Fixed-rate Loans

"Ronald Raygun" wrote

Ah, but I knew you'd be along to check it! ;-)

"Ronald Raygun" wrote

Oi! - I'm not into the bifocals just yet...

"Ronald Raygun" wrote

Agreed!

What do you mean by positive and negative bank balances? The accepted terminology is credit and debit. Bank debit balances are not counted as negative money.

It is appropriate to ignore things that are not relevant.

There is more to money that cash.

And now I am quitting in my efforts to teach you.

"Padraig Breathnach" wrote

I was trying to make it easier for you!

"Padraig Breathnach" wrote

Why not? You need to give a proper reason!

"Padraig Breathnach" wrote

Of course, but these other balances *are* relevant!

"Padraig Breathnach" wrote

That's a shame, because all you've "taught" me so far is that if you want to say something like "money is created", then all you need to do is ignore some of the relevant balances, ie whatever works in your favour.

Hmmmm. I "created" some gold the other day because I bought a gold ring. I didn't have it before, so it *must* have just been created!

[Of course I'm ignoring the fact that the retailer had it before, and the level of his stock has just reduced. That's because I can safely "ignore negative adjustments" (deductions from his stock), because the rules are made up as we go along....]

You underline how wise I am in deciding to abandon my efforts to teach you.

It is possible to teach people who are not very bright; it is far more difficult to teach people who behave like smartarses.

"Padraig Breathnach" wrote

It looks from here that you just **don't know** why you are ignoring those balances.

If you had a good reason, you'd be able to share it, surely? :-(

I admire your efforts Tim - but you are up against a brick wall. Having spent, in the past, more than thirteen years as an accountant and financial director I find it bizarre how some people misunderstand the concepts of money and credit, but I haven't the patience any more when they are so determined in their belief systems.

Okay, you imply that you have credentials. So put up or shut up: what is the economist's definition of M3?

Tim wrote: [snip]

In accounting terms, certainly.

Arguably, but let's stick to the point. If you can spend it, it's money. After borrowing 1,000, you are in accounting terms no better off but you do have an extra 1,000 to spend. Your friend, however, has 1,000 less to spend, so no new money has been created.

When you borrow from the banking sytem, though, the 1,000 borrowed does not reduce the system's resources because the loan proceeds come back into credit balances which can be lent again. The loan actually increases the resources of the system. The fact that it simultaneously increases liabilities by a similar amount does not serve to refute that.

To suggest otherwise is absurd. It equates to saying that a house financed by a 100% mortgage does not exist at all, because the asset is matched by an equivalent liability.

Not ignoring them, just saying that they do not change the reality of the positive balances.

When your assets and liabilities balanced, did you congratulate yourself, or did you bewail the fact that nothing had been created ?

I'll bet the MD was happier the higher the assets figure was. He thought that it meant that he had created something real, I'd guess.

Of course there is

All cash is money, but not all money is cash.

grips with M3. Secondly I am not an economist. Read my post again. Or is it difficult to distinguish an economist from an accountant ?

He may be happy. We may have 'created' profit. But not money.

I guessed that you were not an economist. You were the one who implied that he had some authority by referring to your work.

I grasp money well enough (as much of it as I get the opportunity to). M3 is one of the definitions of the money supply most often used by economists: cash (notes and coin in circulation) + demand deposits + time deposits. Cash typically amounts to about 10% of the money supply. Where did the rest come from? Credit creation, of course.

Any money that is capable of being turned into cash, effectively *is* cash.

Not really. It only increases the speed of circulation of the existing resources.

Ultimately the loans need to be repaid. What credit does is give you the power to spend your future earnings before you've earned them. It's no more than robbing Peter to pay Paul. By increasing your spending power today you are decreasing your spending power tomorrow, because tomorrows earnings have to pay for today's (and yesterday's) spending (plus interest). Of course tomorrow you could borrow more, but ultimately you're playing a negative-sum game.

Hence my superior knowledge.

Amazing mind numbing nonsense... and doing nothing for your argument, only weakening it. And that's leaving aside the quite silly argument about cash that was never in dispute. And credit ? hah ... there is no element of credit included in any of the M stats. Even your own inaccurate definition shows that.

It is so simple.... how come it goes over some people's heads ??

I see. Your superior knowledge of economics is derived from your not being an economist.

So you blithely discard all of economics. At least you are being consistent.

Never in dispute? Your position seems to be that ONLY cash counts as money. Most of the money supply is not cash.

The definition is classic -- not my invention. As an accountant, I trust you know what a credit is. Demand deposits and time deposits are credits in the books of banks and financial institutions. Where did they come from, and how do they exceed the amount of cash by about

900%?

Your reliance on expressions like "mind numbing" and "quite silly" is a poor substitute for reasoned discussion. If you want to demonstrate that I am wrong, the best way to do so is to show where all that extra money came from.

Any food on a plate is capable of being turned into shit. That does not mean that it is shit.