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In a steady state (constant amount of loans outstanding as new loans replace repayments), there is no money creation even though there is normal bank lending activity.
It's only growth in aggregate lending that cuases devaluation, so the effect of an individual loan is an order of magnitude less than printing money. In the long run, we're all dead. John Maynard Keynes
It's a really important subject and views differ considerably.
With bank lending, the effect is temporary, as the loan is paid back, and money destroyed then.
You have to look at lending like you look at rental activities. When you rent a car, the car and the rental payments are different things. Same here. In the long run, we're all dead. John Maynard Keynes
Nowadays, with regulatory oversight, it requires a capital allocation (8% or less, depending on the risk).
Not that different from a car, which only really requires the leasing payments or whatever scheme the rental company is using to have access to it. In the long run, we're all dead. John Maynard Keynes
Right? Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
When you borrow money, you rent "Capital" (à la ChrisCook) - you may money for that rental, and what you pay is a substantially different animal than what you use to repay the Capital.
Just consider Capital to be a more liquid form of machinery. Or consider the car you rent as a narrower form of Capital (which you use for a while for a speicfic purpose and then give back). In the long run, we're all dead. John Maynard Keynes
"Ownership" of "Productive assets" requires the legal concept of "Property" and the conventional mechanism requires two conflicting legal claims over the same assets.
(a) the claim of the Financier; (b) the claim of the user of the Finance.
These claims are irreconcilable in our current defict Money "paradigm" and it is the conflict between "Debt" and "Equity" forms of "Financial Capital" which is the faultline in our current system.
I believe the "Capital Partnership" transcends thisthrough giving rise to a single continuous "open capital" asset class of proportional "equity shares" in GROSS revenues
When you think about it, both the financier, and the user of finance are sharing the output (or the revenues from the sale of the output) from the productive asset, and the legal protocols of the contract of Debt and the Joint Stock Limited Liability Company each give rise to imperfect sharing of risk and reward.
The problem is that the "Principal" provided by Banks is not based upon pre-existing "wealth" or "money's worth, but upon future "Money's worth" to be created by the asset.
Banks are literally providing nothing (other than a Guarantee) for something.
Renting an asset "owned" by someone is a very different thing to renting a guarantee.
The "value" that Banks provide is their Guarantee - backed by 8% of Capital. And there is no reason at all why that Guarantee should not be provided mutually, with bilateral "trade" credit managed by banks instead.
The "fair" or "natural" rate of "Interest" in respect of unsecured credit is the shared cost of administration and of defaults. Anything more is IMHO de facto inflationary.
A fair "Capital Rental" on the other hand is the proportion of production or revenues from sale of production, bearing in mind the certainty of that level of production being achieved.
If this return is based upon equitable sharing of risk and reward, the result is IMHO an optimal outcome for all stakeholders. "The future is already here -- it's just not very evenly distributed" William Gibson
The money used to repay the principal comes from the loan. Where does the money used to repay the interest? From another loan's principal. Bush is a symptom, not the disease.
Now seriously, money is the ability to mobilize economic resources, including mobilising oneself. Banks, by being given the ability to create money and award credit, get to decide who gets to do what they want, and who doesn't. Bush is a symptom, not the disease.
Capital is "Static", or "potential", Value consisting of "Money's Worth" in: (a) "Property" ("fixed capital"); and (b) obligations = credit ("working capital").
That's what Money SHOULD be and COULD be in a rational moneatry system based upon a "Clearing Union" approach and backed by "Guarantee Societies".
The toxic form of deficit-based Money currently in use is an interest-bearing "Claim over Value" issued - as Migeru puts it - "ex nihilo".
In essence it's the Bank taking my credit (promise to provide future value) and reflecting it back to me with their "guarantee". A Bank's "claim on a claim over Value" is a "double negative" giving a "false positive".
It is an illusion of Value or, in an analogy to anti-matter: "anti-Value".
Note that the whole business of "credit derivatives" is to all intents and purpose Banks outsourcing their "Guarantee".
My proposal of a partnership-based "Guarantee Society" achieves the same result, but without the costs and complexity. "The future is already here -- it's just not very evenly distributed" William Gibson
Jerome: It does not cost nothing [to create the principal of a loan] Nowadays, with regulatory oversight, it requires a capital allocation (8% or less, depending on the risk)." Chris: Note that the whole business of "credit derivatives" is to all intents and purpose Banks outsourcing their "Guarantee".
Chris: Note that the whole business of "credit derivatives" is to all intents and purpose Banks outsourcing their "Guarantee".
Also, what regulatory oversight are we talking about? Basel II? Bush is a symptom, not the disease.
And that upward curve is exactly the same as the Economic Growth measured in deficit-based Money.
That Irresistible Force is now running up against the Immovable Object of sufficient oil to fuel continued Growth.
Whether its Dollar-denominated debt or Euro-denominated debt providing the necessary Money makes no more than a few years' difference.
The only viable monetary system in the long term is an "asset-based" system. "The future is already here -- it's just not very evenly distributed" William Gibson
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