Regarding mainstream preference to make money / credit irrelevant, with fractional reserve banking.
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“ If there’s too much money—and therefore inflation—it’s the government’s fault; if there’s too little money—and therefore deflation—it’s the government’s fault. The private banking sector gets off scot-free.
Well, the Fed could use reserve requirements to fiddle bank’s balance sheets, instead of messing with interest rates (?)
“ d/dt Deposits = The equation describing this process is simply the translation of the Bank’s English into the formal language of mathematics. … This equation then is the mathematical form of the Bank of England’s declaration that “bank lending creates deposits”: d/dt Deposits = Lending
I still nit here over terminology. The bank ledger records a loan. Lending is an process, more like, a function, which creates both loan and deposit.
@GhostOnTheHalfShell
It's a little tricky when you include bankruptcy. Suppose your LLC borrows a million dollars buys $900k worth of stuff for delivery from China which you plan to sell for $1.5M for a tidy profit, but the container falls off the ship during rough weather. Your company files for bankruptcy and the bankruptcy court orders you to pay the remaining $100k and walk away. The loan paper is written down to $0 and the assets of the bank @economics-that-works
@GhostOnTheHalfShell
Decline by $900k. The money you created by borrowing and then spent into the economy are still out there but the bank has to lose money to compensate. So the loan paper and the money get decoupled a bit. Similarly if someone dies in debt. @economics-that-works
That also depends which elevation it’s looked at I think. It’d didn’t lose money, it lost what I would call wealth. I reserve money to mean legal tender and begrudgingly “liquid” entries, those entires that can be used to discharge debt (like legal tender).
But yes, prolly in the giant ledger in the sky that makes sense. The question is, is that how it actually works out?
If the loan was insured, or peddled off as part of a security how does all that percolate?
In the end of a successful loan payback, the bank has a profit, “more”. Because the loan, and deposit are accounted in entries but not the interest service, sale of the asset means the bank has walked off with a gain and the effect shows elsewhere.
You know, maybe that’s more subtle? Because the bank doesn’t “pay” anything for the write off. The asset simply disappears. If the credit (the liquid thing) is still percolating around in its ledgers as the One Bank. The total asset (principal and interest) and the borrower liability are stricken, but the deposit doesn’t seem to.
@GhostOnTheHalfShell
I think what happens is the equity of the bank declines. This means it can't lend as much, and it can't pay out as much dividends into its investors deposit account. But the deposits created by you spending $900k don't disappear. Since banks collect interest, there needs to be new deficit spend always to keep the money supply growing. Bankruptcy would seem to reduce the required deficit spend since the interest disappeared. @economics-that-works
The payout seems the victim here, but banks can lend to businesses freely. It’s just balance sheet management. They can’t be in the red at the end of a business day and even so, there’s always the discount window.
So yeh, that seems solid. Banks come away with interest (less expenses) from the transaction, always.
One aspect of the current state of affairs in a modern economy are the number of corporations that are financial institutions now. GE, GM, Ivy league, the airlines, etc.
And loyalty points offered by banks and these entities are mini monetary systems.