhere. It doesn't seem so different?
For you, making a promise creates a financial asset (increasing a credit card balance) and it lasts until you pay, which destroys the asset (by reducing the balance). A bank can sometimes increase its customers' deposits directly as a way of borrowing money to pay for a purchase.
Comparing a bank deposit with your promise to pay your credit card bill, the first is money and the second is a loan, by definition. But they are in many ways similar. An important difference is that the bank doesn't get to decide when to pay off the liability represented by a bank account - the money can be withdrawn at any time.
I don't get it, what exactly is the article about? The definition of the phrase "create money"? All I'm seeing is a bank giving a "loan" instead of actually transferring money for (I assume?)...
I don't get it, what exactly is the article about? The definition of the phrase "create money"? All I'm seeing is a bank giving a "loan" instead of actually transferring money for (I assume?) easier accounting (like bundling them up)?
It's getting into the details of what money actually is. This is surprisingly tricky to figure out. It's something I'm curious about, but I'm not sure if thinking about this stuff is actually all...
It's getting into the details of what money actually is. This is surprisingly tricky to figure out. It's something I'm curious about, but I'm not sure if thinking about this stuff is actually all that useful.
Most people would say that if you have money in a bank account, that really is money. But bank deposits can be created and destroyed. (The total amount of bank deposits can go up and down.) So here we are talking about money being created by increasing total bank deposits.
So is this counting "temporary" money being created, i.e. someone agreeing to give a loan despite not actually having the money yet? Is that what that paragraph in the end about a transaction...
So is this counting "temporary" money being created, i.e. someone agreeing to give a loan despite not actually having the money yet? Is that what that paragraph in the end about a transaction glitching out and not going through is all about?
In the end, the same amount of money seems to be subtracted in one place that is added in another, though. If everything goes right, at least. That, to me, is not "creating money"?
Bank loans really do make new money. For example when you buy something with a credit card, the merchant gets money. They can spend it or withdraw it at an ATM or whatever. It’s just as good as...
Bank loans really do make new money. For example when you buy something with a credit card, the merchant gets money. They can spend it or withdraw it at an ATM or whatever. It’s just as good as anyone else’s money. It’s not temporary in any way.
Meanwhile nobody else loses money. Nothing gets subtracted from anyone’s bank account. You have just as much money as you did before. (Your credit card balance goes up, but credit card balances aren’t money.)
Sure, the situation is temporary. When you pay your credit card bill using money in the same bank, your bank balance goes down. This destroys the money. The money doesn’t go anywhere; nobody else’s balance goes up.
When calculating your net worth, you subtract your debts, but that’s different.
I was recently involved in a negotiation with JP Morgan's procurement department. They are the hardest nosed negotiators I have ever seen. They definitely do not act like money is free....
I was recently involved in a negotiation with JP Morgan's procurement department. They are the hardest nosed negotiators I have ever seen. They definitely do not act like money is free.
Fundamentally the purchase is deducted as an expense, so I presume they are simply maximizing profits, but the point is that JP Morgan does not like to spend money, even if they theoretically can spend as much as they want.
I don't know much about Basel III, but based on a bit of searching, it looks like it's a voluntary international standard. That means it's up to each country's central bank to implement it. And it...
I don't know much about Basel III, but based on a bit of searching, it looks like it's a voluntary international standard. That means it's up to each country's central bank to implement it. And it seems to be about leverage rules. So I think this is mostly about making sure that banks are strong enough (have enough reserves) to withstand a crisis, rather than setting any hard limits on growth?
How exactly banks run up against these or other limits on growth seems pretty complicated and country-specific. (For example, there was the time when the Fed announced that Wells Fargo wouldn't be allowed to grow because of the bad things they did.)
But if we're talking about total lending, it's not like there's a hard limit and one bank can't lend more until some other bank lends less. Central banks control total lending by doing things to encourage or discourage lending in general, and then seeing what happens.
Central banks would normally discourage lending by raising interest rates. But for quite a while, they've been more interested in boosting economies by encouraging lending, so interest rates are low. I think it's currently constrained more by how much people want to borrow and how much banks want to lend.
The Bank of England has a good explainer (pdf) if you want to learn more about bank loans and the money supply. In particular, search for "Limits to broad money creation."
Yes, that's how I understand it too. But similar things happen when you buy things on credit. If you buy a coffee machine with a credit card then a bank balance will go up somewhere. It doesn't seem so different?
For you, making a promise creates a financial asset (increasing a credit card balance) and it lasts until you pay, which destroys the asset (by reducing the balance). A bank can sometimes increase its customers' deposits directly as a way of borrowing money to pay for a purchase.
Comparing a bank deposit with your promise to pay your credit card bill, the first is money and the second is a loan, by definition. But they are in many ways similar. An important difference is that the bank doesn't get to decide when to pay off the liability represented by a bank account - the money can be withdrawn at any time.
I don't get it, what exactly is the article about? The definition of the phrase "create money"? All I'm seeing is a bank giving a "loan" instead of actually transferring money for (I assume?) easier accounting (like bundling them up)?
It's getting into the details of what money actually is. This is surprisingly tricky to figure out. It's something I'm curious about, but I'm not sure if thinking about this stuff is actually all that useful.
Most people would say that if you have money in a bank account, that really is money. But bank deposits can be created and destroyed. (The total amount of bank deposits can go up and down.) So here we are talking about money being created by increasing total bank deposits.
So is this counting "temporary" money being created, i.e. someone agreeing to give a loan despite not actually having the money yet? Is that what that paragraph in the end about a transaction glitching out and not going through is all about?
In the end, the same amount of money seems to be subtracted in one place that is added in another, though. If everything goes right, at least. That, to me, is not "creating money"?
Bank loans really do make new money. For example when you buy something with a credit card, the merchant gets money. They can spend it or withdraw it at an ATM or whatever. It’s just as good as anyone else’s money. It’s not temporary in any way.
Meanwhile nobody else loses money. Nothing gets subtracted from anyone’s bank account. You have just as much money as you did before. (Your credit card balance goes up, but credit card balances aren’t money.)
Sure, the situation is temporary. When you pay your credit card bill using money in the same bank, your bank balance goes down. This destroys the money. The money doesn’t go anywhere; nobody else’s balance goes up.
When calculating your net worth, you subtract your debts, but that’s different.
I was recently involved in a negotiation with JP Morgan's procurement department. They are the hardest nosed negotiators I have ever seen. They definitely do not act like money is free.
Fundamentally the purchase is deducted as an expense, so I presume they are simply maximizing profits, but the point is that JP Morgan does not like to spend money, even if they theoretically can spend as much as they want.
They could give you money, but then you might withdraw it.
Isn't the available credit banks can lend limited by the Basel 3 reforms?
I don't know much about Basel III, but based on a bit of searching, it looks like it's a voluntary international standard. That means it's up to each country's central bank to implement it. And it seems to be about leverage rules. So I think this is mostly about making sure that banks are strong enough (have enough reserves) to withstand a crisis, rather than setting any hard limits on growth?
How exactly banks run up against these or other limits on growth seems pretty complicated and country-specific. (For example, there was the time when the Fed announced that Wells Fargo wouldn't be allowed to grow because of the bad things they did.)
But if we're talking about total lending, it's not like there's a hard limit and one bank can't lend more until some other bank lends less. Central banks control total lending by doing things to encourage or discourage lending in general, and then seeing what happens.
Central banks would normally discourage lending by raising interest rates. But for quite a while, they've been more interested in boosting economies by encouraging lending, so interest rates are low. I think it's currently constrained more by how much people want to borrow and how much banks want to lend.
The Bank of England has a good explainer (pdf) if you want to learn more about bank loans and the money supply. In particular, search for "Limits to broad money creation."