10,000 people a day retire

[Terry Hammonds]

If 10,000 people a day are retiring, what is happening to those job openings? Are employers taking this opportunity to reduce their workforce without "laying people off?"

[Jean Erick]

     The population profile of the West (and China) has changed from a pyramid to a poker chip shape.  Considering that, and the fact of the military tying up a apart of the labor force, labor has taken the biggest hit in 60 years.  Go figure.

 

James

[Terry Hammonds]

One answer may be that other workers take over the work load, without additional pay of course. An acquaintance of mine, age 67, was fired a couple of weeks ago from a full time county position (for vague reasons) and another employee will come in 6 hours a week to sort of fill in. 

Sent from my iPad

[Tom Paine II]

People approaching retirement are laid off, perhaps before qualifying for full retirement benefits; can’t realistically find work; and so take retirement benefits prematurely.   

Like me.

=

[Jim Blair]

=

Hi,

J. P. Morgan Chase bank is said to have "lost"  $2 billion.  Where did it go? 

If Chase "lost" it, does that means someone else (some other banks) "found it?  It was said they lost it in trades made with other banks, so is their loss a gain for their trading partners? 

Or is this like the several billion that Mark Zuckerberg "lost" when facebook stock dropped in price?  Money that never actually existed, but was the difference between the predicted price of facebook stock,  and the actual selling price when it was put on the market.?

Just wondering,

Jim

[George Chandler]

The money Chase lost went to another high stakes hedge fund trader. His name was Boaz Weinstein. Boaz noticed a fund going against the odds, was curious who and saw it was Chase. He bet against the Chase trader...big bucks. Does this mean that the big banks gamble with their money...surely that couldn't be.... Ref article in the NY Times,5/26/2012, titled "The Hunch, the Pounce and the Kill."

[Terry Hammonds]

The way I understand it, it works like a hors race. If you lose $200 betting horse "A"  wins, but it comes in last,  others get the money who bet against "A" and won. Other groups at the financial racetrack got a share of the $2 billion depending on how much they had in the betting pool. It is not like a poker game where there is one winner and one loser. J.P. Morgan still does not know how much was actually lost, it could be as much as six billion. Apparently, J.P. Morgan had billions they got in deposits when they took over WaMu. Those assets were idle and somebody decided to "invest" them. Instead of investing in infrastructure or other endeavors that could be of value to the national economy, they did what big financials do today, they went to the betting window, threw down their cash in a complicated default swap or derivative deal hoping to win big for themselves and "lost" it to others betting against them. In the old days financial institutions invested that kind of money in grand projects, like the Panama canal or rail roads, something that would benefit the economy while returning a reasonable profit to shareholders. Today they are only interested in their own wealth. Mr. John Pierpont Morgan invested his time and money in things like consolidating several electric companies into General Electric and merging several small steel companies into The United States Steel Corporation, just to mention two of his successes, Today's J.P. Morgan Company is a disgrace to John Pierpont Morgans legacy. 

Sent from my iPad

[Jim Blair]

Hi,

So Morgan Chase's loss is a gain for other investment banks.  How is that bad for the overall economy?  If your retirement money is in Morgan Chase, bad for YOU.  But if your retirement money is with the winners of this $2 billion, GOOD for you.  And how do we know if those winners are putting their money into better or worse projects than Morgan Chase?

What was disappointing to me about this was that only the "loss" was mentioned, with no discussion of who gained, and no attempt to evaluate the overall effect.   No attempt to balance the loss and gains, as if the gains didn't even exist. 

[William F Hummel]

The winners were hedge funds. They don't take retirement money. To play with them you need at least one million to gamble with.  So we have JP Morgan, a chartered bank whose deposits are covered by FDIC, and whose losses are implicitly covered by tax payers for being too-big-to-fail, and you don't see anything bad about that?

[George Chandler]

Hummel wrote: "...JP Morgan, a chartered bank whose deposits are covered by FDIC".

JP Morgan is not just a bank. They are one of those biggie, combinations of bank, investment bank and stock broker. Some of their deposits are covered by FDIC, some not.

[William Hummel]

Only a chartered bank can accept deposits.  All deposits up to a specified dollar value are covered by the FDIC.

[George Chandler]

Hummel wrote: "All deposits up to a specified dollar value are covered by the FDIC."

How does a giant bank comglomerate keep FDIC deposits separate from other deposits? For example when Chase says 'no depositors' money was invloved'. How can the comglomerate keep the money separate so we can be sure this is true?

[Terry Hammonds]

Sent from my iPad

[Terry Hammonds]

I heard Jamie Diamon say that J.P. Morgan took possession of customer "deposits" when they took over Wa Mu during the financial crisis. The money was sitting around idle and they decided to "invest" it and hat is what they lost,  It sounds like that cash was no longer depositor's money, it was just given to J. p. Morgan as a gift to do with what they wanted   Does that sound right? Did FDIC pay off Wa Mu depositors,pass the liabilities to taxpayers and give the cash assets away? Those deposits should have gone into the chartered bank section of J.P.Morgan and remained customer deposits, 

Sent from my iPad

On Jun 15, 2012, at 3:57 PM, George Chandler <lante...@gmail.com> wrote:

[William Hummel]

JPMorgan Chase & Co. is a bank holding company that owns five bank subsidiaries in the U.S.  They are JPMorgan Bank, NA; Chase Bank USA, NA; Custodial Trust Company; JPMorgan Chase Bank, Dearborn; and JPMorgan Bank and Trust Company, NA.  The NA symbol stands for National Association, which means it is federally chartered. The JPMorgan Bank, NA is by far the largest, with $1843 billion in assets versus a total of $2320 billion for the holding company and all of its subsidiaries, as of 3/31/2012.

 

In a federally chartered bank, all deposit liabilities are covered by the FDIC, up to specified limits per account. It is meaningless to say 'no depositors' money was involved' in the recent gamble. Deposits bring reserves which are a part of the bank's assets and can be used however the bank chooses. The holding company will suffer a capital loss by whatever amount it loses on the gamble.

[Jim Blair]

" and you don't see anything bad about that? "

Hi,

My comment was not that I see nothing wrong, but that the news I read and see on TV said nothing about there being those who gained from the Morgan Chase loss.  They treated this as a pure loss: like the money (2+ billion) simply vanished.  It is a sad commentary on the professional news people and commentators that I learn more about these issues from an internet discussion group than from them.

[Terry Hammonds]

Those journalists, like most politicians and many bankers, know very little about how those deals work. The are very complicated and usually secretive. I purposefully asked account representatives and some higher-ups in Wells Fargo and two other banks about some of the things widely reported In the news and they were clueless about what went on in the investment banking sectors of their company. We really need to again separate "investment" (gambling) banks form deposit banks.

Sent from my iPad

[George Chandler]

Good discussion. The federal government agency now in charge of what to do about the banking mess is the Consumer Financial Protection Bureau. (In case someone wants to follow the goings on).

[Tom Paine II]

Forgive me if this repeats a citation (I found it through another citation), but perhaps a first question might be answered by

 57 Md. L. Rev. 1 (1998) “Where is a bank account?”

[Jean Erick]

     When you deposit money in a bank, legal title transfers to the bank.  It is their money.  You have lent them the money.

"I'd rather owe it to you all my life than cheat you out of it."

 

James

=

[Jean Erick]

     Yuh think!?  Invstment divided from banking.  What a novel idea.

 

James

=

[Terry Hammonds]

Banks owning customer deposits is one of the hardest concepts for people to accept. We tend to think of the bank as a warehouse that simply stores our money for us. If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free. 

Sent from my iPad

[John Hermann]

Terry said: "If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free". Interesting that in making his argument, Terry referred to "our money", not the "bank's money".  You cannot have it both ways to suit your argument Terry.  But in any case, commercial banks do not hold "your" bank credit money for free.  When you make a deposit with a bank, reserves are transferred to the custody of the bank, along with the deposit of bank credit money (at least in principle).  We have a dual monetary system, in which reserves tag along after retail deposits.  Banks need those reserves as a requirement for carrying out their business.  It can be argued that the banks own the reserves which tag along in this way, however I don't think it can be legitimately argued that banks own the bank credit money -- notwithstanding that (or perhaps because) they create the stuff.  The reason being that the payments system would be unworkable if it were otherwise.

John Hermann

[Jean Erick]

     Owner ship and possession transfers with the deposit.

"res title" goes with it to the bank.

    Reserves don't follow deposits, I think deposits are reserves.

The bank owns the deposits, which are reserves.

 

     Under your accounting, the bank would have twice as much as it does.

[helge nome]

The problem with this discussion is rooted in semantics: "Ownership", "money", etc.
Modern financial transactions are treated as if we lived in the stone age with bags of stuff changing hands,
when we are simply dealing with accounting conventions and procedures.
The only real criterion for success in financial transactions is that the people that use the system have faith in its integrity.
That's what is missing today.
Helge

---

From: jean...@sbcglobal.net
To: understan...@googlegroups.com

Subject: Re: Where does lost money go?

Date: Sat, 23 Jun 2012 17:11:14 -0700

[Jean Erick]

     What's to know?  Those political entities, usually called conservative, got in power because the South changed relative to Lyndon Johnson's

civil rights program.  And just did what they always want to do.  Do business.

     Berstein's "Birth of Plenty" has this graph with the vertical for traditional thinking (stupidity) and the horizontal for security, people who feel secure

talk more.  Americans are over near the right, about a third from the bottom.  They're stupid and they love to tell you about it.

[John Hermann]

James, I have to disagree with you.  Deposits are not reserves.   Deposits consist of bank credit money, created by commercial depositories (banks and thrifts).   Reserves are base money, created by the central bank (in cooperation with government).
John Hermann

[Tom Paine II]

But when such a deposit is results into an interbank transfer of those funds, doesn’t it transubstantiate into HPM, essentially equivalent to cash/reserves?

[Tom Paine II]

“Under your accounting, the bank would have twice as much as it does.”

 

That’s an improvement on the bank’s accounting, under which it is allowed to pretend that it has approx. ten times as much as it does, and can always get as much as it wants, of the sort it has and of the sort it hasn’t.

[John Hermann]

No, it does not.   In principle the reserves (exchange settlement funds) tag along after the deposits.   We have a dual monetary system, which is embodied in (a) the money supply (that is, money used by the public), and (b) reserves (a form of money used only within the financial system).  Banks purchase government securities using reserves, but they never use bank credit money for this purpose.  The reason being that, as creators and destroyers of bank credit money, banks have no need for the stuff themselves.  In my opinion this is an insane way to operate a monetary system -- better to operate a system in which there are effectively no reserves.

Money supply = creditary retail deposits plus currency held by the private nonbank sector
Reserves = bank deposits in the central bank plus currency held by banks
 
The fact is that the money supply never actually mixes with reserves.  They are like oil and water.  When a bank depositor withdraws money from his/her account in the form of cash (currency), all that happens is a reduction in the account together with a commensurate reduction in the bank's stock of reserves.  The money supply does not change, and the bank's overall capital (net worth) does not change.  Even though the currency involved (coins and notes) can be said to undergo a transubstantiation during this operation, it is not correct to infer that there has been a transubstantiation of reserves into a different form of money (the money supply).

William previously made the point that the loss of bank reserves in this operation effectively will be made up by the central bank in its management of monetary policy, however I would argue that this is an after the fact arrangement (entailing very considerable time lag) which is at the discretion of the central bank.  It seems to me that it is wrong to suggest that there is a necessary or inevitable conversion of reserves into a different form of money. 

John Hermann

[helge nome]

Why not look at it this way: The central banks track all transactions between banks that are members of the system and enforce certain agreed upon rules of the game.
We are just dealing with numbers, and their expansion or contraction within the framework of rules.
Using the term "money" tends to confuse things because of all the baggage of association attached to that term.

As long as the members of the system play by the rules, the system works reasonably well.
When the rules are bent, the system goes into hiccup mode, resulting in the non-availability of credit for worthy projects.

Helge

---

Date: Fri, 29 Jun 2012 11:44:56 +0930
From: her...@picknowl.com.au

[Joe Leote]

Poetically the rules bend the system. Or more descriptively, unstable credit is a feature of the system even when everyone plays by the rules.

Joe

On 6/28/2012 10:57 PM, helge nome wrote:

Why not look at it this way: The central banks track all transactions between banks that are members of the system and enforce certain agreed upon rules of the game.
We are just dealing with numbers, and their expansion or contraction within the framework of rules.
Using the term "money" tends to confuse things because of all the baggage of association attached to that term.

As long as the members of the system play by the rules, the system works reasonably well.
When the rules are bent, the system goes into hiccup mode, resulting in the non-availability of credit for worthy projects.

Helge

---

Date: Fri, 29 Jun 2012 11:44:56 +0930
From: her...@picknowl.com.au
To: understan...@googlegroups.com
Subject: Re: Where does lost money go?

No, it does not.�� In principle the reserves (exchange settlement funds) tag along after the deposits. � We have a dual monetary system, which is embodied in (a) the money supply (that is, money used by the public), and (b) reserves (a form of money used only within the financial system).� Banks purchase government securities using reserves, but they never use bank credit money for this purpose.� The reason being that, as creators and destroyers of bank credit money, banks have no need for the stuff themselves.� In my opinion this is an insane way to operate a monetary system -- better to operate a system in which there are effectively no reserves.

Money supply = creditary retail deposits plus currency held by the private nonbank sector
Reserves = bank deposits in the central bank plus currency held by banks

�
The fact is that the money supply never actually mixes with reserves.� They are like oil and water.� When a bank depositor withdraws money from his/her account in the form of cash (currency), all that happens is a reduction in the account together with a commensurate reduction in the bank's stock of reserves.� The money supply does not change, and the bank's overall capital (net worth) does not change.� Even though the currency involved (coins and notes) can be said to undergo a transubstantiation during this operation, it is not correct to infer that there has been a transubstantiation of reserves into a different form of money (the money supply).

William previously made the point that the loss of bank reserves in this operation effectively will be made up by the central bank in its management of monetary policy, however I would argue that this is an after the fact arrangement (entailing very considerable time lag) which is at the discretion of the central bank.� It seems to me that it is wrong to suggest that there is a necessary or inevitable conversion of reserves into a different form of money.�

John Hermann

On 29/06/2012 5:49 AM, Tom Paine II wrote:

But when such a deposit is results into an interbank transfer of those funds, doesn�t it transubstantiate into HPM, essentially equivalent to cash/reserves?

�

�

�

From: John Hermann

Sent: Thursday, June 28, 2012 7:01 AM

To: understan...@googlegroups.com

Subject: Re: Where does lost money go?

�

James, I have to disagree with you.� Deposits are not reserves.�� Deposits consist of bank credit money, created by commercial depositories (banks and thrifts).�� Reserves are base money, created by the central bank (in cooperation with government).
John Hermann


From: jean...@sbcglobal.net

To: understan...@googlegroups.com
Subject: Re: Where does lost money go?
Date: Sat, 23 Jun 2012 17:11:14 -0700

���� Owner ship and possession transfers with the deposit.

"res title" goes with it to the bank.

��� Reserves don't follow deposits, I think deposits are reserves.

The bank owns the deposits, which are reserves.

�

���� Under your accounting, the bank would have twice as much as it does.

�

James

�

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, June 19, 2012 5:43 PM

Subject: Re: Where does lost money go?

�

Terry said: "If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free". Interesting that in making his argument, Terry referred to "our money", not the "bank's money".� You cannot have it both ways to suit your argument Terry.� But in any case, commercial banks do not hold "your" bank credit money for free.� When you make a deposit with a bank, reserves are transferred to the custody of the bank, along with the deposit of bank credit money (at least in principle).� We have a dual monetary system, in which reserves tag along after retail deposits.� Banks need those reserves as a requirement for carrying out their business.� It can be argued that the banks own the reserves which tag along in this way, however I don't think it can be legitimately argued that banks own the bank credit money -- notwithstanding that (or perhaps because) they create the stuff.� The reason being that the payments system would be unworkable if it were otherwise.

John Hermann


On 20/06/2012 4:17 AM, Terry Hammonds wrote:

Banks owning customer deposits is one of the hardest concepts for people to accept. We tend to think of the bank as a warehouse that simply stores our money for us. If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free.

Sent from my iPad

On Jun 19, 2012, at 12:54 PM, "Jean Erick" <jean...@sbcglobal.net> wrote:

���� When you deposit money in a bank, legal title transfers to the bank.� It is their money.� You have lent them the money.

"I'd rather owe it to you all my life than cheat you out of it."

�

James

----- Original Message -----

From: Terry Hammonds

To: understan...@googlegroups.com

Sent: Friday, June 15, 2012 2:17 PM

Subject: Re: Where does lost money go?

�

I heard Jamie Diamon say that J.P. Morgan took possession of customer "deposits" when they took over Wa Mu during the financial crisis. The money was sitting around idle and they decided to "invest" it and hat is what they lost,� It sounds like that cash was no longer depositor's money, it was just given to J. p. Morgan as a gift to do with what they wanted�� Does that sound right? Did FDIC pay off Wa Mu depositors,pass the liabilities to taxpayers and give the cash assets away? Those deposits should have gone into the chartered bank section of J.P.Morgan and remained customer deposits,

Sent from my iPad

On Jun 15, 2012, at 3:57 PM, George Chandler <lante...@gmail.com> wrote:

Hummel wrote: "All deposits up to a specified dollar value are covered by the FDIC."

How does a giant bank comglomerate keep FDIC deposits separate from other deposits? For example when Chase says 'no depositors' money was invloved'. How can the comglomerate keep the money separate so we can be sure this is true?

On Fri, Jun 15, 2012 at 11:44 AM, William Hummel <wfhu...@ca.rr.com> wrote:

Only a chartered bank can accept deposits.� All deposits up to a specified dollar value are covered by the FDIC.

----- Original Message -----

From: George Chandler

To: understan...@googlegroups.com

Sent: Friday, June 15, 2012 10:30 AM

Subject: Re: Where does lost money go?

�

Hummel wrote: "...JP Morgan, a chartered bank whose deposits are covered by FDIC".

JP Morgan is not just a bank. They are one of those biggie, combinations of bank, investment bank and stock broker. Some of their deposits are covered by FDIC, some not.

�

On Fri, Jun 15, 2012 at 8:25 AM, William F Hummel <wfhu...@ca.rr.com> wrote:

The winners were hedge funds. They don't take retirement money. To play with them you need at least one million to gamble with.� So we have JP Morgan, a chartered bank whose deposits are covered by FDIC, and whose losses are implicitly covered by tax payers for being too-big-to-fail, and you don't see anything bad about that?

On Thu, Jun 14, 2012 at 9:23 PM, Jim Blair <jeb...@wisc.edu> wrote:

Hi,

So Morgan Chase's loss is a gain for other investment banks.� How is that bad for the overall economy?� If your retirement money is in Morgan Chase, bad for YOU.� But if your retirement money is with the winners of this $2 billion, GOOD for you.� And how do we know if those winners are putting their money into better or worse projects than Morgan Chase?

What was disappointing to me about this was that only the "loss" was mentioned, with no discussion of who gained, and no attempt to evaluate the overall effect.�� No attempt to balance the loss and gains, as if the gains didn't even exist.�

On 6/14/2012 7:22 PM, Terry Hammonds wrote:

The way I understand it, it works like a hors race. If you lose $200 betting horse "A"� wins, but it comes in last,� others get the money who bet against "A" and won. Other groups at the financial racetrack got a share of the $2 billion depending on how much they had in the betting pool. It is not like a poker game where there is one winner and one loser. J.P. Morgan still does not know how much was actually lost, it could be as much as six billion. Apparently, J.P. Morgan had billions they got in deposits when they took over WaMu. Those assets were idle and somebody decided to "invest" them. Instead of investing in infrastructure or other endeavors that could be of value to the national economy, they did what big financials do today, they went to the betting window, threw down their cash in a complicated default swap or derivative deal hoping to win big for themselves and "lost" it to others betting against them. In the old days financial institutions invested that kind of money in grand projects, like the Panama canal or rail roads, something that would benefit the economy while returning a reasonable profit to shareholders. Today they are only interested in their own wealth. Mr. John Pierpont Morgan invested his time and money in things like consolidating several electric companies into General Electric and merging several small steel companies into The United States Steel Corporation, just to mention two of his successes, Today's J.P. Morgan Company is a disgrace to John Pierpont Morgans legacy.

Sent from my iPad

On Jun 14, 2012, at 5:05 PM, Jim Blair <jeb...@wisc.edu> wrote:

=

Hi,

J. P. Morgan Chase bank is said to have "lost"� $2 billion.� Where did it go?�

If Chase "lost" it, does that means someone else (some other banks) "found it?� It was said they lost it in trades made with other banks, so is their loss a gain for their trading partners?�

Or is this like the several billion that Mark Zuckerberg "lost" when facebook stock dropped in price?� Money that never actually existed, but was the difference between the predicted price of facebook stock,� and the actual selling price when it was put on the market.?

Just wondering,

Jim

�

�

=

[helge nome]

And as the system is anchored in the human psyche, we end up inside our own heads in the end!

Helge

---

Date: Thu, 28 Jun 2012 23:01:58 -0400
From: tech_a...@verizon.net

To: understan...@googlegroups.com
Subject: Re: Where does lost money go?

Poetically the rules bend the system. Or more descriptively, unstable credit is a feature of the system even when everyone plays by the rules.

Joe

On 6/28/2012 10:57 PM, helge nome wrote:

Why not look at it this way: The central banks track all transactions between banks that are members of the system and enforce certain agreed upon rules of the game.
We are just dealing with numbers, and their expansion or contraction within the framework of rules.
Using the term "money" tends to confuse things because of all the baggage of association attached to that term.

As long as the members of the system play by the rules, the system works reasonably well.
When the rules are bent, the system goes into hiccup mode, resulting in the non-availability of credit for worthy projects.

Helge

---

Date: Fri, 29 Jun 2012 11:44:56 +0930
From: her...@picknowl.com.au
To: understan...@googlegroups.com
Subject: Re: Where does lost money go?

No, it does not.   In principle the reserves (exchange settlement funds) tag along after the deposits.   We have a dual monetary system, which is embodied in (a) the money supply (that is, money used by the public), and (b) reserves (a form of money used only within the financial system).  Banks purchase government securities using reserves, but they never use bank credit money for this purpose.  The reason being that, as creators and destroyers of bank credit money, banks have no need for the stuff themselves.  In my opinion this is an insane way to operate a monetary system -- better to operate a system in which there are effectively no reserves.

Money supply = creditary retail deposits plus currency held by the private nonbank sector
Reserves = bank deposits in the central bank plus currency held by banks
 

The fact is that the money supply never actually mixes with reserves.  They are like oil and water.  When a bank depositor withdraws money from his/her account in the form of cash (currency), all that happens is a reduction in the account together with a commensurate reduction in the bank's stock of reserves.  The money supply does not change, and the bank's overall capital (net worth) does not change.  Even though the currency involved (coins and notes) can be said to undergo a transubstantiation during this operation, it is not correct to infer that there has been a transubstantiation of reserves into a different form of money (the money supply).

William previously made the point that the loss of bank reserves in this operation effectively will be made up by the central bank in its management of monetary policy, however I would argue that this is an after the fact arrangement (entailing very considerable time lag) which is at the discretion of the central bank.  It seems to me that it is wrong to suggest that there is a necessary or inevitable conversion of reserves into a different form of money. 

John Hermann

On 29/06/2012 5:49 AM, Tom Paine II wrote:

But when such a deposit is results into an interbank transfer of those funds, doesn’t it transubstantiate into HPM, essentially equivalent to cash/reserves?

 

 

 

From: John Hermann

Sent: Thursday, June 28, 2012 7:01 AM

To: understan...@googlegroups.com

Subject: Re: Where does lost money go?

 

James, I have to disagree with you.  Deposits are not reserves.   Deposits consist of bank credit money, created by commercial depositories (banks and thrifts).   Reserves are base money, created by the central bank (in cooperation with government).
John Hermann


From: jean...@sbcglobal.net

To: understan...@googlegroups.com
Subject: Re: Where does lost money go?
Date: Sat, 23 Jun 2012 17:11:14 -0700

     Owner ship and possession transfers with the deposit.

"res title" goes with it to the bank.

    Reserves don't follow deposits, I think deposits are reserves.

The bank owns the deposits, which are reserves.

 

     Under your accounting, the bank would have twice as much as it does.

 

James

 

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, June 19, 2012 5:43 PM

Subject: Re: Where does lost money go?

 

Terry said: "If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free". Interesting that in making his argument, Terry referred to "our money", not the "bank's money".  You cannot have it both ways to suit your argument Terry.  But in any case, commercial banks do not hold "your" bank credit money for free.  When you make a deposit with a bank, reserves are transferred to the custody of the bank, along with the deposit of bank credit money (at least in principle).  We have a dual monetary system, in which reserves tag along after retail deposits.  Banks need those reserves as a requirement for carrying out their business.  It can be argued that the banks own the reserves which tag along in this way, however I don't think it can be legitimately argued that banks own the bank credit money -- notwithstanding that (or perhaps because) they create the stuff.  The reason being that the payments system would be unworkable if it were otherwise.

John Hermann

On 20/06/2012 4:17 AM, Terry Hammonds wrote:

Banks owning customer deposits is one of the hardest concepts for people to accept. We tend to think of the bank as a warehouse that simply stores our money for us. If we get a storage unit for our excess stuff, we expect to pay rent for it, yet we expect banks to hold our money for free.

Sent from my iPad

On Jun 19, 2012, at 12:54 PM, "Jean Erick" <jean...@sbcglobal.net> wrote:

     When you deposit money in a bank, legal title transfers to the bank.  It is their money.  You have lent them the money.

"I'd rather owe it to you all my life than cheat you out of it."

 

James

----- Original Message -----

From: Terry Hammonds

To: understan...@googlegroups.com

Sent: Friday, June 15, 2012 2:17 PM

Subject: Re: Where does lost money go?

 

I heard Jamie Diamon say that J.P. Morgan took possession of customer "deposits" when they took over Wa Mu during the financial crisis. The money was sitting around idle and they decided to "invest" it and hat is what they lost,  It sounds like that cash was no longer depositor's money, it was just given to J. p. Morgan as a gift to do with what they wanted   Does that sound right? Did FDIC pay off Wa Mu depositors,pass the liabilities to taxpayers and give the cash assets away? Those deposits should have gone into the chartered bank section of J.P.Morgan and remained customer deposits,

Sent from my iPad

On Jun 15, 2012, at 3:57 PM, George Chandler <lante...@gmail.com> wrote:

Hummel wrote: "All deposits up to a specified dollar value are covered by the FDIC."

How does a giant bank comglomerate keep FDIC deposits separate from other deposits? For example when Chase says 'no depositors' money was invloved'. How can the comglomerate keep the money separate so we can be sure this is true?

On Fri, Jun 15, 2012 at 11:44 AM, William Hummel <wfhu...@ca.rr.com> wrote:

Only a chartered bank can accept deposits.  All deposits up to a specified dollar value are covered by the FDIC.

----- Original Message -----

From: George Chandler

To: understan...@googlegroups.com

Sent: Friday, June 15, 2012 10:30 AM

Subject: Re: Where does lost money go?

 

Hummel wrote: "...JP Morgan, a chartered bank whose deposits are covered by FDIC".

JP Morgan is not just a bank. They are one of those biggie, combinations of bank, investment bank and stock broker. Some of their deposits are covered by FDIC, some not.

 

On Fri, Jun 15, 2012 at 8:25 AM, William F Hummel <wfhu...@ca.rr.com> wrote:

The winners were hedge funds. They don't take retirement money. To play with them you need at least one million to gamble with.  So we have JP Morgan, a chartered bank whose deposits are covered by FDIC, and whose losses are implicitly covered by tax payers for being too-big-to-fail, and you don't see anything bad about that?

On Thu, Jun 14, 2012 at 9:23 PM, Jim Blair <jeb...@wisc.edu> wrote:

Hi,

So Morgan Chase's loss is a gain for other investment banks.  How is that bad for the overall economy?  If your retirement money is in Morgan Chase, bad for YOU.  But if your retirement money is with the winners of this $2 billion, GOOD for you.  And how do we know if those winners are putting their money into better or worse projects than Morgan Chase?

What was disappointing to me about this was that only the "loss" was mentioned, with no discussion of who gained, and no attempt to evaluate the overall effect.   No attempt to balance the loss and gains, as if the gains didn't even exist. 

On 6/14/2012 7:22 PM, Terry Hammonds wrote:

The way I understand it, it works like a hors race. If you lose $200 betting horse "A"  wins, but it comes in last,  others get the money who bet against "A" and won. Other groups at the financial racetrack got a share of the $2 billion depending on how much they had in the betting pool. It is not like a poker game where there is one winner and one loser. J.P. Morgan still does not know how much was actually lost, it could be as much as six billion. Apparently, J.P. Morgan had billions they got in deposits when they took over WaMu. Those assets were idle and somebody decided to "invest" them. Instead of investing in infrastructure or other endeavors that could be of value to the national economy, they did what big financials do today, they went to the betting window, threw down their cash in a complicated default swap or derivative deal hoping to win big for themselves and "lost" it to others betting against them. In the old days financial institutions invested that kind of money in grand projects, like the Panama canal or rail roads, something that would benefit the economy while returning a reasonable profit to shareholders. Today they are only interested in their own wealth. Mr. John Pierpont Morgan invested his time and money in things like consolidating several electric companies into General Electric and merging several small steel companies into The United States Steel Corporation, just to mention two of his successes, Today's J.P. Morgan Company is a disgrace to John Pierpont Morgans legacy.

Sent from my iPad

On Jun 14, 2012, at 5:05 PM, Jim Blair <jeb...@wisc.edu> wrote:

=

Hi,

J. P. Morgan Chase bank is said to have "lost"  $2 billion.  Where did it go? 

If Chase "lost" it, does that means someone else (some other banks) "found it?  It was said they lost it in trades made with other banks, so is their loss a gain for their trading partners? 

Or is this like the several billion that Mark Zuckerberg "lost" when facebook stock dropped in price?  Money that never actually existed, but was the difference between the predicted price of facebook stock,  and the actual selling price when it was put on the market.?

Just wondering,

Jim

 

 

=

[Tom Paine II]

Thanks for the conceptual elaboration.  I’m repeating what I read, and what I read was that interbank deposit transfers (payments, I suppose) are received as though the equivalent of a cash (high powered money).

[Tom Paine II]

I agree entirely.   I don’t want to equivocate re labeling, that’s self defeating.  Apply the accounting as is.  The Fed’s account is not a government account, that’s the rule.

[John Hermann]

Yes Tom, it is true that in any such transfer of credit money between retail accounts, an equal quantity of reserves are transferred (in principle) between exchange settlement accounts at the central bank.
John Hermann

[Jean Erick]

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

[Jean Erick]

     Well, the basic system says that banks create money but the actuality is they create debt.

But, if you don't make a distinction between something that everybody wants and something nobody wants, what can you say about

that degree of denial (or mis education of the public).  What can you say about people who refuse to make the distinction

between something that liberates and something that indentures?  Between freedom and slavery?

Consensus reality.  The sane man is insane.

     But then, as it's always been this way, would it be any better different?

     It's really a crazy world out there.

 

James

----- Original Message -----

From: Tom Paine II

To: understan...@googlegroups.com

[Jean Erick]

     Money is an intangible concept.  What we know of as money, coins, currency, records of money manifested as magnetic domains on hard drives,

are IMHO, tangible expressions of the primary intangibility.

[Jean Erick]

     Or, our heads up some where they shouldn't be.

[Jean Erick]

    My position on this is that "high powered money" is a misnomer in that it implies that there is a low powered money.  The low powered money is the "money" created by bank loans.  But, again IMHO, banks do not create nor loan money.  They authorize claims, drawing rights on money.

     Additionally, this is not always for a bad reason.  People who understand something may use analogies amoung themselves that make no sence

to somebody who doesn't know the rules (like me).

     I think Shroedinger's cat is the same thing in physics..  A poor analogy sufficient for those HE talked with.  A terrible one to be used as a supposed

teaching aid for the populace.

 

James

----- Original Message -----

From: Tom Paine II

To: understan...@googlegroups.com

Sent: Thursday, June 28, 2012 11:28 PM

Subject: Re: Where does lost money go?

Thanks for the conceptual elaboration.  I’m repeating what I read, and what I read was that interbank deposit transfers (payments, I suppose) are received as though the equivalent of a cash (high powered money).

[John Hermann]

My response is in brown color.   John Hermann

On 1/07/2012 1:05 AM, Jean Erick wrote:

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money).

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

Incorrect.  A deposit is owned by the depositor, but reserves are owned by the bank.

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Saturday, June 30, 2012 7:36 PM

Subject: Re: Where does lost money go?

My response is in brown color.   John Hermann

On 1/07/2012 1:05 AM, Jean Erick wrote:

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money).

                 I suggest that the presence of personal checking account deposits and savings deposits demonstrates

                 that your statement is incorrect.

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

Incorrect.  A deposit is owned by the depositor, but reserves are owned by the bank.

      Perhaps in Austrialia.  Here, as we've discussed before, the "res title" transfers instantly to the bank with the deposit.

      The bank now posseses and owns the money and owes the same amount to the depositor.  It is not a "bailment".

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.

  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

James

[John Hermann]

My responses are in red color.   John Hermann.

On 4/07/2012 2:18 AM, Jean Erick wrote:

My response is in brown color.   John Hermann
On 1/07/2012 1:05 AM, Jean Erick wrote:

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money).

                 I suggest that the presence of personal checking account deposits and savings deposits demonstrates

                 that your statement is incorrect.

All retail deposits, without exception (including interest-bearing deposits), are comprised of bank credit money.
Only interbank deposits are different in this respect.

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

Incorrect.  A deposit is owned by the depositor, but reserves are owned by the bank.

      Perhaps in Austrialia.  Here, as we've discussed before, the "res title" transfers instantly to the bank with the deposit.
      The bank now posseses and owns the money and owes the same amount to the depositor.  It is not a "bailment".

Lets put aside the legal argument for the moment.  The proof of the pudding is in the eating.   If deposits were
owned by the bank, then the bank would be able to do anything it wanted with that money, including on-lending it. 
Such on-lending never occurs in practice.  I wonder why that is so.

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

It is not the same money.  It is a different form of money (call it fiat money, or base money).

[John Hermann]

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

It is not the same money.  It is a different form of money.


The essential reason why reserves and deposits are different entities (i.e., are different forms of money) -- even though
they are either created as pairs when government spends or associate as pairs when monetary transactions occur -- is
that reserves are bank assets whereas deposits are bank liabilities. 

An entity cannot be both an asset and a liability to the same bank at the same time. That is a logical impossibility.

John Hermann

[John Hermann]

Moreover, there are several lines of evidence which demonstrate that deposits and reserves behave independently of each other, notwithstanding their obvious association. One example being the empirical study of Kydland and Prescott (Nobel laureates in economics, no less), Business cycles: real facts and a monetary myth, Federal Reserve Bank of Minneapolis Quarterly Review, Spring 1990. Their conclusion was:

" There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly. (p. 11)

The difference in the behavior of M1 and M2 suggests that the difference of these aggregates (M2 minus M1) should be considered. The difference of M2 - M1 leads the cycle by even more than M2, with the lead being about three quarters. (p. 12) "

Thus rather than bank credit money being created with a lag after government money, the data shows that bank credit money is created first, up to a year before there are changes in base money. This contradicts the money multiplier model of how credit and debt are created: rather than base money being needed to “seed” the credit creation process, bank credit money is created first and then, after that, the level of base money (which is overwhelmingly reserves) changes in response. 

This also happens to be evidence in support of the endogenous theory of money creation.  Banks create credit money out of nothing in response to the demand of the private (nonbank) sector for credit funding, and without any thought for the reserves.  Only at a later stage do they look for the reserves.  If the central bank’s monetary policy is being adequately implemented, then there should not be a shortage of reserves across the entire banking system for the purpose of accommodating this requirement (and in the last resort, reserve funds may be borrowed from the central bank itself).

John Hermann

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, July 03, 2012 10:37 PM

Subject: Re: Where does lost money go?

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

     Companies, including banks, usually attain assets with concurent liabilites.  They buy a factory with borrowed money.

     I don't know exactly how the accounting is done but  the bank has gained the asset of reserves with the concurrent liability of

    of deposits.  Remember, it's a DOUBLE entry system.  It's the same entity, you just call it different according to which accounting sheet you're using and which side of the sheet it goes on.

 

James

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Wednesday, July 04, 2012 1:33 AM

Subject: Re: Where does lost money go?

On 4/07/2012 3:07 PM, John Hermann wrote:

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

It is not the same money.  It is a different form of money.

The essential reason why reserves and deposits are different entities (i.e., are different forms of money) -- even though
they are either created as pairs when government spends or associate as pairs when monetary transactions occur -- is
that reserves are bank assets whereas deposits are bank liabilities. 

An entity cannot be both an asset and a liability to the same bank at the same time. That is a logical impossibility.

John Hermann

Moreover, there are several lines of evidence which demonstrate that deposits and reserves behave independently of each other,

 

     This reminds me of how excited I was when I first read an explanation for conciousness as being like a flashlight being shined on a part of the brain.  The unighted

portion being the "unconcious".   I see a confusion here the same as that between money and debt.  The entity is the "money" .  Debt is something you do

with money.  Of course "reserves" and "deposits" might behave independantly or otherwise,  They are different "doings" of the same entity.

     Do you want to walk your body to the store or run it there?  Same entity, different acitivty with it.

 

 notwithstanding their obvious association. One example being the empirical study of Kydland and Prescott (Nobel laureates in economics, no less), Business cycles: real facts and a monetary myth, Federal Reserve Bank of Minneapolis Quarterly Review, Spring 1990. Their conclusion was:

" There is no evidence that either the monetary base or M1 leads the cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the cycle slightly. (p. 11)

The difference in the behavior of M1 and M2 suggests that the difference of these aggregates (M2 minus M1) should be considered. The difference of M2 - M1 leads the cycle by even more than M2, with the lead being about three quarters. (p. 12) "

Thus rather than bank credit money being created with a lag after government money, the data shows that bank credit money is created first, up to a year before there are changes in base money. This contradicts the money multiplier model of how credit and debt are created: rather than base money being needed to “seed” the credit creation process, bank credit money is created first and then, after that, the level of base money (which is overwhelmingly reserves) changes in response. 

This also happens to be evidence in support of the endogenous theory of money creation.  Banks create credit money out of nothing in response to the demand of the private (nonbank) sector for credit funding, and without any thought for the reserves.  Only at a later stage do they look for the reserves.  If the central bank’s monetary policy is being adequately implemented, then there should not be a shortage of reserves across the entire banking system for the purpose of accommodating this requirement (and in the last resort, reserve funds may be borrowed from the central bank itself).

      I think the same mistake is made on many economic issues.  That of thinking there is only one way and one situation which may operate.

A plan for one situation may be wrong for another situation.  Normally, it would have been considered diastrously inflationary to suddenly

create a trillion dollars of reserves.  In our present situation, it was considered appropriate.

     As I have posted before, I reject the explanation that banks create "money".  They serially lend some money and also create debt,

drawing power on money.  Yes, practically it is money.  But it is not money and that is revealed during a credit squeeze.  To much debt

chasing to little money.

 

James

 

 

John Hermann

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, July 03, 2012 6:47 PM

Subject: Re: Where does lost money go?

My responses are in red color.   John Hermann.

On 4/07/2012 2:18 AM, Jean Erick wrote:
My response is in brown color.   John Hermann
On 1/07/2012 1:05 AM, Jean Erick wrote:

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money).

                 I suggest that the presence of personal checking account deposits and savings deposits demonstrates

                 that your statement is incorrect.

All retail deposits, without exception (including interest-bearing deposits), are comprised of bank credit money.
Only interbank deposits are different in this respect.

 

           I understand bank credit money to be that which is created when loans are made, when the bank puts the "money"

           into the clients account.  I do not see the accounts created by the person putting money into their account as

           bank credit money.  I guess that is the point of our disagreement.

           I have posited that bank loans are a combination of the serial lending of some money, combined with the authorizing

          of drawing rights on the general pool of money.  This has a perfect logical correlation with the "musical chairs"

          aspect of a tightening credit situation.  The "taste" of the pudding.  Serial lending does not increase the amount of money.

          It transfers money with the tally of debt increasing with each transfer.  Drawing rights on the general pool, authorized via

          banks loans are not a lending or creation of money.  They are a pure creation of debt.

          Money is a direct draw on goods, debt a direct draw on money.

 

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

Incorrect.  A deposit is owned by the depositor, but reserves are owned by the bank.

      Perhaps in Austrialia.  Here, as we've discussed before, the "res title" transfers instantly to the bank with the deposit.
      The bank now posseses and owns the money and owes the same amount to the depositor.  It is not a "bailment".

Lets put aside the legal argument for the moment.  The proof of the pudding is in the eating.   If deposits were
owned by the bank, then the bank would be able to do anything it wanted with that money, including on-lending it. 
Such on-lending never occurs in practice.  I wonder why that is so.

     I don't know what "on lending" means.  But the banking business has rules that it must follow because it is a bank.  It cannot do

"anything" it wants with the money.  Practical situations of theft, engaging in bubbles, etc, excepted.

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

It is not the same money.  It is a different form of money (call it fiat money, or base money).

     It is the same money, called by different names (fiat money, base money, deposits).  Form is irrelvant.

     FYI, I call it money.  I am attempting to make a strong distinction, conceptually, between money and debt.

[John Hermann]

Hi James,  My further responses are in green color.     John Hermann

On 6/07/2012 2:16 AM, Jean Erick wrote:
My responses are in red color.   John Hermann.

On 4/07/2012 2:18 AM, Jean Erick wrote:
My response is in brown color.   John Hermann
On 1/07/2012 1:05 AM, Jean Erick wrote:

     The word "deposits" is part of the problem because it includes both money that the account holder has put into the account AND

the funds you mention.  We were talking about the former.

I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money).

                 I suggest that the presence of personal checking account deposits and savings deposits demonstrates

                 that your statement is incorrect.

All retail deposits, without exception (including interest-bearing deposits), are comprised of bank credit money.
Only interbank deposits are different in this respect.

 

           I understand bank credit money to be that which is created when loans are made, when the bank puts the "money"

           into the clients account.  I do not see the accounts created by the person putting money into their account as

           bank credit money.  I guess that is the point of our disagreement.

Lets examine the ways by which such a transfer of money into a account occurs. There are two possible
mechanisms.

1. John Smith walks into a bank with a bag full of cash (currency) and requests that a deposit be made in
    his account. The bank staff accepts his cash, and upon receipt the coins and notes cease to be part of
    the money supply and become part of the bank's stock of reserves. At the same time an entry is made in
    John's account and this amounts to creation by the bank of new bank credit money. The money supply
    is unchanged (money supply = retail bank deposits plus currency held by the public), the bank's reserves
    have increased, and bank capital (net worth) is unchanged because there has been an equal increase in
    a bank asset and a bank liability

2. Mary Brown decides to make a payment to John Smith, and sends him a check drawn on her bank
    (it could also be an electronic transfer with his agreement, instead of a check). When John presents the
    check to his bank several things happen. Mary's account is reduced by that amount (bank credit money is
    destroyed) and John's account is increased by the same amount (bank credit money is created). At a later
    stage (i.e., not simultaneously with these operations) the central bank transfers reserves - actually in this
    case the creditary form of reserves known as exchange settlement funds - from Mary's bank to John's bank.
    The reserves transfer occurs between the respective accounts of these banks with the central bank.

           I have posited that bank loans are a combination of the serial lending of some money, combined with the authorizing

          of drawing rights on the general pool of money.  This has a perfect logical correlation with the "musical chairs"

          aspect of a tightening credit situation.  The "taste" of the pudding.  Serial lending does not increase the amount of money.

          It transfers money with the tally of debt increasing with each transfer.  Drawing rights on the general pool, authorized via

          banks loans are not a lending or creation of money.  They are a pure creation of debt.

          Money is a direct draw on goods, debt a direct draw on money.

 

     I am not absolutely sure but I think when people put "their" money into a bank as a deposit, it is then part of the banks reserves.

Incorrect.  A deposit is owned by the depositor, but reserves are owned by the bank.

      Perhaps in Austrialia.  Here, as we've discussed before, the "res title" transfers instantly to the bank with the deposit.
      The bank now posseses and owns the money and owes the same amount to the depositor.  It is not a "bailment".

Lets put aside the legal argument for the moment.  The proof of the pudding is in the eating.   If deposits were
owned by the bank, then the bank would be able to do anything it wanted with that money, including on-lending it. 
Such on-lending never occurs in practice.  I wonder why that is so.

     I don't know what "on lending" means.  But the banking business has rules that it must follow because it is a bank.  It cannot do

"anything" it wants with the money.  Practical situations of theft, engaging in bubbles, etc, excepted.

"On-lending" is what finance companies engage in.  They borrow money at one interest rate and lend it
out at another interest rate, making a profit from the interest margin.

The more money people deposit into the bank the more credit they can create but, in turn, tied to reservere requirements.  So, I assume

they must be reserves.  And if you use a check, reserves are moved.

An association between two entities does not imply that they are identical.  The simple fact is that retail bank
deposits are regarded - and accounted - by the central monetary authority (the FED) as forming part of the money
supply.  Reserves are never accounted as forming part of the money supply.

     Yes, reserves are not counted.   Because if you counted the reserves you would be counting the same money twice.

It is not the same money.  It is a different form of money (call it fiat money, or base money).

     It is the same money, called by different names (fiat money, base money, deposits).  Form is irrelvant.

     FYI, I call it money.  I am attempting to make a strong distinction, conceptually, between money and debt.

The essential reason why reserves and deposits are different entities (i.e., are different forms of money) -- even though
they are either created as pairs when government spends or associate as pairs when monetary transactions occur -- is
that reserves are bank assets whereas deposits are bank liabilities.

An entity cannot be both an asset and a liability to the same bank at the same time. That is a logical impossibility.

Moreover, there are several lines of evidence which demonstrate that deposits and reserves behave

independently of each other, notwithstanding their obvious association. One example being the

[Tom Paine II]

I’m entirely with you on the nomenclature purity...I try to keep it fixed in my mind, while adopting others’ uses to ease communications.

[Tom Paine II]

An entity cannot be both an asset and a liability to the same bank at the same time. That is a logical impossibility.

John Hermann

 

 

What about the Fed’s assets? 

Isn’t the prevalent theory that the Fed’s assets are government assets, as well as government liabilities?

 

I agree—such duplicity is BS (until money becomes entangled quantum dots).

[John Hermann]

An interesting question.  I used the word "bank" to mean a commercial bank.  It can be argued that the U.S. FED, a very unusual structure by historical standards -- that is, a conglomerate of 12 private banks which has been given the responsibility of operating as a central bank -- works with two hats whose functions necessarily must be demarcated. 

The (very debatable) MMT story is that Central Bank and Treasury are required to work in harness, and that therefore they collectively operate as the economic driver of "consolidated government".  If one holds this view, then indeed a government asset can coincide with a government liability.  There are at least three reasons for treating this story with scepticism: (a) it is not held to be a correct representation of reality by many informed people who accept MMT's other propositions and insights as valid, (b) the government sector is quite different to the banking sector, and (c) in any case it can be argued that the concept of financial assets and liabilities do not apply to the creator of the nation's currency.

John Hermann

[Jean Erick]

     Ah, progress.  Our point of disagreement has been further defined.

     I think that your defintion of "bank credit money" is incorrect.  You state that the deposit itself is bank credit money.  I understand that bank credit money

 does not exist until a loan has been made.  The creation of the loan deposit account is the creation of bank credit money.  I think we agree that the loan

is based on the deposit.

     "Modern Money Mechanics" talks about the loan creation of money and how it takes a second or third loan, from different banks to result in the creation.

      This matches with my own developed view, that bank loans are a combination of the serial intermediary lending of money combined with outright creation of debt.

IMHO, money is not created thereby.  Some money is lent, a greater amount of debt is created.  But debt is a direct draw on money so it can act as money.

 

James

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Thursday, July 05, 2012 8:01 PM

Subject: Re: Where does lost money go?

[Jean Erick]

     First, we take over the fourm.  And then ...... the woild.  ;-)

Thanks.

 

James

----- Original Message -----

From: Tom Paine II

To: understan...@googlegroups.com

Sent: Friday, July 06, 2012 1:54 AM

Subject: Re: Where does lost money go?

I’m entirely with you on the nomenclature purity...I try to keep it fixed in my mind, while adopting others’ uses to ease communications.

[John Hermann]

Hi James,  my further comments are in brown color.   John Hermann.

On 9/07/2012 12:27 AM, Jean Erick wrote:

     Ah, progress.  Our point of disagreement has been further defined.

     I think that your definition of "bank credit money" is incorrect.  You state that the deposit itself is bank credit money. 

Its not simply my definition James.  Retail deposits are recognized and accounted by the FED (along with all other central banks) as being part of the money supply, M1.

I understand that bank credit money does not exist until a loan has been made. 

Not necessarily.  Retail banking loans are only one source of bank credit money.  The other two sources are spending by commercial banks and spending by a sovereign government.

The creation of the loan deposit account is the creation of bank credit money.  I think we agree that the loan is based on the deposit.

     "Modern Money Mechanics" talks about the loan creation of money and how it takes a second or third loan, from different banks to result in the creation.

Modern Money mechanics is a very out of date account, and now a misleading source, on the subject of money creation.  It has been increasingly so since the 1970s.  The main reason being that it describes an outdated account of money creation that is still believed by many neoclassical economists -- that is, the money multiplier theory of money creation.  However it is recognized by those who really understand modern banking that modern commercial banks do not advance loans on the basis of the reserves immediately available to them.

      This matches with my own developed view, that bank loans are a combination of the serial intermediary lending of money combined with outright creation of debt.

One should make a distinction between retail lending and wholesale lending. Retail lending (i.e., lending to the public and non-bank businesses) involves the creation of new debt and new bank credit money.  Wholesale operations have to do with borrowing and lending of reserves between banking institutions.

IMHO, money is not created thereby. 

Your opinion seems to be based on a misconception of how modern banking works.

Some money is lent, a greater amount of debt is created.  But debt is a direct draw on money so it can act as money.

 

----- Original Message -----

[John Hermann]

A quick scan of the web using Google reveals that there exists a
widespread set of spurious beliefs held by a variety of economic
commentators.  In particular it is held by them that (a) retail deposits
are not money, and (b) retail deposits are "owned" by the depository
and not by the depositor. 

Both of these beliefs are wrong, and are based on misconceptions
about how modern monetary systems operate.  Money is anything,
tangible or not, which is widely accepted and used for economic
transactions, is acceptable to government for the payment of taxes,
ans is accounted by the central bank as forming part of the set of
national monetary aggregates.  Retail deposits fit easily into this
category and have always been regarded as forming the major part
of the aggregate M1. 

The belief that deposits are owned by the depository always seems
to ignore some simple facts.  These are that we have a payments
system which can only work if retail deposits are firmly demarcated
from all other forms of banking liability, and that in practice the
authorized depositories (banks, thrifts, credit unions) never on-lend
their retail deposits.  Clearly banks are not at liberty to use, at their
discretion, the deposits of their customers.  And if they attempted to
do so, they would be liable for prosecution on the grounds of theft.

John Hermann





 

[helge nome]

My understanding is that building societies and such, which are not chartered banks or credit unions, on-lend their depositors' money with the consent of same.
Chartered banks and credit unions, on the other hand, are authorized by law to issue loans based on reserves available which have some kind of relationship to the
amount of deposits on the bank's books, but is really money/assets legally owned by the bank/credit union.
The sneaky part of the system is that when the bank issues a loan, this sum also gets registered as a deposit in the borrower's account with the bank.
So, when you look at the bank's balance sheet at the end of the year, deposit amounts generally exceed loan amounts by a percentage,
making it look as if the bank is lending out some 90 % of its deposits keeping 10 % up the sleeve in case a depositor comes for his money.
That's what bankers would like us to believe, and many of them believe their own stories.

Helge

---

Date: Tue, 10 Jul 2012 11:47:04 +0930
From: her...@picknowl.com.au
To: understan...@googlegroups.com

Subject: Re: Where does lost money go?

[John Hermann]

On 10/07/2012 1:32 PM, helge nome wrote:

My understanding is that building societies and such, which are not chartered banks or credit unions, on-lend their depositors' money with the consent of same.
Chartered banks and credit unions, on the other hand, are authorized by law to issue loans based on reserves available which have some kind of relationship to the
amount of deposits on the bank's books, but is really money/assets legally owned by the bank/credit union.

I don't know whether this is the case in North America, however I do know that building societies in both the UK and Australia - along with chartered banks and credit
unions - are recognized as authorized depository institutions (ADIs), meaning they have a licence to create bank credit money out of nothing when they advance retail
loans.  And yes Helge, I agree that reserves are assets owned by authorized depositories, just as deposits are assets owned  by depositors.       John Hermann

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Sunday, July 08, 2012 6:07 PM

Subject: Re: Where does lost money go?

Hi James,  my further comments are in brown color.   John Hermann.


On 9/07/2012 12:27 AM, Jean Erick wrote:

     Ah, progress.  Our point of disagreement has been further defined.

     I think that your definition of "bank credit money" is incorrect.  You state that the deposit itself is bank credit money. 

Its not simply my definition James.  Retail deposits are recognized and accounted by the FED (along with all other central banks) as being part of the money supply, M1.

         So what?   You have mixed deposits again.  There are deposits (1) that are created by customers bringing money

into the bank (I will call these personal deposits) and there are deposits (2) created by the banks simply saying they

are there (creating loan deposits).

     I do not think (1) personal deposits are bank credit money.  I think they make up the basis for the creation of bank credit money

 that, itself, consists of loan (2) deposits.

I understand that bank credit money does not exist until a loan has been made. 

Not necessarily.  Retail banking loans are only one source of bank credit money.  The other two sources are spending by commercial banks and spending by a sovereign government.

     We agree.  Bank loans are bank credit money.  The only disagreement is with personal deposits.  I think it is incorrect

to call them bank credit money.  So far, you don't seem to recognize their existance.

The creation of the loan deposit account is the creation of bank credit money.  I think we agree that the loan is based on the deposit.

     "Modern Money Mechanics" talks about the loan creation of money and how it takes a second or third loan, from different banks to result in the creation.

Modern Money mechanics is a very out of date account, and now a misleading source, on the subject of money creation.  It has been increasingly so since the 1970s.  The main reason being that it describes an outdated account of money creation that is still believed by many neoclassical economists -- that is, the money multiplier theory of money creation.  However it is recognized by those who really understand modern banking that modern commercial banks do not advance loans on the basis of the reserves immediately available to them.

     It is out of date because (1) Banks recoup the reserves they need after the loan is made (2)  tell the half truth

"money is created", neglecting the whole truth that it is destroyed when the debt is paid off, thereby giving the impression

that money is permently created.   But that has nothing do do with (3) Describe it as dealing with money when the reality is that while some money is serially lent, not created, more debt is created (created account credit).

 

 

      This matches with my own developed view, that bank loans are a combination of the serial intermediary lending of money combined with outright creation of debt.

One should make a distinction between retail lending and wholesale lending. Retail lending (i.e., lending to the public and non-bank businesses) involves the creation of new debt and new bank credit money.  Wholesale operations have to do with borrowing and lending of reserves between banking institutions.

     Does not apply to the point.   Your stating that loan deposits are bank credit money is making most my point. 

    Loans are mostly "bank credit money" plus serially lended money.  But a personal deposit is not a loan deposit.

 And, I furthermore state that it is more accurately described as a combination of serially lended money and debt creation.

 

 

    

IMHO, money is not created thereby. 

Your opinion seems to be based on a misconception of how modern banking works.

     In order to have an understanding of something, you have to understand the elements of it.  The basic element

of banking is money, and then debt.  I am applying, in mistake or clarity, to the issue.  I am grateful to you for your attention to

it and your honest, forthright consideration of it.

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Monday, July 09, 2012 7:17 PM

Subject: Re: Where does lost money go?

A quick scan of the web using Google reveals that there exists a
widespread set of spurious beliefs held by a variety of economic
commentators.  In particular it is held by them that (a) retail deposits
are not money, and (b) retail deposits are "owned" by the depository
and not by the depositor. 

     Your use of the word "retail" derails the issues.  M1 talks about "deposits".

It does not distinguish between (I assume "retail" means those deposits created via the loan process) retail

deposits and th\ose deposits created by customers depositing their "money" into an account.

 

Both of these beliefs are wrong, and are based on misconceptions
about how modern monetary systems operate.  Money is anything,
tangible or not, which is widely accepted and used for economic
transactions, is acceptable to government for the payment of taxes,
ans is accounted by the central bank as forming part of the set of
national monetary aggregates.  Retail deposits fit easily into this
category and have always been regarded as forming the major part
of the aggregate M1. 

The belief that deposits are owned by the depository always seems
to ignore some simple facts. 

 

The paramount important fact of the law is not one of them.

 

These are that we have a payments
system which can only work if retail deposits are firmly demarcated
from all other forms of banking liability,

 

     Yes.  Exactly.  Bank asset loan deposits should be distinquished

from bank personal liabilty deposits.   But they are not.

 

James

[Jean Erick]

     I'm not absolutely sure about this but:

     Anything other than a bank can only do intermediary lending.  They can only lend money that they have

Banks can lend more then they have.  But this only operates with serveral lends involving several banks.

I think the accurate description is that banks lend a certain amount of money in serial intermediary fashion, the rest is pure debt creation.

     I think it's understand better if you look at money transfers and see if debt attachment is occuring or not.  the money runs around the track

and each lap increases debt.  As debt is a tally of the amount of a certain type of money transfer.  A tally of liabiliies attached.

     Banks can add liability above and beyond the amount of money transfer.

 

James

----- Original Message -----

From: helge nome

To: understan...@googlegroups.com

[John Hermann]

My further comments are in red color.   John Hermann.

On 12/07/2012 1:41 AM, Jean Erick wrote:

From: John Hermann

Hi James,  my further comments are in brown color.   John Hermann.

On 9/07/2012 12:27 AM, Jean Erick wrote:

     Ah, progress.  Our point of disagreement has been further defined.

     I think that your definition of "bank credit money" is incorrect.  You state that the deposit itself is bank credit money. 

Its not simply my definition James.  Retail deposits are recognized and accounted by the FED (along with all other central banks) as being part of the money supply, M1.

So what?   You have mixed deposits again.  There are deposits (1) that are created by customers bringing money into the bank (I will call these personal deposits) and there are deposits (2) created by the banks simply saying they

are there (creating loan deposits). 

Apart from the deposits you mentioned involving currency (cash) and deposits involving new loans, deposits are also created by commercial banks (3) when a sovereign government spends (e.g., when a check drawn on the FED is presented to a bank by the payee, and
(4) when a commercial bank spends.  These are all retail deposits. 

However there are also non-retail (wholesale) deposits, for example deposits by banks in other banks, deposits by banks in their own operating accounts, deposits by banks in the accounts with the central bank (FED), and Treasury deposits in the FED.

I do not think (1) personal deposits are bank credit money.  I think they make up the basis for the creation of bank credit money that, itself, consists of loan (2) deposits.

On the contrary, I would say that all retail deposits - by their nature - are composed of bank credit money and form part of the money supply, while the non-retail deposits (deposits by the financial system within the financial system) lie outside the money supply.

Deposits created when a customer brings currency (cash) into a bank are necessarily bank credit money as well. The simple reason being that when the coins and notes are handed over they cease to be part of the money supply and become part of the bank's stock of reserves. The bank is then legally obliged to create a creditary deposit to that amount in the customer's account -- thus ensuring that the money supply remains unchanged.

I understand that bank credit money does not exist until a loan has been made. 

Not necessarily.  Retail banking loans are only one source of bank credit money.  The other two sources are spending by commercial banks and spending by a sovereign government.

We agree.  Bank loans are bank credit money. 

No, only retail bank loans (loans to the public and to non-bank businesses) are bank credit money.  Banks also lend reserves to other banks (reserves are not bank credit money).

The only disagreement is with personal deposits.  I think it is incorrect to call them bank credit money.  So far, you don't seem to recognize their existance.

I have responded adequately to your issue on this point (see above).  Your confusion seems to arise in not understanding that cash handed over to a bank ceases to be part of the money supply.

The creation of the loan deposit account is the creation of bank credit money.  I think we agree that the loan is based on the deposit.

     "Modern Money Mechanics" talks about the loan creation of money and how it takes a second or third loan, from different banks to result in the creation.

Modern Money Mechanics is a very out of date account, and now a misleading source, on the subject of money creation.  It has been increasingly so since the 1970s.  The main reason being that it describes an outdated account of money creation that is still believed by many neoclassical economists -- that is, the money multiplier theory of money creation.  However it is recognized by those who really understand modern banking that modern commercial banks do not advance loans on the basis of the reserves immediately available to them.

[John Hermann]

On 12/07/2012 1:56 AM, Jean Erick wrote:

From: John Hermann

A quick scan of the web using Google reveals that there exists a

widespread set of erroneous beliefs held by a variety of economic

commentators.  In particular it is held by them that (a) retail deposits
are not money, and (b) retail deposits are "owned" by the depository
and not by the depositor. 

Your use of the word "retail" derails the issues.  M1 talks about "deposits". It does not distinguish between (I assume "retail" means those deposits created via the loan process) retail deposits and those deposits created by customers depositing their "money" into an account.

The word "retail" refers to business between the bank and its customers (the public and non-bank businesses).  Retail activity always refers to transactions involving the money supply.

JH

[Jean Erick]

     I have deleted a lot as I'm about to lose the context.

I have left the points at which I think we agree and disagree.

 

James

 

On the contrary, I would say that all retail deposits - by their nature - are composed of bank credit money and form part of the money supply, while the non-retail deposits (deposits by the financial system within the financial system) lie outside the money supply.

Deposits created when a customer brings currency (cash) into a bank are necessarily bank credit money as well. The simple reason being that when the coins and notes are handed over they cease to be part of the money supply and become part of the bank's stock of reserves. The bank is then legally obliged to create a creditary deposit to that amount in the customer's account -- thus ensuring that the money supply remains unchanged.

              I suspect that you are being confused by the concept of "retail".  "Retail" is used to reference money market funds

              in the definition of M2.  It is not even mentioned in M1 where "demand" and "checkable" deposits are noted.

 

             Your paragraph above states that currency deposited becomes bank credit money AND reserves.  Above that

             you state that bank credit money is part of the money supply.   It cannot be both reserves and  part of the

             money supply.

 

              My understanding is that reserves ("high powered money" is that which, through fractional reserve lending,

              supports the creation of bank credit (loan) money, and that creation is counted as part of M1.

 

              The loan process increases the amount of money in M1.   That increase indicates a vigourous economy and is

               desired as long as it doesn't go to far and "over heat" the economy.  Reserves are shifted from bank to bank

               but their aggragate amount remains stabile except relative to the buy/sell ratio in OMO.

We agree.  Bank loans are bank credit money. 

No, only retail bank loans (loans to the public and to non-bank businesses) are bank credit money.  Banks also lend reserves to other banks (reserves are not bank credit money).

 

                              Informative but irrelevent.  We agree that banks loans to the public are bank credit money.  "retail"

                              is irrelevent and only adds confusion to the discussion.

 

[John Hermann]

 Hi James,  my further responses are in green color.       John Hermann.

Deposits created when a customer brings currency (cash) into a bank are necessarily bank credit money as well. The simple reason being that when the coins and notes are handed over they cease to be part of the money supply and become part of the bank's stock of reserves. The bank is then legally obliged to create a creditary deposit to that amount in the customer's account -- thus ensuring that the money supply remains unchanged.

             Your paragraph above states that currency deposited becomes bank credit money AND reserves. 

No James, I did not say that.  Currency deposited in a bank is transformed into reserves.  The bank credit money is created (out of nothing) by the bank in response to that operation, and appears in the depositor's account.

             Above that  you state that bank credit money is part of the money supply.   It cannot be both reserves and  part of the money supply.

Correct.  There is no inconsistency. 

As I said previously, not all bank credit money is created from bank lending (which seems to be an idea fixated in your mind).

               My understanding is that reserves ("high powered money" is that which, through fractional reserve lending,

              supports the creation of bank credit (loan) money, and that creation is counted as part of M1.

Yes, but it does not need to be a consequence of bank lending.  The reserves -- newly created when currency is handed over to a bank -- "support" the bank credit money newly created by the bank in the customer's account.

You will also note that currency handed in to a bank results in an increase of M1.  That is, it leads to the creation of a demand deposit. 

The monetary aggregate M1 is not only increased by bank lending -- it is also increased by the creation of deposits arising from
(a) bank-acquired currency, (b) government spending and (c) bank spending.

               The loan process increases the amount of money in M1.  

So do several other processes.

[William Hummel]

From: John Hermann

To: understan...@googlegroups.com

Sent: Friday, July 13, 2012 7:54 PM

Subject: Re: Where does lost money go?

You will also note that currency handed in to a bank results in an increase of M1.  That is, it leads to the creation of a demand deposit. 

John, I don't think you meant this. M1 comprises circulating currency as well as demand deposits. Depositing circulating currency in a bank account causes no net change in M1.    William

[John Hermann]

Oops, yes you are right William.   Apologies for being misleading.   I meant that it leads to an increase in demand deposits.  Obviously M1 does not change.
John

[Joe Leote]

Prior to 2008, when Fed targets the fed funds rate on an interbank loan of reserve balances, and Fed services the persistent currency drain, it is clear the Nonbanks can increase the M1 money supply by forcing Fed to conduct open market operations. Fed purchases Treasury securities roughly equal to the amount of currency in circulation which means bank reserves and transaction account levels are isolated from changes due to withdrawals by Nonbanks.

The reverse logic should apply if Nonbanks were depositing currency back into banks persistently over time, Fed would reduce its holding of Treasury securities and cancel it liabilities in currency in circulation outside banks, the net result is that Nonbanks do have the ability to increase or decrease the M1 money supply indirectly because of the way Fed operates its balance sheet.

The details below are technically correct only for the Bank/Nonbank interaction, add in the Fed reaction while controlling the fed funds rate and reacting to levels of currency in circulation, and I conclude that Nonbanks do have the power to indirectly increase or decrease M1 in the long run due to coupled open market operations conducted by Fed.

Joe

[William Hummel]

This is quite true, but the increase or decrease in M1 is all in circulating currency rather than transaction deposits on which most of the economy runs. So I don't think the impact on the economy is of any real significance.

 

William   

[John Hermann]

Thanks for this interesting point Joe.  This relates to a previous discussion between myself and William, concerning whether it may be truly said that reserves are exchangeable (or interconvertible) with the money supply.  It depends on whether one is taking a short-term or a long-term perspective.  In regard to individual transactions (the short term) there is no exchange.  In regard to the operation of the monetary system as a whole (the long term viewpoint) it may be argued that there is exchangeability. 

The reasons for questioning whether reserves and M1 are exchangeable are that (a) intervention to add or drain reserves is dependent upon existing monetary policy settings and central bank targeting, and (b) the response of the central bank to any changes in the aggregates of currency deposits and withdrawals is reactive and delayed in time.

I agree with William that we are only discussing the fine tuning, however embedded in these operations and how they are interpreted are important issues about how the two forms of money used in the economy relate to each other.

John

[Jean Erick]

My reply is in black.

 

James

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Friday, July 13, 2012 7:54 PM

Subject: Re: Where does lost money go?

 Hi James,  my further responses are in green color.       John Hermann.

Deposits created when a customer brings currency (cash) into a bank are necessarily bank credit money as well. The simple reason being that when the coins and notes are handed over they cease to be part of the money supply and become part of the bank's stock of reserves. The bank is then legally obliged to create a creditary deposit to that amount in the customer's account -- thus ensuring that the money supply remains unchanged.

   

             Your paragraph above states that currency deposited becomes bank credit money AND reserves. 

No James, I did not say that.  Currency deposited in a bank is transformed into reserves.  The bank credit money is created (out of nothing) by the bank in response to that operation, and appears in the depositor's account.

-----------------------------------------
 

     The sentence immediately following this sentence is your statement that started this discussion.

 

"I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money)."

     I would suggest that it is a contradiction to your reply of latest.  A reply which, IMHO, accurately describes the situation and I am in complete agreement with.

     I will add that there are now TWO accounts, OR two types of money in one account.  The original deposit of currency and now the LOAN account.  The first is, as we agree, reserves.

 The second, as we seem to agree, is a created bank credit money account.  We seem to agree on everything.  EXCEPT for your first statement that is the basis for this discussion:

 

RM = reserve money = M0 (cash) + MB commerical bank credits at FED

 

currency (RM)

currency (RM) > (1) bank deposit(RM) ................................................................................................................. tranfer of RM (res title included)

                            (1) bank deposit (RM) + (2) bank deposit (loan deposit - created bank credit money)  ..... creation of bank credit money

 

Results: two kinds of money deposits:  (1) deposit account of finite reserves (2) deposit of created bank credit money.

Therefore, a deposit can consist of 2 kinds of money, not one as you stated.

And the "savings account" word has not even been used yet.

------------------------------------------------------

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Wednesday, July 11, 2012 7:53 PM

Subject: Re: Where does lost money go?

          As before, infomative (thank you) but irrelevent to the issue.  Your choice to ignore the law puts a tremendous burden on you.

I think if you persist in spite of this burden, you will probably lose.  But it coulld be worth the effort as devil's advocates positon's either reveal

a falacy, or add veracity to the rule, but illuminate in the process in either case.   And it's tradition of questioning everything is to be lauded.  In fact, that is usuaully my position here.  Questioning the rule.

 

James

[Jean Erick]

       Aren't fractional reserve loan accounts transactional deposits?  Aren't those the major changers in M1?

 

James

[Joe Leote]

John,

This plot shows quarterly data from Monetary Authority levels in table L.108.(Line Number).

CC = L.108.37
MPA = L.108.12

where the currency drain is so-named because in the long run it increases persistently (I think there are seasonal reversals in the short run).



I refer to Treasury securities as Monetary Policy Assets MPA when held on the Fed balance sheet. When Fed sets MPA = CC it isolates the Bank balance sheet from the impact of currency deposits and withdrawals, which means, neither reserves R nor transaction accounts TA convert to currency in circulation. Fed essentially lets banks provide credit and lets non-banks choose to hold more or less Fed liabilities in the form of currency independent of the level of reserves and transaction accounts in the aggregate bank balance sheet.

William has said that Fed is letting society decide whether to hold Treasury liabilities (Treasuries) or Fed liabilities (Federal Reserve Notes) when Fed services the currency drain. That is the correct summation.

My data analysis shows some interesting observations about the role of Fed and Banks in the post-crisis period but am authoring materials to interpret the data at this time.

Regarding the comment that such understandings are necessary, I agree, regarding the reasons for possessing such understanding, it always helps to know details for analysis of various states of the financial system.

Joe

[John Hermann]

On 16/07/2012 12:01 AM, Jean Erick wrote:

As before, infomative (thank you) but irrelevent to the issue.  Your choice to ignore the law puts a tremendous burden on you.  I think if you persist in spite of this burden, you will probably lose.  But it coulld be worth the effort as devil's advocates positon's either reveal

a falacy, or add veracity to the rule, but illuminate in the process in either case.   And it's tradition of questioning everything is to be lauded.  In fact, that is usuaully my position here.  Questioning the rule.       James

If something does not work, by reason of logical impossibility or because some law of nature prevents it from doing so, then no human law will make it work.

John 

[John Hermann]

On 13/07/2012 11:47 PM, Jean Erick wrote:

On the contrary, I would say that all retail deposits - by their nature - are composed of bank credit money and form part of the money supply, while the non-retail deposits (deposits by the financial system within the financial system) lie outside the money supply.

Deposits created when a customer brings currency (cash) into a bank are necessarily bank credit money as well. The simple reason being that when the coins and notes are handed over they cease to be part of the money supply and become part of the bank's stock of reserves. The bank is then legally obliged to create a creditary deposit to that amount in the customer's account -- thus ensuring that the money supply remains unchanged.

              I suspect that you are being confused by the concept of "retail".  "Retail" is used to reference money market funds

              in the definition of M2.  It is not even mentioned in M1 where "demand" and "checkable" deposits are noted.

There is no confusion James.  From Wikipedia, under the title Retail Banking:

Retail banking is banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards.

John

[Jean Erick]

         You don't have anything to say.  You conceded the point by not replying to it.  You replied to an offhand comment.

 

James

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, July 17, 2012 2:52 AM

Subject: Re: Where does lost money go?

[John Hermann]

I'm sorry James, but I have no idea which point you are referring to  (amongst the many points you touched on in your past few emails). 
I have only responded to you where I felt that I could add some information or insight.         John.

On 19/07/2012 1:04 AM, Jean Erick wrote:

         You don't have anything to say.  You conceded the point by not replying to it.  You replied to an offhand comment.

On 13/07/2012 11:47 PM, Jean Erick wrote:

[Jean Erick]

     The following is the pertinent point as it stood, and the one I thought you should reply to, finding yourself corrected or with further explantions as to why it

wasn't a contradiction.

--------------------------------------------------

No James, I did not say that.  Currency deposited in a bank is transformed into reserves.  The bank credit money is created (out of nothing) by the bank in response to that operation, and appears in the depositor's account.

     The sentence immediately following this sentence is your statement that started this discussion.

 

"I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money)."

     I would suggest that it is a contradiction to your reply of latest.  A reply which, IMHO, accurately describes the situation and I am in complete agreement with.

     I will add that there are now TWO accounts, OR two types of money in one account.  The original deposit of currency and now the LOAN account.  The first is, as we agree, reserves.

 The second, as we seem to agree, is a created bank credit money account.  We seem to agree on everything.  EXCEPT for your first statement that is the basis for this discussion:

 

RM = reserve money = M0 (cash) + MB commerical bank credits at FED

 

currency (M0)

currency (M0) > (1) bank deposit(RM) ................................................................................................. transfer of RM (res title included, intermediary loan to bank?)

                        (1) bank deposit(RM) + (2) bank deposit (loan deposit - created bank credit money)  ...... creation of bank credit money

 

Results: two kinds of money deposits:  (1) deposit account of finite reserves (2) deposit of created bank credit money.

Therefore, a deposit can consist of 2 kinds of money, not one as you stated.

And the "savings account" word has not even been used yet.

------------------------------------------------------

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Wednesday, July 18, 2012 6:42 PM

Subject: Re: Where does lost money go?

[John Hermann]

Further responses in red.   John.

On 21/07/2012 2:31 AM, Jean Erick wrote:

     The following is the pertinent point as it stood, and the one I thought you should reply to, finding yourself corrected or with further explantions as to why it

wasn't a contradiction.

--------------------------------------------------

No James, I did not say that.  Currency deposited in a bank is transformed into reserves.  The bank credit money is created (out of nothing) by the bank in response to that operation, and appears in the depositor's account.

     The sentence immediately following this sentence is your statement that started this discussion.

 

"I have to disagree James.   In the current system, a deposit consists of only one kind of money (bank credit money)."

     I would suggest that it is a contradiction to your reply of latest.  A reply which, IMHO, accurately describes the situation and I am in complete agreement with.

I cannot see a contradiction here James.   Bank reserves -- which are supposed to provide backing for the bank deposits -- are not the same type of entity as the deposits.  There are several reasons for regarding them as two different forms of money.   One is that reserves are bank assets, but the deposits of a bank's retail customers are liabilities.   Moreover the reserves are owned by the bank (depository), but the deposits are owned by the depositors.

 I will add that there are now TWO accounts, OR two types of money in one account.

No, there are not two forms of money in one account. 

The original deposit of currency and now the LOAN account.

You seem to be saying (or implying) that deposits are loans.   However I would maintain that a deposit is a fundamentally different type of liability to a bank borrowing.   I have elaborated on the reasons previously.

Incidentally, to be quite technical, currency is not deposited.   Currency (coins and notes) is accepted by a bank and becomes an asset of the bank, in exchange for the creation of a new deposit -- consisting of bank credit money.

[Jean Erick]

         Writting on gas station men's room wall.

 " I want to ----- some grils."

 

"You stupid idiot, you can't even spell girls."

 

"But ....... what about us grils?'

 

 

     What about us loan accounts?  We need love to.

I see that your are not mentioning them and they are critical to the discussion.

  They are deposits created when a loan is made, which the borrower may draw on, and are the banks asset.

You are talking about personal deposits, which are a banks liability.

Both of these bank liability and asset accounts are called deposit accounts.

 

    If write a check to you, the FED will transfer reserves from my bank to yours and your bank will alter your account accordingly.

Your banks reserves and your account have been changed by the same amount.  Your deposit is part of their reserves.  It is their

money.  They owe you an equal amount.

 

    And, in the US, at least, the bank owns the money deposited into the personal account.

 

James

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Friday, July 20, 2012 8:38 PM

Subject: Re: Where does lost money go?

[John Hermann]

On 23/07/2012 1:37 AM, Jean Erick wrote:

Writting on gas station men's room wall.

 " I want to ----- some grils."

 

"You stupid idiot, you can't even spell girls."

 

"But ....... what about us grils?'

 

What about us loan accounts?  We need love to.  I see that your are not mentioning them and they are critical to the discussion.   They are deposits created when a loan is made, which the borrower may draw on, and are the banks asset.

I am unsure what you mean by a loan account.   Perhaps this is an American custom?  (I live in Australia)    Normally when a bank loan is made, a deposit to that amount is created in a demand account of the borrower with that bank (either an existing account or a newly-created account).   Please explain why you believe such deposits are bank assets. 

You are talking about personal deposits, which are a banks liability.  Both of these bank liability and asset accounts are called deposit accounts.

 

If write a check to you, the FED will transfer reserves from my bank to yours and your bank will alter your account accordingly.  Your banks reserves and your account have been changed by the same amount.  Your deposit is part of their reserves.

I disagree.  A deposit is bank credit money, however reserves are fiat money -- and base money.

It is their money.

The reserves are owned by the depository, the deposit is owned by the depositor.

They owe you an equal amount.   

And, in the US, at least, the bank owns the money deposited into the personal account.

Disagree.  A liability is owned by the entity to whom the amount is liable.

John

[Jean Erick]

     going green.

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Sunday, July 22, 2012 6:16 PM

Subject: Re: Where does lost money go?

On 23/07/2012 1:37 AM, Jean Erick wrote:

Writting on gas station men's room wall.

 " I want to ----- some grils."

 

"You stupid idiot, you can't even spell girls."

 

"But ....... what about us grils?'

What about us loan accounts?  We need love to.  I see that your are not mentioning them and they are critical to the discussion.   They are deposits created when a loan is made, which the borrower may draw on, and are the banks asset.

I am unsure what you mean by a loan account.   Perhaps this is an American custom?  (I live in Australia)    Normally when a bank loan is made, a deposit to that amount is created in a demand account of the borrower with that bank (either an existing account or a newly-created account).   Please explain why you believe such deposits are bank assets.

  

     I agree exactly with your description of a loan account.  I believe they are assets because (1) banks loans and ordinary loans are listed on the asset side of a banks statement, as shown in Hummel's essay on banking and (2) because one definition of an asset is something that is used to make money and a loan asset makes money by the interest it generates.  I also noticed that "ordinary" and "term" deposits are listed in the liabilities section. 

 

     I recognize two types of demand deposits:

(1) is created by the client depositing money in the bank, is the clients asset, the banks liabilty, and the client might collect interest from the bank.  Also called a "personal checking".

(2) is the account created for the client by the bank loan (bank credit money), is the banks asset account and the bank collects interest on it.

 

The banks (1) liability accounts are the basis for the creation of the (2) bank credit money of loans.

    

You are talking about personal deposits, which are a banks liability.  Both of these bank liability and asset accounts are called deposit accounts.

 

If write a check to you, the FED will transfer reserves from my bank to yours and your bank will alter your account accordingly.  Your banks reserves and your account have been changed by the same amount.  Your deposit is part of their reserves.

I disagree.

  A deposit is bank credit money, however reserves are fiat money -- and base money

    

     Above.

It is their money.

The reserves are owned by the depository, the deposit is owned by the depositor.

       Maybe in Austrilia.  In the US, res title passes to the bank with the deposit.  It is not a bailment, agent, nor trustee relationship.

They owe you an equal amount.   

And, in the US, at least, the bank owns the money deposited into the personal account.

Disagree.  A liability is owned by the entity to whom the amount is liable.

     Fuzzy.  

 

     Being from down under, a lot of people think that you are upside down and the blood goes to the top of your head and confuses you.

But I know better than that.  I'm not THAT dumb.  I recognize that the Anartic is at the bottom and you are off to the side a bit.

So how your brain operates is relative to which way your are walking.  If you're walking west, blood flows to the left side of

the top of your brain and stimulates left side activty and right brain thinking  if you're walking East.  North, the back side and visa versa.

     IMHO, your countryman Keen has really knocked it out of the park with his "magic" number, private debt/GDP.

James
John

[John Hermann]

On 25/07/2012 12:51 AM, Jean Erick wrote:

     going green.

I am unsure what you mean by a loan account. ... Normally when a bank loan is made, a deposit to that amount is created in a demand account of the borrower with that bank (either an existing account or a newly-created account).   Please explain why you believe such deposits are bank assets.

I agree exactly with your description of a loan account.  I believe they are assets because (1) banks loans and ordinary loans are listed on the asset side of a banks statement, as shown in Hummel's essay on banking and (2) because one definition of an asset is something that is used to make money and a loan asset makes money by the interest it generates.  I also noticed that "ordinary" and "term" deposits are listed in the liabilities section.

An asset does not need to make a financial return.  Thus a demand deposit -- which returns no interest -- is an asset to the depositor and a liability to the depository.

I recognize two types of demand deposits:

(1) is the account created for the client by the bank loan (bank credit money), is the banks asset account and the bank collects interest on it.

I disagree.  The account created for the borrower contains financial assets of the borrower, and they are not assets of the bank.  Any bank credit money contained in this account is a liability of the bank.  How the bank collects interest from one of its borrowers is a matter of negotiation between the borrower and the bank.  The interest may be paid from any account whatsoever, residing within any depository whatsoever, or even in the form of cash (currency) payments.

The banks (1) liability accounts are the basis for the creation of the (2) bank credit money of loans.

I disagree.  Bank liabilities are no longer the basis for the creation of bank credit money.  The money multiplier explanation of fractional reserve deposit expansion is an outdated and now wholly wrong explanation of money creation by commercial banks.  Banks make their loans first, based on the demand for credit funding by the private sector together with prudential considerations concerning the risk of default by each potential borrower.  They then look for the reserves they might happen to need -- to satisfy any regulatory and/or operational requirements for reserves and liquidity -- from within the financial system.  In an adequate endogenously operated banking system, there is never a shortage of the fiat money required for this purpose.

(2) is created by the client depositing money in the bank, is the clients asset, the banks liabilty, and the client might collect interest from the bank.  Also called a "personal checking".  

Regards,
John

 

[Jean Erick]

    You are evading the issue. 

      There is a difference between a loan account in which the bank supplies the funds into a demand deposit account,

and a personal checking account where an entity outside the bank (usually a person or some entity other than the bank)

supplies funds to the demand deposit account.

     That's the issue.  They are two entirely different types of demand deposit accounts.

    Now, do you agree with that, or do you have some qualification to the issue?

 

James

 

 

 

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Tuesday, July 24, 2012 6:55 PM

Subject: Re: Where does lost money go?

On 25/07/2012 12:51 AM, Jean Erick wrote:

     going green.

I am unsure what you mean by a loan account. ... Normally when a bank loan is made, a deposit to that amount is created in a demand account of the borrower with that bank (either an existing account or a newly-created account).   Please explain why you believe such deposits are bank assets.

I agree exactly with your description of a loan account.  I believe they are assets because (1) banks loans and ordinary loans are listed on the asset side of a banks statement, as shown in Hummel's essay on banking and (2) because one definition of an asset is something that is used to make money and a loan asset makes money by the interest it generates.  I also noticed that "ordinary" and "term" deposits are listed in the liabilities section.

An asset does not need to make a financial return.

 

     Irrelevent because I phrased to inlcude that possibility.

 

  Thus a demand deposit -- which returns no interest -- is an asset to the depositor and a liability to the depository.

      As you already want to quibble about what an asset is, aruguable.

I recognize two types of demand deposits:

(1) is the account created for the client by the bank loan (bank credit money), is the banks asset account and the bank collects interest on it.

I disagree.  The account created for the borrower contains financial assets of the borrower,

     Yes John.  Absolutely.  Except it totally ignores the pivotal point of WHO put the funds in there.

 

and they are not assets of the bank. 

     Bank financial statements list them as asssets.

 

 Any bank credit money contained in this account is a liability of the bank.

     Bank financial statements list them as assets.  You're confusing a loan account with a personal checking account.

 

 

 

  How the bank collects interest from one of its borrowers is a matter of negotiation between the borrower and the bank. 

      Entirely irrelevent to the issue.

 

 The interest may be paid from any account whatsoever, residing within any depository whatsoever, or even in the form of cash (currency) payments.

             Even more irrelevent to the issue.  But generally untrue.  Everybody will get about the same rate.

The banks (1) liability accounts are the basis for the creation of the (2) bank credit money of loans.

I disagree.  Bank liabilities are no longer the basis for the creation of bank credit money.  The money multiplier explanation of fractional reserve deposit expansion is an outdated and now wholly wrong explanation of money creation by commercial banks.  Banks make their loans first, based on the demand for credit funding by the private sector together with prudential considerations concerning the risk of default by each potential borrower.  They then look for the reserves they might happen to need -- to satisfy any regulatory and/or operational requirements for reserves and liquidity -- from within the financial system.  In an adequate endogenously operated banking system, there is never a shortage of the fiat money required for this purpose.

     While banks can get around the limitation by borrowing reserves, the whole reason they are doing it is to satisfy the

reserve/demand deposit ratio.  Yes, banks can get around the demand deposit liability basis of fractional banking by borrowing reserves.

That proves liability accounts are the basis.  Of course, the whole reason we might have had this catastrophe in the first place is because depositors stated doing other then deposit and the banks had to go creating other ways to gain sources of money, to lend.

BTW, I'm sorry you don't seem to be learning anything here.  And I'm very happy about that.

They are on other points relating to the issue, but that we haven't discussed. 

[John Hermann]

Hi James.  Responses in purple.    John

On 27/07/2012 2:14 AM, Jean Erick wrote:

You are evading the issue. 

There has been no attempt at evasion.

There is a difference between a loan account in which the bank supplies the funds into a demand deposit account, and a personal checking account where an entity outside the bank (usually a person or some entity other than the bank) supplies funds to the demand deposit account.

No there is not.  A demand deposit account is a demand deposit account.  The distinction that you claim does not exist.

That's the issue. 

It's a false issue.

They are two entirely different types of demand deposit accounts. Now, do you agree with that, or do you have some qualification to the issue?

I disagree with you.

 From: John Hermann

On 25/07/2012 12:51 AM, Jean Erick wrote:

     going green.

I am unsure what you mean by a loan account. ... Normally when a bank loan is made, a deposit to that amount is created in a demand account of the borrower with that bank (either an existing account or a newly-created account).   Please explain why you believe such deposits are bank assets.

I agree exactly with your description of a loan account.  I believe they are assets because (1) banks loans and ordinary loans are listed on the asset side of a banks statement, as shown in Hummel's essay on banking and (2) because one definition of an asset is something that is used to make money and a loan asset makes money by the interest it generates.  I also noticed that "ordinary" and "term" deposits are listed in the liabilities section.

An asset does not need to make a financial return.

 

     Irrelevent because I phrased to inlcude that possibility.

 

  Thus a demand deposit -- which returns no interest -- is an asset to the depositor and a liability to the depository.

      As you already want to quibble about what an asset is, aruguable.

I recognize two types of demand deposits:

(1) is the account created for the client by the bank loan (bank credit money), is the banks asset account and the bank collects interest on it.

I disagree.  The account created for the borrower contains financial assets of the borrower,

     Yes John.  Absolutely.  Except it totally ignores the pivotal point of WHO put the funds in there.

 

and they are not assets of the bank.

     Bank financial statements list them as asssets.

Show me an example of such a bank statement, which lists a demand deposit of one of its customers as a bank asset.

  Any bank credit money contained in this account is a liability of the bank.

     Bank financial statements list them as assets.  You're confusing a loan account with a personal checking account.

 

  How the bank collects interest from one of its borrowers is a matter of negotiation between the borrower and the bank.

      Entirely irrelevent to the issue.

 

 The interest may be paid from any account whatsoever, residing within any depository whatsoever, or even in the form of cash (currency) payments.

             Even more irrelevent to the issue.  But generally untrue.  Everybody will get about the same rate.

The banks (1) liability accounts are the basis for the creation of the (2) bank credit money of loans.

I disagree.  Bank liabilities are no longer the basis for the creation of bank credit money.  The money multiplier explanation of fractional reserve deposit expansion is an outdated and now wholly wrong explanation of money creation by commercial banks.  Banks make their loans first, based on the demand for credit funding by the private sector together with prudential considerations concerning the risk of default by each potential borrower.  They then look for the reserves they might happen to need -- to satisfy any regulatory and/or operational requirements for reserves and liquidity -- from within the financial system.  In an adequate endogenously operated banking system, there is never a shortage of the fiat money required for this purpose.

While banks can get around the limitation by borrowing reserves, the whole reason they are doing it is to satisfy the reserve/demand deposit ratio. 

No, that is not the whole reason.  There are many countries which possess no statutory reserve requirement (Canada, Australia, New Zealand, Sweden, United Kingdom, Mexico). 

[Jean Erick]

        I don't understand.  Personal checking accounts are demand deposit accounts and they are created from funds input TO the bank.

Loan checking accounts are demand deposits that are created by funds input BY the bank.

     What is it about those statements that you see as incorrect?

 

James

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Thursday, July 26, 2012 6:11 PM

Subject: Re: Where does lost money go?

[John Hermann]

On 29/07/2012 1:50 AM, Jean Erick wrote:

        I don't understand.  Personal checking accounts are demand deposit accounts and they are created from funds input TO the bank.

No.  They are created from funds input to the depositor. They are an asset of the depositor, not the bank.

Loan checking accounts are demand deposits that are created by funds input BY the bank.

Yes, BY the bank and TO the person receiving the funds. They don't necessarily have to be deposited in a account with the bank advancing the loan --- that is merely a convenience for all concerned. Moreover the person receiving the funds could easily decide to redeposit it in an account with another bank.  Or alternatively (although very unlikely) might insist in receiving the loan amount as currency (i.e., bank notes)) and then at some stage deposit it.  The point I am making is that the person receiving these funds can be legitimately described as a depositor, because (in the case envisaged) the money has been deposited on his/her behalf in an account owned by him/her.  This money is unquestionably an asset of the bank's customer and is at the same time a liability of the bank.

Regards,
John

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Sunday, July 29, 2012 12:26 AM

Subject: Re: Where does lost money go?

On 29/07/2012 1:50 AM, Jean Erick wrote:

        I don't understand.  Personal checking accounts are demand deposit accounts and they are created from funds input TO the bank.

No.  They are created from funds input to the depositor. They are an asset of the depositor, not the bank.

     Yes.   What you state is irrelevent.  The issue is that the funds source is outside the bank.  As opposed to inside the bank in the

case of a loan.

 

Loan checking accounts are demand deposits that are created by funds input BY the bank.

Yes, BY the bank and TO the person receiving the funds. They don't necessarily have to be deposited in a account with the bank advancing the loan --- that is merely a convenience for all concerned. Moreover the person receiving the funds could easily decide to redeposit it in an account with another bank.  Or alternatively (although very unlikely) might insist in receiving the loan amount as currency (i.e., bank notes)) and then at some stage deposit it.  The point I am making is that the person receiving these funds can be legitimately described as a depositor, because (in the case envisaged) the money has been deposited on his/her behalf in an account owned by him/her.  This money is unquestionably an asset of the bank's customer and is at the same time a liability of the bank.

      All exactly true except when you replace the proper defintion of depositor with you other definition which is .... therefore out

of context.  There are two types of demand deposits.  One is a loan in which the funds are generated by the bank.  The other is

a personal checking wherein the funds are generated by an entity outside the bank.  One is endogenous to the bank, the other exogenous.  And of coure, an account can be a combination of both.

 

James

[John Hermann]

On 31/07/2012 3:36 AM, Jean Erick wrote: 

Loan checking accounts are demand deposits that are created by funds input BY the bank.

Yes, BY the bank and TO the person receiving the funds. They don't necessarily have to be deposited in a account with the bank advancing the loan --- that is merely a convenience for all concerned. Moreover the person receiving the funds could easily decide to redeposit it in an account with another bank.  Or alternatively (although very unlikely) might insist in receiving the loan amount as currency (i.e., bank notes)) and then at some stage deposit it.  The point I am making is that the person receiving these funds can be legitimately described as a depositor, because (in the case envisaged) the money has been deposited on his/her behalf in an account owned by him/her.  This money is unquestionably an asset of the bank's customer and is at the same time a liability of the bank.    John

All exactly true except when you replace the proper defintion of depositor with your other definition which is therefore out of context.  There are two types of demand deposits.  One is a loan in which the funds are generated by the bank.  The other is a personal checking deposit wherein the funds are generated by an entity outside the bank.  One is endogenous to the bank, the other exogenous.  And of coure, an account can be a combination of both.   James

Where in a demand account is a distinction made between (a) credit money which was created from a bank loan, and (b) credit money which was created by the bank in the customer's account when currency (cash) was handed in to the bank?  The answer is that such a distinction is not made.  The sources of bank credit money creation are irrelevant.  The credit money originating from one source has the same status as credit money originating from any other source and they are treated as the same entity.

John

[Jean Erick]

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Monday, July 30, 2012 7:00 PM

Subject: Re: Where does lost money go?

     LOL.  Yes, John.  That's my whole point.   No distiction is made.  They are absolutely distinct, but that reality is ignored.

I go ahead and make the distinction.  I also have emphasized the distinction between money and debt.  And voila, Keen's

primary indicator is private debt.  (over GDP).  And Hudson's explanation of the neofuedalism of private debt.  I wasn't just beating around the bush.  I was in the bush but hadn't found the rabbit yet.  Keen brought it to me.  Hudson cooked it.

 

James

[Tom Paine II]

I agree with James, although with greater conceptual flexibility, perhaps.

 

Yes, both forms of account have a bank-created-fictional form of “money” in them. 

But they are defined to have different rights. 

They are different forms of property, to translate this statement into legal form.

[Jean Erick]

     Tom, I get away from that easily by simply accepting that money does not really exist.  It is an intangible concept.  What we call money, whether it be currency

and coins, records of tallies in banks, etc, are simply tangible "expressions" of the essential intangibility.  In practice, those tangibles expressions are money.

But they are derived from the intangible.  it's actually kind of a beautiful celebration of humans ability to intellect.

 

James

[Tom Paine II]

Try telling that to a judge!  (A regulator, yes, she would buy it.)

[Jean Erick]

      The new Law of Accounts recognizes the intangibility of accounts.  It IS the law.

[Tom Paine II]

Sure.  But I still say, try telling that to a judge!

[Jean Erick]

     Jahdge!?  Jahdge!?  Iiiieeeeeeeee don gots to show you no steeeeenkeen Jahdge.  ;-)