Fixed-rate Loans

In message , Tim writes

See my other reply. Only the credit balances are counted. Double entry accounting means that even when new notes are printed the net situation is always the same.

In message , Tim writes

That is the measure of money.

However, you seem to forget that all accounts must balance and when notes are issued there is a double entry at that point as well. So the entire net position of everything is,. of course, nil.

In message , Ronald Raygun writes

No, it enables the continued circulation. The speed and length of circulation is determined by the interest rate.

In message , Tim writes

No, but the vendor now has a £1m. Unless he borrowed it of course. and in any event he hasnt got the house anymore.

In message , Tim writes

Undrawn credit facilities are a sort of 'potential' money but only get measured when drawn and converted into cash or a credit balance elsewhere.

I'm back on this one. I wish I could say that I had a "eureka" moment, but it was more lick a "kick myself" moment. I was looking at the overdraft side of things rather than the savings side of things -- that is, I was looking at the wrong thing. That, in spite of my having set down and discussed the definition of the money supply, and carefully stipulated that overdrafts were not part of it. Clearly I have not been listening to myself.

Back to basics. The savings balance is part of the money supply; the overdraft is not. So yes, in your different scenarios the money supply component differs as you describe.

First, we are not dealing with a definition of money; we are dealing with a way of counting the amount of money in an economy. I refer you to your own area of expertise: measurements that describe large groups are meaningless when applied to individual cases; if the average age of death is 79, that does not guarantee that a particular individual aged 47 will be alive this time next year (or even that the average age of death of people aged 47 will be 79). Similarly, an individual's economic situation is just that: his situation. The economy is an aggregation of individuals, bodies corporate, some non-corporate bodies, and government. To apply a method of measuring the economy to a single small economic unit can produce the sort of absurdity you instance.

So that definition of money supply is if no great use to the individual, which is probably why relatively few people know it. It is useful to those who make decisions about the management of an economy, and interesting to those who wish to analyse or understand economic performance.

The velocity of circulation tends to vary very little, so little that for general purposes it can be regarded as a constant.

In message , Tim writes

I am.

The various measures of money supply include credit balances 'plus the notes & coin held in their tills'.

In message , Tim writes

None whatsoever. Which is why the measure every account, not just yours.

The monthly bank returns (which used to be the figures as at the close of business of the third wednesday every month) also tell the BoE lots more information including, surprise surprise, the total amount of sanctioned borrowing limits and the amount actually lent. This is sub analysed into repayment periods, debit trade classification, loans/overdraft, personal/corporate etc., etc., and also includes analysis of clients who have substantial 'offset' arrangements whereby they are maintaining credit & debit balances etc., So you will see that there is really a lot more data collected and used than the mere measure of money supply be it M0,1,2....

In message , Padraig Breathnach writes

When submitting their monthly returns to the BoE banks must also submit details of overdraft limits and associated debit balances so the BoE know how much potential money is accumulating within the system.

In message , Tim writes

Very much so. which is why banks give this info to the BoE as well.

In message , Padraig Breathnach writes

No they wouldnt. Because the lent money would be paid back to them by the retailers.

Interest rates would only go up if BoE wanted to restrict credit.

In message , Ronald Raygun writes

But if all money was to be turned into cash at the same moment there wouldnt be enough cash available to do this so therefore all credit balances in banks are not capable of being turned into cash and therefore they are not cash.

I think 'dosh' is the word to which you should be referring.

"John Boyle" wrote

But what's the point in that? What is so "magical" about 'credit balances' that makes you want to count them, when you don't want to count 'undrawn credit facilities'?

'Undrawn credit facilities' and 'credit balances' are really just the same thing - they are both "just sitting there waiting to be spent". They are both just numbers in the banking system. You can spend either the same way.

So - if you don't want to count 'undrawn credit facilities' then why bother counting 'credit balances'?

Similarly - if you want to count 'credit balances' then why not count 'undrawn credit facilities'?

Is there any logic in it?! :-(

It won't all rest there, because much of it would go out again to pay the retailers' suppliers and other costs, and eventually get spread around as wages, payments to primary producers (including imports) and other costs associated with getting goods and services to the distribution points. The financial institutions would need to get a good slice of those funds in, and the way to do that is to offer more interest.

That's not the only way. Interest rates basically react to market conditions. A central bank has great power to influence interest rates, most particularly to push them up (it's not so easy to push them down against market sentiment).

Yes. Kinda like the similarity/difference between clouds and rain. Only rain makes you wet.

"Padraig Breathnach" wrote

If you are trying to suggest that 'undrawn credit facilities' are a pre-cursor to 'credit balances', just as clouds are a pre-cursor to rain, then it doesn't wash ...

If I have an undrawn overdraft, I can spend it by writing a cheque in *exactly* the same way as I can spend a credit balance in the current a/c. The overdraft facility doesn't first have to be converted into a credit balance to be spent -- in the way that clouds need to be converted into rain to make me wet. So -- what distinction between the two are you trying to point out?

Similarly, I can buy stuff with my credit card in *exactly* the same way as I can access a credit balance in my current a/c by using my debit card. The credit facility doesn't first have to be converted into a credit balance to be spent -- in the way that clouds need to be converted into rain to make me wet. So -- what distinction between the two are you trying to point out?

Rain only makes you wet if you touch it. If you touch clouds (especially once they've fallen down and just lie there like beached whales, when people call them "fog") they make you wet too.

I'm not saying that. Credit facilities are actually a precursor to DEBIT balances.

To which the only response is "so what?" It has nothing to do with the money supply, which does not include debit balances.