How is money created?

[firegoat7]

Found this interesting, thought it might amuse.

We generally assume that governments create money by printing it. And,in fact, when money was linked to gold, there was a limit on how much money could be printed. However, with the lifting of these restrictions, most money is now created by banks and other lending institutions through debt. We generally assume also, that the money the banks lend is money that others have deposited. However that is not the case; only a fraction of the money that banks lend needs to be deposits. In effect, whenever a bank lends money, or whenever a product or a service is purchased on credit, money has been created. In effect, then, there is virtually no limit on the amount of money that lending institutions can create; furthermore, the interest on the loan payements creates yet more money. To get an idea of what this means, in the United Kingdom in 1997 the total money stock - coins,note,deposits,loans etc- amounted to 680 billion pounds (it was 14 billion pound in 1963). Yet there was actually only 26 billion pounds in actual coins and notes (Rowbotham:1998:12-13).Thus 97% of the money has been created by banks and other lending institutions. (Robbins:2002)

Any opinions
Cheers FG7

[ursogr8]

Found this interesting, thought it might amuse.

We generally assume that governments create money by printing it. And,in fact, when money was linked to gold, there was a limit on how much money could be printed. However, with the lifting of these restrictions, most money is now created by banks and other lending institutions through debt. We generally assume also, that the money the banks lend is money that others have deposited. However that is not the case; only a fraction of the money that banks lend needs to be deposits. In effect, whenever a bank lends money, or whenever a product or a service is purchased on credit, money has been created. In effect, then, there is virtually no limit on the amount of money that lending institutions can create; furthermore, the interest on the loan payements creates yet more money. To get an idea of what this means, in the United Kingdom in 1997 the total money stock - coins,note,deposits,loans etc- amounted to 680 billion pounds (it was 14 billion pound in 1963). Yet there was actually only 26 billion pounds in actual coins and notes (Rowbotham:1998:12-13).Thus 97% of the money has been created by banks and other lending institutions. (Robbins:2002)

Any opinions
Cheers FG7

All a bit too smoke-and-mirrors for my brain to comprehend.
I tried sort of relating it to something on a smaller scale, but that didn't help much.
I mused that your painting of the innards of the Melbourne Chess Club did not produce any money based on the definition that you have printed above. Although it undoubtedly produced a lot of goodwill, and probably even a future benefit.
On the other hand if you had allowed the MCC to 'purchase' your labour on credit then money would have been created. And if you had donated this money back to the club then you and the Club would be all square (with where you are now) and yet society better off because money was created.

So, there is hard-money, and there is credit-money, and there is volunteer-goodwill.
No wonder I didn't attempt ECONOMICS 101.

[arosar]

On the other hand if you had allowed the MCC to 'purchase' your labour on credit then money would have been created. And if you had donated this money back to the club then you and the Club would be all square (with where you are now) and yet society better off because money was created.

So, there is hard-money, and there is credit-money, and there is volunteer-goodwill.
No wonder I didn't attempt ECONOMICS 101.

F**k! you're a genius! Love that.

AR

[PHAT]

First, the ammount of physic money (notes and coins) need not be equil to the amount of wealth. For example, IF there was equil $ for wealth, there would be a mountain of notes at the bank or under the matress. We could shovel most of it into the incinerater as long as a record of who had what, is retained. There for the coinage Vs wealth argument is not valid.

However, it is true that banks "create" money. They do this by agreeing to, for example, issue a morgage on X and agreeing with orditers/estimators on a market value of X. That morage market value, becomes money that the bank may lend. Thus, "created money" is a measure not of real value of the economy, but of an agreed value of the economy. The crunch comes when the market finds that the real values are less than the agreed values - it is called a share market crash.

Banks, then, create money and thereby accelerate demand, generally leading to inflation. However, if the infrastraucture and industry have a latent capacity to produce more, without increasing production costs, inflation will not occur.

Where, then, does government fit in. Governments can create money by "printing it". It has the same effect of accelerating demand but has the benefit of never having to be accounted for as representing "market value". Thus, governments can stimulate the economy free of charge. There is one problem with this. Because of the increased demand, net imports rise, and the value of our dollar may be effected. As current account worsens, the currency's value decreases. The interest payable on that debt becomes higher, and thus investment capital is sucked out of our economy.

But back to the banks. These evil institutions have no loyality to there country or the citizens in it. They have a real asset value of ~$0. Their whole sharemarket value comes from being an organisation that can charge "customers" a fee that has no bearing on the acual value of the service. The service costs are less than 10% of the shareholder dividends. Their profits are about half a percent of the GDP. PARACITES

Shareholders are thieves.

[ursogr8]

But back to the banks. These evil institutions have no loyality to there country or the citizens in it. They have a real asset value of ~$0. Their whole sharemarket value comes from being an organisation that can charge "customers" a fee that has no bearing on the acual value of the service. The service costs are less than 10% of the shareholder dividends. Their profits are about half a percent of the GDP. PARACITES

Shareholders are thieves.

hey Matt,
Were you the one who coined UNEARNED INCOME as a phrase for Bob Hawke to trot out to describe dividends from shares?

You know, you don't have to buy services from the companies that CL and I have shares in. There are plenty of unlisted companies.

starter

[arosar]

Shareholders are thieves.

C'mon mate...so u anti-capitalism too? Private ownership, etc, etc?

AR

[skip to my lou]

As you put more money into circulation im guessing the value per dollar will decrease.

[paulb]

What I want to know is ... if money's all smoke and mirrors, hot air and bulldust, how come I can't get more of it?

[PHAT]

C'mon mate...so u anti-capitalism too? Private ownership, etc, etc?

AR

I am not so much anti-capitalism as pro-socialism. Private ownership is fine. But how much can a person actually produce in a lifetime? The "system" is not designed to reward those who do stuff and make stuff. It is designed for thieves to take stuff from those who are deserving but not receiving. Read some Marx. It was out of fasion for a while, but hey, look at where we are heading with the capitalists' maps - monopolies and fiefdoms. The rich are becoming paracites and the ultra rich are becoming lords. If you think that that is good for you and your children, think again. The last half of the 1900s was a golden era, it is slipping away because of unchecked capitalism. We need to put a break on capitalism with death duties of 100% over ~$10mil.

[PHAT]

As you put more money into circulation im guessing the value per dollar will decrease.

This is the sought of tripe that economists with physics envy trot out when they try to make us thick they know what they are on about. Most economists are as blindly faithful to their text books as fundies are to the OT. Kill them all.

[Kevin Bonham]

We need to put a break on capitalism with death duties of 100% over ~$10mil.

I like the theory but I doubt it will ever work in practice. The rich will rort around this as easily as they rort around income tax.

[PHAT]

I like the theory but I doubt it will ever work in practice. The rich will rort around this as easily as they rort around income tax.

They cannot rort a bullit but more practically, you only have to put a few thousand in gaol for "hiding" whealth, and the message sinks in. The trouble is that the scum in parliament are the same scum who would be effected by such laws. Politically, 100% death duties will never get up. However, nationalisation before they die .......

[ursogr8]

I am not so much anti-capitalism as pro-socialism. Private ownership is fine. But how much can a person actually produce in a lifetime? The "system" is not designed to reward those who do stuff and make stuff. It is designed for thieves to take stuff from those who are deserving but not receiving. Read some Marx. It was out of fasion for a while, but hey, look at where we are heading with the capitalists' maps - monopolies and fiefdoms. The rich are becoming paracites and the ultra rich are becoming lords. If you think that that is good for you and your children, think again. The last half of the 1900s was a golden era, it is slipping away because of unchecked capitalism. We need to put a break on capitalism with death duties of 100% over ~$10mil.

hi Matt
If the 'system' (as you call it) does not allow sufficient return on capital then those that make the decisions on the allocation of capital simply look to other parts of the globe.
Sure, there can be big gaps between 'sufficient return' and 'super-profits'. And you think you have found a lever that reduces the gap via death duties. Well, if the idea is good for Australia then it is probably good for Woolongong on its own, or even NSW.
Just don't bring it south of the border, mate, we already have the world's most liveable city. And we have understood from the gold rush times on that profits (and the concomitant excesses) are the engine of growth. Just go steady with your hand on the levers. Please restrict your lobbying to State politicians.
starter

[arosar]

The "system" is not designed to reward those who do stuff and make stuff.

So why are you against IP laws then?

AR

[PHAT]

So why are you against IP laws then?

AR

Beacuse the IP is not "stuff". It is etheral, it is the escence of culture. None of us own the culture our culture, therefore IP cannot be property. "IP" is an oxymoron.