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Neat little video about the monetary system

Discussions about the economic and financial ramifications of PEAK OIL
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Re: Neat little video about the monetary system

Unread postby greenworm » Thu 08 Mar 2007, 18:52:27

$this->bbcode_second_pass_quote('', 'M')rBill probably can wave the biggest dick, but you may have a point here.



The guy is full of hot air. His main objective the last year and a half is to be the cheerleader of the oil contracts. The guy is a joke.
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Re: Neat little video about the monetary system

Unread postby kabu » Thu 08 Mar 2007, 19:38:38

greenworm, people tend to bring their work to this board, especially when their field is relevant. Why would you take it any further than that?
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Re: Neat little video about the monetary system

Unread postby greenworm » Thu 08 Mar 2007, 20:12:09

Cause I can.
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Re: Neat little video about the monetary system

Unread postby mmasters » Thu 08 Mar 2007, 20:30:38

$this->bbcode_second_pass_quote('kabu', 'B')ut would you both agree that Richard doesn't actually believe that "money" is created until these "loans are actually made by the [commerical] banks"? Meaning that he doesn't consider anything new "money", until it reaches the end users (and end use not being borrowing/loaning)?

Richard knows it's a multi-step process.

For example, the fed creates a dollar which has a trickle down effect through the banking system creating 9 additional dollars. The fed's part is created out of thin-air. The bank's part is also created out of thin air but only the instant a loan is taken out. And it's a series of around 2 dozen loans which when added together create this 9 extra dollars, not just one. In terms of time, the fed's creation of money is instantaneous. Alternatively, the bank's creation of money is in totality a lifecycle of piggybacked loans that can sometimes take a couple of years to play out to completion. It is also completely dependent on people borrowing every step of the way.
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Re: Neat little video about the monetary system

Unread postby MonteQuest » Thu 08 Mar 2007, 21:22:52

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('MonteQuest', '')$this->bbcode_second_pass_quote('MonteQuest', '')$this->bbcode_second_pass_quote('MrBill', ' ') But just read the first 6-paragraphs. He clearly understands that money is created when the Fed lends money to banks.


I did. Says nothing about the Fed lending money to banks. It actually said that money is created when the banks make loans.

$this->bbcode_second_pass_quote('', 'E')ven worse, the Federal Reserve increased Total Fed Credit by another $5.7 billion last week, thus creating more money (when loans are actually made by the banks)....


Notice no response to this one. Hoisted by his own petard!


Get a life MQ! As I have already said. I am not going to explain it again for the slow learners. Believe what you want to believe.


I think we all believe you are wrong in this case, even the "slow learners". You posted a link to back up your position and it backed up mine instead.
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Re: Neat little video about the monetary system

Unread postby MonteQuest » Thu 08 Mar 2007, 21:35:21

$this->bbcode_second_pass_quote('mmasters', '')$this->bbcode_second_pass_quote('kabu', 'B')ut would you both agree that Richard doesn't actually believe that "money" is created until these "loans are actually made by the [commerical] banks"? Meaning that he doesn't consider anything new "money", until it reaches the end users (and end use not being borrowing/loaning)?

Richard knows it's a multi-step process.

For example, the fed creates a dollar which has a trickle down effect through the banking system creating 9 additional dollars. The fed's part is created out of thin-air. The bank's part is also created out of thin air but only the instant a loan is taken out. And it's a series of around 2 dozen loans which when added together create this 9 extra dollars, not just one. In terms of time, the fed's creation of money is instantaneous. Alternatively, the bank's creation of money is in totality a lifecycle of piggybacked loans that can sometimes take a couple of years to play out to completion. It is also completely dependent on people borrowing every step of the way.


Yes, and the banks can do this with reserve deposits or through the Discount Window. The Discount Window functions as a safety valve to relieve liquidity strains in the banking system.

Open market operations superseded the Discount Window, which was the principle method of lending reserve funds when the FED was created in 1913.
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Re: Neat little video about the monetary system

Unread postby mmasters » Fri 09 Mar 2007, 02:25:58

$this->bbcode_second_pass_quote('MonteQuest', 'T')he Discount Window functions as a safety valve to relieve liquidity strains in the banking system.

Funny how if they just raised the reserves to 20% or 25% they probably wouldn't need a safety valve in the first place. Nor would they need these Basel regulations and so on.

But of course the banks have an alterior motive.

It's interesting though, people think the fed is the most powerful part of the picture, ultimately the greatest power lies in the owners of the international banks.

When you think about transactions on the local bank level they average in the thousands, but in an international bank the transactions average in the multi-millions. Is it any guess as to where all the real money creation and benefit is going on.
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Re: Neat little video about the monetary system

Unread postby MrBill » Fri 09 Mar 2007, 04:26:47

$this->bbcode_second_pass_quote('mmasters', 'I') think someone might question how MrBill can be a moderator when he can't even argue a subject matter in the finance realm he professes expertise in and constantly works to cultivate an aura of respectability in.

Add to that spreading false information concerning the banking system and knowingly or unknowingly trying to dissuade people from the truth (even when rock-solid documentation refuting his claims is presented).

Furthermore when he can't even carry on a logical argument and solely resorts to personal attacks against forum members.



If you want to be a Moderator Mmasters then be my guest. It is a lot of aggravation for nothing in return.

As to my understanding of banking. If you do not understand something I have written, let me know. But do not ask me to explain it all again in detail when you're not listening in any case. I have neither the time nor the inclination.

Please compare my posts with the Chicago Fed link Modern Money Mechanics and tell me specifically where my detailed explanations are at odds with what is written. Actually the link goes into far more detail than I did about the T accounts used for assets & liabilities in money creation through fractional banking.

But the point is that money is created when banks on lend 0.90 of their balances

1.0 + 0.9 + 0.81 + 0.729 ...... = 10X

And not Bank One lending 9X based on one primary deposit thereby 'creating money out of thin air'

I have tried everything, but one more example of why there is only one right explanation and all other explanations are wrong by default. There is no gray area here. This is for the others who do want to learn.

Return on Assets (ROA) for US banks.

Citigroup ROA = 1.27%
JPMorgan Chase ROA = 1.13%
Bankof America ROA = 1.53%

That would be consistant with taking in deposits and then making loans based on my definition of fractional banking. Margins are tight, competition is fierce.

Based on your definition of creating money out of thin air by lending out 9X of any primary deposit they would pay on-site deposits what 2%? And then they could turn around and invest directly in risk-free US treasuries that are called cash equivalents because they are highly liquid and can be converted to cash on a T + 0 or T + 1 basis.

What would the ROA then be?
On demand deposit = 2%
10yUST = 4.50%
net 2.50%
then
0.1 x 0% = 0%
0.9 x 2.50% = 2.25%
8 x 4.50% = 36.0%
ROA = 0% + 2.25% + 36.0% = 38.25% p.a.
nice business if you can get it?

You can also look at the calculation as
site deposit = 2%
minimum reserve at CB = 10% x 0%
loan lending = 9 x 4.50% = 40.50%
ROA = 40.50% - 2% = 38.50%
But clearly this is nonsense as well.

Well, Citigroup, Bank of America and JPChase are all primary dealers. Why is their ROA 1.13% to 1.53% instead of 38.25%? Keeping in mind that commercial loans at a spread over USTs would mean an even higher ROA.

Citigroup calculates their capital adequacy ratios (CAD) differently than Bank of America and JPChase.

Citigroup CAD = 11.71%
Bank of America CAD = 11.88%
JPChase CAD = 12.30%

Not zero or some other ridiculously low number associated with creating money out of thin air.

I do not have any number for Citigroup. But for the others.

Bank of America Tier I capital = 8.64%
JPChase Tier I CAD = 8.70%

That is the bank's own capital or reserves along with minimum CAD requirements set aside for bad loans, on demand deposits, investment liquidity and contingencies. Again it is not zero or some other ridiculously low number associated with creating money out of thin air.

Of course, the bank's use leverage.

Bank of America leverage to CAD ratio = 6.36%
JPChase leverage to CAD = 6.20%

Again I have no numbers for Citigroup because they account for it differently, so straight forward comparisons would be misleading.

That allows them to earn a return on equity (ROE) of

Citigroup ROE = 18.66%
Bank of America ROE = 18.07%
JPChase ROE = 12.96%

Not bad at all. The Canadian banks earn higher ROEs though.

But still no where near 38.25% or more if the banks could simply lend out 9X their deposits or invest them directly into safe USTs.

So I took all this information from Bloomberg. I sometimes notice slight discrepancies between data from Bloomberg and Reuters, but it is a matter of public record, so you can download the numbers from the bank's own webpages or go to the official returns that these bank's must file every quarter. Because we know my word cannot be trusted. So please if you do not agree with me then look the numbers up yourself.

Now, I am going away on a business trip from now until March 21st and will not be logged onto peak oil dot com while I am away, so you can say all the nasty things you want about me, and my lack of understanding of capital markets. Go ahead, I am sure you will feel better about yourself?

But if you find something in my posts that are at odds with what is written at the Chicago Fed's pages then please document it and let me know. As you are very sure of your own position, and equally sure I am wrong, this is a perfect chance for you to prove it. Thanks.


UPDATE: I made a mistake in my calculation. And it was a dumb one. Sorry for any confusion. Cheers.
Last edited by MrBill on Fri 09 Mar 2007, 07:24:28, edited 1 time in total.
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Re: Neat little video about the monetary system

Unread postby shakespear1 » Fri 09 Mar 2007, 06:26:13

Mr. Bill you explanations are worthy of a lecturer at London School of Economics. Actual numbers and the math help a lot.

Can you do the same on carry-trade ? :-)
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Re: Neat little video about the monetary system

Unread postby MonteQuest » Fri 09 Mar 2007, 10:36:26

$this->bbcode_second_pass_quote('MrBill', ' ')Please compare my posts with the Chicago Fed link Modern Money Mechanics and tell me specifically where my detailed explanations are at odds with what is written.


I did exactly that. The facts are already in evidence.

You wrote what you wrote.
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Re: Neat little video about the monetary system

Unread postby MonteQuest » Fri 09 Mar 2007, 10:40:13

$this->bbcode_second_pass_quote('MrBill', 'B')ut if you find something in my posts that are at odds with what is written at the Chicago Fed's pages then please document it and let me know.


That has already been done and the posts exist to prove it.
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Re: Neat little video about the monetary system

Unread postby MacG » Fri 09 Mar 2007, 12:31:05

$this->bbcode_second_pass_quote('MrBill', 'B')ut if you find something in my posts that are at odds with what is written at the Chicago Fed's pages then please document it and let me know.


You really took your time reading and digesting that little piece! Hehe! You have changed your message more times than I can keep track of. Your updated description is almost correct. Except that the 10% reserve requirement is a pure schoolbook example and that reserve requirements are set by a huge puff-huff of Basel II "risk management" nowadays.
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Re: Neat little video about the monetary system

Unread postby mmasters » Fri 09 Mar 2007, 17:42:01

$this->bbcode_second_pass_quote('MrBill', 'A')s to my understanding of banking. If you do not understand something I have written, let me know. But do not ask me to explain it all again in detail when you're not listening in any case. I have neither the time nor the inclination.

Please compare my posts with the Chicago Fed link Modern Money Mechanics and tell me specifically where my detailed explanations are at odds with what is written. Actually the link goes into far more detail than I did about the T accounts used for assets & liabilities in money creation through fractional banking.

But the point is that money is created when banks on lend 0.90 of their balances

1.0 + 0.9 + 0.81 + 0.729 ...... = 10X

And not Bank One lending 9X based on one primary deposit thereby 'creating money out of thin air'

I have tried everything, but one more example of why there is only one right explanation and all other explanations are wrong by default. There is no gray area here. This is for the others who do want to learn.

Return on Assets (ROA) for US banks.

Citigroup ROA = 1.27%
JPMorgan Chase ROA = 1.13%
Bankof America ROA = 1.53%

That would be consistant with taking in deposits and then making loans based on my definition of fractional banking. Margins are tight, competition is fierce.

Based on your definition of creating money out of thin air by lending out 9X of any primary deposit they would pay on-site deposits what 2%? And then they could turn around and invest directly in risk-free US treasuries that are called cash equivalents because they are highly liquid and can be converted to cash on a T + 0 or T + 1 basis.

What would the ROA then be?
On demand deposit = 2%
10yUST = 4.50%
net 2.50%
then
0.1 x 0% = 0%
0.9 x 2.50% = 2.25%
8 x 4.50% = 36.0%
ROA = 0% + 2.25% + 36.0% = 38.25% p.a.
nice business if you can get it?

You can also look at the calculation as
site deposit = 2%
minimum reserve at CB = 10% x 0%
loan lending = 9 x 4.50% = 40.50%
ROA = 40.50% - 2% = 38.50%
But clearly this is nonsense as well.

Well, Citigroup, Bank of America and JPChase are all primary dealers. Why is their ROA 1.13% to 1.53% instead of 38.25%? Keeping in mind that commercial loans at a spread over USTs would mean an even higher ROA.

Citigroup calculates their capital adequacy ratios (CAD) differently than Bank of America and JPChase.

Citigroup CAD = 11.71%
Bank of America CAD = 11.88%
JPChase CAD = 12.30%

Not zero or some other ridiculously low number associated with creating money out of thin air.

I do not have any number for Citigroup. But for the others.

Bank of America Tier I capital = 8.64%
JPChase Tier I CAD = 8.70%

That is the bank's own capital or reserves along with minimum CAD requirements set aside for bad loans, on demand deposits, investment liquidity and contingencies. Again it is not zero or some other ridiculously low number associated with creating money out of thin air.

Of course, the bank's use leverage.

Bank of America leverage to CAD ratio = 6.36%
JPChase leverage to CAD = 6.20%

Again I have no numbers for Citigroup because they account for it differently, so straight forward comparisons would be misleading.

That allows them to earn a return on equity (ROE) of

Citigroup ROE = 18.66%
Bank of America ROE = 18.07%
JPChase ROE = 12.96%

Not bad at all. The Canadian banks earn higher ROEs though.

But still no where near 38.25% or more if the banks could simply lend out 9X their deposits or invest them directly into safe USTs.

So I took all this information from Bloomberg. I sometimes notice slight discrepancies between data from Bloomberg and Reuters, but it is a matter of public record, so you can download the numbers from the bank's own webpages or go to the official returns that these bank's must file every quarter. Because we know my word cannot be trusted. So please if you do not agree with me then look the numbers up yourself.

Now, I am going away on a business trip from now until March 21st and will not be logged onto peak oil dot com while I am away, so you can say all the nasty things you want about me, and my lack of understanding of capital markets. Go ahead, I am sure you will feel better about yourself?

But if you find something in my posts that are at odds with what is written at the Chicago Fed's pages then please document it and let me know. As you are very sure of your own position, and equally sure I am wrong, this is a perfect chance for you to prove it. Thanks.


UPDATE: I made a mistake in my calculation. And it was a dumb one. Sorry for any confusion. Cheers.

To further the education there’s extra money in the picture not accounted for here because there is a duel nature to the deposit. MrBill has explained only half of it. The half where all the work is required, there’s no work required on the other half but an account entry and a new "loan". Either MrBill isn’t aware of this other component of bank money or he’s arguing to try and cover it up its existence. I can believe he’s not aware, there’s only a handful of people at any major commercial bank that are aware of it.

When you give the bank a dollar it’s a liability for them. The bank will use it as an investment vehicle elsewhere, paying a better interest rate then they guarantee you, whereas a small profit is made off the difference in interest (the spread). That's MrBill's discussion in a nutshell and correct.

But in addition to this they are also creating money out of thin air, separate from your dollar. This happens upon a loan request. They manage this by reclassifying your dollar liability as an asset. Based off of this so-called-asset 10% is considered reserve and the other 90% excess reserve. Based off this 90% excess reserve they create 90 brand new cents out of thin air. Furthermore, as that money returns to the banking system, the process repeats upon another loan request where 90% of the deposit money is matched by brand new money out of thin air and so on...

The truth is when a loan is taken from the bank is really ISN'T a loan. This is because a loan implies a contract of giving someone money that already exists. When the bank gives a loan it is not doing this, it is manufacturing the money on the spot. The money didn't exist before you took the loan. So in reality it's a money manufacturing service the bank does which is deceptively named a loan. So just as the Federal Reserve Bank is not Federal, there are no reserves and it is not actually a bank - bank loans are not by actual definition loans.

Ingenius how the new money is created as a new liability to match 90% of the old liability reclassified as an asset under the pretense of "excess reserve", and everything balances on paper because it hides it perfectly. It's an accounting trick creating liabilities based off liabilities.

So it’s an illusion that all the money comes directly from the fed...and it fools most the bankers because much of the man-efforts of the bank are put into the type of thing MrBill describes.

--Re-edited to make clearer.
Last edited by mmasters on Sun 11 Mar 2007, 22:20:41, edited 1 time in total.
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Re: Neat little video about the monetary system

Unread postby mmasters » Sun 11 Mar 2007, 20:32:30

*bump*

I vote for this thread to be a sticky :lol:
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Re: Neat little video about the monetary system

Unread postby mmasters » Sun 11 Mar 2007, 21:53:54

$this->bbcode_second_pass_quote('MrBill', 'B')ut the point is that money is created when banks on lend 0.90 of their balances

Somehow I overlooked this one.

$this->bbcode_second_pass_quote('', '1').0 + 0.9 + 0.81 + 0.729 ...... = 10X

No, a bank lending 90% of a deposit is:

(1.0 - 0.9) + (.9 - 0.81) + (.81 - .729) + ... = 1

Only thing being created is a bunch of obligations.

$this->bbcode_second_pass_quote('', 'A')nd not Bank One lending 9X based on one primary deposit thereby 'creating money out of thin air'

Because that's not how it's done.
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Re: Neat little video about the monetary system

Unread postby Concerned » Fri 16 Mar 2007, 17:02:46

$this->bbcode_second_pass_quote('ElijahJones', '
')The future may not exist but some things are predictable. Let me prove it to you. Where are you sitting? You will be in that spot when you finish reading this sentence. Therefore the future of certain spatial relationships can be determined from the present.


There might be a high probability of that event but I wouldn't say it's certain by any measure.

What if a co-worker pushes me as I read your sentence on my laptop?

What if I stand up and move back because a roach or rat moved in the corner as I finish the sentence?

What if I'm reading it on PO Mobile and Im sitting on a moving train? or walking?

There are other more outlandish examples but you get the picture. I think it's very difficult to make absolute predictions on the future. Based on the present.

I would say it's easier to predict that an aircraft flight nuimber XYZ will take off from NY and land in London, but I wouldn't want to say it's a given and certainly would not want to take bets on take off and landing times based on whats printed on the ticket.

Edited to add a most obvious one...

The rotation of the earth on it's axis, which is rotating around the sun, in an expanding universe. So it would end up depending on how you define "same spot" in space time.
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Re: Neat little video about the monetary system

Unread postby MrBill » Wed 21 Mar 2007, 10:21:18

$this->bbcode_second_pass_quote('MacG', '')$this->bbcode_second_pass_quote('MrBill', 'B')ut if you find something in my posts that are at odds with what is written at the Chicago Fed's pages then please document it and let me know.


You really took your time reading and digesting that little piece! Hehe! You have changed your message more times than I can keep track of. Your updated description is almost correct. Except that the 10% reserve requirement is a pure schoolbook example and that reserve requirements are set by a huge puff-huff of Basel II "risk management" nowadays.


I have certainly never changed my message. Not once. What I have been forced to do is to explain something very simple in many different ways. That is from the

common sense (you cannot lend something you do not possess)
financial cash flows (follow the money)
financial ratios (ROE/ROI/ROA/CAD)
accounting (assets = liabilities + equity)

perspective, so that those who want to learn will not be deceived by quotes taken out of context. To that end I took that little primer from the Chicago Fed, read it carefully, and used the arguments against me to my advantage as they support not refute my opinions.

But as for minimum reserve requirements and Basel II let us keep them separate. I have tried hard to keep the explanations simple enough so that everyone can understand.

The examples above from Citigroup, JPChase and Bank of America show in detail that the CAD ratios are kept on the bank's balance sheets.

Minimum reserves only affect retail banks that accept primary deposts. CAD ratios affect all bank and non-bank financial institutions that are regulated by the central bank and/or a national regulator like the SEC or FSA.

As for Basel II, well my advice is not to throw around terms unless you understand them yourself. Basel II has not been implemented yet. It may never be implemented as planned, mainly due to small US-based banks that argue that it favors large, international banks that can offset the higher cost of IT and compliance by saving on their own CAD ratios by offsetting risks using value at risk models (VAR).

This is too bad as the original Basel Accord has some serious flaws that results in misallocation of risk. Basel II also has some flaws and it is unnecessarily complicated. But none the less, many international banks, including some of the largest banks in the USA, have invested hundreds of millions of dollars to get ready for its implementation by upgrading their back-office, accounting and computer systems, so that they can monitor risk in real-time.

Now if there is a backdoor, so that smaller banks do not have to implement Basel II, then it is bad for two reasons. One is straight forward comparisons. If you have one standard you can compare banks directly. Secondly, it creates an arbitrage opportunity. Different regulation or application of rules means banks can cherry pick their regulator or park assets wherever it is most advantageous for them. This is not right. One set of rules. One level playing field.

As a Member of the Securities & Investment Institute since 10+ years now (LINK) I often read draft legislation before it becomes law or is implemented. Such as Basel II (although I cetainly have not read it all, just segments). But basically it follows international credit ratings like Moody's AAA/AA/A/BBB/BB/B/C/SD etc. breakdown of the riskiness of each and every asset on the balance sheet of banks and non-bank financial institutions. This is certainly superior to simple classification based on OECD or non-OECD bonds compared to say corporate loans as only (very) rough estimates of their riskiness, which were very crude measures, but no matter how you classify an asset's potential riskiness you will have auto-correlation with other assets, so that the portfolio may be under-estimating the actual riskiness.

If this sounds technical, it is. That is the point. Once you leave the general ground of the simple, little concept of money supply creation and start talking about CAD ratios and Basel II it gets more and more complicated. Certainly more than the average person needs to know.

We have to fill out these reports for our central regulator everyday and it is a task I gladly delegate. But if you are interested and want to read more then I would suggest you go to The Securities & Investment Institute or take a course on an Introduction to Financial Markets by them or visit CFO.com for more background information. CFO.com in particular breaks down many topics like accounting into bite sized pieces. Thanks.
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Re: Neat little video about the monetary system

Unread postby MrBill » Wed 21 Mar 2007, 10:51:57

mmasters wrote:
$this->bbcode_second_pass_quote('', 'T')o further the education there’s extra money in the picture not accounted for here because there is a duel nature to the deposit. MrBill has explained only half of it. The half where all the work is required, there’s no work required on the other half but an account entry and a new "loan". Either MrBill isn’t aware of this other component of bank money or he’s arguing to try and cover it up its existence. I can believe he’s not aware, there’s only a handful of people at any major commercial bank that are aware of it.


The reason this is such a well kept secret is because it is wrong.

Just like Assets = Liabilities + Equity

on every balance sheet, the Monks also devised a double entry book keeping system based on debits and credits.

Debits = Credits

Now, I am not an Accountant and I never want to be one!

But the Deposit enters the balance sheet as a CREDIT on the LIABILITY side of the balance sheet of the bank and a DEBIT in the bank's CASH account on the ASSET side.

It then sits there as a non-income earning asset until it is lent out.

If it is lent out then there is a CREDIT to the CASH account of the bank offset by a DEBIT to a LOANS receivable account both on the ASSET side of the balance sheet.

So two assets are not created. A non-income earning ASSET on the CASH account is exchanged for an income earning ASSET on the LOANS receivable account.

Gosh, I hate accounting. I am sorry it has come to this!

Now you are right. Not everyone who works in a bank needs to know about Asset & Liability management. Your local cashier needs people skills not risk management skills. But in every bank there is a department that does do asset & liability management.

So again the money creation process is by taking in $100 and then lending $90 to the next customer who spends it or saves it, and because capital only earns a return when it is lent out we extrapolate

0.9 + 0.81 + 0.729 ..... + 0.01 until it reaches its theoretical limits.

But you're wrong when you say that generating an ASSET automatically allows a bank to make a new LOAN. When I do not understand something I always go back to the cash flows. That is why the Income Statement tells me more than the Balance Sheet. The income statement never lies.

There has to be cash in before there can be cash out. Ask any bank that runs out of money (or an IPO for that matter). And of course that is how the central bank (CB) or Fed controls the supply of money. By lowering and raising the Fed rate (the cost of that money) and by adding or taking away liquidity (via repos and reverse repos). As when they withdraw cash by selling treasuries, for example, they take $100 out of circulation, but then the money multiplier effect goes into reverse and they end up reducing money supply by $1000 in the end as each bank in the chain has to reduce their outstanding loans and add to their cash account.

Or of course the CB can just increase the minimum reserve requirement as the PBOC did several weeks ago when the Shanghai stock exchange tanked. A CB tightening to rein in speculative investment by draining liquidity from the banking system.

At least I hope I got the accounting right? I think that was the main point. To show you cannot create a loan from an asset directly.

Deposit = Bank liability (credit)
CASH in = Bank asset (debit)
CASH out = Bank asset (credit)
Loan = Bank asset (debit)

Assets = Liability + Equity
Debits = Credits

And then the Monks went back to making beer & wine. Which was certainly better for me! ; - )
Last edited by MrBill on Wed 21 Mar 2007, 11:02:18, edited 1 time in total.
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Re: Neat little video about the monetary system

Unread postby MacG » Wed 21 Mar 2007, 10:58:28

$this->bbcode_second_pass_quote('MrBill', 'A')s for Basel II, well my advice is not to throw around terms unless you understand them yourself. Basel II has not been implemented yet.

Yea, I was a bit to quick there. My banker friends are sweating and complaining so much over Basel II that I treated it as a fact. Nevertheless, the 10% reserve requirement is a pure schoolbook example today.
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